COVER STORY: by Peter WestmoreNews Weekly
New Zealand's Economic U-Turn
, February 23, 2002
The opening of the NZ government-backed Kiwibank last week, and the Labour Government’s decision to start backing new industries for the country, marks the end of economic rationalism as the country’s ruling economic ideology.
These new policies represent the beginning of an attempt to rescue the nation’s ailing economy, before New Zealand slips into Second or Third World status.
Many people will be watching closely the performance of the new bank, which opened the first seven of its 250 branches last week. Its prospects look bright, although there are a number of hurdles to overcome.
The new bank is setting up a small number of branches initially, to test its systems and procedures, before expanding its network in two or three months’ time.
The new bank, underwritten by a $NZ78 million ($A65 million) government investment last year, is owned and operated by NZ Post. It effectively reverses a decision taken in the late 1980s when the Labour Government’s Roger Douglas privatised the government-run Bank of New Zealand, which subsequently became a subsidiary of the National Australia Bank (NAB).
In fact, the major private banks in New Zealand are all subsidiaries of the four large Australian banks, ANZ, NAB, Commonwealth and Westpac.
Kiwibank is to be New Zealand-owned, have a national network, and provide lower fees than the other major banks.
Apparently to avert criticism that the new bank was simply a socialist device to control the banking system, the Government asked former National Party Prime Minister, Jim Bolger, to become chairman of the Kiwibank board.
It has been estimated that Kiwibank needs 100,000 customers to break even.
The new bank will be offering a full range of personal banking services, including:
- average bank account transaction fees for families of $NZ9.50 per month, which is half that of the other main banks;
- no account management fee for transaction accounts, no deposit fees, and no internal transfer fees;
- charges for branch withdrawals, EFTPOS transactions, bill payment and automatic payments set at NZ30 cents per transaction, and a NZ50 cent fee for cheques and use of automatic teller machine;
- a 6.1 per cent home mortgage rate, compared to the 6.7 per cent offered by other banks; and
- special accounts for children, retired people, students and community organisations.
Already, two of Kiwibank’s competitors, WestpacTrust and ANZ, have dropped their fees to compete, adding weight to widely-held views that the banks have been making excessive profits.
One New Zealand newspaper editorialised, "When Kiwibank opens, what happens? The banks drop their charges, while claiming they were going to do it anyway: nothing to do with Kiwibank. Banks really must think their customers are stupid ... Kiwibank has frightened the mainstream banks into action, and that is a great step forward for the consumer." (Sunday Star Times
, February 10, 2002)
Other independent commentators have been positive about the new bank. Massey University lecturer, David Tripe, told the Dominion
newspaper that the foundations of the new bank’s operations came from the fact that they were operating out of NZ Post premises, and had been able to use more modern technology, which enabled it to process transactions more efficiently than its competitors. "People who anticipate that the whole thing is going to turn to custard by election time [late this year] are unduly hopeful of disaster," he commented.
The New Zealand Government’s initiative reverses the trend towards privatisation, which has been pursued relentlessly by governments in both Australia and New Zealand for almost 20 years.
So as not to compete with the existing banks’ corporate base, Kiwibank is targeted at personal, rather than corporate, banking.
Yet the Australian experience shows that there is also an urgent need for a new bank to provide working capital for small and medium businesses.
Until it was privatised in the early 1980s, the Commonwealth Development Bank provided working capital for about 400,000 small and medium-sized Australian businesses and farms which would otherwise have been unable to raise working capital.
Last week, NZ Prime Minister, Helen Clarke, also announced a government innovation strategy to back new biotechnology, information technology and other new creative industries, following consultations on how to attract foreign investment to the country.
A Christchurch industrialist, Sir Angus Tait, commented that after 15 years of a "neither help nor hinder approach", the Government was at last prepared to "take some of the initiatives to do some of the things that have been done in other parts of the world".
The NZ Government seems to have decided that if the Government doesn’t adopt an industry policy and start "backing winners", it will end up backing losers, like Air New Zealand, into which it was forced to invest $NZ885 million last year, to prevent it going bankrupt.
- Peter Westmore is President of the National Civic Council