Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Closer Economic Relations for the Future
Address to the Trans-Tasman Business Circle Breakfast
Wellington, New Zealand
18 July 2008
It is a real pleasure to be with you here in Wellington this morning. I'd like to thank my hosts, the Trans-Tasman Business Circle and Dr Cullen, for their wonderful hospitality on this, the 25th anniversary of the Closer Economic Relations agreement between Australia and New Zealand.
Having reached this symbolically significant 25 year milestone, I'd like to reflect a little on the important political, social, economic and – most importantly – sporting ties between our two nations.
I was tempted to remind Dr Cullen that New Zealand actively sought Australian assistance to help make your league team more competitive, until I remembered we now have a New Zealander coaching our union side. It then occurred to me that Wayne Bennett didn't help improve your team – whereas Robbie Deans, on the other hand, has an unblemished record!
This is a modest example of trans-Tasman support and cooperation and arguably one which is benefiting Australia more than New Zealand.
In addition to sport, there are many other examples of cooperation that demonstrate the deep and long-standing affinities between our two countries.
We have fought side by side in global conflicts that have shaped our nations. We have strong cultural links which are continually reinforced by the free movement of people between Australia and New Zealand. And of course, we share an ongoing commitment to tackling the big economic challenges we face.
Ours is an ambitious government and sweeping reforms are in the pipeline. Not just in climate change, which I'll touch on shortly.
In the Education Revolution – the engine room of prosperity and opportunity. In infrastructure – the biggest nation building investment fund in our history. In COAG – modernising out federation, and creating a seamless economy. And in the Tax Review – to better reward hard work, and make Australia more internationally competitive.
Formal economic links, across oceans, are another important way to meet the big economic challenges of our times. Some of you may be aware that the economic links between Australia and New Zealand were formalised in 1922, when our two countries first agreed to reduce trade tariffs on particular goods. We've come a long way since then.
In the 1950s and 1960s, Australia and New Zealand enjoyed high rates of economic growth, which coincided with an increase in exports for both countries. It was in this environment that the push for a more liberal approach to trans-Tasman trade surfaced.
By 1980, the concept of Closer Economic Relations had crystallised and a formal agreement was signed in Canberra in March 1983 by the then Labor Trade Minister, Lionel Bowen, and the then High Commissioner for New Zealand, Sir Laurie Francis.
In those early days, the agreement sought to phase out tariffs and quotas and wind-down export incentives. These measures were intended to strengthen the broader economic relations between our two countries and eliminate barriers to trade. You ended up with our banks, while we got your Sauvignon Blanc. So, yet again it seems like we are doing better out of this relationship!
I believe that the Closer Economic Relations agreement will continue to provide benefits for Australians and New Zealanders for decades to come. One of the reasons for my optimism is our flexible and dynamic approach to managing our economic relations.
The Closer Economic Relations agreement allows for such flexibility. It was always intended to be a work in progress. History shows that it has evolved with the times.
Twenty five years ago, the global economic environment was far different to what it is today; so too were attitudes regarding the free market. Capital markets at that time lacked today's sophistication and complexity. In Australia, the major economic reforms of the Hawke-Keating Labor Governments were yet to be implemented.
Australia, for its part, has since floated its currency, moved towards a deregulated financial sector, instituted major tax and tariff reforms, improved competition policy, and developed a range of policy initiatives designed to create a more productive economy. The CER agreement has been revised to reflect many of these changes.
What started off as an agreement to advance free trade in goods between Australia and New Zealand now promotes economic links in a much broader sense. This is because we have been ambitious and willing to tackle the big challenges both as individual nations and together, as friends.
Climate change is perhaps the most significant of these challenges. And let me say at the outset that I understand there are critics who either believe in more dramatic and harsher responses – or the sceptics who believe no response is necessary because climate change doesn't exist. The science tells us it does exist and I'll come to some of that in a moment.
Even in this room there may be people who want to continue to delay introducing a sensible market-based mechanism to reduce carbon pollution. I have one simple message for them: the time for delaying, dithering and deferring action is over.
Professor Ross Garnaut's recent interim report on climate change has shown that for Australia, like the rest of the world, the cost of inaction on climate change are likely to be very high.
If we don't do something about climate change Australia can expect to suffer from:
- a 92 per cent decline in agricultural production in the nation's food bowl - the Murray-Darling Basin;
- declining tourism - precipitated, by the destruction of natural wonders such as the Great Barrier Reef; and
- up to a 35 per cent increase in the cost of supplying urban water, due largely to extensive supplementation of urban water systems with alternative water sources.
Simply put, failing to act on climate change will erode Australia's economic growth and destroy our way of life. And that is why the Australian Government is acting decisively on climate change.
For our part, this week is a massively important week for climate change action. Just 43 hours ago, the Government released a Green Paper setting out its preferred design principles for a Carbon Pollution Reduction Scheme – Australia's cap and trade emissions trading scheme.
And I notice there has been some reaction here from business to the release of our Green Paper essentially claiming that your government ought to delay its plan and replicate some of the features we are proposing. To that I simply say this: Australia's and New Zealand's schemes have much in common but they also differ as well.
They differ because our economies are vastly different and the only economically responsible thing for both governments to do is to tailor their schemes to suit their economies. For New Zealand to mimic Australia's proposed scheme would be economic folly and vice versa.
As a proportion of GDP you have a much larger agricultural sector than we do. We have more Energy Intensive Trade Exposed Industries like aluminium and steel production. Naturally our schemes therefore reflect these economic realities.
But over time our mutual desire to ensure the move to a lower carbon economy of the future means we'll both be well placed to capture the green jobs of the future. Forward-thinking and dynamic business leaders on both sides of the Tasman understand this.
I'm confident both of our business communities will back our climate change reform plans because ultimately sensible economic reforms lead to sustained economic growth. That's something both our business sectors have learned in recent decades having run their enterprises in partnership with governments not afraid to take on the big challenges, like tariff reduction that I spoke of earlier.
Under Australia's Scheme, for the first time industry will bear the full cost of their own emissions and will therefore have an incentive to reduce pollution.
As Treasurer, I know that introducing the Carbon Pollution Reduction Scheme is one of the greatest economic reforms Australia has ever undertaken. The Scheme will change the way the Australian economy works – helping it transition from a high-emissions economy of the past to a modern low-emissions economy of the future.
And as demonstrated in Wednesday's Green Paper, the Government is determined to introduce the Scheme in a way that maximises Australia's immediate and long term economic prosperity.
- We will help secure the competitiveness of Australia's most emissions intensive traded industries by shielding them from the full effects of the Carbon Pollution Reduction Scheme.
- We will provide electricity generators with some direct assistance - because we recognise that amongst our non-traded sectors, generators in particular will be strongly affected by the introduction of the Scheme.
- And above all, we will provide generous assistance to low and middle income households, to help them adjust to living in a world where certain goods and services inevitably cost a little more.
As Treasurer, I also know that it is vital that we introduce the Carbon Pollution Reduction Scheme swiftly. The longer we wait to take action on climate change, the sharper the adjustment to the economy will be when we are forced to act. By contrast, taking early action will allow Australia to make orderly, gradual adjustment to a low-carbon economy. We simply cannot afford to wait to act. This is why helping to shape a global solution to climate change is also a key component of Australia's climate change policy.
A key Australian objective for the post-2012 climate change outcome is for it to achieve mitigation actions by all major economies, noting that the nature of individual commitments would differ according to national circumstances.
In seeking a more robust multilateral response, the critical objective for Australia is to broaden the number of countries willing to take commitments.
Climate change is a problem that both our governments are determined to tackle head-on.
As a testimony to the depth of our commitment to tackling climate change, ratifying the Kyoto Protocol was the first official act of the Rudd Labor Government.
Since then, Australia has been constructively engaged with the UN negotiations and other key international forums to forge a new post-2012 outcome on climate change; an outcome that is equitable, environmentally effective, and economically sound.
Australia and New Zealand have a long and proud history of cooperation on key global challenges.
Building on this, our Prime Ministers announced a new climate change partnership in February this year.
This new partnership is based on three shared goals:
- First, to achieve an equitable, environmentally and economically effective future global agreement on climate change;
- Second, to develop an effective global carbon market; and
- Third to deal with the challenges of climate change in our region.
Tackling climate change is a critical test of our nations' foresight and economic responsibility.
Australia and New Zealand have the standing and capacity to take decisive, responsible action on climate change - and to positively shape the post-2012 international climate change outcome.
Reform is worthwhile not because it is easy – but because more often than not it involves grappling with challenging matters which strike at the heart of our collective future. The imperative of reform is why our two Governments have risen to the climate change test.
Cooperation on international and regional forums
Climate change is just one area on the international front where Australia and New Zealand are working together. We are both committed to promoting global economic development and reform.
As moderately‑sized, open economies we can use our membership of multilateral bodies to help shape the international rules of the game in ways we can't do unilaterally. Our shared interest in multilateralism gives us a strong interest in ensuring that multilateral bodies deliver effectively on their mandates.
We – and our immediate neighbours – also have much to gain by continuing our close cooperation on meeting the development challenges in the Asia-Pacific region. To date, we have succeeded in gaining increased international attention from the World Bank, the Asian Development Bank and the IMF for the small and fragile states in our region.
Australia and New Zealand are also building systems that will enable our region to best tackle the challenges that lie ahead – challenges such as volatile capital markets, global inflationary pressures, and of course, climate change.
Closer Economic Relations – Single Economic Market
Our cooperation on the big international challenges and our cooperation through regional and international, is a reflection of the strength of our bilateral relationship.
Two-way merchandise trade between Australia and New Zealand has expanded three-fold in a little under the past two decades. And the level of two-way investment is now worth around $100 billion.
Australia is by far the largest foreign investor in New Zealand and is the largest destination for New Zealand Investment.
Dr Cullen and I have committed to reinvigorate the work toward creating a Single Economic Market. We understand that businesses on both sides want an environment in which they can operate seamlessly across both market. Creating a more seamless economic architecture means stronger economic growth for Australia and New Zealand.
Dr Cullen and I have made significant progress in further strengthening economic ties between our two countries, in areas of taxation, investment and retirement savings.
Some may argue that these initiatives are modest reforms, and perhaps they are, when considered in isolation. But a Single Economic Market is an idea where the sum is truly greater than its parts. A Single Economic Market is the totality of many small changes, that when added together have a profoundly positive effect.
I would like to touch briefly on some of the initiatives we have progressed.
A New Tax Treaty
Dr Cullen and I have made substantive progress on a new tax treaty. We expect negotiations to be completed by the end of this year. Businesses on both sides of the Tasman have strongly supported the modernisation of tax treaty arrangements. I would like to thank those of you here in this room that have contributed to and supported this work.
In this regard, Australia and New Zealand have always been on the front foot, periodically renegotiating our tax treaty to ensure that it remains up to date – something we have been doing ever since the first tax treaty was entered into in 1960.
Changes to the tax regimes in our two countries in recent times and an ever-changing commercial environment also require that we continue to review our tax agreements in the future to ensure their ongoing relevance.
Dr Cullen and I look forward to the progressing the outcomes of the new tax treaty negotiations.
Investment is another area where we have made significant progress. We will re-open negotiations on an Investment Protocol that aims to encourage investment between our two countries.
New Zealand is the sixth largest foreign investor in Australia, and as at the end of 2006, was the third largest destination for Australian investment. But currently, there is no provision under the CER agreement for the treatment of Trans-Tasman investment.
Australia regards New Zealand companies as foreign entities for investment purposes and vice- versa.
Reinvigorating negotiations on an Investment Protocol is an important first step towards ensuring the burden associated with trans-Tasman investment remains as slight as possible.
Trans‑Tasman Retirement Savings Portability
The single economic market agenda also aims to improve the operation of trans-Tasman markets by addressing behind-the-border impediments to trade and the free movement of people, while still allowing each country to achieve its key domestic policy goals.
One way this can be achieved is through facilitating the portability of retirement savings across the Tasman. The inability to shift retirement savings can influence the decisions of Australians considering employment opportunities in New Zealand and vice‑versa.
The report of the Trans-Tasman Retirement Savings Portability Working Group identified no significant impediments to trans-Tasman retirement savings portability, and recommended a broad approach for a portability regime.
To maintain the integrity of both retirement saving systems, the proposed approach will ensure that retirement savings transferred between Australia and New Zealand could not be subject to advantageous treatment in the new host country.
Dr Cullen and I have agreed that the findings of the Working Group are a sound basis for an agreement for a new trans‑Tasman portability regime between Australia and New Zealand.
Ladies and gentlemen, thank you for having me here today. Let me again thank Dr Cullen, not only for his hospitality, but also for his friendship and his leadership in strengthening the relationship between Australia and New Zealand.
A quarter of a century after the Hawke Government signed the CER with New Zealand, this relationship is more important than ever.
I look forward to working with Dr Cullen in the future as we jointly tackle the big economic challenges of our times.