Trans-Tasman push for CER’s 'next big thing' starts
By Pattrick Smellie
April 4 (BusinessDesk) – The process of trying to identify a ground-breaking extension to New Zealand’s Closer Economic Relations pact with Australia, which turns 30 next year, is under way, with the Productivity Commissions of both countries publishing an issues paper for public submissions.
The governments of both countries are committed to working through a range of detailed policy issues under an agreed Single Economic Market agenda. But both Canberra and Wellington are seeking a circuit-breaker to recharge the CER relationship, which the Australians especially see as bogged down in perennial or minor issues.
While the paper raises a couple of hoary chestnuts in the trans-Tasman political relationship – the merits of a common currency and cross-recognition of imputation credits on company dividends – it suggests the most likely gains will be in areas where there is mutual gain and limited pain for either side.
The common currency has been consistently ruled out by New Zealand, while Australia has fought the imputation credits issue since the 1990’s because it would reduce the Australian federal tax take to benefit New Zealand.
“Currency union is one area where the loss of local decision-making can be problematic,” the joint paper says. Potential benefits in avoiding transaction costs associated with having separate currencies needed to be set against the potential for mismatched business cycles and economic changes, such as the Australian mining boom, to create costs.
“The recent experience of countries in the Eurozone is instructive in this respect,” the paper says.
It suggests further economic integration was “likely to be welfare enhancing in areas where the benefits (for example, from increased scale effects) are relatively large and cross-country differences in the preferred approach to regulation are relatively minor,” says the paper, which seeks submissions in response by May 31.
“The Commissions propose undertaking a high level assessment of each area that considers the size of existing policy-related barriers, their pervasiveness in the economy and the benefits and costs of removing them,” the issues paper says.
The joint project will see a draft report issued in September and a final report is scheduled for release by the end of the year.
Among the questions asked are whether there are thresholds beyond which integration should not be pursued for reasons of national sovereignty, and an assessment of the advantages and disadvantages of implementing a currency union between Australia and New Zealand.
The paper notes there are some five identifiable stages of economic integration: a free trade agreement, a customs union with common external tariffs, a common market, economic union, and political union.
CER was judged to include elements of an FTA and a common market, and the paper suggests there are opportunities for New Zealand and Australia to advance their common interests with a united front to larger, global trade and economic opportunities.
It asks “what emphasis should be given to trans-Tasman integration policy relative to broader regional and multilateral initiatives, and to unilateral action” and whether integration efforts should be designed to complement and “multi-lateralise” broader initiatives.
The study will also consider concerns expressed by CER’s critics that it has contributed to a “hollowing out” of New Zealand’s industrial base, at the same time as the pact has been instrumental in making Australia New Zealand’s largest trading partner and market for high value manufactured products.