Patrick Phelps: Is mining the reason Australia is richer than New Zealand?

OPINION

In a recent Herald column, Liam Dann said it was a cop-out to chalk Australia’s structurally “much stronger and wealthier economy” up to the nation’s mineral wealth alone. Intuitively, it does seem
it can’t be that simple – but what if it is?

In making structural comparisons between the economies of Australia and New Zealand, it’s best to start with the extent to which different industries contribute to gross domestic product (GDP).

Mining is indeed Australia’s largest sector. In 2023 it accounted for about 14.3 per cent of the country’s GDP. In New Zealand, it is the smallest sector, and accounted for merely 0.75 per cent of GDP in 2023.

This means mining’s economic contribution in Australia is (proportionally) 19 times greater than in New Zealand. Having analysed both countries’ figures, no other disparity comes close. Agriculture, forestry and fishing make up about 5 per cent of New Zealand’s GDP, but only 2.5 per cent of Australia’s – a 2:1 difference. But 19:1? That is a structurally different economy.

The only other developed nation with such a heavy resource reliance is Norway, where about 14 per cent of GDP comes from the petroleum sector. Norway’s also, if you’ll pardon the jargon, doing okay.

But why would a resource-reliant economy be wealthier? Primarily because mining is the most highly productive sector in the economy (on both sides of the Tasman), meaning the wealth generated for each person employed makes a substantial difference to each country’s GDP per capita.

Miners have led New Zealand on the productivity front for the past two decades, averaging an output of $764,000 to GDP per worker per year, according to Infometrics. By comparison, each person employed in accommodation and food services (New Zealand’s lowest productivity sector) contributed only $39,000 to GDP. Bluntly, it takes about 19 waitresses or housekeepers to generate the same level of GDP as one miner.

That productivity flows through to workers’ pay. Stats NZ data indicates the average annual earnings in mining from 2009-2022 works out to about NZ$96,189, the highest of any sector. Australian Bureau of Statistics data indicates annual earnings in mining to be about A$134,866.

This high productivity and pay results from the fact mining requires enormous investment in productive assets (think diggers and trucks) and productive people (think geologists, engineers and machinery operators).

It’s no accident capital-intensive sectors tend to be more productive and in turn more highly paid.

A worker can produce more with more productive tools at his or her disposal. A miner working with their bare hands may, in an eternity, never produce a single ounce of gold. Give the miner a shovel, a pick, a wheelbarrow and a gold pan and they may stand a chance. With a digger, a truck and a processing plant, you’ll find output increases substantially.

Scale this up to a regional or a national level, and you have a much more highly productive economy and workforce. In Australia it happens to be mining where investments are made, but it doesn’t have to be. Dairy factories, freezing works, data and software centres – anything where there is investment that increases a worker’s hourly output increases productivity at a personal and national level.

That said, there are sectors with limited scope for greater capital investment. There’s a ceiling to how much investment in machinery or training can increase output for housekeepers making beds or wait staff serving meals.

Mining and manufacturing, on the other hand, have both the ability and the need for massive investments to be made per person employed.

Of course, there needs to be something valuable to be found in the ground. Geology, a fickle goddess, dealt Australia a better hand when it comes to mineral wealth. But in areas like the Coromandel, Taranaki, the West Coast and Otago, there is certainly the opportunity for more mining than what currently occurs.

No knowledge of geology is needed to understand many New Zealanders have friends and family choosing Australia over their birth country.

In fact, it’s likely there are more New Zealand miners in Australia than in New Zealand. In 2010, New Zealand’s Department of Labour estimated 62.9 per cent of New Zealanders working in mining worked in Australia.

Across the board, about 670,000 New Zealand citizens reside in Australia – one per eight people living in New Zealand. By comparison, only 70,0000 Australians reside in New Zealand – one per 400 people living in Australia.

These Kiwis don’t require an economics degree to understand mining pays well, or that Australia’s resources sector has grown their economy in a way that has made the whole country more productive, and able to pay higher wages across the board.

While New Zealand is blessed with opportunities such as agriculture and tourism, these are not as productive as mining. It’s no cop-out at all to suggest mining is indeed the structural difference between the two economies.

Patrick Phelps works as manager for Minerals West Coast. He also stood as an independent candidate for the West Coast-Tasman electorate in last year’s general election.