It can work after all

At our usual blistering pace - the Fair Trading Amendment Bill was introduced in Parliament 11 months ago, and is still with its Select Committee (Economic Development, Science and Innovation) - we are getting closer to prohibiting 'unconscionable conduct'. 

'Unconscionable'? It's not a term defined in the Bill, though the proposed new Section 8 of the Fair Trading Act lists a set of factors intended to help courts recognise it when they see it. And it's not a term you see much used in everyday speech, either. But if you substituted 'disgustingly ratbag', you'd be pretty much there. 

It seems a bit odd that our existing legislation has a hole in it this big, but never mind, we're filling it in. While you can always argue about potential over-reach or under-reach, and the similar issues that crop up with the design of any legislation, the general thrust of the Bill ought to be welcome to everyone: to consumers, obviously, to economists, who recognise that markets if they're going to weave their magic need to work without oppression or deceit, and of course to the vast majority of businesses who operate decently.

The trouble has been, though, that the Aussies, who legislated for this back in 2010, came a cropper when one of their regulators tried to ping what they saw as an obvious candidate: in the Kobelt case, the Aussie High Court disagreed. That case had been brought by ASIC, the Aussie financial regulator, but the ACCC, who you'd imagine would normally be running the bulk of these unconscionability cases, was seriously rattled by the ASIC case falling over. I listened to ACCC Commissioner Sarah Court talk with some degree of passion about it at the RBB Economics conference last year and again at this year's CLPINZ conference. 

You can see why the Aussies were beginning to wonder if they needed something other than full 'unconscionability' - maybe some kind of 'unfair' provision - to catch stuff that looked pretty bad but didn't quite reach the statutory unconscionability threshold. And we might have to confront the same issue, given that our proposed legislation looks a lot like theirs.

But fear not. The good news, just this week, is that that the ACCC has scored a thumping great unconscionability win, and it looks as if the law might bite after all. This time, it was about the gross mis-selling by Telstra of mobile phone contracts to certain indigenous customers. The ACCC's statement is here, and there's a good piece in the Australian Financial Review (if you've got a sub) here.

Interestingly, despite admission of liability, apologies, and extensive remediation on Telstra's part, the agreed penalty which will be put to the courts by  the ACCC and Telstra for approval is a stonking A$50 million, which (I learn from the AFR article) would be the second largest consumer law fine in Australia, second only to the A$125 million imposed on Volkswagen for the "dieselgate" faking of emission tests (Volkswagen is apparently appealing, after a judge had upped the initial proposed penalty from A$75 million).

Hopefully our unconscionability provision, when it finally emerges blinking in the sunlight, won't be called on often. But it's good to know that it can be made to sheet home to the worst of the rogues and the bullies. To be honest, if I was asked which would I rather see criminalised first, cartel behaviour or odious pressure selling, I'd have to sit down and have a good think, and the answer mightn't be cartels.

The Bank's other stuff

Yesterday's Monetary Policy Statement went entirely as expected - no change to the Official Cash Rate (still 0.25%), no change to the Large Scale Asset Purchasing Programme (still capped at $100 billion), and the introduction of the signalled Funding for Lending Programme, intended to provide a new source of cheap funding to lenders (three year funding at the OCR rate). 

If used fully, the new FLP would amount to $28 billion. In Australia, the equivalent Term Funding Facility, which has been going since April, has a capacity of some A$200 billion, or about NZ$212 billion. Divide by 7 as a rough pro rata rule of thumb and the Aussie TFF would be a NZ$30 billion or so programme here, so the good news is that we've introduced a similar-sized stimulus.

There is a line of thinking that providing extra funding for lending might be the proverbial 'pushing on a string' if, in still unsettled Covid conditions, borrowers aren't much minded to take on more debt or banks aren't much minded to take on more risk, and it's true that (as of early November) the Aussie one has seen only A$83 billion taken up, or some 40% of the total available. But as the RBNZ said in the Statement, the actual take-up may not matter so much if the new FLP gets the cost of borrowing down, or as the Bank put it (p21)

The key success metric of the FLP will be whether it results in declines in funding costs, and encourages recent declines in these costs to be passed through to lower household and business borrowing costs. We could see a scenario where FLP funds are only drawn down in small amounts, but its availability encourages a broad decline in interest rates. We would consider this scenario successful, even though actual use of the FLP would seem minimal.

There's always interesting stuff in the body of the Statement and this time round I was especially interested in what the RBNZ had found as it went around the business traps, and in its comments on house prices.

"Many businesses", the Statement said (p18), "expressed concern about finding required staff. Some firms noted that re-deploying staff from one industry to another can be difficult, particularly for skilled jobs. Many firms rely on hiring skilled workers from abroad, which they have been unable to do because of the border closure". 

Granted, the large numbers at risk of losing their jobs in the most affected sectors - the Statement reckoned that pre-Covid international tourism and education made up 6% of GDP - won't always be a good fit for the vacancies available elsewhere, and labour market policy is always going to struggle to assist the transition. "Active" labour market policies (like these successful ones) try to ease the process, but you do wonder whether we've got enough of them. And the reported dependence on overseas skills again makes you wonder how well our labour market is working to match up the demand for skills with the supply of them.

House prices have grabbed everyone's attention, not least because the latest resurgence wasn't supposed to happen in a world where (supposedly) shell-shocked households were hunkering down, not trading up the house. It got a fair bit of attention at the media conference at the Bank after the Statement (tune in around the 29:25 mark, and stay with the rest of the video). But the Bank was quite right to say that it's not its ever-lower interest rates that are the big moving part in the house price increases. As it - completely correctly - said in the Statement (p28):

High house prices in New Zealand largely reflect structural and regulatory issues in New Zealand’s housing market. In particular, land use restrictions, such as urban planning rules, limit the land available for housing and how intensively it can be used. These land use restrictions impede the ability of the market to increase the supply of houses when demand for houses increases. As a result, house prices tend to increase more than otherwise in response to higher housing demand. Other supply-side issues include infrastructure  planning, the building consent process, and the cost of building.

You can berate the Bank all you like, and launch market studies into the building materials trade till you're blue in the face. They're all in the twopenny halfpenny place. Nothing's going to happen to high house prices until the supply side of the market starts to work a lot, lot better.

More market studies

We've got more market studies lining up: as Labour announced during the election campaign there will be two new ones, into supermarkets and building materials. 

No dramas there, but there are two aspects I'd like to pick up on.

One is that the Commerce Act says that either the Commerce Commission (s50) or the Minister for Commerce (s51), now Dr David Clark, can initiate a market study if either "considers it to be in the public interest to do so". "In the public interest" isn't defined, but the FAQ that went out with the announcement included this:

A study is considered to be in the public interest if it promotes the purpose of the Commerce Act – to promote competition in markets for the long-term benefit of consumers within New Zealand, and the following criteria may be relevant:

• There are existing indications of competition problems in the market (such as high prices or low levels of innovation).
• The market is of strategic importance to the New Zealand economy or consumers.
•  It is likely there will be viable solutions to any issues that are found.
•  A formal Commerce Commission study would add value above work that could be done by other government agencies.

That's not a bad checklist. I wouldn't have run with the "strategic" point myself but the others look good. It mightn't be a bad idea to lock the criteria in, in some codified form.

The timing of the announcement though was not ideal. Last December, when I said "I'd heard rumours" about the next market studies, it was pretty much an open secret around the competition policy traps that supermarkets and building materials were next cabs off the rank. Either of them could have been got underway then, once the Commission's resources had been freed up after the petrol market study was finished, rather than nine months later in the middle of an election campaign. 

I don't mind candidates for office telling us what they plan to do: heaven knows, we've seen enough in New Zealand of politicians springing things on us. But we are in the early stages of bedding in our new regime and it would be better if the initiation of market studies were kept away from electioneering. We don't need the risk that business, and perhaps wider public, support for our shiny new market studies gets chipped away if the process appears politicised.