Regulation threat for finance companies

The burgeoning non-bank finance company sector could definitely come under the regulatory eye of the Reserve Bank if Labour is returned to Government, the party's economic policy says.

The party said it would "deepen capital availability by enhancing public confidence in the non-banking financial sector including consideration of extending the Reserve Bank's prudential regulation role to that sector".

The finance company lending sector has assets estimated at more than $14.5 billion.

It includes companies such as GE Money, Hanover Financial Services, UDC Finance and Baycorp Advantage.

Comment from the sector's advocate, the Financial Services Federation, or companies was not available yesterday, but the regulatory extension threat is not new.

In March, the 46-member federation sent a "please explain" request to Finance Minister Michael Cullen after he said regulations covering non-banking financial institutions "needed overhauling and updating".

Cullen said then - during a visit by Australian Treasurer Peter Costello to discuss governmental movements towards a single transtasman economic market - that New Zealand was well behind Australia in this area of regulation.

Labour also said yesterday it would assist small businesses by subsidising the use of payroll experts to do taxation compliance work. It also promised to think about extending the subsidy to "other compliance costs".

Business New Zealand chief executive Phil O'Reilly said the subsidy suggestion was not new. It had been announced in the Budget.

The idea of extending the subsidy was "a little premature because we haven't seen how the payroll thing works yet".

"It really is a case of creating a bandage rather than healing the wound. It doesn't do anything about solving the underlying issue, which is getting business involved in too much compliance cost and work in the first place.

"Business is being asked to comply with too much now.

"Our survey indicates that for businesses with less than five on the staff, it costs them more than $2500 a person a year to comply with Government legislation."

O'Reilly said a second major concern about the subsidy proposal was that it would potentially remove the discipline on Government departments and compliance cost-setting agencies.

They would be encouraged to introduce new compliance costs because small business owners would not see them.

"One of the good things about businesses seeing compliance costs is that they can complain about it."

The subsidy was also another cost to the economy.