Press conference – Peter Costello/Michael Cullen.
Press conference – Peter Costello/Michael Cullen.
Peter Costello: can I thank Michael Cullen for his hospitality. This is the 20th anniversary of CER and as part of that the talks between the Australian Treasurer and the NZ Finance Minister have commenced in what we hope will be an annual event. Can I also warmly welcome the breakthrough that has been made on triangular tax. It is something that has been negotiated between our countries over a long period of time. Essentially what it means is that Nzers who invest in companies that earn income across the Tasman will be able to get access to imputation credits and Australians that invest in NZ companies that earn income in Australia and pay tax in Australia will be able to get imputation credits in proportion to their shareholding for the tax that has been paid. The consequence of that is that investment by Australians in NZ companies and Nzers in Australian companies will become more attractive. That will enhance investment across the Tasman. That will be good for both our economies for investment, for economic development, for jobs. So I think it is a significant breakthrough, the fact that after such a long time we’ve agreed on this system which will take full effect from October later in the year. Can I thank the officials in NZ and Michael Cullen for his cooperation in negotiating that. I see it as a tangible concrete breakthrough to improve the investment climate. We would like to go on in other areas of corporate regulation and business harmonisation to promote trade and investment across the Tasman and with annual dialogue I think we can make further progress in relation to those matters.
MC: I will just pick up on that last point. Peter and I have agreed that we’ll have annual meetings from here on – or at least the Australian Treasurer whoever he may be and the NZ Minister of Finance whoever he or she may be – will have annual meetings from here on. So I’m looking forward to going to Australia in the return sequence early next year. And we have, as Peter as indicated, agreed to get officials working on a range of issues in terms of increasing the level of harmonisation in business law issues and matters relating to that. And of course the purpose of that is to make life easier for companies on both sides of the Tasman to operate in both jurisdictions so that we reduce the compliance costs for people doing business in this part of the world. And even for external companies, third party countries there are advantages in us moving closer together in this respect to reduce those compliance costs of operating simultaneously in NZ and Australia.
Question: What is the fiscal cost?
MC: A rough estimate, it’s hard to get an exact figure, it’s probably in the order of around $10 million a year.
PC: We think when it’s fully operational in a full year around $25 million.
That’s Australian dollars?
PC: Australian dollars, yes.
MC: Which are worth a wee bit more than ours.
Question: What’s next for harmonisation.
PC: Well one of the areas we were discussing this morning was in relation to accounting standards. It’s something that has been on interest to us particularly in the wake of some of the international corporate scandals. We are making a move towards best international practice with the adoption of IASB international accounting standards and we had a discussion as to how NZ would be able to have access to our financial reporting council so that it would know the kinds of developments that we are contemplating and, if it should so desire, be able to ensure that it was moving in a sympathetic direction to the directions we have been taking in Australia. That was one of the significant areas that we discussed this morning.
MC: That was indicative of, I think, a general desire to get better and earlier information flows between the 2 jurisdictions to avoid problems developing further down the track when they become harder to fix in a political sense. Clearly the general move is likely to be toward IASB standards. That is understood within the NZ accounting profession. In NZ generally speaking we tend to operate on the GAAP standards at the present time. I think if I could summarise the essential difference is that GAAP tends to be highly black letter law, it leads to very long prescriptive standards which might seem as though they provide higher levels of certainty but by the very nature of their prescriptiveness provide opportunities for driving around or through or between the black letter law. IASB standards tend to be more principles based and actually therefore are rather harder to avoid.
What were the problems to an earlier agreement?
PC: Well one of the problems from our point of view was revenue-involved. This has revenue costs and obviously we had to take that into account. But we are in Australia making a very sustained effort to improve our international taxation arrangements right across the board, not just in relation to NZ but right across the board. And we see this as a very concrete and specific downpayment on that proposal. Australia wants to make its taxation system more internationally competitive. The 1st downpayment is resolving the triangular tax situation with our closest trading neighbour across the Tasman. And in order to make our system more competitive, that does have a revenue cost and one has to take that into account. But there’s also some complexity I must say. Triangular taxation is not something that falls off everybody’s lips in the streets…and it probably took both sides of the Tasman some time to grasp the complexity of the structures involved.
Were any other solutions considered?
PC: Well a range of solutions were considered in a discussion paper some time ago but after consulting both countries this was the best solution. A best outcome.
MC: A best outcome, a mutual understanding.
Have you costed the benefits?
PC: We wouldn’t do it if we didn’t think there were economic benefits. We’ve never really had a practice of trying to cost captured economic benefits because the assumptions are difficult. But we wouldn’t do it if we didn’t think it had economic benefits. What are the benefits? Well, it’s more attractive for NZ companies to earn money in Australia and more attractive for Australian companies to earn money in NZ because they can get some of the tax benefits back for their shareholders. That will bring benefits on both sides of the Tasman.
PC: I actually think this will probably make it more attractive for NZ companies to earn Australian income because they will be able to stay as NZ companies and get some of the tax benefits back to Australian investors. We didn’t see this as a problem of Australian companies leaving Australia for NZ. We actually saw this as a sensible tax outcome with benefits on both sides and while I think it will make it more attractive for companies on both aides of the Tasman to earn income on the other side of the Tasman, I don’t think this will give incentives to move.
Where next with CER?
PC: We would like to further strengthen CER.
In our area, I think mutual recognition, business
harmonisation, corporate harmonisation, improving
tax harmonisation – I’m not saying we’ll ever have a single tax code – but improving the harmonisation will be the next generation I think of benefits in relation to CER. Now these are sometimes technical areas but to the degree that you get the blockages out of the system, you will have much freer movement in business and income as you improve the tax system and investment. I think this is quite a new generation, new wave development for CER.
MC: I know sometimes it sounds as if we’re saying there’s not very much here but in fact this is the essence of the next stage of CER. It is essentially moving towards the point where doing business in Australia is pretty much the same as doing business in NZ and vice versa. It becomes much more a single market in which to operate and we’re well off that stage at the present time and there is a lot of work to be done because the areas involved are by their nature quite complex areas of public administration or complex areas of tax for example so it’s not easily dealt with in terms of moving quickly. In some senses it’s not easily dealt with in isolation one from each other because there tends to be some degree of cross-relevance of rules.
Did they discuss the FTA.
MC: Yes we did.
PC: Well as you know Australia is continuing to negotiate with the US towards a free trade agreement. We discussed some of the progress that we’re making in relation to that and some of the benefits that we believe will be available for Australia and some of the possible benefits as a consequence to NZ because the Australian government thinks that if a free trade agreement helps the Australian economy grow, that will be good for NZ as well.
PC: The Australian government position is that we would like to see at the WTO multi-lateral level progress made in relation to free trade. That is very much a part of our policy. But if, while that is continuing and while we continue to push it in international fora, we have the option of free trade arrangements we will pursue them. The 1st one we pursued was with NZ. We think it’s been a smashing success and now we’ll try and move on in relation to other areas.
PC: NZ obviously will speak for itself in relation to Free Trade Agreements. But when countries go to other countries, it’s done between the countries concerned. This is a negotiation that the Australian government has entered with the US as I understand it.
MC: This is not unusual. The US is negotiating bilateral trade deals with a number of countries: Chile, Australia, Singapore. It’s also got some semi-regional negotiations in line…Simultaneously of course it’s a member of the NAFTA with Canada and Mexico. So the existence of bilateral agreements alongside multi-lateral agreements alongside worldwide agreements such as the WTO is not in itself unusual.
Does the agreement with NZ make the USFTA more difficult.
PC: No. We’re a country which wants to pursue free trade agreements where we believe it to be in our interests and we have wiling partners, and we’ll pursue that in relation to the US. The fact that we have such a good agreement with NZ does not make it more difficult. In fact I think it demonstrates the advantages that you can get from these sorts of agreements. I think CER has been overwhelmingly positive over the last 20 years. I think a lot of people in our respective countries are a bit cynical or perhaps suspicious of free trade agreements. But I think that we can point to the success of CER as a tangible demonstration of some of the advantages.
MC: Certainly from NZ’s perspective.
PC: Australia enjoys a strong alliance relationship with the US in foreign policy terms and in defence terms. And we make no bones about that. We find that when we come to negotiate free trade agreements with the US, that they’re very very focused on trade benefits. I think the Americans always focus on the issue at hand, that’s been my experience of dealing with them….When you’re dealing in trade fora, negotiations are always tough. They’re tough negotiators, they’re like the Kiwis.
Question on what next in the harmonisation agenda.
MC: I think we’re looking in a range of areas. Competition law is certainly particularly important because of the frequency with which companies are operating on both sides of the Tasman in areas where competition issues come into play. So some further move towards harmonisation of competition law would certainly be very helpful. Peter mentioned the accounting standards one. I regard that as very important to try to keep close contact and to move as far as possible together. Australia is rather further down the track to move to IASB than NZ is but clearly that’s an important issue because to have significantly different accounting standards on both sides of the Tasman would create unnecessary costs for businesses. We’ve got the trans-Tasman mutual recognition agreement which has been working very well. There’s already agreement between the 2 prime ministers to review that agreement. We’re very keen to see that agreement extended from the NZ side and that is going to be explored further over the coming period of time. So those are important issues where work is going to be ongoing over the next year. One of the reasons I think it is going to be very useful to have annual meetings is that it tends to create a sense of momentum in these sorts of areas for the bureaucracies. I have certainly found in the past that being able to make direct contact with Peter on issues tends to get things moving along. Then we slow down a bit as our officials get involved again and then we meet again and they speed up again and life seems to move in that fashion.
Did they discuss political union?
PC: I’ve never heard strong arguments on either side of the Tasman for political union. It’s not on the agenda.
Impact of war in Iraq?
PC: Obviously when we discussed the world economy, we discussed the effect war in Iraq could have on the world economy. Our assessment is that some of the effect has already occurred in respect of oil prices which have shot up quite dramatically in response to what has happened to date. The fact that oil prices have shot up to the degree that they have is a dampener on growth in the industrialised world generally and it’s not positive for economic growth. Obviously the fact that you have uncertainty is not a positive for world growth and that will have an effect on confidence so we discussed the way that could affect the international economy and….our own countries.
Did they discuss the two currencies?
MC: No. We discussed the reasons why that may have occurred, the rise of the NZ dollar against the Australian. I think some of that is around issues of perception of relative growth over the immediate future period. Personally I think looking at the 2 countries that those perceptions are actually wrong and the notion that the NZ economy will grow faster than the Australian over the coming year is probably a misjudgement by the markets. I don’t think it’s very much driven by interest rate differentials now. It may have been in the early part of last year but I think now [it is] those growth perceptions. With Australia with the feature of drought and rural fire and so on, p’raps it’s created a picture in some countries which isn’t reflective of the enormous underlying strength of the Australian economy.
Did they discuss the America’s Cup.
MC: Yes, we did. Peter pointed out that the man who lost the America’s Cup was put in jail shortly afterwards – being Alan Bond. And the Australian economy managed to do quite well despite losing the America’s Cup so there’s some small glimmer of hope….And I’m still hopeful we can come back from that. If you’re a member of the NZ Labour Party, you know that sometimes when you’re 3:0 down you can still come back and win.
PC: I’d like to see NZ win, yes I would. I think it’s good to have the America’s Cup down in this part of the world and I’m not quite sure where they’ll do boat races in Switzerland.
On the Aussie loss of the cup: Look it was a terrible loss but Freemantle is still a thriving city and our loss proved to be NZ’s gain in the end. I should point out that the charges that were brought against the head of the syndicate were on unrelated issues. He wasn’t charged with losing the America’s Cup incidentally. I did suggest to Michael that this example could be held out to give extra impetus but I’m sure that won’t be needed.
On the PM’s speech in Australia on Iraq.
We understand that NZ is entitled to direct its own foreign policy as it sees fit. We understand that very clearly. I think similarly NZ would understand that Australia is entitled to conduct its foreign policy as it sees fit. We have argued our case in relation to what we think Australia’s correct response should be and the NZ PM has every right to argue her case as to what she thinks NZ’s response should be. It’s a free country, you’re entitled to state your views where ever you like to state them.
Is triangular tax a nice change from the succession question?
PC: Yes. It is quite welcome actually. It’s a new issue. Those issues you refer to, you know we’ve been through them on a pretty regular basis over in Australia so it’s nice to actually get on to new and interesting fields which can take one’s attention such as the subject of trans-Tasman triangular taxation which one finds very stimulating by comparison if I may say so.
Any comment from Cullen?
MC: Well I’ll simply give you 2 words. You’ll have to go and look them up and find out what they mean. Reversionary interest.
PC: Well, on that note perhaps I’ll go and look them up.