Key and Rudd: a really important chat

Just out of his “100 days”, John Key is off to Australia tomorrow for the annual prime ministerial bilateral. There is much to do.

There is much to do at home, too — not least to develop policy options against the developing possibility of a depression. A “jobs summit” and bankrolling “icon” companies are short-term recession fixes. A depression is long-term and life-changing.

But keeping the trans-Tasman link live is important long-term policy, too. This is no fireside chat Key is going to.

John Howard set up the bilaterals because, unlike his Labor predecessors, he saw the relationship as strategically important, in promoting neighbourhood stability and for Australia’s economy. Australian businesses have more invested here than anywhere else. New Zealand is in the top half-dozen of its export destinations, is its top source of tourists and is a big supplier of talent and labour.

Rudd’s assessment is similar. He remedied an early faux pas when he landed a summit of business, political and other leaders last April on the dates set for the annual Australia-New Zealand Leadership Forum by sending a powerful team of ministers, headed by Deputy Prime Minister Julia Gillard, to the rescheduled meeting.

Rudd and Key are on the phone fairly often. They text, too. But they are not equal.

Chummy texting doesn’t undo the relationship’s asymmetry. Australia needs much less from New Zealand than vice-versa. Australia has bigger fish to fry. For New Zealand Australia is a very big fish.

And bigger Australia often takes initiatives which drive New Zealand into action it would not otherwise take. Michael Cullen guaranteed bank deposits only because Australian Treasurer Wayne Swan did, which might have caused a flight of deposits to Australia. If Australia dumps or substantially modifies its dividend imputation scheme as a result of its current taxation review, New Zealand may well have to.

The two economies are now deeply meshed. That makes the single economic market (SEM) process core business at the prime ministerial bilateral. It also is the focus of much trans-Tasman ministerial interaction — Bill English earlier this month and again next week and Simon Power, with his regulatory hat on, mid-March, for example.

SEM aims eventually to eliminate regulatory, legal and tax differences between the two economies. That is easier said than done: more than a century after Australia federated, it does not have a single national economic market. States have different taxes, regulations, institutions and styles.

Last March Rudd launched a large, ambitious programme to iron out the differences. New Zealand officials are part of that process — “within the tent”, says one who was an integral player in the recent federal-state agreement to unify consumer law. That deal aimed at closely similar consumer law in the whole Australasian market.

SEM delivers piecemeal gains for New Zealand businesses and individuals. An example is simplification and alignment of customs and quarantine procedures. One spinoff is that New Zealanders go through the same airport passport channel as Australians.

Keep SEM going and maybe one day — if the two countries’ incompatible visa policies can be aligned — trans-Tasman flights will be “domestic”, as Jetstar has mused, with the Australian Tourism and Transport Forum’s support. Remember, Key is Tourism Minister.

But keep SEM going and New Zealand risks getting inextricably enmeshed in Australia’s policy approach — a sort of quasi-state not yet federated. That has already triggered political reaction.

The prime example is the joint Australia New Zealand Therapeutic Products Authority to regulate medicines and quasi-medicines, with one fee and set of rules for both countries. The authority is operating in Australia but the legislation here was stymied by National, objecting to the inclusion of quasi-medicines, the Greens, objecting on sovereignty grounds and clamps on natural products, and others.

Key plans to sort this out at some point, partly for cost and drug availability reasons but also to make up to Canberra, which had conceded New Zealand an equal say and then agreed a compromise which met National’s objection.

But that is for the future. Right now recession is the big topic.

Key will tomorrow get a first-hand account from business CEOs of the Australian economy. It is not pretty. Rudd’s old state, resource-rich Queensland, lost its AAA credit rating last week. Resources companies are scrabbling for cash from Chinese state-owned firms. Pacific Brands closed seven clothes factories on Wednesday. The Treasury is talking two years of pain. In an essay last month Rudd railed at “free-market fundamentalism” and “extreme capitalism”.

So Key and Rudd will compare recession/depression-fighting strategies and what Rudd will say at the upcoming G20 meeting of government leaders.

Key knows that if Australia is in trouble, so is New Zealand. Chats with Rudd may look like a foreign affair. Actually, they are critical domestic business.