The NZ government seems to have played down the chances of NZ 'closing the income gap' with Australia. The reality is that there are several issues which are driving the widening of the income gap, and there are several issues which will close it. The pertinent factors are:
1. Energy resources: The discovery of large offshore oil & gas resources in offshore NZ basins - give it 10-15 years, but it will eventually attract a lot of capital investment in NZ. There is the prospect of further discoveries being developed sooner in the Taranaki Basin, since this field is already developed. The small size of this nation means any significant discovery is going to have a significant impact on the country.
2. Steel processing technology will eventually result in NZ producing high-titanium/vanadium, high strength steel alloys, but the technology is not quite there. NZ does however have vast resources of titanomagnetite sands between Wanganui and Auckland. It will fight with PNG over market share, and that will be another 10-15 years as well.
3. Business outsourcing - NZ wages are 30% lower than Australia, and the AUD is 0.76 NZD, so NZ is well-positioned as a business outsourcing centre, offering better educated staff than Malaysia, China or the Philippines can possibly offer. The problem is telecommunications in NZ are very expensive, and capacity is tight. Accounting services have more potential. I do however expect such solutions to offer a better outlook in the future. Expect this market to start developing, though perhaps not immediately in VOIP solutions....as NZ is not competitive.
4. Food and timber processing - Of course NZ continues to offer opportunities for value-added food output. I wonder why I cannot buy canned lamb in the Philippines, or anywhere for that matter? There is a Chinese canned lamb. I love lamb! But beef tonight. Bibinba!
I would give NZ another 10-15 years, and then I think people will start flowing back here. I agree with the Labor government. As much as I welcome privatisation and cuts in government spending, free market policies are not going to close the gap. NZ is a small market, so there is no compelling reason to spend money here, other than those opportunities above. Even if you adopt low taxes, no oil company believes any future government will retain such an 'ideological' position, so they will always pragmatically spread their bucks. NZ reforms in the 1980s did nothing to attract capital.
At the end of the day, there are compelling lifestyle reasons to live in Australia which Kiwis will never escape. They are - Australia just has a superior climate. Sydney! I wear a t-shirt or no shirt for 9 months in the year. Try that in NZ! The other is space and culture. NZ is far better when I first came here in 1986, but its still a little on the slow side outside of Auckland. NZ has more crime, but not a big issue. Maybe the greater problem is that there is so little going on that crime and dolphin sighting is all that you can report....lest you think about the outside world. The shorter day and the wind. I swear I lose two hours a day living in NZ, and its often miserably windy going outside. Its not too cold, but the wind is annoying. Australia is blissfully 'cool and breezy'. Australia - paradise...on earth. Now I know why I only bought a summer house here!