Bayly's Business Brief Aug/Sept 2022

Welcome to my business newsletter for Aug/Sept 2022 that includes a roundup of news from my portfolios and Parliament.


The latest monetary policy snapshot from the Reserve Bank highlights that labour and materials shortages are holding back the economy and adding to inflation. Inflation reached a 32-year high in June, climbing to 7.3 per cent as the cost of living continues to squeeze Kiwis across the country.

Household spending is holding up despite this, but there are concerns this will drop in the near future as interest costs continue to rise. In the credit space, Centrix reports that this has translated into ongoing muted credit demand for new products across the board, as households cut back on discretionary spending to help navigate this economic climate. The number of accounts in arrears are increasing, up 14 per cent year on year.

The unemployment rate remains low, but the economy is being constrained by acute labour shortages. How much capacity has been lost over the past two years as a result? Wage pressures also continue to increase as workers try to keep pace with the cost of living crisis.

To address labour shortages, some businesses are looking to automation to address productivity, but NZIER figures indicate smaller businesses are holding back on these investment intentions, which is a worrying trend.

Small Business

On 2 August, the Government announced its second lot of proposed changes to the Credit Contracts and Consumer Finance Act (CCCFA), but Commerce and Consumer Affairs Minister David Clark has again missed the opportunity to ensure the CCCFA Regulations are targeted where they should – at vulnerable borrowers by high-cost lenders and schemes, such as Buy Now, Pay Later, which are an unregulated part of the lending market. According to Centrix, more than half (54 per cent) of under-30-year-olds use a BNPL compared to 25 per cent that use credit cards.

Despite the fact that MBIE put up options to do this and also make it easier for a lender to apply more discretion to borrowers with significant financial assets or income, the Minister has continued to require a prescriptive approach by all lenders to all borrowers. This is wrong.

The banks have consistently reported that up to 10 per cent of loans that would have been approved up to 1 December, when the new Responsible Lending Code came into place, are now being declined.

What is required is a Lending Code that better protects vulnerable borrowers and targets inappropriate lending practices by high-cost lenders, not impose unnecessary barriers to borrowers in general.

Economists and mortgage brokers have said the latest changes are a case of “too little, too late” and the NZ Bankers Association has noted: ‘These are the second set of changes to the lending rules since they came into force in December. That’s had a huge and unsettling effect on many New Zealanders and their ability to access affordable credit when they need it. We also note that these changes will not take effect until at least March 2023.’

Waiting 16 months to change a mistake is too long.


Building & Construction

Workforce shortages are hurting the building and construction sector hard, and skilled workers are becoming increasingly hard to find.

Construction companies have been hit from both sides, with workers leaving in droves to go overseas, and the Labour Government failing to attract highly skilled international workers to fill the void because of their poor management of immigration.

Immigration Minister Michael Wood revealed that only 345 people working in the construction or infrastructure sectors have been granted an ‘other critical worker’ border exception and arrived in New Zealand this year.

The sector has an estimated shortage of between 50,000 to 80,000 workers – all this at a time when there is unrelenting pressure on the sector with new building consents reaching record highs: close to 50,000.

This issue together with material supply shortages means many builders have been unable to complete jobs and get paid. because they don’t have the people to be able to build the houses.

The shambles of Labour’s mega polytechnic, Te Pūkenga, could not have come at a worse time. The changes to vocational training and the Industry Training Organisations add to disarray in the sector.

Labour’s failure to deliver the skilled migrants this country needs is reducing productivity, driving up prices and making the cost-of-living crisis even worse. Meanwhile, over 120 construction companies have been liquidated or bankrupted during the first six months of this year.



Since the Labour Government came into power, the Minister of Revenue, David Parker, has been on a mission to tackle wealth and income inequality in New Zealand. Two months ago, he announced he will be introducing a bill called the Tax Principles Act sometime later this year which would set out the principles of a fair tax system.

Of course, having a fair and efficient tax system is important. It is only fair that those who earn more pay more, and National agrees with that principle. But Mr Parker’s views on ‘fairness’ are debatable and views on tax are divergent across the political spectrum.

It’s an empirical fact that wealthy New Zealanders pay a substantial amount of personal income tax. According to Stats NZ, the top 9 per cent of income earners pay a whopping 42 per cent of the total personal income tax. The top 2 per cent of taxpayers are already paying about 20 per cent of the total.

We also distribute money to those that need social insurance through programmes such as Working for Families and accommodation supplements. More than half of all households with children receive more in welfare payments and tax credits than they pay in tax. Single-income families with two children don’t pay a dollar of net income tax until their income exceeds $60,000.

The Minister’s agenda is all about further redistribution – taking money from not only the wealthy, but many middle New Zealanders too, to give to the poor.

The Government has already stated that they will not introduce a wealth tax this term, but can we trust them? In a recent Select Committee meeting, Minister Parker talked, perhaps unintentionally, about raising the trust tax rate to 39 per cent. This is a clear signal that Labour will certainly consider raising the tax rate if they get back into Government next year.


Submissions closed in late July on MBIE’s Advanced Manufacturing Industry Transformation Plan, which aims to accelerate the sector’s growth and transformation through partnership between Government and business, with a focus on the application of ‘advanced technologies’ and economic activity that is sustainable, circular and low emissions.

New Zealand’s manufacturing sector has been plagued by supply chain issues, the ongoing pandemic and other disruptions, and business owners are being forced to confront the challenges of adopting new technologies while also trying to recover and grow post-Covid.

Manufacturing NZ has identified a number of key trends that have the potential to be the most disruptive to manufacturing companies, including ‘smart factories’ where manufacturers become increasingly motivated to implement smart technology to keep pace with competitors; predictive maintenance using ERP systems and artificial intelligence (AI) to reduce downtime and create material cost savings; and an increased reliance on virtual processes such as digital twins, machine learning, AI, augmented and virtual reality (AR and VR), which enable remote monitoring, servicing, and equipment operation without the need to have workers on site.

However, as manufacturers begin to prioritise innovation and automation and more machines are networked to the internet, they become more vulnerable to ransomware attacks. Recent findings by Akamai Technologies indicate that nearly 30 per cent of ransomware attacks worldwide targeted the manufacturing industry.

Commerce & Consumer Affairs

While the Commerce Commission’s draft report on its market study into residential building supplies goes some way to identifying the systemic issues that are currently plaguing the building and construction industry, it will take time for any meaningful change to occur.

Some of the Commission’s recommendations are welcome, including exploring ways to remove impediments to product substitutions, and reducing the use of quantity-reinforcing rebates from merchants. However, we are surprised that the Commission concluded that ‘vertical integration does not appear to be a factor affecting competition over the longer term’ when the Commission itself raised the issue of quantity-based rebates and potential land covenant restrictions.

We believe the Commission should have better defined where operators are currently able to or could exercise market power in the respective components that the study focused on – foundations, flooring, roof, walls (structural and non-structural interior and exterior) and insulation.

The Commission should have worked out whether these entities have been extracting excess profits, or, in economic terms, monopoly rent. By not undertaking this approach, they have missed the opportunity to recommend more meaningful changes.

The test is: can Kiwi builders access a range of proven products at competitive prices?

The Commission’s study has identified that institutional and legislative arrangements (including compliance with the Building Act and the Building Code) currently preclude effective competition, particularly from overseas manufacturers and suppliers. We agree that our regulatory systems are not fit for purpose.

In general, it is too difficult for offshore manufacturers and suppliers to gain approval to introduce new products into the NZ market – it takes too long and is too costly. This is a major barrier to entry.

National wants to see meaningful reform that brings in new innovation and ultimately to see a reduction in costs that Kiwi homeowners face when building a home.

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Kind regards

Andrew Bayly is the MP for Port Waikato and the National Party’s Spokesperson for Small Business, Revenue, Commerce & Consumer Affairs, Manufacturing, and Building & Construction; he can be contacted at [email protected]