Margaret Jackson, Paul Ridley-Smith: United we stand, united we suffocate

As political and business leaders gathered this week to discuss the relationship between New Zealand and Australia, Qantas chairman MARGARET JACKSON, in a speech to the Trans Tasman Business Council in Sydney, advocated ever-closer union. In response, PAUL RIDLEY-SMITH of Infratil - a staunch opponent of the Qantas/Air NZ alliance plan - argues that New Zealand's interests would be jeopardised by the integration Jackson wants. Edited versions of Jackson's speech and Ridley-Smith's reply are printed here.

MARGARET JACKSON

The great challenge I want to explore today is not only important to me, it's important to each one of us. The challenge is to reinvigorate the relationship between Australia and New Zealand.

We need to restate our aspirations for the relationship. Big opportunities are going to waste. Real risks to both our countries are being incurred.

What draws us together is fundamental and eternal. The Anzac tradition remains pivotal in the national psyche of both countries. We have similar political and social outlooks.

We have the most extraordinary and creative flows of people, talent and ideas back and forth across the Tasman. We are a source of everyday inspiration to each other - so much so that we sometimes take each other for granted, and lose sight of real opportunities to advance our common well-being.

On May 1, some of the world's smallest countries joined the world's biggest trading bloc. Places such as Estonia, with a population of 1.5 million people, or Malta, with 383,000. Each one joined the EU, forming a bloc of 450 million people, a quarter of the world's GDP and about 40 per cent of world trade. Each one has accepted that its individual identity is not contingent upon the face on its coins or on minute variations between business regulations.

Make no mistake, these are not countries which easily cede their sovereign control.

But their leaders successfully argued that membership of the EU was less a threat to national sovereignty than a means of enhancing it; a means of creating a secure and stable economic base for their peoples to prosper.

Australia and New Zealand were once at the forefront of economic collaboration - now we are falling behind and placing ourselves at a disadvantage.

The European powerhouse is now huge and only going to get stronger. The Chinese and Indian Governments each preside over populations of more than a billion people, with one central administration managing many cultures, religions and language groups.

The United States remains a dominant centre of economic power and has removed barriers between itself and neighbours Canada and Mexico under the Nafta agreement.

The challenge is now for Australia and New Zealand to harness our common interests.

CER in 1983 was all about freeing up trade and removing the business blockages between Australia and New Zealand. At the time this was a radical shift.

Now it's time to focus on removing the Government blockages; to get rid of the bureaucratic, legislative and regulatory impediments in the relationship. And the mindsets that go with them.

So we must raise the important questions:

* Why can't a business be established in either Australia or New Zealand and operate freely in both jurisdictions without jumping further regulatory hurdles?

* Why can't we have a set of common prudential standards?

* Why can't we have common regulatory standards which protect the interests of consumers and investors, particularly in the area of competition policy?

* Why can't we have the same accounting standards, administered jointly?

* Why can't we have one currency?

* Why can't we even consider having one effective border?

If we can achieve another reform breakthrough like CER we will see more investment, price reductions and cuts in the cost of government.

The proposal for a modest alliance between Qantas and Air New Zealand is just the most recent example of the sort of cumbersome, lengthy and expensive process that business has to endure. We don't need two competition regimes. We need one process and one umpire.

I want to offer this challenge: Why can't we have an integrated Tasman Economic Area?

And I think we must get over our outdated fears and talk seriously about a common currency. If the French and Germans can agree on a single currency, after fighting against each other in two world wars, then surely Australia and New Zealand can do the same after fighting on the same side.

Let's aim for the seamless movement of business between Australia and New Zealand. Let's streamline the bureaucracy, lower transaction costs, increase predictability and certainty, create a better future for our children and their children.

I have no illusions about the hard work required to bring about such a change. But the fact is, the world is changing very fast. We risk being left behind as the world reorganises itself around powerful economic units exerting massive scale.

It's not good enough to say that business integration between Australia and New Zealand is inevitable and then do nothing.

It's up to us. Now. We must support those trying to drive and implement change. And we must apply heat to those wilfully or ignorantly standing in the way of change. Let's make it hard for them.

It's time for us to show leadership and to take the next steps towards a better future for Australia and New Zealand. Together.

PAUL RIDLEY-SMITH

An open letter to Margaret Jackson:

Dear Margaret,

We read with much interest your speech promoting the establishment of the Tasman Economic Area.

What surprised us was the glibness with which you drew tenuous and exaggerated conclusions from sentimental links between New Zealanders and Australians. We both love sport and have shared war experiences, but these will never be reason for a common currency or Commerce Commission. These issues need robust analysis and empirical and objective proof, not platitudes.

You refer to the European Union and imply that it has already adopted many of the common pan-national regulatory bodies that you argue for Australasia. But this is not so. For example, the United Kingdom, France, Germany and - dare we contradict you - Estonia (but we don't really know much about Estonia) have not given up their domestic jurisdiction to regulate competition, banking or accounting standards.

The United Kingdom has retained and strengthened its own Office of Fair Trading, Competition Commission, Takeovers Panel and Accounting Standards Board to deal with domestic issues. It has not sent them to Brussels (or Canberra). The reason is obvious; local people deal better with local issues.

When a merger or competition issue is large enough and has significant cross-border implications, the EU Competition Commission gets involved. But if the transaction significantly affects one EU member country, the matter is sent back to that country for decision by the local regulator.

If the EU system operated in Australasia, the Air New Zealand-Qantas alliance decision would be sent back to the New Zealand Commerce Commission for decision because the substantive effect is on New Zealand. Your proposed disestablishment of the commission would materially reduce the protection of New Zealand consumers.

A common currency means a common monetary policy or, in this case, a monetary policy determined in Canberra. Interest rates would be set to moderate or spur economic activity in the key markets of New South Wales and Victoria and as a function of house prices in Sydney and Melbourne. Never mind if rural New Zealand is in a slump because of falling beef and wool prices.

Transtasman trade is important, but 80 per cent of New Zealand's trade is not with Australia. New Zealand importers and exporters would still face foreign exchange costs and currency fluctuations.

In 1999, Britain rejected the euro and in the next four years its economy grew 6.8 per cent against nil for the rest of Europe.

Singapore and Switzerland are small, trade-oriented countries that have retained control over their own currencies and provide a better model for New Zealand than Estonia.

And so to the small matter of the "modest alliance between Qantas and Air New Zealand". The effective elimination of competition on domestic New Zealand and transtasman routes and the acquisition by Qantas of 22.5 per cent of Air New Zealand hardly seems "modest".

From Wellington, competition on the five most important routes (Auckland, Christchurch, Sydney, Melbourne and Brisbane) would be completely eliminated or reduced to a fraction.

Where is the proof of the benefits? Before we disestablish the New Zealand Commerce Commission, let's hear the proof of why it was wrong to reject an airline alliance that would adversely affect New Zealand travellers to the tune of about $200 million a year. This looks rather like a case of "shoot the messenger".

A few years ago many business leaders and bureaucrats thought it would be good for New Zealand if our stock exchange merged with Australia's. We all knew that merge was a euphemism for takeover.

At the last minute, enough opposition was found to stop this and the experience galvanised the exchange into a major upgrade. Now there is almost universal agreement of the benefits of an independent New Zealand exchange.

Recently, Air New Zealand's chief executive, Ralph Norris, said: "I was in the camp that we should merge with the Australian Stock Exchange. My views have now changed ... I think it is very important that New Zealand has and continues to have a national stock exchange."

Unlike the stock exchange of a few years ago, there is absolutely no evidence that the New Zealand Commerce Commission is not doing a satisfactory job protecting the interests of New Zealand consumers.

Vigorous and fair transtasman competition is good for New Zealand and Australia. Impediments to competition and efficiency, especially in tax laws, should be removed. Fair competition needs rules and referees to stop self-interested dominant parties abusing their market power. And we believe that to be sure the rules are fair we shouldn't sell our referee.

* Paul Ridley-Smith is an executive with Morrison & Co, manager of infrastructure investor Infratil and a member of the NZX Discipline body.