So, which is the Lucky Country?
On Sunday, I arose to watch Agenda for just about the first time ever, only to discover that its over for the year. Instead, I was subjected to an hour of Radar’s show ‘Hidden In The Numbers’. This episode concertrated on incomes in New Zealand - especially whether our incomes had risen in real terms and how our incomes compare to those in Australia. On the subject of cross-Tasman incomes though he was absymal: ‘well, incomes are higher there, but so is the cost of living, soo, um,.. [shrug]‘.
Unfortunately, this is pretty much the standard of analysis we get in hard news media as well. Every time I hear some jounro say ‘wages are higher in Australia but things also cost more so its hard to say if they’re really richer’ and then compare the price of a loaf of bread or a kilo of steak, I want to scream ‘use Purchasing Power Parity goddam it!’ (my TV gets shouted at a lot).
Purchasing Power Parity (PPP) does, in a scientific way, what the journalists are trying to do in an amateur way. It tells you the value of goods and services that a person in country X could buy on their income in their country if instead those goods and services bought with (usually) US dollars in the US. So, PPP tells me what income I would need in the US to be able to purchase the same good and services I can here on my New Zealand income.
So, I decided today I would construct a comparison of New Zealand and Australian incomes adjusted for PPP. Fortunately, someone else has already done it and put it on Wikipedia (thanks handsome stranger). And here it is. The figures are for 2006 (from the Australian Census and New Zealand Income Survey, PPP indices from the OECD)
That’s right, gross median household income in Purchasing Power Parity terms is higher in New Zealand than Australia. In other words, the before-tax income of the typical family in New Zealand will buy more goods and services than the before-tax income of the typical family in Australia (tax varies with the specific make up of a household but the overall tax burdens in the two countries are similiar overall).
That’s a pretty surprising outcome, I certainly wasn’t expecting it (which will teach me for getting my information from the news). If, as we are told, incomes are 30% higher in Australia than New Zealand how come this table says New Zealanders can afford to buy mroe stuff with their incomes? First, the table compares median incomes, rather than average incomes, which means that the table isn’t distorted by the fact that Australia has a less equal distribution of wealth the way a comparison of average income is. Rather, the table tells you how it is for the ‘typical’ family, with 50% of households earning less and 50% earning more. Secondly, good and services are cheaper here than in Australia by a larger margin than I would have thought (the PPP for NZ was 1.47, Australia’s 1.39). Lastly, there maybe small a difference in the number of adults in median Australian and New Zealand households, New Zealand having more.
(It would be interesting to see how median household incomes PPP have changed over time between the two countries but, like a lot of statistics, the data is hard to get hold of online once you get back into the 1990s.)
November 26, 2007 at 9:32 pm
Good work that is really interesting and is certainly not what we have been lead to believe
If those figures are correct the only reasons to go to Australia would be the climate and a chance to live under a Labor government a little longer
November 26, 2007 at 9:44 pm
You little byoody wat!
Shove this hard up the tight orifice of the next tory loser that “threatens” to cross the ditch (funny how they’re all still here, eh? - I’d help em pack!)
November 26, 2007 at 9:52 pm
It’s a very complicated issue, that’s for sure. Shame the only version we usually get is from the msm, most of whom would probably find it difficult to spell ‘complicated’.
November 26, 2007 at 10:04 pm
What many journos ignore in these comparisions is the compulsory deductions which are not tax.
The 1st is a flat 1.5% rising to 2.5% medicare levy.
The 2nd is that wages (but not income) are subject to a 17% compulsory superannuation levy - part paid by employer and employee.
So if in New Zealand you are on renumeration of 20 000 dollars, you pay 19% tax.
In Australia for total renumeration of 20 000 dollars you will pay no tax, but 18.5% is deducted into compulsory social security schemes.
November 27, 2007 at 3:47 pm
This also shoots through the myth that Australian wages are higher because they have more mineral wealth. If this were so then Western Australia would be far on top instead of the ACT where most employees get their wage from the Government.
A city by city comparison would be useful too.
November 27, 2007 at 4:15 pm
Great post
You see some people go to Australia. You see some of them come straight back too.
November 27, 2007 at 4:37 pm
A PPP of 1.47 (assuming it is the OECD numbers) implies that it takes $1.47NZ to buy a $1 bundle of goods in the US. As 1.39<1.47, this implies that it is cheaper to live in Australia than NZ!
Also the Geni coefficient is lower in Australia than in NZ, implying that the distribution of income maybe less inequal in Australia (part of the reason for this will be our smaller population though).
However, the numbers are worked out correctly, I would be interested in what data sources were used though, just so I could check that the NZ and Aus income sources were comparable. Last time I did this I found PPP income in Australia was 4% higher, but its been a while and there have been plenty of revisions since then.
November 27, 2007 at 4:56 pm
Matt - it would take NZD$1.47 to buy in New Zealand a bundle of goods you could buy for USD$1 in the US, it would take AUD$1.39 to buy in Australia that same bundle… that doesn’t imply Aussie is ‘cheaper’, as in I could buy more with my new zealand dollar in Australia than in new zealand, because you’ve still got to account for the exchange rate (that’s right isn’t it?).
My gut feeling would be the difference is that these figures are for medians, not averages, and so a more representative of your ‘typical’ family. I think there is a slight difference around household sizes that could shift the figures a few percent - I did a dodgy calculation based on the median personal incomes and median household incomes and worked out there are 2.3 adults in the NZ house and 2.2 in the Aussie one… you can’t acutally use medians like that, of course, but it gives a rough estimate. At any rate, the difference in household incomes for typical households is not all its cracked up to be.
November 27, 2007 at 8:04 pm
I see, you are saying that it would cost a NZer less to buy the goods in NZ than in Australia right? As for PPP to hold the exchange rate needs to be 1.39/1.47=0.9456, when it is actually 0.85. I thought that buy cheaper you were saying that nominal prices were lower.
However, all this tells us is that there are other factors which keep the Aus dollar relatively stronger than the NZ dollar, so the PPP doesn’t hold.
Again, I’d be interested to see the original series that the data came from, just to replicate the results. I don’t disagree with them, as ultimately someone could say that median disposable income is a better measure of what the individual can buy than median income, and median disposable income would definitely (probably) be higher in Australia.
Interesting stuff though, good work
November 28, 2007 at 9:23 am
There are like 100 different statistic which show that Aussies live better then us, and you manage to find one that doesnt. Well done, you are deluded if you believe that.
November 29, 2007 at 12:02 pm
[...] John Key’s Brain Drain Dribble Following on from my old pal Zoster’s Porkies at 1:30 post, I thought I would do a post on an interesting number I saw the other day when do that graph on household incomes in New Zealand relative to those in Australia . [...]
November 30, 2007 at 3:09 pm
nnickc, what are the statistics that say Australian’s live better than we do? How do you define live better, surely the fact Australian’s have a higher disposable income is not the whole story, or else everyone would have moved over.
I think that the lower taxes in Australia do attract people over at the margin, but I’m sure that many of the people that live in NZ will prefer NZ, while many of the people who live in Aus prefer Aus, happiness is subjective god damn it
November 30, 2007 at 3:36 pm
matt - the wikipedia article with the sources is http://en.wikipedia.org/wiki/Median_household_income_in_Australia_and_New_Zealand
cheers
November 30, 2007 at 5:08 pm
Hi,
Thanks for the link. I had a little look through and the data sources were quite different. For Australia the census was used, but for NZ the June 2006 income survey was used. The closest thing I could find for Australia was their 2005-2006 income survey (which is similar to the income part of the HES that was released today). Now I’m not sure how the survey is conducted in Aus, so I’m not sure how much of the data comes from 2005 and how much from 2006.
If we assume it is all from 2005 then only Tasmania and SA are below NZ in PPP terms. If we assume its all from 2006 then we also beat out WA and Victoria, and beat the Aus average. However, with the new PPP figures from the OECD, and these closer series, NSW, QLD, ACT, and NT still all beat us in terms of PPP adjusted median income, those bastards
I’ve been looking at the HES today, and the survey is split relatively evenly between 2006 and 2007 survey respondants. If thats how they do it in Aus then the story will be somewhere between the two I just discussed.
One extra thing I would suggest doing is taking Wellington out of the New Zealand calculation, as if we are comparing regions like states the Wellington region is like ACT, it has a similar population and is the seat of government.
All very interesting stuff, I like the idea of looking at the states separately. That would be good to do with the migration statistics!
December 2, 2007 at 4:00 pm
Before Tax? What a cop out.
You are using Median level incomes, use median level tax burden for any kind of sincerity.
December 5, 2007 at 10:57 am
[...] 1)comparing GDP does not tell you about the wealth of inhabitants, for that you want GNI or better yet a sub-national income figure. Median individual income will give you a picture for the typical person in each country, making it median household income will give you a typical family’s situation on each side of the ditch – fortunately, we have just such a comparison here. [...]