141 File Note by Bentley

Wellington, 3 February 1981

CONFIDENTIAL

Note for File1 ANZ CER: Finance & Banking

I spoke to ...,2 Treasury, this morning in an attempt to gain some insight into what the Prime Minister had in tnind on the above...., who insisted he was talking off the record (therefore protect), said that the issue had been kicked around for quite some time, but while agreeing that the 'general financial market relationship' was one that would have to be looked at, officials had concluded that it was 'second generation'. The important thing was to concentrate on the central trade issue.... said that individual issues, (e.g. Government purchasing) kept cropping up. At one stage last year it was horticulture and officials did not know whether the Prime Minister was talking about cut flowers or what. The issues came and went or, if they did not go, they normally receded. Somehow or other the finance issue had occurred to the Prime Minister once again. But how? Had he been got at by some business acquaintance or had he simply decided that some movement on the finance side should be a pre-requisite to CER agreement?

As to the substance of the issue, ... said that carriage had rested with the Reserve Bank. In a paper presented to the Treasury quite some time ago, the Bank had suggested that the financial market relationship should be left as it is for the time being. The Bank's paper made a number of points. To begin with there were certain restrictions on New Zealand based finance operations in Australia, but the Campbell Committee was reviewing such matters in Australia and New Zealand could well afford to await the outcome of that review. The basic Australian rule that a finance company had to be 50% Australian-owned had also proved difficult to meet and this rule had sometimes been in conflict with other requirements (by the Stock Exchange for example). On the other hand, the Reserve Bank concluded that the Bank of New Zealand had a number of opportunities in Australia-it was operating and could use it is Australian profits to expand those operations. In the Reserve Bank's view there was not a great went on to point out that in the long run there could be some domestic concerns, particularly in relation to exchange control. If Australia's rules were liberalised, would the New Zealand Government be happy about its finance companies taking advantage of the opportunities.

Having outlined the Reserve Bank's general approach ... pointed out that because the area was second generation, bureaucrats had not considered the subject in detail. They now had in effect a political instruction, but what they would have to do was unclear. He thought that working party might obtain some guidance from today's CEC meeting. His personal view was there was no need for us to do any more than to flag that finance was potentially a current problem.

I gave ... the gist of what the Prime Minister had to say to the High Commissioner yesterday of the issue.... commented that interestingly the Prime Minister's comments followed very closely the note Treasury had put to him. The note had gone on to say, however, that Treasury did not see great merit in pursing the issues at this stage. Apparently the Prime Minister did not accept this advice.

[NAA: A1838, 370/1/19/18, xxi]