A regular question in New Zealand and Australia is whether our respective nations succeed because of, or in spite of, our politicians.

As both nations' Budgets were read this week, it was a story of two countries that have faced a vastly different set of circumstances over the past five years, and the choices both have made in light of that.

In 2008, Australia had a mining boom, rising wages and no debt. Its government had delivered consistent surpluses, tax cuts and targeted cash payments to targeted voter groups. Growth was assumed and household wealth doubled during the Howard years. It even avoided recession.

In contrast, New Zealand was lurching into debt, had a collapsed non- bank finance sector, a tradeables sector that had been squeezed for several years, a real recession in advance of the global recession, and a structural deficit

So when Finance Minister Bill English announced last Thursday that New Zealand is on track to record a budget surplus (albeit tiny) in 2014-15, it stood in stark contrast to Australian Treasurer Wayne Swan announcing his sixth budget deficit.

Unfortunately for Mr Swan, he had been promising a surplus for 2013 since 2009, and last year he announced "four years of surpluses" to begin this year. So his staggering A$19.4 billion deficit, with years of deficits ahead, was quite incomprehensible.

Although the Australian Labor Government feels a victim of circumstance, an unappreciative public and "the biggest revenue write-down" for 50 years, it has actually been extremely fortunate. Australia has had record terms of trade and its year-on- year tax receipts (with the exception of 2009-10) have been growing at 6 to 8 per cent.

Since Mr Swan has taken over as treasurer, tax revenue has increased by roughly the equivalent of New Zealand's entire budget. Unfortunately, he and prime ministers Kevin Rudd and Julia Gillard spent all of the increase plus some, and are miffed because revenue did not increase at an even higher rate.

The Australian Budget also committed substantial new funding for education and a worthy new disability insurance scheme called DisabilityCare. However, these changes are essentially unfunded into the future, and have little to do with large budget deficits to date.

Budgets are ultimately about choices. The Australian Government chose to run it close to the wind, increasing spending by as much as the most optimistic revenue forecasts would allow.

New Zealand made a very different and far more difficult set of choices. In 2008 the issues were obvious: productivity growth was poor, taxes too high - particularly at a relatively modest level of income - and the tax system had little internal integrity.

Government was chomping its way through far too much of the national pie, crowding out private sector activity.

One important thing the New Zealand Government has done is tamp down expectations of spending increases, concentrating on core activities and not using government as a vehicle to give handouts to partisan coalitions of voter groups. As part of this strategy, the Government is reducing both its spending and revenue to GDP ratios. It has reaffirmed its commitment to getting core government spending down from 35 per cent of GDP in 2008-09 to 31 per cent in 2014-15. The rate of spending increase has slowed to less than CPI and population growth.

But there are still worrying signs. Both New Zealand and Australia have superannuation burdens set to grow immensely, and health and welfare spending continues to outstrip the ability of society to pay in the long term.

However, for all that, New Zealand's books look in better shape than Australia's, not least because of New Zealand's public accounting system. It is more difficult to fudge the figures and render the accounts opaque than is the case in Australia, where payments can be brought forward and/or shifted backwards to create fiscal illusion in any given year.

New Zealand's Budget is commendable and, compared with Australia's, it looks extremely positive. In the long run, nations can only excel and grow living standards by being competitive and living within their means. The current situation in Europe attests to that.

With all the advantages in the world, the Aussies have not managed it, and face some very difficult decisions in coming years. In contrast, from a pretty poor position New Zealand is getting its fiscal house in order.

Source: Australia now paying for not living within its means