The Super Fund and interest-free student loans are positive, progressive things National has begrudgingly learned to live with.
But National has never come to terms with Kiwibank. In 2016, Finance Minister Sir Bill English was recorded at his party conference effectively saying of Kiwibank, “We can’t get rid of it this term, but don’t worry, we’re going to have another crack at it later.”
Former Prime Minister and Finance Minister Sir Bill English. Photo / Mark Mitchell
Here in Aotearoa, so many of the most important markets within our economy are hindered by major structural issues. Ordinary New Zealanders are paying more for less.
The electricity sector works well some of the time, but is occasionally completely dysfunctional. The grocery sector continues to see higher levels of profitability than we should see under a competitive market. And our banking sector is “a cosy pillow fight” between the big four banks according to the ministers responsible for them.
The Commerce Commission’s final report on personal banking services confirmed earlier findings that New Zealand’s banks are highly profitable relative to international peers. This, despite the sector being focused on lower-risk activities, which should result in lower levels of returns.
The commission has highlighted the need to “consider what is necessary to make Kiwibank a disruptive competitor, including how to provide it with access to more capital”.
Nicola Willis and Andrew Bayly are now making noises about taking action on competition within the banking sector, including a capital raise for Kiwibank from private investors. It is more than a little suspect that the National Party has summoned its greatest level of enthusiasm for competition policy at precisely the time that it sees an opening to sell off assets.
National party deputy leader Nicola Willis. Photo / Laura Smith
Our starting point should not be diluting public ownership of Kiwibank. We should be asking how we want our banking system to support New Zealanders to meet their needs.
Kiwibank currently holds 5% of all banking assets in New Zealand compared to over 85% that sit with the big four banks. Its share of home loans is higher, at over 7%, and has been growing strongly over the past year.
The commission pointed to the example of Macquarie Bank in Australia, which has acted as a maverick in that market and grown its share of home loans impressively since 2020.
However, the commission was clear that despite this growth, “its capacity to disrupt the stable oligopoly is limited - particularly by its scale and capital constraints”.
In other words, we need something like a Macquarie, but Kiwibank is not yet it.
Is a private capital raise, perhaps to other New Zealand investors, the answer here?
Kiwibank needs capital to play an enhanced role in the market, and some might argue if private capital is going to enable that, then this frees the Government up to invest in other things.
However, we should be clear what this entails. A capital raise to New Zealand-based investors (including KiwiSaver funds) would need to deal with the issue of whether these shareholders would be able to on-sell the shares to international funds, private equity, or other banks, who might offer the best price.
Improving competition through a better capitalised, more aggressive Kiwibank also means deliberately reducing returns in the sector, to the benefit of consumers and at the expense of bank shareholders.
This is a clear rationale for greater public investment, but is it something that would appeal to other investors who, ultimately, have obligations to maximise their own returns?
While a slice of the banking industry might be attractive, it is not hard to imagine a point where the growth of Kiwibank stabilises into a new stable status quo in much the same way ASB’s push for market share in the early 2000s did not lead to sustained disruption.
Replacing the dominance of the big four banks with a similar arrangement that includes Kiwibank as part of a “big five” is not the outcome we should be aiming for.
National’s previous foray into mixed ownership models does not offer a ringing endorsement of this option.
Ministers Willis and Bayly need to explain how a similar solution for Kiwibank will lead to a different outcome from our dividend-focused, under-investing gentailers within the electricity sector.
As a reference point for where National’s priorities lie in this debate, it is useful to consider another recent change proposed by Bayly that would remove liability for directors and senior managers for irresponsible lending under the Credit Contracts and Consumer Finance Act.
Removing this liability is something that the industry has been pushing for, and it is a clear concession to lenders at the expense of vulnerable creditors.
The extension of credit to young people - in particular through things like unrequested overdraft facilities and credit cards - is often the start of a dependence on debt that makes life much more difficult when these people try to access home loans later in life.
Our banks should be competitive on home loans, but these changes will mean fewer and fewer young people will be able to borrow for a home. This is a Government that is on the side of lenders, not borrowers.
There is a serious discussion to be had about New Zealand’s banking system and the role of a homegrown bank within it.
But it needs to be about what we want for our economy in the long-term - not a pretence for National to finally sell off Kiwibank and soften us up for more asset sales.
