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| Roger Partridge | Chairman and Senior Fellow | roger.partridge@nzinitiative.org.nz | ||||||||||||
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A new submission to the Committee from banking experts Andrew Body and Simon Jensen provides fresh evidence of these costs. Their analysis shows the Reserve Bank’s capital rules add between 0.25 and 0.375 percentage points to mortgage rates compared with Australia. For a million-dollar mortgage, that means between $2,500 and $3,750 in extra annual interest payments. The Reserve Bank requires banks to hold enough capital to survive a one-in-200-year financial crisis. No other country sets such an extreme standard. Most aim for resilience against a one-in-100-year event. Making matters worse, the Reserve Bank keeps adding requirements to its conservative settings. Banks must now conduct climate-related stress tests and meet complex reporting obligations, even though the high capital requirements already protect against such risks. The central bank also requires banks to hold more capital against farm lending than Australian regulators. A New Zealand farmer faces higher borrowing costs than an Australian farmer, even though both sell into the same global markets. These rules might make sense if they protected against real risks. But our banking system proved resilient through the global financial crisis and the pandemic. Bank losses remained low even during the dairy downturn of 2015. The Reserve Bank’s ultra-conservative approach comes at a high price. Using the Australian Productivity Commission’s economic model, Body and Jensen estimate the impact on New Zealand’s GDP as high as $8.8 billion annually - about 2.1% of GDP. That is equivalent to the cost of several major hospitals each year. As the Initiative has long argued, Parliament could fix this problem. We need expert oversight of the Bank’s prudential regulatory function. The Reserve Bank Act should be amended to make efficiency a primary objective alongside financial stability. The Minister of Finance needs the power to direct the Bank to align its capital rules with international standards. The Select Committee has a vital role to play. Rather than focus only on bank competition, it should examine how the Reserve Bank’s rules affect the cost of credit. Getting these settings right matters. New Zealand needs a stable banking system, but not at any cost. The current regime imposes a needless tax on economic activity. Both consumers and businesses pay the price. |
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| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
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So, one might have hoped that a targeted review of the Commerce Act would aim at the big problems blocking open and competitive markets. The Commerce Act already addresses a lot of potential barriers to competition. Cartel activity is forbidden, mergers are regulated, and trade practices that are considered anticompetitive are restricted. A targeted review might aim at what the Commerce Act has missed: The major, obvious problems that have emerged where the Commerce Commission has not been able to do much because the Act has not enabled appropriate action. A series of market studies have pointed to land use planning as an impediment to workable competition. Zoning can unintentionally create local monopoly power by blocking new entrants. And while your competitor’s submission opposing your resource consent is supposed to be ignored by planners, plenty of other anticompetitive options are available. For example, if you want McDonald’s as your tenant, oppose their application to open on a site they own – as happened in Wanaka recently. But the problem is broader than zoning. Plenty of other regulatory systems also have sharply anticompetitive effects. If you wanted to create an actual cartel of pharmacies, you would have a hard time doing better than the rules already in place around opening new pharmacies. While it is illegal for occupational licensing boards to deliberately promote anticompetitive practices, investigation and enforcement action are rare. For decades, it has seemed that no one is watching. There are obvious things that a targeted review of the Act should be targeting. For example, Part Two of the Act lists a series of restricted anticompetitive trade practices. Why not add anticompetitive use of a regulatory process to that list? The Act could also enable the Commerce Commission to determine whether a regulatory regime substantially lessens competition – a legal test used elsewhere in competition law. That determination could trigger a review of the regulation. It could be that there is no way of achieving an important public benefit without that reduction in competition. But it would be a good idea to check. Unfortunately, none of that was in the targeted review. Instead, the review targeted minor issues. If the government believes that strengthening competition matters for economic growth, the targeted review has missed its shot. |
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| Dr James Kierstead | Research Fellow | james.kierstead@nzinitiative.org.nz | ||||||||||||
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As a report for RNZ revealed, there has been a crackdown on outdoor festivals all through the summer, with four postponed and another four cancelled outright. In December Juicy Fest, a nostalgia-tinged hip-hop festival, was cancelled after the police opposed their liquor license, citing ‘excessive consumption of alcohol.’ Many fans were unable to see the Ludacris acts they had looked forward to, while others were left feeling that their Akon tickets were a con. Laneway festival was forced to return some tickets after police opposed its liquor license. The police said they suspected that ‘there were many more intoxicated people in the crowd’ than had been reported. At Summer Haze festival, ‘at least 18’ police officers reportedly ‘stood in a line across the Wharepai Domain for the entire evening,’ despite RNZ declaring it ‘a very mellow night’ and the festival organiser claiming there had been ‘zero issues.’ (It was not clear how many of the officers involved were fans of The Roots.) In a statement, the police insisted that they had simply allocated ‘sufficient staff to rotate through hydration.’ They also declared that hi-vis vests have ‘a calming effect’ on crowds. And that officers ‘kept a close eye on the venue's single bar.’ One thing that is quite clear is that the forces of law and order have not been overreacting in the slightest. When RNZ asked for evidence to support claims of ‘high levels’ of intoxication and skullduggery at music festivals, a police spokesman stated, reassuringly, that ‘it’s anecdotal.’ Doubtless to contribute to this impressive evidence base, KiwiBurn festival asked punters last week ‘to come forward with the names of those’ who had engaged in a number of harmful practices including ‘trespassing’ and ‘uncool language.’ Despite this imposing body of social science research, a spokesperson from the Events Association nevertheless posed a counterpoint. ‘We have data,’ she said, which suggests ‘that intox rates are trending downwards.’ This fits with what studies have found in other English-speaking countries: that Gen Z are actually less likely to use alcohol or drugs than any previous generation. They are, in fact, the most puritanical, fun-despising generation in living memory. Now there’s something to be concerned about. |
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| On The Record | ||||||||||||
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