What the Cabinet read

Yesterday the Cabinet paper on what to do in the light of MBIE's targeted review of the Commerce Act went up on MBIE's website.

It made for interesting reading. It was very largely on the side of the pro-competition angels: it showed a good appreciation of how more effective competition can improve our relatively low productivity and lower our relatively high prices. And as part of the process the Minister, Jacqui Dean, got the green light to publish Promoting Competition, a welcome programme of work that will be part of the overall Business Growth Agenda.

Mostly, the Cabinet paper got the 'market studies' bit of the review right. It picked up on the current inconsistencies - Cabinet itself had recently encouraged more market studies by the Telecommunications Commissioner (part of the Commerce Commission) while still not letting the rest of the Commission do the same, the Electricity Authority can run ones in its bailiwick - and pointed to the unsatisfactory outcomes when ersatz studies are run as a second best substitute.

As it said in para 55, "Following the conclusion of the Fuel Market Financial Performance Study it is likely that the Government will still not have a good understanding of the severity of competition problems in the market". Which is exactly where I'd got to: "This half-baked time round, we ended up with just about the worst outcome, for everyone, of suspicions left unresolved. And we're now going to have to do the full, proper inquiry that should have been done in the first place". No offence, as I also said before, to the professional folk who did the petrol study: the problem was the mandate, which tried to do a quick and poorly scoped study, on the cheap, without full information gathering powers.

It was good, too, that for market studies "the funding approach should be agreed at the same time" (para 57): there have been times when the Commission's got lumbered with new jobs but no new money to do them. As the paper said (para 57 again), "if the power is granted but not funded and the Minister directs the Commission to use it then the Commerce Commission is forced to trade off their adjudicative or enforcement activity with work on market studies. This would be detrimental to the competition regulatory system as a whole". Quite right, so there's going to be a (maximum of) $1.5 million a year allocated. I quite like the idea of a maximum, and I'm sure businesses will do, too: it should act as an efficiency incentive on the Commission.

But the Cabinet paper dropped the ball when it came to letting the Commission initiate market studies. It reviewed international practice, and found that as a general rule competition authorities could either initiate on their own, or it was a policy combo where authorities could initiate on their own, but could also be asked to do one: "A small number can only undertake a study if it is externally initiated (e.g. by Ministers)". And then the Cabinet paper opted - very oddly in my view - to go with the "small number" rather than with international standard practice, and then only with additional controls that require the Minister to satisfy a "why do this" test and get the buy-in of Cabinet as a whole.

There was, I felt, a tone in this part of the paper that an empowered Commission might go rabid, and that the Rottweiler consequently needed to be well chained up. Paragraph 53 went to some pains to point out that even after been given these (constrained) market powers, there would still be lots of other constraints that would stop the Commission running amok and biting people. If I were having a quiet word in the Commission's ear, I think I'd be advising it to do more to polish up its perception in political circles. And I'd especially be encouraging it to point out - if politicians have been hearing too much from businesses not fond of the Commission - that the primary victim of business rorts can very often be other businesses.

Which brings us to section 36, and anti-competitive use of market power. As readers will know, I think the current law is an ass, and want it changed to match Australia's, and have said so in various places. But those of us of that view (including the ACCC, the Commerce Commission and Consumer NZ) were in the minority in submissions to MBIE's targeted review. So the law is not going to get changed, at least for now.

That said, I think I can live for the time being with where the Cabinet paper got to. For one thing, the Minister said (para 71) "I am of the view that there are problems with section 36 and that it is an important provision to get right in a small market like New Zealand". She went on to qualify that, but I intend to regularly requote the first part of that sentence in particular, and in various tones of voice: "there are problems with section 36", "there are problems with section 36".

In any event it makes some pragmatic sense, as proposed in the paper and also supported by Treasury, to spend the next year and a bit researching how big a problem we might or might not have with abuse of market power, and also waiting to see how the Aussies get on with their reformulated version of the law, assuming it gets through the madhouse that is the Aussie Senate.

Towards the end of the paper, paragraph 123 reads

Legislative change to the Commerce Act will be required in relation to cease and desist, enforceable undertakings and market studies. In this regard, a Commerce Amendment Bill has a [word redacted] priority on the 2017 legislative programme.

I don't like that redaction. As a general rule, on any policy issue, I think a government should be prepared to tell us whether it thinks it's a big deal and we can expect something done about it soon, or whether it doesn't, and we shouldn't. In this particular case, given that the last amendment to the Commerce Act took nearly six years, I'm afraid that the word redacted could well be "low".