www.mccully.co.nz 28 April 2006

(#244) - A Weekly Report from the Keyboard of Murray McCully MP for East Coast Bays

Positive Result From US Discussions

Last week’s two-day US/New Zealand Business Forum in Washington provided a high powered opportunity to reinforce key trade relationships in the US. The presence of two former New Zealand Prime Ministers (Bolger and Moore), the Leader of the Opposition Don Brash, Ministers Goff and Cunliffe, as well as former WTO Ambassador (now National MP) Tim Groser and the humble Member for East Coast Bays, plus a range of our most senior business leaders, spoke volumes of this country’s desire to advance the trade relationship.

On the US side, the presence of senior business and political figures made it clear that New Zealand is not without friends in that part of the world.

The formal gathering, and the meetings that surrounded it, made clear the level of difficulty that attends New Zealand’s quest for a free trade agreement (FTA) with the US. While the US is New Zealand’s second largest market, we rank number 43 on their list of export markets. Economic upside for the US from a NZ free trade agreement is not easy to argue. Negotiators are busy focused on agreements with larger players like Korea and Malaysia. And with the President’s negotiating authority (technically, the Trade Promotion Authority from Congress) running out mid next year, it has been clear for months that only an unforeseeable event will get New Zealand onto the list any time soon.

Despite Labour spin that the nuclear issue has been "quarantined", the fact is that some elements in Washington (some of them very influential) still harbour negative views about this country. The argument that it all happened 20 years ago, in different times, and that we should now all move on, would have greater resonance if accompanied by a genuine display of effort from the New Zealand side to re-build the relationship. The insistence by Helen Clark that the relationship is just fine, supplemented by her gratuitous insult to the US President, and the shameless leveraging off the US bogeyman by senior Labour Ministers for domestic political advantage, have served as a constant reminder of a substantial Labour Party deficit in the sincerity department.

The investment of effort in last week’s forum was well worthwhile. The environment for progress was improved. New Zealand politicians from both sides of the divide sang from one song sheet. New Zealand Inc put its best foot forward. It is to be hoped that this time, at least, the efforts of many will not be undone by undisciplined and reckless Labour Party exploitation of the great US bogeyman, in the pursuit of a few cheap domestic political points.

But Darker Clouds on the Horizon

A key problem for New Zealand‘s FTA quest is that the United States has no idea how severely this country will be disadvantaged by the status quo. And, of course, it is hardly in the Government’s interests to tell them.

As Don Brash has been reminding us, the average after tax income in Australia was 20% higher than in New Zealand just six years ago. Now that gap has grown to 33%. And the Australian economy is currently growing at 3%. Which compares rather favourably with the 0% (ie: zero growth) New Zealand has achieved in the past six months.

Add to that the continuing boom in the demand for the resources in which Australia is so rich. Then factor in the possibility of further tax reductions in Australia’s 9 May budget, to provide further incentive for investment and effort, and it becomes apparent that New Zealand has a looming problem.

That brings us to the impact of the Free Trade Agreement between the US and Australia, now nearing the end of its second year of evolution. Already our meat exporters are operating at a disadvantage compared to Aussie exporters in the US market. And that disadvantage will grow every year. And the same story will unfold in many other sectors until this country achieves a US FTA breakthrough of its own.

The incentives for New Zealand capital and skill to desert to Australia will become very powerful over the next few years. The more so, as our Government attempts to deny that the problem even exists. The "tipping point" referred to by Don Brash in this year’s Orewa speech will get perilously close. And New Zealand’s failure to secure the same FTA status with the United States as Australia will become an even larger factor with every year that passes.

Tax Freedom Day

Accounting firm Staples Rodway are picking that their Tax Freedom Day for 2006 will be in late May, or possibly even in early June. That is the date on which New Zealanders will have completed paying their tax obligations, and actually start working for themselves.

Last year, May 24 was Tax Freedom Day - that’s 143 days working for the Government. The comparable date in Australia was May 15 and April 11 in the United States.

But this year, such is the voracious appetite of our Government, that Tax Freedom Day may even move into the month of June. And we wonder why over 660 Kiwi’s depart every week to move across the Tasman.

The Geographically Challenged Mr Peters

The worldwide headquarters of mccully.co is considering sponsoring a little fund-raiser. The cause: the purchase of a world map for our Minister of Foreign Affairs. Mr Peters, you see, appears to have become a little geographically challenged.

Upon his appointment as our Minister of Foreign Affairs, Mr Peters was emphatic about his highest and most urgent priority: the restoration of good relations with the United States. And he even asked his Australian counterpart, Alexander Downer, to put in a good word.

How strange, therefore, to inspect the heavy travel schedule of Mr Peters since his appointment: Malaysia, Korea, London (twice), Malta, Fiji, Tonga, Samoa, Niue, Austria and Dublin. And last week Mr Peters’ tireless efforts to improve our relationship with the United States took him to Moscow, St Petersburg and Kiev. All signs that thus far Mr Peters’ pointy-headed MFAT officials have had difficulty in assisting their Minister with a direct route to Washington.

Oh, well. There are only around 190 countries in the world. And by a process of elimination, Mr Peters has simply got to get to Washington sometime in the next couple of years.

ENDS

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