Annual Review Debate — Commerce, Consumer Affairs, and Statistics

Thank you very much for the opportunity to take a call in the Appropriation (2020/21 Confirmation and Validation) Bill, Commerce, Consumer Affairs, and Statistics. Look, as the chair of the Economic Development, Science and Innovation Committee, I’d like to acknowledge the committee for the process that they undertook in terms of the annual review, hearing from over 20 Government agencies; a hard-working committee. I’d like to acknowledge all of the staff and the officials for the work that they did in terms of preparing the reports for us to now present to the House.

In terms of questions to the Minister, I’d just like to highlight a couple of areas. The first one is around Stats NZ. I’m interested to hear from the Minister around the measures that Stats NZ has taken to support a successful 2023 Census. We heard from Stats NZ that Census 2018 entailed a number of challenges and issues. The response rate was lower than expected, especially amongst Māori and Pacific. Stats NZ has been focusing on learning from the issues and challenges with the previous census, and it’s talked about a number of changes in its data collection approach for 2023. Now, one of those changes that the committee heard from Stats NZ was around the community engagement aspect. The Community Counts initiative we heard is a development for Census 2023. I’d be interested to hear from the Minister what Stats NZ are planning to do in terms of engaging with the community further, to increase the rates of participation in Census 2023. I understand that there are some other areas that Stats NZ are specifically looking at in terms of increasing that engagement. One of them I’ll be interested to hear from the Minister, as well, is around how Stats NZ are planning to work to improve both the online and the paper data collection—you know, because, as a society, we are evolving to more of an online world, really. And the census is moving online; how do we move online in a way that we also offer the paper-based system so, in effect, people don’t fall through the cracks? So that’s my question about the stats.

Then the second question I have is in terms of market power, and then, obviously, I know other members will have questions following on. But the question of market power: New Zealand is a small economy in relation to other countries around the world, and being a small economy, we often don’t have quite as many active players in markets, and because of that, we can at times be prone to having less competition than would be desirable for consumers. Sometimes this leads to monopolies. Sometimes this leads to cartel-type behaviour. So I am interested to hear from the Minister what changes have been made over the past 12 months to strengthen the prohibition against misuse of market power. Now, we heard from the Commerce Commission a little bit around this, particularly in terms of some of the market studies that they’ve been doing, in terms of the grocery sector. The commission released its final report on the conditions for competition in the grocery sector on 8 March 2022. The other area we heard from the Commerce Commission was around the retail fuel market. In 2019, the commission released its final report into the retail fuel market in New Zealand, and I understand there’s been some changes in that area to increase competition in the fuel market.

The third one is the residential building supplies. Now, I think we’ve all seen quite an escalation in some aspects, in terms of residential building supplies. The Commerce Commission said in their annual review that in November 2021, the Government asked the commission to study whether competition for residential building supplies in New Zealand is working well, and, if not, what can be done to improve it. So I’ll be interested to hear from the Minister why the Government asked that question. Has the Minister identified something in the residential building supplies that needs to change in terms of the competition?

So just to summarise for the benefit the Minister: Stats NZ in terms of the 2023 census, and the second question in terms of the changes that have been to strengthen the prohibition against the misuse of market power, acknowledging that we are a small market. Thank you.

I want to, first, thank the member for the work that he does chairing the Economic Development, Science and Innovation Committee and for the questions that have come my way, which are—you know, two that will be front of mind for members of this House. I will answer the member’s two questions, and I just note that I had a conversation with the Opposition who would like us to focus on the Commerce Act first and then statistics after that. I am happy to take the questions as they come. But perhaps if the committee felt—it’s the committee’s will, but if the committee wanted to organise itself that way, I’d be more than happy, but I’ll answer the member’s questions straight off around Stats New Zealand and the work that’s being undertaken to support a successful 2023 census.

There has been a whole lot more engagement with communities ahead of the census, and, as an example, Stats New Zealand has been working with iwi and Māori stakeholders in their respective regions to try and ensure that there is engagement well ahead of the census so that approaches can be developed that better support the collection of accurate data and statistics from populations who traditionally have not at such high rates responded to the census. There will be more paper forms available this time around, with 44 percent of all dwellings receiving paper forms prior to census day, and that’s a significant increase from 2018, when only 3 percent of households received paper forms in the same period. The final numbers will be confirmed after the dress rehearsal. Look, more than double the number of census collectors will be available at census time. There were 1,800 in 2018, and there’ll be up to 4,000 for Census 2023. There’ll be more assistance to complete census forms: help at the doorstep, or crossing the doorstep, to provide assistance. These are all measures that have been taken in response to the challenges of the 2018 census.

In respect of section 36, the member has asked what measures have been taken around prohibition of market power, and I’m sure this will be raised by members opposite as well. I do want to thank the committee for its support of the legislation recently passed, which strengthened section 36 of the Commerce Act, and the strengthened legislation will give the Commerce Commission better tools to take cases where it observes behaviour that may appear to be anti-competitive, and it will also more likely deter anti-competitive behaviour in the market. It has been very difficult to enforce section 36. Historically, I note that the Commerce Commission has taken five cases only since the legislation was introduced in 1986, and only two of them had been successful, and the last of these cases concerned conduct in the early 2000s. So it’s been felt that, really, that legislation has not had the teeth that was necessary to effectively enforce competition or to dissuade anti-competitive conduct, and the reforms align with the prohibition in Australia, the equivalent prohibition, and uses a test that already operates in other parts of the Commerce Act. I’m expecting the Commerce Commission to provide appropriate guidance around it, too.

So, look, I think I’ll leave that there and I’ll invite contributions from the Opposition.

Thank you, Madam Chair. The questions to the Minister are as follows. Why hasn’t the Commerce Commission’s investigation into fuel companies, which the Government promised would bring down petrol prices by 30c a litre, achieved a reduction in prices at the pump for motorists, and, interlocked with that question, how can New Zealanders have any confidence that the market study into supermarkets will bring down food prices when this market study into petrol companies has failed to achieve anything at all? The third question is—with his policy team on statistics—given the appropriations in the Budget, is he disappointed that nobody picked up the rampant inflation, which is at a 30-year high and is seeping into every aspect of the economy?

Thank you, Madam Chair. I want to deal with the member’s question straight off around fuel prices. The first of the market studies that was conducted was indeed into the fuel sector—fuel supplies—and it was conducted before my time in the role currently, but it’s one which still has legislation coming through and the effects of that legislation coming through, not to mention, obviously, the recent reduction in fuel tax that the Government has put through, recognising that families on fixed and/or modest incomes have been feeling the challenges of the cost of living increases connected to the global inflationary environment and the challenges in the Ukraine. So the Government has responded to those issues as they have arisen. But I do want to pick up the member’s—

💬 Damien Smith: Point of order. I’m talking about a period, Madam Chairperson, that was long before the Ukraine crisis, and it has been reflected in—

I was coming to that.

💬 Damien Smith: —the last year.

CHAIRPERSON (Hon Jenny Salesa): I call on the Minister the Hon Dr David Clark.

Thank you, Madam Chair. I think the context of the current situation is important, and I also want to directly address the member’s concern about the market study—the first of its kind—funded by the current Government to really get into competition issues in the sector. There has been a documented reduction in the fuel margins charged since the time that that study was released. We can now have a transparent view of those markets, and over the, roughly, 18 months since that report was released, we can see that fuel margins have reduced sufficiently so that the average family filling up a car every two weeks, which is pretty typical, would have saved around $100 per annum as a result of fuel margins dropping. So I would say that that does amount to something that has greater transparency in the market and some evidence that fuel margins have dropped as a response to the findings of that study.

On top of that, I would also note that there’s a new entrant in the South Island who attributes the ability to enter the fuel market to the changing conditions that were allowed for in the response to the fuel market study. So we’ve seen increased competition in the market as a result of measures that the Government took, and also further transparency around pricing and so forth has recently come into effect.

So there have been a number of changes in the market, and I just do want to challenge the member repeating some of those lines that came out around the time of the study. It is no longer relevant, because we’ve got evidence that that study has had a genuine impact on the fuel market.

Thank you, Madam Chair. I want to turn to the Credit Contracts and Consumer Finance Act (CCCFA) issue. So I suppose my first question is: the bill, which is now the Act, provided for a differential approach to be taken to lender and for borrower—it was in section 9E. Why was it that the Minister subsequently allowed the Ministry of Business, Innovation and Employment (MBIE) to rewrite the Responsible Lending Code, which originally was about 62 pages, and turn it into this mammoth 102-page Responsible Lending Code, and to include things—specifically a diagram on page 25—that state that lenders are required under 4AK to obtain at least 90 days of transactional records from relevant banks to verify the expenses; to do benchmarking; and not, practically, make adjustments for that? So here is a document and a one-page diagram setting out how banks and responsible lenders should be looking at lending practices. Why on earth would a Minister pass regulations, that did not come back through the Finance and Expenditure Committee, to set out such a prescriptive approach that has led to an absolute carnage, in terms of lending, to both people wanting to get mortgages, right through to people trying to get lending for cars or other items? So that’s the first question. Why did he allow this Responsible Lending Code to be so prescriptive and basically tell lenders how to go about assessing lending to borrowers?

The second point is: why didn’t he take a differential approach to different classes of borrowers? The whole purpose of the original Act was to look at high-cost lenders, and section 9E gave the ability to do a differential approach. This regulation, that only the Minister approved, took a carte blanche approach that meant that even regulated financial institutions, which are regulated by the Reserve Bank, which include our banks, through to commercial entities, through to approved lenders, right through to high-cost lenders—which was the original purpose of the legislation—are captured by the same piece of regulation that only the Minister approved. Why did he do it?

And my third major point is: why has he, first of all, when the problem first arose, blamed the banks? And why has he allowed MBIE, as late as late last week, to still blame the banks for very conservative lending, when page 24 of the Responsible Lending Code, that he passed, requires them to get this information from the borrower?

I’d just like to ask the Minister how much margins have fallen on petrol.

I will respond to the member Andrew Bayly’s questions around the CCCFA to start with. And, first, I do want to thank him and the parties in Parliament who unanimously passed the CCCFA legislation, back in 2019, as the whole Parliament recognised it was really important that we pass legislation to protect vulnerable borrowers. And the contributions through the Finance and Expenditure Committee process meant that we passed a law that the whole Parliament agreed on; the banks agreed it was really important also to protect vulnerable borrowers. So that’s the first and fundamental point I want to make.

This legislation which the member’s raising is legislation that the whole Parliament passed, and for good reason, and is supported by the sector—of course, it’s also supported by the budget advocates, those who find themselves as vulnerable borrowers, because, of course, anybody who’s lent money they can’t afford can become a vulnerable borrower very quickly.

What has then transpired, of course, is that the legislation came into effect, and it was observed that there was a drop in lending in December 2021. That drop, of course, is seasonal—we do know that in December, generally, lending drops. Of course, December 2021 was actually more lending to first-home borrowers than December 2019, 2018, 2017, and certainly a lot more than under the previous Government, in terms of first-home buyer lending.

So, none the less, that drop was something which attracted a lot of media concern and stories about people who were not able to get a mortgage, who wanted to get a mortgage. And I observed that, certainly in looking at lots of the media, a lot of the stories were about people who did not meet the current loan-to-value ratio (LVR) restrictions—that is, they did not have a 20 percent deposit. But the CCCFA, as it was newly introduced, had become something of a focus for members of the public, and banks had said that in some instances people had not received the mortgages they had hoped for because of that legislation.

So what I did at that point, as Minister, was bring forward the review into that legislation. The legislation is quite significant legislation. Again, I thank the member and his party, and the other parties in Parliament, for passing that legislation, because it has been described to me as the most significant legislation for the sector since legislation passed during the global financial crisis. That legislation coming into effect, of course, needed a review, as all major changes do. That was scheduled but I chose to bring that review forward because of some of the media concern and some of the cases being raised in the wider context.

The challenge, of course, and the Council of Financial Regulators (CoFR) agencies have been tasked with this, is to discern what of the reduction in lending can be attributed to seasonal factors, what can be attributed to the global economic conditions, the bank’s appetite for risk—we know that the major banks have been asked to de-risk their books by their parent companies—what can be attributed to the LVR changes, what can be attributed to the increase in rates, and so forth? These things are not simple—the official cash rate rise—a lot of these factors, of course, all play into lending decisions. The banks, ultimately, make commercial decisions off the back of all the factors at play in the market, and that’s to be expected. They’ve returned record profits, we’ve learnt recently, of $6 billion—back to Australia—in the past year. They’re making commercial decisions, as you would expect them to.

But, of course, these have implications for New Zealanders. So we wanted to make sure that the CCCFA was working as intended. We’ve already signalled some changes we wish to make. And the one that the member refers to is the change to—and I hold up the diagram: he’s picked out the bit where there’s a big red cross because that is one of the changes we’re proposing to make to 4AK(2)(b) around the collection of information because we’ve discerned that, actually, we don’t think that that is necessary. What is more important is the forward view of the expenses of individuals and their ability to meet the repayment requirements.

So I do want to thank the officials who’ve been working on this, the CoFR agencies across Government who’ve lent their expertise, and the banks who’ve made some very good suggestions, and other lenders who have made some suggested tweaks, which we have responded to, to try to ensure that New Zealanders can access the mortgages that they would desire.

I find that answer absolutely incredible. I think the Minister’s asserting that the cause of this issue was the legislation, not the responsible code of lending dated February 2021. So the first thing is: can the Minister confirm whether in fact he as the Minister was the one that approved these regulations, issued by the Ministry of Business, Innovation and Employment (MBIE), called Responsible Lending Code: Revised February 2021? I put it to the Minister—and I’ve heard him talk about this rather cutely previously—that the issue is not the legislation. The legislation provided for a differential approach to be taken either in respect of the lender or the borrower. The issue is not the legislation; it’s the regulation. And this is the document that has exploded by 40 pages, and I’d love to know, and I ask again, whether the Minister will confirm whether or not he as the Minister of Commerce actually approved these regulations.

The second thing is: why did he allow MBIE to lead the review of the regulations of this whole credit contracts finance issue when in fact MBIE was responsible for preparing the code that, in my view, the Minister subsequently improved and has led to the issue? Why was MBIE asked to leave that? Why did the Minister choose not to get an experienced practitioner? Because many of these issues that have come to fruition were highlighted in the select committee process. What people didn’t expect was that there would be a Minister who would subsequently go away and allow this approach to be adopted across all lenders and a responsible lending code that was issued in February.

I would just like Minister Clark to answer the last question, which was in the previous cluster, which is: how much have fuel margins fallen?

I’d like to know, though, if the Minister intends to answer this question or do we go on to the Minister of Education, who will now be in the chair to answer questions?

I’m happy to come back to the member. I don’t have that exact calculation in front of me. It’s freely available on the Ministry of Business, Innovation and Employment (MBIE) website. All of the data of fuel margins is published, and the member can do that calculation and check my calculation if he wishes to. That data is available on the MBIE website.

I’ll respond to one more matter that’s been raised by the member Andrew Bayly, and, obviously, then I must vacate the chair. On the matter of whether the regulations chose to be neutral on the matter of whether we’re regulating banks or other lending institutions, we have, consistent with the legislation, chosen to be neutral. We don’t want to privilege one part of the lending sector over others. We believe that there should be competition, and we recognise that, according to survey research, people do fall into hardship. Eighteen percent, actually, of people described themselves as in moderate or severe hardship on an everyday level when consumer surveys were done, which was part of the reason, of course, that the whole House supported the legislative change, and that was not restricted to lending types that were not banks. Banks were included in that wider figure. Now, it is true that some of those other lending institutions probably have more dubious track records, but it seems appropriate to have the same protections and a level playing field for all lenders.

Members, our time with the Minister of Commerce and Consumer Affairs and Minister of Statistics has ended—

💬 Hon Michael Woodhouse: Point of order. Madam Chair, the Minister assumed the chair, by my calculations, at 4.27 and therefore we still have about eight minutes to go, wherein in the second half of our exchange we were going to discuss matters related to his statistics portfolio. I just want to check the math on that.

CHAIRPERSON (Hon Jenny Salesa): The Minister assumed the chair at around about 4.20. The Government has agreed the time that the Ministers are in the chair and when questions run over time that means that it cuts into the other sessions, including the Minister of Education, who is here for the education portfolio as well as COVID-19

💬 Hon Michael Woodhouse: Point of order, Madam Chair. Can you give the House an absolute assurance that it was 4.20 when the Minister assumed the chair because I was checking the clock? I knew we were late, but it was closer to 4.20—

CHAIRPERSON (Hon Jenny Salesa): If he wants to answer a question on statistics he is most welcome to.

I’m more than happy to take a question from the member. Obviously, it cuts into the next member’s period, but that’s a decision for the Opposition to make and I’m happy to stay a little longer to answer his question.

I would point out it’s not our time that’s being cut into; it’s the Government’s time, because we haven’t been able to use ours yet. And if I’m restricted to one, it will simply be this. In answer to written question 2920 on options, including delaying the census—sorry around the discussions around a possibility of a delay to the census—the Minister did say that those discussions were taking place. But he refused to answer a question later on, at question 2924, about whether he had asked for a Cabinet paper to be prepared on the subject of Census 2023. He said it wasn’t in the public interest to disclose the information at this time. I think it’s very much in the public interest to know whether the Government has seriously considered a delay to the next census until 2024. Has he asked for advice from officials and does he intend to take a Cabinet paper in the next few months with a recommendation on whether Census 2023 should be delayed?

Thank you, Madam Speaker. What I would say is that Stats New Zealand continues to prepare for Census 2023. That is the aim, to deliver that census. As the member will be aware, with a global pandemic on, there is consideration given, of course, as to whether there is a need to delay the census, because the tests that were intended to be undertaken have not all been able to be undertaken to date, in terms of new methodologies for collecting these statistics. Having said that, the existing testing does seem to be working very well. I’m assured that the alternative testing methods that have been trialled to try and gain as much information as possible from populations that returned statistics and census data at a lower rate than last time have been successful, and that includes better quantitative analysis, stakeholder and community engagement, market research, focus groups, other methods of trying to assess the collection methods that are proposed, and international peer review of the approaches that are being taken.

I’m trying to be helpful to the member, but I would say that, you know, it’s my expectation that we’ll build a contingency into the Data and Statistics Bill to allow for a delay of census if it should be required. At this stage, Statistics New Zealand is on track to complete the census as planned, but some communities have not yet been ready to engage fully with the census process, including Māori communities who have been very much occupied with looking after their people through a global pandemic. I’m mindful of that, but these things still lie ahead of us.

💬 Hon Michael Woodhouse: Madam Chair?

The Hon Michael Woodhouse, we are actually out of time in terms of what was determined at the Business Committee—for 30 minutes.

Point of order, Madam Chair. During the Minister’s answer, the whip in the chair has been liaising with the clerks to ascertain that there was actually, when I started the intervention, eight minutes to go in this Minister’s time and just under five minutes when he finished. I’ll relinquish, and we will change, but I do think it behoves the committee to make sure that there’s, I think, a better synchronicity of what’s actually happening and how much time is available, because it’s a pretty unfulfilling process if we run out of time that we thought we had.

It really is up to the Opposition deciding whether you cut into the Minister of Education’s time.

Education