Strategic manoeuvres for a small country

By Vernon Small

If the transtasman defence genie was out of the bottle after Helen Clark's rejection of the notion of a "single strategic entity," her meeting with John Howard seems to have stuffed it back in.

Insiders at a three-hour private dinner and more than an hour of official talks in Sydney said the two Prime Ministers had a good relationship on an intellectual level, despite coming from different sides of the political divide.

In contrast with the vitriolic attacks on Helen Clark from the Australian newspaper, which described her Government as confused and isolationist on defence, Mr Howard was conciliatory.

While there were close cooperative links going back more than a century, Australia and New Zealand were sovereign countries free to make their own calls on defence needs, he said.

Australia was focused on Indonesia and had an interest in the Indian Ocean. New Zealand's antennae were trained more to the Pacific and it put a different and lower priority on its relationship with the United States.

But while Mr Howard seemingly put little pressure on Helen Clark in the talks, he used their press conference to make the pitch for more spending.

Australia would increase its defence budget in 2002. "Naturally for a whole host of reasons we would like the strongest possible defence commitment and provision from New Zealand."

Helen Clark pledged to operate a "no surprises" relationship within a defence plan that was coherent, affordable and had a high degree of inter-operability for the two countries' forces.

"We are going to keep our end up, but we will have to work out whether a small country can in the future try to be quite as ambitious as we have been in the past on better exchange rates and higher levels of prosperity," she said.

Helen Clark is certain to have briefed him on the likely outcome of Derek Quigley's report into the F-16 deal with the US and Treasury's view on the cost of scrapping the contract.

Mr Quigley's report, due on Monday, will probably conclude that the F-16 deal was a good one, all else being equal.

But with the New Zealand dollar at US49c against US69c in Defence costings, the only bright spot is the likelihood that any refund of prepayments will show an exchange-rate gain.

In the meantime, the Skyhawks are likely to be maintained, although the running costs of $130 million are seen in Government circles as too high a proportion of the $1.4 billion annual defence expenditure.

Also on the agenda at the Sydney talks was agreement on a review of transtasman social security payments.

New Zealand pays $154 million a year towards the cost of benefits for Kiwis living in Australia.

The review has provision to assess the economic impact of migration - a key clause for New Zealand, which will argue that Kiwis there are in higher income brackets and have a lower-than-average unemployment rate.

Despite pressure from Canberra for a higher payment, New Zealand officials are confident the review will contain the cost.