East Timor's deputy prime minister says his country does not have the capacity to set up a regional processing centre for asylum seekers, as proposed by Australian Prime Minister Julia Gillard.
Earlier on Tuesday, Ms Gillard announced that her government was negotiating with East Timor on setting up a centre to handle new boat arrivals before they arrived in Australia.
She said she had held talks with East Timorese President Jose Ramos Horta and New Zealand Prime Minister John Key about the idea, and had canvassed it with the United Nations High Commissioner for Refugees, Antonio Guterres.
But East Timor's deputy prime minister, Jose Luis Guterres, says that, while his government will consider the request, it has already sent a message to Australia's embassy in Dili saying it's not ready to establish such a centre.
He says the country has many issues to deal with and does not need another problem.
NZ PM open to the idea - Gillard
Announcing the plan in a speech in Sydney on Tuesday, Ms Gillard said that when she spoke to Mr Key about it, "John said to me that he would be open to considering this initiative constructively".
She went on: "East Timor and New Zealand are vital countries in this initiative, as they are already signatories to the refugee convention. New Zealand, like Australia, is a key resettlement country."
A spokesperson for Mr Key, who is on an Asian trip, says the two leaders spoke about the idea of a regional processing centre, but not specifically about East Timor.
Acting Prime Minister Bill English says that boat people and asylum seekers are a regional issue and that the Government is open to talks with Australia about a regional solution.
Mr English says New Zealand will not be increasing its United Nations' quota of 750 refugees per year.
Labour leader Phil Goff agrees with that, but says New Zealand should stay out of what he calls Australia's political battles over refugees.
Ports of origin will be targeted
Australia's new leader also announced that her Labor government will lift its suspension of Sri Lankan refugees but retain its freeze on accepting Afghan refugees.
She said the Government will target ports of origin as it aims to stop people-smuggling and stem the flow of asylum seekers to Australia. So far this year, 75 boats carrying asylum seekers have arrived in Australian waters.
Ms Gillard also called for a national debate on the issue, saying the community had been polarised by inflammatory language from the Opposition. She said Labor will seek to remove the "profitability of the trade and the danger of the voyage".
Opposition ratchets up its own policy
Earlier in the day, Opposition Leader Tony Abbott confirmed that the Liberal-National coalition had ratcheted up its border protection policy.
Mr Abbott says asylum seekers who deliberately discard their passports before arriving in Australia will be turned away under a coalition government, and asylum-seeker boats will be turned around regardless of whether or not they are in international or Australian waters.
The coalition will also aim at bringing more "objectivity" to the refugee approval process by taking decision-making powers away from immigration officers on Christmas Island and giving greater powers of intervention to the immigration minister.