As an economics student in Germany in the 1990s, I kept encountering two countries at the other end of the world. Whenever a professor wanted to prove that reform was possible, the examples were Australia and New Zealand.

Germany, under Helmut Kohl, never attempted anything like it. Kohl had reunification to manage, a fair alibi for half his sixteen years in office. But labour and product markets stayed as fenced in as ever. Shops could not legally sell a litre of milk after half past six in the evening, and unemployment climbed past four million.

The German language even coined a word for the condition: Reformstau, reform gridlock.

Two small democracies in the South Pacific, meanwhile, did what Germany would not. Australians remember these times as the Hawke-Keating era and New Zealanders as Rogernomics.

That history was on my mind this week as we released New Zealand by Comparison, a data book that compares the two countries against 27 others on more than a hundred indicators. It shows how all this has played out, how similar the twins still are, and where they have drifted apart.

The tables about family life read as if one country were surveyed twice. New Zealand and Australia top the book’s table for single-parent households together at 10.4 per cent. Fertility fell in lock-step, from 3.17 births per woman to 1.57 in New Zealand and from 2.86 to 1.48 in Australia between 1970 and 2024. And no two countries in the English-speaking world are more secular.

The economics are no different. Real house prices have risen by 192 per cent this century in New Zealand, more than anywhere else in the comparison. Australia’s 162 per cent is close behind. On economic complexity, a measure of how sophisticated a country’s exports are, the pair sit at the bottom of the table alongside Brazil and Chile.

Australia and New Zealand are rich countries selling simple things, milk powder and meat on one side of the Tasman and minerals on the other.

Even the vulnerabilities match. China takes a quarter of New Zealand’s goods exports and more than a third of Australia’s. Canberra discovered the drawbacks of this in 2020, when Beijing went after its barley, wine and lobsters.

One chart, though, separates the twins more sharply than any other.

The average Australian produces in 39 minutes what the average New Zealander takes an hour to make. The average wage is 18 per cent higher on the Australian side. The difference, once prices are considered, amounts to US$10,700 a year.

When two societies are this alike, culture cannot explain much of the income gap. Their shared reform history cannot explain it either. Both countries began broadly similar liberalising turns in the 1980s and ran them deep into the 1990s. They floated their currencies, deregulated finance, cut tariffs, privatised state businesses and gave their central banks greater operational independence.

Michael Stutchbury offered one explanation when he addressed us at the New Zealand Initiative’s Queenstown retreat in May. A former editor of this newspaper, he nowadays runs the Centre for Independent Studies, which has since published his speech. As a young journalist, Stutchbury covered Treasurer Paul Keating in Australia and followed finance minister Roger Douglas through New Zealand’s 1987 election campaign.

The important similarity was political. Each sold market reform to his own party, then overturned the policies it had long defended. Both took liberalisation further than the interventionist governments they replaced, Malcolm Fraser’s in Australia and Robert Muldoon’s in New Zealand. But a shared politics cannot explain why the two later diverged, so the cause must lie elsewhere.

Stutchbury’s answer is geology. Australia’s modern iron-ore boom, in fact, began two decades before its reform period.

Australia had banned iron ore exports before the Second World War for fear of arming Japan and kept the ban in the belief that there was little ore to spare. By the time Menzies lifted the ban in 1960, Lang Hancock was already publicising the scale of the Pilbara deposits. Within four years, Japanese steel mills had signed the first long-term contracts, and iron ore helped turn the 1960s into a boom decade.

Then Deng Xiaoping opened China, and Australia found itself exporting close to a billion tonnes of iron ore a year, most of it to China’s blast furnaces. At the 2011–12 crest, ore touched US$187 a tonne, and the Australian dollar briefly bought US$1.10. No wonder Australians felt rich. Even on a purchasing-power basis, Australia’s income per person stood about 30 per cent above New Zealand’s.

Stutchbury asks whether Australians are smarter than Germans and Swedes or harder-working than Koreans and Kiwis. He thinks not. Australians were luckier and the luck was always going to be hard to sustain.

Australia did not out-reform New Zealand. If you like, it out-inherited it. Its boom did not fix the weaknesses it shares with New Zealand. It only made them more affordable.

But since the 2011 peak, the ore price has fallen more than 40 per cent. Yet government spending across all levels has climbed from under 34 per cent of GDP before the global financial crisis to nearly 39 per cent. The Reserve Bank of Australia puts potential growth at around 2 per cent a year, and population growth, forecast at 1.2 to 1.3 per cent, accounts for most of it.

Australia’s income-per-person lead has since eased modestly, from about 30 per cent to about a quarter, mainly because its own growth per person has weakened.

So, New Zealand’s past should interest Australians more than its present. My adopted country has already lived through what Australia is now beginning. It shares Australia’s family patterns, its reliance on commodity exports, even its housing mania, but has no Pilbara to cover the difference.

In the postwar decades, New Zealand enjoyed one of the highest per capita incomes on earth. It now sits below the OECD average, and its citizen departures have just hit an annual record, most of them to Australia.

My old professors would not recognise their favourite examples now. Australia and New Zealand are no longer the great reforming nations we studied from afar. Both now spend and regulate like mid-table Europeans, and their growth per person sits near the bottom of the OECD.

Neither country has found another Keating or Douglas. New Zealand has lived those four decades without a windfall. And Australia, its windfall fading, is about to learn what that feels like.

Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative. ‘New Zealand by Comparison’ is available at www.nzinitiative.org.nz.