Crown Pastoral Land (Rent for Pastoral Leases) Amendment Bill

I move, That the Crown Pastoral Land (Rent for Pastoral Leases) Amendment Bill be now read a second time. The bill sets out a new system for setting rents on the 212 pastoral leases in the South Island high country. It replaces the current system for setting rents based on a version of land value. The current system is complex, subjective, and very prone to dispute. It has resulted in 112 disputes over rent being appealed to the Land Valuation Tribunal.

The new system moves away from land value and instead introduces a production-based approach. What a farmer can earn from a farm will actually help determine what rent he should pay. I think I said in the first reading that it is very unfair to believe that just because the sheep get a nice view of a lovely lake, they will produce more wool.

The bill establishes a framework built around a formula for calculating rent in two distinct parts. The first part measures the productive capacity of the land in a pastoral lease in standard stock units, and the second part measures the value of those stock units as revealed by objective economic data. The bill also contains a modern disputes resolution system to replace the complex and very expensive appeal process of the Land Valuation Tribunal. The bill also specifies a role for the Valuer-General in setting the details of the new system and monitoring its operation.

The bill has widespread support from South Island high-country farmers and has been developed in consultation with leaseholders, farm managers, and independent experts, and even environmental groups have been extensively consulted in the development of this. I wish to acknowledge the work of the Primary Production Committee for its efforts in considering the bill, for its report back on the bill, and for the helpful amendments it made. I also want to thank each of the 12 submitters who participated in the select committee process.

Many submitters said the bill should contain a comprehensive purpose clause. The bill now has a new and expanded purpose clause. This explains how the policy on earning capacities rent is affected through the primary legislation and through the regulations and rules that will be made under it. The new purpose clause is a very useful addition to the bill and will help those interpreting the elements of the new system in the future. A related amendment requires the Valuer-General to have regard to the purposes of the amendment in exercising his or her functions.

The committee also made some useful changes that clarify how regulations will set out how the value of stock units is to be inferred from objective data series. The values will be calculated by looking at data series to capture net farm incomes per stock unit on farms comparable to those run on pastoral leases. The framework established by the bill very deliberately provides for the Valuer-General to make rules to specify or constrain inquiry into the productive capacity of the land.

I think it is critical that such a complex and technical subject matter should be reflected in rules. For instance, the bill envisages using land-use capability units, models, and algorithms in the process of assessing that productive capacity. Most submitters acknowledged the need for detailed rule-making powers but sought more clarity about them. I agree we need to have as much certainty as we can get around the methods that can be used in the new system.

The amendments made by the Primary Production Committee clarify some of the rule-making powers. The powers are reorganised into mandatory and discretionary groups. The Valuer-General would be required to make rules on the mandatory group. This group contains the rules that will need to be made to get the new system working.

The changes also clarify how the Valuer-General must define a standard stock unit that would be used in all parts of the rent-setting formula. These changes allow for the definition to reflect the current state of agricultural science while ensuring that a common definition applies to all parts of the formula. The amendments made by the Primary Production Committee also ensure that all parties will have the information they need for assessing productive capacity.

The committee also made some useful minor changes to parts of the dispute resolution process. The bill contains another important amendment to deal with the 112 lessees where rents are currently in dispute. The amendment would give lessees the option of using the new system to settle their historic rent disputes. Lessees can also agree with the Commissioner of Crown Lands to vary, truncate, or omit the steps in the new process so they can get a quick resolution. Lessees will retain the option of pursuing historic rents under the old system, but I certainly expect that most will choose to opt for the new system.

The Labour members of the Primary Production Committee have recorded a minority view. This view says in effect that the Crown is giving away a return on the value of pastoral leases beyond their use for pastoral farming. Some leases do have high values because of their amenity values, like their spectacular views and lakeside settings.

But I say to the Labour Party again that a farmer can make no more from his sheep or cattle on a high-country estate where they have a beautiful look over Lake Wānaka than he can on another farm that does not have such amenities. So to say: “You’ve got a beautiful view or you’ve got a lovely mountain vista, therefore your rent should be higher.” is in the National Government’s view wrong. It should be based on the earnings capacity of the land. These amenity values, in our view, should not contribute to the rent setting.

The nature of the legal relationship under the pastoral leases requires rents to be set on the use for which the leases exist in the first place—that is, pastoral farming and good management of the land. If we did rent on amenity values, we would be fundamentally altering the legal relationship between the Crown as lessor and the lessees. The value of leases would be reduced, and as illustrated by the 1997 amendments to the Maori Reserved Land Act, lessees would expect compensation. The issues of returns to the Crown from amenity values is a diversion from the core issue of how rents should be set.

The Crown Pastoral Land (Rent for Pastoral Leases) Amendment Bill that we are considering in the second reading should proceed, because the current system is simply not working, and the disputes over rent need to be resolved so farmers on pastoral leases can get on with the business of farming and managing that land. Officials, experts, and lessees all agree the current practice cannot continue, as do I. As Minister for Land Information I am very happy to move the second reading of this bill.

To better understand what the Crown Pastoral Land (Rent for Pastoral Leases) Amendment Bill has to offer, we can ask a landlord, or any landlords—corporate or private ones—and they will tell us that the rents they would normally expect to receive should be fair and reflect the value of the land. That is not difficult to understand, because it is the best principle of property rights. What is difficult to understand is that the National Government, under this bill, challenged the basic principles of property rights between the landowner and the lessees.

This bill seeks to change the norm, and this bill will severely compromise the property rights of the landowner—the Crown in this case—to negotiate a fair return on the full value of the land. The bill would replace the land valuation basis for setting rents for pastoral leases with a property-earning capacity basis. So the difference is basically between land value and the property-earning capacity of the lessee.

Labour is opposing this bill for four main reasons. Firstly, I should reiterate that Labour supports the continuation of tenure by leaseholds on Crown pastoral lands to ensure sustainable management and protective utilisation of high-country leases. I agree with the submitters who expressed the need for certainty in rental setting. We agree that this is a priority. However, certainty can be achieved by using a system that recognises the total value of the land, not selectively choosing aspects of that value. Selectively choosing aspects of that value has actually put the interests of the 231 lessees that this bill seeks to address before the interests of the farming sector at large and the interests of the 4.4 million New Zealanders.

Secondly, rent for these properties is already set relatively low—that is, 2 percent, excluding improvements. By cutting this further, which is exactly what this bill seeks to achieve, the National Government will be forgoing potential revenue, which could go towards much-needed protection for other fragile, high-country environments.

Under the existing regime a discount was already possible if the lessees could not afford the full rent. Labour supports the principle of income-related rents where cases of hardship can be established and the fair rights of lessees are difficult to uphold. We support implementation of a mechanism to provide relief to those lessees who can demonstrate that a fair market rental is beyond the earning capacity of the land they occupy.

Debate interrupted.

The House adjourned at 6 p.m.