Jun 8, 2008

The Australia Relationship

Fran O'Sullivan today previews the forthcoming meeting of Australian and New Zealand political and business leaders at the leadership forum next weekend. This is our most important relationship and in some ways the most sensitive. It is another relationship that has really not developed much at Government to Government level in recent years, in sharp contrast to the ever increasing economic integration that is occurring. Attempts by the previous co-chairs of the relationship to take the formal relationship forward saw them being fired. On the New Zealand side the Chair is now an SOE chief - NZ Post's John Allen, deemed by MFAT and Government to be a safe pair of hands (ie will do what he is told and won't rock the boat).

Fran looks at what is on the agenda for the discussions and then looks at what should be up for discussion. It will be a great shame if the leaders from both sides of the Tasman don't take this opportunity to discuss Fran's agenda (perhaps with the Customs Union idea dropped).

We also hope that National's Tim Groser is part of the process. He was one of the original negotiators of CER and would be well placed to lead discussion on the first item of Fran's agenda.

What should be on agenda?
The global food crisis: New Zealand and Australia can take leadership on pushing for freer farm trade at the WTO. New Zealand's long-run economic prospects are quite rosy given the dire outlook for food supplies as the world population escalates. This factor is not appreciated sufficiently by Australian elites.
The credit crunch: The New Zealand Reserve Bank fought off an attempt to administer Australasian banking prudential supervision by a single regulator. With the credit crunch in full swing, the wisdom of governor Alan Bollard's subsequent moves to bolster the capital of New Zealand-domiciled banks is clear: the Australian parent banks have not "turned off the tap". But there are still common challenges which should be confronted.
Taxation: Leading Kiwi accountants such as PriceWaterhouseCoopers' John Shewan were chastised by Costello for pushing for mutual recognition of imputation or franking credits. But as the transtasman investment environment gains greater connectivity this issue cannot be left off the table.
Currency: National's John Key pushed a common currency at the last forum and has continued to do so. His contention is Kiwi business would benefit through lower transactional costs. Opponents have pointed to negatives, such as the end of an independent monetary, loss of economic sovereignty and a reduced ability to insulate ourselves from any shocks befalling the Australian economy.
Customs union: The Treasury asked the New Zealand Institute for Economic Research to explore a transtasman customs union, a free trade area with a common tariff. There are revenue implications on both sides and difficulties posed by the varying degrees of protection.