Financial Reporting Bill

I move, That the Financial Reporting Bill be now read a first time. I nominate the Commerce Committee to consider the bill. The bill rationalises financial reporting obligations across the statute book in three ways. First, it makes all reporting obligations consistent with the goal of financial reporting. That goal is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them. Second, it standardises the interface between the Financial Reporting Act and other Acts. It does so by placing core definitions and provisions that will have broad application to reporting entities in what will become the new Financial Reporting Act, and by placing all substantive reporting obligations in other industry, sector, or entity-specific Acts. Third, it makes the language of financial reporting in different Acts broadly consistent. This change is needed to replace old-fashioned concepts and Acts that were passed prior to 1993. It is also needed to recognise the fact that some existing provisions are no longer needed, because those issues are now fully addressed in accounting standards issued by the External Reporting Board, or XRB as it is also known.

The Financial Reporting Bill will replace the Financial Reporting Act 1993. It includes two major changes for specific classes of entities. The first is to remove the requirements for medium and small companies to prepare annual reports, including financial statements. Those changes appear in Subpart 3 of Part 4 of the bill. The main purpose of a company’s annual report is to provide accountability by senior management to shareholders. But the great majority of New Zealand companies are small to medium sized enterprises, and the managers of the companies are also shareholders. So they already have access to the company’s financial information without waiting for the annual report.

The Institute of Chartered Accountants of New Zealand agrees that this reform is needed. It describes the current requirements as “expensive and time-consuming”, and the reforms as “a welcome reduction in red tape for many businesses”. The changes to small to medium sized enterprises mean that the Inland Revenue Department will need to beef up its company tax filing requirements. I understand that separate empowering legislation will be introduced by the Minister of Revenue at a later date. The net effect will be reduced compliance for many companies.

The bill also adds a power for the External Reporting Board to issue accounting standards for registered charities. These changes appear in Subpart 2 of Part 4 of the bill. Registered charities are required to attach financial statements to the annual returns they file under the Charities Act. However, the absence of accounting standards has led to reporting by some charities that is inconsistent with generally accepted accounting practice, or GAAP as it is often called. Clear rules are required to improve charity reporting and increase comparability between charities. The External Reporting Board has stated that it is planning to introduce simple format reporting for 95 percent of charities. This change will benefit the many preparers who are volunteers with limited accounting or bookkeeping skills, because it will reduce uncertainty about what is expected of them.

A further change will be to remove the inconsistencies in the way that financial reporting is currently provided for in different Acts for different classes of reporting entity. There are three different approaches at present. Most reporting obligations for issuers are to be found in the Financial Reporting Act 1993. The reporting obligations for companies also appear in the Financial Reporting Act, but the auditing-related provisions appear in the Companies Act. The obligations for all other reporting entities are largely found in other Acts. The consistent approach in the bill is to place standard definitions and provisions in the new Financial Reporting Act.

Those provisions appear in Parts 1 and 3 of the bill. For example, Part 3 includes a standard provision for auditor qualifications that will apply to most statutory audits other than audits of financial statements prepared by issuers and public entities. This provision will replace numerous existing provisions in other Acts.

Subparts 1 and 2 of Part 2 relate to the External Reporting Board and its statutory functions, powers, and responsibilities. Those provisions are similar to the current provisions in Part 3 of the 1933 Act as amended by the Financial Reporting Amendment Act 2011. There are some changes that will make the External Reporting Board’s functions fully consistent with the contemporary domestic and international accounting standards environment. For example, clause 11(c) includes a new power for the External Reporting Board to issue authoritative notices. This change will, amongst other things, allow the External Reporting Board to issue New Zealand equivalents of conceptual frameworks published by the International Accounting Standards Board and the International Public Sector Accounting Standards Board.

Part 4 and schedules 1 and 2 propose amendments to more than 80 other Acts. The most significant changes appear in Part 4 of the bill. Schedule 1 includes other amendments, and the consequential amendments appear in schedule 2. Most of the provisions in Part 4 and the two schedules state whether entities or classes of entities are required to prepare financial statements in accordance with generally accepted accounting practice, and, if so, whether the auditing and publication of financial statements are also required.

Many of those amendments relate to Acts that require financial statements to be prepared, but include no explicit requirement to prepare them in accordance with the accounting standards issued by the External Reporting Board. This is a particular issue with Acts that pre-date the Financial Reporting Act 1993. The bill proposes amendments to those Acts by making it clear that the financial statements must comply with generally accepted accounting practice. Part 4 and the two schedules include provisions stating that audits must be carried out in accordance with audit and assurance standards issued by the External Reporting Board.

Finally, I wish to draw the House’s attention to Supplementary Order Paper 93, which was tabled on 31 July 2012, the same day as the Financial Reporting Bill was introduced. This Supplementary Order Paper relates to financial reporting by issuers, banks, insurers, and other financial market participants covered by the Financial Markets Conduct Bill. These changes are included in the Supplementary Order Paper rather than in the Financial Reporting Bill itself, because it would have been inappropriate to introduce the Financial Reporting Bill in a form that anticipated that this House will pass the Financial Markets Conduct Bill. Tabling the Supplementary Order Paper on the day that the Financial Reporting Bill was introduced provides the select committee with the opportunity to consider the financial reporting system for financial market participants as a whole.

At present there are substantive reporting obligations for financial market participants that are in several Acts. Supplementary Order Paper 93 proposes that the reporting obligation for all financial markets conduct reporting entities would ultimately be consolidated in the Financial Markets Conduct Act. This change will bring conventions of financial reporting obligations by financial markets conduct reporting entities within the Financial Market Conduct Bill liability regime.

To conclude, the bill and the Supplementary Order Paper are a once-in-a-generation opportunity to update financial reporting law and to make the reporting system fully consistent with the goals of financial reporting. The bill includes very important compliance and cost-reducing changes for medium and small sized companies. It also includes changes that will improve the quality of financial reporting by registered charities.

I would also like to acknowledge the collaborative nature and the cross-party support I believe that this bill carries with it, and I fully acknowledge that collaborative spirit for this and other bills. I commend this bill to the House.

Can I thank the Minister of Commerce for his contribution. The Labour Party will be supporting the Financial Reporting Bill, which is good legislation. This sort of housekeeping or administrative legislation generally goes through with cross-party support, and it ought not to be seen as being insignificant legislation because it is not contentious. It is actually very important legislation, despite not being contentious.

I want to mention a couple of aspects. Can I congratulate the Government on proper process in respect of Supplementary Order Paper 93, which has lain on the Table for so long. Really, once this goes out and is advertised, submitters will have an appropriate period to become properly aware of these complex issues, and to submit upon them in a way that is appropriate. I want to make those congratulations to the Government because I am also, at times, critical when that does not happen. This is an occasion when it is being done properly and the Government ought to be congratulated on it, because through this we get good legislation and we actually make our country run better than is otherwise the case.

I am also pleased with these changes that are being made to make less prescriptive the accounting requirements for smaller companies. I think that for too long in New Zealand we have driven compliance costs—and we often hear accountants opining on the radio that the biggest problem in economic performance is compliance costs, when the difficulty of complying with their standards has actually been one of the biggest drivers of costs for small businesses, which have to comply with accounting standards that are more technical and complex than is necessary, having regard to the nature of their business, the size of their business, and the ownership structure of their business. So I am pleased that we are removing the necessity to meet all of the accounting standards that apply to larger corporates in respect of smaller entities. In place of those we are going to have practical guidelines produced as to what are necessary accounts for taxation purposes. None the less, you know, there needs to be proper accounting, so that we can properly assess whether people are paying their tax. But those requirements do not need to be as expensive and complex as the financial reporting standards would be in respect of larger entities. I think that that is a very important change, and it is one that I wholeheartedly support—in fact, I have personally called for that for a while.

In respect of the obligation to have financial reporting for issuers, whether they are issuers of debt or equity instruments, I think we have to take care around this that we do not over-regulate this space also. I have said this previously, and we will be looking at this legislation to make sure that we are going in the right direction in respect of this. For example, if you are an issuer or have been an issuer, for how long does this obligation last? Should it last for ever? I do not think it should last for ever.

💬 Michael Woodhouse: Well, for as long as the securities have been issued.

What was that?

💬 Michael Woodhouse: For as long as the securities are issued.

Well, the securities last for ever. If it is an equity security—

💬 Michael Woodhouse: No, they could buy them back.

No, if the equity security is issued, and it is for ever out there, I do not think this company should necessarily have to have, legislatively, a higher audit and accounting framework than the shareholders might themselves want. So I do not see why after a period of years it cannot revert to being just an ordinary company that faces lower compliance costs. So, no, I do not agree that that should carry on for ever. Issuer audits are expensive, meeting accounting standards as technical as they have become is expensive, and I do not think that in all cases where you have an issuer raising money from the public they should have to go through those compliance hoops for ever. So that is something that I want to look at in the Commerce Committee, or have the Labour members on the select committee look at.

I also want to check on the quorum rules that are going to apply for opting out of some of these arrangements. If a charity requires a certain percentage of votes in order to avoid the more complex requirements, is that a quorum of those who attend a properly called meeting, or is it a percentage of all the members of the charity? If it is the latter, it will be an impossible quorum requirement to meet. We have got these problems in respect of the management of Māori land at the moment, and we ought not to be extending those impossible-to-meet quorum requirements to other areas. I think that that is another area that the select committee should be checking.

Noting those matters that we need to check on as to detail, I think this is good legislation. I think it is timely to remove some of the complexity that we have through having different accounting rules apply to different entities, not because they are different in principle but because the legislation under which they operate was passed in different years. I think it is necessary to tidy that up. As I have already said, I think it is also desirable that we remove compliance costs for entities that do not have to take the more complex route. I also think it is timely to review the processes that are going to apply to other entities that are not covered by this legislation but are covered by the Supplementary Order Paper that the Minister referred to.

Sitting suspended from 6 p.m. to 7.30 p.m.

I was commenting earlier on the care that we need to take that we do not over-regulate entities that have raised capital from the public. I want to just develop that a little bit in the little time I have left. There is a public interest in companies being able to raise capital at the lowest possible cost so that small businesses, New Zealand - owned businesses, can expand and become bigger businesses, New Zealand - owned, raising money from the New Zealand public. We want to maximise the pool of people whom they can raise money from so that they have the ability to expand to their potential and do so in a way that makes them less reliant on overseas sources of capital rather than New Zealand - owned savings.

I am a person who thinks that as a consequence it should be possible for a medium-sized New Zealand company to raise capital from the public through a public offering. If the cost of that becomes too high because of regulatory hurdles that we put around the process itself through securities laws, increased directors duties, or increased burdens upon auditors who face additional risks in the prospectus, that is one source of cost that makes it more difficult for those entities to raise money. But another source of cost is if after the date of raising capital and issuing ordinary shares to the public we have ongoing extra compliance costs for those entities. That too represents a cost barrier that gets in the way in the development of the New Zealand economy, particularly in respect of these new businesses that we need to grow into larger entities.

I have a concern that we are now saying in this legislation, if I have this correct, that once a company is a public issuer it must for ever have the more expensive route of compliance in terms of compliance with international reporting standards and ongoing issuer audit requirements. I am not convinced that that is necessary. I think we should look at this at the select committee. Obviously for a period of years after you have been a public issuer there ought to be an audit to hold people to account for their promises in their prospectus and just to make sure that they are, having taken money from the public, accountable to the public. But if after a period of years the members of the company decide by an appropriate margin that they no longer want to have that more expensive compliance route, why would we in this Parliament stop them going back to a cheaper route?

💬 Michael Woodhouse: We already do that.

What was that?

💬 Michael Woodhouse: Can’t the Companies Act already enable them to do that?

No, I do not think it does. This is a good point. This is something that needs to be checked at the select committee, because we ought not to be loading unnecessary compliance costs.

As I said, there are good aspects of this bill that reduce compliance costs on smaller businesses by having an easier alternative accounting route. That is to be applauded, but I want to have a look at this issue there.

The overall reason that we have decent financial reporting standards in New Zealand is that we need to keep transparent our processes, we need to maintain our tax base, and we need to have confidence in capital markets. All of these are important reasons why it is appropriate that we have guidance through legislation as to the conduct of commercial affairs, so that we maintain a healthy and prosperous corporate and non-corporate sector, which is obviously important. All business entities need to be appropriately conducting their affairs in a way that makes the economy strong.

I am very pleased to take this call in support of the Financial Reporting Bill—somewhat unusually, ahead of my colleague Jonathan Young, who is the chairman of the Commerce Committee, where this bill will be referred if it is successful. That is really a function of the fact that when we saw that this could come up before dinner, as it did, and then saw the order of speeches, the committee itself had other business. So as chief whip, of course, one seeks the interest of colleagues for speaking on this bill. I must say there was a clambering towards the door, metaphorically, to speak on this bill, so it fell to me to take this call.

💬 Kris Faafoi: And you got left out.

Although it has to be said—what was that?

💬 Kris Faafoi: You got left out.

I did. Yes. As a certain blogger says, “the stature and personality of a parking meter …”. Clearly, he has never met me, so that is all right.

💬 Hon Clayton Cosgrove: Simon Bridges—ask him about clamping.

About?

💬 Hon Simon Bridges: This is hoo-ha.

It is. Back to this important piece of legislation. In fact, it is OK that it fell to me, as one of only two members of the National Party caucus who are actually chartered accountants. In fact, we may be the only two in the House now. We have lost a few since the 49th Parliament. It is one of those things—I remember being told that one does not need to know Latin to be a gentleman; one just has to have forgotten it. Indeed, it is a bit like that for chartered accounting. One does not need to know all the financial reporting standards; one just needs to have forgotten them.

💬 Hon Clayton Cosgrove: That’s the John Banks principle.

No cabbage boats in financial reporting standards, I assure the House. Actually, 1993 was my last year at the University of Otago, studying accounting. That was the year that the Financial Reporting Act that this bill replaces was actually passed. It was a big year for law, because that was when the Income Tax Act was also replaced, with the 1993 Act. So I was in the unusual situation of having learnt all of this stuff under one set of legislation, and then having to reword it. But, truth be told, actually I was not a very good accountant. I loved the client contact and the management and cost accounting stuff, but was not very good on the financial reporting stuff, probably because I did not really have the patience and that attention to detail that went—at least in those days—with the preparation of financial reports. Of course, in those days clients would come in, particularly the small business clients, literally with shoeboxes of bank statements and cheque books.

💬 Hon Clayton Cosgrove: I was one.

That is right. In they came, and away we would go, beavering away, coding. Now they come in, hopefully most of them with USB sticks. Stick it in, turn the handle, and out comes a set of financial reports. But that 1993 Act was, I think, the first time that we introduced the idea of an exempt company, something that was different and that could, therefore, report differentially from generally accepted accounting practice (GAAP). That whole differential reporting framework came in at that time, except many of the companies that qualified for differential reporting did not actually use them.

There were a couple of reasons for this. One was that although the GAAP standards were adjusted, the income tax obligations were not. Therefore, it was necessary, nevertheless, to produce a full set of accounts just for tax purposes. That was often a bit of a nuisance to small businesses that actually did not care too much about GAAP or what the accounting or accrual income was. They were interested in how much money they had in the bank and how much tax they had to pay. That is really what small businesses do—they work on cash flow. They want to make sure that cash flow is positive. It probably was not as effective as it could have been. I think things have moved on now, particularly with the tax requirements. I also note from the regulatory impact statement and the Minister of Commerce’s speech that there is actually a body of work that needs to go on to make tax compliance simpler for small businesses. The effect of this bill is certainly going to be greater when that work is done.

I want to touch on Mr Parker’s quite extraordinary comments in his first reading speech about issuers. I think I heard him say that companies that issue debt or equity to, well, strangers on an arm’s-length basis rather than closely-held companies should possibly have a time limit against which they are required to report the full set of reports in accordance with GAAP and International Financial Reporting Standards. I find that fascinating and quite extraordinary in a sense. Here we have this Government, having spent 3 years improving financial markets reporting and authorities, and particularly with the issuing of prospectuses, and this notion that somehow, after the passage of time, it would be OK to let the leash out a bit in terms of financial reporting standards.

There are a couple of problems with that. Firstly, companies like Blue Chip or Lombard Finance and Investments would fall into the category of an organisation issuing a security—in their case debt, although it was never very easy to work out whether it was debt or equity—and somehow over time then having a lower financial reporting standard than they did at the start of the issuing of the security. I find that quite extraordinary. But it also does not account for the mobility of security and the fact that people can trade debt and equity. Therefore, the recipients of the issue of debt or equity could be new to the organisation. In order to assess the value of that security, they are going to need to rely not on the initial prospectus but on the financial reports that are required to be produced from time to time. I think Mr Parker did mention the issue of a closely held company. I think the Companies Act actually does allow for that at the moment, but that is something the select committee could look at. I hope it does not get chased down a rabbit hole with this, because actually this is not the purpose of the bill.

The financial reporting regime is OK for those larger organisations, those issuers. The benefit in that case clearly exceeds the costs of producing the financial reports, and I would expect that the people who buy into these securities would have little time or truck with the relaxing of the financial reporting standards. That is not what this bill is about. However, that is enough from this lapsed chartered accountant. I shall leave it to my much more informed colleagues on the Commerce Committee to comment.

The last speaker, Michael Woodhouse, made a point that I thought was a very, very valid one. He said, I think, that in his days as a chartered accountant he had a lot of small-business people who came in with the shoebox, the briefcase, or whatever with the monthly receipts and handed them to the accountant and said: “Please sort it out.” I am guilty as charged. When I was a small-business person I was blessed with a very good accounting friend whom I would take the shoebox to, with all the receipts, and he was a very, very good accountant. He would sort it out and make sure that I acted legally—acted legally, which is important—and paid my tax and met all my particular obligations. He gave me good advice in respect of what I was required to do.

This bill, the Financial Reporting Bill, we will support to the select committee, as my colleague David Parker has said, because this bill, I think, in its essence—the theme of this bill could be described as having the balance between good regulation and not excessive regulation. We need to ensure we have good regulation. I am wondering tonight whether the Minister for Small Business, the Hon John Banks—and I use the word “honourable” advisedly—this bill is about reducing, essentially, compliance costs as well. We know that the mission of the small business Minister, his mission in life, his mandate, and his portfolio, of course, is to reduce compliance costs.

💬 Hon John Banks: That’s right.

Who said that?

💬 Hon John Banks: The Minister.

Oh, the Associate Minister said that, and that is true. The difficulty is that we are still waiting. This is relevant because my colleague David Clark—

💬 Hon John Banks: Who?

This is relevant to this legislation. He is the person who has a memory and does not have amnesia, Mr Banks. He can remember his own name, unlike the member. Mr Woodhouse mentioned an interesting theme. He mentioned cabbage boats in his speech. I know that I have to comply with the Standing Orders, so I know that I cannot move outside the bill unless the previous speaker has drawn other themes in—oh, yes.

But anyway, the issue is this. This is a good piece of legislation on the face of it. We want to ensure, of course, that there is an appropriate level of regulation, but not excessive. I am the Opposition spokesperson on small business, and as a former Minister for Small Business, what we all seek is to reduce compliance costs on the commercial sector. If you can reduce compliance costs you become more efficient and more competitive. So I wait with interest—unless the four headless horsemen have got to the Minister for Small Business before me, the sort of walking dead—as to whether Mr Banks will get up and take a call and give his view on this legislation. I think this is a fair attempt, colleagues—a fair attempt. This is a weighty piece of legislation. This is important legislation, because what it will encourage is giving access in a more simplified and transparent form to financial information to the ordinary punter. I wait with interest. This is a real and genuine attempt, I think—we do not know whether it is a valid attempt—to reduce some compliance costs of business. Unlike “Lazarus” over there—the resurrection has happened—whose only achievement in the Parliament is to introduce a piece of legislation that expunges 31 Acts that do not exist. That is the contribution—

💬 Hon John Banks: Ha, ha!

He is laughing. It is a nervous laugh. It is the sort of nervous laugh you get when you are handed a bag of dough and you pass it on to your campaign manager, and you pretend you do not know who gave it to you and what was in it. It is a nervous sort of little laugh. It is the sort of nervous laugh you have when the courts call you on 12 December to answer a few questions that you would not answer to journalists and you would not answer in the Parliament. And he is on—[Interruption] Mr Deputy Speaker, I think you should call the zambuks. I think the Minister for Small Business is having a difficulty.

💬 Mr DEPUTY SPEAKER: Come back to the debate.

Well, he is on his cellphone. You are the Speaker.

💬 Mr DEPUTY SPEAKER: That is right, and I have requested that the member speak to the first reading.

Oh, absolutely, and I am. “The main purpose of the Bill”—and I will read it in case we need reminding—“is to improve the financial reporting system by making all general-purpose financial reporting consistent with the primary objective of the financial reporting system. That objective is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them.” That is also reducing compliance costs, and it is germane to ask the Minister for Small Business, wherever he may be, under whatever desk or piece of carpet—maybe he is under the lambskin over there—whether he will contribute to this debate because this is very, very important.

The heart of this piece of legislation, as a colleague of mine suggested to me before I stood up, is a balance, as I have said, between good regulation and excessive regulation. Good regulation is transparent. The entities that have to use that legislation know what it means and they know how to comply with it. Actually, if we had had good regulation perhaps around, say, the “Local Government (Donation) Act”—there is a good example—then a certain person in this Chamber would have known exactly what the regulation meant.

💬 Hon David Parker: It was clear.

It was clear. I am not a lawyer. My colleague David Parker is a learned lawyer, and he said that that regulation was clear. I suppose what it sets as an example, and Mr Banks could talk to this in great detail, is that if legislation and regulation is presented in a form where it is user-friendly, then there is a higher chance of compliance—a higher chance of compliance. But that also means, of course, that that requires a bit of intelligence on behalf of the user. In the case of the Minister for Small Business, we know that is a wee bit of a dicey concept.

This is important legislation. I am interested also in asking the Minister as to where that puts us in line with Australia—where that puts us in line with Australia—because one would not, as Mr Parker said, want to overly burden small capital - raising companies, as they are attempting to grow, with excessive regulation. We know that across the Ditch there is a scheme of arrangement that I think may be slightly better than ours in terms of allowing companies to flourish and grow. Of course, in Australia they have a massive capital fund because they have compulsory superannuation. The place is awash with capital, and companies can grow and prosper because they have access to that.

But the question I would raise, and what we would like to look at in the select committee, is where does this put us in line with our Australian competitors? We need to be on a parallel basis to them. We may want to have a higher standard than them. But we do not want to be put in a position, our particular companies, where we have greater regulation, excessive regulation, attempting by its objective to do good things, but effectively hog-tying our companies and penalising our companies and advantaging, by definition, those in Australia. They are our closest trading partners, and whether it be the law or banking or commercial enterprise, Governments of all shades have attempted to ensure that regulation is consistent, where possible, or to transition that regulation, where possible, so that we are consistent with Australia, to make it easier for our companies to do business.

I welcome this legislation. I think we are going to have to put it under significant scrutiny. I would wager that it is a good attempt, a fair attempt, to try to do some good work in the commercial sector to reduce compliance costs. I have to say, in concluding, that this is a weighty piece of legislation, as opposed to the bunkum and the despicable attempt by Mr Banks to bring in legislation that effectively was piffle. Even his coalition colleagues over there—oh, he is back—knew when he stood up and pronounced that his legislation was groundbreaking, that small businesses would throw petals at Mr Banks as he walked down the streets of Auckland, celebrating what a wonderful gentleman he was and what wonderful things he had done for small business, until they realised that all—

💬 Hon John Banks: Great mayor.

“Great mayor.”, he says. Yes, a mayor who trebled the debt in 3 years—what a cracker he was, “Mr Spendthrift”! That was until those small businesses realised, of course, that all he did was repeal 31 Acts that did not exist. But I say to Mr Banks that I welcome his call on this bill, we all welcome his call on this bill, and we also welcome the date of 12 December, not because the House is going to rise but because our wonderful judiciary in its own inquisitorial fashion will ask some very penetrating questions of the member of Parliament.

💬 Hon John Banks: It’s all BS.

It is all BS? Well, we will see what happens there. I have got a feeling that the four judicial headless horsemen may be after Mr Banks. They may just get him, and we may have a vacancy in this Parliament.

I rise on behalf of the Green Party to speak to the first reading of the Financial Reporting Bill. The Green Party will be supporting this bill’s referral to the Commerce Committee.

What I like about this bill is that it has an element of proportionality. I think that around financial reporting an element and a sense of proportionality is important. That means that this bill essentially is going to be relaxing some company reporting requirements, which we think is the right thing to do in certain circumstances. So non-large, non-issuing companies will no longer have to prepare general purpose financial reports, as they are currently required to do under the Companies Act. We think that that is a sensible move, but we do think that we want to have a closer look at this bill in the select committee before we commit to supporting it through the rest of its stages, because we do need to look at the other side of the equation to make sure that there is sufficient regulatory oversight around financial reporting.

I mean, one of the lessons that came out of the global financial crisis was the need to make sure that there was sufficient regulatory oversight of companies, and particularly finance companies, in New Zealand. So the general trend, if you like, in financial reporting has been towards tightening the rules around financial reporting for companies, and particularly financial companies and deposit takers. This bill goes against that trend in the sense that there will be a number of companies now that are non-large, non-issuing companies that actually will have a weakening of their financial reporting requirements. However, we think that that does make sense and is a proportionate response. Legislation and regulation need to be smart, they need to be proportionate to the risks involved, and they need to be proportionate to the size of the company and the economic significance of the company. We think that the way in which this bill attempts to do that makes a great deal of sense.

I also agree with the comments of I think it was Michael Woodhouse earlier that it needs to be tied to some changes around the Income Tax Act. The Institute of Chartered Accountants has done some really good work in terms of looking at how we can simplify income tax for small and micro businesses in order to make it easier for them. I think that if we have some of these changes tied to some of the changes around the Income Tax Act to reduce compliance pressure, particularly on small and micro businesses, then together they actually make quite a positive outcome. We are yet to see where the Government will go with the Institute of Chartered Accountants’ proposals. The Green Party adopted those proposals at the last election, they were part of our election platform, and we think they go alongside the kinds of changes that are being proposed in the Financial Reporting Bill.

But perhaps the dissonant note, if I may kind of hit one in talking about this—and it is slightly outside the scope of the bill probably—is that I do think that in other jurisdictions we have also seen the rise of what we might call environmental reporting—that is, reporting against a set of environmental indicators. The UK has produced a voluntary set of reporting indicators. They are reporting guidelines for UK business. The Department for Environment, Food and Rural Affairs in the United Kingdom has produced this set of voluntary guidelines in an attempt to provide some consistency in reporting against environmental key performance indicators. It would be great to see in New Zealand that we have made some steps in this direction. The Greens are not suggesting that it be made compulsory at this point, so it would not be going into a piece of legislation, but even having some voluntary guidelines to provide consistency around reporting against environmental key performance indicators I think would be a step forward. The United Nations Environment Programme has likewise produced some guidelines for reporting against environmental key performance indicators. I think it would be tremendous to see that level of reporting in financial reporting, where it is appropriate, as well. So in the future it would be great to see that as well.

But in terms of where this bill goes, we think that it is a sensible bill, we will be supporting its referral to a select committee, and we will be very interested to get the submissions at the select committee to see whether we have got the balance right between reducing the requirements for financial reporting for those companies that are non-large, non-issuing companies, but also making sure we have got sufficient financial reporting requirements in place where there is significant risk, and, of course, for deposit takers and issuers of capital instruments. For those reasons we will be supporting its referral to a select committee. Thank you.

I am very pleased to stand in support of the Financial Reporting Bill, sponsored by the Minister of Commerce, Craig Foss. This bill is part of a comprehensive programme of reforms in the financial and business sector that this Government has implemented over the past 4 years. I think the work we are doing is bringing great benefit into business and finance.

In fact, just before I speak on matters of the bill, I want to read a quote from Forbes magazine of 11 November 2012, which says: “New Zealand ranks first on our list of the Best Countries for Business, up from No. 2 last year, thanks to a transparent and stable business climate that encourages entrepreneurship.” I know that one of the issues we are concerned with at the Commerce Committee is that we do have a transparent, stable business climate that does foster entrepreneurship. The magazine goes on to say that “New Zealand is the smallest economy in our top 10 at $162 billion, but it ranks first in four of the 11 metrics we examined, including personal freedom and investor protection, as well as a lack of red tape and corruption.”

What this bill does is actually reduce red tape for our small businesses, in particular. But it does not do that at the cost of transparency. It does not do that at the cost of inefficiency or a lack of appropriate reporting. This bill will come before the Commerce Committee, and I think we are going to work very hard to ensure that the balance is found where it creates not only efficiency but also a release of compliance burden that is unnecessary. I think that small businesses in our country will applaud this move.

Some of the other reforms we have done in the Commerce Committee include the financial advisers regime, the licensing of trustees and statutory supervisors, and setting up the Financial Markets Authority about 18 months ago, the Financial Markets Conduct Bill, and, recently, the Consumer Law Reform Bill—all extensive and complex bills from a very hard-working committee. I am looking forward to the continuing hard work from members on the other side of the House as we transact this business, so that when we bring these bills to the committee we open it up to New Zealanders for their opportunity to comment and influence the process of sound, solid, rational lawmaking in our country that will continue to see us being in the Forbes top contenders. I think that magazine, as a finance magazine, is recognising what we are doing here in this country.

I believe that what we are doing, and what this bill will do, is continuing to build confidence in our economy, which is an absolutely essential thing to do. We have been doing that for the last 4 years and we will continue to do that. We want to cut down on expensive and unnecessary reporting obligations and, in doing so, help build a productive and effective economy—one of National’s main aims for this term in Government. So I am very pleased indeed to stand in support of this bill.

I want to draw a point, because the bill also touches on, for example, registered charities. They are required to attach financial statements to their annual returns as they file under the Charities Act. Sometimes, however, the absence of accounting standards has led to reporting by some charities that is inconsistent with generally accepted accounting practice—or, as our senior whip talked about, the GAAP protocols, as they are often called. So clear rules are required to improve charity reporting, and, I think, as we have those clear rules and as we have accurate and efficient reporting regarding our charities, once again that will build confidence in New Zealanders in the donation dollars that they give.

Just in closing, there are many aspects, I believe, to what is going to be a very good bill. I commend the Minister for bringing it to the House. I believe that we will continue to see a very hard-working Commerce Committee transact the business of that committee. In fact, I often look to my colleague Todd McClay, the chair of the Finance and Expenditure Committee, and I wonder who has the busier committee.

💬 Mark Mitchell: I think we are.

Yeah, I think we are. I think we are, so I am very happy to see this bill proceed and we are going to make great progress. Thank you.

I take a call on behalf of New Zealand First on the Financial Reporting Bill. Can I just say that we also commend the Minister of Commerce, the Hon Craig Foss, for bringing this to Parliament. He is the member for Tukituki. And can I just say that I was also there with Lawrence Yule, his successor as the next member for Tukituki, at the local government function this evening. It was very nice to see the current Mayor of Hastings, who will be the next member for Tukituki after Craig Foss. We will get on to the Local Government Act 2002 Amendment Bill later, but the resounding comment from those in attendance was how gutted they were by the bill.

Anyway, we are back on to the Financial Reporting Bill. In this respect can I just say that New Zealand First has said—and this was prior to the election, and we have always said—that we will support good policy and we will oppose bad policy. In this case, we believe that this is good policy. It is good policy because it has some very beneficial effects for New Zealand commerce. It will assist with the financial reporting by our companies in terms of ensuring that there is more efficient reporting by the companies—that is a good thing—and it will also cut compliance costs. We are all, I think, in this Chamber in agreement that if compliance costs can be reduced and cut, it does help our commercial sector and it does help our corporates get on with their business.

Important also is that this bill ensures that smaller companies will not have to provide the same level of complexity of reporting as large companies. That, again, is only fair, because how often do we hear all around New Zealand—and the Hon John Banks there, as the Minister for Small Business—

💬 Hon Clayton Cosgrove: Getting smaller every day.

They used to be large businesses, but he became Minister, and they became small businesses as a result. It is interesting that small businesses—often owner-operators, husbands and wives, small businesses with limited management—often comment that they spend so much time on compliance costs that they actually cannot get on with doing their business, because they are having to fill out so many forms and do so much to meet the bureaucratic requirements. So, again, this is a good thing—

💬 Hon Clayton Cosgrove: “Banksie” will fix that, though.

What is that?

💬 Hon Clayton Cosgrove: “Banksie” will fix that.

Yes, “Banksie” will fix that. I am sure he will. It is a good thing that this bill does help reduce the complexity of reporting for smaller companies.

Another important part of this bill is that it simplifies the obligations for the likes of charities. We have many very worthy and very good charities in New Zealand, which, again, have incredibly complex requirements in terms of their reporting, and this bill does help simplify their obligations. However, what it also does, this bill, is it ensures that there is comparability between charities. Again, that is a good move. We all get phoned at 6 o’clock, 6.30, or 7 o’clock at night and asked to donate to this, that, and every other charity, and often you are not too sure exactly what the charity is—

💬 Hon Clayton Cosgrove: Did you say “donations”?

Donations—no, no, no, not Dotcom donations, not Skycity donations; these are normal, above board donations. These are donations over the telephone, not in a brown envelope. These are the normal kind. Anyway, this bill will help ensure that New Zealanders can also see the printed reports of charities and can compare those charities in terms of what they are doing and see how they compare, charity with charity. So that is a good thing as well.

However, there are a few pitfalls. New Zealand First will support this through to the select committee stage. We will ensure that this gets the colour of day and that it is fully explored and fleshed out. But, at the same time, these things are tinkering around the edges by the Government. What we want to see is not the Government trying to hide behind smokescreens and mirrors and thinking that it is addressing things just by this tinkering with compliance costs and things like that but this Government doing a lot more in terms of actually generating the economy, actually generating exports, and actually getting our manufacturing sector moving again. We are hearing stories time and time again. Only yesterday we heard that at Carter Holt Harvey—what is it—50 or 80 jobs are to be laid off in Rotorua. A panel plant making wood panels in Rotorua—the heart of woodland New Zealand, Rotorua—is laying off workers because there is not enough domestic demand for its products, the panels, in New Zealand. There is not enough demand for its products, and that is a great shame. It is a great shame that in a place like Rotorua we are laying off good workers at a wood panel plant because this economy is not growing.

It would be growing if we were building more houses—if we were building more houses—if the housing sector was growing, and if we were stimulating the economy with more jobs, more employment, and more opportunities. But it is not happening, so, as a result, this is what we are seeing. Sure, we are seeing in this bill on the one hand the Government trying to reduce compliance costs to companies, trying to tinker around the edges and sort of soften them up—which is good; that is fine—and trying to help them, but what it is trying to help is basically an economy at the moment that is very, very, very flat. We in this House get tired of hearing the Government always saying “Oh well, it could be worse. It could be worse. We could be Greece. We could be Greece or we could be Spain or we could be somewhere else.” It is poor that we always have to be compared with extremely poor-performing economies of southern Europe, when what we should be aspiring to is comparing ourselves with Singapore, Norway, Taiwan, or Korea—economies that are actually doing well. But what this Government tends to do is compare ourselves and think that we are doing well because we just happen to be a couple of notches above Greece, Italy, or Spain. Well, that is not good enough, and tinkering around the edges and just trying to save a few compliance costs is not enough.

New Zealand First hopes that this bill will go through to the select committee, and that it will get fully explored. But in so doing we hope that the submissions that come in from the commerce sector in New Zealand focus not only on the reduction in compliance costs and some of the reduction in financial reporting requirements but also on how that can reflect on growing the commercial sector in New Zealand. For instance, the Hon John Banks has always asked—he has been in business for many, many years—how we can get a lot more companies in New Zealand going. How can we create, as a result of the Financial Reporting Bill—because this should be an easy country to get businesses started; it should be an easy country to get them going—and how can we encourage a lot more companies to get going and get behind them?

This, again, reflects on the Local Government Act 2002 Amendment Bill, which we are going to be speaking on very shortly. The Hon John Banks, who was the Mayor of Auckland, knows, and I know, as the former Mayor of North Shore, how important it is also for the second tier of government in New Zealand to ensure that local companies, local businesses, local manufacturers, local employers of staff, and local people who are providing work, paying their rates, and paying their taxes are helping grow this economy. We have a collective responsibility in this Parliament, all 121 of us, including the Hon John Banks as the former Mayor of Auckland—

💬 Hon Clayton Cosgrove: Hang on! Didn’t he treble the debt in 3 years of Auckland City?

He did. He did. He did, but do not hold it all against him. John Key was asking him to do it at the time. John Key, as the Leader of the Opposition, asked him in July 2008 to leverage his balance sheet and increase it, so he did that. He did that. He responded to that. Just in closing, what we need to remember is that we have a collective responsibility in this Parliament to grow the commerce and the pie in New Zealand. If the economic pie in New Zealand does not grow collectively, and if we do not create a bigger economic environment in this country, which, in turn, will pay more taxes, then all this tinkering around the compliance costs and reduction in reporting is basically just moving the deckchairs on the Titanic.

This legislation, the Financial Reporting Bill, is an extremely important piece of legislation that continues a great job this Government has been doing over the last 4 years. You see, the bill cuts compliance costs faced by many small and medium sized businesses in New Zealand, and in particular these changes will mean that medium-sized businesses gain great advantage to get on and do the things that this Government wants them to do and that the country wants them to do, which is their business. I am a firm believer that Governments should do less, but what they do they should do better. The last Government, over 9 years, could not work that out.

Under Labour, the Government wanted to do more and it wanted businesses to do less. I can say it was unmitigatedly successful in that over the 9 years, because what we found after 9 years of a Labour Government was in fact that the business sector had shrunk—the business sector had shrunk. Labour members come to this House and still talk about how wonderful it was, all the extra money and all the great things they were doing, taxing hard-working New Zealanders and then spending their money on their behalf. But what they will not come here and tell us is how the business sector in New Zealand shrank over that period of time and how devastating that was for everyday New Zealanders, and how much hard, hard work this Government, through our leader, John Key, and the Deputy Prime Minister and Minister of Finance, Bill English, had to do in the early days of what is coming down and will be known in history as one of the most successful Governments that this country has seen in such a long period of time.

Here we are today when all around us in New Zealand New Zealanders are celebrating the day of The Hobbit. To my two colleagues opposite, whom I am very happy to share a select committee—the Finance and Expenditure Committee—with, Clayton Cosgrove and David Clark, I say that this is the day of The Hobbit, not The Two Ronnies. They are the “Two Ronnies” of the Labour Party when it comes to bills like this in this Parliament. This is the day of The Hobbit, when all New Zealanders are rejoicing that one of the best films that will be released anywhere in the world this year has been filmed and has been made in New Zealand. We know that Opposition members—the Labour Party—were not in favour of that. Others have called them Hobbit haters. They did not want the film made here. And do you know what damage would have been done to our country and economy should The Hobbit movie not have been made in this country? Small and medium sized enterprises, so many thousands of them, which have been involved in the manufacturing, the making, and the construction of this movie, would not have had work.

The Opposition probably is unhappy that small and medium sized enterprises have had these jobs, because it did not want the Government to support this wonderful industry for those films to be made here. Why is that important? Small to medium sized enterprises that employ fewer than 20 people make up 97 percent of the enterprises in New Zealand. And shame on the members opposite for not wanting to support so many hard-working New Zealanders. Many of these enterprises are family-built businesses—mums and dads who work hard together. These are enterprises that make up 60 percent of all enterprises. Small to medium sized enterprises make up 40 percent of the economy’s total output by value-added basis, and 31 percent of employees in New Zealand are in small to medium sized enterprises. The members of the party opposite should be supporting small and medium sized enterprises much more than they have. They come here and pay lip service to them.

I mentioned at the beginning of this speech that this bill is a continuation of the work this Government has done over 4 years. I want to touch on a couple of those things that are an integral part of supporting small to medium sized enterprises more, and this bill is a part of that. The new tax rate for small businesses in New Zealand is 28 percent, helping local small firms get on and invest more. ACC rates have been reduced, levies have come down, and half a billion dollars extra a year is now going into the New Zealand economy, helping individual employees and small businesses in New Zealand. Levies on businesses have been reduced by 22 percent. That is a saving of $247 million a year for small and medium sized enterprises in New Zealand. The 90-day trial period for small businesses won 13,000 new jobs, created in small businesses as a result of this, giving hard-working New Zealanders a chance to get into the workforce.

We have amended the Resource Management Act so that consents for medium-sized developments now need to go through in 6 months. That was a commitment we made to the electorate in 2011. We have reformed the personal grievance system—96 percent of all employment mediations are now resolved without being escalated to an Employment Court. Many of those are in small and medium sized enterprises. Unnecessary red tape for small businesses has been reduced, and the Government is on track with these measures to cut compliance costs for businesses and consumers by an additional $200 million a year—across-the-board savings, reductions in compliance costs, and reductions in red tape.

This is a Government that over 4 years has more than proven how committed we are to making it easier for small and medium sized businesses, and shame on the Opposition for going against almost every measure we put in place to help everyday New Zealanders with their companies. Thank you very much.

I am glad that that member, Todd McClay—“Mr Benny Hill”, my colleague referred to him as—has taken his seat. It was an embarrassing speech and an unfortunate contribution. He tried to convince us there at the end that this Government had a good record on business issues. He read out a list of supposed achievements. He neglected to mention that this Government has the worst economic record of any Government in the last 50 years.

💬 Hon Lianne Dalziel: How long?

The worst economic record of any Government in the last 50 years—shocking. A thousand people a week are leaving this country for Australia. There is a 50 percent increase in the number of unemployed, a 3 percent drop in the median wage, and the biggest gap between rich and poor that this country has ever seen. That is a shameful, shameful contribution.

Worse than that, the big ideas have been things around taxes on paper boys and cleaners, and these things have actually increased compliance on business and increased the grey tax market. We know that the regulatory impact statement—for example, for National’s paper boy tax policy—said that it had not even consulted businesses. It was expecting businesses to keep records on part-time cleaners in a way they never had before. It increased compliance costs in a miserly move to get a few extra dollars, because it is not making ends meet. The tax take has dropped under this Government because the economy has stalled. The economy has been growing at a rate slower than the growth of population in this country. This Government has an embarrassing, embarrassing record on economic issues and on development of this country.

I want to come back to the bill, the Financial Reporting Bill, although I could not but respond to those terrible allegations made by the member opposite, who made baseless allegations that were irrelevant to the bill but needed to be addressed.

💬 Hon John Banks: What does this member know about small business?

The Minister for Small Business asks what I know about small business. I had the privilege of growing up in a family where my father and mother were both involved in businesses, Mr Banks. I have also acted as a contractor on occasions. But that member there—that member there—knows a lot about brown bags and brown envelopes with money in them that he has taken and the police say was not a legal action, and I do not think that that is appropriate for a Minister for Small Business. I do not think that is in any way appropriate. But I come back to the bill. They keep drawing me away. This is the bill developed by the “Minister of Novopay”. We have got to ask ourselves whether it has been virtually tested, or whether it has been trialled in parallel to other legislation, because, as one wag commented earlier today, the virtual testing of Novopay has led to only virtual pay at the end. It is inadequate legislation.

This bill here we would hope will produce better outcomes, because this is actually useful legislation. This is useful legislation, and we must compliment the Government when on the odd occasion it brings useful legislation to this House. This legislation will not set the world on fire, but it will address some important issues. The general policy statement for this bill tells us that the objective that the Government is trying to address here is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them. We cannot fault that—we cannot fault that as an objective of a financial reporting system.

The three factors, when financial reporting is in the public interest, include public accountability. That is about transparency, at its most basic, where the public have a vested interest. The examples that are cited in the legislation are those where an entity is effectively owned by taxpayers or ratepayers, where it has sought funding through debt or equity instruments offered to the public, where it takes deposits from the public or holds assets in a fiduciary capacity, or where it receives donations and bequests. Mr Banks might take a call shortly to tell us a little more about that particular issue of transparency. We will be interested to hear what he has to say on that matter, as I am sure the courts will in December. So transparency is the first issue where financial reporting is in the public interest. The second issue is where it has economic significance, and this could be understood as size matters, because when large entities fail, it does have an impact on local and regional economies. We can understand why it is important that there are objective financial statements put out in cases where there is a wider public interest. And the final reason given, on principle, is about separation, and it is where owners of a business ought to be able to have decent financial statements that relate to their business, where they are not managing the entity itself. These principles are all sound principles, and the aim of this bill is to give them effect.

The three major outcomes we are told this bill achieves are that it reduces compliance costs where they are unnecessary costs—these are my words, not the bill’s words, you understand, Mr Deputy Speaker—and I want to support that. We need to ensure that compliance costs are dropped, where they are not necessary, not like in the paper boy tax. One of the things that is being added here is that shareholders will make the call with small companies about whether those reporting standards are needing to be met in a verifiable way or not, according to their own need. So that is reducing unnecessary compliance.

In some ways this bill will also increase some compliance costs. We are told that the second thing this bill achieves is to make sure that the law is strengthened, where the current reporting core requirements do not adequately meet users’ needs. We have not heard much from the Government about increasing compliance costs—although that is one thing this bill will achieve in some circumstances—but, actually, in some circumstances that is a good thing, where that compliance is producing an outcome that is of value to the wider public, where it is in the interests of transparency for the public, who have a vested interest, or where it is in the case of an entity that has economic significance in a region or in a location, or where it is about providing accountability to owners that they do not otherwise have. Can you imagine if we had had proper, good regulation around the companies that failed in the global financial crisis? If we actually had had transparent and clear reporting that was in the interests of those stakeholders who had their money invested in such companies, we might never have got to the position as a world that we got to as a result of the global financial crisis.

The general point here is, of course, that markets make good servants. Good, efficient markets make good servants. They use capital efficiently and allocate it well in the interests of the wider public and in the interests of economic development and the social good that is derived from that, and poorly regulated servants make bad masters—poorly regulated markets make bad masters. When we do not have effective and efficient regulation, we get either unnecessary costs or markets that are left without the kind of transparency that ensures that the public good is met alongside them.

The third thing we are told this bill achieves is that it will make “several other changes where the current financial reporting settings are inconsistent with the three indicators of financial reporting.” That is the third major outcome of this bill. I think that is probably more of a sundry item than a major achievement of the bill. Those things, though, are all worthwhile. The regulatory impact statement tells us that this bill has not yet been widely consulted upon, and that is consistent with what the Government has done so far, and often to the detriment of legislation introduced to this House. However, my colleague Mr Parker pointed out earlier that there is an intention to have a full and proper select committee process, which will bring appropriate scrutiny. That will improve the bill, and I congratulate the Government on making sure that there is a full and transparent process from here on in around the bill, to make these important changes that will make our regulation as efficient and appropriate as possible.

I will just finish with a brief indication of some of the changes that will be included for a company. They will not be prepared to require small and medium sized enterprise statements in accordance with the financial reporting standards issued by the External Reporting Board. There will be no requirement to prepare parent accounts if group accounts are prepared. An audit will be legally required to follow auditing standards issued by the External Reporting Board. These are all changes that are made that will affect individual companies, and there is a series of them. There is a table that I have seen prepared, which has a large number of changes that are made in this bill that will affect companies directly, that will affect limited partnerships, that will affect reporting entities, industrial and provident societies, building societies, and credit unions. It will be interesting to see what these entities have to say about the new reporting requirements—whether the building societies and credit unions feel they are being overly regulated, or whether this is appropriate as it stands.

I congratulate the Minister of Commerce on introducing this important legislation. I hope it is more successful than the Novopay debacle that he is overseeing, because we need good regulation in this country.

It is a pleasure for me to speak on the first reading of the Financial Reporting Bill. I also want to thank the Minister of Commerce, the Hon Craig Foss, who is bringing this bill to the House. The bill is commendable because it focuses on the issues that matter to New Zealanders. That has been a great focus of this Government—on boosting economic growth, creating jobs, and reducing compliance costs.

I find it quite ironic that the last speaker, Dr David Clark, talked about being born into a family of business people. He did not say what they did or who they were, but he said he was born into a family. That is about the closest that that speaker has got to a business person. With the exception of Clayton Cosgrove, who stood up this evening, I cannot see many Labour members over there who have actually run businesses, who have actually been inside businesses and created jobs. They have been academics, union officials, and parliamentary secretaries. That is not going to cut it with the New Zealand public. They spend most of their lives tearing down businesses, tearing down jobs, and tearing down opportunities for New Zealanders, and their record has been quite clear. They are against mining—they are against mining. They do not want mining—an industry that creates jobs. They have been against the movie industry. And tonight The Hobbit premiere is on, but they are against that too. They are against convention centres as well, I have heard. I will tell you what: if it met the interests of the unions, they would be against the All Blacks.

💬 Hon Members: Oh!

That is right—you would be against the All Blacks.

This bill is about maintaining a strong economy that can provide financial security for families, real opportunities for our young people, and safer communities, because that is what a strong economy does. For the past 4 years this Government has been working hard to simplify and improve the integrity of our financial system. How have we done that? We have actually worked across this House, working on financial service providers legislation, working on the financial markets legislation, and working on the Financial Markets Conduct Bill and securities trustees legislation. We have done a lot of work in this area and we continue to do it with this bill.

So this bill is a once-in-a-generation opportunity to update financial reporting law in this country. And what does the bill do? Well, the main purpose of the Financial Reporting Bill is to improve our financial reporting system. That is right. It will do this by making all general purpose financial reporting consistent with the primary objective of that system. Do members opposite know what that system is? Do they know what it stands for? Not one person across the aisle has actually talked about it. Well, the objective is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them. That is right. How does this bill do it? Again, I have not heard one statement from across the aisle here about how this bill will do it.

What does the bill do? It continues the External Reporting Board and defines its functions and powers. That is right. It also provides for the issue of financial reporting standards, and auditing and assurance standards. That is right. Just like in education, and just like in the building industry, we believe in standards.

Thirdly, it provides for auditor qualifications and other standard provisions relating to financial reporting duties under other enactments. So this bill cuts compliance costs. It cuts red tape that is faced by many of New Zealand’s small and medium sized companies. When I talk to the businesses in Maungakiekie—I used to run a business in Maungakiekie—that is what they say to me: “The number one priority, please, is to reduce compliance costs, reduce red tape, and let us get on with business.” That is right. These companies, in particular, will gain the benefit of much more simplified financial statements, which will help build productive and efficient businesses, as well as a productive economy.

So the main purpose of the company’s annual report—and Mr Cosgrove knows this; his colleagues might not know, but he certainly does—is to provide accountability by senior management to shareholders. But it is not just shareholders. They should provide that accountability to creditors, as well as to other stakeholders out there. But the great majority of our New Zealand companies are small and medium sized enterprises, and the managers of those companies are also some of the shareholders, so there is unlikely to be financial reporting accountability in practice. We know that.

So the small to medium enterprise changes in the bill mean that the Inland Revenue Department will need to beef up its company tax filing requirements, and we know that the separate empowering legislation will be introduced by the Hon Peter Dunne later on, at a later date. The bill also includes a new power that allows the External Reporting Board to issue accounting standards for registered charities. We know that it is a $1.2 billion industry. We know the great work that our charities do out there. The effect that this will have is it will benefit many of the preparers of those accounts for these charities who have limited accounting or bookkeeping skills, because it will reduce the uncertainty of what is expected of them.

A Supplementary Order Paper will be released when the bill is introduced, which will transfer financial reporting obligations to issuers, banks, and insurers from the Financial Reporting Act to the Financial Markets Conduct Act. This change will mean that the financial markets conduct enforcement liability regime will now apply.

This is a good and sensible bill. We have clearly laid out the case for that on this side of the House. It will bring down costs. It will streamline compliance to our small and medium sized enterprise sector, which can be only beneficial to our economy. We on this side of the House are 100 percent focused on allowing businesses to get on with the job of creating jobs, and I commend this bill to the House.

The regulatory impact statement was written so long ago, it was prepared by the Ministry of Economic Development. The Ministry of Economic Development has not actually been around for a little while. It is now “MoBIE”—the Ministry of Business, Innovation and Employment—which has replaced the Ministry of Economic Development.

When I looked at the fact that the regulatory impact statement was actually prepared by the Ministry of Economic Development, I thought I had better have a look at the timetable for implementation that the regulatory impact statement contained. This bill, the Financial Reporting Bill, was introduced into the House on 31 July this year. Today, of course, is 28 November, and already this bill has failed to meet the targets that were set by this regulatory impact statement. Let me read paragraph 42, the implementation section, which establishes that “A bill will need to be passed by Parliament to give effect to the changes. The aim is to introduce legislation in early 2012 with a view to enactment in late 2012 or early 2013.” So the Government is already way behind the eight ball. Although we have already heard from the former deputy chair of the Commerce Committee, which used to be a very, very good select committee—

💬 Hon Clayton Cosgrove: Not the Minister for Small Business?

—not the Minister for Small Business—what we have actually seen is that those members have failed to meet the very standard that they have set for themselves. I want to talk about this particular piece of legislation because I think financial reporting is very important for a whole range of reasons.

💬 Hon Clayton Cosgrove: It’s usually donations.

Well, yes. I am hearing from my colleague, who is interjecting on me from in front—and I will share this with the House, because I think what he is trying to do is to encourage the Minister for Small Business to take a call on the Financial Reporting Bill.

💬 Hon Member: Associate Minister of Commerce.

The Associate Minister of Commerce should take a call. He is the Minister responsible for regulatory reform. He is responsible for these kinds of areas and the impacts on small businesses.

💬 Peseta Sam Lotu-Iiga: Talk about the bill. Come on!

We have had every single member of the National Party stand in this House and talk about small business, and yet the Minister for Small Business is sitting there and has not yet taken a call. That is the point that my colleague has made more than once. He has suggested to me that I need to reference brown bags, but I am not sure why brown bags have to be mentioned in this particular debate. I do not know that it is relevant to financial reporting, because any finances that come in brown bags do not get reported. So I do not think that it is relevant to the particular issue that we have in front of us on this occasion.

It is very interesting that the National Party is more than happy to sit there and suggest that I am wide of the mark in terms of this particular bill when I have the regulatory impact statement in front of me and am quoting from it, and when every single one of its members has stood up and argued about the impact of this legislation on small business. We have the Minister for Small Business in the House and he should be getting up and speaking on this particular matter—the Associate Minister of Commerce, with his responsibility for regulatory reform. This is a regulatory matter, and the Minister for Regulatory Reform should be standing in the House and reporting on it.

There are three significant constraints in identifying the costs and benefits of the changes proposed in the regulatory impact statement, and I believe that the House should take note of each one of them. The first one that I want to mention is that the External Reporting Board is responsible for deciding which set of standards each class of reporting entity will need to comply with. This is incredibly relevant to how this bill progresses, because I am not persuaded that this bill has got it absolutely right.

Secondly, although there are some very useful statistics about the numbers of entities in some classes or subclasses, there is very limited information for others. I again believe that this is very relevant. As one of my colleagues said, the amount of consultation that the Government has undertaken on this legislation is not of a high standard, and that does need to be addressed by the select committee.

Thirdly, some of the costs and benefits are very difficult to quantify. It is all very well for Government members to stand in this House and say that we need to reduce compliance costs when we all see regulatory failure and the costs that are imposed on the taxpayers of New Zealand. You need only look at the question of the leaky building crisis, which my colleague has been raising on behalf of New Zealanders who have seen themselves in a difficult position. The truth is that costs and benefits—

💬 Raymond Huo: I raise a point of order, Mr Speaker. I apologise to my colleague. The level of the noise from the National members is very unreasonable. It is not a good example for the good kids in the public gallery. I wish the Speaker would caution the National MPs.

💬 Mr DEPUTY SPEAKER: I think the—[Interruption] Order! I think the misbehaviour is about equally shared across the House.

The point that I am making is that some of the costs and benefits are very difficult to quantify, and part of the reason for that is that the Government has not done a very good job of consulting on this particular piece of legislation.

The regulatory impact statement talks about the benefits and the costs of financial reporting. It talks about the need for economic decision-making, and the benefit arising when users rely on general purpose financial reports to decide whether to transact with the reporting entity. So the member who spoke before me, Peseta Sam Lotu-Iiga, does not even know what he is talking about when he says that it is limited to the shareholders and to—

💬 Peseta Sam Lotu-Iiga: I said stakeholders.

—and to the stakeholders. No, he said the shareholders; that was what he was talking about. The point that I am making is that people actually need to know whether they should be transacting with a reporting entity, and that is what financial statements are for. They are used to contribute to decisions about whether to buy, sell, or hold shares, but—all together—whether to transact with an entity or not. The second is to promote accountability by the entity. This benefit arises when users rely on the general purpose financial reports to determine whether the reporting entity has been using or managing the user’s money effectively and efficiently. The report actually—

💬 Mr DEPUTY SPEAKER: Order! [Interruption] Order! I am sorry to interrupt the member. The cross-flow of interjections and comments that are not related to what is being spoken has gotten out of order. I am going to ask members to restrain themselves. The debate has been in pretty good nature, but it has been rowdy. It has been too rowdy, and I just ask for a bit of consideration.

💬 Hon Simon Bridges: I raise a point of order, Mr Speaker. The member seems to be talking to her—

💬 Mr DEPUTY SPEAKER: Order! [Interruption] Order! That is not a point of order, and it is not helpful.

The costs comprise some or all of the following, depending on the extent of the reporting obligations. They talk about preparation, they talk about assurance, they talk about distribution, and they talk about publication. All of these elements of financial reporting are important, and each one of them does have to be taken into account. When one looks at the degree of the cost involved in each one of them, we should be looking to see whether those costs can, in fact, be minimised while the benefits of financial reporting are enhanced. I believe that we can do that. That is what the regulatory impact statement is designed to do. It actually goes through each one of the entity types and works through each one of those specific issues to look at the questions of the issue, the status quo, the proposal, costs and benefits, and other options considered. That is what a regulatory impact analysis does require us to do.

What the regulatory impact statement actually described in the conclusion was that “The main aim of financial reporting is to find an appropriate balance between the benefits of transparency and accountability to users and the compliance costs associated with financial reporting.” What it concluded was that “this balance is achieved most of the time by applying the three indicators of financial reporting. The indicators have been departed from in a minority of cases”. It looks at the main examples, such as “the proportionately high fixed costs of financial reporting for small registered charities;”. These are the issues the Commerce Committee actually has to have a look at. If the select committee is not prepared to look at these, then that is fine, but I actually think this is a serious matter, and if the Government actually did care about these issues it would agree. It would look at “the proportionately high fixed costs of financial reporting for small registered charities; the need to fit financial reporting with the broader regulatory objectives in relation to gaming machine societies and retirement villages; and the proportionately high reporting-related costs arising from the dispersed beneficial ownership of small Māori asset governance entities.” Those are the issues the select committee is going to have to look at. We take it seriously on this side of the House, even though the Government does not.

It is a pleasure to take a call on the Financial Reporting Bill. It was a pleasure to be in the House—I am sure my colleagues will agree—to hear Raymond Huo’s maiden speech. I will be rushing back to my office later to watch that again. It was so compelling.

I thought it was a bit unfair of my colleagues to refer to Mr Cosgrove and Mr Clark as the “Two Ronnies”. I have to say that I think “Arkwright and Granville” would be far more accurate. They are both working hard to keep the Labour shop open. I am not sure who “Gladys Emmanuel” would be, but they are both working very hard to keep their shop open.

This bill is a very important bill for small businesses. It has been great to listen in the House tonight to the Greens, New Zealand First, and Labour all commending the Minister of Commerce, Minister Foss, for bringing such a good bill to the House. I am sure that Mana will also join them in congratulating Minister Foss on such a good bill.

I would like to talk about the fact that this bill is just part of a much bigger programme that the National Government is implementing to make sure that compliance costs and savings are put in place for our small businesses. It was a very good point that was made before that small and medium sized businesses make up to 97 percent of enterprises in New Zealand. Family businesses and owner-operator enterprises make up to 60 percent of enterprises.

I would just like to talk about our party—actually, the wider party—and our electorate organisation, and the type of work that they are doing behind the scenes to assist, as well. I would like to talk about a very good remit that was brought to one of our regional conferences recently. It is a member’s bill that I have picked up, which is now in the ballot, and it is an amendment to the Disputes Tribunals Act.

💬 Hon Clayton Cosgrove: Hang on. Wrong bill.

What it does is it raises the claim amount from $15,000—[Interruption] No, no, this is good, Mr Cosgrove. Listen. It raises the dispute amount from $15,000 to $30,000. What this means is that small and medium sized businesses can now, instead of forfeiting part of their claim, take it to the disputes tribunal. That can save them a lot of money. It prevents them from having to take it to the District Court, which is very costly and out of the reach of a lot of small businesses. I am using that as an example of another very good initiative that is being driven not necessarily by the parliamentary wing but by our members out in the electorates.

What is being driven by Labour Party members? Let us see what sorts of remits they have just had at their conference.

💬 Scott Simpson: Unions.

Yes, absolutely right. They have just put up a remit that has allowed the Labour Party to be captured by the unions.

💬 Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. Your predecessor indicated, and we agree, that this is quite a wide-ranging debate, but I fail to see—this is the Financial Reporting Bill—what other parties’ remit books or policies, or small claims courts, or anything have to do with it. None of that is mentioned in this bill of some 150-odd pages. I would just ask you to bring the member back to the bill.

The ASSISTANT SPEAKER (H V Ross Robertson): Although I can appreciate the member’s concern, I could also quote him Speakers’ ruling 46/2. We give a little bit of leeway. But I would ask the member to try to talk to the bill.

Certainly. Thank you, Mr Speaker.

The ASSISTANT SPEAKER (H V Ross Robertson): That would help. Thank you.

I would like to come back and just point out some other very good measures that this Government has put in place. Levies for businesses are reduced by 22 percent, a saving of $247 million, or $1,120 a year for the average small business with, say, seven employees. That has a big impact and is something that is fairly significant to small businesses, which are often working on tight margins. We have not bowed to political pressure and sunk businesses by putting the minimum wage up to $15 an hour.

I ran a series of four business forums in my electorate of Rodney this year, where I got together small and medium sized business owners. One of the things that they continually told me—and this was coming from small-business owners; this was not coming from politicians; this was not coming from anyone other than the people who are actually running these small businesses—was “Yes, we would like to pay our people more, and we will pay our people more when we can afford it. But we will tell you what will happen if you decide to put the minimum wage at $15 an hour: the people who are now on $15 an hour will want to go to $17, and the ones who are on $17 will want to go to $19.” It will have a flow-on effect, it will put pressure on small businesses, and they will have to start laying people off. That is what the Labour Party is about—wanting to lay people off their jobs.

Good business growth goes with investment in infrastructure. We are investing heavily in the State highway network, and delivering significant productivity gains over time. I would just like to draw to your attention the importance of the Pūhoi to Wellsford motorway. This is going to open up Northland. It is going to create commerce. It is going to create jobs. The Opposition keeps referring to it as the “Holiday Highway”. I invite Phil Twyford—where is Phil Twyford—to come up to Rodney with me. I will put on some meetings with the locals, and we will see what they have to tell him about whether or not it is the “Holiday Highway”. That is a slap in the face for everyone who lives in Rodney and North Auckland.

I would just like to say that this is a very good bill. I look forward to receiving it at the Commerce Committee. I commend it to the House. Thank you.

Given that this is the last call, I think, in this debate, I seek leave for an extension of time of approximately 10 minutes—

No. [Interruption] No.

Bill read a first time.

Bill referred to the Commerce Committee.