Former Finance Minister Bill English has described the influence of Australia's big four banks as more pervasive in New Zealand than that of China.
The debate over China's use of 'soft power' in New Zealand has flared in recent weeks after an academic paper documented the Chinese Government's influence over Chinese language media and the expatriate community, along with links to sitting MPs.
English, who was Finance Minister between 2008 and 2016, was attempting to deflect journalists' questions about foreign Governments who may use expat communities to influence New Zealand politics. English's National Party has faced questions over the background of National Party MP Jian Yang, who has admitted he taught English to Chinese spies before emigrating to New Zealand.
"The exercise of foreign influence is nothing new in New Zealand," English said.
"Over the years at different times there have been influences – Russia, the US, China, and of course there is a pretty pervasive, potentially pervasive, influence from Australia where they own our banks and insurance companies and there is a lot of tension around that, where Australia would prefer we didn't regulate our own financial sector, they would prefer to do it from Australia."
"That is a much more immediate offshore influence, I think, than any of the others."
Plans for a single banking regulator to cover both Australia and New Zealand (where more than 90 per cent of the banking system is controlled by the Big Four Australian banks) were dropped in 2006. The Australian Treasurer at the time, Peter Costello, was keen on a single regulator, but the Reserve Bank of New Zealand said it feared the New Zealand economy could be at risk in the event of an Australian bank collapse if the RBNZ did not have full control of banking supervision.
Costello and then-New Zealand Finance Minister Michael Cullen agreed instead to new rules requiring the Australian Prudential Regulation Authority and the RBNZ to consult each other on planned regulatory changes and to consider the impact of their actions on the financial stability of the other country.
English's comments suggest that the compromise has lessened neither the tension nor the wish of APRA and the Big Four banks for more control over New Zealand's banking regulation.
"By far the most pervasive influence is Australia and I can speak from my time as a Finance Minister where there was constant pressure over the way that New Zealand had different rules for our financial sector than they have in Australia for the same banks and the same insurance companies, and they didn't like that."
Speaking to Newsroom later, English said the pressure from Australia was "nothing new."
"That theme always runs through the relationship."
English said the pressure was mainly expressed by the banks, adding "look, I am not trying to pick an argument with them. I am just saying that it would be wrong if people think the New Zealand Government operates in a world where there is no attempted influence. Of course there is."
"It's a natural tension in the system, and as both countries have been through changes in banking regulation, there's been ongoing tension in the trans-Tasman arrangements."