Bernard Hickey: Failure to criminalise 'abusive behaviour' costs productivity

Our Commerce Commission has little power to control monopolies. Photo / Getty Images

This week's move by the Government to remove criminal sanctions for cartel behaviour from a bill already before Parliament should have been bigger news.

It was another example of foot-dragging and soft-pedalling by the Government and its bureaucrats when it comes to cracking down on monopolies, cartels and abusive behaviour in sectors dominated by a few players.

Cabinet decided in December 2009 New Zealand needed to "join up" its laws on cartels with Australia, which criminalises cartel behaviour and has a robust and effective anti-monopoly watchdog in the Australian Competition and Consumer Commission (ACCC).

The fact it took six years for a Cabinet decision to be translated into law, to be gutted at the last minute, shows how reluctant it has been to take on powerful businesses in the interests of better prices and services for consumers - and a more efficient, competitive and productive economy.

The Productivity Commission recommended in May last year the Government review and sharpen Section 36 of the Commerce Act on using market power. New Zealand is supposed to have the same rules as Australia, but interpretations by our High Court have made it harder to prosecute companies that abuse their power here. It also recommended the Commerce Commission be able to conduct studies to find out if players are abusing power or acting as cartels.

The Government took almost 18 months to respond to these recommendations before signalling a review last month of the Section 36 and market studies issue.

Submissions are due by February next year. The Government's track record since 2009 does not inspire confidence anything will happen.

Paul Goldsmith's extraordinary comments after ditching the criminalisation provision do not bode well on the Section 36 and market studies issues. He said criminalisation of cartels would have a "chilling" effect on innovation because directors would become ultra-cautious.

The cost is obvious for consumers and the economy. Australia's much tougher laws and its snarlier watchdog have helped its economy be at least 30 per cent more productive, leading to wages being 30 per cent higher than here.

In the one area of our economy where anti-monopoly rules were toughened - telecommunications - prices have fallen 22 per cent since 2006 because the Government and Commerce Commission forced the break-up of Telecom and intervened to encourage robust competition between Telecom (now Spark), Vodafone and 2Degrees.

The Commerce Commission was given the power to conduct market studies of telecommunications and the Productivity Commission has recommended this be widened to other industries. Yet the Government is still dithering.

Insurance is one area ripe for a study and where the Commerce Commission has proven it is more poodle than watchdog.

Last May the commission approved IAG's takeover of Lumley, which gave IAG - the group that includes NZI, State and AMI - more than half the insurance market. The commission gave the deal the big tick without requiring IAG to sell any assets, which even IAG had expected it would have to do.

Petrol retailing is another area where there are a few dominant players and one big takeover that is about to deliver one player almost 50 per cent of the market. The commission is scheduled to decide on Z Energy's takeover of Caltex petrol stations before Christmas.

It should have a good look at MBIE's figures on the trend for petrol company profit margins, which hit a record high of 30c a litre in the last week of November.

No one is suggesting the petrol retailing or insurance industries are engaging in cartel behaviour or abusing their market power, but the Government should be following through on its "Business Growth Agenda" promise to give New Zealand's watchdog the same sharp teeth as its Australian colleagues at the ACCC.