Public Finance (State Sector Management) Bill

I raise a point of order, Mr Chairperson. I seek your guidance in respect of Part 7. You will note that the clauses go up to and include clause 236, “Amendments to other enactments”. The enactments referred to in clause 236 are set out in schedule 8. Schedule 8 amends a large number of Acts. The guidance I seek from you is whether it is intended that the debate on Part 7 will cover the contents of schedule 8 as well, because the schedule contains a very large set of amendments to a very large number of Acts. I seek your advice.

The CHAIRPERSON (Hon Clem Simich): Indeed it absolutely does cover that schedule. I was just about to give that explanation. Part 7, clauses 217 to 236, includes debate on schedule 8.

The Minister in the chair, the Hon Harry Duynhoven, really must take a call on this part. I am very worried about clause 222, “Existing members exempt from qualification requirements”, as it has very serious implications. It states: “Every member of a statutory entity or Crown entity company or a Crown entity subsidiary in office at the commencement of this section may continue in office for the remainder of his or her current term of office …” and be exempted from the requirements specified in clauses 72 and 132, which are very obvious reasons for disqualification. Under clause 72, a person cannot be appointed to a board if he or she is an undischarged bankrupt, “a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, a company …”, “a person who is subject to a property order …”, “a person in respect of whom a personal order has been made … that reflects adversely on the person’s—(i) competence to manage his or her own affairs …”, “a person who has been convicted of an offence punishable by imprisonment for a term of 2 years or more,”, or—I am not sure for what reason—a member of Parliament. Clause 132, “Criteria for appointments by shareholding Minister”, states that a shareholding Minister may appoint a person who, in the Minister’s opinion: “has the appropriate knowledge, skills, and experience to ensure the sound management of the Crown entity company …” will be carried out.

I think the Minister should take a call on this. Why should the existing board members, under this provision, continue their terms and be exempt from these very basic and obvious requirements? Is the Minister trying to tell the public that some existing members of the boards of these statutory entities and Crown entities, etc., would be barred from holding that office because they have had a prison sentence of 2 years, or are not competent to manage their affairs? I hope that the Minister, instead of laughing, smiling, and talking away, will take a call and state categorically that this provision is totally unnecessary in terms of exempting those members from clauses 72 and 132. All it does is send a message to the public that some existing board members may be incompetent or bankrupts, or, alternatively, that the Minister is trying to protect some existing board members who should be disqualified. It is quite a concern to us on this side of the Chamber that such people may be appointed to a board. We have questioned the appointment of the Labour Party president, Mike Williams, to eight Crown entities, but we hope he has not infringed any of those obvious requirements that exclude people from being board members.

The other thing I want to draw to members’ attention is clause 226, “Continuation of existing board committees”. I wonder whether the Minister is lamenting that the Government is missing an opportunity to remove this clause—to support National’s call for it not to proceed. Changing this clause to say that the Minister may choose to discontinue existing board committees may help the Minister of Broadcasting out of a very tight situation. The Minister once again finds himself helpless under the current requirements. He told Parliament that he could not do anything to the TVNZ board, even though the Government was not very happy with the continuation of the culture of extravagance in that entity. I think the Minister should take a call and answer my two questions.

I want to draw members’ attention to clause 229, which looks at the liability provisions. I think liability is an issue that is worth at least exploring today. It is a well-known fact that indemnity is provided for directors of Crown entities—and, in fact, for employees of Crown entities in certain instances; there have been quite a number of cases. I note from an earlier part of the legislation that it has been decided that the liability indemnity and insurance should be registered and made clear in the statement of intent. In a situation where a board member is covered under a liability indemnity or by indemnity insurance, the process is that if a board member, say, contracts with a Crown entity and there is some form of liability or there is an action taken against that Crown entity, the action is against the entity itself. Therefore, the compensation payable by the Crown entity will be paid by the Crown entity, or by its insurers, and not by the individual directors.

I raise that point because we are increasingly moving to a litigious world where people are likely to take legal action. So I think that in the first instance those who look to be appointed to Crown entities will be relieved that—and it is pretty standard business practice—indemnity insurance will be provided for them. But I wonder whether listing in the statement the extent of that liability insurance is a wise thing. I say that because, if one looks at a number of large institutions overseas, one sees that that is not, in fact, the case there. It is well understood that the directors will have liability insurance, and it is well understood that they act as agents for the company—or, in this case, the Crown entity. But I do think there is an issue about specifically stating what the extent of that insurance is.

This is why. When I was engaged by a former US investment bank that had a number of lawsuits undertaken against it, the feeling of internal counsel was always that when it was known how large the indemnity insurance was, the bank was likely to become a target for legal action. So the Minister might want to think about the provisions under clause 229 and the way they relate to the statements of intent for Crown entities. He might want to consider whether it is actually sensible to spell out the full level of liability insurance, or whether it would be better just to say that there is a presumptive condition that liability insurance will be provided. As a director of a number of companies myself, I have obviously made it clear that those entities have liability insurance, but I do not think spelling it out specifically in black and white is always necessary.

I also want to make reference to another aspect of clause 229. Again, the Minister might want to look at this and proffer a view on it. The clause seems to me to be saying that liability insurance or indemnity may be provided for an action taken by a person before he or she was engaged by a Crown entity. I just need to understand that completely. One can imagine a number of scenarios where someone may be engaged by a Crown entity and thereby come within the ambit of its liability insurance. This clause seems to me to be saying that in some circumstances—and I cannot see in the legislation exactly what those circumstances may or may not be—indemnity for a past action may, in fact, be provided.

It would be quite a remarkable situation if someone who is invited to join a Crown entity board and for some reason—whatever unusual scenario could possibly be dreamt up—has an action taken against him or her, might be covered by the Crown entity’s liability insurance.

I want to make reference to schedule 8, which, as you commented earlier, Mr Chairperson, will be included in Part 7 of this legislation that we are debating under urgency and will be debating for quite some hours to come. I make reference to the huge number of Crown entities that will be affected by this legislation. It is a hugely broad range of entities, ranging from arts councils to alcohol advisory boards.

The debate we are now having on Part 7 of the Public Finance (State Sector Management) Bill is possibly one of the most important debates with regard to this bill. I believe the Committee should look at, and spend some time on, the complexity of what we are debating right now. Clause 236 brings in schedule 8, which, as my colleague John Key has just said, amends a whole plethora of Acts. Of greatest significance to New Zealand are the amendments to the Education Act 1989. In order for these matters to be in a schedule they should be purely consequential amendments, I would have thought, and should not make major changes that are not purely consequential.

I would like the Minister in the chair to give some thought to this. The particular part of schedule 8 that I am concerned about amends the Education Act 1989. The particular sections in the Education Act 1989 that are being amended that I would like the Minister to focus on are those relating to section 203, which is repealed and substituted in schedule 8. That schedule lays out how this bill affects our tertiary institutions because section 203 refers to the institutions being Crown entities. That is covered in section 48 of the Public Finance (State Sector Management) Act 2003.

The bits that I wanted to look at particularly are the new unanimous sections 203(2) and 203(3) to the Education Act. Section 203(3) states: “The provisions of that Act set out in Schedule 6B of that Act”—which refers to this bill that we are now debating. I would like to focus on schedule 6B, which is obviously part of this debate too, because schedule 8 brings in schedule 6B. Schedule 6B, which relates specifically to the tertiary education institutions, sets out the number of sections derived from this bill that will apply to tertiary education institutions. One that is included is section 51.

I will trouble the Minister to look at clause 51 of this bill—through that convoluted process, we are now back to clause 51 of this bill—because it sets out a number of interpretations, including the interpretation of “direction”. What troubles me about this, and I think where our tertiary institutions will be getting pretty concerned, is that through this convoluted pathway—schedule 8, which amends the Education Act 1989, which brings in schedule 6B of this bill, which relates to the various clauses that affect tertiary institutions—we get back to this issue of direction, where a Minister can direct an entity, under this legislation.

Hon Dr Michael Cullen: The interpretation clause does not give the power of direction. It defines what “direction” means if it has got the power, and it has not.

Dr the Hon LOCKWOOD SMITH: But the interpretation clause spells out the kinds of directions a Minister can give. If it was not intended to apply to tertiary institutions, why does schedule 6B specifically mention section 51? The Minister could assist here by showing us where in schedule 6B the tertiary institutions are specifically excluded from ministerial direction. It would certainly ease concerns if the Minister in the chair could point out which of the sections that apply to tertiary institutions in schedule 6B specifically exclude ministerial direction for a tertiary institution. Clause 51 shows the breadth of a direction that the Minister can give and it can be right down to employee level. We are talking about the potential possibility for the Minister to give a direction to a tertiary institution that could breach the issue of academic freedom. I see the Minister shaking his head. I would be pleased if he would take a call—because I imagine that tertiary institutions are very concerned by this—and point out where schedule 6B specifically excludes such direction.

I would hope that tertiary institutions do not come up with that argument, because I would hope they would use their law faculties before they did that. Schedule 6B includes those things that do apply. If it is not in schedule 6B, it does not apply and the power of direction is not in schedule 6B. In other words, the power of direction is not in the schedule that applies to tertiary institutions. The power to direct is outside this schedule and therefore does not apply to tertiary institutions, so the Minister has no power to direct tertiary institutions.

Dr the Hon Lockwood Smith: Why is there not an exclusion?

Hon Dr MICHAEL CULLEN: It does not need an exclusion. Schedule 6B is an inclusive clause of what the powers are. It does not include the part of the bill that gives the power to direct. The fact that the interpretation clause is included is irrelevant. The interpretation clause does not relate to the power to direct; it only defines what direction means, should the power be in there. But the power is not in there. One would not go through the interpretation clause and take out every little word that is not included in the rest. This is an inclusive statement in schedule 6B, not an exclusive statement. If it is not in there, it does not exist. The power of direction is not included in schedule 6B. It is absolutely clear.

I will start by making a point of clarification. In a previous speech I spoke about the Southland Building Society, and on reflection I regret having made some statements about it. I want the record to reflect that I have every confidence in that organisation. It is a very well-run organisation with a very fine balance sheet, and I want the record to reflect that. Under this part I will talk about clause 222. I raise this issue now that we have Mr Cullen back in the chair because it is an area that needs some clarification, I think. It concerns me. I am not sure that what is written here can really be the Minister’s intention.

At the moment the heading of clause 222 states: “Existing members exempt from qualification requirements”. That is the issue that my colleague Pansy Wong raised, and I think it needs to be re-canvassed. If I am reading the legislation correctly, the new qualification requirements state that no one who has had a 2-year prison conviction or is an undischarged bankrupt can be a member of a board. My interpretation of clause 222 is that current board members who have that type of history can continue. If that is what the Minister intends, then I seek for him to take a call and clarify that, because I think it is a confidence issue. It worries me, and I am sure that others who read this clause and give it close scrutiny will also be concerned about it. We are really saying, in essence, that some board members at the moment who have had prison convictions of 2 years or more, or who are undischarged bankrupts, can be board members of Crown entities. I do not for a moment believe that that is the Minister’s intention, but if it is I would like that to be clarified.

The next point I will raise is about clause 227, “Continuation of existing employment”. I have criticised this bill throughout the course of this debate for putting into legislation things that seem to be repetitious and unnecessary. I think this clause is another example of that. It states: “A person who is, at the commencement of this section, an employee of a statutory entity, does not cease to be an employee because of the coming into force of this Act.” Surely current employment law provides those protections now, and this is just more unnecessary drivel and repetition.

The next clause I will talk to is clause 230, “Existing insurance cover”. Mr Key also raised that clause as being an issue of some importance. I am in two minds on this issue. Yes, I think on the one hand that board members should be indemnified. On the other hand they have a fiduciary responsibility to conduct the business with which they are charged in an appropriate manner. If they do that according to the charter of their entity, then indemnity insurance is fair. But I am reluctant to advocate that they should be indemnified if they make poor decisions or decisions that are quite clearly contrary to the charter of the entity. Why should we provide indemnity for board members who do things that are illegal, for example? That relates back to the first point I raised about clause 222, concerning people with criminal convictions. Let us be clear that a criminal conviction of 2 years’ imprisonment is a very significant conviction. Someone on a board at the moment could, under clause 230, potentially be indemnified for conducting an illegal act while serving as a member. When I go on to clause 230(3), I am a little confused with regard to what is intended. Subclause (2) provides that existing insurance cover for members applies, but then subclause (3) provides: “However, if the insurance cover expires, or the member, office holder, or employee is reappointed or re-employed, …”, the measure does not apply. That also needs to be clarified.

I ask the Minister of Finance whether he could please clarify how clause 218 in Part 7 relates to schedule 6B. I would also like him to clarify whether schedule 6B refers to clauses that apply to tertiary institutions—whether that is the situation. I ask the Minister whether those clauses do not apply to tertiary institutions.

Hon Dr Michael Cullen: It’s an inclusive list of those that do apply.

DEBORAH CODDINGTON: They do apply. Then I take it that the Archives Act 1957 does apply to tertiary institutions under this Part 7. I ask the Minister whether that is correct—

Hon Dr Michael Cullen: Yes.

DEBORAH CODDINGTON: —because it is included in schedule 6B.

Hon Dr Michael Cullen: Well, that’s being replaced, of course, very soon.

DEBORAH CODDINGTON: If it does apply, then there is something that Professor Stuart McCutcheon has brought to my attention.

Hon Dr Michael Cullen: Is that who you’re speaking on behalf of?

DEBORAH CODDINGTON: Well, yesterday the Minister of Education interjected and called the Vice-Chancellor’s Committee a bunch of fairies, but that is typical of the sort of language that the Minister of Education uses to dismiss those who disagree with him. However, as Stuart McCutcheon said, an early impact of the change in this legislation will be to bring all tertiary education institutions under the Archives Act and the Public Records Bill, which means that potentially all teaching and research drafts will become public records. As he said, that would be a nonsense if it were strictly enforced.

None the less, it does bring those bodies under the Archives Act. I have the Archives Act here, and I would just like to remind the Committee that section 2 of that Act provides that: “ ‘Public archives’ means all public records that have ceased to be in current use in the Government office in which they were originally made or received or in the Government office in whose custody they have been placed, or that have been deposited in the National Archives.”, and “ ‘Public records’ means all papers, documents, or records of any kind whatsoever officially made or received by any Government office in the conduct of its affairs or by any employee of the Crown in the course of his official duties;”. There are penalties under the Archives Act for destroying those public records without the permission of the Chief Archivist.

There are two implications from that. One is the nonsense one, where—as has been noted—all teaching and research drafts etc. could be required to be held unless permission was given. The Minister is shaking his head, so I would like him to clarify that is not the case. The other implication is for intellectual copyright, which many universities potentially gain remuneration and financial benefit from, and individuals’ copyright on research that is conducted while individuals are at a university. It is a grey area because public funding goes into it. But if we want to reduce pressure on the public purse and on taxpayers, then we should have a balance that does not damage the involvement of private investment in tertiary research and the development of intellectual property. It is not limited to universities; it extends to institutions like the Auckland University of Technology and Unitec.

As an aside, it is an interesting situation that under this legislation universities, polytechs, and tertiary institutions are all classified as being the same, yet simultaneously the Government is pushing through this House a bill that will ban Unitec from being a university. On the one hand, those bodies are allowed to be, and have to be, all the same under this bill, while, on the other hand, the Government is pushing through another bill in a last-minute attempt to stop Unitec—having crossed every hurdle placed in its path—from becoming a university.

However, I would like the Minister to take a call and explain why the Archives Act should apply.

Spurred on by David Carter, I would like to offer the Committee another amendment. I found David Carter’s words of encouragement—and his enthusiasm for my $10 deposit in the Southland Building Society in particular—after I had put forward my last amendment in relation to building societies so gratifying that I checked with officials to see whether there was anywhere else I could insert building societies into this legislation. I was delighted to find that there is an opportunity in schedule 8, which is covered by clause 236, in Part 8, which members are currently debating.

The reason we need to insert an item relating to building societies into schedule 8 is that the Government has graciously agreed, with its Supplementary Order Paper 315, to remove from schedule 6B the item section 199, relating to bank accounts, from the requirements put on tertiary educational institutions. The unintended consequence of that is that the addition just made in the last part, which enables Crown entities to have a bank account with a building society, does not apply to tertiary educational institutions. I am not requiring tertiary educational institutions to have a bank account with a building society, but they should have the opportunity to open one, if they so wish. I know in particular that the Southern Institute of Technology would love to have an account with the Southland Building Society. I see the local member, Mark Peck, is nodding vigorously. I know that he is a strong advocate of both the building society in Southland and the institute of technology; they are two superb local institutions that I am sure every member in this Chamber supports.

So I am pleased to advise the Committee that the Government has generously agreed to my further amendment to insert in clause 201(1), after the words “registered bank”, the words “, or any registered building society with which a Crown entity may establish, maintain, or operate a bank account under section 199 of the Public Finance (State Sector Management) Act 2004.” That would give all tertiary educational institutions in New Zealand, both universities and polytechnics, the opportunity to open a bank account with their local building societies. I am sure there will be crowds in the streets applauding that initiative. I know that it will become a widely known initiative once David Carter takes a call to congratulate me yet again on providing a major step forward for the building society movement in New Zealand. I am sure that the building societies’ $2.7 billion in deposits will grow rapidly as a result of this change.

I do rise to thank Rod Donald for his amazing amendment. I have to say “Well done!” to him for having been here for so long—

Rod Donald: Eight long years.

Hon DAVID CARTER: I know. He has had 8 long years here in Parliament, and to have achieved two such significant milestones in a parliamentary career is something that the member must remember when he gives his valedictory speech in the not too distant future.

I want to take the opportunity of asking the Minister of Finance to clarify two clauses for me. One is clause 216, which concerns gifts, and was deleted by the select committee. Clause 216(1) stated that any gift or property that is gifted to a Crown entity may be accepted or disclaimed by the Crown entity. The reason I raise this as an issue is that I have discussed this with my colleague John Key, who was on the select committee, and I have looked at some of the material that John Key received from officials at the select committee. There appears to have been no discussion at all as to why clause 216 was ever included in the legislation, and, even more revealing, there seems to have been no discussion or paper trail as to why it was subsequently excluded by the select committee process.

The reason I raise this is that this deliberation by the select committee occurred at the same time that the honourable John Tamihere was embroiled in an absolute scandal regarding his receipt of gifts. I think at one stage he attempted to justify one of them to the New Zealand Parliament by saying it was not a gift but koha—a couple of hundred thousand dollars of koha, as I remember. I just want the Minister—I know that he will be embarrassed by this, and I do not mean to embarrass him too greatly, right on the eve of Christmas—to take the opportunity to explain why clause 216 was ever included, and why subsequently it came out during the select committee process. I want to know whether there was any paper trail to suggest that the reason was that the Government did not want any further embarrassment associated with John Tamihere and his rather inventive approach towards the gifts that seem to come his way, even though he is inclined to say, when he is a not a member of Parliament—

Pansy Wong: What clause is it?

Hon DAVID CARTER: Clause 216. My point is that the honourable John Tamihere said that in no circumstances would he accept the koha, then subsequently, once the papers had revealed that he was too fine and upstanding a gentleman to accept the koha, lo and behold, we find that the koha had been paid to him.

My second question for the Minister refers to clause 220, “Local Authorities (Members’ Interests) Act 1968 does not apply to Crown entities”. Again, I have no idea why that particular clause is included. I am led to believe that it may be associated with the register of interests that Ministers are required to fill out, which Michael Cullen is proposing that members of Parliament be required to fill out, and which local government members are now also required to fill out. Again, there appears to be one rule for most of the executive, and one rule for John Tamihere as a member of the executive. Mark Peck is shaking his head, but if I have been reading the newspapers correctly—and I congratulate the National Business Review on running the story very well—members of the executive are required to file an annual register of interests. Mark Peck might not have realised that, although he has been here for a long period of time and is shortly to leave this place, having never been a member of the executive. However, I do not wish to knock Mark too much, because he is not a bad guy. My point is that everybody in the executive fills out the ministerial register of interests, but John Tamihere did not. He defied the law. He did not want to reveal all his koha. Maybe we have found out about only one of them. Maybe there is a lot more to come when Mr White presents his report in the next day or two. But why was John Tamihere the only member of the executive who was exempt?

I move, That the question be now put.

I cannot say how thrilled I am to have a second opportunity to speak to Part 7 of the Public Finance (State Sector Management) Bill under urgency, and I am absolutely delighted that I have been given another opportunity to speak after my first contribution. This contribution will be even more revealing than the first. I want to thank you, Mr Chairperson, from the bottom of my heart.

I want to draw the Committee’s attention to a very interesting clause in Part 7—clause 235, “Existing investments, borrowing, guarantees, indemnities, and derivatives”. I see the Minister of Finance’s ears have perked up. He is looking very engaged, and for those who cannot see him, he is flicking through the bill to make sure he has not missed anything.

Hon Dover Samuels: He looks very happy.

JOHN KEY: He looks happy and contented—he will be sitting on $1.5 billion of additional cash next year, over and above all his operating and capital expenditure. Members should be happy. I hope that, as he sits in the chair and has a moment to reflect, he will consider taking up my suggestion for the New Zealand people this year, which is that he gives every New Zealander $75 so that they can put a turkey on the table and a present under the tree, and we can all go to Christmas and be very happy. That would cost only—

Darren Hughes: A turkey on the Table of the House would be very nice.

JOHN KEY: Mr Hughes should not talk about the members on his side of the Chamber in that way, because they are not turkeys. He should not call them turkeys. If he is going to call them turkeys he should do it in his Christmas card to me, so it can remain private and confidential.

Darren Hughes: It’s on its way!

JOHN KEY: Oh, it’s on its way. I go back to clause 235. What is interesting about clause 235 is that it states that the terms of investments, borrowing, guarantees, indemnities, and derivatives may be amended, and will be taken up when the Crown entity comes into place, or when this bill passes. The clause states further that those terms may be amended by the Minister of Finance after this bill goes through. So let us think about that scenario. The Crown entity undertakes a derivative transaction—let us say, an interest rate swap where it has some borrowings, and decides that it is going to swap from a fixed rate liability to a floating rate liability. Then all of a sudden, after passing Part 7, and clause 235, of the Public Finance (State Sector Management) Bill, the Minister of Finance looks at that transaction and decides he wants to alter it, as he may, under Part 3.

Now, altering financial obligations does not come for free, and the Minister of Finance himself will know that, depending on interest rate movements and the various issues, there could be a significant cost in altering that transaction. If that were the case, and it may happen under this part, then I would question that if a financial liability is incurred by the Crown entity that changes or amends its derivative transaction, and it is then not taken up, or the alteration is made by the Minister of Finance, who is going to pay for the liability? Who will go to the Crown entity and say: “Well, OK, you’ve amended this derivative transaction, and there’s a lot of money at stake here.”? There may be hundreds of thousands or millions of dollars. Who will pay that liability? It is not at all clear from clause 235.

Now, I am not suggesting that the Minister of Finance is likely to alter the range of investments, borrowings, guarantees, indemnities, or derivatives that will be in existence when this law takes place, but it is possible. If it is possible I think the Minister should rise to his feet as we are sitting under urgency at about 20 past 11 on what is technically Tuesday, but most New Zealanders would know it is Thursday, to debate the Public Finance (State Sector Management) Bill and tell the Committee who will pay the price of that alteration if he does amend a guarantee, a liability, a derivative, or anything in relation to a Crown entity.

When the Minister is on his feet, I think it would be interesting if he could share with us whether he is likely to cast his eye over all these borrowings, investments, guarantees, indemnities, and derivative transactions, and whether he is likely to ask Treasury to provide him with a list of those. The transactions will be stated in the new statement of intent, as we saw earlier on in the bill. But I wonder whether the Minister will—over his Christmas holiday, possibly—ask Treasury to deliver to him a listing of all those transactions so he can cast his eye over them. It is possible that during his Christmas break he will have a look and see that there are some transactions he would like. I can see the Minister is eager to get to his feet and answer those questions, and I look forward to that.

I move, That the question be now put.