Kerry McDonald: Progress isn't about just copying Aussies

Opinion

Recent debates on transtasman economic issues have been timely, given the annual meeting of the Australia-New Zealand Leadership Forum in Melbourne at the end of this month.

Unfortunately, the last major advance in the Australia-New Zealand economic relationship was the Closer Economic Relations agreement in 1982. That breakthrough followed years of little progress, and progress since has also been frustratingly slow.

Yes, the old frustrations of waiting for years to get state and federal standards approval to export/sell particular goods in Australia have largely gone, and there has been progress in other areas - but not enough, given the importance of the relationship.

The first Leadership Forum meeting, a year ago in Wellington, focused strongly on this point - the relationship was vital to both countries. Both are small and relatively isolated. There is already a high degree of interdependence and integration, but far too many inefficiencies and obstructions to transtasman business, often for no good purpose, causing frustration, delay additional cost and a loss of competitiveness.

Australian and New Zealand representatives emphasised, in a strongly shared view, that with the rest of the world growing rapidly, and especially the Asia-Pacific region, Australia and New Zealand could not afford to be burdened by inefficient regulation and the inefficient administration of those regulations.

As the governments are the regulators, this was mainly an issue for them and the forum exhorted them to move with urgency to improve the position.

The issues are too important not to. Every day another business decides it is easier and more profitable to source from China, or elsewhere, rather than to make in Australia or New Zealand.

This is not likely to change soon, and Australia and New Zealand already have current account deficits with the rest of the world of major proportions.

Is business united in this view? No, but the overwhelming majority support it, and those that oppose progress generally do not trade between the two countries, and are often significant beneficiaries of existing regulations that reduce their exposure to competition and risk.

Does progress towards greater economic integration mean we must adopt Australian regulations and practices, or lose our sovereignty? No, not unless we choose to.

Again, at the last forum meeting Australian business was very clear that moving to a single economic market did not simply mean doing what Australia did.

They expressed a clear preference for adopting best practice, wherever that might be found, and saw the change process as an opportunity to improve Australia's often cumbersome and inefficient regulation - although we should not forget that the Australian economy has consistently been the better performing economy, by a substantial margin, until quite recently. There may well be different views in Canberra, but these changes will be by agreement - and any threat to sovereignty probably pales alongside the impact of globalisation.

I am attracted to the idea of a modest constitutional step towards greater co-operation, to facilitate the development and operation of a more integrated transtasman economy. But the last forum meeting was also very clear that we are dealing with two separate countries and the agenda is not to change that.

What areas of regulation and government activity need attention? They are numerous and range from the regulation of companies and financial markets to the clearance of goods and people across borders. They include taxation - one of the more difficult issues - and, potentially, adopting a common currency. Other prospects are greater co-operation on fisheries management and protection, in defence and security matters, and on the development of trade and other agreements.

The list is long, with some items of more significance to business than others and some of greater significance to the two communities.

One area that has generated more heat than light recently is banking regulation, so I will add some perspective, noting at the outset that I am a director of the Bank of New Zealand. Banking is a highly competitive business and some of the less illuminating recent comments from the industry on regulation are simply individual banks seeking to advance arrangements that happen to suit them.

At present there is a banking regulator in each country. The regulators co-operate closely but there are likely to be efficiencies from, first, greater harmonisation of the regulations and, second, from having a single, perhaps combined, regulator.

The two governments recently established a council to explore these options, and that is an excellent idea. However, given the two countries, simply mandating the Australian regulator to cover both countries is not a realistic option. Would that regulator report equally to the New Zealand Government?

There is, however, potential for both countries to benefit from a thoughtful review of the options.

There is another important factor involved. A fundamental change in global banking regulation is under way (Basel II), which will have major implications for banks in Australia and New Zealand.

It would not be sensible to adopt a new transtasman regulatory regime without explicitly factoring in the implications of Basel II. In some key areas these are still uncertain, as is the way that particular regulators will choose to operate, and this has the potential to have a significant impact on the competitiveness and efficiency of banking operations.

So, where to now on transtasman relations. Political relationships are currently good and there is work under way on a range of issues.

Interestingly, a recent Australian survey showed that New Zealand was the country that most Australians (94 per cent) had a positive view of, which is helpful. But progress is slow, Australia has a full agenda to pursue, domestically and internationally, and we cannot afford to loose the current opportunity for progress, given the importance of the issues involved and the potential for Australia to shift its focus and priorities.

After all, it is productivity, economic growth and living standards that we are talking about here. And, as is often the case, the smaller brother may have to show more willing to get significant progress in the relationship.

* Kerry McDonald is the chairman of the Australia-New Zealand Leadership Forum.