Date posted: 6/01/2017 5 min read

Australia-New Zealand economic relations: for better or worse?

How trade between Australia and New Zealand could be smoother

In brief

  • As far as symbols go, the “two countries, one visa” arrangements for the 2015 Cricket World Cup sends a powerful message about the closeness of the Australia-New Zealand relationship
  • The most recent spat came earlier this year after the two big Australian supermarket chains – Coles and Woolworths – stopped selling NZ vegetables in some Australian product lines, impacting directly on NZ’s Talley’s Group and up to 100 Canterbury-based growers
  • Ties to Asia will be the big thing. Asia already tends to see us as one market, and I think that these demographic changes are likely to make us closer and make the relationship more special, but not in a way which may have originally been envisaged

By Jacqueline Fox

As far as symbols go, the “two countries, one visa” arrangements for the 2015 Cricket World Cup sends a powerful message about the closeness of the Australia-New Zealand relationship.

The two countries are so comfortable with each other and so trusting of each other’s ability to police their borders that cricket fans from elsewhere in the world need just one visa for both countries, which will together stage world cricket’s showpiece event.

But while it might be “two countries, one visa” for a sporting event, it’s not quite “two countries, one market” in economic practice.

Just over 30 years after both countries signed the Closer Economic Relations (CER) agreement, ongoing irritants are a reminder that, while Australia and NZ might be close, they might not be as close as the architects of the CER imagined when they put pen to paper in 1983.

Bilateral trade between the two nations has grown by 10.6 per cent annually since then, and is now worth A$16b. Australia is NZ’s largest foreign investor, with investments worth A$21b.

For all that, protectionism still raises its head in the area of agricultural and food exports from NZ. From complaints about the dumping of NZ wine in Australia to the 90-year ban on importing NZ apples, agriculture has remained a touchy subject.

The most recent spat came earlier this year after the two big Australian supermarket chains – Coles and Woolworths – stopped selling NZ vegetables in some Australian product lines, impacting directly on NZ’s Talley’s Group and up to 100 Canterbury-based growers.

NZ Labour’s trade spokesman Phil Goff called the decision a “fundamental threat to NZ exporters” and a breach of Australia’s CER obligations. NZ Prime Minister John Key called it a violation of CER, in spirit if not legally, but declined to challenge the move.

Then, of course, there are the differences in access to social security, electoral rights and education for the estimated 600,000 Kiwis living in Australia, whose special category visas have created their own controversy.

As Massey University’s Grant Duncan said on the academic website The Conversation last year, some New Zealanders complain that refugees and asylum seekers have more rights in Australia than NZ workers.

Where is the ANZAC spirit at work there?

At the Trans-Tasman Business Circle, which describes itself as a “strategic growth partner” for leading Australasian businesses, founder and Chief Executive John Weiss has a slightly different view.

Despite such flare-ups, Weiss sees “huge steps” towards the harmonisation of the two economies through microeconomic reforms such as the joint recognition of qualifications, parallel legislation in the securities industry and portable superannuation.

“I think if you look at the original vision of CER, that did anticipate a more integrated economy so we have a little way to go to achieve that,” says Weiss.

“But in many ways the single market is here already. Companies are built on a trans-Tasman basis – you only have to look at the banks, Fletchers and Fonterra – and they are single economic market companies, so the private sector has moved ahead very rapidly to organise itself around this idea, and is taking great advantage of it.

“You look at things like the flow of executive talent between the countries, particularly in areas such as banking, and the integration of back offices and you can see that many aspects of the economies are integrating, despite what might happen in agriculture from time to time.”

Much of the “nuts and bolts” of reform is in the hands of the bureaucrats and, while that may not sound too dynamic, Weiss says they are making good progress.

The two countries have moved closer to the concept, first proposed in 2004, of a Single Economic Market (SEM) and have tasked a joint working group — the Trans-Tasman Outcomes Implementation Group — to execute a wide range of initiatives across areas such as consumer law, financial reporting, financial services and intellectual property.

The group issues a report every six months, and the most recent one – dated May 2014 — says that “nine short-term outcomes and four medium-term ones are now complete” with a further six “on track” to be completed by the end of 2014.

This is against a benchmark, identified in 2009, of 27 outcomes to be completed by the end of this year.

“We are very positive as a business community about what is being done,” says Weiss, who has business interests that “straddle the Tasman”.

The integration, he says, has been “slow and steady” and focused on specific microeconomic reforms and the harmonisation of legislation rather than tackling more headline grabbing issues such as customs or currency union.

Weiss sees ‘huge steps’ towards the harmonisation of the two economies through microeconomic reforms such as the joint recognition of qualifications, parallel legislation in the securities industry and portable superannuation.

Single currency?

On the latter point, currency union, Weiss is in favour of a single currency.

“It does get messy working in two currencies all the time across the same business, but we get on and do it,” he says.

“But I’ve heard all of the arguments for currency union, and nothing has moved. Part of the reason for it is that the response from Australia has been that they are happy with currency union as long as NZ starts to use the Australian dollar, and that is obviously an issue in NZ.

“If you look at the example of the Euro, every jurisdiction gave up their currency sovereignty, and they lost or gained, but that is not on offer here from Australia.

“New Zealanders do observe that the Australian dollar is not so dominant as it was in NZ trade flows so, while it would be nice, no-one is clamouring for it.”

The idea that currency union could reduce business costs and boost investment was examined by the productivity commissions of the two countries in 2013. Ultimately, however, both countries concluded that currency union would not “generate net benefits” and should not proceed, largely because it implied a loss of autonomy over monetary policy and exchange rate flexibility which neither country wanted to give up.

“This [currency union] means that in the event of an economic shock to New Zealand, but not to Australia (or vice versa), adjustment through the exchange rate or monetary policy would no longer be possible, and would instead necessitate adjustment through prices, wages and employment,” the report from the Australian Productivity Commission said.

“Adjustment through these channels is typically slower and can result in more volatile prices and output.”

Many aspects of the economies are integrating, despite what might happen in agriculture from time to time.

Politics

The most radical embrace between the two countries would be some form of political union, most practically through inviting NZ to become the seventh state of the Australian Federation.

Public opinion, however, suggests this is unlikely to happen any time soon. It is a while ago now, but a 2010 UMR poll of 1,000 Australians and 1,000 New Zealanders found little support for the idea.

Only 37 per cent of Australians and 24 per cent of New Zealanders either supported or strongly supported NZ becoming the seventh Australian state. While 71 per cent of New Zealanders were totally opposed to the idea, it did not arouse such strong antagonism in Australia, with only 52 per cent opposed.

According to Weiss, Australia and NZ are now enjoying the benefits of “economic harmonisation and unity” without having to go to the, somewhat contentious, extent of political union.

“We are already doing so much of this, and the momentum is there for us to be closer without having to do it through our parliaments,” he says.

“We already have the mechanisms in place, and these are mechanisms which go back to the CER, for regular meetings between ministers and officials and this is really driving a lot of the real change, and that is from the bottom up.”

Asked to look 50 years into the future, and what that might hold for the trans-Tasman relationship, Weiss points to likely changes in demography of the two countries.

“If you look at it demographically, both countries are changing very rapidly,” he says.

“Australia is becoming significantly more Asian, and NZ is more Asian and Polynesian, and these changes are really going to develop links between us and Asia and the region.

“Ties to Asia will be the big thing. Asia already tends to see us as one market, and I think that these demographic changes are likely to make us closer and make the relationship more special, but not in a way which may have originally been envisaged.”

This article was first published in the December 2014 issue of Acuity magazine.

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