Aust, NZ mull next CER steps

: Cargo Archive Stories Issue #218; Wednesday, 03 October 2012

IN a collaboration that is appropriate to the topic, the Productivity Commissions of Australia and New Zealand are undertaking a joint study on where the pioneering Closer Economic Relations (CER) regime should head, building on the benefits to both countries of its 30 years to date, writes Kelvin King.

An interim report for discussion has just been released, identifying some 20 policy initiatives for consideration.
Air services and marine freight are among the issues, with a recommendation that remaining restrictions on the single trans-Tasman aviation market be removed.
The report suggests waiving CER rules of origin (RoO) where tariffs are at five per cent or less, on the basis that at this level there is no incentive for third parties to engage in trans-shipment and thus no need for the associated RoO.

Further, it envisages reducing any tariff items still exceeding five per cent to that level or less by 2015, thereby terminating RoO completely and eliminating costly compliance.
In another area of relevance to the cargo sector, the report recommends that ‘where it is cost-effective, quarantine and biosecurity agencies in Australia and New Zealand should continue to develop common systems and processes and enhance their current joint approach to risk analysis’.
“While a single economic market provides the ‘direction of travel’ for the bilateral relationship, how far future policy initiatives go ultimately must emerge from good public policy processes focused on achievement of net benefits,” said Gary Banks, who chairs the Australian Commission.

Banks recently announced that he will be retiring in December, after heading the commission for 15 years.
Murray Sherwin, his New Zealand counterpart, commented that “CER has been a very successful venture, with initiatives that would not have been possible with any third country. There is more that can be achieved, to the benefit of both Australia and New Zealand.”
Other major initiatives include business law, occupational licensing and capital and labour flows. The draft report claims there is also significant potential for each government to cooperate with and learn from the other in policy development and evaluation.

In a number of areas, such as mutual recognition of dividend imputation, the report says that more work is required to assess the potential for net benefits. For others, such as monetary union, the Commissions have concluded that they would not generate net benefits and should not proceed.
The interim report also outlines some enhancements to CER governance arrangements to help meet the challenges of the future, building on the informality and flexibility which have served the relationship well.
Initial reaction from stakeholders has been mostly favourable, with some reservations. Phil O’Reilly, chief executive of BusinessNZ, expressed disappointment that the double taxation of company income had not received more attention.

“This is the largest unresolved issue for business in both countries,” he said.

“Currently, companies based in Australia or New Zealand with operations in the other country have their profits taxed twice, since neither country recognises the other’s system for offsetting tax credits. This is a sharp disincentive to trans-Tasman business and is an obvious issue for the Productivity Commissions to address. Hopefully this issue will feature in the final report in December.”