The agenda

By MICHAEL CULLEN*

In the first decade of CER, there was steady progress in improving the trade flows between the two countries. CER was kicked along in the 1990s through the Transtasman Mutual Recognition Agreement: with that, business could take for granted that what could be sold in one market could also be sold in the other.

But of equal (if not greater) importance was that a deepening of economic integration was taking place as a result of private sector initiatives.

These took many forms. Some companies relocated head offices nearer to the bigger market. Some co-located manufacturing capacity to get better flexibility in servicing markets. Companies consolidated head office and IT systems.

The point being that an organisation and investment adjustment took place underneath the expanding flow of trade.

The question we face now is how do we continue to enhance CER? It is a bit of an over-simplification, but the next phase should further foster and encourage transtasman flows of investment.

The case to breathe new life into CER rests on mutual interest, but New Zealand probably has the greater interest in moving forward on harmonisation and co-ordination of business law and commercial regulation.

Decisions on business location are mostly driven by fundamentals: scale economies, access to skills and resources and so on.

However, there is a risk that, at the margin, increased concentration of production and management in Australia may be influenced by the prospect of having to do business under two different regulatory regimes.

Specifically, Australian companies may stay at home to avoid the hassles of setting up in unfamiliar territory.

Part of the success of CER to date is that both countries trust the regulatory and institutional frameworks of the other. Without such trust, mutual recognition cannot work.

Looking forward, both countries recognise the need for strong competition laws, robust provisions on the issuing of securities, good product standards and the rest, if we are to get the confidence and certainty that are necessary conditions for healthy investment.

The challenge is to respect the sovereignty of each country and recognise the differences in the needs of our respective markets, but move towards a common, or at least compatible, set of business rules.

A central question to ask is how we handle competition issues in the two jurisdictions. It is too early to contemplate a merger of our Commerce Commission and Australia's equivalent (ACCC).

We can, though, start sharing information about policy developments on the competition tests that are being applied, and scrutinising case law to see if we are evolving down confusing or conflicting paths.

It is not out of the question to envisage cross-representation on the respective competition authorities as the first step towards better harmonisation.

Similar sentiments apply to raising capital in each market. Australian Treasurer Peter Costello set the goal as being to enable Australian and New Zealand companies to raise funds in both jurisdictions using a single disclosure document that complies with the requirements of the relevant home jurisdiction.

If there can be mutual recognition of company registrations and a common approach to insolvency law and practice, we will be moving towards a much more seamless approach to augmenting investment flows between and within each economy.

While the specific decision of the February 19 Treasurer/Finance Minister meeting related to tax, I do not think that a full integration of our tax systems is very likely in the near future.

We can look at the administrative systems that underpin the tax systems so that there is more commonality and less compliance cost in data gathering, processing and reporting. We need to make sure that we do not head off in opposite directions over the vexed issue of the treatment of offshore investment.

I would like to think that we can harmonise tax on venture capital arrangements so that we maximise the flow of venture capital into Australia and New Zealand, rather than compete between ourselves for a bigger share of a fixed flow.

CER has a lot of scope to grow. The challenge for both countries is to recognise that CER is far from mature, and to extract the value that has been somewhat overlooked in the last 10 years.

* Michael Cullen is Minister of Finance.

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