Fran O'Sullivan: Gillard unafraid to confront bogey of reform

Julia Gillard won the hearts of business leaders with her address yesterday to the Trans Tasman Business Circle. Photo / Greg Bowker

Australian Prime Minister Julia Gillard knocked the socks off the Auckland business community with an ambitious address emphasising that New Zealand was a success story and both countries must walk the economic reform road together to ensure their mutual success.

In a country where the word "reform" has become a cipher for measures that feeble politicians are frightened will inevitably upset their voting base, it was truly inspiring to listen to Gillard yesterday as she unashamedly emphasised that New Zealand and Australia had to encourage each other in the "task of reform ... because that task is never easy and there are always temptations to pause and turn away".

Any political leader who runs that line here ends up accused by limp opponents as some sort of running dog for capitalism - aka the New Zealand Business Roundtable.

But this leader of the Australian Labor Party had no problems with the concept. "I have felt those pressures myself, but I have and intend to stand firm against them because any short-term benefits gained by giving way is outweighed by the long-term losses."

There was much more of this muscular (welcome) stripe.

"New Zealand and Australia were island nations to whom nobody owes a living ... if we gain any advantage in the world it is because we fight for it and earn it."

Gillard walks a proverbial tightrope in her own country.

But her address to Auckland business leaders at yesterday's Trans Tasman Business Circle luncheon was well received.

Some key leaders later told me they found her refreshing: "She heads a mainstream centre-left Government - why is Phil Goff taking NZ Labour backwards"; "Gillard marries the mining's economic upside with protecting the environment - why can't the Key Government get the message across"; "liked her ambition - and focus on success".

And so it went on.

Today Gillard and John Key will sign an investment protocol between the two countries and will cement the decision to complete negotiations on the Trans Pacific Partnership agreement.

Yesterday, Gillard made it clear that a full customs union was not on the current agenda - but significantly she did not rule it out.

In the meantime, here are three areas where Gillard could make a really big difference to this country's continuing success:

First, the New Zealand business community would be cock-a-hoop if she gave an indication the Australian Government is prepared to do the hard yards and tackle the long outstanding issue of full mutual recognition of imputation credits between the two countries.

Under the current pro rata rules, franking or imputation credits are allocated in proportion to the percentage of shareholders residing in either country - not where the tax is paid. This can result in double taxation where shareholders are not able to access sufficient credits - and at company level a waste of credit.

Former Finance Minister Michael Cullen pushed the issue with Gillard during her visit as Deputy Prime Minister as part of a quid pro quo for conceding Australia's desire to forge an investment protocol.

He factored in that a new Australian Labor Government with which his party enjoyed fraternal links might be tempted to add a truly transformational measure to the single economic market agenda. Power has changed in New Zealand since then.

But if Gillard's Government does finally decide it is in our shared interests that Australia forgo A$1 billion or so tax revenue to make the switch, it would do a great deal for New Zealand shareholders and (possibly) keep more New Zealand companies headquartered here. Other tax issues will also be up for discussion between the two Prime Ministers.

Second, an early test of her Government's approach to New Zealand's growth in such defining sectors will come with Australia's response to Key's proposal to create an Asia-Pacific financial services hub based in New Zealand.

Australia could use its significant competitive advantage to screw over New Zealand's opportunity. Or, Gillard's Government could encourage its financial institutions - banks and institutional funds - to put more of their back offices here to stop the steady erosion of this country's brains. This is long overdue.

Particularly as the Australian economy is a net beneficiary from the mega amounts of $2.5 billion that are repatriated from New Zealand via annual banking profits/dividends.

And given that Gillard made a barely disguised pitch for more New Zealand talent to work in Australia - some semblance that Australia is prepared to reciprocate would be welcome.

When Kevin Rudd first came to power there was some behind-scenes talk about placing a significant Australian training institution - such as a police college here - but so far nothing substantial has eventuated.

Third, it is high time both countries moved further towards a true borderless single market. This was a major objective for the Australia New Zealand Leadership Forum at its first meeting in 2004.

Former Qantas chairwoman Margaret Jackson spearheaded the move on the Australian side. But the "fly domestic" initiative was opposed by the Howard Government.

Since then we have got used to Australians and New Zealanders sharing the same queue at each other's customs - and technology developments have meant pre-screening makes travel easier. But it's time we moved to domestic flights. A Wellington-Canberra bi-weekly return flight might just be the path-breaker.

Given what's already on the table, the need for more face-time between our respective politicians and officials ought to make that a fait accompli.