COVID-19 Response (Further Management Measures) Legislation Bill

This is going to be a very brief contribution to this debate. The bill, of course, has a wide range of amendments. It amends a significant numbers of Acts in response to COVID-19.

I think that there are a couple of substantive issues around the Supplementary Order Papers that my ministerial colleague Kris Faafoi will speak to briefly just to place on record what those amendments actually do; they sit within his portfolio area.

I just want to echo the comments that I made in my second reading speech, which is to thank the COVID select committee and the Opposition and Michael Woodhouse, in particular, for helping to shepherd this bill through in a very, very tight time frame. They gave it some very thorough scrutiny given the time that they were allocated. They’ve come up with some very pragmatic and sensible amendments, which is the reason why we’re in the committee stage, and I want to thank them again for that.

Thank you, Mr Chair. Just a brief contribution to speak to Supplementary Order Paper (SOP) number 503, which is two amendments to some of the insolvency matters within the piece of legislation. They are to Schedule 2 and Schedule 4.

This SOP makes amendments to the bill, as it was introduced, to make it clear that if any entity has already entered into an instalment arrangement in relation to any part of its tax debts with the IRD under the Tax Administration Act, section 177B, the debt under that instalment arrangement is excluded for the purposes of the business debt hibernation arrangement which is within the legislation. This means that the instalment arrangement stays in place and the Inland Revenue will not be a party to the business debt hibernation arrangement in respect of that debt. This will, we hope, incentivise businesses to start talking to the IRD now without needing to worry that any instalment arrangement that they enter into with the Inland Revenue could be changed by the business debt hibernation.

It also makes clear that where an entity enters into a business debt hibernation arrangement which does provide for the payment of sums to the Inland Revenue, for example, in respect of any debts that are not covered by a pre-existing instalment arrangement, the business debt hibernation arrangement is to be treated as a new instalment arrangement for the purposes of the Tax Administration Act. The reason for doing this is to ensure that existing procedural arrangements in the Administration Act for how the Inland Revenue deals with, effectively, rescheduled debts need to apply. This will also mean that businesses aren’t penalised under tax legislation where they enter into a business debt hibernation arrangement in relation to the debts owed to the Inland Revenue. The changes to the regulation-making powers provide the flexibility to adjust how Inland Revenue deals with such arrangements in the context of the business debt hibernation regime.

Can I also back up the comments made by the Leader of the House in terms of the speed in which this legislation was turned around, and pass on my thanks to the Epidemic Response Committee and also to the officials who have worked very quickly to draft the legislation and make amendments which came out of the select committee, which was, I believe, just a one-day hearing. So can I pay thanks to the Parliamentary Counsel Office and to the Ministry of Business, Innovation and Employment (MBIE) officials which have helped us grind through this work—to Susan Hall, Geoff Connor, Natan Karon, Richard Clough, and to Robert and Stephanie, the MBIE officials in my office, for the sterling work in the conditions. So, again, I think these are provisions which I think will come in extremely handy to businesses that are extremely worried about their short- and medium-term futures.

Thank you, Mr Chair. I too will speak on Schedule 4 of the bill, which inserts new Schedule 13 into the Companies Act—the business debt hibernation (BDH).

One of the elements that was discussed in committee was the need to provide an incentive for general security arrangement (GSA) holders to be prepared to accede to a BDH application. There was agreement, although not without some concern, that if those GSA holders were asked to enter into an arrangement which would prevent them taking any enforcement action with respect to the large securities they hold, none of them would ever be prepared to allow a BDH application to go through, presuming they had enough of the vote weight to prevent that.

So it was agreed that such holders would not relinquish their rights to initiate enforcement actions vis-à-vis the security they hold or the debt that they are owed. On the face of it, we did agree with that but were concerned that that would mean that during the debt hibernation period, unsecured or less secured creditors are at a distinct disadvantage.

So the question I have for the Minister and for officials is: given that we had to do that, what incentives are in there for other creditors to agree to sign up to a business debt hibernation arrangement? Is it not likely that on the premise that a bird in the hand is worth more than two in the bush, in actual fact, too many of them might say, “Well, I’m in a precarious position here—or I will be left so—so it’s better for me to actually prevent this if I can and take what I can get now rather than to risk the GSA holder taking an enforcement action during the period and me potentially being left in a worse situation than I am on day zero.”?

So we don’t disagree with the bill, and we don’t disagree with the position the committee reached, but it is, I think, a fair question to put, which is: we got to where we had to get to, but to what extent does that actually create disincentives for other creditors to permit entry into a scheme?

Thank you, Mr Chair. I wish to speak to Supplementary Order Paper (SOP) 489 in my name. It’s an SOP which, effectively, calls for a rates freeze, an issue I raised in the House last week. Can I first say, generally, I think the Government’s approach in this bill is the right one. It tackles a range of issues which will assist New Zealanders in their day-to-day life as they deal with issues that they’re faced with under COVID-19. But I have to say I was disappointed—not surprised, but disappointed—when the issue of a rates freeze and how local government can assist New Zealanders was quite dismissed by the Minister of Finance last week when I raised it in question time.

So I put forward this SOP because I think, genuinely, New Zealanders should be able to enjoy some relief from their local council right now, in this time where huge numbers of people are losing jobs, when people are struggling to pay the bills, struggling to pay the mortgage to keep their home. We should be calling on local government to do what they can do as well to ensure that New Zealanders can get by and that they have some relief when it comes to what local authorities impose on people. Homeowners, mortgage payers, when they are looking at their daily bills, when they are looking at their cost of living, an annual increase—it always comes their way—that they never seem to get relief from is their rates bill. Councils are known for always just looking for increases rather than first looking at whether they can cut back some of their own costs and whether they can provide some relief to their ratepayers. So I’ve drafted this SOP, which would implement a rates freeze across the country, because I believe it’s reasonable that New Zealanders should have that opportunity.

It’s not as if it’s a controversial thing for a rates freeze to be proposed. It’s actually what some councils themselves are looking at right now. But as we know, local government is a creature of statute. Local government makes decisions around rates and the costs that they impose on New Zealanders under statute that this Parliament passes, the Local Government (Rating) Act and the Local Government Act itself. I think, in this extraordinary time, we should be sending a message to local government and leading the way for them to say that they should be delivering lower costs to ratepayers than they were otherwise expected to do. This is not as if it’s a controversial issue either, because the likes of Christchurch, the likes of Dunedin, the likes of the Waikato Regional Council—they’re already talking about rates freezes. Other councils, though—and having been there as a city councillor, I know they’re usually scared into putting the rates up by their officials, by their finance people, who scare them into saying that they can’t go ahead with projects if they don’t ramp the rates up every single year.

The reality is, right now, the cost of borrowing for councils, just as it is for Government, is going to be at the lowest they’ve ever faced. The cost of borrowing is going to be low because if international lenders are looking for good horses to back right now, organisations backed up by taxpayers or ratepayers are good avenues for funding. So ratepayers should enjoy the benefits of that as well, and councils should be doing just like every other organisation out there is doing in this tough time: cutting back their costs. It’s not good enough for a local authority simply to say “Well, we have to put up the rates because we have no other way.” Well, there is another way. The other way is to look at their balance sheets, look at their budgets, and look at where they can make cost savings.

So as local government is a creature of statute, as this Parliament has passed laws saying how they should set rates, we should tell them now how they should implement some savings for their ratepayers as well. So I put forward this SOP. I think it’s something that should be considered by the Parliament. I note that calling for a rates freeze is something National Party MPs have been calling for on their Facebook pages and social media, so I hope we can enjoy support from them on this issue as well.

Thank you, Mr Chair. I would like to make a couple of comments. One is to endorse what we’re hearing from Jami-Lee Ross. Now, I know in the normal course of events we’re supposed to have local democracy, and people are supposed to elect councillors to decide things, such as their rates. And yet it’s always important to remember that the ability of councillors to set rates is set by Parliament and all of the rules within which they set them are set by Parliament. One reason why Parliament might intervene on rate setting right now through an amendment such as that of Jami-Lee Ross is that I believe there is an imbalance of power between the bureaucrats, or the civil servants, or the management of councils, and the elected councillors.

I’ll just give you one example from Auckland Council. I was speaking to a local councillor on the weekend, and the bureaucracy told the councillors a zero rate increase is impossible, cannot be done—“We won’t even do the modelling for you.” Now, thankfully, a few of the councillors pushed back, and I understand they are going to get some modelling of what that would mean. But far too often, the option of saving money is left to the council bureaucracy, who are the main source of cost. And haven’t we seen that with Auckland Council recently with the number of indescribable unfathomable job titles that nevertheless attract six figure salaries with numbers like three and four in front of them? There is no question that councils are impacting on ratepayers and particularly on business ratepayers at the moment in the most destructive way, that will cost jobs by slowing down the recovery of the economy. And yet the Government has failed to put in place any measures to allow councils to either breach their debt ceilings or give relief to ratepayers, particularly company ratepayers. So I wholeheartedly endorse Jami-Lee Ross’s amendment, and I hope that it will have wide support, because the impact of rates and the intransigence of council bureaucracies in reducing them are a major problem for business, jobs, and employment at the moment.

I just want to quickly rehearse one of the arguments about these so-called safe harbours, these exemptions for the directors’ liabilities. I think it’s really important at this time when we are saying, “Haven’t the officials done such a wonderful job and the Minister done such a wonderful job?” The officials told the Epidemic Response Committee that it was necessary to change the law to a more liberal version, because the law was already liberal but directors didn’t understand that. And if that’s difficult to follow, I don’t blame anyone who doesn’t follow that. It was difficult for us too. The problem with that is that if it’s true that directors are just too dumb to follow the law—according to officials advising the committee—then surely the right thing to do is educate them on what the law is, not change the law to what the law is supposed to be so somehow they’ll understand that the law is what it is, which is, effectively, the argument that we got from the officials on the committee.

We then had professional directors come and speak to the committee, and I asked them if it was really as crazy as it sounded, and they said, “Yes, there is some uncertainty around the director’s obligations in relation to trading while insolvent.” Some of those have arisen out of the Mainzeal case—some of those caused the Mainzeal case, some might argue. The upshot is that if that’s true, the last thing they want is for the Government in the middle of a crisis to change the law so that if they did have a problem understanding the previous law, now they’re going to have to understand a new one. So the Government is just layering uncertainty on a problem, which is uncertainty. How crazy is that? Well, that’s the law that the Government is trying to pass through this Parliament. That’s one of the reasons I’ve opposed this bill throughout, and ACT will continue to do so. With that, I end my remarks.

Thank you, Mr Chair, and I appreciate the support from David Seymour on this particular issue. He raised a point there that I just want to answer about local democracy and how, typically, we leave these things to councils, and we do leave it to the elected local members of a council to make their overall decisions. They do so within the constraints of the Local Government (Rating) Act and the Local Government Act. But in this case, I just want to say and make the point that this is still being left, in most parts, to the decisions that the local elected members will be able to make as to how to implement a rates freeze. So it’s not as if complete local decision-making would be taken away. The way I’ve drafted the Supplementary Order Paper, it would, effectively, say an invoice that a local authority issues for the 2020-21 year must not be any greater than the previous financial year. There’s an exception if there’s a change of use with that particular rating unit, but how they achieve that will still be left to the local elected members.

The Local Government Act and the Local Government (Rating) Act have so many different constraints and considerations and requirements that are placed on local authorities. We do this on a regular basis. Every time there is a change to local government legislation, Parliament passes on and imposes more constraints and regulations on local government. This is just another one, but it recognises the extraordinary times we’re in, and it recognises the fact that people out there are hurting. This Parliament and this Government, in the Budget tomorrow, is going to recognise the fact that people are hurting and that people need support. The local authorities around the country that haven’t already stepped up and said they’ll at least consult on a rates freeze or maybe even implement it—they should be doing the same thing and assisting people while they’re hurting, while people are struggling to pay their mortgage. There will be mortgagee sales. There’s unemployment across the country. Councils need to step up as well, and we should lead the way.

The question was put that the amendments set out on Supplementary Order Papers 488, 491, 492, and 493 in the name of the Hon Chris Hipkins be agreed to.

Amendments agreed to.

The question was put that the amendment set out on Supplementary Order Paper 489 in the name of Jami-Lee Ross be agreed to.