Speech to Trans-Tasman Business Circle

Thank-you for inviting me to talk about why strengthening our ties with Australia has been and will continue to be a strategic priority for New Zealand.

I'm conscious that I'm speaking to a very well-informed audience, so rather than talk at length I'll allow enough time for questions. 

Anticipating those questions, the first point I want to underscore is that deepening New Zealand's relationship with Australia versus the rest of the world is not a zero sum game.

One question often asked is why is Australia a priority? Wouldn't we be better to commit resources to China or the United States?

The answer is - that New Zealand has to pursue its strategic interests across a number of fronts, but Australia has a special and unique place within that calculation. 

I doubt there's anyone here who would question Australia's political and economic importance to New Zealand - and to our welfare. More than 460,000 New Zealanders live in Australia.  That alone points to how important Australia is to our welfare.

The evolution of the trans-Tasman relationship stands in contrast to Europe's political and economic integration.

New Zealand and Australia have a shared colonial experience - with some differences - in a very distant part of the world. We were friends from the beginning. Indeed, the Australia constitution has provision for New Zealand to join Australia - something that was a serious option at the beginning of last century.

We have common cultural, legal, and social frameworks that differ from the majority of the bigger economies in our region. Our people are free to travel and live in each other's countries.

This historical context has supported a more natural evolution of the relationship. But it has also resulted in a lack of appreciation of the level of institutional integration at the political, regulatory, and social levels that support the relationship today.

Those institutional arrangements aren't all formalised by treaties, but include a raft of instruments - some of which are based on informal undertakings.

In short, we share a level of shared interest, understanding, and comfort with each other that neither of us has replicated with other partners. No jurisdiction other than New Zealand has been invited to observe and participate in Australia's Ministerial Council processes.

In August last year a joint meeting of senior members of both Cabinets took place alongside the Prime Ministers' meeting. And the invitation to New Zealand to participate in one of Australia's key internal reform processes - that of the Business Regulation and Competition Working Group, chaired by Australian Ministers Tanner and Emerson - reflects the Australian Government's commitment to ensure we have the opportunity to inform their micro-economic reform agenda where our interests may be affected.

Whichever lens you look through, Australia is our most important relationship.

In economic terms, it remains the most important market for our manufactured products, the most important source of our foreign investment, an important source of our skills, and a significant source of our tourism earnings.

New Zealand benefits from the strength of the likes of Australia's banking infrastructure. Our respective businesses have and will continue to exploit the opportunities associated with cross-ownership of companies.

Of late there has been some comment about the threat of Australia "hollowing out" New Zealand. I don't subscribe to the thesis that deeper integration of the economies will exacerbate this and that New Zealand will end up being worse off.

Putting barriers in the way of business or people movements is not the answer.  It will simply add costs. People and business must be free to move to enhance their competitiveness. 

As Prime Minister John Key noted when he addressed the Committee for Economic Development of Australia: "There was no question that at the core of any successful productivity focused growth strategy lies the New Zealand-Australia relationship."

Most of you will be familiar with the key elements in trans-Tasman institutional evolution that have supported deeper economic and social integration.

The most recent, of course, was the Joint Statement of Intent by Prime Ministers Key and Rudd in August last year, in which they committed to a set of principles to drive regulatory coordination efforts and identified a framework of outcomes they would like to achieve.

The Joint Statement has provided a strong new political push to advancing the vision of a single economic market. 

At the time, the Prime Ministers expressed their commitment in the face of challenges posed by the global financial crisis.

But both governments recognised that the strategic pursuit of a single economic market is supported by more than the immediate challenges posed by the crisis.

I can confirm from my own experience and discussions with Australian Ministers over the past year or so that they're committed to making real progress. It's in Australia's interest to do so.

The clear statements by the Prime Ministers of the outcomes they would like to see have sharply focused the respective bureaucracies.

Prime Minister Key has delegated responsibility to me to work with my Australian counterparts to advance the 27 regulatory outcomes identified in the Joint Statement. This is one of my top three priorities this year.

The focus on what we want to achieve is simple and embodied in the seven principles identified in the statement:

• One: Businesses should not have to undertake the same process or provide the same information twice. We want to strip out unnecessary compliance and transaction costs for businesses operating in both markets.  Technology and deeper integration of our legal frameworks open up these possibilities.

• Two: We want stronger alignment of our laws to provide similar regulatory outcomes in order to reduce transaction cost, promote greater certainty to business, and provide a stronger trans-Tasman investment environment. We want international business and investors to see the opportunities that a strong integrated trans-Tasman market can provide.

• Three: We want to ensure that products and services provided in one jurisdiction can be supplied in the other without additional regulatory costs. The trans-Tasman Mutual Recognition Arrangement goes a long way to achieving that for goods and occupations but requires continued close attention.

• Four: We want regulated occupations to be able to operate seamlessly between each country. Though the trans-Tasman agreement partially achieves this, I can see a future where an architect or an engineer's registration in New Zealand would be all that was required to operate in Australia - and vice versa.

The new court proceedings and enforcement treaty may open up this possibility. The Trans-Tasman Proceedings Bill, which will make it easier to resolve legal disputes, had its first reading in Parliament late last month. It will expand the range of court judgments that can be enforced between jurisdictions and streamline the process for enforcement. And it will reduce the cost and complexity of trans-Tasman litigation and provide more effective legal remedies.

• The fifth principle in the Joint Statement is that both governments want to achieve the benefits of economies of scale and scope in regulatory design and implementation.  This makes particular sense for New Zealand, as the smaller economy, where the cost of running a comprehensive modern regulatory regime can be disproportionately high.

• The sixth principle is to strengthen our joint capability to influence international regulatory/policy design in favour of our joint interests. In this context, we want to create an environment that supports strong Australasian commercial partnerships to take up global opportunities. 

• And lastly, we want to apply a net trans-Tasman benefit ruler over joint policy development.

I'll come back to that soon.

I make the point here that in seeking to deepen our regulatory co-ordination we're not setting off on a separate track from the rest of the world. Our approach necessarily will be strongly informed by the convergence of international standards and practice.

A formal Trans-Tasman Outcomes Implementation Group, co-chaired by a senior official in the Australia Treasury and the Ministry of Economic Development, has been established by the Prime Ministers to drive the process. It will very shortly be reporting formally to my Australian counterpart and me, but I can report good progress in a number of areas.

The work towards a single cross-border insolvency proceeding where an insolvent entity has interests on both sides of the Tasman is on track. The aim of this is to provide greater legal certainty for trade and investment, to reduce transaction costs, to improve distributional fairness in the event of insolvency, and to facilitate business rehabilitation with associated benefits to investors, creditors and employees.

Good progress is being made on a single set of accounting standards for large Tier 1 for-profit entities. This may be achieved as early as the middle of next year.

We're also likely to achieve the establishment of functional equivalence of our respective financial reporting standards bodies in Australia and New Zealand by the middle of next year. This will secure deeper co-ordination in the future.

New Zealand's auditor and financial advisers' regimes are being developed in a way that will support mutual recognition. Most of you will be aware of the priority I'm giving to this work.

The work on providing for investors and other users of financial products in Australia and New Zealand to receive comparable disclosures is also progressing well.

Initial priority is being given to comparable disclosures for managed funds because the majority of trans-Tasman issues making use of mutual recognition of securities issues arrangements are managed funds. Achieving this outcome will aid capital-raising and investment in both countries.

Also on track is the initiative that will allow trans-Tasman businesses to file company information only once to meet the requirements of both governments.

And we now have closely aligned anti-money laundering regimes and are looking to broaden the scope of areas covered.

We're working towards achieving the same consequences for the same anti-competitive conduct. In January, the Government released a discussion document on the criminalisation of cartel behaviour. I want to emphasise that we're not pursuing this initiative just because Australia introduced criminalisation. There are, on the face of it, compelling reasons for New Zealand to do so to remain in step with most international practice.

I know this is an issue that has excited some interest from the business community, and I'm looking forward to receiving a comprehensive report on the submissions in the next week or so.

I'm also pleased to report that very recently agreement was reached on cross-appointments of Commissioners between the ACCC and the Commerce Commission.  As you will know, this is something my Australian ministerial colleagues and I have strongly supported. Processes are now under way to give this effect.  These appointments will underpin co-operation on trans-Tasman competition issues.

Significant progress has also been made on achieving ambitious intellectual property outcomes which have the potential to substantially reduce business costs.

We're working towards a single application process for patents and alignment of trade-mark registration procedures, and a single regulatory framework for patent attorneys.

There are other areas of progress, including outside my portfolio area, which together I believe represent a significant increase in momentum over the past six months.

I will turn now to return to the implications of the net trans-Tasman benefit principle which has attracted some public discussion.

This principle is explicitly designed to encourage both sides to think about and address issues in the context of strengthening the trans-Tasman economy. It requires each of us to move beyond a narrower national benefit calculation on an issue-by-issue basis.

The principle is designed to encourage both sides to address co-ordination issues in the longer-term context of the New Zealand and Australian economies becoming more deeply integrated and our respective national interests being more deeply linked to the health of the Australasian economy. 

The principle encourages an overall balanced benefits approach across the range of areas under the Outcomes framework and more broadly to achieve the goals of a more seamless market. It allows for trade-offs.

This means that sometimes New Zealand may concede something in the interest of achieving other objectives and advancing the goal. At other times Australia will.

I note, however, that the principle is inherent in many of the multi-polar negotiations that New Zealand and others enter into - such as negotiating rounds under the World Trade Organisation. These negotiations simply could not take place if every participating country had to gain on every issue.

That it's being discussed in New Zealand may point to an underlying fear that in many instances a larger Australia will gain at the expense of a smaller New Zealand. In many, if not most cases, practical experience has shown the opposite to be true.

In some instances, a small cost has been imposed on Australia to allow New Zealand to participate in a common regulatory regime. New Zealand, on the other hand, has gained significantly from such participation.

Clearly, neither government will do anything that is seriously against its national interest in the longer term. But if we both accept the premise that our interests are closely linked then we need to recognise that issues that may seem relatively significant in terms of concerns today can take on a different complexion as deeper integration takes place. 

The principle does not take as a starting point that harmonisation is the objective.

This is not about New Zealand harmonising to the Australian regime. Unilateral recognition or adoption of the other party's rules or laws is consistent with the principle.

Electing to leave a level of regulatory competition in the system and providing for alignment through mutual recognition may also be perfectly consistent with the principle.

The test is: Will it make the trans-Tasman economy stronger and more attractive to international businesses? The principle requires close attention to how the argument supporting continued differentiation of regulatory approaches potentially strengthens the trans-Tasman economy over the longer term. 

It requires us to think beyond a simple short-term compliance cost-benefits test in determining the value of deeper co-ordination initiatives proposals. We need to think more critically about how more closely-aligned regimes will support dynamic market responses to the benefit of both of us.  Some of this will be a matter of political judgment.

I conclude by anticipating the question on whether a single economic market means a single currency, a common monetary policy, or harmonised tax regimes.

I simply say that it's premature to put these issues on the table. Indeed, to do so could be an unhelpful distraction. It may be that as deeper integration evolves then these issues will require serious consideration. On the other hand, they may, for a variety of reasons, never be considered a practical possibility.

This is a very exciting time to be engaged in the Australian New Zealand economic agenda and I look forward to continuing to progress this work.