Financial Reporting Bill

Mr Chair, it is a pleasure to give a speech in the Chamber when you, such a venerable individual with such great experience, are in the Chair. This is one of those rare moments in this Parliament, colleagues, where both sides agree on a pretty substantial bill—one that is designed on the one hand to create a high degree of transparency for business where it is needed and where it is in the public interest, and on the other hand to not be so burdensome and onerous, especially for those smaller enterprises, depending on their agreement, in terms of compliance costs. I refer to Part 1 of the bill, the Financial Reporting Bill, in terms of clause 3, “Purpose”, where it talks about the various financial reporting standards, auditing standards, and assurance standards. We agree with and will be supporting this bill. It is appropriate. The aims are trying to streamline reporting procedures, cut compliance costs, and bring together a whole series of principles that will aid business but also aid those who are attempting to get information from business.

Could I touch just for a moment, given the nature of the purpose clause, on where it talks repeatedly about standards and where it talks about, in this part, transparency. We agree that this is a good bill—the Labour Party has contributed admirably to this bill—but we question a couple of things. We agree and we know the Government has acted in good faith in terms of its promotion of standards and transparency within this piece of legislation, but I have got to say that it is in stark contrast to a number of other issues around a lack of transparency or standards that this Government has been involved in, whether it be the financial deals around Rio Tinto, where $30 million was given away to a multibillion-dollar multinational company, allegedly to protect jobs—a botched negotiation where no security was asked for or guarantees sought to protect those jobs. We found out, of course, that the Minister in charge of those negotiations, the Hon Bill English, Minister of Finance, did not have the intelligence to even ask for a guarantee around those jobs—low standards, low transparency.

In fact, there was very little transparency around that deal, as the Government firstly left it to the Meridian Energy board and then leapt over the top of the Meridian Energy board without actually telling the board that it was doing a side deal, and gave away not only the kitchen sink but the kitchen as well, and $30 million was thrown in for zero gain. So when it comes to issues of standards and transparency, we are glad that these principles are right up front in this piece of legislation, but I would hope that the Minister of Commerce might have a word with his colleagues in other portfolios to bring the same level of standards and transparency to other parts of this Government.

If we look at other transactions like Solid Energy, the Government was completely asleep at the wheel. There was no transparency around the fact that that company was driven into the ground by this Government because this Government will have no transparency, no ministerial inquiry, and no select committee inquiry. They were all blocked. The last port of call—thank goodness, we live in hope—is the Auditor-General, who is still looking at the need for an inquiry. But, again, there is no transparency and no standard of behaviour around that particular transaction.

We look at the Chorus transaction. Again, it was done behind closed doors, botched completely—a very low standard there—and absolutely stuffed up to the point where the Government, rather than—

💬 Maggie Barry: Your area of expertise, botching and stuffing up. You’re an expert.

That was, for the uninitiated, the “Venus fly-trap of the New Zealand Parliament”, one Maggie Barry, who, every time she sort of—

💬 Maggie Barry: What are you?

That interjection may well have been sponsored by Jim Beam and Johnnie Walker; I do not know. It is late at night.

💬 Maggie Barry: Are you a heavy drinker, Clayton?

She may be too close to the fertiliser, the nitrogen, or the compost—who knows? Gardening leave is appropriate. Actually, gardening leave is appropriate as we talk about the lack of transparency around Solid Energy, because we know that the chief executive officer has seen a lot of gardening leave for a long time, on about $300k or $400k, which is something I suggest that member on her salary of—what is an MP’s salary, $150k-odd—has actually been on. She has actually been on gardening leave since she has been elected to this place.

But, anyway, getting back to the bill, because it is appropriate, as the budgie chirps away in the background over there—that was a botched negotiation. We moved to Chorus, of course. There was no transparency or high accounting standards around that deal—none at all, zero. There was no transparency around that deal, to the point where the Government is in such a bind that even though it is the bastion of the private sector, it will not actually look at enforcing the contract, as you would in a private sector situation. Last time I checked, where you negotiated better than the other bloke and you won the deal, and the other bloke or the other person or the other party could not come up with the goods, you enforced the contract. You did not wave the white flag of surrender and say you would bail them out or nationalise them or take an equity escape or interfere with the regulatory process in respect of the Commerce Commission. But, oh no, these guys do anything—these guys do anything.

We would like some transparency. We would like some transparency, even from old “Venus” at the back. We would like some transparency around those sorts of transactions as well. That is what we would like some transparency and standards on, because the difficulty with this legislation, even though it is good legislation, is that this Parliament can be seen by those in the commercial sector to pontificate to them about the standards they should adhere to and the levels of transparency they should adhere to. But the Government does not practise what it preaches in other areas.

💬 Maggie Barry: Go on, sit down. Spare us all, idiot.

I think you might have to get the Xanax for that member. She may need a wee bit of help. I say this—

💬 Maggie Barry: Bring out the Roundup—spread it on your hair.

Keep going, it is great. It shows that member for the inept member she is. Even this late at night people will be picking up on that. So this is a good piece of legislation. It actually deals with cutting down many of the compliance costs—

💬 Maggie Barry: Down to stump size, like yourself.

Sorry?

💬 Maggie Barry: Down to stump size, like yourself.

Well, that is a brilliant interjection. That is an intellectual effort from somebody who has been too close, I think, to a variety of garden substances—

The CHAIRPERSON (H V Ross Robertson): Order!

—over the years. It is all right, I do not need protection from her. Good God help me if I did.

The interesting thing I want to touch on is in respect of charities. The Commerce Committee spent quite a bit of time looking at the level of compliance that charitable organisations would have to go to. To be fair to both sides, we looked at this with a great deal of seriousness because although we wanted a generic set of standards and standards to apply to financial information in accordance with generally accepted accounting practice, and currently there are no requirements for the content of this financial information, we were—and I know the Minister appreciates this—very careful to look that we were not burdening or requiring an onerous set of arrangements in respect of charities, given the nature of the work they do. They are not businesses. They raise money for good causes. Members of Parliament on all sides are involved in many of those charities, and we did not want money going in an onerous way from the public good, if you like, into a myriad of bureaucratic and administrative compliance costs.

I think it does strike the right balance. I think we had very good feedback from the submitters in the charitable sector, but it is an area that I think many of us on both sides were concerned about. Public money, private money, and charitable money, of course, are three different pots there, and there is a requirement—a high requirement—on each of those areas in our community to have appropriate financial records and appropriate standards. My hope is that these financial standards will embolden people to increase their donations to the charitable sector, knowing, of course, that there is belt and braces—

💬 Hon Shane Jones: Donations?

—donations, indeed—and appropriate financial standards and transparency around the charitable sector, as there generally is, even prior to this bill. That gives people the confidence to give, hopefully, in a greater way and to support those entities in a greater way. I would be interested whether the Minister is prepared to make a couple of comments of reassurance, perhaps, around that charitable sector to get on the record what exactly we are striving for, and to give some confidence to that sector.

There is very little, if any, politics in this bill because it does have bipartisan support. I look forward to the Committee stage as we work our way through this legislation—the purpose clauses and the other clauses. I know my colleague Dr Clark will have some interesting comments to make in respect of the Inland Revenue Department and its role in this. I look forward to some of the very interesting comments of members opposite. I am sure they will make a wonderful contribution, as they have in the pre-emptive stages of this piece of legislation, rather than making the odd inane comment as a few vapours whizz through past the back row over that side. I am sure it is a long night tonight, but I think we should give this bill due consideration, and we should act in an appropriate way to support this legislation, given that it amends around 80 Acts. I look forward to this debate continuing.

Tēnā koe. Because members on this side of the House are absolutely convinced of the merit of reducing compliance costs and our rhetoric, unlike that of the other side of the House, is not inversely related to reality, it is a pleasure to stand and support the Financial Reporting Bill. Why should we support it? Because it is premised on the notion that there should be discretion.

Those entities that have shareholders seeking to opt out of unnecessarily onerous compliance arrangements should be able to make that choice. However, for those that are of a size where systemic damage might flow or where significant impacts would negatively fall on the country’s reputation, or, indeed, on the reputation of our commercial sector, there is a range of arrangements and compliance obligations that should be adhered to.

I was wondering, though, whether we can use this bill in relation to, as my colleague said earlier, the defective Chorus deal. I think you can illuminate dry legal text by looking at a real case example. We have a case with this particular company where disclosure of an adequate nature probably was not made when the company entered into the defective deal conjured up by the Associate Minister of Finance Steven Joyce. It actually took Sue Chetwin and a host of activists in the information and communications technology sector to actually point out that a company known as Chorus failed to fully disclose that the equation it was using to cover the costs of the broadband infrastructure roll-out was deeply flawed.

As a consequence, the Minister who negotiated that flawed, defective deal with Chorus—and it was worsened by the Prime Minister saying that it was technically insolvent, or words to that effect. An outrageous statement. I wonder whether those members will themselves show any responsibility in terms of a financial reporting stance, which they might reject, given that 40 percent—a catastrophic failure—of the equity value of that entity has gone down the proverbial.

So there is an example where those people who sit on the various risk and audit committees and lord it over the rest of New Zealand have failed, actually, to meet the existing set of regulations. So I shudder to think how on earth they are going to cope with this enhanced set of regulations, because we have all learnt that when you have poor transparency and poor compliance with reporting provisions—as we saw with South Canterbury Finance and a host of other financial companies that soon became political calamities—people lose dough.

So I think an area where the Financial Reporting Bill perhaps could have gone a bit further was its treatment of overseas-owned entities in New Zealand. I look forward to hearing the speech from my colleague from Ōtepoti—Dunedin—where I was yesterday spreading pixie dust on behalf of my great party, with the chief executive officers of the various ports of New Zealand, convincing them that—well, that is another matter, which is, really, electoral victory. I will just pass by that for the moment so I can return to the bill. But I look forward to my colleague talking about how this bill could perhaps enhance and improve the accountabilities that should be sheeted home to the banks, currently owned by foreigners, and a host of others—largely the insurance companies—but taihoa, help is on the way in that regard. And the power companies, as we speak, disappear further down into the deep foreign pockets of the owners that are buying as we ensure the wheels of democracy grind on adequately tonight.

I think that the public needs to realise that when we are dealing with this bill, we are not talking only about requirements to account to the existing shareholders but we are also talking about the entities operating in our country and not necessarily owned by our countrymen and countrywomen. If there is an area where there is a glaring omission, it lies in the space of whether or not those foreign-owned entities are paying their way. Are they paying their way, or are they fleecing our system, our taxpayers, and indeed, in some cases, New Zealand employees? And are they running a double set of accounts—a set of economic accounts that sits on their bench table overseas?

Kia ora, Mr Chairman. I rise to speak to this bill, the Financial Reporting Bill. We in the Labour Party will be supporting this bill because the principles that it is based upon are ones that we can agree with. It is delightful to stand in this Committee and to be supporting a bill that is actually incredibly important, and might be likened to the oil that greases the wheels of commerce. It is so important to have transparency and clear, concise, and easily understood reporting requirements so that information can flow to stakeholders and so that good decision-making ensues and our country prospers.

The bill itself really has three key components. One is increased public accountability. An entity needs to be accountable to the public if it is effectively owned by taxpayers and ratepayers. That includes Government departments, Crown entities, and local authorities. I guess there is some irony, which will not be lost on those following the debate at home, in that this bill is designed to increase accountability across Government departments, Crown entities, and local authorities. Not long ago we passed legislation about privatising our energy assets. There is a referendum coming up. The postal ballot is starting tomorrow, I think, on this same topic.

That particular debate involved not only selling down New Zealand’s best revenue-generating assets—taking them away from taxpayer ownership and putting them into the hands of a few—but also reducing transparency. In that legislation, the Official Information Act used to apply in respect of State-owned enterprises. Members of the public could request information about them. There was a level of transparency there that was required. They were required to appear before select committees to be scrutinised, so that the taxpayer interest was being looked after. Now, even though they are to be majority State-owned—only just; 51 percent—a lower level of scrutiny is to apply. So here in this bill we have the flip side of that. We say again that scrutiny is important. So there will be no irony lost there, I am sure, in the Government’s other actions, which we know were done for politically expedient reasons and were based on an ideology of selling off, privatising the gains, and socialising the losses. That is something we have seen so often from this National Government.

Returning to the bill, the scrutiny that is going to apply will apply to the bigger end of town where there is a public interest. For example, an entity that takes deposits from the public or that holds assets in a fiduciary capacity for broad groups of outsiders—like banks, insurers, mutual funds, and those kinds of things—will be required to report transparently. That is a good thing. Those who receive donations and bequests from the public will be required to have increased transparency.

There is a test in the bill about economic significance. I guess that boils down to the idea that size matters. There are some large entities that ought to report because their failure could have a regional economic impact. That does apply, I guess, to the cases raised by my colleagues just before. The failure of those entities could have a regional impact that could be quite negative. We think there of Christchurch and the lack of progress that is being made. There are other examples, of course. Down my way, there is a proposal to gut the Invermay Agricultural Centre, take the scientists out of Otago, and, well, just destroy it—

💬 Clare Curran: Somehow transplant it.

—and somehow transplant a highly functional scientific organisation somewhere else when the staff do not want to transfer and have said they will not transfer. That is another example of a failure in the regions. That is despite Steven Joyce’s rhetoric about needing to have strong institutions in the regions to support business growth.

So there is some deep, deep irony in passing a bill that talks about the importance of economic entities to regions and the importance and economic significance of transparency when there are deals being done that are anything but transparent, in terms of the business case for Invermay. That is a very, very good example of where it has not been made public, where information has been withheld, and where it seems that an ideological position is driving something, rather than something that is genuinely in the public interest.

The third criterion in the bill is around separation. That separation principle requires that owners or members of an entity are likely to need financial statements if they do not manage the entity. So all of these things make sense at a fundamental level. It reduces compliance costs where they are not required—where they are small entities and where shareholders agree that they do not need comprehensive accounts to the extent that they are actually just simply about compliance. Then there is a clear requirement that where it does matter—where entities are public, large, or managing public funds—there is a higher level of compliance required. That is a very sensible step.

We know that good markets make excellent servants and poorly regulated markets make bad masters. That is the basic principle that I think sits behind this kind of legislation—good regulation, and making sure things flow well. We think of the global financial crisis. If there had been greater transparency there, some of the worst edges of that, and perhaps the whole financial crisis, might have been avoided, certainly in respect of the hedge funds involved.

Simplification of reporting processes is something that creates efficiencies, and that is good when our businesses and our country spend so much time on compliance. The Government opposite talks often about being business-friendly. Certainly, we see that when it comes to one or two of its mates and in respect of Skycity, and we think of the casino deal where Skycity is laughing all the way to the bank. It has got all the extra pokie machines, is building a casino off the back of problem gambling, and will have profits for years to come, all because the Government had cornered itself through putting itself in a non-transparent deal and committing to getting something through before negotiating the deal to its end.

We think of Chorus and what is coming up there. It has all the hallmarks of another deal by the Government for the big end of town. We think of Rio Tinto, where money was handed over but was not—

💬 Hon Clayton Cosgrove: Thrown at them.

Thrown at them—money was thrown at them, but no jobs guarantee was asked for, so restructuring began the next day. That is the kind of shoddy deal that this Government does with big business.

But all the while, small business is suffering in New Zealand. This Government has passed so much compliance regulation legislation that has disadvantaged small business. We think of the child support payments that employers may now be required to enforce—handling private information about their employees, which could lead to personal grievances in the worst possible situations; information that it was not previously thought to be appropriate for business owners to have to handle or to have responsibility for—and all the other compliance responsibilities. It has just been lumped upon them. There was no consultation. That went through in a rushed Budget process.

💬 Hon Clayton Cosgrove: No transparency.

There was no transparency. Again, we think of the paper boy tax. There are now compliance requirements that were not there before.

This is a Government that keeps heaping compliance on small business, but then it talks about tax simplification. The Minister of Revenue, Todd McClay, has talked about consulting on tax simplification. Well, it has been done overseas. There are plenty of working examples. This Government is big on talk when it comes to things that would support small business, but very, very, very poor on action. We simply just do not see it. This is a Government that is not a friend of small business, and that is a shame.

That perhaps goes some way towards explaining why 2,500 fewer small businesses are being created every year under this Government. This is a Government that is failing—is failing—to create jobs, is failing to create new businesses. It is no wonder that it has the worst economic record of any Government in New Zealand in the last 50 years. It has an appalling economic record. It has an appalling record on jobs. It is a Government that should hang its head in shame. I guess I am at least comforted that some helpful pieces of legislation, some sensible pieces of legislation—no doubt pushed by officials—are sneaking their way through. This is one small step toward helping to make our economy a little bit more efficient and to take out some of the unnecessary compliance, and that is why we are very pleased to support it on this side of the Chamber.

Finally, I would just say that we wish there could be more of this kind of thing—less of the deals done behind closed doors with big business, and more of the cutting of compliance. That is what we in Labour would like to see. We are sick to death of the additional burden put on businesses. They say that something like 15 percent of the revenue for the smallest businesses in New Zealand—typically, 15 percent—

Thank you very much, Mr Chairman, for calling me, and I hope you are feeling well this evening after your chocolate pudding at 7 o’clock. I chose the fresh fruit salad, and I can say that 3½ hours later I feel absolutely excellent, but I am sure that the heaviness will be dwelling upon you right now, knowing how heavy that chocolate pudding was.

Having said that, we come to the Financial Reporting Bill—[Interruption] Because this is quite a dry piece of legislation, and because it is heading towards 20 to 11 at night and some of us have been here since 9 o’clock this morning, I guess that those of us who have been here since 9 o’clock and who are still here at 20 to 11 at night do have the right to have a little bit of levity to try to ease the pain. But—

💬 Hon Clayton Cosgrove: It didn’t work for Maggie Barry.

No, it did not work for Maggie Barry. No, it did not. She had to leave—she had to leave. But, anyway, New Zealand First supports the Financial Reporting Bill. This is large bill that covers a lot of ground. It has had the scrutiny that it merits. But New Zealand First is satisfied that this bill represents useful improvement and will deliver actual benefits to New Zealanders.

Financial reporting is at the heart of business accountability. Effective and thorough financial reporting is fundamental to public confidence in financial matters. Financial reporting must have integrity. This bill sets the ground rules for financial reporting, and strengthening the reporting regime at this time makes sense. The bill reduces compliance costs while strengthening accountability and transparency.

We also note that under this bill charities will be required to prepare financial performance statements in accordance with accepted accounting practices. We believe that it is only right that New Zealanders do receive adequate financial reports from the very many charities that New Zealanders are so willing to give to.

Overall, New Zealand First considers that the bill strikes a reasonable balance in terms of reporting requirements and does not impose excessive or burdensome reporting requirements. We see this bill as enhancing New Zealand’s economic performance, which is a good thing. This is because a clear and effective set of financial reporting ground rules will establish the right context for organisations and enterprises to operate within.

For these reasons New Zealand First supports this bill. It is creating credible financial reporting requirements for New Zealand. Thank you.

The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 External Reporting Board, standards, and provisions that apply to other enactments