Reserve Bank of New Zealand (Covered Bonds) Amendment Bill

on behalf of the Minister of Finance: I move, That the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill be now read a third time. The bill sets out a legislative framework for the issuance of covered bonds by New Zealand - registered banks. It will provide greater clarity for both investors in covered bonds and depositors as to the treatment of the asset, securing the covered bond in the unlikely event that the issuing bank defaults.

The bill establishes a registration regime for covered bond programmes. An issuer commits an offence if it issues covered bonds other than under a covered bond programme registered by the Reserve Bank. In order to be registered the programme must meet certain registration requirements. These requirements aim to ensure that the cover pool assets are effectively segregated from the bank’s other assets and a cover pool monitor is appointed to the covered bond programme to provide enhanced monitoring. Following registration, there are ongoing requirements on issuers of covered bonds—in particular, reporting requirements. The issuer is required to keep the register of cover pool assets up to date and the cover pool monitor must be required by their contract to assess the issuer’s compliance with that requirement.

The bill then clarifies the application of the law in relation to cover pool assets of a registered covered bond programme in the event that the bank that issued the covered bonds is placed into statutory management or into liquidation. The bill includes a transition period that delays the application of the bill to existing covered bond programmes to allow time for amendments to be made to the programmes to meet the registration requirements.

This bill is important as it will improve the access of New Zealand banks to offshore covered bond markets. Covered bonds enable banks to obtain finance at a reasonable cost at times when it is difficult to issue other forms of debt. Further, covered bonds provide New Zealand banks with a source of long-term funding, which is important to reduce the vulnerability of the New Zealand economy to sudden changes in investment sentiment. This helps to promote overall financial stability, and as such it does benefit all New Zealanders.

Finally, I would like to thank the members of the Finance and Expenditure Committee for their prompt consideration of this bill, and also officials, who have engaged with the industry and with other political parties. I commend this bill to the House.

As we have already said—and we will not labour the point—the Labour Party will be supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill, with some reservations. We note that covered bonds already exist and can be legally issued in New Zealand, but they lack a regulatory framework, which in itself could indeed generate instability. So opposing the legislation will not prevent the issuance of covered bonds. It will merely, as I have said, leave New Zealand without regulation.

We note that the effect of covered bonds is to create a class of lenders to banks who have a higher level of security over banks compared with others. We have said in the previous speeches that have been made that we have some reservation about this, given that there is an inherent unfairness that a two-tiered system has created.

Most covered bond holders are foreign institutions. The question is where that leaves mum and dad investors. We know that in recent days, as we noted in the Committee stage, the preference given to foreign entities, institutions, brokerage houses, and others over and above the mum and dad shareholders has been evidenced—contrary to stated Government policy and commitment. It has been evidenced through the recent sale of Air New Zealand, where the Government went out to the big end of town, and the best that mum and dad could do was wait until the shares hit the market and then make a purchase. That was not the agreement. We know that the big end of town and the foreign institutions were in like big, hungry dogs, hoovering up those shares—as was the case with Meridian Energy and Mighty River Power.

As we said in the Committee stage, there is a series of precedents where this Government has preferred the large corporates in the formation of Government policy in respect of the film industry, Skycity, Rio Tinto, latterly Chorus, Meridian Energy, and others. One would be forgiven, I think, for sitting outside this place and looking at this piece of legislation with some scepticism, bearing in mind that we all agree that it is imperative to ensure that there is financial stability within the commercial sector. But mum and dad Kiwis might be forgiven for looking at this piece of legislation with a tad of cynicism, given the Government’s penchant for looking after its mates up Queen Street. That is a fact, and the difficulty with that is that even if this legislation, which does make good sense in large part in terms of increasing the stability of the financial sector, gets degraded—if the integrity of that legislation gets degraded by the past and present actions of this Government—the question is where that leaves mum and dad. Where are those second-tier investors left as they sit in the cheap seats while the big boys secure their base?

The other point that we raised in the Committee stage was the differing limits between us and, say, Australia—the proposed limit being 10 percent of an asset base. We did ask the Minister in the chair for an explanation. We thought there might have been one or two who sat on the Finance and Expenditure Committee and dealt with this legislation—Mr Goldsmith, Mr Bennett, I think, and one or two others who were hovering around the Chamber mid-morning—who might have assisted the Minister in providing an answer, which he chose not to give. I think that is unfortunate because a question does hang over the legislation as to why there is a difference. The Minister could have sought advice from his officials and put on the record why that difference exists, to give some commentary as we move through the final passage of this bill. Or those learned colleagues opposite who were on the select committee and part of the processing of this bill—and there was not a heck of a lot of politics in this, I have to say—could have taken a call and could have provided, perhaps, an explanation, because that is left hanging in the ether.

On this side of the House no one wants to see a financial collapse. I do not think there is anybody in this Parliament who would want to see instability rendered upon our economy, putting commercial entities at risk, and ultimately putting investors’ money at risk, particularly those folks who have squirreled a bit away in trying to make some sort of capital increase or increase in value on their investments. It is in everybody’s interest to create and reinforce an environment of financial stability, avoid collapses, and avoid difficulties within the commercial sector. However, that has to be done in an appropriate way, and although we support this bill, as I say, we want to make it very, very clear that this bill follows a history of preference given to some over others. We think that is a concern. Even if that might be appropriate in this legislation, it is undermined by the actions of this Government in other portfolio areas.

Probably the biggest example is, as I said in the Committee stage, Rio Tinto, where it appears on the face of it that money was simply just thrown at an entity. I do not know whether Bill English got down on both bended knees or just one. The last time I checked, when you actually try to strike a deal, you try to get a bit back for yourself. When you do a deal with someone, there has got to be something in it for them. What is that wonderful phrase that Peter Dunne used? “Willing buyer, willing seller.” But, generally, both parties come away with something. This was—

💬 Andrew Little: At least his dignity.

Indeed. Well, if you do not get anything, at least your dignity is intact—Mr Little is right. But in this case it was a bizarre example of Rio Tinto bending the Government literally over the barrel, waiting to spring the trap because it had nailed itself to a deadline. And it sprung it, all right. Rio Tinto tied the noose around Mr English on his ankles and dangled him up the flagpole until he squealed enough and gave enough and it ended up with a decrease in power price, half the notice period, and, just for good measure, because I suppose we are getting near Christmas, 30 million pieces of silver—30 million bucks. Then you look at the other side and you ask what the taxpayer got—zip, zero, nada.

💬 Dr David Clark: The comfort of increased profit for Rio Tinto.

My colleague says: “The comfort of knowing that—”

💬 Dr David Clark: They only made a few billion last year.

—“that multibillion-dollar company Rio Tinto would be kept warm in its old age and maybe a more—”

The ASSISTANT SPEAKER (Lindsay Tisch): Back to the bill.

Indeed. Well, indeed. This is also about transparency. Maybe Rio Tinto will be able to afford a nicer bottle of Scotch to whip around the board table, for the brothers and sisters, a few extra Chrissie presents, and another room on the house, thanks to Bill English. The truth is this: what did we get? Nothing. What were we told? Job security. What did we find out? He did not even ask for the jobs to be secured. What do we now know? That many of those jobs are slowly, in the restructuring, going—

The ASSISTANT SPEAKER (Lindsay Tisch): Order!

Sorry. Thank you. I was getting a tad emotional there, Mr Assistant Speaker. I am glad you brought me back to the bill, because when it comes to potential job losses, we on this side get a tad emotional about that because we care about those folks and we do not like people being given falsehoods and false hopes, especially by the Government.

With that small contribution, we will support the bill. We will be monitoring it closely, and I think it deserves, as it is implemented, close monitoring not only by this Parliament but by others outside this Parliament. As I say, we all in this place I think are for financial stability—

💬 Dr David Clark: What about Mainzeal?

—for ensuring that people’s investments are secured, given that there is no such thing as a zero-risk investment. You know, every time you spend a dollar, every time you invest a dollar, you take risk, and there is no way any Parliament can perfect a zero-risk investment. But you do see collapses, as my colleague said, like Mainzeal Property and Construction, where, again, the big boys got secured. They got the security blanket, and those at the bottom of the heap and those subcontractors and others just had to sort of wait in the queue with the tin cup out, hoping somebody might put a dollop of soup in it, in the form of some monetary compensation, or actually get their money back so that they could move on to other things.

We will be monitoring this. We look forward to some interesting contributions in the third reading. I hope that Mr Goldsmith might take up the challenge and actually talk about why that 10 percent limit is different from, say, Australia’s limit, and maybe give us his thesis as to why he thinks that is appropriate, given that the Minister was sadly lacking. He either was not interested in the bill or did not understand the bill. It is probably the latter. But it would be helpful, perhaps, if some members of the Finance and Expenditure Committee who put this bill through actually stood up and gave some sort of narrative around it.

It is my pleasure to speak on the third reading of this bill, the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. Ultimately, this bill is an important part of the Government’s programme to improve the resilience of the New Zealand financial system to volatility in international markets. The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill establishes a legislative framework for the issuance of covered bonds by New Zealand - registered banks. It will provide greater clarity for investors and depositors, improving on the current legal ambiguity.

So under this bill the New Zealand banks issuing covered bonds will have to register their covered bond programmes with the Reserve Bank and notify the Reserve Bank of issuance of covered bonds under the programme. Legal certainty will increase economic efficiency and financial stability because the banks will not have to pay an uncertainty premium to obtain covered bond funding and because certainty will improve banks’ access to the covered bond market.

Ultimately, that helps promote the sound and efficient operation of our financial system and, ultimately, that helps by lifting our economic performance. Through that, we can create jobs, boost incomes, improve living standards, and provide the world-class public services that Kiwi families need. This bill is only a small part of the jigsaw, but it all goes to create that brighter future that New Zealanders look forward to under this National Government. On that basis I commend this bill to the House. Thank you.

Well, after that brief contribution from the member—

💬 Moana Mackey: Less than 2 minutes.

Less than 2 minutes, Paul Goldsmith. We call him “less than 2 minutes Paul Goldsmith”; I hear others do too. He failed, I am afraid, to address the issue of why 10 percent should be the right number and why the international interest should be protected at that level when overseas jurisdictions protect at a lower level. I mean, it is a little surprising. Mr Goldsmith is normally—at least, technically—well versed in these things, although his slightly jaundiced view of the world sees the kinds of Thatcherite policies he prefers often put forward—

💬 Hon Clayton Cosgrove: Be fair, he wrote John Banks’ biography.

Yes, my colleague reminds me that he wrote John Banks’ biography. He is wondering whether there will be a sequel. But normally Mr Goldsmith is well versed in the actual technicalities of the issue and will put forward an argument, at least, in defence of a position. I guess it is a bit disappointing to the House that he is not prepared even to defend the legislation here. He is simply willing to see the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill go through.

💬 Paul Goldsmith: Well, you’re supporting it, aren’t you?

He says that the Labour Party is supporting it, which we are because we need some regulatory framework, but we have already drawn attention to the inadequacy in that respect, and it is a shame that the Government will not even articulate—and maybe it has lost faith in—its own view about where that line should be drawn. That is symptomatic, perhaps, of a Government that is out of touch—just get it done, get it in place—but it is a long way down the track.

We are passing the bill under urgency. We have had 2 years of unregulated bond issue. There has been no regulation covering financial bonds. In fact, it may be longer now. There has been no oversight or regulation. There has been a very tardy response, as you have heard, and not well articulated as to why the line has been drawn where it has been drawn, and why it should be higher here in protecting international interests and big-business interests over small-business interests—those who risk their shirt every day, in terms of putting their own shoulder to the wheel, mortgaging their own houses, and so on. No argument has been put forward by Mr Goldsmith on that front.

This is typical of this Government. It is 5 years since the global financial crisis, and we have had 5 long years of this Government, which has been very tardy to address issues in the financial sector and, certainly, where it protects small investors and small lenders. It seems not to be a priority for it at all. In fact, on that side of the House it seems to have rather a negative view towards small-business people. National members would much rather protect the interests of capital, the vested interests, those who already have the money—the 1 percent—and the people who are their financial backers. It is a real shame that National members are not interested in the broader prosperity of New Zealanders and the opportunities that are presented for New Zealand’s future in having every New Zealander succeed, having a country where all can live in dignity and make their best contribution. But that is National and New Zealanders are getting a little tired of it, and I expect that will be reflected in the next election. When a Government gets out of touch, when it has been here too long, the voters start to turn off and they start to ask what the alternative is, and we are certainly hearing that around the country.

This lack of oversight of the covered bond market is indicative, as I have said, of a Government that has got its eye off the ball and is in no particular hurry to protect the small-business people of New Zealand. This approach is already in place in the UK, Australia, Canada, and other jurisdictions, and has been in place for a long time. Opposing this legislation, if we were to do that on that detail, would see only further delays, and that is the point I would make to Mr Goldsmith, who seems strangely silent now. He is not responding in any way. In fact, he is almost invisible in this debate right now, I would suggest.

This lack of regulation is paralleled in other areas and it is unfortunate for New Zealand. The Crown Retail Deposit Guarantee Scheme was another scheme designed to protect a run on banks, designed to make sure that those creditors did not pull out, and designed so that we had secured lending for the country, and it is estimated that $500 million of taxpayers’ money was lost as a result of the Crown Retail Deposit Guarantee Scheme. This Government has failed—absolutely failed—to investigate it. It failed to have an oversight of that lending scheme, and the likes of South Canterbury Finance and others have collapsed because of dodgy lending. Likewise, other finance companies increased their loan books with dodgy loans of up to 10 percent because it was Crown guaranteed. That is taxpayers’ money that has been handed over to those lending companies. It has been handed over willy-nilly by a Government that failed to observe what was going on when it signed a blank cheque, gave it out to those companies, and said: “We will guarantee all of your lending.” Of course many people invested, but particularly those with interests that were not necessarily straightforward. Many ordinary New Zealanders invested their savings, got caught up, and got hurt, and taxpayers, as I say, have footed the bill for all of it.

This Government has steadfastly refused to investigate, and that is typical of the lack of oversight that we see here in this legislation—the lack of willingness to regulate in favour of the mum and dad depositors and to look out for the interests of those who mortgaged their own houses to contribute to our economy. We saw that with the collapse of Mainzeal Property and Construction. The large firms got out OK, but the subcontractors could not even get their tools off the building site. That is why I think that the proposals put forward by my colleague Clayton Cosgrove, the excellent proposals he has consulted on, around making sure that subcontractors get their dues when they are contributing to projects in New Zealand are well worth thinking about and well worth debating. I do not expect we will see much progress from this Government, which seems very disinterested in small business and the little guy who works to get ahead, or the woman or man who risks their own house in order to get ahead. There have been $6 billion worth of bonds issued over 2 years without any regulatory oversight.

So it is good that this is finally being addressed by this Government, albeit it is being done in a fairly tardy fashion. The point that Mr Goldsmith did not address was why these big lenders should be protected at a rate of 10 percent: why are 10 percent of a bank’s assets being run in this way as opposed to 4 percent in Canada or 8 percent in Australia. The arguments were not strong at the Finance and Expenditure Committee in favour of having a bigger protection for the big end of town in New Zealand than in those other countries. The Finance and Expenditure Committee chair, Paul Goldsmith, was content to let that slide through. Mr Goldsmith—

💬 Moana Mackey: The chair?

Well, subsequently the chair. There was another chair at the time. Mr Goldsmith is now the chair of the committee and, again, is very silent on the issue. As I look across the House I see no response—not even a glimmer in his eye can I see across the House.

💬 Hon Clayton Cosgrove: No, it was a glazed look.

A glazed look? I cannot see it now. I cannot even make eye contact with the man. He is absorbed in other things—probably a little bit ashamed of the legislation in its current form. But there we are.

The three elements of the legislation are a requirement that covered bonds issued by New Zealand banks be registered, subject to meeting registration requirements. It is a sensible step. We can see what is going on. We can make sure they are not exceeding the limit, even though it is rather high. The fact that there will be independent monitoring of covered pools by an asset monitor makes sense and the provisions to amend the Act to clarify the treatment of registered covered bonds in the event of issuer insolvency all make sense as measures in terms of the framework that has been set up. So we will be supporting the legislation. We have noted our concerns, our reservations about the level of covered bonds in New Zealand as opposed to those overseas jurisdictions, which seem more interested in growing new businesses and supporting entrepreneurs than in supporting vested capital interests, but that is the National Government. It is there for the 1 percent, to protect the capital interests of some of its mates. Even the big corporate interests are not safe; it is only the ones that have got the Prime Minister’s ear, it seems. We saw that with the casino deal, we have seen that with Bill English and Rio Tinto, and no doubt we will see that with Chorus.

It is only the ones that have the immediate ear of the leaders of the National Party that seem to be able to get the handouts as and when they wish for them. Not all big businesses seem to get the fair treatment; it is only some that are close to the National Party. That is something New Zealanders are growing increasingly tired of and something I hear over and over again in my electorate. New Zealanders are getting sick of a Government that does everything by deals and that is not prepared to regulate markets in good time to make sure that they are acting in the wider New Zealand interest. This is one of those examples here. We are glad that the Government has finally come round to regulating this sector, albeit in a kind of slightly haphazard way that it is not prepared to defend. But it is good. This is a Government that has got a terrible record on unemployment, which is much higher than when it took office. Real wages are worth less—

I am sorry to interrupt the honourable member.

I rise on behalf of the Green Party to speak to the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. The Green Party will be supporting this legislation, even though we have some significant concerns about it.

One way to think about this legislation is that it is kind of like the equivalent of raising the private debt ceiling for New Zealand. There has been a lot of debate in the United States about raising the debt ceiling for borrowing by the US Government. I think it is something in the order of US$16 trillion at the moment. Likewise, in Australia at the moment there is a very lively debate because the conservative Government over there wants to increase the debt ceiling of the Australian Government to A$500 billion, and the Greens have been resisting that, suggesting that it should be a lower debt ceiling of A$400 billion. But in some senses what the covered bonds bill does is that it regulates a sector that enables the New Zealand private sector economy to borrow even more. It regulates that kind of borrowing and essentially facilitates more borrowing.

So although this bill is a necessary step, and we will be supporting it for that reason, we should admit and recognise the underlying addiction to debt of the New Zealand economy that this bill is really a reflection of. Essentially, it is like raising the private debt ceiling for the New Zealand economy as a whole, because what it says is that New Zealand runs these huge current account deficits, it has this massive external debt—somewhere in the order of $260 billion now, in gross terms—and the plan looking forward is to increase the debt and to not pay our way in the world. That is this Government’s plan. The Government’s plan is to run very large current account deficits, currently in the order of 4.3 percent of GDP, which is the second-largest in the OECD after Turkey. So New Zealand runs these very large current account deficits.

In order to finance these current account deficits, we either borrow from offshore or we sell assets. New Zealand currently does a mixture of both, so we are slowly selling off our productive land into overseas ownership. Most of the large corporations have already been sold into overseas ownership. We can look at the banking sector for the obvious example of that, and in telecommunications it is a similar story. Then the other part of it is that we just borrow from offshore, and the banks are the mechanism, essentially, to do that. So the banks do most of the borrowing and then channel it into the New Zealand economy. What this bill does is regulate a part of the banks’ borrowing, the covered bonds section. So the banks borrow offshore, using these covered bonds mechanisms, in order to lend into the New Zealand economy and increase the debt of the New Zealand economy as a whole.

Yes, it is good that we are regulating this sector, but surely, alongside the regulating of this borrowing problem that the New Zealand economy has, we should also have a plan to get ourselves out of constantly having to borrow from offshore in order to pay our bills. Unfortunately, although this Government came into office—and Bill English said some really important things about trying to rebalance the economy, where he recognised this problem. He said that international debt is the central biggest threat facing the New Zealand economy—of course, it is the current account deficit that sits behind the growth of that international debt—and Bill English talked a lot about trying to get a balance put between the tradable sector and the non-tradable sector, so that New Zealand could trade its way out of its debt position. But as he has failed to achieve that goal, which was a very sensible goal, he no longer talks about it.

So when we look at the difference between the tradable sector and the non-tradable sector, what we are finding is that the tradable sector is continuing to flat-line in New Zealand, and that means that we cannot solve the debt problem. Because we cannot trade our way out of it, we are continuing to borrow offshore in order to finance this debt problem we have. Once we say: “OK, there’s no plan from the Government to get ourselves out of increasing our borrowing and increasing our foreign debt”—in fact, the Government has a plan to increase the debt—“and if the Government’s plan is to increase the debt, then what we need is a mechanism to regulate and facilitate this dramatic increase in debt that the New Zealand economy is loading up.”, and that is what this bill does. This bill provides a way in which the banks can go to the offshore lenders and say: “We want to borrow more money to loan into New Zealand, but in order to do that, we will give you first bid on home mortgages in New Zealand.”

So if one of these Australian-owned banks that are operating in New Zealand goes belly up, it will be the foreign lenders that get the first bite of the cherry at the carcass of the Australian bank when it rolls over. It is on that basis that the foreign lenders will keep lending into the New Zealand economy. I mean, that is the fundamental principle that sits behind the covered bonds bill. It means that if one of the Australian banks goes belly up and you are a depositor in that bank, you will not get your money until the foreign lender gets its money, because it is essentially first in the queue as a result of this bill.

That has a certain logic to it because we are trying to facilitate the constant flow of foreign lending into the New Zealand economy, and this bill provides a way to facilitate that and tries to decrease the cost of that lending by providing security to those overseas lenders, but what it means is that depositors in New Zealand banks are now not at the front of the queue. It is the foreign lenders who are at the front of the queue when it comes to getting access to the assets if one of those banks goes belly up. You might say: “Well, if we are a country that is constantly borrowing, this is just what we have to do.”, and there is a logic to that. I appreciate that, and that is why we are voting for the bill. But, surely, this should make us look at our economic strategy as a country and say: “Well, isn’t it funny that we are sitting here today in Parliament in order to pass a piece of legislation to make it easier for us to increase our borrowing from offshore?”. Should that not make us think: “Is this really a sustainable strategy for New Zealand as a whole, to constantly run very large current account deficits”—the second-worst in the OECD—“and use all that offshore money to finance the New Zealand economy?” Is that a sustainable economic strategy for our country? We finance a current account deficit by borrowing, which this bill will facilitate by enabling more borrowing, and we do it by selling assets. Is that really a sustainable strategy?

Of course, you could keep doing it for quite a long time. We know that. New Zealand has run chronic current account deficits. So, you know, the Government says this when we press it about it. It says that New Zealand has run a current account deficit for a long time, and that is true. You can keep doing it because we do have significant assets. We have still got a lot of land we have not sold off—probably about 90 percent of the land is still in New Zealand ownership. We still have some large corporates that have not been sold off, but most of them have been. We still have some facility to borrow further. As we are seeing with this bill, we can borrow more money from our offshore lenders, and they will keep doing that for a while because we still have some space to borrow more. But is this really where we want to go?

Do we want to say that what we are going to do is max out our ability to borrow cash from offshore, using things like this bill—we are going to max the credit card out, we are going to sell the house, and we are going sell off as many assets as we can in order to fund our current consumption? Because that is what we are doing as our economic strategy as a country, and we have now done that for a couple of decades. In order to fund current consumption, we are selling off our assets and borrowing from offshore, and this bill is the next logical step in that economic strategy, by facilitating this offshore borrowing.

I would argue that this is not a wise strategy for our country. What we need from our Government is a clear, clear strategy for how it is going to get us out of this position. The Greens have put up various proposals on exactly this issue, and it is the focus of our economic policy to rebalance the New Zealand economy. The Government made certain noises in that direction, but so far it has failed to deal with the underlying problems. But this bill surely should be a moment when we look at ourselves and say: “Why are we standing in this House passing a bill in order to make it easier for us to borrow billions and billions more from offshore?”. Surely, that should be a moment to stop and say that our economic strategy is not working. When our economic strategy relies on offshore borrowing and selling our assets every year, for year after year after year after year after year, this is not going to have a happy ending. At some point our offshore creditors are going to either dramatically increase the cost of borrowing for the New Zealand economy or start actually restricting our access to credit. At that point there will be a significant adjustment.

I would argue it is a much more sane strategy to start to make that adjustment ourselves now so that we can get out of the hole we are in, rather than leave it up to our creditors 10 years down the track who are going to make that adjustment for us, because they will do that. That is the real choice we have.

What this bill does is it puts off the day when we have to make that choice, because it says: “Well, we’ll facilitate these creditors lending us more money by giving them first dibs on the assets of the banks”—which are the home mortgages—“and then the foreign lenders will lend us more money.” OK, that is true. It does put off the day of reckoning. That is true. But to think that this solves the underlying problem is, I think, extremely foolish. If the Government does not realise that, and it does not seem to, then we have got a problem and the Government needs to change. Actually, we need to deal with that underlying problem as reflected in the current account numbers and as reflected in the gross external debt numbers. This bill does not do anything to do that. It simply enables us to keep borrowing. Thank you.

I rise to speak to the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill in its third reading. It is a bill that enjoys universal support, but you would be forgiven for not thinking that if you listened to the Opposition grumbling on.

We have, indeed, heard a lot of stuff and nonsense from the Opposition parties. In a manner of speaking, they want to reinvent the wheel. When it comes to—let us just take one aspect—the Reserve Bank, they want to broaden it out and remove the independence of the Reserve Bank. It has served us well for three decades. Leave it as it is.

Labour members, particularly, seem to be under the illusion that is going to be a body that will generate a lot of income, that those members would be able to change interest rates, and that the Reserve Bank in a changed role would mean a changed economy. That is, of course, wrong and delusional, like much of Labour’s policies.

I guess, you know, that when you look at what this bill does—and it enjoys the widespread support of the House—there is not a lot more to be said. Peddling the old arguments would just be a waste of the House’s time. So, without further ado, I commend this bill to the House.

It is a great pleasure to take a call following the member for the North Shore, Maggie Barry, and the amazing amount of information she provided to the House in that, once again, very short speech from the member for the North Shore.

We still have not heard the answer—despite it being asked in the Committee stage and by speakers in this third reading, we do not have the answer—as to why the 10 percent figure was chosen, while Australia has 8 percent for the covered bonds market. In the likes of Canada it is 4 percent, and other jurisdictions around the world range between that figure of 4 and 8 percent. We still have not had the answer. We have had members of the Finance and Expenditure Committee, including Paul Goldsmith, the current chair, and other members of the committee, including Maggie Barry, and yet not one of them has answered the question. It is somewhat surprising that in the House of Representatives, where quite clearly it is a pretty black and white situation—why has New Zealand adopted a 10 percent ceiling? The officials are sitting over there. I am sure they know the answer. I am sure they would love to give us the answer. It is probably a very sound and solid answer. It is probably a justifiable answer, but we still have not been given the answer.

Now we have got the Hon Gerry Brownlee in the House. Perhaps the Hon Gerry Brownlee has come along with the answer. Maybe he has been researching it all morning, working out why it is 10 percent. He has probably been sitting up there on about the sixth floor of the Beehive—

💬 Hon Gerry Brownlee: Oh, seventh.

Oh, you are on the seventh floor, Gerry? And he has been ringing through to Bill English’s office, saying: “Bill, why is it 10 percent?”. And Bill says: “I don’t know, Gerry. I wouldn’t have a clue why is 10 percent. It is 10 percent.” And Gerry says: “Well, I am going down to the House shortly, and I should know why it is 10 percent, because I hate going the House and not being able to answer the question.”

With Gerry Brownlee being the Leader of the House, I would have thought that he would have done his homework. He would have been up there on the seventh floor, and he would have heard this debate. He would have been riveted to the television all morning, and he would have said: “I am going to go down there and I am going to go explain all. I am going to explain all. I am going to tell New Zealand and I am going to tell the large viewing public out there in New Zealand why the Government has selected 10 percent, while Australia is 8 percent. I am going to explain why, when in so many other legal areas and financial areas where we try to harmonise with our big cousin over the Tasman, we have selected 10 percent rather than 8 percent.” Why are we giving preference to international investors to get 10 percent—get their claws on 10 percent—of the funds of any financial institutions in New Zealand, should they, heaven forbid, go belly up, unlike in Australia, where they would get their claws on only 8 percent, or in Canada, where it is only 4 percent?

I think it would be a great shame if this bill does pass—and it is going to pass, because it has unanimous support from parties in this House—and if the very learned Gerry Brownlee was not able to answer that simple question, and this goes into the annals of history as being a mysterious figure that was plucked from the air and put into an Act of Parliament, but it was never answered and it was never actually determined as to how the figure came to be. But, like so much legislation put through by this Government, it was probably done with a dartboard, or, you know, with a flick of a coin. The Government probably tossed a coin and said: “Oh, shall we make it 6 percent? Shall we make it 8 percent? Shall we make it 10 percent? Oh, let’s toss a coin.” So much of the legislation that is brought before this House by this Government often does not have the facts behind it.

You know, the Government told us that the sale of the shares in the mixed-ownership model would mean we would end up with all these New Zealanders owning the power companies and Air New Zealand. And how many—was it 2.5 percent of New Zealanders who now own those shares, whereas before it was 100 percent of all New Zealanders? Everyone in this room and every New Zealander out there had 100 percent ownership of those power companies. Now half of those power companies, or 49 percent of them, are owned by a miserable 2.5 percent of the elite people who can afford to go out and buy the shares in those power companies. The same has happened with Air New Zealand—

💬 David Bennett: Winston bought some.

The same has happened with Air New Zealand this week, Mr Bennett. Again, we all have pride in our national airline. We get on the national airline and we say: “It’s ours. It’s great.” You know, we owned over three-quarters of it. It is our airline. Now you get on it and say: “Oh, well, we own 53 percent.” The other 47 percent could be owned by anyone—could be owned by anyone. It is a bit like the power companies now. BNY Mellon bought 8 percent of Meridian Energy. Is that not shocking? Suddenly, they are in New York—probably an old mate of John Key’s who was a banker in New York, I would say. He probably got a phone call and said: “Hey, there’s a good deal coming up here in New Zealand.”, and the banker said: “Oh, thanks very much, John. Here—we’ll be into 8 percent of that. That’ll be great. Thanks for the tip. Thanks, mate. Next time you’re in New York, I’ll buy you a bottle of ‘Bolly’.” I am sure that is probably how the conversation went.

This is what happens with all these deals with the National Government. It is happening all the time, because people—the favoured few, the ones who get tapped on the shoulder by the National Government—benefit, while the rest of good old average Kiwi New Zealand suffers. Good old Kiwi New Zealand suffers. As a fifth-generation New Zealander on both sides—on my father’s side and my mother’s side—can I just say that I am getting heartily sick and tired of seeing our country being sold down the river. Quite frankly, you know, my parents, my grandparents, and their parents, going right back to the 1840s in New Zealand, did not spend all their time helping to develop this country over many generations for this one generation—this one generation with Gerry Brownlee, Steven Joyce, John Key, Bill English, and their ilk—to sell off all the hard work of my parents, my grandparents, and their parents and parents before them. It is disgraceful, and this generation will always go down as the one that sold the wealth of New Zealand down the river for the benefit of the 2 or 3 percent who could afford to be participants in it.

In closing this speech, New Zealand First will support the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill because New Zealand First supports any legislation that has merit to it in terms of improving our financial systems. We have been strong opponents of the loose financial arrangements that saw 61 institutions in this country go belly up in recent years, which saw the likes of South Canterbury Finance taking more deposits in 6 to 12 months without the Minister of Finance or Treasury or anyone keeping an eye that it was taking more and more deposits, and it could not cover them. That situation cannot be allowed to continue.

So this piece of legislation is a small part of the overall framework to try to improve the financial securities in this country to ensure that we do not operate a cowboy, Wild West financial system, and to ensure that as a result there is more security for those investors, including international investors coming to New Zealand, and that we are not seen as a Third World financial place. So New Zealand First will be supporting the bill.

I just want to take a short call. The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill has got very strong support amongst members of the House. It is a good bill, which is in the best interests of New Zealand and the economy. Unfortunately, the last speaker, Andrew Williams from New Zealand First, and the Greens speaker, Russel Norman, tried to put their slant on it with their economic histories, but those were inaccurate speeches. This is very good bill, and we look forward to it progressing.

Tēnā koe. I saw the member David Bennett recently at a sporting event in the great Waikato. It was probably a place that I would not be encouraged by my colleagues to go to—it was the boxing. But we are not boxing today with the Leader of the House, Mr Brownlee. I am sure that at the moment he is studying the boundaries that have come out from the Representation Commission.

Anyway, let me come back to the bill, the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. We stand and support this bill. I want to actually follow up on what the co-leader of the Green Party Russel Norman had to say. The co-leader of the Green Party was pointing out that this bill ranks international lenders’ interests above those of depositors. He also pointed out that it kind of makes it easier for us to stay on the trajectory that our small island nation State of 4.2 million people and $180 billion GDP is on—i.e., we are too reliant on international capital for our banks. It is mediated through the banks, which are, after all, intermediaries, into a housing market that is killing our dollar. That has become so expensive that we cannot get the next generation into a level of housing either that they can afford or that suits their aspirations.

It is actually a compelling argument that Dr Norman puts forward, but the challenge that I am always left with is, OK, what actual remedies is he offering? I know the remedies on this side of the House, and to a certain extent they are shared by that side of the House. We are probably a lot more aggressive in saying that it is important that we engender a greater level of enthusiasm amongst households and, more important, provide support to those households to amass an indigenous body of capital, for want of a better expression, that over time lessens our reliance on international capital. But as long as the banks and, dare I say it, perhaps other financial entities are relied on to meet the shortfall of what we, as depositors, are able to contribute, those international lenders are looking for not only regulatory certainty, as I spoke about before, but a greater degree of protection. I cannot see how we can wriggle out of that at the moment.

We do have a set of policies that are designed to change the structure of the economy, unlike our colleagues on the other side of the House. I suppose I have learnt over the last 5 to 6 years that there is a greater belief on that side of the House that the market will solve all of these pitfalls, whereas on our side the reason that we are prepared to back the bill is not only a recognition of macroeconomic reality but an awareness that if you are getting people to take the risk and put their dough into various enterprises, they should have some greater sense of recourse.

We need to ensure, though, that we never lose sight of what Dr Norman was also saying: what are we doing as parliamentarians? What are we doing as businesses or, indeed, as a Government or, in this case, a shadow Government to engender a greater level of commitment to save and to reward that? One thing we must not allow is the ongoing slipping away, the ongoing leaching, the ongoing loss, the ongoing spiriting away of far too much wealth out of the country, without internationally owned entities—obviously, the banks are at the front of the row in that regard—meeting their fair share of the tax obligation in New Zealand. If it is good enough for them to go internationally, raise capital, and bring it to New Zealand for people like me, our families, etc., who are reliant on it, it is also good enough for them, as they derive the profit from what passes as the New Zealand business and residential community, to accept the obligation, which comes with operating in a modern economy, of actually paying their fair share.

I certainly look forward to joining forces with Dr Norman next year and making a major issue out of that particular challenge. Whether or not we are capable in terms of how our tax collectors are currently reconfigured is another matter. But we all believe that it is necessary—and banks should be particularly knowledgable about this—that we pay our fair share.

Let us just go back and touch on one or three things in respect of just reminding ourselves why we are doing this. In the end it is cheaper for an entity such as the BNZ bank to raise its capital internationally via these instruments. As I said earlier, I have no doubt in my mind that BNZ has got very sophisticated computer modellers ensuring that it does not get the dollar wrong. It is one thing to bring capital back in, but if you have not covered the cost it is going to impose upon you to get it out as you repay it—therein lies many a tale that currently afflicts dairy farmers and has blighted the fishing industry in the past.

Are we confident that the independent monitoring is adequate? Well, we have an independent monitor at the moment in the broad commercial sector called the Commerce Commission. The current Government is not confident about or respectful of that particular independent monitor. Any doubts about that would be allayed by the capricious way in which the Government announced that it was going to slash the commission’s current powers in order to reward the narrow cast of shareholders in what is now a small business, formerly a big business, otherwise known as Chorus. It was going to give Chorus a greater degree of protection and gouge out of you and me, the consumers of the broadband services. So that is an example of how, if you put into legislation or if you posit upon a particular agency the responsibility of independent monitoring by an asset monitor, you must be consistent.

There are a few entities that escape the grip of the institutional monitoring function that touches the broad swath of our economy, not the least of which are the shipping lines. In addition there are a special set of concessions that were dreamt up in the time that the Labour Government enabled the dairy industry to create Fonterra, something that it consistently disregards—at its peril, I might say. That is something else that will be dealt with at the end of next year.

It is important that we challenge ourselves as parliamentarians and, in this case, the other side of the House. When you have these entities, these agencies undertaking these independent functions, do not play fast and loose with them. Do not change the law and do not monster them in order to reward a narrow range of vested interests, which we have seen most unfortunately over the last few weeks, although I get the sense that saner minds are prevailing and that there is an awareness that you cannot run a modern economy unless you protect the role of such institutions. Those institutions also have to be accountable. They have to measure up to the fact that—as, indeed, the Governor of the Reserve Bank is learning to accept—you may at one level be independent, but at another level you have obligations and you have a responsibility to educate, inform, and communicate. So I look forward to hearing that the entity that is going to be charged with the responsibility does not fall into the bog that seems to ensnarl the current Commerce Commission. That is nothing to do with us; it is more to do with the attitude of the other side of the House.

To return back to the base proposition of why we are going to support this thing, we realise that we are reliant on overseas lenders. We realise that it would a fantastic transformation to effect under our approach, with the leadership of our current shadow Minister of Finance and our shadow Prime Minister, Mr Cunliffe. If we want to reduce over time the reliance, we need to husband our own domestic resources. We need to reward people for doing that. We need to ensure that the tax system does not penalise people in terms of going without now in order to enjoy something in the future, so it does not represent an impossible burden in terms of future generations.

I am talking here not only of the fiscal discipline needed; I am talking not only of a reliance on international capital, but of our ability to care for ourselves. This is why it is very, very important that we manage the transition, so that we have got access to overseas funding at competitive rates, but at the same time never lose sight of the fact that this generation of New Zealanders—i.e., those of us born in the 1950s and 1960s—have an obligation to ensure that when we agree to pieces of legislation like this, we never lose sight of the fact that we have to pay our own way. Kia ora tātou.

I am in favour.

The Labour Party, aware of the caution that is needed around this issue, does support the bill, the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. As earlier speakers have said, one of the problems in New Zealand is that covered bonds, which create a class of deposits that are lent to New Zealand banks, give the people who have the benefit of that covered bond a preferential interest in the assets of the bank in the event that it goes broke. The amount that is left for people who are outside that covered bond arrangement is less, and they wear a more than proportionate share of the loss in the event that there are not enough assets when the bank is wound up to cover the amount that has been deposited in the bank. The problem we have got in New Zealand at the moment is that that is allowed to happen, but it is an unregulated activity and the Reserve Bank has not had a direct tool to control the level of those covered bonds. So, on balance, we in the Labour Party accept that it is necessary to regulate covered bonds so that there is a clear limit on the amount that can be covered, ahead of other unsecured depositors in the bank.

I agree with Russel Norman that it is unfortunate we have got to the point in New Zealand that we are so reliant on foreign capital that we have had to legitimise covered bonds and create this differential between the rights on wind-up of those who have the benefit of covered bonds, compared with those who do not. I also agree with the Hon Shane Jones that the long-term key to overcoming this and perhaps backing out of covered bonds is having a more effective New Zealand economy. The capital part of that is reliant on increases in productivity—sorry, I should not have said it in quite that way. All of the factors of achieving that better economic outcome are interlinked, but an important part of achieving the increase in productivity and increasing the wealth that we need is to improve the pool of New Zealand investment capital that is going into the productive economy.

The two most important ingredients of that have been completely ignored by this Government. The Government refuses to make KiwiSaver universal—a compulsory scheme like they have in Australia, which has stood them in good stead. Indeed, no one should forget that National railed against KiwiSaver, voted against it, and has tinkered with the details of it since it came into Parliament as the Government in 2008.

💬 Hon Shane Jones: And the Cullen fund.

KiwiSaver needs to be made universal. National does get all these big calls wrong, when it comes to the long-term wealth of our country. As Shane Jones has said, National also ceased contributions to the Cullen fund at a time when borrowing rates for Governments were at historic lows and it was obvious, following the clean out in the global financial crisis, that returns on equities in the future from that low base would be higher than the Crown cost of funds. Despite that, Bill English ceased contributions to the Cullen fund, and as a consequence that fund, or the New Zealand Superannuation Fund, as it is more properly called, is some billions of dollars smaller, both in terms of contributions that were not made to it and also earnings that would have been made in addition on those contributions. So that is the second bad call.

The third one that impacts upon this is not getting the tax signal right, so that we encourage too many people in New Zealand to put their investment money not into a bank deposit or into a share, both of which can improve the productive economy, but into residential rental investment, which drags money out of the productive economy—

💬 Dr David Clark: Too many vested interests.

—and also at the same time increases the demand for money to come from offshore into New Zealand banks, to feed that appetite for more borrowing for mortgages. As Dr Clark just intervened there, one of the reasons they do that is that they are determined to protect the vested interests of those who do not want the relative value of property assets in the rental market to change relative to the value of investments in the productive economy. They are happy to continue preferring the interests of speculators over the productive economy, and as a consequence we have just had another report to show that New Zealand does not get as much in terms of returns from tertiary education because we do not invest enough capital in our productive enterprises.

All of these problems are interlinked. This bill, in so far as it goes, is a bill that we are supporting, but it does not cure the underlying problems that have led to its need.

I support this Reserve Bank of New Zealand (Covered Bonds) Amendment Bill.

Bill read a third time.