Reserve Bank of New Zealand Bill

Members, we come now to the Reserve Bank of New Zealand Bill. When we were last in committee on this bill, we were considering Part 2, the debate on clauses 8 to 111, and Schedule 2 and Part 2 of Schedule 3, which provide for the continuation of the Reserve Bank of New Zealand. The question is that Part 2 stand part.

Thank you, Madam Chair. I’m rising to speak to a Supplementary Order Paper (SOP) in this section of the bill and to commend that SOP to the House. The SOP is in the name of Andrew Bayly; it is SOP 46. What it seeks to do is to reflect the fact that the activities of the Reserve Bank can cause fiscal risk for the Crown—that is, the Crown could have huge amounts of money expended by the Reserve Bank within the current framework that is before the House, as we speak. It’s National’s view that the Minister has a legitimate role in managing those risks and that that can be balanced against the Reserve Bank’s requirement for operational independence.

What Andrew Bayly has put forward in SOP 46 is a quite tidy framework, I think, in that it picks up and mirrors very exactly the framework for foreign reserves management that already exists in the Act. This is a proven mechanism and one that has met the tests for balancing that need for accountability and also that need for operational independence.

What it seeks to do is have the Minister and bank agree on a framework for how capital and financial risk management will occur, including things like, for example, the minimum levels of capital that must be held, the optimum levels of capital that must be held, and the ceiling levels of capital that the bank should maintain. Of course, the reason for this is that we don’t think it’s in the interests of any Minister of Finance to have the Reserve Bank able to put the fiscal position of the Crown at significant risk by incurring huge amounts of expenditure, for example, that were not expected by the Minister. So my question for our Minister of Finance is whether he would give consideration to this SOP, and, if not, why he thinks that the capital and financial risk management framework shouldn’t replicate that found elsewhere in the Act for foreign reserves management.

I’d point out here that this isn’t a completely novel approach. If we look at the United Kingdom, there is a statutory memorandum of understanding between the Treasury and the Bank of England, and that includes a target level for the bank’s loss-absorbing capital as well as principles for determining which monetary policy or financial stability operations should be undertaken on the bank’s balance sheet and which should be indemnified by the Treasury. In the UK, that approach is seen as reinforcing the bank’s independence and resilience and providing greater transparency to the finances, therefore reinforcing the stability of the financial system. I would ask the Minister why such an approach as set out in SOP 46 shouldn’t occur in New Zealand.

I thank the member very much for her questions. Essentially, this comes down in many ways to a philosophical position here about the way in which the operational independence of the bank can be protected whilst Parliament and indeed the Government is in a position to be able to, effectively, set a framework. So what the bill now does is give a control for the Minister to set financial boundaries and, within those boundaries, for the bank to continue its operational independence. That gives the Minister a reasonable say, I would say. That happens after we consult with the bank.

That power in the Supplementary Order Paper would weaken the Minister’s power to set those boundaries by requiring us both to agree on those, and then unbalance the independence equation. So I like the clear separation that we’ve achieved through the bill as it stands, where I decide the boundaries as a Minister and the bank operates within them, rather than muddying the waters of that transparency and independence.

Thank you, Madam Chair, and thank you to Minister Robertson for responding to that issue. I think I’d just like to take a little bit of issue with that response, which I didn’t find incredibly compelling, but I’m sure that the Minister will warm up in time.

I think there’s two issues at play with regard to setting a financial framework for the bank. The first one relates to how the bank is funded. The second one relates to the nature of expenditure that the bank may get into and undertake. I accept the need for independence around how the bank, if it’s funded adequately, should be empowered to be able to go and do what it does in the best interests of New Zealand. So there is no issue around the bank independently spending what has been allocated to it, but there’s the issue—and this bill strikes at the issue—of what is the appropriate framework for the bank to work within.

I think—as my colleague Nicola Willis quite rightly pointed out—this is not an unusual thing. First of all, the Australian and the Canadian Reserve Bank equivalents have similar arrangements that are a lot more crystal clear in terms of what the bank is able to do and what types of liabilities it is able to accept. Also, the Bank of England is operating under a similar mechanism.

I think the key point, Minister, is the focus of the legislation is only on setting a minimum capital level. The proposition I’ve put to you previously—and, again, I’ve tried to set it out very clearly in the bill—is that there is sophistication around the types of activities that a bank should be able to undertake and that are actually happening even now with current arrangements, with swaps, interest rate arrangements, and—heaven forbid, if we’re trying to do this for 30 years—setting up a bank with a new structure for 30 years, which you’ve previously talked about, and then there are a whole range of sophisticated financial instruments. Simply, this bill does not cater for those adequately.

So my question is: why wouldn’t we be doing what other established reserve bank frameworks in operation around the world are doing? Why are we so special, and why are we so simplistic in our approach? That’s the key difference, I think, we have between this bill and the one that’s been proposed in the Supplementary Order Paper.

Again, I come back to my opening statement to Nicola Willis, which is that in many ways, this is a philosophical point. I note the member’s media release from earlier today accusing me, as the Minister of Finance, of variously involving myself too much in the affairs of the bank. This is, in fact, an attempt to make sure that we have a process by which parameters can be set, but that the bank can work within those.

The Supplementary Order Paper (SOP) that the member is proposing potentially could see a framework agreement going into a lot of detail that I am not sure actually is useful for the bank’s operations or for the level of accountability that the member wants to do. For example, are we talking about what kinds of instruments or securities the bank might acquire. Is that the kind of thing that member wants us to be discussing, because if it is, the level of detail required for that, I think, is disproportionate to the value that we would gain from the kind of arrangement that SOP 46 requests. So again, I repeat, it is my view that setting out an ability for the Government or the Minister to be able to have a level of fiscal control but have the operational independence has served us relatively well in this context.

In terms of the member is question around other jurisdictions, there’s a variety of arrangements, and I understand the point the member is making—that the Bank of England has a particular style of this—but we have always had our own arrangements, and they’re the ones that work for us best. We look around the world and we see what works for us, but there are a variety of arrangements for how this is done.

So, just to be clear, can the Minister just tell me exactly what are the arrangements or parameters he can place on the bank, because as I understand it, minimum capital is the key requirement. But if there are others, it would be nice for him to highlight those.

Secondly, what are the requirements or imposition he can place on the Reserve Bank if they do get into contingent liabilities, derivatives, etc.? Does he have the ability to place any restriction on those?

Within the broad boundaries we can make some decisions about what we feel comfortable with. When it comes to the types of securities or the types of arrangements the bank might make within those boundaries, then, no, those are their decisions.

I think the Minister is being pretty unclear, so let me just be very clear: what boundaries can the Minister set under the current bill to manage derivatives and contingent liabilities? They are, in fact—

💬 Hon Grant Robertson: I’ll come back to the member on that question.

OK, good.

Thank you, Madam Chair and Minister Robertson and my colleagues. It is interesting that the Green Party hasn’t really got a view on what’s happening here. We talk about a climate change emergency. Well, we consider there is a monetary and fiscal emergency going on as well. Mr Bayly’s point is quite relevant in the sense that, just looking at debt to income restrictions—this morning’s announcement—the UK’s got an example of five times and we’ve got an example of 10 times floated out today, and, let’s be brutally up front here: this is a new regime, right? The original bill from the 1980s—it may be a philosophical argument, but we don’t know whether we’ve got a New Zealand Motor Corporation construct here or a McLaren, and I think the country deserves a McLaren in terms of where and what it should expect from the Reserve Bank bill.

Let’s be pretty clear: Gareth Vaughan was correct in the sense that the Reserve Bank of New Zealand is being moved into the international regulatory system, and yet we don’t actually identify or even admit that there’s other organisations around the world that now shape and form our policy. So the philosophy is extended to the International Monetary Fund, and it’s an oversight for our system not to reflect on where the world is going in those regulations.

One of the concerns that we’ve had is just that this bill isn’t modelled enough and considered enough and hasn’t had enough public scrutiny to satisfy the next 30 years of what we think is an important consensus. In that sense, we didn’t actually get a consensus across the parties, and I think it’s absolutely essential that we reach some common ground in terms of more than just a philosophy but the actual detail and frameworks around the management of this bill.

I mean, as an example, in the old days, you had monetary Government policy which was very much fixated on interest rate control, and it’s sort of raising its head again as being the genie that has now got out of the bottle, and yet where in this bill is inflation linked to interest rate control? Or there is no actual mention of inflation, full stop—I think I’ve got that correct, Minister?—and around the philosophy of price stability, you would argue that that has to be frameworked and included in this bill. Also, we think that the remit has politicised the Reserve Bank and its organisation even closer to Government policy, and we believe that that should be actually reversed.

So the actual wellbeing of New Zealanders is going to be affected by this bill and its framework. Inflation is distorting the economy now, and it’s going to hurt everybody, from elderly people on fixed incomes to young people as well.

But the major concern we have is the slow erosion of the bank’s independence. We don’t believe that it can actually be just simply conceptually based. It has to have a rigorous framework, it has to have a set of understandable rules so that we can make sure that our international parties are sound about investments and risks that they take in this country, and also individuals and citizens are certain, as well, about the risks that it can achieve. We believe that the free market—the sustainability of the entrepreneurship of New Zealand—is at the very core of this bill, and, in that sense, we believe that the Government needs to act more reasonably in its construction of this bill and that it should be taken back and more work done on it.

One final point that we from the ACT Party believe is that a change to the monetary policy and fiscal policy relationship has become something of a political football, and it’s affecting—[Time expired]

Thank you, Madam Chair. Just to respond briefly to Damien Smith’s points, and then the specific question that Mr Bayly asked.

In terms of the broad sweep of Damien Smith’s comments: firstly, we covered this somewhat exhaustively in Part 1 of the bill, which is that this is the product of a long period of consultation—the bill, that is—and that it has been through several rounds of that, as well as the select committee process. I agree it would have been preferable to have had consensus on it, but the Government continues to believe that the changes we’re making are important and have had a significant amount of and opportunity for public input.

In terms of the very specific point the member made about not mentioning inflation, just to be aware that section 8 of the Act has never done that. It’s always talked about price stability and so it’s never used the word, particularly. It’s important that that is understood by everybody involved in the way in which the Act works to mean inflation, but we haven’t changed that element of the language in the previous Act or, indeed, in this bill here.

In terms of Mr Bayly’s question, in terms of the clarification I sought for clause 205A—in particular, subclause (2)(c)—the ability to set out the Minister’s expectations as to the bank’s financial risk management would cover the material in the issues that the member is concerned about. So that would be in the hands of the Minister of the day to make that decision, and also we can define capital via subclause (2)(a). So my view is it strikes the right balance. I respect the fact that’s not the member’s view, but we do think it’s got the right balance of us being able to set parameters as a Government and have the bank operate independently.

Well, it’s interesting the Minister essentially concedes there that there is a philosophical difference between those of us who are not in favour of this bill and the Government pushing it. The Minister says he reserves the right—the Government reserves the right—to be able to put through legislation that reflects the position that they take. What is at the heart of this bill, though, is the question about how much control the Government should have over the Reserve Bank, and I think one of the things that is interesting, if you look under Part 2, under the bank’s objectives, they’re clearly stated there as the economic objectives, the financial stability objective, and the central bank objective, and each of those has got a clear statement about what the bank should be doing. Of course, we’re going to have a board now that will be sitting over the bank if this bill is passed, making sure that those are the objectives that are covered. However, if you go to subclause (2) of clause 9, it states: “However, if an Order in Council is in force under section 121, the economic objective or objectives that apply under subsection (1)(a) are those that are specified in the order.”

Now, the problem with debating part by part is that we have in the next part, Part 3, provisions that give life or cause question around the bank’s objectives. So if you go—if you will indulge me, Madam Chair—to that in order to make sense of what I’m about to ask the Minister, clause 121 says an “Order providing for different economic objective or objectives”. So on the one hand, we have a bill that sets out in Part 2 very clearly the objectives of the bank, but then in Part 3 it makes it very clear that there could be an Order in Council passed which changes those objectives. Then clause 121 goes on to say that “only 1 of the objectives specified in section 9(1)(a) (instead of both);” could be part of that. It goes on to say, “1 or more new objectives in addition to or instead of either or both of the economic objectives specified in section 9(1)(a)” could be part of that.

So what we’ve got is a situation where it appears, and I’d like the Minister to—he’s smiling away there because he thinks that he’s got a perfectly reasonable explanation. I hope he does, but I hope it’s not just, “Well, we think this is a good idea and we disagree with you.”—not you, Madam Chair, but, in fact, the Opposition. But the question is: why would we have a part in the bill—Part 2, “Bank’s objectives”, under clause 9—clearly stating what those objectives are, but then we’re immediately putting in caveats that say that those objectives may change according to the will of the Minister? If the Minister’s got an explanation for that, I think it would be useful for the House to know it, and I’d also like to know, if it is all perfectly reasonable and quite simple, why does it need to be there? If there is a board and the Governor-General appoints the board on the recommendation of the Minister or Cabinet, then why do we have to have this other provision in there that would turn the bank’s head away from the stated objectives in the front part of the bill, because that’s effectively what it does. I know that we can’t at this stage in the debate talk too much about Part 3—

ASSISTANT SPEAKER (Hon Jacqui Dean): No—no you can’t.

—but it is impossible to ignore the fact that the bill is skilfully written to provide the explanation for clause 9(2) in Part 2 in a part of the bill that is much further down, some 50-odd pages away from where we are currently supposed to be debating.

I think it’s a bit of a problem if we can’t get some clear explanation at the moment as to what would be expected to go into those Orders in Council that might be brought down. The question is: what is it that the Minister foresees that might make it necessary for any Minister to bring down Orders in Council that would change the objectives of the Reserve Bank? That, effectively, is what is stated here. It’s stated very clearly that “the economic objective or objectives that apply under subsection (1)(a) are those that are specified in the order.”—in other words, changed.

To answer Mr Brownlee’s question as to how this ended up here he’s going to need to pick up the phone and call David Caygill and Roger Douglas, because these effective clauses have been in the Act from the time it began, with the odd word change here or there over the years, as the way in which, for example, monetary policy set has been changed. This bill isn’t changing that, and the clause that he refers to—and, Madam Chair, given the member did it, I’ll also do it. The clause that then is part of Part 3 that the member refers to has not been used, to my knowledge, in the time that the Act has been in place, but it has always sat there for the possibility that there might be a set of circumstances that arise that the Government of the day considers it needs to do this: a crisis of some description; an issue that needed to be dealt with, be it runaway inflation or whatever it might be. It’s not something I, as a Minister, have proposed; it’s been in the Act in one form or another since 1989.

Thank you, Madam Chair. I just want to go back to that answer the Minister provided before. I think there are three questions. The first thing: is he suggesting that a contingent liability is a capital item?

💬 Hon Grant Robertson: No.

Well, I think that’s what he was implying. So is a derivative a capital item?

💬 Hon Grant Robertson: Clause 205A(2)(c): “set out the Minister’s expectations [of] financial risk management.”

So I looked at clause 205A(2)(c)—so, if he’s clear that he sees a contingent liability as a—because, you know, that’s what derivatives have. They’re interest rate swaps, and, by the way, you’ve had to appropriate $3 billion to cover the hikes—the expected costs—of all the large-scale asset-purchasing arrangements to cover the interest costs. These are real things, so, if he’s implying or stating that a contingent liability or a derivative is a capital item, then I accept his argument that under clause 205A, it is covered. But I don’t think that’s the definition of a derivative, because a lot of those things—even under tax laws, some might be classified as capital and some might be classified as income. That’s why I think the proposition that the Minister has been putting forward is actually wrong, because, in fact, a lot of those instruments aren’t deemed capital.

So even if I did apply his second response to my question, which is that it could be covered under clause 206, when I look down the list in clause 206 that the Minister referred to under the funding agreement, there is no explicit mention of anything to do with contingent liabilities or derivatives, which is the exact point of what I included in our Supplementary Order Paper, which is the level of direct or contingent liabilities the bank can incur, and other matters relating to instruments or securities that the bank may acquire or hold and which may pose a risk for the Crown’s financial position. So that’s my point. It’s a point of definition, and I want the Minister to be very clear that he thinks a derivative is a capital item, because if he doesn’t and if it isn’t, then his argument falls away and there is a glaring gap here.

I don’t accept the member’s point. What I have said from the beginning—and this is now me repeating this for the third time—is that the approach being taken here is the same one that we’ve taken with the bank over many years and in a number of different parts of its operation to set the parameters and then have the bank operate within those parameters. There is scope in clause 205A to be able to both define capital but also set out expectations around the bank’s financial risk management. I accept that the member wants a greater degree of control or involvement in that—I accept that point. What I am saying, as I come back to my very first intervention, is that there is a philosophical difference there.

OK. Thank you, and I appreciate the Minister responding. I suppose the issue, if you go back up a level, with the large-scale asset purchase scheme that the Reserve Bank put in place and has just finished last week, does he accept that if the bank hadn’t come to him as the Minister of Finance for an indemnity, could they have done that, and it would be refreshing to know from the Minister how much the bank has actually gone out and spent. I think it’s in the order of about $60 billion, so it’d be interesting to get the response on that.

Madam Chair, we’re probably getting a little away from the discussion on the bill, and the member is asking me for my opinion. The reason I smiled at him when he asked that was that was, in the height of COVID, one of the conversations that we had. It was whether or not the bank could carry us.

💬 Andrew Bayly: Why didn’t they put it in under the legislation?

Hang on, yeah—whether the bank could carry us. Ultimately, the discussion we had—and I take advice on indemnity matters from Treasury, as the member would understand. Ultimately, the view was that for the overall financial stability and security of New Zealand, an indemnity was justified in these circumstances. But that, to me, doesn’t—I don’t feel the need, given the way that was resolved, to alter this clause to be able to deal with that.

Again, we’re not going anywhere in this discussion. You either want the parameters set and the independence inside it, or the member wants more control, which is interesting given that his colleague was accusing us of taking more control here. This is a clause that maintains the independence of the bank but gives the Minister the say over the parameters. I believe that’s the right approach.

Thank you, Madam Chair. I move, That the question be now put.

Look, I won’t perpetuate this argument, because we’ve got another four Supplementary Order Papers to work our way through, but it’s interesting that the Minister didn’t answer the question. I think, if you go back to the original proposition, Minister Robertson, you said that you wanted to create a lasting piece of legislation that would extend over 30 years. I think the very extent of what we’ve just talked about—COVID actually may occur again in the next foreseeable future, or a different version of it. We’ve had the Asian crisis, we’ve had so many crises over the last 30 years that this is actually something to be expected and should be anticipated in the bill, and if you hadn’t had that agreement, why wouldn’t we put that into a bill, knowing what you’ve just been through? That’s the key, crucial point.

The second point, and I will just say there is a difference between controlling what the bank does—and no one, even from our side, believes that we should be getting into how the bank performs its role. This is about putting in a financial framework, which, as the Minister of Finance, you have overall responsibility for the Government’s balance sheet, and it can have—

CHAIRPERSON (Hon Jacqui Dean): Order! Order! No—don’t bring the—

The Minister has overall responsibility for the Government’s balance sheet, and some of these matters, particularly as we’ve seen with large-scale asset purchase, is a considerable impost on that and it can lead to a huge increase. Yet the Minister seems intent on allowing the bank to just be able to do that under any circumstances.

I wonder if the Minister of Finance might elaborate a little bit—I’m speaking to Mr Bayly’s Supplementary Order Paper (SOP) and the importance of it—on why he needed to go to a recent appropriation of some $3 billion to cover the sorts of activities that Mr Bayly’s SOP should, at least in some part, prevent. Was the Minister not able to tell us why he sought a $3 billion appropriation?

💬 Hon Grant Robertson: That’s not in the bill.

But it is a matter that relates directly to the SOP that Mr Bayly has got on the Table. Mr Bayly has highlighted in his SOP a potential funding problem for the bank. We know that the Minister has taken that action of seeking a $3 billion appropriation to cover such events that have occurred in the bank, and for the Minister to say, “Well, it’s not part of the bill.” is absolutely correct—the $3 billion is not part of the bill. That’s straight out of the pockets of the New Zealand taxpayer to cover the sorts of events that Mr Bayly is trying to prevent with his SOP and which have occurred in the bank.

It seems odd that we could have a Reserve Bank Act, or a new Act of Parliament coming in to govern the Reserve Bank, that doesn’t cover off the potential for these sorts of losses, which, of course, fall on the New Zealand taxpayer. So perhaps my question was the wrong one. Is there any way that the Minister is able to confidently tell the House that the sorts of issues that are being raised by Mr Bayly will not cost the New Zealand taxpayer in the future?

We have now covered this matter extensively over the last few contributions. I’m being clear for Mr Brownlee: what the bill currently does is give the Minister the ability, through clause 205A, to set a minimum level, or direct the bank about a minimum level of capital, and set expectations as to the bank’s financial risk management. The way in which we were able to manage the issue of the large-scale asset purchases was via an indemnity that the Government put in place because we believed it was in the public interest to do so. That is a way of managing the risk.

Mr Bayly wants to manage risk in a different way by setting up a capital and financial risk management framework through a process that we’ve covered in earlier interventions that I don’t actually necessarily think will achieve what he wants it to do. I think that we can have confidence that the arrangements we’ve got in place in the bill can protect us in the situation as Mr Brownlee has raised, and, indeed, we have managed it through a similar process and the indemnity process. So I don’t believe that we are adding great value by the proposal that Mr Bayly has put in place, but I respect and understand it.

I see what Mr Bayly wants to do here. I’d argue, Mr Brownlee, that it’s actually the opposite of what you were saying before. This is actually a greater level of involvement from the Minister in the affairs of the bank, not a lesser one.

Members, the time has come for me to leave the Chair for the dinner break. The House will resume at 7 o’clock.

Sitting suspended from 6 p.m. to 7 p.m.

Ka te rā, tēnā rā tātou katoa. Members, the committee is resumed. Before the dinner break, we were debating the Reserve Bank of New Zealand Bill, and we are on Part 2.

Thank you, Mr Chair. Nice to have that little break. We’re now back into it, Minister. So this time we might talk about the second of my five Supplementary Order Papers (SOPs), SOP 47—the criteria for board appointments—and it’s very relevant in terms of recent conversations we’ve been having around Air New Zealand, Minister.

My SOP basically says that given that this is New Zealand’s premier financial institution in terms of oversight of the financial sector in New Zealand, it is essential that we get the right skill set on the board, and at the moment, we have this weird process in the bill. It’s incredibly prescriptive about why you can’t be appointed to the board, such as if you have a criminal record or all those sorts of mind-blowing things, so that if you were even thinking of putting your name forward and you actually fell within the trap of one of those, you shouldn’t have been considered anyway.

To be appointed to the Reserve Bank is something that very few people will have the opportunity to do. It is a complex operation that the Reserve Bank runs. It needs to be run independently and it needs the skill sets to do it.

So the SOP, essentially, says that there are four key parts of what the Reserve Bank does, and we need to make sure that amongst the skill sets within the Reserve Bank board, why don’t we be very specific about some of those as opposed to obliquely referring to suitable skills? Namely, the skill sets are financial stability—because, after all, as the Minister just noted before the dinner break, that is the other term of, basically, saying “inflation”, and so it’s having a good understanding of what are the aspects you might run to ensure financial stability. Prudential regulation: this is how banks operate—the framework they operate, the capital adequacy framework, and all that sort of thing. Macro-prudential tools: again, you’ve just announced today, Minister, that you’re going to—and I’m talking about the Minister here. The Minister is going to allow the Reserve Bank to look at debt to income restrictions. There is also crisis management and resolution.

We just think it’s absolutely essential that we be clear on what are the skill sets of board members, and I’d just very much like to understand from the Minister why he is not prepared to be that explicit about the skill set. It doesn’t mean that people can’t go on for other reasons, and we expect that there will be a diversity on the board and all those other good things. But why not be very clear about what the board should have in its skill set, as opposed to saying why you can’t be on the board?

I thank the member for his questions and for putting forward his Supplementary Order Paper 47, but I genuinely don’t think it’s needed.

So if we track this through, clause 28—or, actually, it starts at clause 24 with the board’s role, the membership of the board, the method of appointment, the criteria for recommendations, qualifications, etc., etc. The critical clause for the member’s concern that he’s just raised is clause 28(2), which says, “The Minister may only recommend a person who, in the Minister’s opinion, has the appropriate knowledge, skills, and experience to assist the Bank to achieve its objectives and performance functions.” Those functions are, in turn, listed in clause 10(1) of the bill, and those functions are “to act as the central bank for New Zealand, … to act as a prudential regulator and supervisor”, and it goes through all of those things, all the way from paragraph (a) through to paragraph (j).

So all one needs to do is refer from clause 28 back to clause 10 of the bill, and all of the things that the member is concerned about—and, in fact, more than the member is concerned about—are covered. It is a reasonably normal form of drafting to be able to suggest what we want the board members to do, but the functions are outlined because they are functions for the Act and they are, therefore, functions for the bank. So the member need not be concerned about that.

On his concern about what you do when you don’t want someone on the board, again, these are very familiar clauses that are put in place in these kinds of bodies where you are appointing a board and you want to make sure that there are reasons why someone shouldn’t be on it. The reasons why someone should be on it are in clause 10.

Thank you. See, this is what I find fascinating, because the Minister says, “Oh, that one little statement—that covers it all.”, but we can have in clause 30 all the reasons why you can’t be on the board: a person who is a member of the monetary policy committee, an employee or a subsidiary of the bank, someone who’s an undischarged bankrupt, someone who is prohibited from being a director or promoter, someone subject to a property order, someone who’s incapacitated, someone who’s involved in a crime of dishonesty, someone who’s been convicted within the past five years. So it just goes on relentlessly on why you can’t. The one thing that’s missing is it should be saying that you can’t be a politician, but that’s not even on it.

So that would be the first part, if you wanted to go down to clause 30, Minister. But the view that you might take as the Minister of Finance may be different from the next Minister of Finance, and why not be absolutely explicitly clear about the minimum requirements of what should be the requirements for someone sitting on that board?

If the current Minister’s interpretation is one that he wishes to place weight on certain aspects, which may be wider diversity or whatever it may be, as opposed to making sure we’ve got a majority of core skills—because this is now an executive board. This is no longer just a governance board. This is an executive board that has to actually deal with really meaty problems and actually think about and understand macro-prudential policy and monetary policy very well, and all the interlocking things that go—maybe the insurance industry. We haven’t even put that in the list here.

Key parts of the functions—how do we know even the weighting that the Minister might even put on these? All we’ve got is one statement, which says, “The Minister may only recommend a person who, in the Minister’s opinion,”—gee, depending on who that is—“has the appropriate knowledge, skills, and experience to assist the Bank to achieve its objectives”. That is such a floater of a statement.

What Supplementary Order Paper 47 suggests and what I suggest is that you should at least set a minimum requirement of the expertise and at least some of the skills that you want on that board, because, potentially, if you lost the plot, Minister, we could end up with a range of people on this board—an executive board of the Reserve Bank—that actually may not be appropriate at all.

My colleague’s Supplementary Order Paper (SOP) 47 sets out very specifically the skill sets that, in National’s view, a person appointed to the board of the Reserve Bank of New Zealand should have. I first want to refer to the Minister’s comments earlier in which he said, “No, no. There’s no need to specify all of that, because what I’ve done in the Act is I’ve simply required that in the Minister’s opinion, the people appointed should have appropriate knowledge, skills, and experience to carry out the functions of the Act.”, and then he’s referred us to clause 10, which sets out the bank’s functions.

Now, this is very important. I want to put this into the Hansard because I want us as a Parliament to be able to refer back to this in future when one day, potentially, a Minister makes an appointment to the board of someone who does not actually, in the view of many, have the appropriate knowledge or skills or experience to exercise the functions of the Reserve Bank, who hasn’t had a career in which they’ve developed a strong understanding of what financial stability is or how to do prudential regulation, who can’t demonstrate experience in macro-prudential policy, or who hasn’t been involved in crisis management and resolution, because if that happens—if it is the view of many that an appointment has been made that doesn’t meet those skills—what the Minister is encouraging us to do is to read into what the Minister is required to do, back into clause 10, the bank’s functions. This could potentially be an issue that the courts would review.

So my question for the Minister is: is it his view that the courts, in judging whether the Minister has appropriately exercised his power, should therefore treat clause 10 as a checklist of the skills that an appointee to the board should be able to demonstrate? If that is not the case, then it is very broad as to what the Minister’s opinion may or may not be, so I would ask the Minister to clarify that. I think it’s an important matter of interpretation and it is exactly why we have the committee stage—so that if this were ever to be an issue in the future, learned people of the court and lawyers could refer back to the Hansard and get a very clear sense of what the Minister’s expectation was in the drafting of these words.

I do want to point out why this is particularly important in the context of this bill, and that is that this bill replaces the single decision-maker, the Governor of the Reserve Bank, with a governance board, an executive board. That is a significant change that this bill makes. It gives that board responsibility for all financial policy decisions of the Reserve Bank. What that, in effect, means is that this board will be expected to have the sorts of judgment, skills, and experience that we have previously had captured in the person of the Governor of the Reserve Bank. So this board is to have significant power and it is our view, on the National side, that it is very important that the people appointed to these roles are appropriately skilled.

The current criteria for recommendations set out at clause 28, as my learned colleague Andrew Bayly has highlighted, do highlight lots of things that would disqualify someone from the role in huge detail—undischarged bankrupts, dishonesty offences, people who are directors or employees of regulated entities—but are quite vague on what skills they are required to have. It is our view that in exercising the functions of the Reserve Bank, board members will need to have technical competence, not just governance skill.

We have put forward a SOP which would set that out. I don’t think the Minister has anything to fear from it, but I would, as I said earlier, invite him to comment on how he would expect a Minister—who, of course, could in the future be not this Minister, but a much, much better finance Minister from the National side. That Minister could choose to exercise their opinion, and would he expect them to exercise their opinion as to whether appropriate knowledge and skills were held, by reading into clause 10. If he could set that out for the Hansard, it would be very helpful.

I move, That the question be now put.

The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Paper 44 be agreed to.

The question is that Andrew Bayly’s amendment to clause 9 set out on Supplement Order Paper 49 be agreed to.

The question is that Andrew Bayly’s amendments to Part 2 set out on Supplementary Order Paper 45 be agreed to.

The question is that Andrew Bayly’s amendments to Part 2 set out on Supplementary Order Paper 46 be agreed to.

The question is that Andrew Bayly’s amendment to Part 2, inserting new clause 28(2A), set out on Supplementary Order Paper 47 be agreed to.