‘Reduce the profitability of banks’: OECD NZ desk head has blunt message on economy
Thursday, 14 May 2026
Reducing bank profitability and fixing the broken electricity market were the keys to turning around New Zealand’s economic performance and productivity, the head of the OECD’s New Zealand desk told delegates at the Commerce Commission’s Competition Matters conference in Auckland on Thursday.
David Haugh said after two decades of weak productivity and weak competition, New Zealand must heed the message that: “In a small, remote economy, competition does not emerge organically. It must be designed.”
The country needed to take active steps to “shape” markets, because current settings were not working.
High power prices, OECD-high construction costs, and a weakly competitive finance sector dominated by a small number of big banks, were hindering economic growth, and threatened to de-industrialise the country.
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New Zealand had fallen far behind other countries blessed with high levels of renewable electricity, including Norway and Finland.
“We think there’s a market failure here,” Haugh said.
“Wholesale power prices, once among the lowest in the OECD, are now high by international standards, especially compared with other renewables countries like the Norway, Sweden, Norway. High and volatile prices of slow electrification undermine competitiveness and increase the risk of industrial shutdowns, create uncertainty and reduce incentives to invest domestically,” he said.
“The only sustainable way to make electricity more affordable and secure is to break the link between gas and electricity prices.”
He recommended the Government move to create a flexible and transparent “firming market” with tradeable contracts, and mandatory participation.
In the banking and finance market, Haugh said New Zealand should be trying to break the power of the big banks, and asking international fintech companies like Revolut what they needed the Government to do so they would enter the New Zealand market, and grow.
Small and medium companies faced such internationally high interest costs, they were “impressive”, Haugh said.
“Lending margins are at the upper end of the OECD range,” he said.
“Obviously, if the banking system is foreign-owned, and is making large profits, they're being transferred to its owners outside the country. That's profit that's not being recycled necessarily back into New Zealand,” he said.
“A key issue for making the New Zealand economy work better is to reduce the profitability of banks in the country, unfortunately for the banks,” he said.
He also called for a fresh overhaul of New Zealand’s capital markets. The NZX was too expensive for small companies, and was tiny compared with other countries.
It didn’t have to be that way, he said. Denmark and Sweden had successful capital markets, and he suggested New Zealand head there to learn lessons.
However, thriving capital markets required New Zealanders to save and invest more of their incomes, he said.
Haugh was followed at the podium by Commerce and Consumer Affairs Minister Cameron Brewer who told the audience at the SkyCity International Convention Centre to “watch this space” on capital markets reform.
Haugh said New Zealand's economy had begun to recover after a prolonged period of weak growth, with activity picking up in the second half of 2025.
“However, the recovery remains fragile,” he said.
“We've trimmed our growth forecasts for New Zealand by around 0.5% points for 2026 and 2027, and we're now forecasting growth of 1.4% in 2026 and 2.3% in 2027,” he said.
Compared with the rest of the OECD, New Zealand’s economy was narrow, relying on too few industries.
The country had done well to secure free trade agreements, but the economy was too narrow to take full advantage of them, he said.
“New Zealand has world-class firms, but there are too few of them and too few that scale,” he said.
“New Zealand does not lack good firms, it lacks enough firms that grow large and this is not just a matter of ambition, it's structural,” he said.
Low productivity was at least partly the result of weak competitive forces in some large industries, a report published on Tuesday by the Commerce Commission in the run-up to its conference.
Commission chairperson John Small issued a plea to Parliament in 2024 to increase fines so they were a real deterrent following anger that a company which sold banned micro-magnets was fined just $87,750 after a young girl who swallowed two magnets needed emergency surgery.
Finance Minister Nicola Willis announced the maximum penalty for breaches of the Fair Trading Act would rise from $600,000 to up to three times the value of the commercial gain from unfair trading, the value of the transactions, or $5 million.