Of course the countries are never going to merge.
Just for fun, hypothetically both extensions would stand. No way would the owner of the .co.nz have any claim to an already existing domain unless they were to register it as a trademark in Australia.
If a Country split, new extensions are created, if a Country merge, they merge too.
I would assume that if NZ becomes the 7th State, they will maybe transform:
xyz.co.nz
to:
xyz.nz.com.au
the States use third levels so:
nsw.gov.au
vic.gov.au
tas.gov.au
etc.
so
nz.gov.au
but for commercial domains I'm sure there is fine print covering this possible event.
But it may still a few years ahead, given how conservative some people are.