Address to Brookers Tax and Regulatory Seminar "Doing Business with Australia"
Wellesley Boutique Hotel, Maginnity St, Wellington
It is my pleasure to open today's seminar. I have made it one of the goals of my tenure as finance minister to strengthen the trans-Tasman business relationship, which is of enormous significance to us in terms of trade and investment.
As a government we have been committed to enhancing cooperation on both sides of the Tasman with the aim of developing a seamless trans-Tasman business environment, or single economic market, by reducing compliance costs and other regulatory barriers.
That commitment has been matched by the Australian government, and I do not believe it would have changed had there been a change of government in last weekend's Federal election. However, the result does allow us to continue on our agreed programme of work without missing a beat.
The importance of the trans-Tasman economy and our stake in each others success should not be underestimated.
For example, in the year to August 2004, 21 per cent of New Zealand's exports, valued as free on board, were destined for Australia. Over the same period, New Zealand sourced 21.7 per cent of its imports, valued at cost, including insurance and freight, from Australia.
Australian total investment in New Zealand was $51.3 billion at 31 March 2004, up $9.1 billion on a year earlier. New Zealand total investment in Australia was $20.8 billion at 31 March 2004, up $3.6 billion on a year earlier.
The story goes deeper than these raw numbers suggest. As well as the direct trade and investment linkages, the relationship helps business on both sides to compete and expand globally.
Australian businesses are increasingly seeing New Zealand as a good place to fine tune their products and business models before expanding internationally. New Zealand businesses view the Australian market as a means of building up critical mass and as a key part of their global expansion strategy.
Hence the strategic importance of the agenda of work Peter Costello and I have been progressing in recent years. Of course, that work depends for its success upon New Zealand and Australian businesses such as those represented here today. We as ministers are levelling the playing field, providing clear boundary markings and getting clarity and consistency in the refereeing. But that means nothing unless you as business leaders field a team.
That may seem an obvious point to make. However, it has always been clear to me that the best incentive to make progress on integration issues is the example of businesses successfully taking advantage of new provisions and pushing their boundaries by finding new ways to add value to the trans-Tasman economy and hence raising new issues in harmonisation. Successful integration breeds more integration. Many of the challenging issues are hard to resolve in theory, and are best solved in the context of trans-Tasman business links that are expanding, deepening and becoming more sophisticated.
So what I would like to do this morning is to provide a quick update on the major issues that are under active consideration, and indicate how these will reshape the business environment for trans-Tasman businesses.
The work agenda covers five major issues:
- Competition policy;
- Accounting standards;
- Securities offerings;
- Banking regulations; and
Regarding the first of these, the Australian Productivity Commission is currently taking the lead on this, and is examining the potential for greater cooperation, coordination and integration of the general competition and consumer protection regimes in New Zealand and Australia. A draft report is to be released this month, with a final report to Ministers by the end of 2004. The Australian Productivity Commission will also hold public consultations with business and interested parties in both New Zealand and Australia in November.
For New Zealand businesses, a more harmonised competition and consumer regime should increase certainty for businesses seeking to expand their operations or to form strategic alliances across the Tasman and reduce compliance costs.
On a more practical day-to-day level, variances in accounting standards can impose a significant cost on businesses operating trans-Tasman. Under the best of circumstances, accounting standards and practices are in a state of constant evolution. Recent years have seen some spectacular failures in business ethics (the HIH case being the largest one in our part of the world) and this has cast an even stronger spotlight on the need for clear and unambiguous standards and scrupulous oversight of accounting practice.
In this context, a Trans-Tasman Accounting Standards Advisory Group has been established to look at ways of reducing costs and improving efficiency through proposing a single set of accounting standards in both countries.
The Group has met twice and made considerable progress, including identifying differences in standard setting frameworks and standards, which will be used to determine which differences matter, and determining the main priorities for maximising the leverage of Australia and New Zealand in the development of international accounting standards.
The ultimate aim would be for a trans-Tasman company to keep only one set of accounts which serve in both jurisdictions. This may take some time to achieve, but there is reason to be confident that we can make significant progress in the medium term.
Turning to trans-Tasman financing issues, a joint discussion paper on the trans-Tasman recognition of offers of securities and managed investment scheme interests was released in mid May. The proposals sought to allow issuers to offer securities in both Australia and New Zealand using the same offer documents and structure. The aim is to promote investment and reduce the costs of raising capital, while maintaining investor protection through appropriate disclosure.
Submissions on the document have been generally supportive of the proposed mutual recognition arrangement, but raised a number of technical and implementation issues which are currently being considered by Australian and New Zealand officials. These are not of a nature that would derail the basic concept; however, they need to be worked through carefully.
Finally, on banking regulation, in July, the Australian Treasurer and I received a report on a framework for assessing the options for closer integration in the regulation of trans-Tasman banking.
Banking regulation may seem a rather abstruse exercise, but it is important, given the increasing range and specialisation of financial services providers. An energetic and well-governed banking industry is an enormous asset to a business community.
Following on from the July report, Cabinet has invited the Reserve Bank to work on strengthening the existing home-host relationship between prudential regulation in Australia and New Zealand.
A review group has also been established to work through the trickier issues identified in the report. The group will report back to us early in 2005 on how well New Zealand's major financial institutions are performing and whether different institutional arrangements, including a trans-Tasman approach to regulation, would contribute to stronger growth and economic development in New Zealand.
To turn finally to tax, the key point I should make is that the two countries are not moving towards harmonisation. There will be no capital gains tax for New Zealand, and it would be very difficult for Australia, I suspect, to move to a relatively simple GST system such as ours.
The longstanding approach in the tax area is close co-operation. For example we are cooperating on a tax information exchange agreement, and last year both countries enacted legislation that made it possible for Australian companies to join New Zealand’s imputation credit rules, and New Zealand companies to join the Australian franking credit rules. In this way a longstanding tax obstacle to trans-Tasman investment was reduced.
The way we design tax rules can create unintended problems in Australia and vice versa. Problems have arisen in Australia from our rules on foreign trusts in New Zealand, and Australian unit trust rules have created similar problems for our tax system. This illustrates how our tax systems are closely related and why we need to co-operate.
Australian and New Zealand officials try to meet at least twice a year to discuss a range of tax issues, both policy and operational issues. These meetings provide a good opportunity to gather information and signal potential issues for meetings at ministerial level.
In the area of taxation of banks we have common issues but the perspectives are sometimes different. There is the tax issue, of course, and you will be aware that the government is introducing legislation to make the tax laws relating to foreign-owned banks more robust.
To sum up, and to rise above the detailed issues, my government is keenly aware of the importance of our economic relationship with Australia. We have firmly in our sights a regime of business regulation that places the minimum barriers to trans-Tasman business that is consistent with protecting and promoting our national interest. We have an extensive work agenda that is already well advanced, and are constantly working to identify further opportunities for closer cooperation, where these are beneficial and in the best interests of both countries.
As I said at the outset, however, New Zealand businesses are the energy source that will turn the efforts of both governments into a dynamic and integrated economy. I trust that today's seminar will provide further impetus towards that goal.