Some say it's time for a customs union with Australia

Here’s a picture of Australia that may not be familiar: average net household wealth fell 6.5 per cent in 2011 to be 11.5 per cent below the 2008 peak; house prices are falling and sales last year were at a 17-year low; mortgage arrears are rising; retailers’ profits have plunged; the construction industry is contracting sharply; GDP rose only 0.4 per cent in the December quarter.

Want to move there? Roy Morgan puts unemployment at 9.7 per cent after interviewing 268,707 Australians face-to-face. It found consumer confidence in February no stronger than here. Bank surveys record business confidence decidedly weaker than here.

Perhaps it is time to pity, not envy, Australians — for, say, just this month. Then we might think more sanguinely about the next step in the official relationship.

Australia is on the agenda in April in three main ways. One is Anzac Day (though Australians think the NZ in Anzac is silent). The second is an “issues paper” published this week by the countries’ Productivity Commissions. The third is the Australia New Zealand Leadership Forum next week.

Unnoticed by the media here, the commissions were mandated by the two cabinets in January in Sydney to canvass ideas for a “big idea” to mark 30 years since the signing of CER, the closer economic relationship pact that has enmeshed the two economies.

Over the past decade the CER focus has been on creating a “single economic market” (SEM): reducing regulatory differences, making it easier to travel and move goods, getting courts and regulatory bodies cooperating, setting up joint regulatory agencies, recognising each others’ skills and qualifications and quite a lot more.

Progress is slow and uneven and often depends on political push because officials in Canberra set sights on bigger issues elsewhere at a time when the world’s trading system and politics are changing fast, as in the rise of China, the collapse of the Doha round, the integration (or not) of ASEAN, the trans-Pacific partnership talks and bilateral free trade agreements.

There is a parallel with the late 1970s/early 1980s when Australian officials and ministers got fed up with negotiating micro changes to bilateral quotas and occasionally adding items to a free trade list (sea water was added one year) under the 1965 New Zealand Australia Free Trade Agreement. The result was the step-change to CER.

The question before the Productivity Commissions and, next year, ministers is whether it is time for a similar big step.

The issues paper will put that question on the table. Among possible answers it will canvass is a customs union.

This has long been talked about but only recently become feasible and even now would pose tariff issues because Australia still protects some industries. There are also biosecurity issues and our visa regime is much more open.

The argument for a customs union, which is one option in the draft New Zealand Inc Australia paper, is that it reorients CER to face outwards instead of just trans-Tasman, which is the SEM focus.

From New Zealand’s perspective, the value is to bulk up with Australia in a turbulent global economic and political environment.

The Productivity Commissions will brief the leadership forum on April 13 (customs union included).

Ho hum. The forum has had some influence on some SEM detail but has limited bite with decision-makers because Australia’s corporate buy-in has been slim and New Zealand’s not much thicker.

But this year the Business Council of Australia (BCA) is backing the meeting and Business New Zealand likewise. That might give the forum more focus and bite. Both Bill English and Steven Joyce will be there.

The BCA buy-in might at last get Australian corporate muscle behind New Zealand’s bid for mutual recognition of dividend imputation credits, called franking in Australia. Australia’s Treasury has hitherto fought it because it would reduce its revenue.

That’s the bilateral dimension. But CER was always supposed to be “outward looking”. That has yet to materialise. A customs union, by tying the two countries more closely, might promote that by linking them in future negotiations — possibly, on one insider’s argument, in jointly integrating both economies into the enriching 600-million ASEAN market.

One peg on which the forum might hang such a discussion is a session on former Treasury Secretary Ken Henry’s work on a white paper on Australia’s future in Asia.

But even if the forum were to back a step-change, will politicians? Most likely ours will back off for fear of losing votes. Also, it might be strategically better to stay single.

And Australia? Tony Abbott, set to be Prime Minister in 18 months, in 2007 negotiated an outward-looking joint therapeutics agency which John Key (plus minor parties) stymied and only last year revived. Abbott may not be as willing as John Howard and Julia Gillard to humour the noisome Anzac cousin.

So a step-change for CER on its thirtieth? Maybe that’s a step too far.