19 August, 2009
Speech to the Committee for the Economic Development of Australia (CEDA)
Thank you for the opportunity to speak to you today.
I’m very pleased to be back here in Australia again – my second visit this month.
It’s a real pleasure to be here in Melbourne today to talk to such a diverse group of well-informed commentators on public policy as yourselves and to hear your perspectives on the issues.
Given your particular interest in economic development, I’d like to focus today on the trade and economic pillar of the trans-Tasman relationship.
In particular, I want to talk about how New Zealand and Australia can use CER - the Closer Economic Relationship - and our shared Single Economic Market agenda as a mechanism for building productivity.
Above all, I’d like to share with you my vision of New Zealand and Australia working together to create a stronger, more connected and more streamlined trans-Tasman trade and business environment.
In the current challenging global economic climate, this development of a more efficient and effective trans-Tasman trade and economic relationship assumes an even greater importance.
It is vital that we join forces with our closest friends to meet these new and pressing challenges together. Above all, we need together to send out the message loud and clear – our economies are open and will stay open for business.
There is also much to be gained by teaming up to position ourselves into the future and to take best advantage of the global recovery when it comes.
We need to develop an environment for business that releases our countries’ productive potential, and importantly, increases the growth, productivity and profitability of our tradeables sector – that is our companies that are in competition with the rest of the world.
An important component in any economic growth strategy is improving productivity.
My Government is working on a number of policy initiatives to increase productivity, not least to ensure that our economy emerges well placed to move ahead at the other end of this global economic crisis
There is no question that at the core of any successful productivity-focused growth strategy lies the New Zealand-Australia relationship.
Let me reflect a moment on this relationship from New Zealand’s perspective.
For New Zealand, there is no relationship as significant or as diverse as that which we have with Australia.
The connections are more extensive and more entwined with domestic interests and processes than is the case with any other relationship.
The pillars of the trans-Tasman relationship are strong and mutually reinforcing:
- People-to-people links are the closest they have ever been and are getting ever closer. That is emphasised by the literally millions of visits each year across the Tasman. Ours is truly the most unique people-to-people, family and business relationship.
- That ease of movement also of course allows for frequency and intimacy of contact between the two countries, which in turn supports a huge array of business-to-business and government-to-government interactions.
- The high degree of economic integration between the two countries is under-pinned by one of the world’s most successful trade and economic relationships.
- We have a history – a long history - of cooperation across a wide range of foreign and domestic policy issues and interests.
- And we have a defence alliance and defence cooperation with deep roots in history, and this is given contemporary relevance by joint deployments especially in our immediate region.
- Finally, in support of all of these factors, we have a bedrock of shared values and aspirations – values to do with democracy, good governance, individual responsibility and a “fair go”.
In terms of the trade and economic aspects of the relationship, it’s useful to remember that the moves towards greater trans-Tasman economic integration are recent ones – but we have come an extraordinarily long way in a comparatively short time.
A far-sighted vision a little over a quarter of a century ago saw Australia and New Zealand agree to work towards mutual market opening and greater international competitiveness.
We should acknowledge the aspiration and ambition of those who provided the leadership to take us in new directions.
This vision led to establishment of the set of agreements we call Closer Economic Relations, or CER. CER has been a remarkable success in both countries – it creates a market of over 25 million people for exporters. For Australia, this means access to an economy about the size of Queensland.
Since the signing of CER, Australia has become New Zealand’s number one trading partner and number one export destination, taking over 23 per cent of our total exports for the year ended December 2008. Over the past ten years, New Zealand’s merchandise exports to Australia have more than doubled, currently running at nearly NZ$10 billion.
In turn, New Zealand is Australia’s seventh largest trading partner. Australia is New Zealand’s number one source of imports, supplying nearly one fifth of our total imports, amounting to 4.2 per cent of Australia’s total exports and worth NZ$8.5 billion for the year ended December 2008. This is a 64 per cent increase over the past ten years.
In total, trans-Tasman merchandise has increased by a staggering 86 per cent over the last ten years.
Similarly, two-way services trade has also increased significantly, up 67 per cent to nearly AU$6 billion.
CER’s success rests on the fact that it is comprehensive – there are now almost no barriers to trade in goods and services across the Tasman.
But the success of CER goes beyond simply the mechanics of trade:
It has played and continues to play a key role in the internationalisation of the New Zealand and Australian economies.
It provides the gold standard against which all other free trade agreements that New Zealand and Australia have subsequently negotiated are measured.
And most significantly, it has provided the platform for ongoing trade and economic integration between our two countries.
Having dealt with barriers at the border – tariffs, quantitative restrictions, import licences, and so forth – both countries are now deeply engaged in dealing with barriers behind the border. That’s where the real opportunities now lie.
This is occurring in the “Single Economic Market” process. This is where we are working to address the transaction costs – the ‘friction’ if you like – which companies face in doing business either side of the Tasman, especially as a result of different laws and regulations.
So work is underway to make it easier to do things, such as offer securities in both countries using the same offer documents; to simplify cross-border insolvency proceedings; to make trans-Tasman company registration easier; to improve the alignment in administration of competition law between the two countries; and so on.
While these are not intrinsically sexy subjects, the gains in these areas are significant and in very real practical terms make doing business across the Tasman easier.
As I said earlier, today I want to share my aspirations about the next “far-sighted vision” for the trans-Tasman economic relationship.
I want to create an environment where business can operate as efficiently as possible, to boost productivity in both our countries.
I want to achieve a seamless business environment.
What do I mean by that?
It’s very simple – my vision is that a company here in Melbourne, for example, can do business in Auckland as easily as it can in Sydney
And I want us to build commercial partnerships and enhance the export capacity and performance for our Australasian businesses.
I see three core areas where governments can make a real difference:
- developing smart regulation;
- driving productivity gains for our economies; and
- capitalising on our joint capacity for international influence, including leveraging into third markets.
Sadly, red tape is an issue for any government.
I am pleased to say, however, that cutting red tape is the business of my government.
We all know that if we get it right, then regulation will facilitate business.
But we all also know that when governments get it wrong – and they so often do - it creates a barrier to business. It stifles innovation. It stifles productivity.
That’s not my vision for our partnership.
This is an area where I know New Zealand can do better – and I am determined it will.
We are already engaged in a major review of the Resource Management Act – I would describe this piece of legislation as having been like a foot on the brake of our economy.
I expect that the outcome of that review and subsequent reforms will take the foot off that particular brake.
I am also pleased to see that Australia too is undertaking a similar process through the Council of Australian Governments and its Working Groups.
And I was particularly pleased when Kevin extended an invitation to me for New Zealand to participate in the Business Regulation and Competition Working Group.
I welcomed that invitation.
New Zealand’s involvement will mean we can share our experiences of cutting red tape and we can learn from yours.
So what we’re looking to do in the trans-Tasman space is in fact mutually reinforcing what we’re both doing at home.
I firmly believe that an essential concept in creating a trans-Tasman Single Economic Market must be to reduce transaction and compliance costs associated with operating in both markets.
Let’s get rid of the friction that is slowing us down.
I want to reduce regulatory duplication, strip out compliance costs and streamline the process of doing business across the Tasman.
Second, I believe we need to focus on generating productivity gains. Smart regulation is a large part of this, but there is more to it than that.
By working together, Australia and New Zealand can achieve economies of scale and scope in regulatory design and implementation.
By operating under the same regulatory umbrella where possible, we can cut the cost of running a comprehensive modern regulatory system.
The elimination of tariffs between us has already been an important driver of productivity growth. Our task now is to build on that, and the productivity dividend it will bring, with increased openness across a range of areas.
CER provides a great platform for productivity growth.
- It encourages innovation by our exporting and importing firms as they compete and are exposed to more competition in both Australia and New Zealand.
- It encourages the development of technology as the movement of capital and people between our economies is increased. The enhanced linkages through services, for instance, are facilitating a sharp uptick in investment flows and skills transfers between our countries. That’s wealth and income creating – and a key driver of productivity
- It helps insert us into global supply networks by giving us the combined grunt to plug us both into regional and global networks, including through our expanding network of Free Trade Agreements.
- And it assists with our broader economic integration in the Asia-Pacific region. Both of our economies are actively pursuing FTA negotiations – both separately and together.
- I believe that our ongoing engagement with the region must include regulatory harmonization, infrastructure development, and collaboration. Of course we can’t expect that to be like CER overnight. But these are the drivers of growth – they facilitate transit trade and transport. They facilitate inward and outward investment flows.
The above effects accumulate to an economy over time.
And these productivity gains from trade result in not just one-off lifts in economic activity. In fact such gains can drive sustained increases in the productivity growth rate over time.
That’s what really matters - sustained increases in the productivity growth rate over time.
That’s what I am really interested in as the Prime Minister of New Zealand.
The third element of my vision for our partnership is to strengthen our joint capacity for international influence.
With CER as a template, we are already powerful allies on trade policy.
Trade Ministers Tim Groser and Simon Crean are working closely together to support and advance the WTO Doha negotiations. Concluding these negotiations is a matter of vital importance to us both.
Similarly, we are in close dialogue on our wider trade policy objectives. We are close partners in APEC and the East Asia Summit.
We have just concluded joint negotiations with ASEAN on a free trade agreement – AANZFTA as it’s known.
That is a very exciting and in fact historic development. It is the first negotiation that CER has undertaken together.
I hope we can do more of these kinds of negotiations.
This 12 country FTA binds CER with ASEAN.
This 12 country FTA creates a free trade area of almost 600 million people. This new area has a combined GDP of over US$1.9 trillion and over US$1.7 trillion of global trade.
This 12 country FTA is a major opportunity for our two economies to plug ourselves directly into the most dynamic and fast growing region in the world.
We need to work together to maximise the gains from this agreement to the CER economies – something I hope to discuss with Kevin when we meet later this week.
But that’s not all we are working on.
We are both actively engaged in pursuing a Trans-Pacific Partnership – a visionary free trade agreement with key players in our region.
It is an agreement that will bind our region ever closer together – from the Americas to Asia, with CER benefitting all the time.
By ensuring ‘best practice’ regulation and policy amongst ourselves, we can influence other international standard-setters and send a strong signal to the rest of the world about the strategic priority we both accord the achievement of a Single Economic Market.
And we are also then best placed to give a strong and united trans-Tasman push for keeping markets open. We both stand to reap significant benefits from a more liberal global trading system.
In the current economic climate, this is even more important. Staying open for business in both word and deed matters.
We are not just having to work to gain new trading opportunities, we are also having to work hard to maintain our existing markets.
A number of our key trading partners have resorted to protectionist measures in the erroneous belief that this is the best way to help their economies.
That is disappointing for their sake and for ours.
History tells us a compelling story in this regard. It is in all of our interests to avoid having the global trading system mired in protectionism.
This kind of short sightedness will only stall the trade-led recovery urgently needed.
The global economic crisis has had profound international effects.
I am pleased, however, that the CER economies have weathered the storm well.
The one thing we’ve both learnt is that in times like these you just have to keep capital flowing – that’s investment flows in both directions as well as credit. That is the life blood of our two economies. If the credit isn’t there, then businesses can’t function, orders go begging, jobs are lost and then there is a domino effect through the wider economy.
For our economies - credit lines have remained open and investment flows have continued apace.
We already have over NZ$122 billion in trans-Tasman investment. Australia is both the largest and fastest growing source of investment in New Zealand, with a massive 108 per cent growth in the six years to March 2008.
Right now, we are looking after a total of NZ$87 billion of Australian funds.
Australia is the largest and fastest growing destination for New Zealand investment, up 89 per cent over the same period to NZ$34 billion.
My Government wants to make it as easy as possible for capital, just like people, goods and services, to flow freely between the two countries – that’s one of the fundamental pillars of the CER relationship.
That’s why we’re working on negotiating an Investment Protocol to the CER Agreement.
We’re making significant progress. Kevin and I agreed back in March that we should aim to get it done by year’s end.
The new Protocol should make it even easier for you to invest in New Zealand, and for New Zealanders to invest in Australia.
A springboard to third markets
Through all these steps, we can further boost trans-Tasman trade and build the size of our ‘domestic’ market to our mutual benefit.
But we can also tackle barriers to prosperity beyond our borders.
A robust Single Economic Market gives us the extra economic strength that will help us to weather the current economic storms. And it will provide an important springboard for our companies to the world.
The dynamism, economies of scale and innovation potential offered by the Single Economic Market is enormous. It exposes us to new ideas, new skills, new technology, and new competition.
And all of that enhances our mutual export capacity – and the same is true for Australia.
The Asia-Pacific region is a shared priority of our two Governments.
I’ve already talked about my aspirations for the AANZFTA agreement and my expectation that CER can leverage new opportunities in the 600 million person market we have created.
I am excited about developing further our strategy for engaging with Asia. And Australia will be a key part of that.
We need to build on APEC, the EAS, potentially the Trans-Pacific Partnership. All of these are forums where we already work together with a strong voice. We have the potential to leverage these to our mutual advantage.
A robust and progressive Single Economic Market is a cornerstone of our current and future relationship. A strong, well-functioning and dynamic trans-Tasman market gives us a cushion against the tough times globally. And it will position us strongly to grow and prosper when the worst of the economic recession has passed.
I believe that working together our economies and our business people can take the Single Economic Market to a new level.
I believe that new level will be and must be dynamic, outward looking, engaged and engaging.
I believe that the more we can do this, the more likely we are to produce together Australasian companies. Australasian companies that are at the cutting edge.
That is what CER is all about.
That is my vision for our shared partnership.
I expect to have some exciting new initiatives to announce with Kevin later this week.
I expect these to inject new momentum into the SEM work programme.
And I expect these to allow the CER economy to soar to new and loftier heights.