Hudson BrettBRETT HUDSON (National): Thank you Madam Chair. It's a pleasure to in fact move this new part to the bill—Part 3 — Commerce Commission Fuel Market Study"—a part that seeks not only to help the Government to provide a better level of oversight into the impacts of the regional fuel tax (RFT) if it goes ahead but more importantly actually to give New Zealand consumers and indeed New Zealand businesses greater confidence and certainty around the impacts of the regional fuel tax not only in the regions—and there could be up to 14 of those as news reports have indicated—where the regional fuel tax is in effect but actually on some of the behaviours and impacts outside of that immediate region. If we look at what will happen with the application of the fuel taxes it will create some natural incentives incentives that do not indicate any sort of wrong or nefarious behaviour but simply are people and businesses responding to a natural incentive when additional costs are placed—particularly in the area they live or conduct the centre of their operations.For instance for consumers there is a natural incentive if one lives or travels close enough to the border of the regional fuel tax area to go a bit a further to go outside of that area and to therefore take advantage of fuel pricing which does not have the regional fuel tax applied to it which to a consumer who can't claim GST is 11.5c a litre. It is a significant amount of money for that consumer or consumers to seek to not have applied to them.If we take Auckland as an example of this because it is important to understand I think the context of normal behaviours today outside of the regional fuel tax additional application. I met with a fuel company ahead of this going into the committee stage. Their information was that inside of the Auckland boundary today—prior to this new tax—there are already variances across that region of up to 20c a litre. They know that people travel some distance to take advantage of them. So when those consumers are faced with a higher impost if they shop and buy their fuel within their region their behaviour already exhibits that they will go to some lengths to get the cheapest possible price.There is a natural incentive for Aucklanders—and other regional fuel tax area residents—to travel outside of their region to get cheaper fuel but there's also the incentives on fuel companies in a competitive market. Because as I say there's already a spread in Auckland for instance of up to 20c a litre no fuel company is going to want to be disadvantaged by having a local competitor discount their fuel—fuel that includes the tax—and then take market share off another local fuel company. So they have an incentive to still keep a competitive market despite the fact that the cost of product in that market has risen by 10c a litre plus GST. So we will still see market movements inside an RFT area and also not only within that area—particularly for independent operators and retailers—but outside of the area. Just outside of the border there is a natural incentive for a small independent retailer—obviously because they don't have to apply the tax—to discount their fuel even more because they can then take advantage of consumers' willingness to travel to keep their costs down. The ability to sell fuel that doesn't include a regional fuel tax and therefore take volume off all of those other fuel companies that operate within the regional fuel tax area and therefore should have that levy attached to their retail price—there are natural incentives.Although the bill contains provisions that talk about monitoring and keeping a track on volumes and everyone reporting data back what it doesn't do is seek an in-depth look taking into consideration those natural incentives and existing behaviours all of which are legal and indeed part of a functioning competitive market. The bill as it stands does not have the provision for those deep studies to truly understand if there are behaviours that are so abhorrent to the provisions and intention of the bill that they should be captured.Firstly it allows them through competition studies to ascertain the facts—the facts not only of the RFT area itself but of the implications of those actions and behaviours on areas not only just outside the border of the RFT area but indeed how that fits into the broader New Zealand market. So such a study can in much more detail and with a greater context actually provide legitimate and real information to make an independent and more accurate assessment on what sorts of behaviours are happening within and without the RFT area and to determine whether or not action can be taken under the existing provisions or indeed if the Government of the day might then choose further legislative measures to address behaviours that perhaps are either unintended consequences or just unforeseen.One of the assumptions that have come up both in the rhetoric ahead of this stage and certainly in contributions across parts in this stage is a concern that fuel companies will seek to not apply the tax impost in the RFT area because of competitive concerns because they don't want to lose market share. There's actually another possibility which I don't think the Government has considered. It is just possible—and I'm certainly not passing any sort of legal judgment—I think it could be argued that if a fuel company sought to not apply the tax in an RFT area they could be in breach of the offences clause in the bill in either avoiding paying RFT or evading paying RFT. But it's not actually a deliberate act by a fuel company that is the only means for the effect in terms of price of the RFT to not be borne within the RFT area but instead to be borne by consumers and businesses from outside the area. It is simply those competitive forces.We'll use Auckland as an example not only because it's the first cab off the rank but because it is such a large market. Because it's already a competitive market you could look at it and go "From 1 July every fuel company and retailer is charging 10c a litre extra plus GST—11.5c a litre extra—because the law demands that." but all it takes is an operator and particularly I was told by the fuel company I spent some time with it is more likely to be an independent retailer at the margin not a large fuel company. All it takes is for either a fuel company or one of those retailers to make a significant discount to the price of the fuel in their outlet—done nothing about the tax; they're still paying the tax. They are complying with the law: they are paying the 11.5c to the New Zealand Transport Agency under the provisions of the bill but they simply choose to price it to consumers at a different rate. Should they do that other companies and retailers in the area are almost certainly going to have to move to meet the market because it is a competitive market and to not move it will see those other companies lose share. That is simply not a good thing for their business models.So we then end up in a situation where the margins are constrained and possibly even negative inside of area such as Auckland. They're meeting their obligations on fuel tax with respect to the Government. The cost of their product has gone up and as businesses they have to make returns to their shareholders. So what will they do? They will apply a different price in different parts of New Zealand—parts of New Zealand that don't have a regional tax applied to them. It is a completely legal and reasonable business model. It won't meet the provisions of avoidance or evasion in my view under the bill yet what will happen in effect is what has been talked about as price spreading.At this point you don't necessarily have to focus on whether it is a deliberate attempt to shift the price or just the factor of a competitive market in action. The effect for consumers and businesses outside of the regional fuel tax area or areas is that they will bear an impost of the effect of the tax for an area that should be bearing it but won't be bearing all of it. A competition study gives the Commerce Commission the authority and scope and power to be able to look into that and to determine and to advise the Government so that the Government can know with some certainty whether there are unforeseen circumstances arising from the bill in action and then look to actions the Government might take to address that."