Statistical comparisons of macro economies could be onerous and misleading, resulting in inaccurate and incorrect picture of realities, Reserve Bank of New Zealand (RBNZ) Governor Dr Alan Bollard has said.
He said such comparisons could have resulted in the understatement of the economic performance of New Zealand.
A proper comparison may place New Zealand’s Gross Domestic Product (GDP) about 10% higher than the official data, he said.
He also mentioned that use of consistent measurement conventions would narrow the income gap between New Zealand and Australia and other OECD countries.
Different countries use different methodologies and data sources and hence care should be taken when comparing economic statistics, he told a meeting of the Trans-Tasman Business Circle in Auckland on February 17, 2012.
Understating NZ
“Our view is that some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand’s economic performance. In international league tables, New Zealand is in some ways better off than is often thought,” he said.
According to Dr Bollard, RBNZ had explored differences in the way gross domestic product (GDP) is measured in Australia and New Zealand.
Allowing for these differences, our GDP could be significantly higher relative to other countries than currently measured. A rough, broad, ballpark might put this up to 10 % higher than official data, compared with Australia, he said.
“These are not definitive numbers, and we accept there are counter-arguments to them,” Dr Bollard said.
In such a scenario, should New Zealand revise its GDP?
Dr Bollard did not think so, because it would lift neither the actual income nor the purchasing power of the people.
“We cannot make ourselves better off directly just by measuring things differently. But more comparable data is important to ensure individuals make well-informed decisions about training, migration and saving, and that financial markets have accurate measures of New Zealand’s ability to borrow and repay debt,” he said.
Mythical gap
He advised governments to collate good data to ensure well-informed social and economic policy, and understand comparability with other countries, including that of Australia.
“RBNZ analysis did not answer the question of whether New Zealand was closing the trans-Tasman gap. However, it does argue that the gap is not as wide as most people think,” Dr Bollard said.
He said the Prime Ministers of Australia and New Zealand recently agreed that their respective Productivity Commissions would look at reforms aimed at increasing economic integration between the two countries.
“Given this aim, a useful contribution could be to improve harmonisation of statistical measurement in Australia and New Zealand, where appropriate, to improve data comparability,” he said.
The imponderables
According to Dr Bollard, comparability of statistics was an international issue, and that his comments were not a criticism of Statistics New Zealand.
He said his observations were aimed at making people aware of the issues, and encouraging a greater priority being placed on improving New Zealand’s economic statistics.
“I am aware that in the area of GDP, Statistics New Zealand has plans in place to increase the ease of comparability of data with Australia. Organisations like the UN and International Monetary Fund are working to make economic statistics more comparable. For the present, there were pitfalls in making international comparisons.
“As usual, the devil is in the detail. Compare with care,” Dr Bollard said.
Unobserved economy
RBNZ has estimated the impact that differences in measurement of GDP between New Zealand and Australia.
Changing the way the “unobserved economy” is measured could add 2% to New Zealand’s GDP. The unobserved economy includes cash jobs and work undertaken by households for their own use, like growing vegetables, he said.
“Changing how the financial services are measured could add another 2%. Adjusting the way residential buildings are valued could add 1.5%. When New Zealand adopts a new international statistical standard in 2013 /14, GDP could rise by 3%. Taking all these measurement differences into account, a rough estimate might put our GDP at up to 10% higher than official data, compared with Australia,” Dr Bollard said.
