State Sector and Crown Entities Reform Bill

The bill in question, the State Sector and Crown Entities Reform Bill, provides for greater integrity and accountability in the management of the wider State sector. It strengthens—it will, I hope—the public’s trust and confidence in Crown entities, which are often the face of the Government and often deliver vital public services to New Zealanders every day. It will ensure that Crown entities remain aligned and connected with the State sector, and it will bring more consistency to the regulation of conduct and remuneration of employees at the most senior levels of the wider Public Service. New Zealanders rightly expect Crown entities to act responsibly, in the public interest, and be good trustees of public resources. Crown entities are public organisations operating, for the most part, with public money for the public good.

Part 1 of the bill makes two key changes to the Crown Entities Act. It requires boards of statutory Crown entities to obtain the State Service Commissioner’s written consent to the terms and conditions of employment of a chief executive, and it introduces terms of appointment for up to five years, able to be renewed for future chief executives of statutory Crown entities. Currently, Crown entities must consult with the commissioner of State services when they’re establishing the remuneration of their chief executives. If they cannot reach agreement with the commissioner of State services, they then must consult with their Minister. If they still don’t like the advice they receive from the commissioner and then from the Minister, they can, basically, set the salary at whatever they like, and we have seen examples in recent times of Crown entities acting against the wishes of the State Services Commissioner and against the wishes of their Minister when they have been setting chief executive salaries. They’ve certainly been setting those salaries well out of step with the wider public sector, and they have been setting them well out of step with what the public of New Zealand expect from public entities.

This bill brings the Government, through the State Services Commissioner, a greater ability, greater levers, to deal with that issue. Ministers on both sides of the House, and the commissioner, have repeatedly expressed their concern around the way the law is currently operating, and I’m very pleased to say that this Government’s going to actually do something about it by bringing legislation through the House relatively quickly to deal with the matter.

A more prescriptive regime already applies to some Crown entities. For example, the 20 district health boards and 26 tertiary education institutions are already subject to greater control. This legislation extends out broader to an additional 22 Crown agents, 14 autonomous Crown entities, 10 independent Crown entities, and four Crown entity subsidiaries, which then means that they will also need to seek the agreement of the commissioner in setting the salary for their chief executive. That will allow us to ensure that there is greater consistency in these matters right the way across the Public Service.

The second major change it does is specify a term of employment for a chief executive. Under the current Crown Entities Act, there are no specific references to a term of employment for Crown entity chief executives. This is out of step with the 31 Public Service chief executives and 26 tertiary education institution chief executives, whose legislation provides for five-year terms that are able to be renewed. It also changes the New Zealand Public Health and Disability Act so that this provision will apply to the chief executives of district health boards and other health sector Crown agents, and this brings them into line with the public sector and tertiary education institutions.

💬 Boards: under the current rules boards are often responsible for chief executives that they did not appoint and whose terms and conditions of employment they did not agree to. By moving to a five-year term that is renewable, it will give the boards greater decision-making power and ultimately make the chief executives more accountable to those boards who they report to. It enhances the accountabilities of chief executives, and it’s important to note that this will only apply to appointments or reappointments of a chief executive after the Act comes into force.

The bill makes two key changes to the State Sector Act. It enables the State Services Commissioner to apply a code of conduct to the board members of the entities that are subject to a code of conduct, and it modernises the commissioner’s investigation powers by aligning them with the Inquiries Act 2013. A code of conduct issued by the commissioner cannot override or interfere with any statutory duties of board members or with the statutory independence of the independent Crown entities.

The commissioner’s main powers of investigation beyond core Public Service departments come from the Commissions of Inquiries Act 1908: the power to summons witnesses and receive evidence. The commissioner has other powers in relation to the Public Service departments—for example, to inspect, to investigate, to obtain information, to enter departmental premises, to examine documents, and to question staff. The Prime Minister can direct the commissioner to exercise those powers across any part of the State services. A Minister or the head of any part of the State services can request the commissioner to exercise some of these powers but not the power to enter premises. The commissioner has extensive powers to investigate, but what powers are available in the wider State services depends on who asks the commissioner to act. Therefore, it is becoming a very cumbersome and difficult web in order to navigate.

The Parliament recently passed a new Inquiries Act. This bill brings the commissioner’s power to investigate in line with the Inquiries Act and means that the commissioner’s powers will be consistent, regardless of who is asking for the inquiry to be undertaken. So it will ensure that the commissioner can better do their job to investigate any impropriety within the wider public sector, including Crown entities. We’ve seen an example just recently where the commissioner was asked to undertake an investigation regarding a district health board, for example—their powers derived from those conferred, effectively, by the Minister. What this will do is it will mean that the commissioner has a consistent set of powers that will allow them to ensure that public sector agencies, whether they be Crown entities or core public sector departments, are actually subject to all of the accountability that we would rightly expect them to be subject to.

So the bill makes three changes. That is, it replaces the use of the old Commissions of Inquiries Act 1908, which I’ve just mentioned, with the substantially similar powers in the Inquiries Act of 2013. It provides a uniform trigger to enable the commissioner to use the full suite of investigatory powers in the wider State services. All of the commissioner’s powers will be available irrespective of whether the commissioner is directed or requested to act by the Prime Minister or a Minister or the head of any part of the State services. It enables the commissioner to use the full suite of investigatory powers under the commissioner’s own motion for investigations into matters of integrity and accountability. In other words, it allows the commissioner to adequately do the job that the commissioner has been tasked by the Government and by the Parliament, through the State Sector Act, to do and to do it properly.

Collectively, the package of amendments that this bill proposes provides for a single integrated approach in the State services that is underpinned by integrity, transparency, and accountability, all of which affect the public’s trust and confidence in the Government. I commend the bill to the House.

Just before I call the next speaker, can I make it clear that the Hon Chris Hipkins is the Minister in charge of the bill and, therefore, that is counted as the first speech, even though the Hon Andrew Little had 20 seconds late one night.

Madam Deputy Speaker, thank you very much. In respect of this bill, the National Party—the largest party in this Parliament—will be supporting it to first reading, but we will be paying a lot of attention, come the committee, to make sure that it is a worthwhile and worthy piece of legislation. But, I must say, I am a little surprised to be speaking to this bill so soon in the term of a new Parliament and, indeed, of a brand-new Government. I had a little look at the things that people campaigned on last year, and didn’t see this high up on the list. I’m quite worried that this piece of legislation, being delivered so very, very early during the term of this Parliament, is really an indication of things to come or, more to the point, things not to come, because I’m not sure this is the number one issue that New Zealanders are grappling with. It’s certainly probably not the number one issue that New Zealanders thought of when they cast their vote—just 7 percent of them for New Zealand First, for instance, or less than 7 percent for the Green Party—about five months ago.

But what’s most interesting is that the State Services Commissioner was already working on many of the ideas that are now contained in this piece of legislation. So when the Minister responsible suggests that no other Minister has ever done anything about this, well, gee whiz, there must not be a lot going on over in that office, for his researchers and staff to be digging up such real pearls. Because if we go and have a look back not only at Hansard in this Parliament but, certainly, a lot of press coverage during the course of last year, there was a lot spoken on some of the issues that are contained in this legislation. Indeed, our then Prime Minister was quite vocal about one of the issues, which possibly is covered by this. So a conversation with the State Services Commissioner meant that they started that piece of work, and the Minister knows that the work was started long before he got there.

Having said that, there are some issues that are important to deal with in the goodness of time. I’m glad that such importance has been placed on this by the new Government that they’ve decided to prioritise it, as opposed to many other things that they’ve been speaking of. When it does come to committee, we will be wanting to have a very close look at it and make sure that the detail of what’s in it will actually work.

There is one word of caution though, I suppose, that’s very important. Now the taxpayer absolutely has the right to expect openness and transparency, particularly when it comes to State enterprises and the pay or conditions agreed for their CEOs, but we must also make sure that in the provisions that are put here—the board of an enterprise must get the explicit permission of the State Services Commissioner. Where that cannot be reached, it’s the Minister that must intervene and decide. We must be very, very careful here that, actually, the Minister’s responsibility does not move into the area of the competence of those boards, because, actually, the role of the Minister is very different than that. The Minister gets to direct the boards, make decisions around that, but actually shouldn’t be making the decisions of the boards.

The second thing is that, whilst we want to make sure we get the very best person or people that we can to run a number of these agencies, we need to make sure, actually, that a desire on the part of the Government to show that they are in touch with New Zealanders doesn’t get in the way of the very best people being there. Some of these organisations are very large, most certainly very complex, and, in many cases, the State Service will be in competition with the private sector for finding the best person to deliver for them.

I know we haven’t had mention of it but we need to be careful that the legislation doesn’t become a witch-hunt for a few CEOs, and, particularly, whilst it’s important we consider the pay scales of some of them, if we look at the New Zealand Superannuation Fund, they absolutely—absolutely—must have independence from Government and from Ministers, and, secondly, they must seek the very best people they can to run those organisations to make sure the billions of dollars they are entrusted with on the part of the New Zealand taxpayer are well managed and that there’s a good return there. So we need to be careful, again, that it doesn’t just become a witch-hunt or a political sideshow.

But we will be supporting the first reading and then, based upon submissions and that process, will decide the position of the National Party thereafter. Thank you.

Thank you, Madam Deputy Speaker. In direct reference to the previous speaker, Todd McClay, I’m very pleased to hear that the National Party is supporting this bill to select committee after the first reading. Absolutely, he made an important point around getting the right person and the best person for the job, and surely he would also—and I hope that his party would—agree that getting the best person for the job requires that they act responsibly and that the entities that they represent behave responsibly.

I want to go directly to the trust and confidence aspect of this piece of legislation, which is the crux of why it’s being introduced. I want to refer members to the 2017 Acumen Edelman Trust Barometer, which is part of an international report. It’s the New Zealand version of that report, but it’s the international report that goes to the trust and confidence that citizens have in their society, whether it be business, whether it be Government, whether it be NGOs, and it looks at the changes, positive or negative. The 2017 report disturbingly showed that in New Zealand there was a growing gap in confidence by the majority of the population—a 20-point gap, which was an eight-point increase in that year, in 2017, which is very disturbing and on a par with other comparable countries, but at their very upper level. What that indicates is that the trust and confidence that citizens have in their society—whether it be business, whether it be the public sector, the people that represent them, and the community sector—is not increasing; it’s decreasing. That is very disturbing.

One of the things that this report talked about—this is in reference to the previous speaker, with his comment about getting the best person for the job—is the actions that business, and, by implication, the Public Service, can take that would most damage trust in a better future. Number one on that list is paying executives hundreds of times more than workers. That’s number one. And if you translate that into the public sector, those behaviours of extraordinary pay increases where the ordinary citizen looks at that compared to what they earn and sees a massive growing increase in the people at the top of Public Service entities, and they see that happening and continuing to happen, that is one of the key reasons why trust and confidence are decreasing.

That is why this Government is putting a stake in the ground around trying to improve trust and confidence, being open and accountable about how these practices occur, the basis on which they occur, the rules that underpin them, providing consistency. And that is the critical nature of this piece of legislation—that it’s providing consistency for Crown entities from other parts of the public sector. It could be recommended at select committee that it goes even broader, and perhaps even includes Crown-owned companies in its ambit, and I’m looking forward to seeing what discussions and what submissions are provided at the select committee.

But, ultimately, this piece of legislation is about consistency across the Public Service in terms of providing a comparable process for how pay increases occur at the very top. It’s about fairness, it’s about showing responsible government, and, as my colleague Chris Hipkins referred to, it’s about integrity and transparency and accountability of government. Those things are critical to close that gap, that 20 percent gap that’s grown in the last year of 8 percent, so that citizens are feeling as if action is being taken on the things that they are the most cynical about.

The members on the other side can laugh and chortle all they like, but the visibility of very high increases, whether it’s in the public sector or the private sector—the perception of that is that the 1 percent, the people at the very top, are getting huge increases while the ordinary people are struggling.

There was a report that was produced by the State Services Commissioner, Peter Hughes. The Senior Pay Report, covering State sector bosses’ pay in the year to June 2017, identified three Crown entities as being of particular concern. I think that it, very wisely, had the point of principle that has led to this piece of legislation and that led the Minister of State Services to look into this. It was to look at the closing of the gap between the high-income earners and the low-income earners, and the public sector should be leading by example. That is the hallmark of a responsible Government and of a Government that’s going to be more transparent and accountable, that will show more integrity, and that will build that trust and confidence with the citizens.

It was backed up by the Prime Minister’s comments that Crown entities that did not have to follow the advice of the State Services Commissioner were, effectively, not answerable to anyone. Now, as a citizen of New Zealand, if you see entities that are, essentially, out of control and that are not taking the advice of the head of the public sector, and where the head of the public sector is not able to have more requirement powers—which is what this bill introduces—then the perception is that things are out of control, that there’s no chance of fairness. There’s less chance of fairness in our system and it’s, essentially, a bad look.

That is the essence behind this bill. That’s why it’s responsible. That’s why it needs to be introduced at this time in our term, because it’s a hallmark. If the Opposition doesn’t get that, well, that’s because they just simply don’t understand why trust and confidence are actually important. I think that that is the crux of this issue. The Opposition just doesn’t get why this Government talks about trust and confidence and why it talks about more accountability.

💬 Brett Hudson: Because it doesn’t want to do anything—that’s why it talks about it.

Ha, ha! So I’m proud to support this bill and to emphasise that this is part of a wider agenda for change across the public sector to build trust and confidence and to provide more consistency of practice. The State Services Commissioner requirement powers that are contained in this piece of legislation are responsible. They reflect best practice. It’s widening those powers, from where they just have to consult when advice is provided, and I commend the bill to the House.

Thank you, Madam Deputy Speaker. It’s a pleasure to rise in support of the State Sector and Crown Entities Reform Bill in this, its first reading. It’s interesting that we should be debating this today, at this point in this term. I would like to acknowledge that this bill, which we will support to first reading, is going to one of the harder-working and more competent select committees, and, to paraphrase the old Toyota ad, of course I would say that.

But it’s quite remarkable for a couple of reasons. The first one is it is not something that the now-governing parties actually campaigned upon in that election that was only a few months ago.

💬 Hon Shane Jones: I raise a point of order, Madam Speaker. Can I direct you to consider the remarks, as the member isolated only one select committee as being competent, and the suggestion that others, where members of the public are taking their submissions, lack competence. Please correct that delinquency.

Speaking to the point of order—

💬 DEPUTY SPEAKER: I don’t need any further assistance.

—I did say “harder-working”, not “hardest”.

💬 DEPUTY SPEAKER: I did take it that there was a comparison, and there was some conflict of interest expressed by the member, as he is a member of that hard-working select committee.

Thank you, Madam Deputy Speaker. At least I acknowledged that conflict of interest. So it was something that wasn’t campaigned upon last year, but even more interesting is that of all of the great visions they claimed and all of the great issues that sit upon New Zealand, this bill, which is something that is, in the context of all of those great ideas—those supposed great ideas—is actually quite a small matter and one that pertains to be of some public interest, but to quite a small number of individuals. It’s quite interesting that it should hit the Order Paper now.

The public can, and will, take from that that this is a Government that, just a few months ago in Opposition, had a whole lot to say about what it wanted to do, but it had done absolutely no preparation to get ready for actually being in Government and doing work. So what we have instead is them working on initiatives that the previous Government had already put in train, because it has been acknowledged, and it is a simple fact of the matter, that the previous Minister of State Services had asked that the processes be reviewed by the State Services Commissioner, including, and particularly, around chief executive pay.

So it’s quite interesting that on 12 February, in the post-Cabinet press conference, the media asked the Prime Minister—and I quote—“Was any of the work on this legislation under way under the last Government? Prime Minister: “Well, I don’t think it was [then] in train, was it?” Hon Chris Hipkins: “I don’t think so. This was something that we picked up fairly early on in [the] broader discussions”. Well, the public’s going to have to wonder if that particular terminological inexactitude was deliberate.

It just actually shows the public that the Government has no substance and no work of its own, and, instead, it is seeking to raise its own reputation in the eyes of the public by claiming the work that the previous Government had undertaken as work of its own. Well, in actual fact, the work the previous Government had undertaken are examples of the only decent things that this new Government has brought to the House. But I do commend this bill to the House.

Thank you, Madam Deputy Speaker. I rise on behalf of New Zealand First to speak on the State Sector and Crown Entities Reform Bill. I think it’s very interesting, the contribution by the member that just resumed his seat, Brett Hudson. So, if I understand it correctly, what that member is saying is that, over 9 years, the previous Government thought that this was an important issue and asked for a review but did nothing to get legislation into this House. I think that is what the member has just admitted of the previous Government, so I thank him for his honesty in that regard.

I also think that it’s very interesting that the member that resumed his seat earlier shouted out that this bill was all about State control, and yet, if I just heard him correctly, this is all their work. So I’m becoming a little confused between the shouting out that this is all about State control and somehow that it is a negative of this Government, yet the member who just resumed his seat now claims credit by the previous Government for writing the legislation. And I suppose, Mr Hudson, that if you believe that the representatives of taxpayer citizens shouldn’t be able to stop chief executives’ pay from being disgustingly out of proportion with that remuneration of those very taxpayers then one might say that.

I think it’s very interesting that Peter Hughes made this statement on 13 February 2018: “While the board has the right to make these decisions, I do not believe increases of the magnitude given are warranted or justifiable in a public agency, especially where the increase follows previous increases over and above my advice … There are important guiding principles that underpin the role and function of the Public Service which are relevant to chief executives’ remuneration. One of those principles is the spirit of service, a duty to act responsibly in the public interest and to be a good trustee of the public resources, including remuneration. The second principle is around public trust, an expectation that the State sector is accountable, transparent, fair and reasonable.”

The reason why this bill is here today is to acknowledge that on some level, with regard to chief executives’ remuneration, the public has lost a level of trust. The public has become—and we believe quite rightly—cynical that these enormous salaries that are being paid, the large increases that have been made over and above the recommendation of Peter Hughes and those who held his position prior to that, is out of whack and out of step with what their expectation is. There are many hard-working public servants. They are in this House, they are in our offices, they are in our schools and our hospitals, but they have not had the level of increase in remuneration that many of these chief executives have had. Nor have they, however, decided to pull their labour. They have continued because of that sense of public service, and this is what this bill goes to reinstate.

I think Mr Adrian Orr is probably one of the most recent examples of a gentleman who had another role at which he was very well paid but has made a decision to take a significant pay cut, because he wants to give service as the Reserve Bank governor in March of this year. Nobody can deny how successful Mr Orr is; nobody can deny how respected he is in the work that he has done, but here is a public servant who is fulfilling that level of service, and we thank him for it.

I also think it’s very interesting—sometimes I think the world has gone mad—that the Taxpayers’ Union responded to this piece of legislation by saying that the Government’s announcement of new legislation to boost the power of the State Services Commissioner in setting chief executives’ pay in the broader State sector is welcomed today. “Curbing [excesses of] executive pay in the State sector is something we”—the Taxpayers’ Union—“have been calling for for … years. We look forward to seeing the draft legislation later in the week.” I’m not sure how many of us can actually recognise or absorb the fact that the Taxpayers’ Union has just put out a press release, on 12 February, that endorses the work done by this Government.

As I go to close, can I just say the amendments to the State Sector Act 1988 and the Crown Entities Act 2004 will address three other key areas. The Crown entity chief executive terms of appointment—so the term for new appointments of chief executives will be no more than five years, renewable. I believe the Minister quite clearly articulated why that is something we believe needs to take place.

Setting standards of integrity and conduct for Crown entity boards: the commissioner may be able to issue a code of conduct to the board members of all entities within the scope of his mandate, in line with international practice. I was quite shocked to find that this was not in place, as I remember debating the removal of a code of ethics from a particular profession in this country that was to be replaced by a code of conduct, and it was argued by the then National Government that all professional bodies had these things, and yet it appears that those that are among the highest paid at this time did not, and do not have, a code of conduct.

Also, the State Services Commissioner’s powers to carry out investigations will be changed, with more consistency in the way inquiries are conducted across Government.

So, from that perspective, I think that we have traversed most of the key points. I would probably only reiterate one more time that in a recent report it was shown that the average remuneration increase for Public Service bosses for the year to June 2017 was 2 percent, up from 1.3 percent in the previous year. It was 2.7 percent for tertiary education institutions and district health board (DHB) chief executives, and 4.1 percent for Crown entity chief executives, which were 2.8 percent and 3.8 percent above the previous year, respectively. I think if people go and just have a look at that over the general pay increase and what the people who funded these chief executives gained over the same period, it’s quite an interesting distinction about the percentages that we’ve got going on here. And, of course, the more you get paid, the larger that percentage turns out to be in dollar value. As an example, the chief executive remuneration for the year June 2017: MBIE, it was between $800,000 and $809,000; the University of Auckland, between $710,000 and $719,000; the Police Commissioner, between $690,000 and $699,000; Treasury, between $660,000 and $669,000; and Waitematā DHB, between $620,000 and $629,000.

Nobody is saying that these people are not very good at their jobs. Nobody is saying that they do not perform. What this bill is saying is that there is a level of service, and that it is not necessary—we do not accept the argument that good people won’t come unless they are paid in this incredibly inequitable way from the people who are paying them. So New Zealand First will support the bill as it goes through to select committee. Thank you, Madam Deputy Speaker.

Thank you, Madam Deputy Speaker. I stand in support of this omnibus bill, which amends the Crown Entities Act 2004 and the State Sector Act 1998 to provide greater integrity and accountability in the management of State services. I would like to acknowledge the chair of the select committee—the hard-working select committee—that will be looking after this bill. I hope that we have detailed deliberations during the select committee process.

I would like to agree also with the previous speaker, Tracey Martin, who mentioned that we have got hard-working State services people who work hard for the betterment of our economy. Treasury has cautioned that these public agencies are large organisations and are competing with the private sector for top-quality candidates. We have to understand that in today’s competitive world, the best people are taken for the best jobs. They want to make sure that we, in the public services sector, can get the best people to take those agencies forward. Sometimes, the best candidates for a position might not be available for a Public Service role due to the competition with the private sector, which is a very important aspect that we have to understand.

This bill will try to help those issues, and I hope that once we go through the select committee process, we will be addressing some of the issues that are being raised. With these words, I support this bill.

Thank you, Madam Deputy Speaker. It’s with pleasure that I rise to speak to the State Sector and Crown Entities Reform Bill at its first reading, which the Green Party will also be supporting. It’s nice to have some unanimity in the House on a piece of legislation. It’s been a while.

This bill, as I think it’s been explained, is seeking to provide greater integrity and accountability in the management of State services through strengthened and more consistent regulation of conduct and remuneration of employees at the most senior level, for a more consistent approach to the State Services Commissioner’s investigatory and inquiry powers.

I think the Minister first indicated that legislation might be coming in December of last year—that was the first time I, at least, picked it up—in response to a degree of public concern and the State Services Commissioner speaking out and naming the State-owned enterprises (SOEs) that were breaching the advice from State services about what appropriate remuneration increases might be for their chief executives (CEs). He singled out three SOEs that had made the decision, against advice and the view of the Minister, to increase their CEs’ remuneration at a significantly higher level.

A previous speaker, and particularly the Hon Clare Curran, talked to this and the importance of this issue in terms of public trust. The pay of those at the top of our public institutions does matter. It really does impact on people’s perceptions of the Public Service and the view of whether those institutions are serving them as the people or whether they are out of touch and having motives of their own.

There has been significant international commentary on this, as an issue, over recent years. Some academics who have been watching this space have commented that they believe that the Brexit decision and potentially the election of Donald Trump were connected to the growth in CEO salaries being out of step with the increase in average people’s incomes, and they have warned us as a country that we need to be watching this.

In New Zealand there has been research done by Helen Roberts through the University of Otago over the last 18 years that has been tracking CEO salaries and average wage increases. She has found that the gap between wages earned by staff and their bosses has been steadily widening, and in fact that between 1997 and 2015, the period of her review, the salaries of those at the top have increased by 7 percent, whereas for your average worker it’s increased by only 3.7 percent. So salaries have increased at twice the rate for those at the top. It’s probably more than that, because the average wage that that is calculating includes the wages at the top. So, indeed, it’s even worse than that.

Some of the salaries of CEs in New Zealand are over 60 times that of the average salary of the people doing the work. Justification has been made for that, and we’ve heard of instances of this very situation. Well, we’re told that it’s important to pay these CEs more, and we have to increase their wages because we’re benchmarking against other CEs, and we need to make sure that we can attract the best people. But, of course, this creates this kind of escalating effect for those salaries at the top, because they’re all benchmarking against themselves and they keep on just escalating. There are formal recruitment salary processes—

💬 DEPUTY SPEAKER: Come to the bill.

Madam Deputy Speaker, this is to the point around the State services advice and trying to actually send a signal to us as a country that we have the intent of bringing in that gap between those at the top and the average workers in New Zealand, because it is out of step.

I do want to say, as well, that we’ve heard arguments that often it’s the performance of the CEs that actually deserves that pay increase. Well, I’m not sure anyone deserves $1 million a year. Personally, I can’t see what you can do to deserve that. But, even with that said, if you didn’t have that view on the world, if you looked at the performance of CEs and tried to see if their salary increases matched an increase in performance in their—

💬 DEPUTY SPEAKER: Can I just ask the member to come to the bill, which is not about in-general salaries. It is about a change to the State Sector Act.

Indeed.

💬 DEPUTY SPEAKER: I’ve given quite a lot of latitude. I understand the philosophy.

Thank you, Madam Deputy Speaker. I guess the point—I was seeing it as relevant because some of the arguments—

💬 DEPUTY SPEAKER: I’m not arguing with the member. I’m asking the member to come to the bill.

Speaking to the bill, because of the arguments that were made in defence of the increase in those CEs’ salaries, against the advice of the State Services Commissioner, performance was used as an argument against the judgment of the concept of the State Services Commissioner and the Minister, that actually we have a public-good consideration. When you look at the evidence, performance and pay do not correlate. In fact, if you look at it, often the worst-performing CEs are those that are the most highly paid. So we do have an interest and a duty, as lawmakers, to ensure that we’ve got mechanisms to just consider that public good and what is going to result in better decision-making in our SOEs, and having a mind and a cap, potentially, on those top salaries. The evidence is that that will produce better results overall.

Another part of this bill is to be able to extend the five-year term that is applied in the State services to CEs in the State-owned enterprises. And this, I think, makes sense, just around the point of having consistency right across our State sector and not having State-owned enterprises (SOEs) out of step. Another part of that, too, was to bring district health boards (DHBs) in line with this, and it makes a change to the Public Health and Disability Act to do that so that they are consistent, as well, with the tertiary education boards and other similar boards.

I did note that the Minister, while introducing the bill, pointed out the reality of many DHB boards who have CEs that they haven’t appointed. They haven’t had a say in what their conditions and remuneration rates are, and yet they are held publicly accountable for their results and the links to their remuneration. So having that five-year term of employment does make sense in terms of democratic accountability.

I share the view of Minister Tracey Martin in noting surprise that the code of conduct, as well, wasn’t previously able to be applied to board members, or that the law was unclear around that. It is good indeed to see that being tidied up, because it is hard to imagine how anyone would assume that board members would be less likely to have issues relating to conduct than employees or contractors.

So this is, overall, a strengthening of legislation to ensure public confidence and the integrity of our State services, and the Greens are pleased to add our voice of support to it.

Thank you, Madam Deputy Speaker. This bill attempts to provide for greater integrity and accountability in the management of our State services sector. It attempts to clarify and also to streamline the roles of the State Services Commissioner. At the moment, most Public Service agencies are already consulting with the commissioner and also have regard to the commissioner’s recommendations, and this bill attempts to make it a cross-agency practice—a more standard practice. So for that reason, we will support this bill to the first reading.

While we support the bill, we need also to be careful, in approaching these issues, to make sure that the bill itself won’t be used to target some specific CEOs, like a witch hunt about a few CEOs. Also, we need to understand that public agencies often are large organisations. They often compete with the private sector, and so on the one hand we need to make sure that we are able to get the very best candidates; on the other hand, we need to respect the taxpayers’ expectation—that is, taxpayers’ right to expect transparency around issues like salaries. So how to balance these various factors is something we need to be very careful of.

To proceed to the Governance and Administration Committee—which is a very capable select committee—is the best way to go forward, so I support the bill. Thank you.

The next speaker has a split call, and I will ring the bell at one minute. I call Kiri Allan.

Thank you, Madam Deputy Speaker. It is indeed a delight to speak in respect of the State Sector and Crown Entities Reform Bill. Reflecting on the general intent and purpose of these reforms, you’ve kind of got to feel a bit sorry for the State Services Commissioner. Poor old Peter Hughes, he’s out there flogging the horse and doing the best that he can do to put up recommendations that are pragmatic, that make sense, for the good governance of our Crown entities. He puts up these amendments, he goes through, he does all of the due diligence—you know, he has a statutory function—what is it?—to promote the spirit of service to the community. So he goes about, he does all this hard work, he puts up his recommendations on what the pay rise and thresholds should be to these boards—and they ignore him.

Dame Rebstock, she got a pretty clear direction: “OK, you know, the CEO, he’s done a good job. Let’s put his wage up by 1 percent. It’s already a hefty thwack anyway, it’s up there in the $800,000 mark, but, all right, he’s doing a good job. We’ve got to stay competitive, etc., etc. All right.” So all the advice came back—we’ll give him a 1 percent rise. Well, the board, they took that into consideration. You know, they had to consult, they got some advice, but in the end the poor old State Services Commissioner doesn’t have any teeth.

So what this legislation does—it’s a pragmatic approach to enable those with the statutory duties and responsibilities to ensure that our Crown functions and our State services are indeed promoting the spirit of our services to the community, that our State Services Commissioner can ensure that our State services are promoting the interests of New Zealand, that we are being transparent, that there is integrity, and that trust and integrity are being imbued into our State services.

I mean, several of my colleagues made comments prior about comments the State Services Commissioner had made, and I was reflecting on some of them as well. He was talking about the upward trajectory of chief executives’ salaries in the State sector, and, in particular, some of the Crown entities. It’s not sustainable and it’s time for change, and this was a direct response, at that point, to the New Zealand Superannuation Fund’s then chief executive receiving a pay increase of about $140k—which was a 36 percent pay rise, if I recall correctly.

I must applaud the Hon Chris Hipkins, the Minister of State Services. In a very swift amount of time, he has managed to turn around some prudent and decent legislation that addresses the concerns that the State Services Commissioner had raised. Indeed, the former Government and the former Minister of Finance—he too observed that there was a gross inconsistency. It goes back to that point around the teeth that the State Services Commissioner has when it comes to making these recommendations.

Part 1 of the bill makes these two key changes, as has been highlighted by the Minister, requiring the boards of statutory Crown entities to obtain the State Services Commissioner’s written consent to the terms and the conditions of employment of a chief executive, and that that term for appointment is limited for up to five years, with the right to be able to be renewed. Again, I guess the pragmatic rationale that sits below all of that is that you’ve got a board that might not necessarily have appointed that chief executive, who, currently, can be in there for as long as they might like to be. So these amendments here put some suitable time constraints and, again, increase, I guess, the transparency and accountability of those chief executives back upwards to their board and, again, to the State Services Commissioner. So, on these grounds, I’m pleased to commend this bill to the select committee.

Thank you, Madam Deputy Speaker. It is a pleasure to speak on the State Sector and Crown Entities Reform Bill, and I am looking forward to going through this in the Governance and Administration Committee, which is a hard-working and very competent select committee—not to say that the others aren’t, of course.

I want to take this from a personal perspective as an employer, as a company director, as a former chairman of a board, and from my experiences around remuneration of key staff, particularly chief executives. I think, while the bill—and the main part that we’re talking about here is amending section 117 of the Crown Entities Act to require the board to consult or seek written consent from the State Services Commissioner before finalising and agreeing the terms and conditions of employment of a chief executive. It is an international market that we work in, like it or not, and the role and the relationship between the board—particularly the chair of the board and the chief executive—is really important. While it would be quite good to limit pay significantly, with that comes some risks, and the risks are quite squarely on the board.

I think why the boards often go over the top is a lack of their own confidence in their own ability, perhaps, or, particularly when it’s an existing chief executive and they’re renewing their contract, it’s just something that they need to test the market a little more on, I suspect.

But that may be the market. We have had the example, given by the Hon Tracey Martin, of Adrian Orr, who is soon to take up the role of Governor of the Reserve Bank at a significant pay cut. We would be at great risk if we were going to rely on the altruism of candidates for chief executive roles, if we want good performance. There is no doubt that top performers do make a significant difference to any entity that they head up.

The point put out by the Hon Clare Curran—not Clare Curran, sorry; it was a Green MP—which was really a wild diatribe on the Karl Marx writings, is not, I suspect, what we actually should be talking about. We need to talk about people getting remunerated for what they deserve for that job, and I think this is a very good bill, actually, but it’s on the work that we started—while you would’ve thought it would’ve come from Karl Marx, from one of the previous speakers. So it is with that that I commend the bill to the House.

I’ll just remind the member sitting in the front seat that you can’t actually move seats to take part in the contretemps across the House, to take advantage of an extra position.

Thank you, Madam Deputy Speaker. Keep the member from Mana under control, please, Madam Deputy Speaker.

💬 Matt King: This is going to be good.

💬 DEPUTY SPEAKER: And the same goes for that side.

Keep the member for Northland under control, too, please. Thank you, Madam Deputy Speaker. There’re a lot of out of control people in the House this afternoon.

Look, it is a privilege to take a call on this and also to be part of the Governance and Administration Committee. I can’t see anything wrong with the comments made by the chair of the committee, Brett Hudson, the harder working and, did he say most competent or competent—look, I won’t get into it. It’s about the only thing I agree with him on, but, nevertheless, it’s a competent committee—[Interruption] It’s a competent select committee, thank you, the member for Ōhāriu.

I was looking carefully at this bill that’s been brought to the House by the Hon Chris Hipkins, and I thought, “What’s formulated this bill, and why is it here?” We’ve heard the words “integrity” and “trust” mentioned in nearly every speech this afternoon, and I think this just reinforces the notion that this is all about the integrity of our Public Service, no matter what side of the House you’re on. It’s also talking about the powers, or the lack of and the need for more powers, for our State Services Commissioner, and examples have been given there, too. But, most of all, I think this is about transparency and accountability for every New Zealander, so they can have that confidence and trust in our senior public servants.

It puzzled me when I came in this afternoon and heard some members opposite going round and round and round the issue with lots of excuses. I thought, “This astounds me.”, because they are saying that it’s only got, essentially, conditional support to the first reading. Considering the issues that are detailed—and some of those issues talked about the fact that there are three Crown entities who ignored the commissioner’s guidelines, two implementing changes that even ignored what the Minister’s advice was—even looking at the strategic context of this bill and just some of the actions taken by Crown entities, one would have thought this was just an obvious bill to support.

I want to remind members, too, that these are public organisations that use public money and are there for the public good, so, therefore, as I’ve said, our public have every expectation that the senior public servants and the appointment of them—chief executives—is undertaken in a transparent manner. That’s key. It’s key because these are some of our most highly paid people in our nation.

And, look, I’ve been fortunate to have been part of local government, and the Local Government Act specifies, clearly, the appointment of chief executives. In fact, I was chair of the performance review committee for the local authority that I came from, and it’s a clear process. It’s a five-year term; two years if the city or district council chooses to roll over the incumbent, or a five-year reappointment should they choose to externally advertise the role. So it’s very clear—the Act lays it out. It doesn’t involve the State Services Commission—maybe some of the work through the Governance and Administration Committee could address this as part of a wider view.

But what disturbed me in that process—and Jan Logie, the Green member, pointed it out—is that as part of that process, no matter how thorough it was, there was a point in time where you had an external agency come in, and they told us about the market. And I pick up on what some of the Opposition members say, that, “Look, we need to get the best person for the job.” It’s code for “we need to pay them as much as they want”, and that’s what this external agency said: “Here is the benchmark between local government and the private sector”—and, boy, was it high. What it needed was bold leadership from the entity that said, “Actually, if the CEO wants to stay in this organisation, then the entity needs to say ‘Well, look, this is what we’re prepared to pay.’ ”

I think this bill picks up on that. It’s not the never-ending climb that goes higher and higher and higher, where we just keep paying what external agencies say to us is what the private sector pays, because this isn’t the private sector, and any one of our Crown entities should be able to distinguish itself and say, “Well, we’re not a private company; we are a publicly owned company. We have reporting mechanisms, etc. that define who we are.”

The most interesting bit is the CEO of the local authority. He took what he was given by the council. The council didn’t fall over. Ratepayers didn’t stop getting their services delivered, and he’s still on the same amount that he was three years before. My point is that when you have guidelines and you have a strong monitor of those guidelines, the very fact that this notion that people will quit, run away, they’re irreplaceable—it’s wrong. And that’s why I think what we’ve seen here today in the presentation of this first reading is so strong.

I’m lucky enough to have sat on three council-controlled organisations—three boards: the stadium here; the venues company; and our cricket venue, the Basin Reserve Trust Board. Three council-controlled organisations that are, essentially, Crown entities, in local government - speak. And I’ll tell you this—never a board chair walked back to its parent body with the recommendation of some outrageous salary, because the elected membership body knew that when they went to ratepayers and said the little entity, the council-controlled company entity, is being paid $250,000, $260,000, $300,000 when, only years earlier, that person was a council unit manager being paid $100,000 and a Toyota Corolla to go with it, there would be outrage from ratepayers.

And that same outrage is bubbling underneath the surface here in Aotearoa, where people are saying, “We’ve had enough of this.” And that’s what’s come through in speeches from my colleagues on this side of the House. That’s why it’s important something has to be done. It’s been picked apart as if this is some teeny-weeny, irrelevant matter that could have been looked at at any time during the 12 to 20 years that the Government will be in power, but it’s important we do it now. It’s important we send the right signal, and our members here talked about sending those signals around making sure, as I said at the start, that this is about trust and confidence.

You’ll see in the paper, and it’s been talked about too, that this covers several entities. It also picks up our public health agencies too, and those educational institutions that actually are already required to obtain the commissioner’s advice. This is one of the small but powerful amendments that I think everyday New Zealanders will look back on and say, “Thankfully someone had the nous to make a couple of minor amendments that have a couple of major outcomes.” The outcome for New Zealanders will be a State Services Commissioner that’s got real teeth and a Public Service led by senior public servants who are paid a wage that doesn’t make everyday New Zealanders open their mouths wide with horror around how much they get paid, without knowing why they get paid that much. I commend this bill to the House. Kia ora.

I rise to take a brief call. It’s the first time this year that I do stand to speak to address the House on the passage of a bill, and, albeit being brief, in the last call as a speaker for the National Party this afternoon, it’s to address the State Sector and Crown Entities Reform Bill. It is an omnibus bill, which, in other words, is the combination of a number of other Acts wrapped into one to be considered for amendment.

It is interesting to note, as has been noted by previous members, colleagues of mine from this side of the House, that this was work that was already underway through the State Services Commissioner reviewing the processes, and is now formally being addressed under this bill. Also, it’s been noted that National has been somewhat, a little bit, surprised by this bill appearing on the Order Paper. It didn’t appear to be a matter that was of any regard or note during the campaign. However, with the matter now being brought before the House by this Government, notably, the purpose is to provide for greater integrity and accountability in the management of the State services.

By going through this first reading, by taking this passage, it’s noted that it’s actually a pleasing change to that pathway that’s been taken with a number of pieces of legislation before the House in recent months. One would question whether that pathway was in fact a pathway of transparency, integrity, and accountability. So it is pleasing that this is a bill that’s not being rushed under urgency, that views and submissions are appropriately being taken into consideration, and that, enforcing that pathway of integrity and accountability, it will go before a select committee for due consideration.

I will speak briefly to summarise what this omnibus bill will address. It is about a single integrated approach in the State services across the dimensions of the Crown Entities Acts and the State Sector Act. It’s been noted that it amends section 117 of the Crown Entities Act and that it requires the board of a statutory entity to obtain the written consent of the State Services Commissioner before finalising the terms and conditions of employment of the chief executive.

Notably, the previous speaker, the member across the House Paul Eagle, spoke of his experience of being the chair of a review committee for a chief executive and in the appointment of a chief executive. My time is short, but it’s simply to share, having been in a similar position also, that this piece of legislation will encompass and wrap up and ensure that there are standards of consistency, and that in those standards it provides that level of integrity and accountability. We would certainly urge and encourage the Government to maintain that pathway in addressing all other matters that come before the House.

Thank you for the opportunity to stand and speak on the State Sector and Crown Entities Reform Bill. It’s a really good thing to see this Government take action in an area where it is needed most definitely, and I do refute claims that we’ve heard from members opposite that this is a small or a trifling matter. As a former public servant myself, I think it’s very important that this Government brings forward a bill that provides consistency and instils trust in the public in how our State services are run. But it is also important that it’s fair—that it’s fair to people.

People being paid who work hard deserve to be paid, and during the times when we’ve seen these large increases happening, during the time when we’ve seen $20,000 and $50,000 going up at the top end, we’ve seen jobs lost. We’ve seen empty desks in the public sector. We’ve seen people going home on cut hours who can’t afford to pay for their groceries and who are cut back. And in their place we’ve seen contractors hired at $100 or $180 an hour. We’ve all seen it. It’s cutting public services and paying more with contractors and taking the difference and topping up at the top end, and this Government says that that’s not good enough.

We want consistency across our Public Service, and we’re prepared to act right now. In February last year Bill English stood up at a press conference and was very displeased at the 36 percent increase that was delivered to the chief executive (CE) of the New Zealand Superannuation Fund. That’s a year ago, so in terms of the comments we’ve heard from members opposite that it’s a surprise that this suddenly pops up on the Order Paper and that we’re suddenly jumping into getting work done—well, it’s about time. It was known that it was a problem well over a year ago and no action was taken, and I’m proud to be part of a Government that puts this up front and starts addressing those issues that need to be looked at.

This bill is about strengthening the public’s trust and confidence to make sure that Crown entities remain aligned and connected and part of that. Part 1 of the bill, in particular, requires boards of statutory Crown entities to obtain the State Services Commissioner’s written consent to the terms and conditions of employment of a chief executive, and it introduces terms of appointment of up to 5 years, able to be renewed, for future chief executives. So what is the issue here in terms of a problem? The State services exist to serve the public interest, and it’s important that we remain at the heart.

We’ve heard today issues around how there is competition between the public and private sector, and I think it’s important to note that there is a clear difference between the private and the public sector. There are different reasons that the pay levels are not the same. Companies work in an environment where competing for business has a limited life in terms of a business’s success. You’re in a competitive environment, and that is a necessity to be successful. That is not the same as the Public Service. A key difference is the spirit of the Public Service, the foundation of the idea of serving people and delivering to those people. That is maybe something new for the members opposite. I have been proud always to deliver services, as a public servant, and that is a key area that’s different. That is why we can’t go down the path of trying to compare the salaries of private sector CEs with those in the Public Service. The public can and should expect Crown entities to be governed in a responsible and responsive manner that is consistent with them being part of the State. State services chief executives deserve to be paid fairly, but they are still public servants with accountability to taxpayers and the public, and that is the difference.

It is important in terms of trust and confidence in the public sector that we look at how the public know that that money is being spent well. And when we look at Part 2 of the bill, it’s good to see that there are clear measures made there in terms of enabling the State Services Commissioner to apply a code of conduct to the board members of the entities that are subject to that code of conduct, and it’s also good to see that it modernises the commissioner’s investigation powers by aligning it with the Inquiries Act 2013.

Right now, the commissioner can issue a code of conduct to most Crown entities but not for Crown research institutes and the tertiary institutions and their subsidiaries, and that is an important change that is made by this bill. There are three main areas that this addresses, to really sum up the key areas that it does. It replaces the use of the old Commissions of Inquiry Act 1908, which, substantially, has similar powers to the Inquiries Act 2013—again, another measure that provides consistency across the Public Service. It also puts in place a trigger to enable the commissioner to use the full suite of investigatory powers in the wider State services, so all those powers of the commissioner are now available to be used across all entities under the State sector. And, thirdly, it enables the commissioner to use the full suite of investigatory powers under the commissioner’s own motion for investigations into matters of integrity and accountability.

It’s interesting to see too in terms of where we’ve seen the areas that have had difficulty, that they are also places that had significant cutbacks in terms of the Public Service. It has been interesting to see that it was the CE of the Superannuation Fund that got the pay increase, while there was an inability to restart payments to the Superannuation Fund, and to wonder whether that money was going to be parked off on a side account to try and top up and restart those funds down the line. I don’t know what the plan was there.

It is important that we’re able to make sure that the public have a strong sense of fairness and trust and confidence—and that is exactly what this bill sets out to achieve—to know that the way that all Crown entities are being treated and governed is done in the same manner, and that we don’t have a separate set of rules, as has been occurring. It’s important that Ministers and the Government can be confident that the way people are being remunerated is consistent across the Public Service, and I’m proud that as a Government we have stood up and made this a priority. It is by no means a small or trifling issue that should be parked to the side; it’s a big one. If we are going to operate by fair rules in this House, it is only right that we should make sure that occurs right across the Public Service.

I would like to thank the members of other parties for supporting this bill to select committee. It’s good to see we have agreement across the House on a bill of such importance. I commend this bill to the House.

Bill read a first time.

Bill referred to the Governance and Administration Committee.