THE PRESS WEDNESDAY, JUNE 29, 1983. N.Z. investment in Australia

Press, 29 June 1983, Page 12

THE PRESS WEDNESDAY, JUNE 29, 1983. N.Z. investment in Australia

In all respects except one, the visit of the Prime Minister, Mr Muldoon, to Australia last week went very well indeed. The exception was that Mr Muldoon did not persuade the Federal Treasurer, Mr Paul Keating, to adopt the New Zealand view on New Zealand investment in Australia. The exception is coming close to dominating relations at the moment. Had Mr Muldoon not made some derogatory remarks about Mr Keating, and caused the Australian Prime Minister, Mr Hawke, to defend his Treasurer, the issue would have remained one to be resolved by negotiation. Mr Hawke and Mr Keating are close colleagues and have formed something of an intellectual alliance in party and Government policy and its enactment. Mr Hawke will not let Mr Keating down. Mr Hawke has given a public dressing down to Mr Muldoon similar in kind to the private dressing down Mr Muldoon said that he gave the Australian Secretary of the Treasury, Mr John Stone. Mr Muldoon said that he had told Mr Stone that, in New Zealand, Governments made policy. It would be unfortunate if the successful aspects of the first meeting between Mr Muldoon and Mr Hawke were sacrificed in a vigorous slanging match. Once communication on an important issue breaks down, it is hard to confine the breakdown to the particular issue. Obstructions to investment in Australia have caused considerable resentment, particularly in New Zealand financial circles. The Government is clearly under some domestic pressure to get the Australian Government to change its policies towards New Zealand investment. Within the subject of investment there are two rather different aspects: that of banks and finance houses, and the separate question of take-overs by companies. The banking and finance issue has become particularly important because of Mr Muldoon’s championing of the cause of allowing the National Bank of New Zealand to open branches in Australia, and because two wellknown New Zealand finance companies have established themselves in Australia and are being required to shed some of their shareholding to 50 per cent. Even within the foreign investment practices of Australia, restrictions are tighter on investment in banking, finance, and insurance. These policies have been of long standing. What the New Zealand Prime Minister has been doing amounts to asking Australia to change these policies to accommodate New Zealand’s demands. This raises some difficulties for Australia, partly because of other international agreements; partly because the new Hawke Government is still pondering what it will do about foreign investment in general; and partly because the new Government inherited a report on deregulating the Australian financial system, which included a suggestion that more foreign banks should be allowed into Australia. This report did not advocate unrestricted entry for foreign banks. Since the publication of the report there has been a great deal of interest by foreign banks in entering Australia. The Hawke Government is not going to hurry about opening up Australia to foreign bankers. The Bank of New Zealand already has branches

in Australia. The Australian Government does not seem disposed to be told by Mr Muldoon which other banks should be allowed into Australia. Australian involvement in the New Zealand banking and financial world generally is much greater than New Zealand involvement in Australia. The resentment comes about partly because it is possible for Australian-controlled banks to have wholly owned subsidiaries in New Zealand, whereas New Zealand companies do not have the same access to Australia. It could be argued that this represents a lever of a sort in bargaining with Australia and should certainly be considered in seeking access to Australia. New Zealand finance houses are thick on the ground, and if they seek to expand, or even keep up their level of activity, they will be looking for opportunities outside New Zealand. New Zealand and Australia have different approaches to foreign investment. This arises partly because Australia is seen as attractive by many foreign investors and there has been a fear — held by some in the Liberal-National Party coalition as well as in the Australian Labour Party — that the ownership of Australian resources and assets would pass into foreign hands. Thus the trigger point at which the Foreign Investment Review Board has to give its approval for an investment project is 15 per cent of foreign shareholding. New Zealand, which is not as attractive to foreign investors, has set the trigger point at 24.9 per cent of foreign shareholding before approval is required. One of the most irritating things to many New Zealand firms is the 90-day waiting period before a take-over is approved, giving Australian firms the chance to make counteroffers. This means that a firm’s intentions in the Australian market are plain for all, including its competitors, to see. Can the issues be resolved? More complicated problems than this have been capable of solution. Mr Muldoon appears to be bent on making a confrontation out of the issue. He is suggesting that to harmonise policies with Australia, New Zealand might require Australian companies to shed their shareholding to 50 per cent. There are strong reasons for believing that, even if he put this idea into practice, it would not work. Is there spare investment capital in New Zealand to take up the extra shareholding? Would the idea extend only to Australia or to others? New Zealand has some difficulty in attracting investment already and it would not help New Zealand’s reputation as a place for investment to have such a requirement. New Zealand might find itself somewhat isolated. The question of investment has become woven into the idea of Closer Economic Relations. Possibly, in time, some further harmonisation of financial policies will be necessary. Investment policies were deliberately excluded from the C.E.R. agreement. The development of C.E.R. has exposed some differences in policies and some movement may be possible. Threats and criticism seem likely to make matters worse or more difficult. The implementation of C.E.R. got away to a flying start. The investment issue is opening up the risk of spoiling some achievements. The more is the pity.