Fran O'Sullivan: Anzac market hopes suffer deja vu

The cameraman lounging outside Peter Costello's office gets it about right: "I suppose we have to help the Kiwis", said the pony-tailed snapper. "Who is this Cullen anyway?" asked another.

As the only New Zealand journalist at the Australian treasurer's joint press conference with Finance Minister Michael Cullen in Melbourne, the Aussie put-downs were a case of deja vu all over again.

The bold plan to link Australia and New Zealand to form a 24 million-strong single economic market is in danger of turning into a running story of lowered ambitions. The two treasurers need to get some wins under their belts by their next annual meeting to keep business on-side.

Take the Australian common border proposal that Qantas chairman Margaret Jackson valiantly pushed last year. Wellington fears Aussie biosecurity risks. Canberra, predictably, fears undesirable humans. Europe put centuries of bloodshed and racial hatreds behind them to form a huge common market. But it's not going to happen here. Period.

Costello's single Australasian banking regulator proposal was dropped. A rear-guard guerilla campaign by the New Zealand Reserve Bank ensured that both countries will continue to retain separate banking regulators. Information will be shared. And if crises emerge, the regulators will co-operate to assure their country's respective financial stability.

Capital-raising has also been streamlined through a decision to allow companies to raise funds using a single prospectus across both markets.

But these changes are not of sufficient size or momentum to ensure a transformative effect on the New Zealand economy.

Two areas where Cullen and Costello could score are investment and taxation.

Trade experts like Melbourne-based Alan Oxley, the former Australian ambassador and chairman of GATT, can't understand "why you Kiwis haven't got at least the same deal the US scored in its FTA deal with Australia. You did CER [Closer Economic Relations] years ago. Put it to Costello," he encouraged.

"Well, Australia would like to offer New Zealand treatment as favourable as it does to the US," said Costello a few hours later.

US companies get a huge advantage when they go shopping across the ditch. New Zealand companies have to get Foreign Investment Review Board approval to buy shares or assets in businesses valued at A$50 million ($56 million) or more. US investors don't need FIRB approval unless they plan to spend more than A$800 million or buy a sensitive asset.

Australian investors face restrictions on this side. But our Overseas Investment Office tends to be laissez-faire.

Cullen says Australia will make an offer to New Zealand first. Costello says Australia will "want a quid pro quo".

At issue are some rather out-dated rules around residency. Despite this Australian companies hold some 40 per cent of New Zealand's foreign direct investment. New Zealand companies, in contrast, have frequently faltered in the Australian market, the Air New Zealand acquisition of Ansett, allowed only with restrictions that made it difficult to slash jobs, a case in point.

Costello and Cullen hope to unveil an investment proposal at their 2007 bilateral.

Mutual recognition of dividend imputation and franking credits also remains a bugbear for Australasian companies.

Cullen did push hard on this at his private meeting with Costello. But it's just not on Australia's agenda.

"If we want to keep banging our head against that brick wall - it is a fairly large brick wall from the NZ perspective - then we won't make progress on other issues," says Cullen.

Business doesn't buy this of course. Nor should it.

Costello and Cullen were challenged by senior Australasian businessmen during their luncheon to just get on with it.

What will advance is a review of the double taxation treaty. Costello wants this to match the type of deals Australia has with the UK and US.

But Cullen cautions there will be a cost to New Zealand if the non-resident withholding tax is subsequently reduced. He has given an undertaking to Costello that the NRWT - which is "high by international standards" - will be one of the issues New Zealand focuses on once the forthcoming review of business taxation is done.