Axe hangs over watchdog market studies as coalition seeks more certain gains

Tuesday, 28 November 2023

ANALYSIS: Big businesses appear to have as much to fear as to celebrate from the new government’s approach to concerns over lacklustre competition.

Commerce Minister Andrew Bayly says the Government has yet to decide whether it will discontinue the Commerce Commission’s study into the banking market in favour of MPs’ own inquiry.

Either way, it looks set to be the last such market study that the competition watchdog will hold in its current form, after mixed reviews of its previous inquiries into fuel, supermarkets and building materials.

But what appears less clear is whether that will prove the loss for consumers that it might seem, or whether they might have more to hope for from other aspects of the coalition agreements.

The former government instructed the commission to examine competition in the banking sector in June, in response to concerns bank profits were consistently high.

But the National Party’s coalition agreement with NZ First commits it to establish a separate select committee inquiry into banks, which will focus on essentially the same topics of “competitiveness, customer services and profitability”.

The commission receives $3 million a year to pay for market studies and running one in parallel with a select committee inquiry might not be a desirable look for a new Government that has promised to reduce waste in the public sector.

It has been National’s position since the get-go that, when it came to banking, a select committee inquiry was the way to go.

Its finance spokesperson, Nicola Willis, now minister, argued in March that a market study by the Commerce Commission would take a long time, be extremely resource-intensive and highly unlikely to give any immediate answers to “urgent questions”.

Bayly indicates it will take “a good look” at the commission’s draft report into the banking sector, which is due out in March, before making any call on whether to cut the commission’s work short.

Whatever its decision, National’s agreement with the ACT Party would appear to make it unlikely that the commission will attempt any more multimillion-dollar studies of other industries under the current Government.

That agreement states that the Commerce Act will be amended to focus any future market studies on “reducing regulatory barriers to new entrants to drive competition”.

It is hard to envisage the commission bothering with any studies under such a limitation. Based on its previous findings, it is rarely “regulatory barriers” that are holding back new entrants from seeking to compete with monopolies and oligopolies.

In the case of petrol companies and supermarkets, the problems it identified were primarily related to the market power that the oligopoly and duopoly enjoyed, and the main thrust of the former government’s proposed remedies were additional regulations to force them to wholesale to rivals.

The exception was the commission’s market study into building materials, which did indeed conclude that the barriers suppliers faced getting new products accredited for use in New Zealand was a significant hurdle.

Assuming the commission is going to be steered away from market studies and towards its day jobs of enforcing the Commerce Act and Fair Trading Act, that might not necessarily play out badly for consumers though.

Despite ACT’s desired bonfire of regulations, there is no suggest in the coalition agreements that the new Government will wind back the last government’s biggest competition-law reform.

That was the new “section 36” in the Commerce Act that means businesses can be prosecuted for engaging in conduct that is likely to have the effect of substantially lessening competition, whether or not that was in fact their purpose.

Arguably, what beleaguered consumers need most from the commission is not more studies, but more significant prosecutions under that newly-beefed-up act.

Prior to the election, Bayly promised National would be “more laser sharp” in its competition policies and said it was crucial the commission had the funding it needed to pursue court actions.

Where the commission has perhaps dropped the ball in the past is in being too quick to settle with big businesses that have run a ring around the watchdog.

By accepting promises from businesses that they will change their behaviours, but without imposing penalties for past misdeeds, it has set itself up for a game of whack-a-mole.

There are no direct contradictions between National’s agreements with ACT and NZ First on competition matters, but a clear difference in philosophy underpinning them.

There are clauses in the latter that suggest Countdown, Foodstuffs and the major power companies, at least, may not be in easy ride under the new Government.

These include the promise to “address the lack of a third entrant” in the supermarket industry and an admittedly vaguely-worded commitment to “consumer-led institutional improvements” in the energy industry.

And where the select committee’s inquiry into banking goes is anyone’s guess.