What's happening at the
Thursday 17 Aug 2017 | 15:52 | SYDNEY
Thursday 17 Aug 2017 | 15:52 | SYDNEY

Kiwi or not Kiwi, that is the question

By

COMMENTS

4 May 2012 14:58

The dynamic of Australia's slow and successful integration with New Zealand is that the Kiwis retain veto rights. Any real change has to be embraced by the New Zealanders because they are the ones who have to make the big adjustments. 

This study by the Oz and Kiwi Productivity Commissions on the future of the relationship is really a set of questions for New Zealand about what further adjustments it is prepared to make to get closer to Australia's economic strength. The study is an attempt to gaze out over the next 15 years towards a common currency and shared monetary and fiscal policies.

Such deep questions can be asked because of what has already been achieved in the Closer Economic Relations process, 'one of the most comprehensive bilateral free trade agreements in existence.'

The CER 30th birthday next year is a good moment to think fresh thoughts about where to steer the concept of an Oz-Kiwi 'single economic market'. CER lets goods, services and people move freely across the Tasman. Hesitate before flying into New Zealand with Oz cheese in your bag or into Australia with Kiwi apples, but mostly CER lives up to the claim of being one of the cleanest free trade agreements in the world.

The currency union question is the one that keeps popping up when the two sides peer into the future. The Oz-Kiwi discussion paper observes:

In many respects Australia and New Zealand are good candidates for higher levels of integration due to: similarities in culture, institutions and values; geographic proximity; and a common language. Even so, there are also some potential downsides to high levels of integration...Currency union (an element of economic union) is one area where the loss of local decision-making can be problematic. On one hand, there are potential benefits in avoiding the transaction costs associated with having separate currencies. On the other, where business cycles and economic changes (such as the 'mining boom') affect the two countries differently, there could be costs in not having independent exchange rates. The recent experience of countries in the Eurozone is instructive in this respect.

Applying the European model conjures a picture of Australia getting to play Germany while New Zealand has the role of Greece. Using that analogy, Kiwi journalist Liam Dann makes the point that NZ doesn't need to adopt the Oz dollar because the Oz banks have successfully invaded: 'We already have the security of an Australian owned banking system (which we pay for by sending profits offshore).'

Here is an authentic rendering of a deep Kiwi complaint which contains a deep duality – Australia is always guilty of both ignoring the Kiwis and trying to annex the place by stealth.

This column mused three years ago that New Zealand has so far managed the trick of integration without giving up the symbols of sovereignty. The single currency is a vivid illustration of the point that New Zealand has veto power because it is New Zealand that would have to do the surrendering. To achieve a single currency, all New Zealand has to do is give control of its currency to Australia's Reserve Bank. Australia might change the name on the note (Australasian dollar or Pacific peso). Otherwise, power would move to RBA headquarters in Sydney; the New Zealanders would get a couple of seats on the Reserve board.

Currency union on these terms would reflect growth rates as well as size. Australia has outgrown New Zealand in 15 of the past 16 quarterly periods. Over this four-year period, New Zealand's economy has shrunk by 0.1%, whereas Australia's has grown by 8.8%. In reporting those figures, Brian Gaynor says it marks an expanding gap between the kiwi and the kangaroo:

The six-year figures are also extremely bleak as far as the New Zealand economy is concerned as our GDP grew by only 4.5 per cent between the December 2005 quarter and December 2011 quarter while the Australian economy expanded by 16.6 per cent over the same period. We talk a lot about bridging the gap between us and our Tasman neighbours but the gap is getting wider and wider and this has serious implications for our economy.

As the two Productivity Commissions note, New Zealand's share of the Australian market has fallen, but NZ is 'still Australia's fifth largest trading partner by value of imports and exports. Conversely, Australia has become New Zealand's largest trading partner — the share of New Zealand merchandise exports destined for Australia has grown substantially since 1960, from around 4 to 22 per cent.'

New Zealand can say 'no' to further economic integration, but the economic pressures will not go away. This is more than a matter of symbols and sovereignty – it is also about economic health. The balance question for New Zealand is to draw maximum economic benefit from Australia while conceding as little as possible on issues of political power and national identity. Currency union is a wonderful illustration of this dilemma – an economic question which quickly shifts to a deep investigation of the Kiwi soul.

Photo by Flickr user djbwhizz.

You may also be interested in...