Local Government Borrowing Bill

I move, That the Local Government Borrowing Bill be now read a first time. At the appropriate time I intend to move that the bill be referred to the Local Government and Environment Committee, with an instruction that the committee report finally to the House on or before 1 August 2011, and that the committee have authority to meet at any time while the House is sitting except during oral questions, and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

This bill is to facilitate the establishment and operation of a new company, the New Zealand Local Government Funding Agency. The funding agency will assist local authorities to borrow funds at lower interest rates than they can achieve now. The establishment of an agency of this type was recommended by the Capital Market Development Taskforce and was one of the proposals arising from the Government’s Job Summit. The proposal has been developed by local government and has widespread support amongst local authorities. Let me take just a minute to acknowledge the work of our president Lawrence Yule, Eugene Bowen, and the other members of Local Government New Zealand.

The Government’s role in this proposal is to assist local government to achieve its objectives. In addition to introducing this bill, the Government proposes to take a 20-percent shareholding in the funding agency.

For the funding agency to succeed, it must obtain a high credit rating. The bill contains provisions designed to assist that. Clause 7 extends the exemption local authorities have from Part 5D of the Reserve Bank of New Zealand Act 1989 to the funding agency. Part 5D deals with the regulation of deposit takers. Similarly, clause 8 applies the Securities Act 1978 to the funding agency as if it were a local authority. Local authorities now have some exemptions from the Securities Act in relation to requirements for prospectuses.

Clause 9 authorises local authorities to guarantee the obligations of the funding agency. This is critical to its credit rating as it gives investors in the funding agency the certainty that if the agency defaults, they can recover their money from the local authorities to which it is lent. Clause 9 also permits local authorities to lend money to the funding agency on favourable terms. Local authorities borrowing money from the funding agency will be required to reinvest some of their borrowing with the agency, which will hold those funds in short-term investments. This will ensure that the agency has a high degree of liquidity at all times.

Clause 10 requires participating local authorities to include in their financial strategy their policy on guaranteeing the obligations of the funding agency and on guaranteeing the obligations of other local authorities to the funding agency. The structure requires participating local authorities to guarantee each other’s debt to the funding agency. This clause requires local authorities that give such guarantees to be clear to their communities about the obligations that they are accepting.

The funding agency may borrow in foreign currencies, then convert that currency to New Zealand dollars before lending to local authorities. To maintain a high credit rating, lenders to the borrowing agency need to be confident that they are not burying any exchange rate risks. Clause 11 achieves that by permitting local authority guarantees to be denominated in foreign currencies.

Clause 12 contains technical provisions designed to ensure that transactions of the funding agency and commitments by local authorities to the funding agency can be enforced. Again, these provisions assist in promoting the creditworthiness of the funding agency.

Clause 14 exempts the funding agency from income tax and exempts any dividend income local authorities receive from the funding agency from income tax. As it stands, local authorities are not taxed on financial transactions they undertake, and this provision maintains that status for transactions undertaken on their behalf by the funding agency.

Clause 15 provides authority for the Minister of Finance to lend money to the funding agency without further appropriation if it is necessary or expedient in the public interest and necessary to meet an exceptional and temporary liquidity shortfall affecting the funding agency. This authority expires after 10 years. Again, the purpose of this provision is to give investors confidence in the creditworthiness of the funding agency for their investments. However, clause 16 makes explicit that the Crown does not guarantee the debt of the funding agency, just as the Crown does not guarantee the debt of any local authority. Clause 16 requires a statement to be included in all relevant documentation that the Crown does not guarantee the funding agency’s debts or arrangements.

Clause 18 exempts the Auckland Council from the prohibition in the Local Government Act 2002 on local authorities borrowing in foreign currencies. To maintain a high credit rating, the funding agency will have to spread its lending amongst a range of local authorities. Having a concentration of lending in any particular local authority would jeopardise its credit rating. Therefore, the funding agency will not be able to meet all of the Auckland Council’s borrowing needs. Without an exemption, the Auckland Council would end up with more limited access to foreign currency borrowing than other local authorities. All other local authorities will be able to fully access foreign currency markets through the funding agency, but the funding agency will not be able to achieve this for the Auckland Council. The bill therefore proposes a specific exemption for the Auckland Council to borrow in foreign currencies. Clearly, the Auckland Council is of a size to engage the necessary skills to manage the risks of borrowing in foreign currencies.

It is encouraging to see local authorities taking a lead in this matter, and the Government is happy to assist in that process. Just as Government agencies are focusing on delivering more for less, local authorities also need to find ways of lowering their costs, and this is one such way. Thank you.

I speak in support of the Local Government Borrowing Bill at its first reading. Labour thinks this is an excellent bill and a sound, sensible idea, which we are happy to support. We look forward to debating it at the Local Government and Environment Committee.

It makes eminent sense for the local government sector to come together to form a bond bank with the support of central government. It is estimated that this bank will save the New Zealand ratepayer something in the order of $25 million a year, and that is not to be sneezed at. This is a very practical response to the problem that many councils around the country face, which is the challenge, particularly over the next 6 to 7 years, of funding the infrastructure bulge, if you like—the catch-up that many councils all around New Zealand are having to make to build infrastructure. So we support this bill. We support the idea because it makes total sense for the savings of Kiwi investors to be mobilised to invest in local government infrastructure. We believe that that is a much better option than the privatisation and public-private partnerships that this Government has been so keen to advance over the last couple of years. We prefer the option that community-owned infrastructure around New Zealand stays in public hands and community ownership, and this bill to establish a bond bank, or a local government funding agency, is one way that that aim can be advanced.

The concept of a local government bond bank was first proposed by the Capital Market Development Taskforce, which was set up by the Labour Government in 2008 and reported back to the Government in 2009. Although the current Government has said it supports this recommendation, I think it is odd that it has dragged its feet to the extent that we are only now seeing this bill come to the House. The idea of a bond bank for local government was raised at the so-called Job Summit, and it has taken a full 2 years or more for this bill to see the light of day.

The funding agency is a win-win for local government and for New Zealand investors, the so-called mum and dad investors, but it will also make a contribution to the deepening of New Zealand’s capital markets, which I think is something we all agree is a great benefit.

Labour members are particularly keen to support this bill because it provides an alternative to the agenda of privatisation and public-private partnerships that this Minister of Local Government has been so keen to advance. I ask members to cast their minds back 18 months, when there was not the quiet, unassuming, lame duck Minister of Local Government that we see in the House tonight but the self-styled “Minister of Ratepayers”. He was more of a rooster than a lame duck. His feathers were shiny, his best years were ahead of him, and he was there to single-handedly reform the local government sector. He was going to rescue the ratepayer from spiralling costs, skyrocketing rates, and councils that were out of control. His agenda last year was called the transparency, accountability, and financial management agenda. He wanted to bring in mandatory referenda if the councils wanted to step outside the terms of their long-term plans. He wanted to restrict the councils to an arbitrary definition of core services. He wanted to privatise the water sector. He was going to clean out red tape and liberate the New Zealand ratepayer from the oppression of free-spending, profligate local authorities. Well, how far the mighty have fallen. This modest, sensible, and pragmatic bill that Labour is very happy to support tonight is a far, far cry from the zealotry and extremism of Rodney Hide’s local government reform agenda.

When Rodney Hide set out on this track only 18 short months ago, he began to lay the groundwork to try to justify his cuts to local government, his agenda to roll back the scope of local government and to open the door for privatisation. He tried in a number of speeches and public statements to paint a picture that the councils were out of control: they were doing all these terrible things that they should never have been doing, they were spending ratepayers’ money with abandon, and they simply would not have the financial resources to invest in the infrastructure that was needed. A couple of things happened. We saw Cabinet pull the rug out from under his feet and tell him that, after all the damage he had caused in Auckland, he was not to go anywhere near the reform agenda he was proposing. But, just as important, we saw coming out of the Office of the Auditor-General analysis and data that showed that, in fact, there is no financial crisis, there is no debt crisis, and there is no infrastructure crisis in local government in New Zealand.

There is a challenge over the next 5 to 6 years. There is an infrastructure deficit that local councils are planning to meet, and they are increasingly turning to debt as a sensible way to spread the intergenerational burden of assets that have a long life. According to the Auditor-General’s office, the level of borrowings held by local authorities in the 2009-10 year was $673 million higher than in the previous year, and the ratio of debt to total revenue increased by 8 percent over the 2009-10 year. One might think that was significant, but the highest debt-to-revenue ratios were only for a couple of very high-growth local authorities—places like Queenstown and Tauranga—that are largely funding that infrastructure debt through development contributions. When we look at the big picture, we can see that an analysis of the long-term plans between 2009 and 2019 shows an increase in debt. It is likely to go from $3.9 billion to about $11.2 billion at its peak in 2015-16. The Auditor-General’s office makes the comment that that is “not so large when considered in the context of local authorities’ overall balance sheets, their annual revenues and expenses.”

When the Local Government and Environment Committee asked the officials from the Department of Internal Affairs to do some comparative analysis of local government income over the next decade compared with central government income and, in fact, household income, what emerged was that local government income was relatively static in a growing economy, and was experiencing nothing like the increases in household income or central government income. The whole standard clichéd, right-wing bogey that Rodney Hide was trotting out to try to justify an agenda of rolling back local government and opening the door to privatisation and public-private partnerships turned out to be just that—a bogey. Thankfully, his agenda for local government never got to first base. All we saw in the Local Government Act 2002 Amendment Act 2010 last year was a pretty watered-down, diluted shadow of the original ideas that the Minister was touting at the beginning of last year.

As I said, Labour is very happy to support this bill. We think it is sensible and pragmatic. We look forward to debating it at the select committee. In light of the back-down that the Minister has had to make on the whole question of debt levels, we hope that John Key’s Government will take a similar look at its own approach to privatisation of State assets and the disingenuous way that public debt has been misrepresented in the mainstream media to justify the sale of State assets.

Despite the schadenfreude of the previous speaker, it is a pleasure to rise and speak to the Local Government Borrowing Bill in its first reading. It is a very practical bill. It is a bill in the interests of hard-working Kiwis the length and breadth of New Zealand. In his work Essays of Elia, Charles Lamb observed: “The human species, according to the best theory I can form of it, is composed of two distinct races: the men who borrow, and the men who lend.” Although that may be true of men and women today—although I suspect the borrowers far outnumber the lenders—it is not true of local councils. Not for them the luxury of heeding Shakespeare’s injunction “Neither a borrower or a lender be, for loan oft loses both itself and friend.” Councils all over New Zealand must borrow. The purpose of this bill is to allow local authorities to borrow more cost-effectively.

The New Zealand Local Government Funding Agency will operate as a large-scale borrower that will be able to borrow on more favourable terms than a host of small-time borrowers could. The agency can then pass on these savings when re-lending to local councils. We understand that hard-working New Zealanders are finding it difficult to cope with ever-increasing council rates. It is estimated that the Local Government Funding Agency will help councils to operate in a more cost-effective manner. The agency will issue debt on behalf of all participating local councils. The credit rating, scale, and specialisation of the agency could, as the previous speaker mentioned, potentially save participating local councils collectively about $25 million a year.

Other potential sequelae of the agency is aiding the development of a liquid market in standardised local authority bonds, and, once again, the previous speaker—it is good to have support from the other side of the House—noted that this will benefit retail and wholesale investors. It will also be positive for the development of the New Zealand capital market. I commend this bill to the House.

I am happy to take a brief call on the Local Government Borrowing Bill and to endorse the statements made earlier by my colleague Phil Twyford about the benefits of the bill.

I point to a couple of practical things. If the earthquake in Christchurch highlighted anything, it is the challenge that a lot of local authorities face when it comes to upgrading the core infrastructure that our families and local households depend on. Territorial authorities in a number of regions have significant investment challenges with regard to upgrading water and sewerage infrastructure. If this bill provides any opportunity, it will do so by creating a scale, with the Local Government Funding Agency being able to pull together a number of local authorities to participate in this bond bank. It will enable local authorities to plan forward on significant investments and infrastructure upgrades. It will—I say with some optimism—ensure that the local community can continue to invest in things that they can see, feel, and touch. There is quite a strong affinity for making investments like that in local communities. It will also enable councils to start to plan forward around the biggest pressure on them, which is to try to keep rates under control. There is a whole manner of aspects to this solution, and we can talk up their virtues.

We are looking forward to supporting this bill at the first reading. We are looking forward to receiving submissions, certainly from the local government sector. I recall attending a Society of Local Government Managers meeting in the previous term of Government. This was one of the very issues that local government managers were grappling with: pressures to constrain rates increases but also to ensure that the necessary investment in infrastructure could take place. At that time there was no illusion that the Government could be a key partner in a lot of this.

I think in terms of the opportunity that the select committee process provides, the submissions will provide a healthy, informed debate to members of the select committee and to this House about how the bill can be given practical effect and implemented positively. I hope, too, that submissions will raise some of the issues on the level of assurance that people can have in their investments in this area. I have no doubt that they will. In terms of planning forward for local authorities, I hope that the submissions are able to give us a clear and accurate picture of the landscape going forward in terms of necessary investments in infrastructure.

When I considered taking a call on the bill it was not really with the view of using time unnecessarily, so I will not do that. What I will do is ensure that, to inform myself on these matters, I look forward to the debate I can have with local authorities in my own electorate to see the types of opportunities that could lie ahead for Kiwi mums and dads. There is no doubt people are looking to this bill as one way of not going down a privatisation path, but we will see. We will see when it comes to the detail of the implementation of this bill.

I commend the Minister of Local Government for bringing the bill to the House. It is an issue that was foreshadowed in Labour’s previous term of Government, and undoubtedly in this Minister’s term of Government. It is a step forward. Kia ora.

The Green Party, like other parties, supports the Local Government Borrowing Bill, although with some misgivings. We will listen carefully in the select committee process and see whether our concerns can be addressed before we decide whether we will continue to support the bill.

On first looking at the bill, it certainly makes some sense to set up the New Zealand Local Government Funding Agency, which will be able to issue debt and raise finance on behalf of local governments. The agency will become a sort of large-scale borrower and hopefully get a high credit rating and thereby a lower interest rate so that local councils will be able to borrow more cost-effectively and the agency will be able to lend on more favourable terms than those that would normally apply. There is merit in that proposal. There is merit too in allowing councils to come together in this way, cooperatively, to fund large infrastructure projects. We are pleased that it is an opt-in arrangement. Councils are not forced to go to this agency to borrow money, but they can do so if they wish.

There are, as the previous speaker, Nanaia Mahuta, said, a lot of large infrastructure projects in local government that need funding, not to mention the Christchurch earthquake, rail projects, etc. So spreading the risk over several generations makes a certain amount of sense.

We have some concerns, however, about allowing the Auckland Council to borrow in foreign currency, which it is currently prohibited from doing under the Local Government Act. We fear that there could be some unintended consequences, because the effect of this bill could be to encourage even more borrowing amongst local councils. We need to remember the Asian financial crisis of 1998. One of the main reasons for it was that large entities and organisations in Asia borrowed offshore to finance their domestic activities, and when exchange rates fell they were left insolvent. We are fearful that we could see similar things happening in New Zealand. If the Auckland Council is encouraged to borrow offshore while our currency is strong, what happens if the currency falls? We hope that would not happen, but that is the sort of risk that is attendant on encouraging the Auckland Council to borrow in foreign currency.

We noticed that the Treasury impact statement referred to some risks of borrowing in foreign currencies, but it did not spell out what those obvious risks are. They have never really been spelt out. We have considerable concerns about that. We will address those concerns in the Local Government and Environment Committee.

Another concern we have is about the briefing we were given by Cameron Partners investment bankers. They came along and gave us a presentation to try to encourage our support for this bill. When we looked at the fine print we noticed that it said at the end “In each case, public consultation will be required for borrowing money.”, but then there was a little asterisk that said “unless borrowing less than $20 million dollars.” So, in other words, we understand from that that any council would be able to borrow $19.9 million dollars without public consultation. That is a huge concern to us. This provision is not spelt out in the bill, as far as we can see, but it was admitted to in our briefing by Cameron Partners. This is something we will quiz very closely at the select committee. It would be completely unacceptable to allow councils to borrow up to $20 million without having to go through a public consultation. It would be a further erosion of the public consultation provisions of the Local Government Act.

We note that the bill seems to be particularly set up to encourage the Auckland Council to borrow—not only in foreign currency. We have huge concerns about the Auckland super-city. As far as we can see, it is not local government, at all; it is a form of State government. It represents a third of New Zealand’s population—1.3 million people—and its councillors have constituencies that are larger than the constituencies of members in this Parliament. The Auckland Council is not a form of local government, at all. In fact, we have erased local government in the Auckland Council and instead we have a form of State government.

We also managed, cleverly, under the Minister of Local Government, Rodney Hide, to transfer almost all of the assets of Auckland into these council-controlled organisations, or CCOs, which are essentially corporations that are outside of the democratic control of the council. They now have the odd public meeting, but, basically, they meet behind closed doors, they function like corporate boards, and the democratically elected councillors are not able to directly have a say in how the 80 percent of assets that have been hived off into these council-controlled organisations are run.

I come back to the bill. It will allow those council-controlled organisations, which meet behind closed doors, to borrow—and to borrow in foreign currency. They will be able to borrow up to $20 million, as far as we can see from our briefing paper, without having to bother to inform the people of Auckland.

Already, the $28 billion of assets of Auckland have been hived off into the so-called super-city, this State government that is the Auckland Council. The whole Auckland Council has been corporatised and, basically, siphoned off into corporations that are controlling and making the decisions about virtually all of the assets of Auckland.

We have serious misgivings about the ability, under this bill, to allow the Auckland Council to borrow in foreign currency. It will not be the Auckland Council borrowing, at all; it will, effectively, be these directors sitting on corporate boards and meeting in secret. They will be able to borrow without public consultation, they will be able to borrow in foreign currencies, and they will be encouraged by this bill to borrow in foreign currencies. We are worried that this bill could have unintended consequences.

It reminds me, somewhat, of a bill that was before this House last week: the Weathertight Homes Resolution Services (Financial Assistance Package) Amendment Bill. In this Chamber, all of the National and Labour members voted for the Building Act 2004, which deregulated the entire building industry, wiped away all the regulations and controls, and gave it over to the market. Everyone supported it and said what a wonderful thing it would be, but they did not realise the unintended consequences. They said it would save money, and here we are nearly 20 years later with a $20 billion bill as a result of that original legislation.

I worry that the Local Government Borrowing Bill could, similarly, have unintended consequences, and that we could be standing up and asking why we encouraged our councils—and particularly the Auckland Council—to borrow in foreign currency. We could find ourselves—I hope we will not find ourselves—facing up to a series of crises like those that happened in Asia and in other places where the currency suddenly fell. The Auckland Council could easily become indebted, and, of course, the Crown is not liable, so it could be the citizens of Auckland who could find themselves up to their eyeballs in debt as a result of this bill.

Tēnā koe, Mr Assistant Speaker Roy. Kia ora tātou katoa. As others have said, the purpose of the Local Government Borrowing Bill is to allow for more cost-effective borrowing by local authorities. It allows for the establishment of a bond bank or funding agency to allow local authorities to borrow money from overseas at a cheaper rate to fulfil their purpose. To cut to the chase, that is pretty much what it is all about. But I would like to offer some other ideas that maybe need some consideration in order for the Māori Party to consider going with this bill into the future.

It seems to us that there is something wrong with the picture. Just last week the Prime Minister announced that the Government intends to reduce the amount of money it has to borrow from overseas to put into KiwiSaver, and increase the amount of genuine savings from the private sector—that is what he said. It was couched in the context that Budget 2011 will be responsible and measured. What are we to think, then, with this bill, which is promoting a local government - owned bond bank, and hoping to attract investment from overseas? The question would be whether that is responsible and whether it is measured.

Another part of the purpose of allowing for the most cost-effective borrowing by local councils is the provision allowing for the Auckland Council to borrow in foreign currency. I was interested in the kōrero given by Sue Kedgley about some of the concerns—perhaps not all of the ones, but certainly some—she set out. From what we can see, the whole aim of the bill is to remove a range of regulatory impediments to permit the funding agency to borrow money and re-lend to local authorities as if the funding agency was a local authority. As Sue Kedgley outlined, there are some concerns in respect of that.

One of the things that has concerned us is Australian-owned trading banks using New Zealanders as a cash cow to line the pockets of Australian shareholders. This is where we would like to offer some ideas about Māori investment—indigenous investment, if you like. Why do we not turn to our own natural partner, indigenous people—Māori? We have always thought that Māori have a large collective asset-base and could set up their own bank. People like Mark Solomon have certainly promoted this idea, and it is supported by groups such as the Iwi Leaders Forum. My colleague Dr Sharples recently held a Māori economic summit conference, which revealed that the asset base of the 2010 Māori economy was estimated at $36.9 million. Would it not be something if the Māori economy could be used to recirculate profits and benefits into the communities that generate them, rather than to have them siphoned off overseas like this bill suggests?

The idea of a community development bank that would provide low-interest loans to families and small-business operators has always been a part of Māori Party policy. The community development bank would make small loans without collateral, no charges, and low interest, but higher levels of support and controls. The community bank would lend to those at the lower end of the income and asset scale to help them improve their position. The bank would create access to credit on reasonable terms, enabling the poor to build on their existing skills and to earn a better income. Ours is not the first plan for a Māori bank. Rua Kēnana set one up, and T W Rātana had a bank as well. In fact, many Māori communities have relied on places like credit unions since the Post Office Bank and the big banks closed in rural areas. This policy also draws on ideas about collective economic development such as the Grameen Bank in Bangladesh and the Mondragon Cooperative Corporation in the Basque Country. The idea is that each lender is sure to repay their loan, not because the bank will confiscate their property if they do not, but because they know that other borrowers depend on them.

Sadly, however, this bill is not about borrowing against the Māori economy, or even providing tangata whenua with an opportunity to contribute. We suggest it is just another means of doing more of the same but by a different name—reverting to borrowing overseas without even considering the contradictions. We will not support the bill at its first reading, but, having said that, we will be listening keenly to what Māori have to say at the select committee in order to guide us in our subsequent votes.

I am pleased to speak in the first reading of the Local Government Borrowing Bill. As we have heard from the Minister of Local Government and subsequent speakers, the intent of this bill is to allow for more cost-effective borrowing by local authorities. I stress the word “cost-effective”. I have looked at some of the projections around the expectation of growth in local authority debt. According to a Treasury estimate it is forecast to jump by two-thirds in the next 5 years, reaching as much as $10 billion. Anything we can do as a Government to find more cost-effective ways for local authorities to borrow to invest in capital projects and key infrastructure is important. That is why this legislation is so important. Anything that will save the costs of ratepayers and remove some of that pressure is important.

It is great to see that this is another initiative that came out of the National-led Government’s Job Summit. In those discussions a whole raft of ideas was bandied about, and this is one of the better ones in terms of being able to look at how, as a small country of 4.4 million people—as of this week—we can more effectively work together in a way that reduces some of our costs.

In terms of looking at this bill, I looked at the impact of borrowing on the three district councils in the Taupō electorate. One of the concerns that constituents come and see me about, particularly our older citizens, is the pressure of increasing rates when they have fixed incomes. I have looked at the three different councils in my electorate, and have looked at their interest costs and their effective interest rates. One of the effective rates is 3.5 percent and another one is 6.98 percent, so there is quite a variance even amongst three councils. If councils were able to consolidate and get some economies in terms of this borrowing from this bond bank, we would see a lower rate across the board.

One of the councils in particular has significant capital requirements for water and waste-water treatment plant upgrades in the next few years. In effect, on a rateable property the interest cost alone is $294 a year. That is a significant cost for a ratepayer, so I am particularly pleased with this legislation. It really focuses on a specific area where we can reduce the costs for ratepayers up and down the country with the creation of the New Zealand Local Government Funding Agency. It will issue debt on behalf of local councils up and down the country.

That is all I will say about this bill. I know that constituents in Taupō will be very pleased about the introduction of this bill under Minister Hide’s name, because it will, in effect, assist with the burden of their local rates.

Perhaps I could begin by laying down a bit of groundwork in terms of context before I get to the Local Government Borrowing Bill, because this bill does not just happen in a vacuum; it is part and parcel of a whole package that has had an impact on local government since the John Key - ACT Government came into power. Firstly, the House will recall that in 2009 the Minister who introduced this bill, the Hon Rodney Hide, pranced around the whole Auckland region, and around the country, and said that the Government was going to ram through legislation to change the face of local government in the Auckland region. That is the same Minister of Local Government and the same Government that then talked about the savings that would be made by bringing together the eight local authorities in the Auckland region. Well, none of that has happened. There are no savings—in fact, in Auckland we are still trying to recover from the costs that have now been imposed on every ratepayer for the burden of that entity that this Government forced on the Auckland region.

Secondly, that same Minister, aided and abetted by Mr John Key, went around local government again and said that the Government wanted to bring in public-private partnerships, and that the Government was looking at selling off local assets. Those assets were things that the public has contributed to over many, many years. In 2009 the Government said that this was an idea that came out of the Job Summit, but where are the jobs? After 2 years of sitting on that idea, I have to agree that the bill is a welcome and fresh idea. The Government is now introducing the Local Government Borrowing Bill to make things easier or perhaps take advantage of economies of scale, so that local authorities will be able to borrow for necessary infrastructure throughout this country of ours.

I have to say that I am just a bit peeved that the Government is introducing this bill close to the election, whereas all the time it did not give a damn about local government. It did not care one iota about the burdens that ratepayers the length and breadth of this country were experiencing. In fact, the Government did not care about local government so much that it got rid of the Canterbury regional organisation. We do not know when that regional organisation will be brought into operation again.

Although we support this idea at the higher level, it is important that the bill goes out to the public for their submissions and that every local council, every mayor, every councillor, and every local board throughout the country has a say in this. If every local council does not participate in the New Zealand Local Government Funding Agency, then we lose the benefit, if any, from the economies of scale that, theoretically, this agency will achieve. I think it is important for the local authorities the length and breadth of this country to be able to have a say on it. The good thing is that potentially we will not see local governments having to try to set up public-private partnerships, which has the potential for those local authorities to lose the strategic assets that they have built up over the years through their own sweat, energy, and resources. However, this Government is still talking about selling them the next time they have the opportunity to sit on the Government benches.

I want to share that there are some concerns that the public should be asked to have a view on. By establishing the New Zealand Local Government Funding Agency—and it is a private company—under the Companies Act 1993, the agency will also be subject to the provisions of another Act that treats this company as if it were a local authority, which is the Securities Act 1978. I want to hear a view from the public or from local authorities about how they see the operations of such an agency operating. If it is to be treated like a local authority, who appoints the directors of it—or will it be up to the local authority or the public? Will the public have an opportunity to choose the directors or the governance body of that company? If the funding agency is to take advantage of the economies of scale, will it listen to the views of mayors and councillors? What happens to those councils that do not want to be a part of this funding agency? Will we lose out on their participation or on their potential contribution? Will the Government listen to and take seriously the views of the mayors or councils, or can those parties expect to be treated with disdain, as other councils and other mayors have been treated in the past under this Minister?

As I said, the agency is set up under the Companies Act, but this bill also provides for the Securities Act. It treats this agency as if it were a local authority. The public want to know how they will participate. How will they hold the governance structure of the agency to account? Will the directors of the company be appointed by the Minister, or will the public and their local councils have input in that? The claim that this idea came from the Job Summit simply reinforces what the Opposition has been saying all along. The Job Summit was just a John Key gimmick. There were no jobs created. We are still waiting on those jobs, so that is further evidence that it was a gimmick. I suppose on balance, although it did not achieve what Mr Key convinced the rest of New Zealand that it would do, and that was to create jobs, at least we have some idea. After 2 years, I have to ask why the Government is dragging its feet on that particular idea if it was such a great one.

I also say that earlier in this debate there was some confusion as to whether the ACT Party is part of the National Party, or whether the National Party is part of the ACT Party, because they did not seem to support each other in previous debates. But now we are hearing them sounding as if they are friends again. Are National and ACT joined together in supporting this bill? The public will want to know whether that relationship is a genuine one and whether it will endure beyond this election. I think, listening to the debate earlier, where National members were condemning the ACT Party, and now they are being friends of the ACT Party, we really have to wonder what sorts of games they are playing. Is this really genuine, or are they now raising this legislation as a viable activity because we are close to an election?

The final question that needs to be asked is whether it will be cost-effective for the community and the ratepayers. Although the intent of the bill is to bring about more cost-effective ways of borrowing money so that councils can build their infrastructure, the question has to be asked whether those benefits then transfer back to the ratepayers and to the wider community. Under the present conditions that have been imposed upon this country by the lack of action and planning of this particular Government, ratepayers are hurting. Ratepayers will want to know whether this agency will bring about lower rates and enable the general public to enjoy the benefits of public infrastructure, without having to put out further money for rates increases, as we have seen under the watch of this John Key - Mr Hide Government. Thank you.

I rise to support the Local Government Borrowing Bill at its first reading. This bill is all about local councils coordinating their borrowing needs to obtain economies of scale so that local government borrowing can be more cost-effective. New Zealanders are very aware of the capital demands on local government, and finding a more efficient, cheaper way to manage borrowing will have benefits for ratepayers. Councils are keen to realise, in the form of cheaper borrowing rates, the benefit of the very low credit risk they are able to offer. However, it has proved difficult for the numerous local authorities to coordinate effectively. The market for local authority debt is fragmented, with over 80 issuers and several hundred—mainly small—issues of debt. Coordination will improve the overall market for local authorities, make it more efficient for both users and investors, and improve the New Zealand capital market generally.

The bill facilitates the operation of the New Zealand Local Government Funding Agency, and that funding agency will issue debt on behalf of all participating local authorities. The agency, because it merely coordinates the councils and does what they could do individually, will have the same regulatory environment as all local authorities. It will enable local authorities to combine their resources and purchasing power to achieve the necessary economies of scale, and will provide for more cost-effective borrowing than is possible at present. The agency is expected to achieve a credit rating, scale, and specialisation that will yield significant savings for local authorities.

The forecast borrowing needs of local authorities is large. Total borrowings could exceed $10 billion within 5 years, from a current level of about $6 billion. It is estimated that, through the Local Government Funding Agency, reductions in cost could be between 50 and 70 basis points, which would reduce the interest bill that local authorities pay by up to $25 million annually, thus reducing the cost to local ratepayers. Spread across the country, that may not appear to be a huge sum, but the savings are equivalent to over 13 percent of the average annual rates increase observed in the past decade. Cheaper finance will benefit local authorities by enabling them to spend more on other priorities and less on servicing debt. It will also decrease the pressure for rate rises.

Another benefit of the New Zealand Local Government Funding Agency is that it will develop a deeper and more liquid market in standardised local authority bonds. That will benefit both wholesale and retail investors.

At least nine of the large local authorities are committed to supporting the agency. Together those local authorities represent 54 percent of the rate income of New Zealand local government in 2009. However, a much wider group of local authorities are interested in the concept, and have given it broad support.

The bill also exempts the Auckland Council from the current prohibition on local authorities borrowing in foreign currencies. The Auckland Council is five times larger than any other council, and has a borrowing programme of sufficient size to justify offshore placements and the freedom to borrow in foreign currencies. This bill will bring savings to Auckland.

The bill has the ability to cut costs for local authorities and ratepayers. It is about doing business smarter, and it is a real positive. I commend the bill to the House.

I rise to take a call in the first reading of the Local Government Borrowing Bill. This is an omnibus bill. At the end of the Committee of the whole House stage Parts 1 and 2 are to be divided into separate bills. Part 1 establishes the New Zealand Local Government Funding Agency Limited, and Part 2 expressly recognises the unique size and nature of the Auckland Council, and the size of its consolidated borrowings and future debt-funding requirements. The bill specifically allows the Auckland Council to borrow offshore in foreign currencies.

Labour supports this bill because mobilising the savings of Kiwi investors is a good idea, rather than privatisation. I must commend the Hon Rodney Hide, who is the Minister responsible for this bill. It is regrettable and sad that the Minister will not be able to continue with his work, thanks to Dr Don “Dear John” Brash, the new leader of the ACT Party.

The purpose of this bill is to allow for more cost-effective borrowing by local authorities. The primary method of achieving that purpose is by facilitating the operation of the New Zealand Local Government Funding Agency Ltd. Before we deliberate on the details of this bill, it is necessary to look at the 2007 inquiry into the funding mechanisms available to local authorities. The inquiry recommended that local government look favourably at making more use of debt to finance long-term assets. This should include the issuance of bonds, including infrastructure bonds on the capital markets, not just shorter-term borrowing from commercial banks.

Generally there are two main sources of debt financing for local authorities: they can borrow from commercial banks, and they can issue bonds. Under a 1998 amendment to the Securities Act, local authorities are no longer exempt from obligations on bond issuers, including the publication of a prospectus that all elected members must sign. That amendment made the issuing of bonds more costly and politically difficult for local authorities. One councillor could, for example, prevent borrowing on the market regardless of the majority view. That is the first problem. The second problem was very obvious: although borrowing from commercial banks has been popular, that source of debt was often overpriced.

In April 2008 the Labour Government passed the Securities (Local Authority Exemption) Amendment Act. The Act addressed the Securities Act compliance issues raised by the Local Government Rates Inquiry. It allows local authorities to meet reduced disclosure requirements when offering debt securities to the public. Essentially, it reinstates the exemption that was in place prior to 1998. Local authorities have to produce an investment statement with a certificate of compliance signed by two councillors, rather than an investment statement and a prospectus signed off by all councillors of the local authority. The Auckland City Council was the only local authority to issue debt securities without an exemption being in place.

The purpose of this bill is to provide more cost-effective borrowing by local authorities and reduced compliance costs. The bill is to achieve this by facilitating the operation of the Local Government Funding Agency, which will issue debt securities on behalf of all participating local authorities.

A number of commentators have reported on the projected debt levels of local authorities throughout the country over the next 5 years. The regulatory impact statement issued by Treasury reported that there are nearly 80 separate borrowing entities, each with a limited number of debt providers, resulting in a wide array of terms and costs between local authorities for borrowings. Under current legislation, local authorities are restricted from borrowing in foreign currency, and face compliance costs if they raise funds through the issuing of retail bonds.

Another option for obtaining debt funding provided by this bill is by consolidating borrowings of local authorities through issuing generic bonds to retail and wholesale investors and on-lending funds raised to participating authorities.

I note media reports that the proposed funding agency will probably achieve a top triple A credit rating in local currency terms. The funding agency is a win-win for local authorities and for mum and dad investors looking for new and safer ways to save. Mum and dad investors know that the investment is good for the community. It will mean Kiwis retain ownership and control of assets they have built up over decades. The use of the bonds will avoid privatisation of assets that are often monopolies. The funding agency will give communities a real stake in local authorities again.

I also welcome Treasury’s report in the regulatory impact statement that the agency, by way of selling debt securities via a central agency, would generate savings in interest of between 50 and 70 basis points or around $25 million a year, based on the current cost of borrowing for individual councils. This $25 million a year is a significant achievement in this regard, but is a drop of water compared with the $300 million a week the National-ACT Government is borrowing. Borrowing the language of another “Dear John”, the honourable John Boscawen, the Government is borrowing $65 or so every day on behalf of every mum, dad, and kid in this country. I sincerely hope that the mandate this National-ACT Government obtained at the general election in 2008 will not be the one it believes it can use again and again to do nothing but borrow more.

This coming Thursday is the Budget day. We are only 2 days away from the third of the three Budgets from this Government. It promised to turbocharge the economy, but it has not even started its engine. No wonder a new HorizonPoll on Monday showed that 48 percent of New Zealanders believe that the economy is on the wrong track and 44 percent disapprove of the National Government’s handling of our economy. Thank you.

It is with great pleasure that I rise to speak in support of the Local Government Borrowing Bill. This is all about lowering borrowing costs for councils and it is all about the cooperative approach for that purpose. Estimates are that the provisions outlined in this bill could save local councils around $25 million a year. I will say that again: $25 million. Perhaps that is a small amount in the context of the Government’s overall Budget, but it is a significant amount of money none the less. If we have the opportunity to save it, we should, we could—it will be good.

This is just the latest in a string of initiatives by this Government that will see costs to taxpayers and to ratepayers lowered through a cooperative approach. Whether it be the merging of Government departments where it makes sense, or providing a way for councils to save costs through cooperative borrowing, this is another initiative of the Minister of Local Government that does so much credit to his position and the way he has approached his tasks. Speaking of a cooperative approach, I say that something I immediately noticed about this bill is that it came from the National-led Government’s Job Summit. Very early in the term of this Government the Prime Minister took the initiative of inviting over 200 participants to a job summit to work on ideas in a cooperative way—a cooperative way.

💬 Phil Twyford: How many?

Well, $25 million worth, I say to Mr Twyford—$25 million worth. That might not be very important to members of the Opposition but it certainly is to the people who would benefit from it. At the time, we heard endless criticism from members on the other side of the House who claimed that it achieved nothing, while putting forward no more constructive ideas than simply to spend more, borrow more, and not worry about the consequences. All one can say to that is “Ha!”. They could not be further from the truth. Here we have yet another initiative.

So what does it do? Under this bill, cost-effective borrowing will be achieved through the New Zealand Local Government Funding Agency. The agency will operate as a large-scale borrower, borrowing on behalf of councils and then re-lending to them. As is typical of the approach of this National-led Government, this bill merely creates the opportunity for councils to make significant savings on their borrowing. It does not mandate councils to borrow in a particular way. It does not compel or introduce compulsory aspects. What it does is recognise the contribution that local councils make to the overall economy and assist them in making economies. The Government will provide the opportunity, and if the cooperation from councils is there, if they take up this opportunity in sufficient numbers, the savings will be significant too. If any council, for some reason, does not wish to borrow through the agency, then that is its choice. We are not here to tell councils that they must borrow in a certain way. We are not here to tell councils or individuals how they should conduct their business. Some may have longstanding arrangements that are beneficial to them, but it is anticipated that for the vast majority of councils the savings possible under this new model of council borrowing will be well worth the switch. They will be led by their wallets. Let us remember that this is actually not about councils so much as it is about ratepayers. Those are the people who will be the beneficiaries. Ultimately there is no such thing as council money, just as—

💬 Phil Twyford: Speak from the heart!

Wait for it, I say to Mr Twyford. From the heart, I say that members on the other side of the House eventually have to realise that there is no such thing as Government money; it all belongs to individuals.

💬 Hon Christopher Finlayson: Say that again. They need to know.

Let us help members on the other side of the House. There is no such thing as Government money. We are here talking about ratepayers’ money or taxpayers’ money, and it is a good thing that councils will have the option of taking part in this scheme, which keeps their rate increase down.

💬 Hon Christopher Finlayson: Stalinist minds—

I just missed that quote from my colleague the Hon Christopher Finlayson, Attorney-General, but it is something about the Stalinist attitude of the other side. Indeed, but I would encourage all councils to take serious consideration of this opportunity and I hope that many will take it up. In fact, we had a most interesting mineral symposium for the West Coast in the Parliament Buildings tonight. It really was very, very good. Forty people came up from the West Coast, including three local district mayors and regional council representatives. These are small councils with a small rate base; this is exactly the sort of thing that can help them. They are still here in the House and I would like to acknowledge the presence in the House of Pat McManus, Mayor of Buller; Tony Kokshoorn, famous Mayor of Grey District; and Maureen Pugh, the Mayor of Westland. I say to them that they can be sure that I will be encouraging them, along with all the other mayors in my electorate, to take this opportunity to make these significant savings provided by a far-sighted local government Minister working in conjunction with a far-sighted Government. Thank you.

I move, That the Local Government and Environment Committee consider the Local Government Borrowing Bill, that the committee report finally to the House on or before 1 August 2011, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

Motion agreed to.