The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

14 July 2011

NO.024

Address to Trans-Tasman Business Council

Wellington

14 July 2011

The trans-Tasman rivalry is something that is well known. Gold versus black. VB versus DB. Jonathan Thurston versus Benji Marshall. The Reds versus the Crusaders. But beyond the rivalry, there exists a much closer, deeper bond.

In each other, we see a mate who stands beside us in times of war - from Gallipoli to Afghanistan. We see a neighbour in need, ravaged by natural disasters - from Christchurch to Brisbane.  We see an extended family - with thousands living in each other's communities. And we see a willing partner to confront world challenges together - from trade to climate change.

It is this bond that serves the foundation of our economic relationship.  According to the Reserve Bank of New Zealand, Australia was New Zealand's second largest export market in the late 19th Century, behind Britain. Australian banks were also operating in New Zealand from around 1840 - creating a link so deep that the state of our financial system still has inextricable links to yours.

Last year trans-Tasman trade was around $21 billion. New Zealand is our 7th largest export market.  Our 9th largest import source. And we're heavily invested in each other - two-way investment is more than $107 billion.

Of course this hasn't been by historical accident or mere geographic closeness. Both sides of the Tasman have been world leaders in liberalising their economies and reaping the benefits of this. We've walked this road together.

When it came into effect in 1983, the Australia New Zealand Closer Economic Relations Trade Agreement was one of the world's most open free trade agreements. And it still sets the benchmark for free trade agreements. The proof of the pudding is the growth in trade between us since we penned the CER - averaging around 8 per cent each year. And we're continuing to build on that foundation.

Prime Ministers Gillard and Key earlier this year signed the Investment Protocol, which will see investors enjoying higher screening thresholds in each country. Led by my department and the New Zealand Ministry of Economic Development, we're also working to reduce other barriers to trade and investment and we are progressing this across a range of areas like accounting standards, and competition and consumer law.

And of course there's the ASEAN Australia New Zealand Free Trade Agreement and the Trans Pacific Partnership - both joint efforts that will help us crack the booming markets to our north.

Shared Challenges

These sort of joint endeavours reflect the fact that many of the challenges facing our nations are shared ones. There is of course no better example of this than the natural disasters we've faced together.

The Christchurch earthquakes that struck September last year and February this year bookended Australia's own summer of natural disasters. I've lived through flooding before, but the floods that struck my home state of Queensland this year shocked me, as did Cyclone Yasi and the bushfires elsewhere in Australia.

As Treasurer, I'm aware not only of the loss of life, but also the economic damage these disasters have wrought. They hit Australian coal exports, agriculture and other business hard, putting our economy into negative territory in the March quarter. In all, we estimate a negative real production impact from this summer's disasters of about $12 billion - up from $9 billion we expected when I prepared the May Budget.

But the earthquakes that Christchurch has faced and the Pike River accident have also been heart-breaking. An extraordinary loss of life, and an economic blow that will cost dearly. 

We all know that the reconstruction effort is one that will be measured in years, not months - and the cost will be billions, not millions. As always, we have supported each other through these hardships. But natural disasters are not the only challenge we share.

I've spoken a lot in recent months about the Asian Century and the effect that the Asian emergence will continue to have on Australia. As the global economic pendulum swings from West to East, Australia is seeing immense benefits.

Our terms of trade have hit the highest sustained level in 140 years. And we have a massive investment pipeline driven by the mining boom - $430 billion in the resources sector alone.

But we are also facing challenges - like a high Aussie dollar, which is a burden for many of our industries, and ensuring we invest in our future economic capacity to maximise the benefits of the Asian Century. These challenges are not ours alone.

Like Australia, China has become an increasingly important market for NZ. Since 2010, China has overtaken the US to become your second largest export market, behind Australia.

But the implications of the Asian Century for both of us will not just be about commodity exports. Because what we're seeing in Asia is the emergence of a middle class that by some projections will be bigger than the middle class in the rest of the world by the end of this decade.

This means that clever, educated countries like ours, with outstanding tourism assets and innovative people, stand to benefit enormously from the rise of Asia. Middle class people want things - and they are willing to pay for them: better education, travel, higher quality goods and services, clean environments.

The fact is our two countries have a wealth of opportunities in the transformations that lie ahead to our north. We share the challenge of grappling with the implications of Asia's rise - and we share the opportunities that it raises.

Climate Change and Reducing Carbon Emissions

Of course there is also one key challenge that both our countries are facing up to and that is the challenge of climate change. This is a challenge that we both recognise we need to address to avoid being left behind. Collective international efforts are slowly gathering pace.

Following the Copenhagen and Cancun Agreements, countries that make up over 80 per cent of global emissions have now pledged to act to address climate change. That's up from 27 per cent under the Kyoto Protocol.

Countries like New Zealand, the United States and the United Kingdom already have emissions trading in place. And last month the Australian Productivity Commission pointed to your scheme, saying that of course market-based carbon pricing approaches are the more cost effective way of reducing emissions.

While Australia has been a bit late coming to the party, I am extremely pleased with the policy we announced on Sunday. We'll have an initial fixed-price period, similar to a carbon tax, before transitioning to fully flexible emissions trading after three years.

And we are providing generous household and industry assistance to help Australian families and businesses with the impacts of a carbon price. However one of the challenges we've faced in Australia has been explaining the true impact of a carbon price.

I've made the point that it's much less significant in an economic sense than the challenge we face with the ageing Australian population, or with the structural transformation of the rise of Asia. And modelling by my own Department has found that under a carbon price, Australia will see strong economic, jobs and income growth, while at the same time making deep cuts in carbon pollution.

In fact, Treasury predicts that the introduction of a $23 dollar carbon price will lead to a small increase in the price level of 0.7 per cent in 2012-13. But of course your scheme has proved that point. 

Your Minister for Climate Change recently noted that the July 2010 expansion of your ETS had "passed with only modest price changes for most New Zealanders". In my view, our countries could benefit from learning about each other's approaches to this problem.

Our schemes are inevitably different - reflecting differences in our two countries' emissions profiles. They also have similar features - such as our fixed price period and your effective price cap. A close dialogue on this issue can work towards eventually linking our schemes.

That's why I welcome the agreement to set up an officials group to work on linking our two schemes. Officials are scheduled to hold initial talks in August which would consider the scope of work involved in linking our two schemes. By acting together on climate change, we have the opportunity to walk the economic reform road that has been paved by Closer Economic Relations.

Putting a price on carbon is an historic reform that will pave the way for a stronger, more sustainable future for both our countries. For confident, forward looking countries, this is not beyond us. You are already getting on with it, and now we are too.

Conclusion

Ladies and Gentlemen, there's nothing new about Australia and New Zealand working together.

We've shared much - and we stand to gain much together if we face up to the challenges of the future together. I'm proud to continue that tradition whether it be in trade, investment or climate change.

Thanks very much for having me here today.