Opinions sought on expanding economic links with Australia

Photo / Mark Mitchell

The Productivity Commission is seeking feedback on how - and how far - to deepen economic integration with Australia.

Between the present situation, where there are few barriers to the movement of goods, people and capital between the two countries, and full political union lies what it calls economic union. That involves a common currency, common monetary and fiscal policy, and harmonised tax rates.

Among the questions the commission, along with its Australian counterpart, pose in a high-level issues paper just released are what the appropriate end-point to trans-tasman integration is, whether there are any thresholds which should not be crossed on the grounds they would compromise sovereignty, and what the advantages and disadvantages of a currency union with Australia would be.

There are potential benefits in avoiding the transaction costs associated with having separate currencies.

"On the other [hand], where business cycles and economic changes [such as the 'mining boom'] affect the two countries differently, there could be costs in not having independent exchange rates. The recent experience of countries in the Eurozone is instructive in this respect."

On a more down-to-earth level the issue paper cites areas where barriers to the trade in goods remain.

"The high cost of transtasman shipping has been of concern over many years. The Australian Productivity Commission has previously found that Australian coastal shipping regulations, particularly cabotage restrictions [which restrict who can carry goods between a country's ports], add to these transaction costs."

CER's rules of origin, which determine how much of a product needs to be made in one country in order to qualify for preferential tariff treatment in access to the other, create compliance costs and could result in higher-cost production.

Despite an agreement on joint food standards, and a high degree of consistency in product standards generally, differences remain which can be a barrier to trade.

The commissions also want to hear about what barriers remain to the free flow of capital between the two countries - the lack of mutual recognition of imputation or franking credits being one.

They also ask what policy-related barriers there are to the mobility of labour between the two countries and whether there are any valid reasons to keep them.

Submissions close at the end of next month.