Harmonisation

By NICK HODSON

At Knowledge Wave 2003, Australian High Court Justice Michael Kirby advocated political union between New Zealand and Australia as way of taking their close relationship to the next level.

Inevitably, in New Zealand that suggestion is met with cries of horror. Does that means Kiwis would have to become Wallaby supporters?

A more serious question for companies in New Zealand is whether transtasman business would benefit from further harmonisation between our laws.

A lawyer's first question is to ask what we mean by "harmonisation". The answer can be divined from the difference in language between a Memorandum of Understanding signed by both governments in 1988 and the current MOU signed in 2000. The 1988 MOU had the goal of harmonisation - having the same laws governing commerce in the two countries. In the 2000 MOU, the language is directed towards the "co-ordination" of business law. If the governments are no longer talking about harmonisation, have we gone as far down that road as we need to?

The announcement by Michael Cullen and Peter Costello on triangular tax was a positive step towards a co-ordinated transtasman tax regime. Is this type of co-ordination a better way to acknowledge our differences while trying to reduce business compliance costs?

At the two Finance Ministers' joint press conference, competition law was also mentioned as an area for further harmonisation. It is hard to see how. Although there are some procedural differences between how the Commerce Commission and the ACCC deal with cases, the rules that they are enforcing have been much the same since New Zealand's 2001 reforms. We are even seeing co-operation and some exchange of staff between the regulators. Competition lawyers argue that until we have a true common market like the EU, New Zealand and Australia are different markets and the impacts of business activities on competition need to be separately considered in each country.

The key to identifying other areas for reform is whether they reduce compliance costs and increase the overall level of economic activity. Even though it is a modest reform, solving the triangular tax problem meets these criteria - it will initially reduce double taxation (and therefore both countries' tax revenue) with the medium-term goal of increasing business and therefore each country's tax base.

Further tax reform is always at the top of any discussion on this issue. The real issue for governments to grapple with is whether they are prepared to let go of revenue in the short term in pursuit of a longer-term goal of stimulating business activity in both countries. Solving triangular tax is only a short step on that journey. However, one of the reasons that tax reform has taken so long is that the solutions can be complicated - and complexity does not necessarily equal lower compliance costs unless the tax savings are enough to make the cost of claiming them worthwhile.

Following scandals in the US, there is also more focus on accounting standards used by public companies. Standardisation of transtasman accounting principles would reduce compliance costs for businesses in both countries. At present, businesses struggling with differences in accounting standards must adopt the higher standard wherever there is a conflict. Harmonisation makes obvious sense and that work is under way. The same can be said of continuous disclosure requirements for companies listed on stock exchanges in each country. One set of rules is ideal. But even if there isn't complete harmony in disclosure rules, complying with the higher standard is the only way to comply with both regimes.

In the takeovers arena, Australian Denis Byrne has joined the New Zealand Takeovers Panel and the chairman of our panel, John King, is now a member of theirs. These appointments will promote a consistent transtasman approach in the absence of harmonisation.

The change of emphasis in the 2000 MOU could be seen to be a step away from transtasman business law harmonisation. Critics use the phrase "unilateral harmonisation" because New Zealand always seems to adopt Australian rules. We do have harmony in many of the critical areas.

But both countries still compete with each other for overseas investment by making themselves as attractive to investors as possible with a business-friendly regulatory environment. One argument is that it would not be in business' best interests for that competitive element to be removed entirely. Even within Australia there is fierce rivalry between the states to attract new businesses. That can work in favour of investors if they can secure the incentives on offer.

Unless New Zealand and Australia are going to have a meaningful debate and move towards political union, our laws are probably as harmonious as they can be. There will be further harmonisation in areas where it suits both countries to simplify to a single system. But the immediate focus may be on further co-ordination and co-operation between our regulatory bodies.

* Nick Hodson is a partner in the corporate team at Minter Ellison Rudd Watts.

Herald Special Report: