Because of our relative sizes, Australia will always be more important to New Zealand than we are to it. Yes, we are strategically significant to them, and a small market for their goods; amongst that rich smorgasbord of Australian migrants, we provide their best-educated; sometimes we can even be a serious challenge on the sports field. But apart from that, most Australians scarcely give New Zealand a second thought. Yet, they have always been vital to us; a source of our immigrants in earlier times, until our economy began to sour in the 1960s. They have links to the wider world that we can only dream about. They are net energy exporters, while we depend on imported energy. Australia has ridden the mineral export boom since World War Two so successfully that it is a factor in their superior standard of living.

But Kiwis deceive themselves if they think that Australia's greater prosperity is due to luck. Successive Aussie governments have adopted policy settings likely to produce better and more consistent economic outcomes than ours. For the most part their politicians understand that maximising growth via the market does more for ordinary folks' living standards than any amount of political tinkering, regulating, subsidizing or social work. We've occasionally had politicians of talent; Australia has had grown ups at the helm for most of the last half century. It shows. In the early years of the twentieth century New Zealand's standard of living was higher than Australia's. Our currency was worth more. It's only relatively recently that we started to slip behind. The migration of New Zealand skills to Australia picked up in the late 1970s as Robert Muldoon's economic controls and regulations, coupled with a bloated exchange rate, slowed our growth. Workers' real incomes fell. It was Kiwi muddle, not Australian luck that let them pull ahead. Yet the seesaw tipped again with New Zealand's bolder economic reforms of the 1980s. They didn't guarantee Kiwi superiority, but they gave us a fighting chance, so long as we didn't get the stitch. For a decade New Zealand had one of the fastest-growing economies in the OECD, slightly better than Australia's.

Since 2000 New Zealand started to lose ground rapidly. High export commodity prices kept things buoyant for a time, but the Labour Government's student agendas have taken the shine off the economy. Pushing up the top rate of income tax in 2000 was meant to affect only 4% of taxpayers; it now impinges on 12%. In 2001 the government repealed the Employment Contracts Act 1991, and reintroduced national awards and other old-style labour practices. Holidays at the employers' expense have been expanded, and sick leave is now being abused. The Resource Management Act's complex planning requirements have not been simplified, while the Kyoto Protocol was embraced with insufficient thought. Most sinister of all has been Labour's rush to re-regulate several key sectors of the economy, especially telecommunications and electricity. Confiscation without payment of the privately-owned Telecom NZ's bundled phone wires passes a frightening message to any would-be overseas investor. Not surprisingly, New Zealand's superior economic performance is past history. Another 8,000 more bureaucrats since 1999 are testament to this ministry's long discredited obsession with the belief that governments can do more for people than they can do for themselves.

I was recently in Australia for ten days. There are faint signs the Australian economy is slowing. They are staring at 3% growth this year and 10% over three years. We will be lucky to get 1% this year after a couple of contracting quarters, and it will require divine intervention to reach Michael Cullen's forecast 7% over three years.

So the gap in living standards that was about 20% in Australia's favour in 1999 is now 33%, and will soon top 40%. Instead of being Australia's rich friend, New Zealand has become its poor country cousin. Our brightest are choosing one-way tickets to Australia. Does it matter? Not as much as it once did. Our economies since NAFTA in 1965 and CER in 1983 have entwined themselves to an extraordinary extent. Individual Kiwis with spare cash now invest in Australia. Some Australians take advantage of our lower wage structure to manufacture here, creating jobs. Our best performing companies have either placed a foot in Australia or have some Aussie liaison. Banking has developed a high degree of symbiosis. Such deals, however, keep being negotiated from a position of New Zealand weakness.

Far from leading the closer relationship, Helen Clark's Labour government bobs along behind like a cork in search of a safe haven. Treasurer Michael Cullen invites those who think New Zealand can do better to emigrate. Which too many talents have been doing for too long. The internationalist Labour Prime Minister Peter Fraser's brave new New Zealand of the 1930s is becoming an irrelevant Australian off-shore appendage in the hands of smug people who have the nerve to claim they are his political descendants.