State Sector and Crown Entities Reform Bill

I move, That the State Sector and Crown Entities Reform Bill be now read a third time.

This bill makes changes to the State Sector Act of 1988 and the Crown Entities Act of 2004. The Government recognises the need for greater consistency in the standards and expectations across the State sector. New Zealand’s State services are a wide and diverse group of entities. Crown entities, for example, are separate legal entities that operate at arm’s length from Ministers and come under varying levels of ministerial control or influence, depending on the type of entity they may be, but they are still part of our broader Public Service and they still exist to serve the public interest.

Crown entities operate with public money for the public good, and they’re often the face of Government, providing the majority of public services that New Zealanders use every day. They are responsible for running public hospitals and schools and a range of other service delivery and regulatory activities. It’s important that these entities remain connected to the core values of public service and the unifying spirit of service to the community. That is what this bill is all about.

The bill brings parts of the State sector into better alignments that exist in other parts of the State sector. That allows for stronger oversight and regulation of Crown entity chief executive pay—which we’ve been debating extensively last night—and the conduct of board members, and it provides the investigation powers for the State Services Commissioner to investigate any impropriety in the sector. These are all necessary changes. They promote the integrity and the transparency and accountability required in the Crown entities, and, in doing so, I hope that they will bolster the trust and confidence New Zealanders can have in the Public Service and, in particular, those public services delivered by Crown entities.

To recap very briefly, Part 1 of the bill makes two key changes to the Crown Entities Act. First, it requires the State Services Commissioner to give express consent to the terms and conditions of employment, including remuneration, of any Crown entity chief executive. This is a change from the current arrangement for a number of Crown entities, although that provision does exist for some Crown entities already. There is a high level of public concern about the growing salaries of Crown entity chief executives. There is a risk that the growth in chief executive pay is starting to erode public confidence in the broader Public Service and in Crown entities in particular. This bill creates a much more robust system and one that I am confident the New Zealand public can have confidence in.

Part 2 of the bill makes key changes to the State Sector Act to strengthen integrity as well as accountability across our public services, our State services. It provides a clear and mandated mechanism for the State Services Commissioner to oversee the integrity of State sector boards and board members, including setting high standards of integrity and conduct. It provides the commissioner with the ability to issue a code of conduct, but it is important to note that that code will not override members’ existing statutory duties or functions, and the bill has been amended by the Governance and Administration Committee to make that very clear. The bill also introduces a consistent approach in the way inquiries are carried out by the State Services Commissioner that brings them into line with changes that the Parliament made around the Inquiries Act in 2013.

So, once again, I believe that this bill will help to strengthen the accountability arrangements within the wider Public Service. I want to thank members on the select committee once again for the constructive way they approached this legislation. I want to welcome the support for the bill across the House. I want to welcome the very robust scrutiny and critique that the bill was given yesterday afternoon as it went through the committee stage, and I look forward to this bill being passed through its remaining stage through the House this afternoon.

I rise to continue National’s support for this bill, but not entirely without reservations. We certainly do agree that there is a role for the Government, through the State Services Commissioner, to ensure that the salaries of public sector CEOs are not disproportionate to the value of the role and, indeed, in the minds, particularly, of the public. Everything we do and say here is scrutinised by the public, should they choose, and the nature of the services the Government provides and the people that provide them, including their employment terms of conditions and salaries, are also able to be judged by the public, and the public will do so. So we do acknowledge and accept that there is a role.

We also, fundamentally, view it as important that the Government has the right person in the role of chief executive (CE) for any Crown entity—and, in fact, any Government agency. There could be some concern, then, that with the measures that will be enacted when this bill does pass—and it certainly appears that it has to, now—we could end up with a certain situation where a preference or weighting is given to certain criteria that could result in something other than the very best or the best person for the job being prepared to take it. We don’t prejudge that the best person for a Crown entity CE role is someone currently from outside of the public sector, and we certainly don’t wish to prevent someone inside the public sector who is the right person for the job, from getting that job.

So we don’t want to create a race for the top, in the sense that the public sector would be competing with the very highest-paid private sector CEs to somehow claim that only they can be the source of the right skills for that Crown entity, therefore ratcheting up salaries unnecessarily or needlessly. But we do think that it should be worked in a way and operated in a way that we do get the right person for the job, and if the right person for the job happens to be someone from outside the public sector currently, then we should make sure that the terms and conditions of the employment don’t present a barrier to that right person seeking or taking the role.

Similarly, if the person is within the public sector, we shouldn’t use these mechanisms as some sort of an artificial ceiling on the recognition of their value in taking up the role. So, likewise, if the right person is someone in the public sector and the role has a value in contrast to the private sector, we shouldn’t use this as a mechanism to suppress the potential remuneration for that current public sector individual. The way the bill has exited the committee stage, it still has certain elements in it that could lead to that.

We made points that, for instance, the criteria that are set out—such as Government expectations, such as public expectations, but also the commercial realities or the market realities and market similarities—are each elements that the commissioner will weigh up or can give regard to as they assess giving their consent or not to the terms and conditions of the deal put in front of them. But there is no sense of a weighting, there is no sense of quantifying or qualifying how each of them will be measured against the other, because they are corresponding views, in many ways—two sides of an argument. So, at the moment, if the bill passes, the State Services Commissioner can give regard to all these factors, but not only do we not know what factors will get greater weighting in any set of circumstances; neither do the boards for those entities. To that degree, we’re all sort of shooting in the dark, and I think that’s unnecessary.

The outcome could be unfortunate, but it’s actually not necessary. The House could have taken the opportunity to have made amendments to that. Unfortunately, I wasn’t able to voice this consideration yesterday, but when we consider the actual process, it has even greater relevance, because the process we set out in this legislation is that, first, the board will negotiate with the current CE or prospective CE. They will reach agreement. They will have a deal in principle, and it is only then that the board goes off to the State Services Commissioner and says, “Will you agree to this?” That has very real prospects that if the State Services Commissioner then says no—because the legislation doesn’t require them to say, “I’ll agree to X, Y, and Z.”; they simply say yes or no. If the State Services Commissioner says no, then we can potentially see what was an acceptable deal suddenly being removed from the table and that candidate exited.

I think the processes in the legislation could have been improved further. The absence of that weighting element of each of the criteria means the issue is exacerbated—because of the way the process works. It’s too late to amend the legislation, but what the Minister responsible could do—and I ask him to consider doing just this—is set very clear expectations on the State Services Commissioner; how he anticipates that the commissioner will exercise his responsibilities and authority under this revised legislation. He could, for instance, ask that the State Services Commissioner communicate with the board, at least in advance of them entering into employment discussions, how the State Services Commissioner will weight each of those criteria. That would be very helpful for the board, and I think it would help to ensure that the deal that is put on the table is one that not only is acceptable, obviously, to the board and the candidate but will be more readily understood and accepted by the State Services Commissioner.

Equally importantly, I think—particularly when we look at the process of making a deal and then presenting it to the commissioner—the Minister should make it clear that it is his expectation that the State Services Commissioner will make themselves available during the employment negotiation process, such that the board can tell the State Services Commissioner where the negotiations are heading and where potential points of contention may be, and while the State Services Commissioner would certainly not be obliged to give a definitive ruling at that point in time, the commissioner could give some additional guidance during the negotiation, which would mean that once that agreement between the prospective CE and the board is reached, it is far more likely that then the State Services Commissioner would be able to endorse it, give their consent, and we won’t have a situation where a refusal leads to a very good candidate just throwing their arms up, in a sense, and walking away because the deal that it been agreed has been renegotiated at what would then be, for them, the eleventh hour.

I actually think the Minister can do that and I ask him to do that very thing. It doesn’t undermine the bill in anyway. It doesn’t undermine the legislation, but it provides a very good working arrangement in practice, which would see the intent of legislation bearing out in reality the way we would all like to see.

I just also make a point, which I did raise with the Minister yesterday, which is still a little concerning, at least to me. It is around the code of conduct—not that the State Services Commissioner can create one for boards, but given that the code of conduct is around integrity and behaviour as board members, I still have this concern that the legislation is saying that the State Services Commissioner can create codes. So we still have the situation where the commissioner could create multiple codes—many, many different codes. If a person is a member of more than one of the boards of Crown entities, they could end up having to operate under multiple codes of conduct.

I think, again, the Minister could very clearly set out an expectation to the State Services Commission that wherever possible there should be one code of conduct that accounts for integrity and the behaviour of those board members and only in situations where it is absolutely necessary—possibly because of some interaction, as the Minister pointed out yesterday, with a particular professional code of conduct that related to the business or the work of the Crown entity. But unless it is absolutely necessary, the goal should be one code of conduct that applies across boards and across, obviously, board members.

So the legislation is achieving a good purpose and we will, and do, support it. We have some regrets that it wasn’t quite panel beaten into the sort of shape that we think would have added a bit of extra value, but all is not lost—all is not lost. Through expectation setting, the Minister can ensure New Zealand gets exactly what it deserves. We commend the bill to the House.

E turi ana tēnei taringa ōku [This ear of mine is deaf], Madam Deputy Speaker—meaning that—

💬 DEPUTY SPEAKER: My pronunciation was bad.

I don’t always accurately hear female voices.

💬 DEPUTY SPEAKER: I find that hard to believe. Ha, ha!

I apologise, Madam Deputy Speaker, and I think I’ll start again if you don’t mind.

I rise to take a call. I follow the list member from “Hōhāriu” or properly known as Ōhāriu. I enjoy the minimalist approach, which is in inverse proportions to Mr Hudson’s contribution, where, as the words multiplied, the meaning shrunk. We were treated to a speech by the party who wants to back the bill, and the majority of the speech, unfortunately, was condemning the bill. I’ll be a lot more focused and pithy.

The first thing I’d like to say is that our civil service leaders are handsomely remunerated. We have the evidence that in terms of the OECD they rank second. Our parliamentary emoluments and packages are fully disclosed and cruelly debated, and we are made to feel from time to time that we are unworthy of what we receive. I long for the day when similar feelings and similar transparency is visited upon the upper level of the civil service, and, for those reasons, I’m an enthusiast when I stand and support the passage of this bill.

I don’t think that reflecting those views is anti - Civil Service. I’m just reflecting, along with my colleagues, strongly held views that we encounter in the public. So for those reasons, we enjoy the prospect of the State Services Commissioner enjoying these wider powers, to ensure that those, as I said earlier, entities that are at the periphery actually are caught in a net of restraint and driven by a willingness to serve, and that quality and that ethic of service can never be fully monetised.

And for those reasons, as philosophical as it might sound—which is something, from time to time, I’ve been known to offer—I think that it’s a great day when that side of the House and this side of the House support legislation, because we are the ultimate public figures. We are held to a high standard, we are regularly called out in the media, and, from time to time, some of us—mostly sitting on that side of the House—have been subject to ridicule. So we know what it’s like. Those standards and those expectations will now be visited by the State service sector on all of our civic leaders, and they will know that the response when you’re called to serve cannot be measured purely in monetary terms—that’s why we call it the Public Service. I back this bill.

I get incredibly nervous when Shane Jones makes a contribution on a bill that is about improving the standards and the conduct of the public sector. I just remind Mr Jones that when he became a Minister, his first policy proposition was that we change the New Zealand Public Service to be more similar to the US, where there are far more political appointees, and that, secondly, he used the phrase—and, Madam Deputy Speaker, I’m not going to belittle the House and lower its standards, but he said that we need “s”-kickers into the Public Service. That is not at all consistent with the values that we hold on this side of the Parliament about a politically neutral—

💬 Hon Shane Jones: Making it up.

—and effective Public Service. The member interjects and says I’m making it up. He is absolutely on the public record as saying that the Public Service needed to be supplanted by political appointees and by—seeing as he’s challenged me—“shit-kickers”. That’s his language not mine. I apologise to Madam Deputy Speaker for using the language, only used because of the challenge from Mr Jones.

What we’ve seen from this Government is in gross contradiction to what’s intended by this bill and the codes of conduct: whether it’s been the secretive behaviour, whether it’s been the claims of Ministers assaulting staff—something I’ve not heard in 20 years—or whether it has been the gaping hole between the aspirations that this Government has claimed and what is actually delivered.

There are three important reforms in this bill. The first of those extend the tentacles of the State Services Commissioner into the contracts for chief executives in respect of our major Crown entities. National’s position has been quite clear: when you are dealing with organisations of this size and scale, whether it be the New Zealand Superannuation Fund—with near on $30 billion—or whether it be the Accident Compensation Corporation, for members on this side of the House, getting the best person for the job, that can manage those multibillion-dollar assets, is more important than some puerile argument around the exact terms and conditions. It’s in the taxpayers’ interests that we have the very best skill set running those organisations.

I did recite the example of our own experience in Government when we sought a new chief executive for one of New Zealand’s largest public agencies, the Ministry of Business, Innovation and Employment. In seeking a good private sector organisation—entirely appropriate for that agency, that has such a crucial role in regulating so many parts of the private economy. And, actually, the lack of salary was one of the reasons we were not able to attract the best quality for that agency. While we do support the provisions in the bill, we, at the Governance and Administration Committee—and I compliment my colleague Brett Hudson—ensured that there are some robust criteria, so those values that National holds of overall performance of the public sector be upheld.

The second part of this bill deals with changes to the State Services Commission in respect of the Inquiries Act 2013, and particularly in respect of the Privacy Act. It enables the State Services Commissioner to be able to exempt themselves from particular provisions of the Privacy Act. We heard good evidence that there is a case, for the State Services Commissioner to be able to properly do their job when things go wrong in the public sector—standards are breached, public money’s not used properly—for those privacy principles to be waived.

But we do express a concern, and we’ll say so again. That is, it’s all very well for this Parliament to pass special laws for the State Services Commissioner to be able to properly inquire into matters of wrongdoing when it comes to elements of the Public Service, but Parliament needs to be cautious of creating laws such as the Privacy Act that prevent equivalent large-sector organisations in the private sector from being able to properly inquire. As this Parliament reviews the Privacy Act, we would much prefer that we have a Privacy Act that is working for all New Zealanders, public sector and private sector. Members on this side of the House are always cautious of provisions that say “These are rules that should apply to all New Zealanders but not to public servants.”

The third part of this bill deals with the issue of the codes of conduct and ethics and standards in the public sector. We do find it ironic—with so much messiness, so many shambles around the issues of ethics and standards—that the Government is wanting to advance in this area. We’ve been pursuing questions about the Chief Technology Officer and the appointment. I do find it tough to be getting lectures on this bill about the neutrality of the Public Service, when it is as plain as day that members opposite have been wrongly interfering in the process around the appointment of the Chief Technology Officer. I say to members opposite, you can put all you like into the law around State services, but, actually, one of the most important things a Government will do is in terms of setting standards by example. When we see the sort of dodginess from the Deputy Prime Minister, when we sort of see the behaviour of the Minister—

💬 Hon Kris Faafoi: You can’t be the one to give this lecture.

💬 Brett Hudson: He’s seen the emails.

Kris Faafoi probably has seen those emails. I just make the point: isn’t it interesting that we have a Government lecturing us about being the most open and transparent Government ever, and we are none the wiser about the appointment process and the secret emails over the appointment of the Chief Technology Officer, which paints such a negative picture and, again, reinforces both the shambles and the gap between the promise and the performance of this Government.

I, finally, want to make some broader concerns around the direction of the performance of our State sector. One of the decisions related to this bill is in terms of removing any sort of performance measure on our public servants. If there’s any responsibility that’s important for this Parliament, it’s ensuring that for the $30 billion - plus that we spend each year of taxpayers’ money on public servants, we’re getting the very best of services and outcomes for New Zealanders.

When we remove the key targets that our Government had, whether in respect of performance of police—ensuring that burglaries are responded to in a timely way—whether it be in the presence of 24/7 police stations around New Zealand, or whether it’s something as important as one of the most busy areas of my own constituency work as the MP for Nelson, in getting access to elective surgeries, again, we’ve seen the Government remove any sort of performance measures on the Public Service, and we think that is a backwards step.

We note that every chief executive under our Government had a portion of their salary that was at risk—that if they didn’t meet the basic performance standards, they would not get that salary component. That’s gone. The message that’s been sent to the public sector is, regardless of whether your agency for which you are responsible performs or not, your pay is the same. And that is part of the broader approach by this Government where they do not understand the requirement for the public sector to reward performance and not to take this dumbing-down approach of just averaging everybody across the public sector.

And here’s the other irony: at the same time as the Government got rid of the at-risk component within chief executive’s pay scales, it also gave every one of our chief executives another week’s public holiday. The question I’d love a member opposite to answer: why is it that the chief executive of any of our public agencies, whether it be health or any other, should get another week’s holiday than the person that’s doing the hard graft in our schools, in our hospitals, or in our police, or any of our other public servants? And what was even more dodgy was that it was not in the initial Minister’s press release but was hidden and not released until the Cabinet papers came out some days later.

So while this bill has some small changes that affect the State sector, we on this side of the House want to reinforce our values and a concern about the overall direction of State services in New Zealand. What we’re seeing, from our side of the House, is a bloating of the bureaucracy and a constraining of those people on the front line that are doing the hard yards. I take one of my favourite departments, the Department of Conservation: they’ve got an extra 30 staff in Wellington—policy wonks. But if you go out and talk to those people doing the hard graft out in our national parks and out in the area, there has been no increase in resources for those people doing the work, and that is reflected in the increase of the number of public servants in Wellington rather than in the focus we have on this side of the House on improving the front-line services that are so important for New Zealanders.

On this side of the House, we believe in performance. On this side of the House, we believe in a neutral Public Service. On this side of the House, we want high standards, and there’ll be a damn good start if Ministers started by setting a damn good example.

Tēnā koe, Madam Deputy Speaker. Before I address some of the substance of the bill, I just want to spend a minimal amount of time responding to some of the claims made by the previous speaker, the Hon Dr Nick Smith. It’s very rich for that member to offer this side of the House lectures on ethics, on things that may or may not be shambolic—

💬 DEPUTY SPEAKER: I just warn the member that all the members of this Parliament are honourable, so be careful.

Oh yes.

💬 DEPUTY SPEAKER: Just be careful.

I’m not questioning the member’s integrity at all, Madam Deputy Speaker.

💬 DEPUTY SPEAKER: Oh, that’s good.

Ha, ha! But I do find that ever so slightly rich that that member can, given their track record—and I’ll come to the specifics about that—question our track record with the Public Service, and our track record in terms of integrity.

First of all, to the claim that Mr Smith made towards the end of his speech around the current state of the Public Service compared with that under the previous administration: under the previous administration we saw the Public Service stripped to some degree and then—I think the word that the previous member used was “bloated”—bloated by an extremely large expenditure on contractors in order to have the allure of trimming down the Public Service. But, in the end, the cost of running the Public Service had ballooned—or “bloated”, in the previous speaker’s language—to a point where it had got out of control. We are being much more transparent about that by making sure that we invest in our Public Service in a transparent way, and not hiding the fact that we’ve got these people working behind the scenes as contractors. We’re doing that in a transparent way, as opposed to the way that the previous administration had done things.

Also, there was another pot, kettle, black moment for the member in and around giving us a lecture about integrity, and I’m not going to go into that any further or I’ll face the wrath of your ire, Madam Deputy Speaker. But, having said that, I do think it’s a little rich for that member to stand in this Parliament with a straight face—I think you’ve got to give some respect for that—but to try to give us a lecture on that.

To the substance of this piece of legislation, I want to say congratulations to the Hon Chris Hipkins for following through on a concern that I think the public has had for some time. I remember in a previous iteration when I was the Opposition spokesperson for State services, a prominent radio broadcaster was interviewing me about a particular instance where a chief executive had had quite a sizable pay increase. I remember it very vividly, because I was standing in a schoolyard at 3 o’clock and there was plenty of noise. I was trying to listen to what the questions were and he was giving me a hard time saying, “What are you guys going to do about it if you get into Government?”

Well, this is exactly what we are doing about it. There needed to be a check and balance on the levels of pay of chief executives in the Public Service, because there has been concern—and that interview was back in 2015—for some time. One of the key objectives of this Government is to make sure that we can look after low- and middle-income New Zealanders. The juxtaposition of New Zealanders at the lowest end of the salary and wage scale, struggling to make ends meet, with a Government that had little or no control on chief executive’s pay wasn’t a good look for the public, and, seriously, something needed to be done. I think this piece of legislation puts in place the mechanisms where the Government and the State Services Commission have a lot more oversight and control over levels of salary for the chief executives of our public services.

I want to congratulate Minister Hipkins for getting this piece of legislation through this House within 12 months of this coalition Government getting into office, because I think it sends a very clear message that we will put our money where our mouth is when we say we’re going to look after low- and middle-income New Zealanders. We do have some levers that we can control in terms of what chief executives are paid. They should be paid properly but not excessively. The Government today, by passing this piece of legislation in its third reading—and I acknowledge the support that it has got around the House—is showing leadership that something has had to change for those who are at the lowest end of the scale in terms of their pay and those at the very highest. That is one of the fundamental objectives of this coalition Government, and I want to congratulate Minister Hipkins and this Government in making sure that could be done within 12 months.

It is a little rich to be subjected to the complete lack of values displayed by this Government. On the one hand, they are talking about transparency—as if—and putting in another piece of legislation to support a neutral Public Service in the context of the ministerial sacking of the Hon Clare Curran, whose actions not only caused Carol Hirschfeld to resign, or lose her job—

💬 Hon Kris Faafoi: You’ve still got nine minutes to go.

—but also affected the employment of the Chief Technology Officer. Yes, I have got nine minutes to go and I’ll be fully using those, thank you, Kris Faafoi. I certainly will. I will be using those to remind that Government that their words may be lofty, that Minister’s words may be lofty, but the actions of a former Minister a little bit further down the House were anything but. So to stand with the lofty words around a neutral Public Service while public servants were losing their jobs and appointment processes were being knowingly subverted rather gives the lie to that contention by that Minister.

So, so much for transparency—so much for neutrality. What this bill does do is it extends the reach of the State Services Commissioner—it’s what it does. It extends the reach of the State Services Commissioner on signing off on chief executives’ pay and conditions. The member who’s just resumed his seat said it all. He said that they want to put a cap on chief executives’ pay. Why? Don’t we want the best people in New Zealand?

💬 Stuart Smith: We do.

My colleague says, “Yes, we do.” Well, we do. But in the interests of New Zealand, don’t we want the best people to lead our public entities? Let’s not forget that those chief executives often have a multimillion-dollar budget to manage, a large organisation spreading the length and breadth of New Zealand to manage, plus sometimes an overseas posting—that’s not unusual—a very high level of public visibility and scrutiny, and also a very high level often of parliamentary scrutiny and accountability. Don’t we want the best people for that job?

I am really pleased that a new clause was inserted into the bill at the select committee, and I do have to credit Brett Hudson for the work that he did at the select committee in making sure that protections were put in so that any candidate putting their name forward for a public entity at least had the protections of some criteria. Otherwise, who would put their name forward to be the chief executive? So the committee recommended inserting a new clause. It was clause 4, which would require the commissioner, before they signed off on the appointment of a chief executive, to have regard to a number of things.

Obviously, not every Crown entity is the same. There are five categories of Crown entity, running from a large State-owned enterprise through to a board of trustees. One of the criteria was the legal commercial and operational context of the entity, and that does recognise that not all entities are the same. It requires feedback from the board, so the board would provide any information they considered would be useful in supporting their recommendation that the commissioner sign off on that nomination. So that information of course would include things like the suitability of the candidate, the knowledge they have, their skill base, and how much experience they bring to the role. That is all good sense, and we support that.

The public nature of the nature of the entity of the role is also a consideration for the chief executive, and that I think is a very important factor to be brought in when one considers members like Shane Jones, who is very prone to opening his mouth and just letting words fall out and condemning willy-nilly, scattergun, anyone who he thinks will give him a better public profile. Public CEOs—their public visibility can be absolutely compromised by some loose-lipped MP looking for a headline. And, as we know, increasingly that is happening in New Zealand. That public nature of that role and the public nature of the scrutiny and criticism, whether it’s deserved or not, of that role, can be because of this clause inserted into legislation, and should be, acknowledged in the level of remuneration. Of course, the market needs to be considered—what the remuneration market is at the time. It might be different in five years’ time from what it is now; I’m sure it will be.

What the Minister expects from that CEO in their letters of expectation, and, again, here we have a Government on the one hand saying they want a robust Public Service and they want clarity and they want visibility—that was the word du jour from the Minister who’s resumed his seat—but Megan Woods has got two public entities who have not yet received a letter of expectations. This is 11 months after—[Interruption]—yes, and Ōtākaro is one of them.

So what they are doing is they are endeavouring to meet the current Minister’s expectations, but without a clear steer from the new Minister, what do they do? They fall back on the previous Minister’s letter of expectations and they have failed in their statutory role. And yet the Government seem quite complacent about that. So what does that say about visibility and a neutral Public Service and a Government which strives towards integrity? So that’s Clare Curran and Megan Woods who subverted that process knowingly. I do hope that with the passage of this bill, those matters will be nailed down ever more firmly—not for the Public Service, not for this side of the House, but for the Government itself, who has Ministers who seem only too willing to chart their own course through the requirements of their legislation.

So yes, we will support this, but this is this Government’s legislation, and we would expect that their Ministers would adhere to those requirements—because who loses out of this? They seem to be sailing through these transgressions—well, one of them hasn’t; one of them has lost her job. But on the way through, there has been damage to public servants, and surely, surely, their needs should be considered.

There is one other outstanding matter—I did ask the question in the committee stage but I did not get an answer from the Minister—and that is that the State Services Commissioner will be required to sign off not only on the appointment of a chief executive but the reappointment of a chief executive. Now, the longest term a chief executive can have for their appointment is five years. So in five years’ time—it is not clear in the bill—should a chief executive wish to be reappointed, and should the board wish to reappoint that chief executive because they have done an outstanding job, the bill does not make it clear, and the Minister would not, could not, answer what the process would be for reappointment in terms of the State Services Commissioner having to sign off on this matter. I do think that an answer from the Minister on that very point would have been very useful.

I just want to just finish my contribution by noting that a code of conduct has also been inserted into the bill, and I would contend that that code of conduct should apply not only to chief executives but also to the behaviour of current Government Ministers.

Tēnā koe e Te Māngai o Te Whare. The Green Party is pleased to support this piece of legislation, the State Sector and Crown Entities Reform Bill, and we’ve covered this ground quite a bit over the last few days, so I’m not going to have the longest speech in the world.

One of the points that is critical to this legislation, which we are very supportive of, is the requirement for boards when they are setting the terms and conditions of chief executives’ (CEs’) salaries and conditions of employment—that needs to be signed off, in effect, by the State Services Commission. We’re really supportive of this as a signal that it sends to the country around the importance of equality and addressing the unsustainable levels of inequality in our country at the moment.

Contrary to the views of the previous speaker, Jacqui Dean, for the Green Party we don’t necessarily see pay as an indication that the person who is paid the most is the best. I think the global financial crisis actually was pretty unequivocal in proving that the highest salaries are not necessarily for the most ethical or effective people; that, actually, there is an importance in centring values in our State sector, and that there are really, really great people doing fantastic work with a huge number of skills, who choose to do work that is less well paid, because they care about the work. It’s not as if we are talking about people paying people the minimum wage here—ha, ha! These are quite decent salaries up at this scale. We’re just talking about mediating it a bit to make sure that it’s not out of control, and there’s nothing I see in that that’s going to prevent the best people wanting to come and work in our Crown entities.

Another aspect of this is putting in a five-year term for those CEs, and that is to ensure a balance of power between the boards and the CEs. If you’ve got a CE who’s been there for ever, knows the organisation inside and out, knows all of the technical details, and you’ve got a new board who’s come in with a fresh direction, there’s quite an ability for that CE to be able to undermine the shift of direction of the board if they’re invested in a status quo. So putting a five-year time limit on their appointment helps even that up and ensures that the board and CEs are working in partnership on an even playing field. We’re supportive of that for our Crown entities.

We are also supportive of building more consistency across the inquiries legislation and the strengthening in there around inquiry capacities within the State sector. It is really important that we meet international best practice, and that we reconnect the system around a unifying spirit of service across our State sector. With that are also the codes that will be put in place around codes of conduct. We think that that is appropriate. Really, it is about getting that ethos right throughout our Public Service, Crown entities, and core State sector alike of values of service and responsibility, and it’s hard to see how anyone could oppose that. Indeed, it’s good to see—despite some of the speeches where people might think there might actually be people voting against this; that, actually, there’s not. It’s quite sensible. It’s not earth-shattering, but it is a subtle shift in direction to take us to a more equal and joined-up approach as a country. So, on that note, I again offer the Green Party’s support.

I rise to speak on the third reading of the State Sector and Crown Entities Reform Bill. Obviously, we support the bill. On the other hand, we do have some reservations because, we often say, the devil is in the detail.

Now, this bill does help strengthen the integrity, accountability, and openness in the management of the public sector. Although many provisions already apply to much of the Public Service, this bill expands the scope and covers a wider range of public service—particularly the Crown entities. So, in that sense, this bill would put more public service sectors, particularly the Crown entities, into the scope. For instance, this bill requires boards of statutory Crown entities to obtain the State Services Commissioner’s written consent to the terms and conditions of the employment of a chief executive.

Now, some Crown entities are already in the regime, but this bill will expand and cover more Crown entities. On the other hand, the Governance and Administration Committee made some contributions by making sure that the State Services Commissioner would be able to give reasons if he or she does not agree to the terms and conditions. This bill also specifies a term of employment for a specific executive. Now, of course, this mainly applies to Crown entities, because a large number of Public Service chief executives have a term of five years. So this is, again, mainly related to the Crown entities.

Now, there are also two key changes to the State Sector Act. The number one is this bill enables the State Services Commissioner to apply codes of conduct to the board members of entities that are subject to a code of conduct—that is, that are within the mandate of the State Services Commissioner. So this is number one. In that area, the committee also made some contributions: basically, to make sure that the State Services Commissioner is aware of some of the unique conditions of certain entities and, therefore, takes into consideration these various situations.

Secondly, of course, is to update the commissioner’s investigation powers by aligning them with the Inquiries Act 2013. This, in a sense, basically, modernises the commissioner’s power, or you may also say it will further strengthen the commissioner’s power. But, on the other hand, at the committee stage, the committee made some suggestions to make sure that the commissioner’s power is also somehow constrained. For example, the commissioner would require a written submission or make it a formal inquiry instead of an informal inquiry—only under formal inquiries would this particular provision apply.

So all this means is that this bill attempts to strengthen public trust and, of course, confidence, particularly in the Crown entities. While the intention of the bill is good and we support the bill, we do see some particular issues here. The issue of balance is a concern. So while we support the provisions in the bill, at the same time we want to make sure that we maintain a good balance. There are three aspects of the balance issue which I might elaborate on. Now, the first one, of course, is remuneration and the capability to attract top chief executives.

So while some members have said that these chief executives take up the job not because of salary—well, not solely because of salary—which might be true, on the other hand, we do need to face the reality. The reality is that we are competing with the private sector. So in the private sector we may see that these companies are able to pay top salaries to attract top executives, while, in the public sector, some entities look after billions of dollars—and how do we attract top executives to manage the huge funds, for example, but, at the same time, be able to make sure that the remuneration is reasonable? So this is a kind of balance issue, right?

So, as I said, we do need to make sure we have a reasonable remuneration and we enhance the public trust and confidence in the Public Service; but, on the other hand, we need to make sure we are able to attract top executives.

A good example is the New Zealand Superannuation Fund, which is one of the entities which was singled out by Minister Chris Hipkins. The Superannuation Fund is a huge fund, very successful in the past 15 years. Now, I can see here that in the 15 years since it was set up, the fund has made an annual return of 10 percent, the fund has paid more than $6 billion in tax over the same period, and it has grown to be over $38 billion in size. So this is a huge fund. How do we attract top people as guardians and as chief executives? That is a particularly important issue for the fund. By the way, when we are talking about the bill, we need to make sure that we are not doing a witch-hunt, because we do not want single out one or two particular entities—although this bill actually does address some of the most important entities here.

The second balance issue is between the five-year term and the necessity for long-term plans, because for some funds it is important to have a long-term investment. How do we have the balance? On the one hand, we want to limit the term to five years; on the other hand, we want to make sure we have continuity so that we do maximise the profit or return. For instance, under KiwiSaver you have different options: you have a growth fund, you have a balanced fund, you have a conservative fund, and you have a cash fund—different categories.

Normally, the adviser will tell you that if you have many years to go, they will suggest a growth fund, a growth option, which would generate more return in the long term. If you do need the money in the short term, you will be advised to have a short-term cash or conservative option. So this is important. So we do need to make sure we are able to somehow make our CEOs more accountable by limiting their terms to five years. On the other hand, we give them the freedom of continuity to invest long term. So this is another balance issue we need to consider. This is, basically, an issue which has been pointed out by many experts in this area.

Another balance issue which I want to mention is the balance between independence and political interference. So how do we make sure we have independence of the boards? On the other hand, we do have this control over the boards. So sometimes we are concerned that the Government might be able to interfere with the management of some particular entities by having political interference. So this is not what we want to see. We do not want to see interference from political parties; we want to see the independence of the boards. But, on the other hand, we do want to have some kind of control over the management. So how do we maintain this kind of balance: control over the board—over the entities—and, on the other hand, the entities’ independence from political interference?

So, finally, there is irony here. This bill is about openness, transparency, and integrity—this bill is really about this. But, on the other hand, we can see this Government itself is not really transparent, open, or with integrity. Thank you.

This is a split call—five minutes. I call Dr Liz Craig.

Thank you, Mr Assistant Speaker. So, as New Zealanders, we rely on our Crown entities to carry out a huge number of essential functions. Just thinking about the Crown entities in health, I mean, we’ve got district health boards, we’ve got the New Zealand Blood Service, and we’ve got Pharmac—all of them absolutely essential for all of us as New Zealanders. I think it’s really important that the public maintains its trust in our Crown entities.

This is not a bill that I saw through select committee, because I actually sit on the Health Committee rather than the select committee that heard this bill—the Governance and Administration Committee—so I haven’t heard all the detail of all the submissions. So, in my brief call, what I want to do is just outline some of those key features of the bill for those of you like me, who haven’t gone through that detailed process.

Some of those key things that this bill does: firstly, what it does is it requires the boards of statutory entities to get written consent from the State Services Commissioner before they set the terms and conditions of their chief executives’ employment. The other thing it does in that respect is it also says that you can’t set a term of employment of more than five years, although there’s a right for renewal. I think it’s really important because everybody in our State sector works really, really hard, and I think it’s important that the pay and conditions of our chief executives aren’t completely out of whack with others working in this sector.

The five-year term—what that means is that we’ve got a much closer alignment between the terms of the boards that are overseeing that chief executive, and the chief executive themselves, which makes it a lot easier to monitor their performance in terms of thinking about what the board’s directions are and where the chief executive wants to go.

The bill also makes sure and allows the State Services Commissioner to apply codes of conduct to board members in those entities that are subject to such codes. I think that’s just really essential because these board members are providing leadership within our State sector, and we need to have them accountable to very high standards of integrity and conduct.

The bill also modernises the State Services Commissioner’s investigation powers. So what that means is they’re in line with the Inquiries Act 2013, which came in more recently than some of the original legislation that was tied up with the earlier Act. It ensures that we get the same approaches to investigation irrespective of whether it’s a Prime Minister, a Minister, or anybody else in the State services asking the commissioner to act.

So I think, taken together, what this does is it provides a much more modernised, integrated approach to our State services, and it helps preserve the public trust in our State sector, so I therefore commend this bill to the House.

Five minutes—I call Stuart Smith.

Thank you, Mr Assistant Speaker. Well, it is a pleasure to speak on the State Sector and Crown Entities Reform Bill. I guess a couple of the things that have been highlighted as being reasonably controversial in this particular area is the fact that the 10 percent of the CEOs’ salaries that was at risk has gone. I think that, certainly as someone who has worked in this area—not in the State sector but certainly as a chair of a board hiring a CEO—nothing motivates people like a financial incentive. You often hear the claim that “Well, that will just lead to perverse behaviour to chase that particular reward.”, but all that means is that they don’t have confidence in the criteria you put in there for those people to achieve that bonus. I think it’s really important. It drives good behaviour and it drives good performance, and I don’t know why the other side, in particular, are afraid of performance. It’s something I think we should all strive for.

Under the bill, one of the points, of course, is about the hiring of the chief executives. So the Government appoints the boards, and the board then appoints the chief executive but then has to go through the State Services Commissioner before getting that approval. That’s where, for the employment conditions, things could break down and go slowly, because there’s a back and forth in between the board and the commissioner and then back to the prospective employee. I think that does create some uncertainty.

I know we’ve got it to this point, so we’re not against it completely, but I think the criteria that’s been put in replacement section 117(2AA) in clause 4 sets out in paragraphs (a) through (e) various criteria that must be considered in the terms and conditions of the chief executive—guidance, if you like, for the board. But it is having regard to Government’s expectations. Where the fear comes is that we might have an Americanisation of the Public Service, where chief executives come and go with various Governments of different colour and are appointed based on their political point of view and their political standing. That’s something that we’re very much against on this side of the House. I think that would be a very inappropriate place to go for the Public Service. So it behoves the Minister and the current Government to ensure that those criteria are very carefully applied, and we will be keeping a very close eye on that.

I note that the Institute of Directors submitted to the Governance and Administration Committee, and I view this particular entity as a huge contributor to New Zealand’s governance—and, certainly, not just because of having been a member myself. The appointment of a CEO—they talked at length about that to the select committee—is a vital role. It’s the most important role for a board. In fact, in some boards I know, prior to the board meeting starting, they have time without the chief executive, and they ask themselves one question—a most important question: “Do we still have confidence in our chief executive?” If they don’t, then they’ll have to deal with it, either by getting an improvement in the performance of the chief executive or by getting rid of the chief executive and moving on. That is their most important role. The board can have all the policies it likes, but, if the chief executive is unable to carry out those policy directions from the board, then they shouldn’t be there. That is why it is such a vital role for a board.

I want to turn now to a claim that was made earlier by the Hon Kris Faafoi about the increase in use of contractors by the previous Government. I would like to point out to the Minister and to the House that, actually, if they would care to look at the contractors that were hired, a large amount of that is entities like Beca Group and Opus International Consultants, with skills that are not held within the Public Service, all around the earthquake issues that occurred from Christchurch. I think that it’s a very silly and spurious argument to put up about the use of contractors. The one advantage with using contractors aside from that, of course, is that if they’re not performing, it’s a very simple process to get rid of them and get another one. I think that drives performance. Fear of failure is, certainly, something that people should have in front of their mind.

Tēnā koe e Te Māngai. It’s a pleasure to speak on the third reading of this bill. There’s been robust debate. There’s been a little anger, but there’s been lots of love. That’s why I reckon the reservations from that side of the House lack real authenticity. They love this. They want it to pass, but we’re just seeing out the week.

When you look at it, it looks pretty good. How could it not look good when what we want to do is ensure that we send the signal of transparency and accountability to taxpayers that the public money that is being spent through these agencies is fully transparent and accountable? It’s as simple as that. This is public money. These are the Crown agents, independent Crown entities and the like, and all we are doing is putting a level of consistency to the processes in place for those senior leadership roles—be it the chief executive officers. How could you not want that? I said yesterday that this was all about putting the “public” and “service” back into the Public Service, and that’s what we’re doing. It’s as simple as that.

I want to thank the Minister of State Services. He did raise an important note around the level of public confidence being eroded in chief executive salaries, and that links to performance. It’s a bit of a myth, I think, that paying more gets you more in terms of the quality of person. What we’ve said is that there are other ways, in terms of remuneration, to reward those high-performing entities, and those who want the roles will respond. If you don’t want it, if you want to sell cars and tyres, then so be it; join the private sector and get yourself a flash job on that side of the fence. We’re looking for high-quality public servants, who will spend public money with full transparency and accountability—ultimately, giving that trust and confidence to taxpayers and giving the people of New Zealand what they want to see, which is good value for money from the Public Service. It’s as simple as that, I think.

I don’t want to get into the little faux fights from the Opposition around little bits and pieces of this and that. This bill is a great bill. We’ll look back and say, “Why didn’t we do this years ago?”, and that’s probably because—

💬 Hon Ruth Dyson: It’s because we had nine long years of National.

—we had a National Government. Exactly—dare I say it—chief Labour Party whip for the Government, thank you. I commend the bill to the House.

Tēnā koe. Ngā mihi ki a koutou i roto i Te Whare i te ata nei.

[Thank you. Greetings to all of you inside the House this morning.]

My acknowledgment to all members in the House this afternoon as I stand to speak in the position of last speaker for the National Party. In so doing, may I just first acknowledge all those who have worked conscientiously on this bill—the members of the Governance and Administration Committee. I haven’t had the opportunity, nor the advantage, of sitting on the select committee during the discussions that have occurred as a result. However, I have conscientiously read the bill, although not with a thorough, scrutinised, legal lens, and I have glanced over the debates that have been recorded in Hansard.

I’ve also listened intently to the discussion and the debate in the House this afternoon, and may I, first and foremost, say that National supports this bill. My colleagues have addressed the detail around what their concerns are, and although the proposals for amendments to this bill have not been heeded, it is noted on the record.

In the committee stage of this debate—as we are now in the third reading—there was considerable discussion around those concerns, and I will come back to that. However, from what was canvassed or discussed in opening the debate this afternoon, Minister Jones mentioned to the previous Speaker in the Chair that he doesn’t always hear accurately the female voice. Although that may have been said in jest, he unconsciously also said in the next breath, made reference to, that this bill is about Civil Service leaders who are “handsomely remunerated”. So, as a woman MP in the House, I just detected the unconscious bias that sometimes pervades the kōrero that comes through. As a member of the fairer sex, this bill is about ensuring that there is a level of parity, so I just thought I’d mention that. Some of those subconscious biases may be there, and some of that subconscious bias may also prevail in this legislation.

My colleague across the House Paul Eagle made reference to the fact that this Government is about sending the signal of integrity and accountability, and full transparency and accountability. I invite the Government to do more than signal. I invite the Government to exemplify this. This is a bill that is attempting to exemplify ensuring that there is greater integrity and accountability in the management of State services by providing a strengthened and more consistent regulation of conduct and remuneration of employees at the most senior level. So I just gave those two examples where we have members of the Government who subconsciously are expressing messages that are not consistent with what the broad policy statement of this bill is about: integrity and accountability.

Let me now turn to the details in the provisions of this bill. As all previous speakers in the House before me have given an overview, the overview that I share with the House is that this bill is an omnibus bill, and at the committee stage, before the select committee, and also in the House, amendments have been proposed and they have been factored into this.

Part 1 of the bill seeks to make amendments to the Crown Entities Act in relation to the appointment of chief executives for statutory Crown entities, so the select committee is requiring that the boards of statutory Crown entities obtain the State Services Commissioner’s written consent to the terms and conditions of employment. The committee of the whole House at the committee stage recommended an insertion into clause 4 of this bill—which amends section 117 of the Crown Entities Act—not only requiring the commissioner’s written consent but requiring that the commissioner have regard to the legal, commercial, and operational context of that entity, any information that’s been provided by the board of that entity, such as advice about the candidate’s knowledge, skills, and experience, the public nature of that entity and its role, and, importantly, the related public interest in prudent stewardship of public resources. It also requires the commissioner to have regard to relevant market information, Government expectations, and other relevant factors.

I’ll come back to the concern that was expressed by my senior colleague the Hon David Carter when this House was in the committee stage yesterday, and that was in relation to a concern about the neutrality of an appointment of a chief executive to such a State entity. My colleague referenced his concern around clause 4, which is seeking an amendment to section 117 relating to the employment of a chief executive, and that the commissioner, in having regard to Government expectations, question political neutrality in that appointment. My colleague’s concerns have been detailed on the record around that and, notably, that concern, in having been noted, was one of the reasons why this party was somewhat hesitant about that amendment not being factored in.

Another amendment that the select committee had requested be taken into consideration was around Part 2, relating to improving the commissioner’s investigatory powers and setting provisions to apply codes of conduct. The committee recommended that the bill would be improved by including additional sections of the Inquiries Act. That is outlined within the Act, without me having to go into the detail around that. However, by inclusion of that, the select committee’s recommendations have been factored in and taken into account in the amendments accordingly to be made.

As indicated to the House, I did not sit on the select committee, but I can speak from experience as a board member when one of those members turned somewhat rogue in relation to the conduct. The board has been at a loss in terms of holding to account, around the integrity of the board and what is required in terms of the duty there, the conduct. So this bill sets out very clearly what the terms of that will be.

In taking this call, the National Party supports this bill with reservations, as has been noted at the committee stage of the debate yesterday. It has been recorded in Hansard, and, importantly, should there be any concerns around the application and the interpretation of this Act, the National Party’s integrity will stand without question and without reservation, having that noted on the record. Accordingly, the National Party commends this bill to the House, and, as a member of that party, I support that decision.

Tēnā koe e Te Māngai, tēnā koe e Te Whare nei. Thank you for the opportunity for speaking as the last speaker in this third and final reading of the State Sector and Crown Entities Reform Bill. Crown entities, as we’ve heard, form a vital part of the Public Service as part of the State sector, as they are the public face. It’s very important that we have consistency and transparency across the whole of the State sector, and, in that, it’s very important that we make sure that there is alignment and that they are connected. Those core values are the things that connect the parts of the State sector, and an integral part of that is the service to community.

There’s been a bit of drift, I would like to note, in the past that’s disconnected parts of the State sector from each other, and in the past there’s been drift particularly with regard to remuneration of chief executives. In the past, we’ve seen increases in salaries from $20,000 to $50,000 per annum. In particular, the one that is of memory was the 36 percent increase to the chief executive of the New Zealand Superannuation Fund, and I do rightly remember that even Bill English himself thought that that was a bit too much. So changes in this bill strengthen the role of the State Services Commissioner and will bring increased public trust and confidence that there is a good level of transparency within the Public Service.

The main area that was really discussed through the select committee process revolved around this issue around the role of the chief executive and the remuneration. While the bill also includes the appointment of five-year terms instead of those terms being unlimited, it also looks at the standards and the integrity on conduct for Crown entity board members, which is important, and it also looks at the State Services Commissioner’s powers to investigate. All those areas are strengthened.

But the part of the debate that I would like to spend the remainder on, really, is looking at that discussion around getting that balance right between having the right person to lead a key organisation within the Government but also that those pay levels are not excessive, as they have been in the past. This Government has been very clear on the fact that we want to see a narrowing of the gap between those who are paid the minimum wage and those that are paid the highest rates, and so if this Government is going to walk the talk in terms of delivering that, it’s important that we not only raise the minimum wage but we also look at those top-level pay levels. A core value, again, is that service to the community.

We are proud of our Public Service for the excellent job they do, and, as a former public servant, it’s been interesting to see, under the previous Government, the role of contractors. That’s actually quite a good example to look at how you get that balance right. At a time when we saw the sinking lid on public servants and an increase in contractors being brought in to deliver Government services and provide advice, the cost per hour shot through the roof so that the cost per hour to employ a contractor is far in excess of what you would pay a salaried person. That has an impact upon a team. Bringing that in has an impact on the way that the Public Service operates. It also has a detrimental effect in terms of the institutional knowledge that is retained within a Government department or a Crown entity for that reason that if people are brought in quickly for specialised knowledge and then leave again, it stops that entity from being able to develop a strong understanding and an institutional knowledge that is retained.

Finally, I would like to say that one of those negative factors that I’ve seen of those short-term contracts is that it doesn’t enable the Public Service to work as a team. If someone comes in at a much higher rate for a short period of time and then leaves, it prevents the best advice been delivered in a team environment.

So I think it’s important for this bill to be acknowledged for the good work that it does in being able to draw together our Public Service and strengthen it by ensuring there’s increased transparency and by ensuring that we have a stronger connection in those core values—and that is to serve the community; that is to be always there to provide the best quality advice for this Government to do its work and for select committees to continue to do the good work they do.

So I would like to acknowledge that we have an excellent Public Service in New Zealand, and I am proud to commend this bill to the House, for the fact that it will strengthen that excellent job that already goes on. Thank you, Mr Assistant Speaker.

Bill read a third time.