The 2025 Taskforce’s 2009 report put New Zealand’s income gap with Australia (2008) at 35%. The Organisation for Economic Co-operation and Development’s (OECD) latest statistics for real GDP per capita show that the income gap with Australia increased to just under 41% in 2011.

But how robust is this estimate?

On the available official national statistics, the widening gap seems to be a robust result. Real GDP per capita rose by 3.6% in Australia between 2008 and 2012 and by 1.7% in New Zealand, according to the Australian Bureau of Statistics (ABS) and Statistics New Zealand, respectively.

On this national income account basis, the income gap appears to have risen from 35% in 2008 to 38% in 2012 (and 2011).

So should readers conclude that the GDP per capita gap is OECD's 41%, 38% or much higher or lower?

The best answer is that there is no clear answer. There are too many ways of measuring GDP per capita and adjusting for exchange rates to provide a non-contentious conclusion.

First, GDP per capita can swing around greatly from year to year because of changes in the prices of exports relative to imports. That can make international comparisons very sensitive to the choice of the base year prices used to express the volume of production in dollar terms.

For example, the 35% gap for 2008 was measured using OECD base year prices for 2000. The OECD has since shifted to base year 2005 prices. The gap in 2008 on this basis was 41%!

Second, national currency income estimates must be compared using market exchange rates, or some other method. The most widely accepted method uses purchasing power parity (PPP) adjustment factors. There are many ways of calculating these factors and several reputable international agencies use different methods. Many show the gap to be above 40%.

The National-ACT coalition agreement makes Treasury responsible for reporting on New Zealand’s economic progress on this and related matters.

Hopefully, Treasury will be able to decide on the most authoritative estimate of income gaps.