Cullen and Costello Joint Press Conference
Joint Press Conference: Hon Dr Michael Cullen And Hon Peter Costello
Thursday, 17 February 2005
Hon Dr Michael Cullen: Well, good afternoon, ladies and gentlemen. It is a pleasure to be here this afternoon with Treasurer Peter Costello on our annual talks, which we have been having today, between the Australian Treasurer and the New Zealand Minister of Finance. Of course, what has dominated our discussions today has been the issue of the single economic market. Last year we talked in terms of the concept of a single economic market over this last year; today we have been making further significant progress in that direction.
One specific decision today was the commitment to establish a joint trans-Tasman council on banking supervision; endorsement of the work programme laid out in the Australian Productivity Commission’s report to achieve closer cooperation between the Australian Consumer and Competition Commission—the ACCC—and the New Zealand Commerce Commission; and also investigating the possibility of adding an investment component to the Closer Economic Relations Agreement.
On banking, of course, we are amongst the most highly integrated banking markets in the world. We see benefit there for moving towards seamless regulation in this area in order to minimise regulatory hurdles. We want to maintain the momentum towards that goal. So we are going to form a joint council—the two Treasuries: the Australian Prudential Regulation Authority, which is the regulatory authority for banking in Australia, and the Reserve Bank of New Zealand, obviously our regulatory authority—to work towards that objective. We also undertook to explore what legislative changes may be necessary to ensure that APRA and the RBNZ can support each other in the performance of their current regulatory responsibilities at least regulatory cost.
On some of the broader issues around competition, regulation, etc., the Australian Productivity Commission recommended a work programme to more closely integrate our competition and consumer frameworks. We endorse those recommendations, and will continue the work programme recommended within that report, but we see the recommendations and the report as very much a first step towards the greater goal of establishing a joint regime rather than as ends in themselves. Generally, therefore, we see a two-step process: harmonisation leading over time to joint supervision.
The treaty establishing a mutual recognition regime for securities offerings is likely to be finalised within the next 2 to 3 months. That would be a major achievement in terms of the single economic market. Substantial progress has been made towards standards alignment on accounting. Australia is slightly ahead of us in adopting international accounting standards, but they will be aligned very soon. We are now broadening the focus with a regional forum, to be held later this year and repeated regularly, to achieve greater coordination of standards across the region.
We have also confirmed the decision taken at the CER Ministerial Forum last year to extend Australia’s wine equalisation tax rebate to New Zealand wine producers for their sales in Australia. I want to thank Treasurer Costello in particular for that decision. That will be, of course, an issue of some complexity. We get to work out just exactly how New Zealand wine producers exporting to Australia will receive that rebate. I am sure there will be no difficulty in arriving at a workable process in that regard.
Hon Peter Costello: Thank you very much, Finance Minister Cullen. Can I first of all thank you for your hospitality, reaffirm the value of the relationship between our two countries, and say that from our perspective the development of a single economic market across the Tasman would bring very valuable benefits to both countries.
Our country is still small in population. Our companies are always looking for opportunities to engage in new investment, and obviously New Zealand is a great place to invest. If we can produce an arrangement by which they can move into New Zealand, and New Zealand companies move into Australia, with the minimum of fuss and the minimum of regulation I believe there will be enormous benefits on both sides of the Tasman. Our goal ought to be that in relation to the raising of funds, if a company is complying with the laws in its home then it can also raise funds in the other country across the Tasman on a single prospectus. Our goal ought to be that, for competition purposes, Australia and New Zealand are viewed as one market. Our goal ought to be, in banking, that we can move seamlessly in banking operations across the Tasman without the need for regulatory doubling-up and without the need for expensive, different compliance requirements. So, if we can put all of that together I can see our two countries growing closer—much closer in an economic sense. This is down to the nitty-gritty, the hard technical work now, but from a political point of view I think it is important that we keep our eye on the ultimate goal and on the ultimate benefits that it will bring to the populations on both sides of the Tasman. Thank you.
Media: Dr Cullen, with the move towards unified banking regulation, would you be looking for some sort of guarantee that New Zealand creditors would be accorded the same status as Australian creditors even if, say, an Australian bank collapsed?
Hon Dr Michael Cullen: The issue of depositor preference is one which will be dealt with as part of the study work, I am sure, by the joint council, because inevitably that issue comes into play. There is a whole range of other issues that come into play as well, in terms of capital allocation and so on. So, I wouldn’t want to single that one out as being the key element in the process.
Media: Is that something though that you would want to push for?
Hon Dr Michael Cullen: As I say, I don’t want to single that out as being a key element in the process. As Peter has outlined, we are looking towards an end point of seamless regulation, so depositor preference may or may not become part of that. There is a whole range of other issues which are equally important.
Media: Does seamless regulation imply a single regulator?
Hon Dr Michael Cullen: Not necessarily so, and specifically the press statement does not refer to, and the terms of reference do not refer to, a single regulator. That is a possible end point, obviously, of a process, a development towards a single economic market.
Media: Can you give a bottom line on how prescriptive that regulation should be?
Hon Dr Michael Cullen: Not at this point, no. Clearly we do not want, on either side of the Tasman, overly prescriptive regulations. It is also fair to say, however, that on this side of the Tasman we have a range of regulatory mechanisms in place in relation to non-banking financial institutions which clearly need overhauling and updating. We are actually well behind Australia in that respect. So, on this side of the Tasman there is a need for us to address that issue of the broader regulatory regime around financial institutions, probably within the context of this movement trans-Tasman. Some time ago Australia moved to a single regulator covering the broad range of financial institutions, at that point banking regulation moved outside of the RBA.
Media: So you include insurance companies in that, do you?
Hon Dr Michael Cullen: That indeed is included within that, because those institutions have become, in some respects, more and more like banks in terms of their behaviour and responsibilities. It is clear that in New Zealand we have not sufficiently caught up. MED has been doing a great deal of work on that, and will be reporting to Government within the quite near future in terms of its proposals.
Media: Could we ask Mr Costello for his view on a single trans-Tasman banking regulator and whether that is the end point?
Hon Peter Costello: Well, there are two ways in which this could be accomplished. One would be if you had a single regulator with depositor protection extended to depositors in the same way on both sides of the Tasman. That would be the most integrated end point. A step back from that would be two separate regulators, in which case you would not have the same depositor protection extended to people on both sides of the Tasman actively engaged in cooperation, administering a harmonised set of rules. One set of rules, two regulators; or one set of rules, one regulator, with uniform depositor protection. They are the two options that I see. I think as we move forward we have got to keep both of them open. What is not open, in my view, would be two regulators, different depositor protection, and different rules. That would be leading to duplication and unnecessary cost.
Media: Out of the two main options, what would be your preference?
Hon Peter Costello: Well, I think we ought to go into this relationship being ambitious—that is, we ought to be as ambitious as we can to harmonise the economies of our two countries. If there are national interests reasons that mean we can’t arrive at that end point after we have carefully considered them, we will make that decision. But let us start off with an ambitious agenda here.
Media: Are we facing an ambitious Australia and a cautious New Zealand?
Hon Peter Costello: No, no, you’re facing two amorous friends who move and respond in the way good relationships operate.
Hon Dr Michael Cullen: Everyone knows I’m not quite as ambitious as Treasurer Costello.
Hon Peter Costello: Not quite as amorous, either.
Media: Mr Costello, there is a fight today about the very basis of this relationship, the commemoration of the landing at Gallipoli. Do you have a view on whether John Farnham should be performing in the pre-dawn hours?
Hon Peter Costello: I wouldn’t say there is a fight over the Anzac relationship. The Anzac relationship, and particularly the Gallipoli memorial, is as strong as they have ever been. As someone who attended it 2 years ago with the New Zealand Governor-General, I know how much it means to both countries. Look, it is a solemn memorial, and I understand that the people who organise it want to ensure that the solemnity is preserved. Bearing that in mind, they will make their decisions. I don’t give them entertainment advice.
Media: Would that solemnity though be preserved if Johnny Farnham was there?
Hon Peter Costello: I don’t think John Farnham appearing in the ceremony would be consistent with solemnity. There are discussions about what happens around it, but I’m sure that the decisions that are being made by the organisers are the right ones.
Media: At a broader level, that ceremony is now part of the backpacker trail around Europe. How does Anzac Day move forward from being a very small commemoration of war to being something new?
Hon Peter Costello: When you say, “How does it move forward?”, 2 years ago I was at that ceremony. It was shortly after September 11th. There were terrorist concerns. The Australian Government was warning, as no doubt the New Zealand Government was warning, of safety concerns. People wondered whether the backpackers would turn up, and as the dawn came up over Anzac Cove there were 10,000 young people in the hills. They were proud and they were patriotic. I want to say to you I think that ceremony has moved forward, not because any Government did anything but because in the hearts of the younger generation this means something to them. The best memorials are those that are kept alive in the hearts of the people, rather than directed by Governments.
Media: You have talked of the possibility of adding an investment component. Is that the reference to raising capital or is it something else?
Hon Dr Michael Cullen: It is only a possibility at this point, Colin. CER, unlike some other international agreements of this sort, does not have an investment chapter, which in part reflects the fact that it is actually quite an old agreement by the standards of these sorts of agreements.
Media: So you mean adding another formal component to CER? Is that what you mean?
Hon Dr Michael Cullen: We want to explore the possibility. There are difficulties in that because it then raises questions about how that relates to a range of other agreements which both countries have—
Media: Like NARA?
Hon Dr Michael Cullen: Like NARA, yes, indeed.
Media: Mr Costello, there is a message here that if New Zealand wants the same deposit protection as Australia for New Zealand depositors, there has to be one banking regulator.
Hon Peter Costello: Well, if you had a unified regulation, part of that would be unified depositor protection, but if you had separate systems then you will have separate depositor protection, as we currently have.
Media: Right, so it could be done with different regulators but the same regulations?
Hon Dr Michael Cullen: That would essentially be a matter for the New Zealand Government if it was going to provide depositor protection, if it was within a totally separate regulatory environment.
Media: Dr Cullen, do you have any concerns that if we move to a single trans-Tasman banking regulator, there might be a loss of jobs and tax income for New Zealand?
Hon Dr Michael Cullen: No.
Media: Especially given that most of our banks are Australian-owned?
Hon Dr Michael Cullen: No, not necessarily so. A great deal depends on the nature of the kinds of recommendations that emerge out of the joint council in terms of the arrangements between the Australian and New Zealand elements within that banking system. So I do not think there is any obvious and necessary connection between those two things.
Media: You say you endorse the Productivity Commission’s report, but it sounds as though at the end point you want to move to some legal form of integration of the kind that they consider, or is it not worth the effort at this stage?
Hon Dr Michael Cullen: I think it is fair to say that we both feel that the goal should be more ambitious than perhaps was encompassed in the detailed recommendations of the Australian Productivity Commission report, but that report is still very helpful in terms of a series of steps along the way and work to be done in the meantime. It is one thing to have a vision, it is also important to be taking the steps towards that vision. Sometimes you can take the steps without the vision. I think what both Mr Costello and I are saying is that we want to keep reminding people that there is a vision at the end of these detailed processes around accounting standards, banking regulations, whatever it may be, which is about a single economic market.
Media: With regard to the mutual recognition of security offers, Australia has a fairly prescriptive licensing regime for both issuers, fund managers, and investment advisers. New Zealand has nothing like that. Do you see us moving to adopt the Australian regime, if we are to have mutual recognition?
Hon Dr Michael Cullen: I will wait to see the final recommendations coming through in that respect at this point. Clearly, there will be mutual recognition. We are strongly committed to that and we will make progress. What that means is that we have to be satisfied about what is happening in Australia, and Australia has to be satisfied about what is happening in New Zealand.
Media: Dr Cullen, if we make some move on another chapter of investment in CER, does that imply that Australia could be exempted from the Overseas Investment Act, like common properties could be owned in Australia, or do you see some other regime in operation?
Hon Dr Michael Cullen: There are many investment chapters which do not imply that kind of move, and if that was the position then—and Treasurer Costello can correct me if I am wrong—you would have to have massive changes to the Australian legislation which they would then have to flow on to a number of other countries which might be in a better position to buy up large amounts of Australia than New Zealand is.
Media: So it is no, really.
Hon Dr Michael Cullen: I didn’t quite say that, but you can draw that conclusion if you wish.
Media: The issue then is why bother, because it is fairly free-flow already.
Hon Dr Michael Cullen: That is one of the reasons for looking at whether we should do it. I mean, we are doing our classic New Zealand trick here—let’s jump to the conclusions before we have done the work. We are suggesting let’s do the work to see whether it is worthwhile doing it, because, as you say, it is a very open border anyway in terms of investment.
Media: Have you got a timescale on the accounting standards issue?
Hon Peter Costello: I would think that we are pretty close, actually. Australia has already adopted the international standards. New Zealand, I understand, is going in 2007. We have got to make sure that as we implement those standards we do so in a harmonised way. From the work that I have seen that has been done, we are very close.
Hon Dr Michael Cullen: But we are also talking in terms, if I might add to that, of looking at some kind of joint accounting standards body into the future to make sure that we keep close alignment between the two countries. There is always the risk, of course, that you get divergence over time again. Having had convergence, we do not want to see that happening.
Media: Any talk of a common currency?
Hon Dr Michael Cullen: No.
Media: What is your view of it, Mr Costello?
Hon Peter Costello: I have said previously that Australia is not interested in starting up some new currency—that is, we don’t have any interest in getting rid of the Australian dollar and introducing some new currency to Australia. So, if it were premised on that basis we do not see the benefits flowing.
Hon Dr Michael Cullen:` Which I will try to explain from our side, as well. It is not an issue of common currency. The issue actually on the table is do we adopt the Australian dollar, and the New Zealand Government is not moving in that direction.
All right, thank you very much everybody.
Hon Peter Costello: Thank you.