Skip to Content

PC News - May 2019

Growing the trans-Tasman digital economy

A joint research paper by the Australian and New Zealand Productivity Commissions identified potential areas for policy collaboration across the Tasman.

Decades of collaboration between Australia and New Zealand have facilitated substantial economic integration across the Tasman. The digitalisation of the economy presents new opportunities for both countries to work together. In a recent joint project, the Australian and New Zealand Productivity Commissions have examined the trans-Tasman digital economy and identified priority areas for growth, in particular, opportunities for small to medium enterprises (SMEs).

The trans-Tasman digital economy

In the context of the global digital economy, Australia and New Zealand are more similar than different. Australian and New Zealand consumers are fast adopters and avid users of digital services and technologies. Firms have high levels of access to the internet and a sizable proportion of firms use the internet for sales.

But despite the far reaching effects of digitalisation, some things have not changed. First, digital technologies have not ‘made the world flat’, as some commentators expected. Rather than overcoming the distance between Australia, New Zealand and the rest of the world, digital technologies have increased the returns to scale and agglomeration.

Second, while there are numerous examples of innovation by Australian and New Zealand firms, most firms are not at the forefront of digital invention and production. Adoption of digital technologies varies widely by industry and by firms within industries. The rate of diffusion of different digital technologies likely reflects the costs and benefits of their application by industry and rational individual decisions by firms. The businesses that gain most from digital technologies are those that not only install new software and hardware, but also make complementary investments in business reorganisation and skills.

Digital government can benefit SMEs – but there is still a way to go

Given the ubiquitous nature of ‘digital’ in everyday life, there is little to differentiate the digital economy from the   broader economy; in other words, the digital economy is the economy. Therefore, to identify growth opportunities, the Commissions looked at the broad challenges and opportunities created by the digital economy and at what institutional and regulatory settings by the Australian and New Zealand Governments would be most effective.

Digitalisation creates opportunities for each country to improve regulation and government service delivery. Some regulators in Australia and New Zealand, such as those overseeing financial markets, have responded to the emergence of innovative firms by creating new tools to support start-ups, while maintaining regulatory oversight. Other regulatory issues, such as applying consumer law to digital and cross-border transactions or addressing the market power of global platforms, are difficult to address in isolation and offer fertile ground for joint work.

Government service delivery on both sides of the Tasman – from registering a motor vehicle to completing a tax return – has been improved using digital technologies. In some areas, such as trade compliance, greater use of digital technology can reduce regulatory burden and the associated costs (figure 1). Because these transaction costs can fall more heavily on smaller firms than on larger ones, further reductions could be particularly beneficial to SMEs.

Although many government services are now delivered online, a truly ‘digital government’ remains far from a reality across the Tasman. Similar to firms, governments must also make complementary investments in skills and process design to maximise the benefits of the digital economy.

In both countries, governments are implementing programmes that attempt to lift digital ‘laggards’ by targeting digital skills or capabilities. Such programmes are unlikely to make much difference to firm performance, given the importance of complementary investment (for example, skill development) and other business capabilities. Similarly, efforts to build national digital niches or champions face stiff international competition.

Figure 1: The costs of importing and exporting are much higher in Australia and New Zealand compared with other advanced economies

  • Average compliance costs in US$, 2017

    Export graph: This figure shows the average compliance cost in 2017, in US dollars, to export goods from Australia, New Zealand and the average of OECD countries. The costs are broken down into documentary compliance and border compliance costs. The graph shows the costs in Australia to export are five times the OECD average, and the costs in New Zealand are twice the OECD average. Import graph: This figure shows the average compliance cost in 2017, in US dollars, to import goods into Australia, New Zealand and average of OECD countries. The costs are broken down into documentary compliance and border compliance costs. The graph shows the costs in Australia to import are 3.7 times the OECD average, and the costs in New Zealand are 2.7 times the OECD average.

    Source: World Bank (Doing Business project, ID: IC.EXP.CSDC.CD).

What is more important for SMEs – and indeed, the broader economy – is the enabling environment that the Australian and New Zealand Governments can create, both domestically and trans-Tasman. An enabling environment requires infrastructure, skilled workers, open and competitive markets and effective institutions. In many of these areas, Australia and New Zealand are ranked highly compared with other advanced economies. Making further progress will depend on strengthening those foundations and continuing to work together.

Priorities for trans-Tasman policy

This research project coincides with the 15th anniversary of the Single Economic Market (SEM) initiative. Through the SEM, the Australian and New Zealand Governments aim to:

  • reduce the impact of borders
  • improve the business environment through regulatory coordination
  • improve regulatory effectiveness
  • and support business opportunities through industry and innovation policy cooperation.

The Commissions have identified a number of policy initiatives that could be added to the agenda, including:

  • trans-Tasman sharing of credit information
  • joint standards for open banking
  • trans-Tasman recognition of individual and business digital identities
  • extending and deepening international regulation on consumer protection for cross border transactions
  • further streamlining trade compliance processes
  • work to improve global trade rules.

Each of these initiatives is fairly narrow in its scope. But taken together, these measures could have a beneficial impact on the trans-Tasman economy in the digital era.

Growing the Digital Economy in Australia and New Zealand

Newsletter homeNext article