ANALYSIS: When Australian Treasurer Josh Frydenberg handed down the Australian Federal Budget on Tuesday, it marked a step-change: Instead of the job of Treasurer being to try and balance the books, it was now going to be using taxpayer money to drive unemployment down.

Principally, the Aussies are now going to throw down $74.6 billion over the next two years on tax cuts and business while lavishing tax breaks in sectors such as health, aged care and mental health: traditionally low wage industries, dominated by women.

But the consequences of those decisions could now be felt keenly in New Zealand. The resulting pressures of the new Australian largesse could now be felt in the Kiwi Labour market and even start another brain drain.

This could all create a perfect storm, unless the Budget gets the big calls right: New Zealand has a rich country on its doorstep that’s facing Labour shortages, that pays better wages and has as affordable or more affordable houses. Its Government is pumping cash into driving unemployment down further. And its border is now open to New Zealand.

Richard Holden, a professor of economics at the University of New South Wales thinks that the many billions being spent on aged care and other sectors in Australia over the next little while may just be a “down payment”, and that more wage hikes and higher salaries will be on the way.

“Is it going to have an effect on the New Zealand labour market? Quite possibly. I think the other thing is there's a feeling – which I think is right – that people in the aged care sector and the childcare sector in Australia, workers are underpaid,” Holden told Stuff in an interview.

“And so I think there's going to be more upward pressure on wages in Australia and so when that happens, I think it’ll just magnify that kind of effect on the New Zealand labour market.”

The unemployment rate in Australia is currently 5.6 per cent, almost a point higher than New Zealand’s low 4.7 per cent.

The comparative wages of nurses and teachers, for example shows that, for people prepared to leave family, friends, and community and start again, the economic rewards are there.

New Zealand’s nurses announced on Friday that they would be striking in June for better conditions and pay, noting that they are short-staffed and losing members to Australia.

A designated senior nurse in New Zealand at the top pay scale can earn up to a touch over $130,000, while a nurse manager in NSW at the top level can earn $A180,000 ($192,000). In Queensland, nurses are paid slightly more, but the pay rates are roughly comparable across states.

In teaching, the gap is more significant. A graduate-level teacher in NSW earns at least $A72,000 ($77,000) compared to $49,000 in a New Zealand primary school. The top pay scale for the most qualified teacher in a New Zealand primary school is $87,000 compared to $A114,000 ($122,000) in NSW.

While housing in Sydney is more expensive than Auckland – about $1.3 million median house price compared to $1.12 in Auckland, in other Australian capitals houses are significantly cheaper than in Auckland. The median house price in Melbourne is $975,000. In greater Brisbane it is $662,000: cheaper than Auckland, Waikato, Bay of Plenty, Hawke’s Bay, Wellington, Nelson and Tasman. In Adelaide and Perth it is cheaper still.

While a number of years ago salaries might have been higher, but living expenses higher still, that is no longer the case.

So one of the key questions out of the Budget that Grant Robertson will deliver on Thursday is whether it will produce a credible plan to get the New Zealand economy growing and keep Kiwis on these shores. The public sector pay freeze, announced last week, appeared to feed into a public anxiety over the economic direction of the country. In pre-Budget signalling, Robertson has consistently stressed he will take a “balanced” approach.

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“Overarching all this I think that he [Grant Robertson] wants to show that he can be a fiscally austere minister,” the Head of Research at BNZ, Stephen Toplis, told Stuff.

That said, there are limited levers that the New Zealand Government can pull to make Australia less attractive. It is a bigger country, with more opportunities and resources money flowing into Canberra and then back out to the states pays for a higher level of public services than in New Zealand. Much of it is a game of instilling confidence.

New Zealanders living in Australia can’t claim the dole and miss out on a few other things such as being able to apply for Australia’s student loans scheme, but Kiwis in work do qualify for childcare subsidies, universal healthcare (medicare), and school education. For lower income earners, tax is lower as well, with a tax-free personal income tax threshold of A$18,200.

And now, Holden points to a philosophical shift within the ruling Australian Liberal Party, facing an election this year. It is that debt and deficits don’t matter anywhere near so much any more because the Government can lock in debt for 30 years at ultra low interest rates, grow the economy quicker and shrink back debt over time.

“And that has really interesting implications … that allows them to go ahead with tax cuts, as they've already legislated, and it allows them to increase spending,” Holden said.

The Australian Government is now deliberately borrowing up big and deploying that cash to bring unemployment down.

Effectively both the Australian Treasury and the Reserve Bank think that the natural level of unemployment – which is expressed through a measurement called the NAIRU – the Non-Accelerating Inflation Rate of Unemployment – is now lower than it once was.

The upshot is that the amount of money the Government can spend to drive down unemployment before inflation will rebound back out of control, has increased. It now appears that Australia’s technocrat class thinks the unemployment rate should have a ‘3’ in front of it.

That will likely increase demand for Labour from New Zealand.

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Toplis says that any pressure from Australia will be New Zealand getting caught up in a broader trend of Labour shortages.

“Australia sort of fell behind New Zealand in some ways, in the post-Covid recovery period. But it's coming back with a vengeance. And the Australian unemployment rate, while higher than ours, I think, is going to rapidly close in on ours,” Toplis said.

“And so that means ... that they are going to have a demand for labour and New Zealand is one of the few places they can source it from and so there's going to be a lot of tension there, in terms of New Zealanders who could get paid more in Australia, contemplating shifting there.”

“And even when borders become more open, the Australians will be competing for the same pool of potential migrants, as New Zealand will be,” Toplis said.

The irony of all of this is that New Zealand’s relative fiscal rectitude – and Grant Robertson’s approach to management of the books – could count against it. A surplus is expected here by around the middle of this decade, while in Australia it is now into the 2030s.

But the question now will be where is growth going to come from, and where will the best opportunities be?

Toplis says that stronger than expected economic growth since Covid-19 began means that both the fiscal and debt positions are healthier than expected, meaning slightly higher levels of spending are likely.

“But I'll be surprised if what they do takes us into a fiscal position that was any weaker than it was before we got the windfall gain,” he says.

And he neatly sums up the basic economic and political tension facing Robertson.

“It doesn't feel like an economy at the moment that’s crying out for more general surplus stimulus. And given the risks that are around, you would be much better off, if you do have extra money in the bank to keep it there for that for the rainy day.”