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New Zealand Country Brief - January 2008

General Information

New Zealand comprises two main narrow and mountainous islands, the North Island and the South Island, separated by Cook Strait, and a number of smaller outlying islands. The total land area is approximately 268,000 square kilometres (about the combined area of Victoria and Tasmania). The capital, Wellington, is situated on the south-west tip of the North Island and is about the same latitude as Launceston. The Southern Alps, containing glacial systems which have retreated and formed wide glacial valleys and inland lakes, extend the length of the South Island. The Southern Alps include New Zealand's highest mountain, Aoraki Mt Cook (3754 m). The highest mountain in the North Island is Mount Ruapehu (2797m), an active volcano which erupted in 1995 and again in 1996. Not far from the mountain is Lake Taupo, the largest lake in New Zealand. New Zealand has a cool temperate climate, strongly influenced by oceanographic factors.

New Zealand has a population of close to 4.1 million people. New Zealand's rate of natural increase is 0.8 per cent per year. The rate of population growth has decreased over the last two years, a result of reduced net inward migration, and the narrowing gap between births and deaths. Australia is a major destination for New Zealanders who leave their country to live elsewhere.

Traditionally, most inward migration has been from the United Kingdom, Australia and Northern Europe. In more recent times, a growing number of migrants have come from the Pacific island countries, particularly Samoa, Cook Islands and Niue, and from Asia.

Bilateral Relations

Australia and New Zealand are natural allies with a strong trans-Tasman sense of family. Migration, trade and defence ties, keen competition on the sporting field, and strong people-to-people links have helped shape a close and co-operative relationship. Thousands of Australians and New Zealanders cross the Tasman each year as tourists, for business purposes, or to visit family members. Some 470,000 New Zealand citizens live in Australia. Around 60,000 Australians live in New Zealand. Freedom of travel is facilitated through the Trans-Tasman Travel Arrangements of 1973, which allow New Zealanders to visit, live and work in Australia without restriction and Australians to do the same in New Zealand.

While New Zealand chose not to join the Australian federation in 1901, it maintains close political contact. At a government-to-government level, the relationship that Australia has with New Zealand is better developed and more extensive than with any other country. Prime Ministers hold annual formal talks, as do Treasurers, Trade and Defence Ministers. Foreign Ministers meet biannually. Ministers and public servants from both countries participate in meetings and conferences on a wide range of issues: health, education, transport, justice, quarantine and many others. New Zealand ministers and senior officials participate, with their Australian federal and state counterparts, in many of the ministerial council meetings which span the Australian domestic policy agenda.

Australia and New Zealand cooperate closely in the international arena and in regional bodies, such as the Pacific Islands Forum, APEC and the ASEAN Regional (Security) Forum. Formal negotiations between Australia, New Zealand and ASEAN on a free trade agreement got under way in Melbourne on 21 February 2005. Both Australia and New Zealand cooperate closely in pursuing WTO goals, notably through participation in the Cairns Group - a coalition of 19 agricultural exporting countries seeking the liberalisation of trade in agriculture. New Zealand has made valuable contributions to security in areas of high priority to Australia, notably in East Timor, Bougainville and Solomon Islands (RAMSI).

The Australia New Zealand Leadership Forum (ANZLF) met for the fourth time in Sydney 22-23 April 2007. The inaugural Forum was held in Wellington, 14-15 May 2004, the second Forum in Melbourne, 29-30 April 2005 and the third in Auckland, 5-6 May 2006. As in previous years, the 2007 Forum brought together Ministers and leaders from business, government and academia to discuss key issues affecting the Australia-New Zealand bilateral relationship as well as our role in the region.

James Strong AO (Insurance Australia Group and Woolworths Limited Chairman) and John Allen (Chief Executive of New Zealand Post) Co-chaired the Forum. The next Forum is due to be held in New Zealand.

A notable achievement in the bilateral relationship was the entry into force on 25 January 2006 of the "Treaty between the Government of Australia and the Government of New Zealand establishing certain Exclusive Economic Zone and Continental Shelf Boundaries". The treaty definitively settles the maritime boundaries between the two countries in the Tasman Sea and adjacent areas of the south-western Pacific Ocean.

Defence relations

Defence relations between Australia and New Zealand are close and longstanding. Formal expressions of our security partnership are found in the 1944 Canberra Pact and 1951 ANZUS Treaty. The ANZUS Treaty remains in effect between Australia and New Zealand, notwithstanding the United States' suspension of its ANZUS security obligations to New Zealand in August 1986 in response to New Zealand's anti-nuclear policy.

Australia's bilateral defence relationship with New Zealand is underpinned by the Closer Defence Relations Agreement (CDR). The 1991 (revised in 2003) Australia-New Zealand CDR provides a broad strategic framework for the bilateral defence relationship. A key objective of CDR is for both countries to work together effectively in combined and joint operations. A Status of Forces Agreement between Australia and New Zealand came into force on 27 May 2005. The agreement defines the status of a visiting force while in the nation's territory and will assist both countries in planning future bilateral exercises. A range of defence engagement activities supports the development of interoperability, particularly for operations in our region. Australian and New Zealand forces have worked effectively together in recent operations, including the International Force for East Timor (INTERFET), United Nations Transitional Administration in East Timor (UNTAET) and the Regional Assistance Mission to Solomon Islands (RAMSI).

Political Overview

Government

New Zealand is a parliamentary democracy in the Westminster tradition. Its executive arm of government is drawn from its legislature, which currently has 121 members. The Prime Minister (Helen Clark, re-elected September 2005) is the Head of Government and must have the confidence of the House to govern. HM Queen Elizabeth II is the Head of State, represented by the Governor-General (HE The Hon Anand Satyanand, since August 2006).

Parliament is summoned, prorogued or dissolved by the Governor-General. The Government's term of office is three years. It is compulsory to enrol to vote but voting itself is not compulsory.

Government in New Zealand differs in several ways from the traditional Westminster model. With the abolition of the Legislative Council (Upper House) in 1950, the New Zealand Parliament became unicameral. The most profound change occurred in 1993, when a referendum, held in conjunction with the general election, supported a change in the electoral system from First Past the Post (FPP) to Mixed Member Proportional (MMP), modelled on the German system.

Under MMP, voters are given two votes - one for a local MP (an electorate vote) and one for a political party (a party list vote). Maori may choose to be on either the General or the Maori electoral roll. There are 121 seats (an overhang of one seat) in Parliament for the three year term following the September 2005 election. Sixty-nine members were elected on the basis of general electorate votes, and fifty-two elected from party lists. The party list seats are allocated to political parties in such a way as to ensure that the total representation of those parties in Parliament reflects their percentage share of the party list vote. With the introduction of this proportional electoral system, the opportunity for minor parties to gain parliamentary representation increased. As a result, the likelihood of both coalition and minority governments also increased.

Recent political developments

New Zealand's fourth election under the MMP system was held on 17 September 2005. The Labour Party, led by Helen Clark, is the largest party in Parliament with 49 seats (down from 52 in 2002). Its share of the party vote decreased to 41.1 per cent (down from 41.3 per cent in the 2002 election).

Following the official declaration of results on 1 October 2005, Labour formed a coalition government with the Progressive Party (one seat), and negotiated confidence and supply agreements with New Zealand First (seven seats) and United Future (three seats). In May 2007, one of the three United Future MPs resigned from the party which has resulted in Labour only being able to secure 59 seats on confidence and supply in the 121-seat Parliament. The Greens (six seats) signed a cooperation agreement with the government, undertaking not to oppose confidence or supply, and to work with the government on agreed policy and budget initiatives.

The opposition National party, led by John Key, has 48 seats in Parliament (up from 27 in 2002). Its share of the party vote increased to 39.1 per cent (up from 20.9 per cent in the 2002 election). Other parties with representation in Parliament are the Maori Party (four seats), and ACT New Zealand (two seats).  There are two independent members of parliament.

Economic Overview

New Zealand is a small open economy. Following a comprehensive reform program that began in the mid-80s, the New Zealand economy is now largely deregulated, and more internationally competitive. The production base has diversified and now includes a range of elaborately transformed manufactures, while maintaining a large export-oriented agriculture sector. Services account for around two thirds of New Zealand's real Gross Domestic Product (GDP), while manufacturing accounts for 15 per cent. In 2006, New Zealand's main merchandise export markets were Australia (20 per cent), the European Union (16 per cent) the United States (13 per cent), Japan (10 per cent) and China (5 per cent). New Zealand’s main sources of imports were Australia (20 per cent), the EU (17 per cent), the United States (12 per cent), China (12 per cent), Japan (9 per cent) and Singapore (5 per cent).

The New Zealand economy grew strongly between 1999 and 2004 (averaging around 3.7 per cent) but started to slow in 2005. However, growth rebounded at the end of 2006 (increasing by 0.8 per cent) and growth appears to be reaccelerating in the first half of 2007. The IMF has forecast growth of 2.8 per cent in 2007 and 2.3 per cent in 2008. Services industries accounted for more than 70 per cent of the increase in GDP. New Zealand’s GDP is approximately one-eighth the size of Australia’s.

New Zealand’s current account deficit (CAD) subsided slightly in December 2006 to 9.1%, down from 9.7 per cent of GDP (NZD 15.2 billion) for the year to June 2006, which is the highest figure since the 1975 oil shock. The highest New Zealand dollar in twenty years against the US dollar (approximately US75c and AUS89c in June 2007) detracts from the competitiveness of New Zealand exports and reinforces the CAD. A further significant development in the past six months has been the rise in world dairy prices by about 60 per cent, which will provide a substantial boost to economic activity over the next few years, posing a challenge for monetary policy.

New Zealand's Consumer Price Index (CPI) rose 2.6 per cent in the year to December 2006 including a fall of 0.2% in the December 2006 quarter. In June 2007, the Reserve Bank of New Zealand raised the official cash (interest) rate 25 basis points for the third time since March 2007, bringing the official cash rate to 8 per cent. 

New Zealand is currently experiencing labour shortages due to record low unemployment and high participation rates. Since late 1998 the unemployment rate has been trending downwards and has been below 4 per cent since September 2004.  Ongoing labour market tightness has contributed to strong growth in labour incomes while labour force participation has increased to record levels. The unemployment rate was 3.8 per cent in March 2007. The New Zealand Government has identified improving productivity as a key challenge for New Zealand's economy.

Economic Forecast Summary

 

2005

2006

2007

2008

2009

Real GDP (%)

2.7

1.6

2.8

2.3

2.7

CPI inflation rate (%)

3.0

3.4

2.4

2.7

2.5

Unemployment rate (%)

3.7

3.8

3.6

3.7

3.9

Exchange rate NZ$: US$ (period average)

1.42

1.54

1.36

1.37

1.44

GDP per capita (US$ at market exchange rates)

26,460

25,110

30,020

31,130

30,850

Government Debt (% of GDP)

23.0

23.6

22.8

22.6

23.3

Current account (US$b)

-9.8

-9.4

-10.2

-10.4

-9.7

Goods: exports (fob) (US$b)

22.0

22.5

28.3

30.8

31.7

Goods: imports (fob) (US$b)

-24.6

-24.6

-30.1

-31.7

-31.8

Merchandise trade balance (US$b)

-2.7

-2.1

-1.8

-0.9

-0.1

Services trade balance (US$b)

0.1

0.1

0.5

0.4

0.4

Current account balance (% of GDP)

-9.0

-9.0

-8.1

-7.9

-7.3

Overall budget balance (% of GDP)

-2.7

-2.1

-1.8

-0.9

-0.1

Source: EIU Viewswire, 5 Year Forecast Summary 10 December 2007

Bilateral economic and trade relationship

The economic and trade relationship between Australian and New Zealand is shaped by the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), which came into effect on 1 January 1983.  ANZCERTA created one of the world's most open and successful free trade agreements and two-way trans-Tasman merchandise trade has increased at an average annual rate of around 9 percent following its adoption. Based on trade in goods and services, New Zealand is now Australia's fifth largest market, taking 5.9 per cent of our exports and is the eighth largest source of imports for Australia. Australia is New Zealand's principal trading partner, providing 20 per cent of its merchandise imports and taking 21 per cent of its merchandise exports.

In the year to June 2007, trans-Tasman merchandise trade was valued at $15.0 billion. Key Australian merchandise exports to New Zealand (total value of $9.4 billion) included refined petroleum ($646 million); crude petroleum ($477 million); passenger motor vehicles ($435 million); medicaments (incl veterinary) ($379 million) and computers ($300 million). Merchandise imports from New Zealand (total value of $5.6 billion) included crude petroleum ($348 million); paper and paperboard ($250 million); non-monetary gold ($224 million); and alcoholic beverages ($204 million). Two-way trade in services amounted to $5.6 billion in 2006-07.

In 2006, two-way investment between Australia and New Zealand was $97.7 billion. New Zealand is the sixth largest foreign investor in Australia, with total investment (Foreign Direct Investment, portfolio and other investment) stocks of $32.4 billion at the end of 2006. New Zealand is the third largest market for Australian investment abroad, with Australia the largest investor in New Zealand. The total stock of Australian investment in New Zealand was $65.3 billion at the end of 2006. Over half of Australia's total investment in New Zealand is FDI, reflecting the high level of economic integration. Recently there has been significant new commercial investment from Australia in New Zealand's transport and banking sectors.

On 1 January 2007, new Rules of Origin (ROO) (pdf) based on a Change of Tariff Classification (CTC) approach, entered into force under ANZCERTA. Under the CTC approach, a product will generally be covered by the CER agreement as long as the manufacturing process in Australia or New Zealand involves a specified change in its classification under the tariff system. This has simplified the administration of ROO and reduced compliance costs, and also reflects an increasing global trend to use this type of ROO in bilateral trade agreements.

Australian Government Trade and Investment Strategies

Both Australian and New Zealand governments are committed to working towards a trans-Tasman Single Economic Market (SEM). At meetings in January 2004, February 2005, February 2006 and January 2007, the Treasurer, Mr Costello, and the New Zealand Finance Minister, Dr Cullen, agreed to progress a range of initiatives to enhance trans-Tasman business integration and to work towards a SEM based on common regulatory frameworks. Measures implemented as a result of discussions so far have amounted to a substantial lowering of regulatory barriers to doing business on a trans-Tasman basis

Business and Financial Services

Legislation is now operating in both countries that increases coordination between both countries' banking supervisors, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ).  The Reserve Bank of New Zealand Amendment Act and Australia's Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Act both came into force in December 2006.

At their January 2007 meeting, Ministers agreed to commence negotiations concerning updating the 1995 double tax agreement between the two countries. Ministers also agreed to set up a trans-Tasman working group to examine issues around retirement savings portability, to bring together the patent application processes of both countries and to examine the feasibility of a scheme of mutual recognition of court proceedings and enforcement of judgments on both sides of the Tasman.

Business Law

Following the signing of a new Memorandum of Understanding (MOU) on Business Law Coordination at their 2006 meeting, the Ministers noted in 2007 that progress had been made across a range of issues. Progress included cross-border company recognition, cross-border insolvency provisions, mutual bans on disqualified company directors and information sharing between trans-Tasman competition and consumer regulators. In August 2006, the Australian Competition and Consumer Commission (ACCC) and the New Zealand Commerce Commission (NZCC) agreed to a Co-operation Protocol that enhances co-ordination and information sharing between the ACCC and NZCC in relation to merger transactions.

The MOU continues to provide the framework for the coordination of business law between Australia and New Zealand, and proposes an extensive work program to increase trans-Tasman coordination in business regulation. Examples of greater regulatory coordination of business law regimes under the previous MOU (signed August 2000) include:

Closer coordination of laws allows business on both sides of the Tasman to do business with greater certainty and reduced costs.

The Trans-Tasman Mutual Recognition Arrangement (TTMRA) (pdf) for Goods and Occupations came into effect in 1998 and substantially reduced regulatory impediments to trans-Tasman trade. The two basic principles of the TTMRA are that:

Parties to the TTMRA engaged the Productivity Commission to review the scheme's operation. The review found that the scheme had harmonised standards and increased the mobility of goods and labour across jurisdictions.