Fran O'Sullivan: Too many voices for single market

Former National Deputy Prime Minister Jim McLay relates a story to illustrate the difficulties of selling proposals for stronger ties with Australia to a sceptical constituency.

McLay first heard about the prospect of closer relations between New Zealand and Australia in 1979 at an airport lounge in Port Moresby from a retiring Austrian ambassador making his farewell calls.

Had I heard, he asked, about (former Australian Deputy PM) Doug Anthony's speech advocating a closer relationship to replace the old New Zealand Australia Free Trade Agreement? Well, in PNG, you do not hear about such things. So he told me and then, tapping his nose, said "Anschluss. Anschluss."

He was not alone in his view. Many New Zealanders also regarded the proposed Closer Economic Relations agreement (CER) as the economic equivalent of Anschluss ( Germany's 1938 annexation of Austria) - and 15 years earlier they had viewed Nafta with similar suspicion.

Twenty-five years on from McLay's Port Moresby meeting, New Zealand is facing another challenge: the proposal to move beyond the original CER agreement and form a single economic market with Australia.

The single market has an inherent logic: 20 million Australians plus four million New Zealanders equals a 24 million-strong Australasian market. Overlay that market with common business regulatory rules so business can operate in a seamless fashion across the Tasman and both countries will be better placed to forge a common trade and investment identity and to profit from greater heft in the rapidly growing new East Asian trade bloc.

The debate has so far been couched in economic terms.

But McLay used the weekend's second Australia New Zealand Leadership Forum in Melbourne - a meeting of 80 Australasian players drawn from politics, business, bureaucracy and academia - to suggest a stronger (and more controversial) rationale. The South West Pacific, our traditional sphere of influence, was not a benign security environment. Near neighbours had many vulnerabilities. Economic integration would be of little advantage if we were surrounded by instability, corruption, failed states and other threats.

But he said given the differences on security and defence policies, the dialogue between Australia and New Zealand often resembled the dialogue of the deaf.

McLay's frankness is symptomatic of a new and more confident boldness and maturity from the New Zealand side in the transtasman dialogue. This debate has for far too long been proscribed by politicians' desires to ensure the "discussables" remain off the agenda. But there are signs things are changing.

Last year's inaugural forum had to overcome differing sets of expectations.

The New Zealand hosts had focused on cultural and identity issues. They had to refashion the agenda when it became clear the Australian group's focus was to get progress on single market issues.

It took time before commonality was forged on two important issues: the desirability of forging a single economic market with common regulations so business was effectively seamless on both sides of the Tasman, and a true common border so that New Zealanders and Australians could move freely between the two countries and goods could also be moved more efficiently.

But what was initially portrayed as relatively straightforward, such as the proposal to form a common banking prudential supervision regime, has turned out to be more complex in practice.

Debate on this subject has become highly-charged, particularly given that Australian Treasurer Peter Costello has made progress a "must" if Australia is not to look elsewhere and forge closer ties with countries such as Singapore.

Inevitably, given the presence of Costello on Friday and players from the big four Aussie banks, the NZ Reserve Bank and representatives from respective Treasuries, the forum did get down to special pleading.

The Aussie banks dominated, at times overly so.

But strong push-back has since emerged from a primarily New Zealand-dominated clique that wants to make sure that other policy priorities move forward.

More to the point, there is a strong sense the agenda should not become dominated by Costello's priority - even if he is the bigger player.

If banking was to be a priority from Australia's perspective then New Zealand should make progress on dividend imputation credits an equal priority.

The more hard-nosed emphasis from the New Zealand protagonists was given even sharper focus by Telecom chairman Roderick Deane, who painted the need for a much more compelling bilateral engagement than a mere focus on common rules for accounting, competition and securities regimes.

Deane, who was not a participant last year, suggests the debate needs to move on to the truly transformational issues: common currency, common third-party free trade agreements, security and defence integration, visa-free reciprocal entry, immigration policy, Kyoto and taxation.

In his view these are the issues where the real gains reside.

Deane concedes some of these issues now look too hard, but the challenge is to make sure they stay on the agenda while other less controversial issues are settled.

From a situation which one participant suggested had been characterised by New Zealand paranoia and Australian indifference, it seems New Zealand and Australia are finally getting down to debating issues that matter.

If Australia can switch into listening mode there may well be areas where New Zealand can provide leadership. As the billboard goes: What do you call a sophisticated Australian? A New Zealander.

* Disclosure: Fran O'Sullivan was a participant at the Australia New Zealand Leadership Forum.

* Next week her Business Herald column will move to Wednesday.