Dr Cullen's address to DTT
DTT & Council for Economic Development of Australia
Deloitte Touche Tohmatsu, Level 21, 505 Bourke
Dr Cullen's address to Deloitte Touche Tohmatsu & the Council for Economic Development of Australia
It is usual for Australians and New
Zealanders to celebrate their great and enduring rivalry,
mainly because the rivalry has such a positive historical
tradition. In fact on Saturday the positive features of that
rivalry were so evident on the rugby field that our South
African guest allowed all of us to enjoy it for a few
minutes longer. For this we thank him.
Today I want to talk about where Australia and New Zealand may head collectively. This is where rivalry is put aside in the interests of common interests.
In economic terms, we have seen an incredible level of integration during the last twenty years. We have a common labour market, a common goods market, and an almost completely open frontier as far as investment is concerned and we even have a common commercial banking sector. The latter was by accident, rather than design, I must sadly conclude.
So is the business finished? Do we now just get on with life to best advantage within our mini common market?
I would like to suggest that there are three areas, not so much of unfinished business, but on which we construct the next plateau. The first is the integration, or at least harmonisation, of commercial law and regulation. The second is in the broader dimension of reciprocal rights of citizenship. The last is our joint interest in building new international opportunities.
I don’t need to dwell on the next steps for commercial law harmonisation. On a number of occasions I have indicated that the New Zealand government is taking steps to upgrade our competition law. Better protection for minority shareholders in the event of a takeover bid, and better protections against insider trading are part of that. Reviews of the regulatory regime applying to the telecommunications and electricity industries constitute another part. A more robust standard on anti-competitive activities is being established.
I have also made it clear that if there is a desire by the stock exchanges of both countries to move towards greater integration, and if the law is a barrier to that, then I am willing to sponsor legislative change that will reduce those barriers.
There is one final part of this package on which more work needs to be done. At the moment imputation tax credits earned by companies cannot be claimed by shareholders resident in the other country. There are significant revenue implications in moving to a mutual recognition of imputation credits earned. But the issue may be one for future discussion between our two governments. In the meantime, I expect progress to be made on what is usually called the triangular tax issue.
The question of rights of citizenship in both countries generally has a much lower profile, which is surprising because we had an open border for people long before we had an open border for goods. In fact so ingrained is the notion of freedom to move across the Tasman in our respective national psyches that very few of our respective nationals bother to change citizenship, even when in their own minds they have made a permanent shift in abode.
They simply don’t go around with “Kiwi” or “Aussie” stamped on their foreheads or imbedded in their residential intentions. The problem is that as governments we tend to think that they do, and there is a regular attempt to do some sort of social welfare reconciliation on who owes what for the income support of the citizens resident in each other’s country.
We may be reaching a stage in our relationship where the fiction of being foreigners in each other’s countries needs to be exposed. This is a sensitive issue, as much politically as financially – perhaps more so. On this side of the Tasman there is the stereotype of the so-called Kiwi bludger on Bondi Beach. From our side we firmly believe that there is a massive economic advantage to Australia in the flow of labour between our two countries.
Kiwis who come here tend to have higher labour force participation rates, lower unemployment rates, and higher earnings than the Australian average. And that is after taking Russell Crowe out of the averages. This means that not only does the New Zealand taxpayer bear a significant portion of the cost of developing the human capital that you use, but those who come here tend to raise the per capita tax paid relative to per capita income support paid.
Don’t get me wrong – we realise you need help and we are happy to help you out – but at times I feel like sending a bill for tax paid by Australian resident kiwis every time I get a bill to cover some of the costs of Australian resident kiwi beneficiaries. The finances aren’t my main argument. My main argument is that if we are a genuine common market we need to get the notion of sub-markets out of our policy practices.
The third element of our unfinished business is how we relate to the rest of the world. There are trends in the global marketplace that are at times contradictory. At one level, markets are opening up and trade is becoming freer. At another, trade is consolidating within regional trading blocs or economic communities. Our mutual problems are our size and our distance. Even together we are too small and too far away from the high income mass markets of the world to take full advantage of the opportunities of the global economy.
In this environment, there is a tendency for both of our economies to develop a mix of commodity trade and niche marketing. We compete in the lowest and the highest ends of the value chain. Our fuller growth potential, and the capacity to raise the living standards of our people, rests essentially on our success in moving back towards the middle from both ends of the spectrum.
Our commodity based industries need to add more value, and our niche products need to penetrate larger markets. In theory we can do this from our Australasian fortress. It does need a lot of research and development, skills enhancement, market penetration and so on. I am not sure how your economy has done in this regard, but our performance has been less than stellar.
There is no magic bullet, but I think our mutual economic interests are enhanced if we move to expand the range of countries with which we have enhanced special relationships. These can fall short of full economic union and indeed even short of full free trade agreements.
There are, though, countries where mutual interest can improve the size of the markets within which we all expand the penetration of value added product. Obvious examples are Singapore and Chile, but we should not see that as the limit of our options.
My theme is that we are close socially, historically and economically, and yet we develop our social and economic strategies totally independently. I haven’t got any firm ideas on how to close that process gap, but I have signalled in New Zealand that at some point we need to develop what I have tentatively labelled an “Australia strategy”. The logical extension of that is that we develop it through a process of codetermination.
The rivalry will not end, but we can pursue the rivalry from a position where we can collectively pursue and advance our individual welfare.