Post-Cabinet Press Conference: Saturday, 19 January 2019

Thank you, Prime Minister. We are concerned by the findings of this report into life insurers’ conduct and culture. As you know, it follows on from the report into banking conduct and culture released in November last year. The problems highlighted in both reports are similar but more extensive in the life insurance sector. The issues that have been identified are serious and we need to take action to fill the gaps in regulation. We’re particularly concerned that life insurers haven’t been putting consumers’ interests at the top of their mind. That is unacceptable. It has led to a culture where sales are being prioritised over the interests of consumers. Incentives do play a very big part in the problems identified in the report. We want to ensure that any incentives do not get in the way of customer outcomes. Officials have been asked to recommend to us how to remove incentives that are leading to bad customer outcomes. This includes internal sales incentives and soft commissions.

The Government wants to strengthen the overall regulation of the banks and insurance companies, and we will be taking a fundamental look at how we regulate financial institutions. The next step is for us to propose these measures to address the issues raised in the report. We have asked officials to move with urgency on this and to fast track work that has been looked at for this coming year.

What I want to say is that these regulations that we will be proposing will put consumers and their needs at the centre. We need a regime where banks and insurers are focused on good outcomes for the consumer and are not conflicted by sales rewards. We’re going to seriously scrutinise the incentives in the insurance industry and make sure that those that are not in the interest of consumers are got rid of. Incentives such as overseas trips and loaded upfront commissions can cause conflicts for sales persons.

Also, if you look at the report—and I do recommend you read it—on page 28, there are a number of specific examples of poor conduct, including old policies not being cancelled when customers transfer to a new policy and premiums still being charged for the old policy; the selling of credit insurance to potentially ineligible customers; premiums continuing to be charged after a policy end date. These kinds of practices are unacceptable. We’ve also heard about policies being sold to people who are ineligible for cover as well. While the report only applies to life insurers, it is possible that these vulnerabilities exist more broadly across the insurance sector.

We need to move now to ensure that both in banking and the insurance sector the customer needs and consumer needs are put more clearly in focus. At a high level, what the Government intends to do is to place clearer duties on banks and insurers to consider a customer’s interest in outcomes and to treat customers fairly. We need a regulator that will be able to monitor this conduct, with strong penalties for those who breach the duties. The changes applied will be for both banking and insurance, since the issues identified in both are similar. There are overlaps between the sectors as well, with banks often selling insurance policies. This is an area where we know we have to move quickly, and we hope to have legislation and regulation introduced by the end of this year.

Happy to take questions on that.

How badly do you think that consumers are being ripped off by insurance companies?

It really does appear, when you read this report, that in the life insurance sector in particular, the focus has not been on consumers. Now, the reason for that, in large part, is because of the incentive regime that applies around that. That is simply not good enough. These kinds of issues that I raised with you are ones that really concern us, where, in particular, people who’ve perhaps had a particular policy, that’s changed, but they continue to be charged a premium for that policy after it’s been changed. That’s completely unacceptable behaviour.

What we want to make sure is that the rules are fair. We have the report on the banking industry, and I do want to acknowledge that most of our major banks are now pulling back from the sales incentives approach that they had. We want to make sure that we close down that kind of incentive-based approach that’s driving this behaviour, but we also want to make sure that we have proper processes in place for identifying conduct that is unacceptable, and then for cracking down on that.

Would you categorise it as life insurers ripping off or rorting consumers?

Certainly we’ve got examples of that here. It’s important, obviously, not to blame absolutely everybody for that, but there’s enough in this report to indicate to me that there is a serious problem, and what we’re saying today is we’re not prepared to sit back and wait. We are going to regulate to make sure that consumers’ interests are protected. That will, of course, have to apply across the insurance industry as well as the banking industry, and we’ll be working with those industries to develop these proposals.

Prime Minister, are consumers being fleeced?

Some of the examples are pretty atrocious, and when you read the report, you see that, and it’s clear, as the Minister of Finance has said, that the focus has not been on the consumer, and so we need to change that focus.

Will regulators name names? I mean, otherwise everyone’s getting tarred with the same brush.

I’ve got some sympathy with that view, but this is the FMA and the Reserve Bank’s report. What they’ve decided to do is give a time line for those companies to remedy the situation. That’s the same approach that they applied with the banking inquiry, so I think they’re probably saying that they need to be consistent there. But, quite clearly, if they don’t feel they’re getting the response they want, then naming and shaming should be an option.

How have they been able to get away with this for so long?

The lack of regulation, Barry. That’s the point—is that what’s happened here is that this is a sector that hasn’t been regulated properly. What we tend to do here is regulate the product rather than the way the product is sold or the organisation that’s responsible for it. So that’s what we’re trying to address here—is that we actually need regulation that gives customers some assurance that not just the product is sound but also the process around it being sold to them.

What sort of kickback are you expecting from the industry?

Robertson I don’t know. I haven’t seen anything yet. I think, certainly in the banking sector, what we saw in response to that initial report was positive. They recognise where they needed to move, particularly around the sales practice issue. I’d like to think we’d get the same reaction from the insurance industry, and we’ll certainly—

It’s far more damning—

Yes.

Yeah, it is and that’s why we’re moving in the way we are.

Look, I think this is going to shake people’s faith in parts of the industry, and so this is about putting in place oversight that can rebuild that faith, and I would’ve thought that responsible insurers will absolutely be on board with wanting to do that for consumers.

Is there scope to provide a little bit more extra resourcing to the FMA and the Reserve Bank so that they’re able to probe the market a little bit more in areas they feel that it’s needed?

As I acknowledged both in the media release and in my comments today, an appropriately resourced monitoring agency is required here if we’re serious about this, and I understand that and we’ll work that through.

How far to get from where we are now to “appropriately resourced”?

We have to work on that with the agencies involved, but, as I say, if we’re serious about protecting consumers, I recognise that we need an appropriately resourced organisation.

What have they asked for?

I’m not going to go into that today.

How big do the penalties have to be to change the behaviour?

Yeah, that’s a very interesting point and it’s one of the things that we’d like to consult on: where do we set the line for that? Look, in all of these situations my view is if the organisation concerned move there themselves, that’s the best possible outcome, and, as I say, we’ve started to see that with the banks, but we clearly have to set in place appropriate penalties. That’s exactly what we’ll be consulting on.

Yeah, the Minister’s right. If we’re waiting for a penalty regime, then presumably harm has already been done, so if we create a regulatory regime that, hopefully, encourages that good behaviour, then it’s win-win.

Will the appropriately resourced regulator actually mean a new organisation, perhaps merged with—

That’s something, you know, that’s a proposal that may come forward.

We clearly have with the FMA an organisation that’s doing a good job, in my opinion, but we’ll take a look at that as we work our way through the process. But no decision’s been made on that.

Will that looking be dovetailed into the Reserve Bank investigation?

Review—yeah, I mean, we’ll certainly keep the two processes in mind, but I think we can press on with this. We currently have the Financial Services Legislation Amendment Bill before Parliament. Mr Faafoi is also undertaking an insurance contract review, so those two processes are ongoing and offer us the opportunity to pick some of these issues up, but what we’re signalling today is that we are bringing forward the work on regulation so that we can have legislation introduced this year.

Is there a case to have a State-owned life insurer, given that the private sector seems not to be able to be trusted?

No, that’s not something that we’ve been considering at this point. You know, we want to have a sector where there’s healthy competition, where people have confidence in the products that they’re buying. We need to work through the process we’ve got here, and we don’t have that on the table at this stage.

Just on the bank capital review, have the banks expressed to you concern about the apparently very high levels of capital increase that the Reserve Bank have asked for, and are you concerned that that extra $20 billion of capital might affect the economy as the banks wind back lending or change their ways?

Not directly to me, Bernard, no; I mean, that may be a function of the break, and that I’ll receive some direct representations. This is an independent decision by the Reserve Bank, and, you know, the questions that you’ve got are best directed to them. We will keep an eye, obviously, on any impacts on the other side of the coin. All New Zealanders want to make sure that our banking system is robust, and that we can manage and handle, you know, any situations that come along that put that under stress. So I’ll keep a watchful eye on it, but this is an independent decision.

Were you shocked to read the report. There was some pretty strong language by both the FMA and the Reserve Bank Governor.

Yeah, look, I wouldn’t use the word “shocked”, but this is a report that I do find disturbing, and I think it’s the reason why we’ve said today we need to act.

Will you cap or outright ban sales incentives for insurers?

I think we’re getting close to removing certainly some of them. Under the soft commission approach, you know, there’s the idea that, you know, sell a certain number of products and you get a trip to Rome—that approach clearly is driving some behaviours that are not in the consumer’s interest. I think those kinds of practices should be banned, effectively. Whether or not there are other sales practices that can survive, we can work our way through, but, clearly, those behaviours have been driving some of the things that have caused problems.

Look, I just wanted to give the opportunity, given the interest in the Tax Working Group, for any questions on that to be asked before Minister Robertson take his leave.

Anything specific that hasn’t already been answered?

When are you expecting to get that report back, and when will you release it and let us know what you will do with it?

We’re expecting to get it by the end of the week, and then we’ll take a little bit of time, as I imagine you’ll understand, for Cabinet to have a look at it. We’ll talk to our coalition colleagues, as well, and we’ll give you a time line for that when we receive it towards the end of this week.

A capital gains tax on the family home—will that apply to the family home in a trust?

All of those details will need to be worked through as we go, but the family home is off limits.

Does that include the family home if it’s in a trust?

It would do, yeah. But the family home is off limits, but all the details around how things get treated, as long as it’s your primary place of residence, that’s clear and fine. Then you have to have a definition of that. We’ve got that in the bright-line test at the moment, but we’re absolutely clear the family home remains sacrosanct.

So is there room to kind of manipulate what exactly the family home is, and whether it is indeed a family home?

home is off limits.

Well, we can take a look at those definitional issues, but the family

Is it still your intention to bring legislation before this Parliament which would provisionally implement any capital gains tax?

It’s our intention to bring forward any legislation arising from what we decide to do with this report this term of Parliament.

So is that an absolute? I mean, what if one of the coalition partners you can’t get agreement from?

Well, we can only pass legislation with the agreement of our coalition partners. The point I’m making is that we now have to work through this report, not only to see whether we like all of the options and what packages fit together, but then what is possible to pass, and that’s an absolute reality of this Parliament. We can only pass legislation with support from our two coalition partners. We’ll continue to work with them on what that will look like.

Is it still your position, though, to wait until after the election to have it enacted?

Yeah, and that’s of absolute consistency.

Nothing’s changed.

Nothing changes in that regard.

So you could bring forward legislation, but—

Which is exactly what we said.

Nothing would take effect until the next term of Parliament.

So, potentially, one of your coalition partners could veto?

Well, that’s possible for every bit of legislation, Richard.

It’s a hypothetical.

But it’s a fairly fundamental piece of legislation.

It is, and, look, this is the whole point. We’re now going to work through what’s recommended by the Tax Working Group, take a look at the packages that they are putting forward, seeing which ones we can get consensus on among our partners. That’s just the reality of Government.

That’s a given. Everything we do in this Government is via consensus.

So how confident are you that you’ll be able to get everything you would like to get through—

before.

I’m confident that we can deliver policy with consensus. We’ve done it many times

No, but how confident are you that you can deliver policy that you want and like?

Again—

It’ll always be what we want and like.

Yeah, we wouldn’t agree to a consensus unless we were happy with what it was delivering. But, again, we’ve got to wait for the report to come in.

Labour and New Zealand First, are you on the same page in terms of a broadbased capital gains tax?

Again, these are all hypotheticals while we wait for the report to come in. We’re setting out a time line for you. When it’s received, we will then give you the time line for the consideration by Government and Government parties.

Labour got cold feet over its capital gains tax before the last election. Are you up for that fight going into the next election?

No. Look, you know, to be very clear: what we set out was a time line for voters so that they would know that whatever we did, they’d have a chance to vote on it, and that remains in place.

Labour have been discussing the capital gains tax for the last decade or so. Are you keen to have this behind you and done as an issue?

Well, look, as I say, we will, as a Government, build consensus. But, again, these are all hypotheticals until the report is received and it’s considered by the Government.

Are you sounding out New Zealand First as you go? As the Tax Working Group comes up with options, are you sounding out New Zealand First?

We’ve has some conversations about the broad issues, yeah. But we’re all waiting for the report—that’s exactly why we need some time when we get it to be able to work through their recommendations.

Just to be clear—[Interruption] No, let’s be clear: this is absolutely no different than every single policy consideration that comes before this Government. We work through a process of consensus-building. We will undertake that process once we’ve received the report, and we haven’t to date.

It’s a big policy, though.

But so are many things that the Government considers, and this is the way coalition MMP Governments work.

All right, I’ll take the last question on this, because—[Interruption] Yeah. Sorry, it was over— who hasn’t? Yeah.

Are you still committed to having a threshold for small businesses at which a capital gains tax wouldn’t apply?

These are all details to be worked through once we get the report.

Yeah, let’s just wait until we receive the report.

Do you personally support a capital gains tax on shares?

Again, we are not going into any of the details of a report that has not yet been received by the Government and has not yet been discussed as coalition partners. Last question—Bernard.

Are you going to limit the Government’s legislative response to this to the recommendations of the report—for example, the report ruled out a land tax a long time ago. If they didn’t include it in the final, would you, you know, look at that, or other actions—

We’re going to work off the basis of the recommendations of the report, but quite clearly, as we go through the consensus-building process, we will take a look at what ideas emerge there. What we said at the outset is we’re trying to improve the fairness and the balance of the tax system. The report’s going to be a really important contribution to that.

That was the last question on that. Just to be clear as well, you’re going to get the same response until we’re in a position to comment on the report in a more fulsome way, which means after we’ve had a chance to consider it. So we’ll give you a time line once we’ve received the report. All right, moving on to—we’ll free you now, Minister Robertson. All right, moving on to more general issues.

On Kiwibuild, was that discussed at Cabinet, and where are you at with that?

What’s the plan going forward?

The Minister of housing gave an update to Cabinet colleagues, but, as I think he’s already outlined, he intends to bring a paper to Cabinet a little bit further down the track with some of his planning around KiwiBuild.

Winston Peters came out at Rātana and said that the Government was still pushing toward trying to meet that target that the Minister had downgraded, effectively. Was he correct in saying that?

He’s absolutely correct in the Government’s motivation, and we don’t apologise for the fact that we are tackling the housing crisis head-on and we are building houses. As I’ve said, though, evidence to date is that the pace isn’t as quick as we would like, but we remain absolutely committed to the 10-year target, and we are only six months into that programme.

Does the policy need a rethink, particularly this buying off the plans stream, which has been the slowest—

Yeah, as I say, six months in, this is a chance for the Minister to look at how each of these streams are tracking, and he will report back to Cabinet on that.

Do you accept that the July target won’t be met?

He’s already given the numbers and, absolutely, they demonstrate that that is, based on the number of houses that we have ready to be built, tough for us. The contracted number of houses are in the thousands, but in terms of completion, yeah, it’s a housing crisis and it’s difficult. But we remain absolutely committed to building houses, and we are.

It’s more than tough. The target itself, the thousand in July, won’t be met.

Those were all interim targets. The overall target of building 100,000 homes—we are six months into that. We are building and delivering homes; we just want the pace to pick up.

year?

How many will you build by July, and how many will you build by the end of this

Again, I’ll leave those final numbers to the Minister after he’s come back with a paper to Cabinet.

Do you think the policy relies too much on the private sector? Is that the issue here, that these private sector incentives aren’t working and you need to rely more on the—

No, there’s a number of issues that we’re addressing and the Minister is, but, again, we all accept—even the Opposition accepts—that we have a housing crisis in New Zealand, and one of the things we need to deal with is supply. We will not change this crisis without houses being built, so that is why we remain absolutely committed to both building houses within our Housing New Zealand programme and within KiwiBuild.

Does the Government need to inject more capital into the KiwiBuild project or are you sufficed with the 2 billion?

Look, some of the—no, some of what the Minister is working through is more around the delivery and some of the intricacies of programme rather than the capital available.

So 2 billion is still enough for 100,000 homes?

That seems to be the case at this point, yes.

How big of a distraction is this stoush between Stephen Barclay and Andrew Crisp?

That’s not something I’m engaged in at all. I maintain the absolute position that I did before we broke for summer, and that is that the issue there that is being discussed—it’s an employment matter. It was around alleged conduct issues; it has nothing to do with KiwiBuild.

Do you accept his comments that under his leadership, they were on track to meet the targets?

That is disputed. Again, what is at play here is an alleged conduct issue. That’s not something for me; that’s something for the State Services Commission.

Will you build 1,000 KiwiBuild homes by the end of the year?

We will build 100,000 homes within 10 years, and we’re six months into that programme.

But you might not even meet the 1,000 target by the end of this year?

I will not apologise for the fact that we are building houses; I just wish we were doing it at a much faster pace. But we are turning around the housing crisis, which, ultimately, demands that we intervene and build houses. I think even the last Government will now admit that that was what was required.

What issues will this paper from Phil Twyford address?

I’ll leave that for the Minister once he’s presented it to Cabinet. I’m not going to preempt him on that.

What about other targets, because there was the idea of 5,000 homes in the 201920 year, and then 12,000 a year every year progressively until 2028. Is the Government still on target to meet those targets?

Yeah, again, the target that matters for us is the 10-year programme. That’s 100,000 homes and, again, as I say, we are only six months into that. We are building and delivering homes. The first families are already in their KiwiBuild homes. It’s just not happening at the pace that we would like.

The housing Minister did come out and specifically set targets—numerical targets. Are you saying today that you can’t recommit to those targets?

He’s already outlined the number that we’ve been able to deliver and those that we’re on track to deliver. We have 4,000, roughly, under contract. We have several hundred that are under construction, but, as I say, the target that matters to us is the 100,000 homes that we’ve committed to. It is a 10-year programme. We are still only six months into that.

How can voters trust that 100,000 target if you can’t meet the initial targets?

And, again, we will have to keep demonstrating the progress that we are making, but, as with any programme—let me give you an example: I’m advised that it took some years for the ramping up of our State house building programme originally. It does take time to ramp up these programmes. We have already delivered several hundred homes already. We’re contracted to deliver 4,000, again. As I say, we are building houses, just not at the pace that we would like, but we are only six months into a 10-year programme.

Have you and the Minister underestimated how difficult this would be?

No. I think—look, it’s fair to say it was, and still is, a housing crisis, and if it were easy, then probably the last Government would have been able to make a dent in it. The difference is that they were unwilling to take on the hardest nub of this issue, and that is building houses. We were willing to take that on, and we remain committed to taking that on. As I say, this is a 10-year programme and we are going to keep at it, because, ultimately, we will only fix this crisis by providing more houses in the New Zealand market, and the market had failed. That’s why we’ve stepped in.

Aren’t you relying on the market at the moment?

Oh, no; that’s not fair to say. Without this intervention, without the underwrite, without, for instance, the State coming in and building directly, these houses would not be being delivered.

Where has the State been building directly?

Unitec, for instance, is a development that is coming straight as a result of the Government’s intervention.

Anne-Marie Brady—she told Australian media that she’s written to you directly, asking for police protection. Have you received that letter and responded to—

No, I was only advised this morning that that had been received. I haven’t had a chance to yet see that. I do want to see the letter, and I will respond directly to Ms Brady. I have, as I say and as I’ve said before, I have sought assurances that everything that should be done is being done. I will seek those assurances again, as much as I am able to in terms of the limits on my ability to direct the New Zealand Police.

Could you tell us why you went against official advice and gave the Weta Group an increase in their funding?

Sorry, do you want to give me more expansion on what you mean?

Peter Jackson apparently lobbied you and David Parker, and your advice was—

I don’t consider that to be an accurate description of events. If you look back to my position on the incentives regime in New Zealand, I’ve been utterly consistent. Back from the time I was in Opposition, I lobbied the then Government to keep pace with the incentive regime. At that time, our film industry was suffering. It’s fair to say Government officials have always taken a fairly consistent position, and I have consistently disagreed with it.

On Venezuela, a lot of Western countries have recognised the interim President, including Australia. Why haven’t we?

We have a longstanding foreign policy position, regardless of who’s in office, I’m advised, of not recognising political parties and their call on power. But what we do do as a country, and rightly so, is call out human rights abuses. We call out when individuals are unable to access their democratic rights and freedoms, and we would absolutely do that in the case of Venezuela. It is absolutely clear that people are suffering under the current regime and that they deserve access to their democratic rights and freedoms. Where New Zealand takes a pause is in specifically endorsing political parties.

It is out of sync, though, with some of our friends and neighbours. Does that concern you?

No, and actually, to be fair, when I was overseas, we had some general discussions around what is happening in Venezuela. I set out New Zealand’s history around endorsing political parties. Absolutely no one expressed concern around that approach, and, as I say, that doesn’t stop New Zealand supporting and enforcing our call for human rights to be upheld and for people to have access to a robust, transparent democracy. It is clear that in Venezuela, people are experiencing incredibly harsh circumstances, and they deserve to have their democratic rights and voice heard.

Are you confident the zero carbon Act will make it—

Has it gone through?

Are you confident that it will go through—

When we have—

Did you discuss it today?

Look, I absolutely believe we’ll reach consensus, and when we have an announcement to make, we’ll make it.

Is it fair to say there’s a delay there, though? We were supposed to have an announcement on that last year and we haven’t.

When we have an announcement to make, we’ll make it, but, as I say, I’m confident of consensus.

Is it a concern to you that the West Coast has rejected the zero carbon—

Yeah, I did see that. And, look, I think probably it’s important for us to look at where there is consensus. I would have thought that on the West Coast they absolutely—in the same way that many countries in many parts of New Zealand are—will see the impacts of climate change, and we can have a debate around their view on its causes, or we can make sure that we have a plan for adaptation and mitigation. And so I think we should focus on where there’s agreement.

Part of their reasoning was because the evidence providing anthropogenic climate change must be presented as proven beyond reasonable doubt. Is that climate change denial?

Well, I think that actually the IPCC report does that, and there is now international consensus. My concern is that if we delay and spend too much time on where we disagree, we’ll forget where we do agree. And I think on the West Coast there’ll be general agreement that we are seeing harsher weather events, we are seeing sea-level rises, and it’s our duty do something about it. All right everyone, thanks very much.

[end time: FTR 15:31:38]