Joint Press Conference with

The Hon Dr Michael Cullen

New Zealand Finance Minister

Beehive Theatrette, Wellington

New Zealand

Thursday, 17 February 2005

4.10 pm

(New Zealand Time)

SUBJECTS: Enhancing the Trans-Tasman Business Environment; Trans-Tasman

Council on Banking Supervision; Cooperation on Competition; Investment Provisions;

Accounting Standards; Common Currency

THE HON DR MICHAEL CULLEN:

Well, good afternoon, ladies and gentlemen. It is a pleasure to be here this

afternoon with Treasurer Peter Costello on our annual talks, which we have been

having today, between the Australian Treasurer and the New Zealand Minister

of Finance. Of course, what has dominated our discussions today has been the

issue of the single economic market. Last year we talked in terms of the concept

of a single economic market over this last year; today we have been making further

significant progress in that direction.

One specific decision today was the commitment to establish a joint trans-Tasman

council on banking supervision; endorsement of the work programme laid out in

the Australian Productivity Commission’s report to achieve closer cooperation

between the Australian Consumer and Competition Commission—the ACCC—and

the New Zealand Commerce Commission; and also investigating the possibility

of adding an investment component to the Closer Economic Relations Agreement.

On banking, of course, we are amongst the most highly integrated banking markets

in the world. We see benefit there for moving towards seamless regulation in

this area in order to minimise regulatory hurdles. We want to maintain the momentum

towards that goal. So we are going to form a joint council—the two Treasuries:

the Australian Prudential Regulation Authority, which is the regulatory authority

for banking in Australia, and the Reserve Bank of New Zealand, obviously our

regulatory authority—to work towards that objective. We also undertook

to explore what legislative changes may be necessary to ensure that APRA and

the RBNZ can support each other in the performance of their current regulatory

responsibilities at least regulatory cost.

On some of the broader issues around competition, regulation, etc., the Australian

Productivity Commission recommended a work programme to more closely integrate

our competition and consumer frameworks. We endorse those recommendations, and

will continue the work programme recommended within that report, but we see

the recommendations and the report as very much a first step towards the greater

goal of establishing a joint regime rather than as ends in themselves. Generally,

therefore, we see a two-step process: harmonisation leading over time to joint

supervision.

The treaty establishing a mutual recognition regime for securities offerings

is likely to be finalised within the next 2 to 3 months. That would be a major

achievement in terms of the single economic market. Substantial progress has

been made towards standards alignment on accounting. Australia is slightly ahead

of us in adopting international accounting standards, but they will be aligned

very soon. We are now broadening the focus with a regional forum, to be held

later this year and repeated regularly, to achieve greater coordination of standards

across the region.

We have also confirmed the decision taken at the CER Ministerial Forum last

year to extend Australia’s wine equalisation tax rebate to New Zealand

wine producers for their sales in Australia. I want to thank Treasurer Costello

in particular for that decision. That will be, of course, an issue of some complexity.

We get to work out just exactly how New Zealand wine producers exporting to

Australia will receive that rebate. I am sure there will be no difficulty in

arriving at a workable process in that regard.

Peter.

TREASURER:

Thank you very much, Finance Minister Cullen. Can I first of all thank you

for your hospitality, reaffirm the value of the relationship between our two

countries, and say that from our perspective the development of a single economic

market across the Tasman would bring very valuable benefits to both countries.

Our country is still small in population. Our companies are always looking

for opportunities to engage in new investment, and obviously New Zealand is

a great place to invest. If we can produce an arrangement by which they can

move into New Zealand, and New Zealand companies move into Australia, with the

minimum of fuss and the minimum of regulation I believe there will be enormous

benefits on both sides of the Tasman. Our goal ought to be that in relation

to the raising of funds, if a company is complying with the laws in its home

then it can also raise funds in the other country across the Tasman on a single

prospectus. Our goal ought to be that, for competition purposes, Australia and

New Zealand are viewed as one market. Our goal ought to be, in banking, that

we can move seamlessly in banking operations across the Tasman without the need

for regulatory doubling-up and without the need for expensive, different compliance

requirements. So, if we can put all of that together I can see our two countries

growing closer—much closer in an economic sense. This is down to the nitty-gritty,

the hard technical work now, but from a political point of view I think it is

important that we keep our eye on the ultimate goal and on the ultimate benefits

that it will bring to the populations on both sides of the Tasman. Thank you.

JOURNALIST:

Dr Cullen, with the move towards unified banking regulation, would you be looking

for some sort of guarantee that New Zealand creditors would be accorded the

same status as Australian creditors even if, say, an Australian bank collapsed?

THE HON DR MICHAEL CULLEN:

The issue of depositor preference is one which will be dealt with as part of

the study work, I am sure, by the joint council, because inevitably that issue

comes into play. There is a whole range of other issues that come into play

as well, in terms of capital allocation and so on. So, I wouldn’t want

to single that one out as being the key element in the process.

JOURNALIST:

Is that something though that you would want to push for?

THE HON DR MICHAEL CULLEN:

As I say, I don’t want to single that out as being a key element in the

process. As Peter has outlined, we are looking towards an end point of seamless

regulation, so depositor preference may or may not become part of that. There

is a whole range of other issues which are equally important.

JOURNALIST:

Does seamless regulation imply a single regulator?

THE HON DR MICHAEL CULLEN:

Not necessarily so, and specifically the press statement does not refer to,

and the terms of reference do not refer to, a single regulator. That is a possible

end point, obviously, of a process, a development towards a single economic

market.

JOURNALIST:

Can you give a bottom line on how prescriptive that regulation should be?

THE HON DR MICHAEL CULLEN:

Not at this point, no. Clearly we do not want, on either side of the Tasman,

overly prescriptive regulations. It is also fair to say, however, that on this

side of the Tasman we have a range of regulatory mechanisms in place in relation

to non-banking financial institutions which clearly need overhauling and updating.

We are actually well behind Australia in that respect. So, on this side of the

Tasman there is a need for us to address that issue of the broader regulatory

regime around financial institutions, probably within the context of this movement

trans-Tasman. Some time ago Australia moved to a single regulator covering the

broad range of financial institutions, at that point banking regulation moved

outside of the RBA.

JOURNALIST:

So you include insurance companies in that, do you?

THE HON DR MICHAEL CULLEN:

That indeed is included within that, because those institutions have become,

in some respects, more and more like banks in terms of their behaviour and responsibilities.

It is clear that in New Zealand we have not sufficiently caught up. MED has

been doing a great deal of work on that, and will be reporting to Government

within the quite near future in terms of its proposals.

JOURNALIST:

Could we ask Mr Costello for his view on a single trans-Tasman banking regulator

and whether that is the end point?

TREASURER:

Well, there are two ways in which this could be accomplished. One would be

if you had a single regulator with depositor protection extended to depositors

in the same way on both sides of the Tasman. That would be the most integrated

end point. A step back from that would be two separate regulators, in which

case you would not have the same depositor protection extended to people on

both sides of the Tasman actively engaged in cooperation, administering a harmonised

set of rules. One set of rules, two regulators; or one set of rules, one regulator,

with uniform depositor protection. They are the two options that I see. I think

as we move forward we have got to keep both of them open. What is not open,

in my view, would be two regulators, different depositor protection, and different

rules. That would be leading to duplication and unnecessary cost.

JOURNALIST:

Out of the two main options, what would be your preference?

TREASURER:

Well, I think we ought to go into this relationship being ambitious—that

is, we ought to be as ambitious as we can to harmonise the economies of our

two countries. If there are national interests reasons that mean we can’t

arrive at that end point after we have carefully considered them, we will make

that decision. But let us start off with an ambitious agenda here.

JOURNALIST:

Are we facing an ambitious Australia and a cautious New Zealand?

TREASURER:

No, no, you’re facing two amorous friends who move and respond in the

way good relationships operate.

THE HON DR MICHAEL CULLEN:

Everyone knows I’m not quite as ambitious as Treasurer Costello.

TREASURER:

Not quite as amorous, either.

JOURNALIST:

Mr Costello, there is a fight today about the very basis of this relationship,

the commemoration of the landing at Gallipoli. Do you have a view on whether

John Farnham should be performing in the pre-dawn hours?

TREASURER:

I wouldn’t say there is a fight over the Anzac relationship. The Anzac

relationship, and particularly the Gallipoli memorial, is as strong as they

have ever been. As someone who attended it 2 years ago with the New Zealand

Governor-General, I know how much it means to both countries. Look, it is a

solemn memorial, and I understand that the people who organise it want to ensure

that the solemnity is preserved. Bearing that in mind, they will make their

decisions. I don’t give them entertainment advice.

JOURNALIST:

Would that solemnity though be preserved if Johnny Farnham was there?

TREASURER:

I don’t think John Farnham appearing in the ceremony would be consistent

with solemnity. There are discussions about what happens around it, but I’m

sure that the decisions that are being made by the organisers are the right

ones.

JOURNALIST:

At a broader level, that ceremony is now part of the backpacker trail around

Europe. How does Anzac Day move forward from being a very small commemoration

of war to being something new?

TREASURER:

When you say, “How does it move forward?”, 2 years ago I was at

that ceremony. It was shortly after September 11^th. There were terrorist

concerns. The Australian Government was warning, as no doubt the New Zealand

Government was warning, of safety concerns. People wondered whether the backpackers

would turn up, and as the dawn came up over Anzac Cove there were 10,000 young

people in the hills. They were proud and they were patriotic. I want to say

to you I think that ceremony has moved forward, not because any Government did

anything but because in the hearts of the younger generation this means something

to them. The best memorials are those that are kept alive in the hearts of the

people, rather than directed by Governments.

JOURNALIST:

You have talked of the possibility of adding an investment component. Is that

the reference to raising capital or is it something else?

THE HON DR MICHAEL CULLEN:

It is only a possibility at this point, Colin. CER, unlike some other international

agreements of this sort, does not have an investment chapter, which in part

reflects the fact that it is actually quite an old agreement by the standards

of these sorts of agreements.

JOURNALIST:

So you mean adding another formal component to CER? Is that what you mean?

THE HON DR MICHAEL CULLEN:

We want to explore the possibility. There are difficulties in that because

it then raises questions about how that relates to a range of other agreements

which both countries have—

JOURNALIST:

Like NARA?

THE HON DR MICHAEL CULLEN:

Like NARA, yes, indeed.

JOURNALIST:

Mr Costello, there is a message here that if New Zealand wants the same deposit

protection as Australia for New Zealand depositors, there has to be one banking

regulator.

TREASURER:

Well, if you had a unified regulation, part of that would be unified depositor

protection, but if you had separate systems then you will have separate depositor

protection, as we currently have.

JOURNALIST:

Right, so it could be done with different regulators but the same regulations?

THE HON DR MICHAEL CULLEN:

That would essentially be a matter for the New Zealand Government if it was

going to provide depositor protection, if it was within a totally separate regulatory

environment.

JOURNALIST:

Dr Cullen, do you have any concerns that if we move to a single trans-Tasman

banking regulator, there might be a loss of jobs and tax income for New Zealand?

THE HON DR MICHAEL CULLEN:

No.

JOURNALIST:

Especially given that most of our banks are Australian-owned?

THE HON DR MICHAEL CULLEN:

No, not necessarily so. A great deal depends on the nature of the kinds of

recommendations that emerge out of the joint council in terms of the arrangements

between the Australian and New Zealand elements within that banking system.

So I do not think there is any obvious and necessary connection between those

two things.

JOURNALIST:

You say you endorse the Productivity Commission’s report, but it sounds

as though at the end point you want to move to some legal form of integration

of the kind that they consider, or is it not worth the effort at this stage?

THE HON DR MICHAEL CULLEN:

I think it is fair to say that we both feel that the goal should be more ambitious

than perhaps was encompassed in the detailed recommendations of the Australian

Productivity Commission report, but that report is still very helpful in terms

of a series of steps along the way and work to be done in the meantime. It is

one thing to have a vision, it is also important to be taking the steps towards

that vision. Sometimes you can take the steps without the vision. I think what

both Mr Costello and I are saying is that we want to keep reminding people that

there is a vision at the end of these detailed processes around accounting standards,

banking regulations, whatever it may be, which is about a single economic market.

JOURNALIST:

With regard to the mutual recognition of security offers, Australia has a fairly

prescriptive licensing regime for both issuers, fund managers, and investment

advisers. New Zealand has nothing like that. Do you see us moving to adopt the

Australian regime, if we are to have mutual recognition?

THE HON DR MICHAEL CULLEN:

I will wait to see the final recommendations coming through in that respect

at this point. Clearly, there will be mutual recognition. We are strongly committed

to that and we will make progress. What that means is that we have to be satisfied

about what is happening in Australia, and Australia has to be satisfied about

what is happening in New Zealand.

JOURNALIST:

Dr Cullen, if we make some move on another chapter of investment in CER, does

that imply that Australia could be exempted from the Overseas Investment Act,

like common properties could be owned in Australia, or do you see some other

regime in operation?

THE HON DR MICHAEL CULLEN:

There are many investment chapters which do not imply that kind of move, and

if that was the position then – and Treasurer Costello can correct me if I am

wrong—you would have to have massive changes to the Australian legislation

which they would then have to flow on to a number of other countries which might

be in a better position to buy up large amounts of Australia than New Zealand

is.

JOURNALIST:

So it is no, really.

THE HON DR MICHAEL CULLEN:

I didn’t quite say that, but you can draw that conclusion if you wish.

JOURNALIST:

The issue then is why bother, because it is fairly free-flow already.

THE HON DR MICHAEL CULLEN:

That is one of the reasons for looking at whether we should do it. I mean,

we are doing our classic New Zealand trick here—let’s jump to the

conclusions before we have done the work. We are suggesting let’s do the

work to see whether it is worthwhile doing it, because, as you say, it is a

very open border anyway in terms of investment.

JOURNALIST:

Have you got a timescale on the accounting standards issue?

TREASURER:

I would think that we are pretty close, actually. Australia has already adopted

the international standards. New Zealand, I understand, is going in 2007. We

have got to make sure that as we implement those standards we do so in a harmonised

way. From the work that I have seen that has been done, we are very close.

THE HON DR MICHAEL CULLEN:

But we are also talking in terms, if I might add to that, of looking at some

kind of joint accounting standards body into the future to make sure that we

keep close alignment between the two countries. There is always the risk, of

course, that you get divergence over time again. Having had convergence, we

do not want to see that happening.

JOURNALIST:

Any talk of a common currency?

THE HON DR MICHAEL CULLEN:

No.

JOURNALIST:

What is your view of it, Mr Costello?

TREASURER:

I have said previously that Australia is not interested in starting up some

new currency—that is, we don’t have any interest in getting rid

of the Australian dollar and introducing some new currency to Australia. So,

if it were premised on that basis we do not see the benefits flowing.

THE HON DR MICHAEL CULLEN:

Which I will try to explain from our side, as well. It is not an issue of common

currency. The issue actually on the table is do we adopt the Australian dollar,

and the New Zealand Government is not moving in that direction.

All right, thank you very much everybody.

TREASURER:

Thank you.