From beach barbie to power play

John Howard, pictured here with Australian troops, denies an Anzac snub but Don Brash thinks he was telling us to pull our weight on defence. Picture / Reuters

Australian Prime Minister John Howard's attendance at a "beach barbie" rather than New Zealand's ceremonies at Anzac Cove has introduced a new edge to high-powered bilateral discussions starting tomorrow.

Nearly eighty Australasian power brokers will converge on Melbourne for the two-day forum to strengthen the bilateral relationship between New Zealand and Australia.

The Australia New Zealand Leadership forum will tackle a comprehensive agenda. A proposal for a single economic market linking both countries, nicknamed "Sam" (Single Australasian Market) by the Australian side, regional power-balances, demographic issues and skills shortages are just some of the issues up for debate.

New Zealand forum co-chair Kerry McDonald - whose job it is to ensure the forum stays on track - downplays the alleged Howard snub, which the Australian leader explained by saying he was unaware the timing would have have allowed him to attend the New Zealand event.

"Having watched Australian Sky News for quite a bit of Sunday I got no sense that Australia was snubbing New Zealand. When they are flying the New Zealand flag alongside the Australian flag on the top of Sydney harbour bridge, that struck me as a pretty symbolic gesture," Mr McDonald said.

But this is election year.

National Party leader Don Brash has been quick to allege Howard stayed away to make a point that, 90 years after the Anzacs combined forces, this country's defence spending is out of kilter.

"I don't know his reasons for doing that but I have a nasty suspicion he did because he regards New Zealand's defence effort as a joke - I can say that now it's not Anzac Day," said Dr Brash.

New Zealand's limited defence budget - which at 0.9 per cent of GDP is less than half that of Australia's in real terms - would be increased by 20 per cent under a National Government, Dr Brash has since pledged.

Dr Brash's open politicking adds weight to scarcely subterranean Australian concerns that New Zealand is a "defence free-loader".

At last year's forum, one Australian businessman said this country's anti-nuclear legislation was the "dead cat on the table". New Zealand's posture on this score would "resonate better" if it spent more on defence.

Foreign Affairs Minister Phil Goff has pointed out it was not a view expressed by an Australian Government official. Australian Foreign Minister Alexander Downer said simply, "We keep those comments to a more private level - and we don't make too many public comments about them."

The bilateral defence relationship is not squarely on the agenda at this week's forum but "nothing is off limits", said Mr McDonald. "If participants want to raise an issue and debate something the [Australian] head of defence is there."

Australian Defence chief General Peter Cosgrove has frequently paid tribute to New Zealand's contributions in the Pacific. But Mr McDonald concedes there is a pretty strong view within Australia that "we're not spending enough - that our capabiltiy is eroding".

"If you look at the totality of the relationship it is something you can't afford to ignore.

"One of the issues around it is the question of how our defence postioning and relationships affect Australia's willingness to deal with us."

With Dr Brash and his Foreign Affairs spokesman, Lockwood Smith, taking part in the forum, the decision by Prime Minister Helen Clark to request her deputy Michael Cullen to remain in Wellington as Acting PM while she completes her overseas trip looks short-sighted.

Mr McDonald and his Australian co-chair, Margaret Jackson, will inevitably lay down ground rules to stop the meeting degenerating into mere politics.

But both countries' respective defence postures will inevitably come up tangentially in a discussion tomorrow on perspectives on the regional power balance between three major players - China, Japan and the United States.

Mr Downer and Mr Goff can be expected to take a leading role.

China's renewed posturing against Japan and Taiwan has revived concerns that the burgeoning economic superpower may be tempted to throw its military might about, a difficult issue for Australia to weigh with its links to the United States through Anzus, and a potential poser for New Zealand.

More pertinent - and some diplomats believe this is the real source of Mr Howard's apparent distance - is the pressure he has come under to sign a co-operation treaty to gain Australia access to an East Asia summit later this year.

Helen Clark essentially removed Australia's points of leverage by indicating last year that New Zealand, the only other non-Asian country likely to be invited into the tent, would ultimately sign the Treaty of Amity and Co-operation.

She has since reaffirmed that to the leaders of Indonesia and Malaysia during their recent visits.

Mr Howard has effectively been cautioned by Mr Downer that signing the treaty is an inevitability if Australia wants to officially join the East Asia power bloc.

But a future backdown has been made more piquant by the recognition in Australia's policy elites that New Zealand took the obvious step.

Mr McDonald warns in this environment we cannot afford to take Australia's currently positive attitude to New Zealand for granted.

"As Australia moves forward with its current agenda and the relationship with the United States and the opportunities with China and elsewhere in Asia, we're either there and moving forward to strengthen the relationship or we'll be left behind."

* The forum

The Australian New Zealand Leadership Forum was established to create a stronger and well informed constituency in each country.

The New Zealand side is led by Bank of New Zealand chairman Kerry McDonald, with Qantas chairwoman Margaret Jackson leading the Australian side.

The forum is strongly supported by both Governments but is intended primarily as a non-governmental forum.

* Alexander Downer, Australian Foreign Affairs Minister

Downer - with Costello - is an integral part of John Howard's hugely successful leadership triumverate.

Australia's longest-serving Foreign Minister has extraordinary regional networks. Australia comes first but, like his boss, Downer tries to ensure his NZ counterpart Phil Goff is patched into "high-level conversations" - such as dinners with former US Secretary of State Colin Powell - that might otherwise be difficult to achieve in the post-nuclear legislation environment.

Theirs is a "sibling style" relationship- with Downer clearly playing big brother.

Downer is one of the key authors of the Australia New Zealand Leadership Forum and personally selected some key corporate players - such as Qantas chair Margaret Jackson.

His officials have, after a recommendation by last year's forum, been studying just what a common border around Australia and New Zealand might entail. But a concrete policy has yet to emerge.

* Peter Costello, Australian Treasurer

Proposals for a transtasman single economic market are Costello's baby.

Even before last year's inaugural Australia New Zealand Leadership Forum, he and New Zealand counterpart Michael Cullen announced a programme to harmonise transtasman securities, accounting and competition regimes.

Regulatory harmonisation has been an on-again, off-again issue since the late 1980s. But this Australian Treasurer has invested an enormous amount of his own political capital. Costello is driven by simple numerical logic: if Australia and New Zealand combine forces they will provide a more compelling trade and investment destination with the rapidly emerging East Asian bloc. On the internal front, transtasman companies will find it easier to do business if the rules are similar in either New Zealand or Australia.

Progress could help his leadership ambitions. The big issue for Costello - and Foreign Minister Alexander Downer - is whether Prime Minister John Howard will step down in his favour.