Is Australia ‘outplaying’ NZ on debt and unemployment?

George Driver October 15, 2020

AAP FactCheck Investigation: Are debt and unemployment lower in New Zealand than Australia?

The Statement

“In my view, in New Zealand our unemployment rate is lower, our debt rate is already lower (than Australia’s).”

Jacinda Ardern, Labour Party leader and NZ Prime Minister, October 6, 2020.

The Analysis

Prime Minister Jacinda Ardern has been defending the Labour-led government’s COVID-19 response, claiming New Zealand is doing better than Australia on key measures, including unemployment and debt.

During an interview on The Mike Hosking Breakfast on NewstalkZB on October 6, the host asked Ms Ardern if Australian Prime Minister Scott Morrison had “outplayed” her because the Australian government had announced tax cuts as part of its pandemic budget response. (Audio mark 1min 58 secs)

“No, no, and we’ve always said – you and I have had this debate often – we’ve always said we’re not at the end of this global pandemic yet,” Ms Ardern replied.

“In my view, in New Zealand, our unemployment rate is lower, our debt rate is already lower.”

AAP FactCheck examined Ms Ardern’s statement that New Zealand’s unemployment rate and government debt were lower than Australia’s.

According to the latest figures from Stats NZ, New Zealand’s unemployment rate for the June quarter was 4.0 per cent, while the most recent figures from the Australian Bureau of Statistics (ABS) are for September, when the unemployment rate was 6.9 per cent.

During the June quarter, Australia’s official unemployment rate rose from 6.2 per cent in April to 7.1 per cent in May and 7.4 per cent in June, giving an average rate of 6.9 per cent for the three-month period.

Stats NZ noted the June quarter figures may under-represent unemployment as the country was in a lockdown for much of the period.

This was because people were only classified as unemployed if they had been actively seeking and available to work in the last four weeks, which may not have been possible during lockdown.

“In these cases, the respondent will have been classified as not in the labour force rather than unemployed,” Stats NZ said.

Similarly, the Australian unemployment figures come with caveats attached due to COVID-19.

The ABS calculated a secondary unemployment measure for the “effective unemployment rate”, which included those who had been stood down from their jobs, or had no or not enough work, but were still considered employed. In July, the unemployment rate including this group was 8.3 per cent, down from a peak of 11.8 per cent in April.

In its pre-election update, Treasury predicted New Zealand’s official unemployment rate would peak at 7.8 per cent in the March quarter of 2022, while in Australia the unemployment rate was expected to reach a high of eight per cent in the December quarter of this year, according to budget papers.

Government debt can be expressed in both gross and net terms. New Zealand’s gross debt is the government’s total borrowings, while net debt is the same figure less the value of relevant financial assets.

However, NZ and Australia calculate net debt in different ways, making it difficult to make direct comparisons between nations.

The NZ Treasury’s Pre-election Economic and Fiscal Update (PREFU), released on September 16, shows the primary government debt measure, net core Crown debt, was 27.6 per cent of GDP for the year ending June 30, 2020, while gross debt was 33.6 per cent of GDP (Table 2.1, page 40).

Net core Crown debt was forecast to increase to 55.3 per cent of GDP in 2024, while gross debt was forecast to rise to 43.9 per cent of GDP. The 2020 figures were unaudited due to a delay caused by COVID-19 and may be revised.

The Australian government released its 2020-21 budget on October 6, the same day Ms Ardern was interviewed by Mr Hosking. Budget documents show net debt was lower than New Zealand’s, while its gross debt was slightly higher.

Australia’s net debt was 24.8 per cent of GDP for the 2019-2020 financial year, which ended on June 30, while gross debt was 34.5 per cent of GDP (page 6).

Australia’s net debt was forecast to rise to 43.8 per cent of GDP in 2024, while gross debt was forecast to reach 51.6 per cent of GDP.

A spokesperson from Ms Ardern said the two countries’ net debt figures were not comparable as the New Zealand measure did not include assets in the government’s NZ Super Fund (see page 173), while the Australian figures included its equivalent, the Future Fund.

Australia’s Parliamentary Budget office has explored whether Future Fund assets should be included in net debt calculations, suggesting other measures may offer more consistent and complete indicators of the government’s financial position.

When the NZ Super Fund is included in calculations, New Zealand’s net debt levels are significantly lower than Australia’s. The PREFU shows NZ’s net debt was 12.1 per cent of GDP in 2019/20 when the fund is included, predicted to rise to to 36.8 per cent in 2024 (page 176).

A New Zealand Treasury spokesperson told AAP FactCheck via email that its debt figures were not directly comparable to Australia’s, even with the Super Fund included, due to the use of different accounting frameworks. Treasury recommended using OECD data for comparison purposes.

The OECD’s Economic Outlook report, released in June, included forecasts of government debt in member countries based on both the current COVID-19 outbreak being contained and a second outbreak in October/November, called “single-hit” and “double-hit” scenarios.

Based on these forecasts, New Zealand would have general government gross debt of 48.7 per cent in 2020 after a single hit and 51.6 per cent of GDP in the case of a double hit (pages 276 and 277).

Australia was forecast to have gross debt of 57.1 per cent of GDP after a single hit and 62.4 per cent of GDP from a double hit (pages 137 and 138).

However, the OECD forecast Australia would have a lower unemployment rate than New Zealand in 2020 under both scenarios.

More recent forecasts from the International Monetary Fund, released as part of its fiscal monitor on October 14, predicted Australia would have gross debt worth 60.4 per cent of GDP in 2020 and net debt of 39.4 per cent (full report, pages 75 and 76).

Both figures were significantly higher than New Zealand’s forecast gross debt of 48 per cent of GDP and net debt of 21.3 per cent.

New Zealand leader Jacinda Ardern and Australian leader Scott Morrison
 NZ PM Jacinda Ardern was asked if Scott Morrison had “outplayed” her on COVID-19 budget responses. 

The Verdict

AAP FactCheck found the statement that New Zealand’s unemployment rate and government debt are lower than Australia’s to be mostly true.

Based on the most recent official figures, for the June quarter, New Zealand’s unemployment rate was 2.9 percentage points lower than Australia’s average figure over the same period.

However figures for both countries are likely to significantly underestimate the true rates due to COVID-19-related measures, making a direct comparison difficult. The OECD forecasts New Zealand will have a higher unemployment rate over the full year.

Government figures show New Zealand’s gross debt was lower than Australia’s in 2020 and its net debt was slightly higher, although this does not allow for differences in accounting. More directly comparable figures show New Zealand’s net debt is also significantly lower.

Mostly True – The claim is mostly accurate but there is a minor error or problem.

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