Hon DAVID CARTER (Minister for Primary Industries) : I move, That the Dairy Industry Restructuring Amendment Bill be now read a third time. The bill was tabled in the House in March this year. It had its first reading on 3 April 2012, after which it was referred to the Primary Production Committee for consideration. The select committee reported the bill back to the House on 6 June, and the bill has now had its second reading and passed through the Committee stage.

The Dairy Industry Restructuring Act, or DIRA, promotes the efficient operation of New Zealand’s dairy markets, ensuring freedom for dairy farmers to choose the processor of their milk. The contestability of milk supply provides incentives for all dairy companies to seek to innovate and to operate efficiently so that the New Zealand dairy industry can reach its full potential. The bill is about ensuring that this contestability continues, but it also responds to a number of developments since the Dairy Industry Restructuring Act was put in place over a decade ago. This bill will ensure that that Act remains fit for purpose.

Fonterra initiated discussions with the Government in 2009 with a proposal to introduce Trading Among Farmers, or TAF. Fonterra was concerned about the instability of its balance sheet under the Act’s existing share issue and redemption requirements. Importantly, the ultimate decision on whether to proceed or not to proceed with Trading Among Farmers rested with Fonterra and its shareholders, and not with the Government. This decision was put to a vote last month, at which 66.45 percent of Fonterra shareholders voted in favour of Trading Among Farmers proceeding. This is the mandate on which Fonterra has said it is proposing to proceed with Trading Among Farmers. The Government’s job, therefore, is to complete the legislation process and enable Trading Among Farmers to proceed.

This bill ensures that when Fonterra launches Trading Among Farmers, farmers’ freedom of entry into and exit from Fonterra is preserved. This in turn ensures that New Zealand’s dairy markets remain contestable, because this creates the right environment for efficiency, for innovation, and for growth. If Trading Among Farmers does not happen, or if Trading Among Farmers is wound up, the bill requires Fonterra to value its shares at a full fair value. This is also important to ensure the freedom of entry into and exit from Fonterra, because I strongly believe that farmers who decide to move on from Fonterra are entitled to a fair price. Further, it will ensure contestability of the farm-gate milk price. This is why, unlike the share price of any other cooperative, Fonterra’s share price is a public policy concern.

Finally, the bill introduces a new regime to increase transparency in the way Fonterra sets its farm-gate milk price, and provides confidence that the farm-gate milk price is consistent with delivering a contestable market. Due to Fonterra’s dominance, Fonterra’s farm-gate milk price is effectively the price that all processors must pay in order to attract milk supply from farmers. Confidence and transparency are therefore crucial. If the farm-gate milk price is consistent with the outcomes in a contestable market, then this means the price should be efficient, which in turn means that both Fonterra and its competitors will have the incentives to operate efficiently and to innovate. This continual endeavour for improvement brings benefits to the entire dairy industry, and therefore, in turn, to all New Zealanders.

In 2001 the National Party, then in Opposition, recognised the importance of cross-party support on such significant legislation for the dairy industry, the Dairy Industry Restructuring Act, and we voted accordingly. It is unfortunate and a personal disappointment to me that the Labour Party has decided that playing politics is more important than continuing this tradition of cross-party support for the Dairy Industry Restructuring Act legislation. I am well aware that opposition to the Dairy Industry Restructuring Amendment Bill is actually not unanimous within the Labour Party caucus. However, on balance, the decision has been made to stand beside the primary industries spokesman, Damien O’Connor, who, having not fully understood the legislation, has continued to paint himself into a corner over the last few months.

This legislation does not mean the end of ownership of the Fonterra cooperative by its shareholders, as Mr O’Connor stated in the House last week. He should give more credit to the intelligence of Fonterra dairy farmers than that. The legislation certainly does not give Mr Damien O’Connor any reason to accuse the Fonterra chairman of lying and stating that he, Mr O’Connor, did not trust Fonterra. That was the language used by Damien O’Connor, which should never have been used in this Parliament. I can only hope that the Labour Party leadership sees past these negative politics, and in the future does the right thing by providing this bill with the cross-party support that the original Dairy Industry Restructuring Act enjoyed.

This bill is crucial to the ongoing growth of New Zealand’s dairy sector, and therefore to the ongoing economic prosperity of all New Zealanders. I commend this bill to the House.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman) : I rise to take the opportunity to put Labour’s position on this bill, the Dairy Industry Restructuring Amendment Bill. It is with some sadness that we cannot support this bill. We have a proud history in dairy industry legislation, going back from the 1930s. We formed Fonterra when we last came into Government, and we would have liked to vote for this bill. In the end, although there has been much discussion and good discussion within the Labour Party caucus, there is the refusal by the Government to support a legislated cap on the fund size. This is a fund that Fonterra itself has said is critical in terms of its total size, critical to the management pressures and direction of Fonterra, but the Government refuses to put in place a legislated cap.

The Minister for Primary Industries went through the timing of the bill. It was a rushed process. Thankfully, through the Government’s own mismanagement, it allowed farmers to vote on Trading Among Farmers before the legislation had progressed through the House, and for that, I guess, we welcome the National Government’s incompetence.

The outcome of that vote was confusing. The Minister himself misleads the House by saying that 66.45 percent of shareholders voted for Trading Among Farmers. No, the vote based on milksolids was 66.45 percent of those who voted. The estimates—and Fonterra refuses to give the figures on this—are that, of those farmers who voted, about 50 percent voted for and about 50 percent voted against. That is not a clear mandate, and that is why Labour is concerned that the Government’s position on this has been to refuse to put in place a legislative protection for what is the largest and the most successful company—and, arguably, industry—in this country, bar none, owned for the most part by New Zealand farmers, which is something that we should be quite proud of.

Fonterra itself says that it will manage the investment fund. This is the opportunity for non-farmers to buy units in our biggest company, at about 7 to 12 percent of total share capital value. New Zealand Exchange’s outgoing Chief Executive Officer, Mark Weldon, commented that until the fund actually gets to 20 percent it is not going to operate efficiently. My concern is that tension that will be there from day one is unlikely to be managed by the board or by farmers, and without a legislated cap it could very well see that unit fund blow out to a figure that is beyond critical and that is beyond the level that Fonterra itself says is wise and prudent in terms of the long-term objectives of a cooperative company.

This is an unusual company. I acknowledge here and now that in 2001, when we put Fonterra in place, we established a fair value share for a cooperative that in itself was unusual. We did put in place open entry and open exit provisions, which brought discipline on management to ensure it held the confidence of farmer-supplier shareholders. We are changing that through this legislation, and that is the risk. In spite of the global financial crisis, this company has grown, has improved its equity, and has come back from a near crisis on its balance sheet in 2007 to a position of strength under the existing structure. This bill is about to change that.

It is important that farmers realise exactly what is going on. Yes, in the House I did refer to Sir Henry van derHeyden’s statement in 2010 in a consultation document that “Trading Among Farmers gets rid of redemption risk once and for all, which makes every farmer’s investment in Fonterra more secure.” That is a lie. I repeat that statement because in the due diligence report released in 2012 a summary of quite a lot of work that went on states “balance sheet cover of NZ$120-200m required under TAF to manage Fund size is significantly lower than the NZ$500-850m of cover required to manage redemption risk …”, the point being that redemption risk remains with the company at a lower level.

But what we have through the passage of this bill is some added risks to the company. We had an independent adviser to the Primary Production Committee. The advisers that came from the Ministry of Economic Development and from the Ministry for Primary Industries were competition advisers. They were skilled in the area of contestability, competition, and commerce law. They did not understand cooperatives and their basic objectives. Our independent adviser, James Morrison, in his report to the committee says: “This investor-supplier conflict of interests is why every cooperative that has introduced external investors to its capital structure has either eventually demutualised, or reverted back to a full cooperative by excluding the external investors”.

Farmers should be under no illusion that this legislation is going to protect and strengthen their cooperative. There are pressures that will build—ultimately, I think, from within the cooperative—under difficult times of trading and with international prices coming down, and the concern is that bankers may force farmers to seek full value in their share. In fact, in terms of the fall-back provisions in the bill around share valuation, there was much debate around proposed new section 77A in clause 7. That debate was whether this cooperative should be driven by cooperative principles, which are basically nominal value shareholding. It can be a change in nominal value, but the fair value provisions and concept that we introduced in 2001 are faulty. What this bill had attempted to do was to change the fair value provisions in the absence of Trading Among Farmers.

Indeed, without the endorsement of the Fonterra Shareholders’ Council, Trading Among Farmers cannot be introduced. There is a legal requirement for the Fonterra Shareholders’ Council—approximately 35 shareholding farmers, who have the responsibility to provide oversight and a watchdog process for the Fonterra board—to sign off and endorse this concept. It has not done so yet. It needs to be fully aware that we have to have a fair process for the establishment of the value of the share if the council does not endorse Trading Among Farmers, and, indeed, if through this legislation the fund was to be wound up. What we have done in this bill is try to compromise on the tension between officials who wanted full value shareholding—full value shares, open value shares in Fonterra—and the intention of the select committee, which was to have a cooperative value share. I am sure the chairman of the committee will outline that even further.

The last provisions in here are the milk price provisions—that is, we have a raw milk price that enables independent competitors to come and buy milk on a contestable basis from other farms, and to get on and innovate. We welcome that and we want that. A complex milk price manual and milk price panel arrangement will be set up to try to do the best for Fonterra and the dairy industry.

In summary, Labour would like to support this bill, but we choose not to on the basis that the Government has refused to put in a basic legislative protection for what is the single biggest and most successful company in this country. We wonder why this is happening. John Key is on record saying that he would like to see Fonterra floated; we hope that does not happen. We have seen shares in numerous entities across this country—we will see them in State-owned enterprises—go into overseas ownership. Control will eventually drift into overseas ownership, and we do not want that to happen for Fonterra, our single biggest company. We hope that the board of Fonterra has the best intentions to provide and maximise the return to farmer shareholders, not to provide and maximise the return to the outside investors who will now be part of Fonterra, New Zealand’s biggest cooperative company.

Hon JOHN BANKS (Leader—ACT) : I rise on behalf of the ACT Party to support the third reading of the Dairy Industry Restructuring Amendment Bill. I want to thank the Minister for Primary Industries, David Carter, for making the officials available to me and my officials at all times, and I acknowledge his constructive engagement on the contestability issue. The contestability issue is dear to the heart of the ACT Party and what we stand for. I want to give praise and credit for the work done by the chairman of the Primary Production Committee, the member of Parliament from Taranaki - King Country—a long-serving member of this House—and the good work that he did on improving this bill after taking some advice from me and my officials.

Let me record again for the public record my interests in the dairy industry, particularly in the milk-processing business. I also acknowledge the dairy industry representatives who came to see me. I have nothing but praise for the chairman of Fonterra and his leadership, and I would not have the temerity of the Labour Party representative to give him gratuitous insults under the cover of this House.

When I think of farmers, Mr Speaker, I think of you. When I think of farmers, I think of your parents. When I think of farmers, I think of the people on the land around you and across Northland whom I know well, who have farmed the land industriously since Coates of Kaipara, and who have provided the export receipts for this country to enable us to live in the style that we have become accustomed to, which we now borrow for to stay afloat. The ACT Party salutes the men and women of the dairy industry.

I love farmers, and why would not someone from Epsom love farmers? If it was not for the farmers we would not be able to pay the interest on the $150 million a week that we are borrowing to sustain the present accounts. Every week we borrow from the savings of the hard-working Swiss, the hard-working Germans, and the hard-working Chinese so we can keep consuming. New Zealand would be another Greece without farming families like yours, Mr Speaker, who get up early in the morning and work late into the night to provide the export receipts for the consumables that we consume. So I salute farmers, in particular the dairy farmers, and the hard work they do.

I remember aged 12 working in Kaitoke on the farm of Allan McCready, one of the great members of this Parliament, one of the great farmers of this Parliament, one of the outstanding Ministers of Police of this Parliament, and arguably the best Minister of Police we have had since the member for Whangarei. Allan McCready was a dairy farmer from a small place called Kaitoke. If you have been through Kaitoke on the way to the Wairarapa, you will know what an inhospitable place Kaitoke can be, but it was the farmers of Kaitoke who milked cows on the grasslands of Kaitoke who paid for the power that drives the energy in this Parliament—let us get that right—and we salute them.

Where are the farmers in the Labour Party today? I know that the Opposition spokesman for farming grows blackcurrants in Motueka. I understand that; I know that he once had a business taking people down rivers in canoes. But where are the farmers? Where are the people like—remember that great farmer spokesman this House had once from the Labour Party, Colin Moyle? I was here in this Parliament with Colin Moyle. I was here in this Parliament with Jim Sutton. Jim Sutton and Colin Moyle would be appalled at the level of debate coming from the parliamentary Opposition this afternoon.

In the year to December 2011 dairying generated almost $13 billion in export receipts. It accounts for 25 percent of our exports. Those men and women who get up at 4 o’clock in the morning to milk the cows—to provide the milk for the exports for the foreign exchange earnings—are the people we are talking about today. The ACT Party stands with the productive sector. The ACT Party stands with the wealth creators. The ACT Party stands united behind farming families up and down the country.

I find it rather gratuitous also to witness the abuse that farmers—particularly dairy farmers—take from the Green Party. I heard a Green Party member of Parliament who has probably never owned any business, let alone a farming operation, describe them as the dirty dairying industry, which, of course, is in respect of a very tiny minority of farmers. Most farmers are environmentalists. They care about the land, they care about the animals, they care about the country, and they work hard all day and all night to provide the export receipts so that the Green Party members can have lights in this Parliament to conduct their opposition to the export tradable sector of this country.

Fonterra is a farmers’ business, and, like any business, regulatory uncertainty and creep pose a risk. The ACT Party is wary of regulation. It can sap wealth creation and innovation. We believe less is generally best. However, Fonterra was created by statute and would not otherwise exist. It has a dominant market position; therefore, there is a public interest in how it conducts its affairs.

The bill has two features. The first enables Trading Among Farmers, or TAF. The ACT Party has no issue with Trading Among Farmers. It is their business, after all. It is the farmers’ business—the dairy farmers’ business—to trade their shares in their family farming operation. But the second feature is the regulation of the base price of milk. The bill extends the role of the Commerce Commission so that it has oversight of how Fonterra does this. As someone who comes to this House from this business, I know that setting the price is the most intimate thing a business can do. Therefore, the public interest in regulating this must be significant. The ACT Party has concluded that it is. The reason is simple. Fonterra sets the default price of milk for all participants in the dairy industry. Although there is no right price for milk, there is a range of where the right price should fall, and outside that range we have economic distortions. The ACT Party believes in a level playing field for everybody in this tradable sector of the economy. It can also impact on the environment.

The bill seeks to encourage Fonterra’s efficiency while preserving contestability in the dairy market. Contestability is critical to keep competitive advantage so that New Zealand can sell at best prices for returns of foreign exchange to the rest of the world in a highly competitive business. On contestability we have a slightly different view from officials. We do not think the stretched milk price works the way officials say it does. Nor is it consistent with the body of our competitive law, but the ACT Party concedes that this is a highly technical issue that Opposition members will have absolutely no idea about if they grow berries in Motueka.

The dairy industry universe is not about either Fonterra or small independents; it is about both. The dairy industry is about the small, highly competitive industry of small players and large players. It is remarkable that New Zealand accounts for about 2 percent of global dairy production, but about 33 percent of cross-border trade in dairy products. That is huge. My view is that Fonterra needs to set its sights on expansion abroad. What I know is that innovation and dynamism on the margins are likely to come from smaller players. Innovation and dynamism in this industry will come from the smaller players, not from Fonterra. They have a critical role in the value-added baby formula business, products with health additives, and organic milks and the like.

This innovation is good for New Zealand. Competition is good for the dairy industry. Small players we put on a pedestal. They are critical to the competitive edge for the foreign exchange earnings to pay the interest on the $150 million a week we are borrowing for the Crown account. So the ACT Party thanks farmers, the ACT Party backs farmers, and the ACT Party supports this bill.

Hon DAVID PARKER (Labour) : I did agree with some of the comments from John Banks, but it did not escape me that he accused others of gratuitous abuse, and then proceeded to do exactly that to every party in the Opposition. I do not think that reflected very well on the rest of your speech, Mr Banks, and it was unnecessary. I do agree with you that it is important that we have a competitive milk price—that the split in the total return that Fonterra co-op members have between milk and their profit from their shares in Fonterra is an appropriate split.

I also agree with the Hon John Banks that it is a highly technical area. Members of the Labour Party, as I am sure the members of the ACT Party and other parties, have received submissions from some of the competitors who are wishing to purchase milk, who have a view that the price-setting mechanism in the Dairy Industry Restructuring Amendment Bill is not right. I have to say that I was initially convinced somewhat by some of those assertions that the milk price was being set at too high a price, being based on a theoretical model for the price of milk, driven by a theoretical, profitable business based on new investment that goes into primarily milk powder, rather than some of the older assets relating to the production of cheese, which are less profitable.

I was eventually convinced by Fonterra, and from submissions that the Primary Production Committee received and from officials advising the select committee that, in fact, the profitable parts of the Fonterra business and the profitable parts of competitors to Fonterra are generally driven, these days, by a milk price model that relates to milk powder, and that, therefore, the fundamental building blocks of this price model that Fonterra is using, which is based on a milk powder model, is correct. So in respect of that part of the bill, I have got to the point where I think it is appropriate. I think that there are proper concerns raised by the smaller competitors that they not pay too high a price for milk, because obviously if they have to pay too high a price for milk—an uncompetitive price—they cannot operate. And I agree with Mr Banks that it is in those small operators that we do see innovative practice being developed, including for niche markets and overseas, and that that competition at that part of the market is important to the long-term health of the Fonterra Cooperative Group, which is what we are trying to grapple with in this piece of legislation.

But the part of the jigsaw that is, for me, wrong in respect of this legislation is the absence of a statutory cap in the legislation restricting the proportion of the co-op shares that can be put on this trading platform, so that the farmer does not own the returns from those shares. Farmers would still get a price for the milk that they deliver, but they do not get the share of profits from those shares that they put on this trading platform. We have had to endure the insults from Mr Banks, who asserts that in the Opposition we have got no understanding of commerce. Mr Banks, it was you who tripled council debt when you were last the mayor of—

Mr SPEAKER: Order! The member does not use “you” like that—

Hon DAVID PARKER: I accept your point.

Mr SPEAKER: He is perfectly entitled to debate the issue, but he must not—

Hon DAVID PARKER: It was Mr Banks who tripled council debt when he was last mayor, and we do not accept lessons in fiscal responsibility or economic management from Mr Banks.

Trading Among Farmers is driven by the concern amongst Fonterra that its capital base could be at risk of people redeeming their shares in the co-op in a way that creates, effectively, a run on the finances of Fonterra. There are a number of points to be made about that. One is that the worst, almost, imaginable combination of events did occur a few years ago. We had the global financial crisis coinciding with a drought. Farmers were pressed on their balance sheets. They were further pressed by banks, because those—

Hon Member: Mr Banks?

Hon DAVID PARKER: —not Mr Banks; by New Zealand banks—banks themselves were suffering liquidity constraints. They put the squeeze on a number of farmers to whom they had extended credit. So there were a number of farmers saying that they wanted to withdraw some of their capital tied up in Fonterra. In addition to that, we had the prior period of boom time when Fonterra had not been making any retentions from its profits by way of retained earnings to improve Fonterra’s balance sheet. Despite that almost perfect storm, to the detriment of Fonterra, Fonterra did get through. So I think some of the concerns about redemption risk have been overstated. None the less, there is a germ of truth there that Fonterra is appropriately trying to guard against.

The Labour Party has been a long-term supporter of the structures under which the dairy industry in New Zealand has thrived. It was the Labour Party, under Michael Joseph Savage, that created the first form of the Dairy Board. It brought this collective strength of all of the farmers together and caused the development of this vertically integrated industry, which ensures that an appropriate share of the total profit to be made from the farm right through to the retail consumer is captured for the benefit of the New Zealand farm and the New Zealand economy.

It was the Labour Government under Helen Clark and Michael Cullen that then forced through legislation, with the support of the National Party, that overrode local competition concerns, to the detriment of New Zealand’s consumers, probably, in respect of the New Zealand milk consumption market. We overrode the Commerce Act, which would otherwise have stopped the merger of New Zealand Dairy Group and Kiwi Cooperative Dairies, because of their dominance in the New Zealand milk market.

Shane Ardern: But they had to divest it in 6 months.

Hon DAVID PARKER: I beg your pardon?

Shane Ardern: They had to divest of up to 50 percent of it in 6 months.

Hon DAVID PARKER: There were conditions relating to divestment, as Mr Ardern suggests. But this Parliament overrode New Zealand’s Commerce Act in order to bring Fonterra into being. We did that because we thought that there was a New Zealand interest that exceeded the domestic competition concerns. Since then, under this vertically integrated model, the interests of Fonterra and the farmers who own Fonterra and the country that benefits from Fonterra have improved, as it has been a very successful model. The germ of that remains true: we want a vertically integrated industry. To the extent that you can have different holders of share capital in Fonterra who have different interests, you set up a tension. I think everyone agrees that that tension is created by this legislation—that there will be some people who in the future are not farmers and who have a long-term interest in the vertical integration of that industry, from farm gate through to retail in China or wherever those branded products are going to be sold in the future. There could be a tension between the interests of those long-term farmers and the interests of the New Zealand economy, which coincide with the interests of those farmers, and the interests of people who buy the profit stream from some of these shares through Trading Among Farmers.

It is that point that we in this Parliament need to be very careful about, because, as Mr Banks and the Minister for Primary Industries have previously said, this has become New Zealand’s most important export industry. A full quarter of New Zealand’s exports come from the dairy sector, and just about all of them come from Fonterra. So we should be taking care that we do not kill the goose that lays the golden egg. It is for that reason that the Labour Party has said that there ought to be a statutory limit in this legislation as to the proportion of the total shares in Fonterra that can be traded and separated from the farmer who provides the milk. We have said that that limit should be 20 percent. Our reason for that was that there have been overseas examples relating to Kerry Group dairy in Ireland where, at 20 percent, the long-term seeds of destruction of the cooperative model have been sown. So we thought that 20 percent is probably an appropriate limit.

Fonterra came back to us and it engaged with us very maturely, with the expertise that you would expect from Fonterra, and its professionalism, and we thank it for that. It came back and it said: “Look, 20 percent we cannot live with, but 23 percent we can—23 percent is above where we intend to go.”, and indeed, it wants to have a limit in its own constitution to a similar effect, of around 20 percent. I might have that percentage wrong, but Fonterra wants a limit in its constitution. It was willing to agree to an amendment through this Parliament that had a statutory limit, and said: “If you want to go beyond that, you’ve actually got to think, from the point of view of Parliament, about whether you are sowing the seeds of destruction in the cooperative.” The National Party would not agree to the amendment, therefore Labour is opposing this legislation, because it is without the statutory protection of a statutory limit.

STEFFAN BROWNING (Green) : E te Rangatira o te Whakaruruhaunei, te hungakōkōtātākī me te kaupapa o te wiki, te reo taketake o te whenua nei, tēnā koutou katoa.

[To the Speaker of this House, the quick-witted speakers, and the matter relating to this week, the indigenous language of this country, acknowledgments to you all.]

The Green Party opposes the Dairy Industry Restructuring Amendment Bill. It is the thin end of the asset sales wedge; the setting up of the selling out of the Fonterra Cooperative and its family-farmer members. It is the dairy farmers’ poor cousin of the Mixed Ownership Model Bill. This Government is into selling out everything, not just our power companies. Now we are selling out the actual fundamental dividend stream of one of New Zealand’s main export industries. This Government is selling everything it can to its mates, and all too often to foreign investors. We have foreign ownership of our forestry and our fisheries, and now we are into a sell-out of dairy. We need to ask the Minister for Primary Industries what he intends to sell out next of New Zealand’s primary industries, which are the backbone of New Zealand. Who else is he going to turn into serfs?

In this Dairy Industry Restructuring Amendment Bill, the so-called Trading Among Farmers provision allows outside investors to trade on the dividend stream of Fonterra farmer members, and begin an inevitable demutualisation of Fonterra and increased foreign control of New Zealand’s primary industry sector, the sector that provides 70 percent of our export earnings, and is the backbone of our country. Trading Among Farmers is trading against farmers—nothing less. We do not believe that Fonterra or this National Government has a mandate to push it through.

We have heard a little bit about the numbers, and I want to go back to those numbers again. In Fonterra, it is not one person, one vote. It is one share, one vote. The amount of shares a farmer has is determined by how many milksolids that farmer supplies, so the big suppliers hold the larger proportion of the shares. The Greens believe that it is likely that it may even be slightly under 50 percent of actual farmers who voted for Trading Among Farmers. The Minister, David Carter, reckons it was 66 percent of farmers who voted for it. Where are his figures? How many farmers actually voted for Trading Among Farmers? I bet that if we applied the Perito principle, 80 percent of the 66 percent who voted were shares of big business. The Minister for Primary Industries, Fonterra, and the Fonterra Shareholders’ Council need to front up with the real numbers.

Fonterra has said that it needs Trading Among Farmers to achieve the capital to allow offshore farm and infrastructure development. Then it said: “No, no, no, that is not what we are saying. It is to cover redemption risk.” Many submitters to the Primary Production Committee pointed out that buffering for redemption risk can be achieved by other means, such as a retention policy, which has already been shown to be successful in acquiring significant capital. Figures show that the retentions taken from 2008 may have managed any redemption risk. In fact, $438 million was taken in 2010 and it was retained, and another $487 million last year. Effectively half a billion dollars a year can be retained, and yet Fonterra was saying that it needs to do this smart thing by letting outside investors in to manage redemption risk. Rubbish! That is clearly not the case. Fonterra chair, Mr van derHeyden, and his friends seem to have taken a walk away from their members, and are pushing the way for foreign investment.

This Dairy Industry Restructuring Amendment Bill also missed an opportunity, an opportunity to develop a smart, green economy that will support the primary industry and family farmers. The focus of the bill on the efficient operation of dairy markets in New Zealand missed an opportunity, and it fails to allow for gains through such value-adding systems as organics. “Efficient” is primarily a term used for volume-based production and marketing. It does not address long-term economic efficiency provided by sustainable production.

The dairy industry has presented to me the suggestion that it wants a 10 percent lift in production while holding its environmental footprint to the status quo, as though the status quo was OK. Well, that is not such a fantastic outcome, when the status quo in environmental outcomes is seriously way below par. This bill could have included drivers that could have focused on value-adding on farms through certifiable sustainable production such as organics, not further commodification for outside and—all too often—foreign interests, making New Zealand farmers peasants in their own land.

There are those who suggest, and have suggested today, that the Green Party is opposed to farmers in New Zealand, and that it is opposed to the growth of the primary sector. We are far, far from that. We want more people on the land, looking after the land, and the provisions in this bill reduce that. We are concerned that there are actually fewer dairy farmers and more dairy cows. That is an indication that intensification has increased. We need more people on the land, and we want to make that possible through intergenerational farming and through looking after a co-op that is going to give them the best deal.

Primary production co-ops or single-desk collectives and initiatives work to the advantage of their members, to ensure the best returns for their farming, and for their sector’s production. But unfortunately this bill allows this co-op to take a walk away from supporting individual farming families. This bill is about supporting the big, big companies and foreign investors, instead of the traditional family-farmer supporters of the National Party. It is about supporting contestability and theoretical open competition. That is only going to damage the Fonterra Cooperative. It is not about helping New Zealand farmers. We oppose this bill. We look forward to a change of Government in 2014, and a smart, green economy that supports a primary industry and its family farmers.

SHANE ARDERN (National—Taranaki - King Country) : Before I start my address on the Dairy Industry Restructuring Amendment Bill, I must declare an interest, as a family trust that I am involved in owns shares in Fonterra. There has been a lot of discussion around the ownership structure of our dairy industry during this debate. I want to just put on record, as a dairy farmer, as someone who has followed this debate closely, and as chair of the Primary Production Committee, that it is in the DNA of most dairy farmers who are shareholders in Fonterra to maintain 100 percent ownership in the Fonterra Cooperative. This is not just some ideology. It is not something that we think of just because that is what we think should happen; it is actually based in sound economics and commerce. That is that we produce a product that is very perishable at the time of its production, and, therefore, it is important to be able to make sure—to have a 100 percent guarantee, if you like, through 100 percent ownership—that the processing, the transporting, the marketing, and the exporting of that product is under the control of those who produce it. To trust someone else to do that would be a step outside of what has worked for our industry.

But, that said, when Fonterra was formed it was a construct of legislation. It was the merger of three entities and it brought together 90 percent of the milk production in New Zealand. There had to be a regulatory structure to allow that to happen. If you study all international examples, you will find very, very few structures anywhere with that type of dominance in a particular market or within a particular industry sector. So the bill is a compromise. It is a compromise. There is a compromise in what we are trying to achieve, and that is to allow free entry and exit for farmers who wish to enter or exit Fonterra, and to make sure that they are able to enter and exit with their fair share of the capital that they bring in when they become a shareholder in Fonterra.

Trading Among Farmers, which is much debated and maligned by some in this debate, received 66.45 percent of the milksolids shares in support of that concept. The bill does not compel the industry; it is enabling. It is enabling. It enables the industry to do that. The industry came to Government, as the Minister for Primary Industries said, and asked for it. The reason was that it identified $1 billion worth of potential redemption risk. That was identified because the industry’s funders told it that that is what they would discount or allow as a risk against the borrowing involved in the industry. So whether or not people agree with that, or whether they think that was overstated or understated—or whatever the view is—that is what the industry was confronted with.

I have heard a reasonable amount of discussion about the ability to retain earnings through retentions rather than pay them out to farmers and thereby overcome some of that redemption risk, and that is true. There is an ability to do that. But in a time of hard economics with high debt, a farmer cooperative that decides it is going to keep its own balance sheet in good shape and not look after its shareholder farmers is a cooperative that is probably on a slippery slope to oblivion, and the farmer shareholders would certainly make sure that that did not happen. So once again it is not as black and white as others would have you believe.

In the 2008-09 year, when the redemption risk was real, Fonterra was confronted, first of all, with an international economic crisis. Those are not my words; they are words used by economic commentators around the world, and if you were to visit Europe at the moment, you would understand what they mean by that. Fonterra was confronted with a drought in New Zealand, which had the Minister of Agriculture at that time travelling the length and breadth of the country declaring big parts of the country a drought zone. And it was also confronted with the Sun Lu melamine poisoning in China—

Hon Phil Goff: San Lu.

SHANE ARDERN: San Lu—the member corrects me. It was confronted with the San Lu poisoning of baby formula in China. Those were three major hits, you might say, on the integrity of what is a farmer cooperative—the economic integrity of a farmer cooperative—that prides itself on exporting to the world milk and milk products with high quality and safety. So there was a redemption risk, it was real, and something needed to be done about it. The result of that and the many discussions that have taken place since then is the construct of Trading Among Farmers.

At this point I just want to thank once again the members of the Primary Production Committee. We were faced with a number of challenging issues. This is a complex piece of legislation. It covers a wide range of very difficult questions to answer, from where the Commerce Commission’s involvement should stop and start, to where the limits on the size of the fund should stop and start, to the price of Fonterra shares versus the farm-gate milk price. These things are not easy to resolve, and certainly there will be no simple silver bullet to resolve these issues. The select committee not only listened to advisers from within Government but sought independent advice. We listened to the submitters—all of those who wished to submit to that select committee—and the team on that committee, I believe, had only one interest in mind, and that was the interests of “New Zealand Inc.” plus the protection of our largest company and the exports of our products to 150-odd countries in the world. This is a very timely piece of legislation and I support the passage of this bill.

RICHARD PROSSER (NZ First) : I am pleased to rise at this stage of the Dairy Industry Restructuring Amendment Bill on behalf of New Zealand First. I am pleased but, I have to say, also a little glum because we have come to what is apparently the obvious end of this process, the culmination of which will be the bill’s passing into law. I have reservations about this, as I know many others do, and in spite of what the Minister for Primary Industries said earlier about the Labour Party caucus not being united behind its spokesman, Mr O’Connor, I am aware that there is some contention still within the National Party caucus on this bill, because there are things about it that are not good, and there are things about which, I believe, many in the dairy industry itself have reservations. But the bill will be passed, and we will all have to live with that and with those possible consequences.

Essentially, this bill does not need to be passed in order to achieve the aims that it claims it intends to achieve. We are told that the bill will enable the Trading Among Farmers scheme, which has perhaps been the most contentious issue. It will also instigate a price-setting monitoring regime and give us an alternative to the Trading Among Farmers scheme should the scheme not be taken up by Fonterra or should it not work, and that will be the share-value fixing mechanism. But Trading Among Farmers is not, as we have discussed in this debate earlier, what farmers voted on originally. The scheme as it was originally mooted was about trading among farmers, but it has morphed into trading including farmers. As has been mentioned by me and by others in earlier sections of this debate, if the trading scheme requires external capital, then it cannot be, by definition, Trading Among Farmers, and it is quite possibly not the right model for Fonterra to be following. The numbers that are worked around what Trading Among Farmers needs to achieve is that it needs to provide a shareholder pool of around 8 percent. That would require, because of the limitations on the number of individual dry shares that each farmer shareholder can own—being limited to 5 percent of the total—something like 25 percent of all farmers to give up 20 percent of all their holdings, and that is unlikely to happen, which means that we will need outside investors. So the scheme is not about trading among farmers.

The process by which the system has been examined was rushed. The period for submissions was truncated from something like 6 months to something like 4 weeks, about 3 weeks of which Parliament was in an adjournment. Comments have been made that this was perhaps done to suit the agenda of a Government that perhaps wondered whether there was—or even knew that there was—quite a lot of opposition to the bill amongst the industry that it concerned.

The Primary Production Committee, which I was privileged to be an observer on—a fly on the wall, you might say, and a fly who was doubly privileged to be allowed to make buzzing noises every now and then; I am grateful to the committee for that ability to have input—certainly did not have as much time as any of its members would have liked in order to consider all submissions and consider all the possible ramifications of the bill. The Minister claims that the vote taken by Fonterra’s farmer shareholders gives Fonterra a mandate. Others have mentioned the numbers involved. We do not know, in fact, whether it was a majority of shareholders; we know it was a majority of shares. As to whether that process is a democratic one that has been passed, we can question the ins and outs and the ethics of it as much as we like, but the fact remains that we have a mandate on paper, and whether or not we believe it is a mandate in truth is something that history will come to record.

The flip side to Trading Among Farmers—whether it goes ahead or not—is the share-price setting regime. Examinations into both the milk price and the share price by the Commerce Commission and by others have all come to the conclusion that both the share price and the milk price are reasonably fair anyway, so these are not necessarily things that need to be examined, and not something for which we need this bill to be passed.

We are told also that one of the purposes for Trading Among Farmers is that it will strengthen the capital markets of New Zealand. I wonder—as I have wondered through this process—how this will be of benefit to Fonterra or to the New Zealand dairy industry. It will not, because beyond the initial bonus share issue—the dry share issue—the trading scheme will not benefit Fonterra at all. It will, in fact, benefit only the traders. Fonterra will gain a pool of capital from the selling of dry shares, and after that it can really wash its hands of what happens with the trading of those shares, but it cannot because as those shares are traded they will increase in value—they have to increase in value; there is no point in trading shares unless they increase in value—and as those dry shares increase in value, as the units attached to them increase in value, so the wet shares will increase in value also. This will give the lie to the stated intention of the bill, and of, indeed, the Dairy Industry Restructuring Act itself, to enable free entry and exit to the cooperative. Although free entry and exit will be there on paper, it will be limited by the cost of the shares. The share value increasing will not only affect the ability of farmers to enter and exit the co-op but actually create redemption risk where redemption risk does not seriously exist at the moment. Sure, redemption risk is a factor that we need to take into consideration, and we have seen redemption, but, as has been stated numerous times through this debate, it is not as big a bogey man as it has been made out to be. Given that that the stated reasons for Trading Among Farmers is that it will assist Fonterra to alleviate redemption risk or provide it with a capital pool for growing its brand’s business, this bill is not necessary.

There are other mechanisms by which these ends can be met. Redemption has been overstated, as I have said, but it can be alleviated by changing the period over which share values are paid out to farmers leaving the co-op from 30 days, as it currently stands, to 3 years. This does not need a legislative change, for Fonterra can do that now if it wishes without needing the law to be altered. Alternatively, the retention of 30c a kilo, we are told, over 3 years would raise $1 billion for Fonterra, and since all Fonterra’s wealth comes ultimately from milk, any means of raising capital will come from retention or reduction of profits anyway. For this to happen, this bill is not necessary. Fonterra can do this now without needing the law changed.

Alternatively, again, part of Fonterra’s offshore business could be separated, could be corporatised, and could be floated on world markets with the profits being retained by the cooperative. These offshore businesses are largely joint ventures anyway, and have the potential to grow to the point where they could actually swamp the parent company. There is a case that can be made for separating and floating off Fonterra’s offshore businesses, and for Fonterra to retain control and ownership of its New Zealand operations and of its brands businesses. This is a mechanism by which Fonterra’s need for an additional capital pool could be met without passing this bill.

We disagree fundamentally, in New Zealand First, that the milk market needs to be contestable. This is because there is a clash of philosophies here. Either there is a virtual monopoly or there is not. Fonterra exists as a creature of statute that was created because the dairy industry came to Parliament and said: “We wish to merge and we wish to become something that is larger than is allowed under commerce and fair trading rules.” Parliament looked at the model that Fonterra would become if it were allowed to be created and said: “Yes, we can see that this will be of value to ‘New Zealand Inc.’ as a whole, because this thing is going to be large, it is going to be powerful, and it is going to benefit everybody.” So it was allowed to exist. To attempt to introduce the concept of contestability at the same time as a virtual monopoly is a clash of ideologies. It is attempting to have one’s cake and to eat it as well, and we do not believe that it is a desirable thing, let alone a necessary thing.

My erstwhile colleague from the Greens referred to this process as the privatisation of Fonterra, and I confess it is a term I have used myself. I must clarify that we are all fully aware that Fonterra is entirely private. It is a collection of private businesses, of private farmers, of people who get up at 4 o’clock in the morning and go and do the dirty work so the rest of us can enjoy the benefits of the foreign exchange that their industry earns. It is about corporatisation rather than privatisation, and although I agree with Mr Browning’s sentiments, I must clarify the terminology around it. But the purpose of a co-op is to maximise the returns to its shareholders. If either the share values or the dividends are maximised instead of the returns to farmers—instead of the milk price—there is no way that the farm-gate milk price can return those maximum profits to its farmer shareholders, because, as I said earlier, all the money comes from one bucket of milk.

In closing, I wish to restate what the departing Chief Executive Officer of Fonterra, Andrew Ferrier, said in September 2011. Fonterra does not need outside capital. Indeed, it does not, and it does not need this bill, either. New Zealand First does not support this bill.

COLIN KING (National—Kaikōura) : It is a pleasure to speak during the third reading of the Dairy Industry Restructuring Amendment Bill. In doing so I think we need to reflect ourselves, and project ourselves outside this debating chamber, because I sense a degree of polarising of views from the Opposition.

When you think about Fonterra and you think about milk, it is about cooperation, because if you do not cooperate you do not actually have a product. When you think of Fonterra and the construct of the legislation, of the Dairy Industry Restructuring Act, it is obligated to take milk from where it is being produced. I might say that those people who would set themselves up and compete against Fonterra for that milk production would go to where it is the most efficient to pick up the milk in those areas like the Waikato, like Canterbury where it is developing, or like Southland. They would not set themselves up in Takaka or Kaikōura, where there was an absence, or a small number, of dairy farmers.

So I just want to set things into this context, because while we consider this amendment to the Dairy Industry Restructuring Act we need to see that this is an organisation that is primarily export-focused. Although we in the House here did give it the ability to not be subject to the Commerce Commission, as would be the normal practice, conditions, and terms inside this country, it was purely driven out of the essential element that New Zealand is a nation that exports at least 85 percent, if not 90 percent, of what it produces. So having put that in place, this amendment bill, I believe, is the next step, and the next positive step, for Fonterra, because it must compete internationally and it needs to succeed for the benefit of New Zealand. Really, what we are talking about here is a construct that actually uses sunlight, water, and the elements of the earth to produce protein, and changes that protein into something that can be exported to 150 countries around the world.

The Act was also designed to encourage contestability. That was understandable, because we wanted to see a dynamic and vigorous Fonterra, and this is what we do have. So we go back to those times when these issues arose around redemption risk. We have had it articulated from the chairman of the Primary Production Committee that there was a triple whammy, as it were, where redemption risk became quite evident and the international bankers valued that at $1 billion. One has only to stop and think what that would do to the fiscal settings and economic settings of a company to be able to conduct itself in an orderly and effective way. In talking about growth and entering other markets, you can understand the dilemma that the governance structure of Fonterra would have faced. So from that point of view we want to also realise that back in 2006-08 it was the very governance structure of Fonterra that has brought it back to the situation where it is dynamic and is taking this next step.

So without going any further, this bill has been well canvassed. Trading Among Farmers is a relatively simple and straightforward exercise. The size that Fonterra specifies for this pool is somewhere in the region of 12 to 14 percent, and I wish that this exercise proves very fruitful and achieves the very goals that Fonterra has set itself. If it does not, there is the catch net within this piece of legislation to ensure that the status quo is enforced and that free entry and exit are maintained. I have great pleasure in supporting this bill.

Hon PHIL GOFF (Labour—Mt Roskill) : The Labour Party will be opposing the third reading of the Dairy Industry Restructuring Amendment Bill. I say we will be opposing it with a sense of regret, because it did not need to be that way. Actually, we well understand what Fonterra’s objectives are. It wants to expand its capital base, and it wants to protect itself against redemption risk. The Labour Opposition, through our spokesperson Damien O’Connor, who actually is supported by every member of our caucus, put forward an amendment on Supplementary Order Paper 85 that would have provided a safeguard for the future of Fonterra as a mutual company, and one where the shareholding and the dividends would remain predominantly within New Zealand.

I deeply regret that the Minister for Primary Industries, David Carter, rejected that amendment, and I deeply regret that he rejected it on the wrong basis. He rejected it, he said, because he had received it late and it was a political stunt. It was not a political stunt; it was something that Damien O’Connor had worked out very carefully with Fonterra, yet the Minister said that Fonterra was opposed to it. That was his opening line in the Committee stage. Fonterra was not opposed to it; Fonterra helped to draft it, and that would have provided the reassurance that many farmers and many New Zealanders want, that this process was designed to strengthen Fonterra, not to undermine it, and that it was not the top of the slippery slope. I think Shane Ardern used the words “a slippery slope to oblivion”.

I think that is the concern that is out there amongst many farmers. Shane Ardern is in touch with many farmers, and he will know the truth of that. I get the farmers’ newspapers every week. There are three or four of them. I am amazed at how vibrant the farming sector’s newspapers are. I read about the concerns and I read about the dismay. I will tell you what I read this week: I read that a couple of Northland farmers are taking the first steps to set up a rural New Zealand party—a rural New Zealand party—based on the sort of thing the Government has done in steamrolling this through without listening to their concerns. You know, those farmers do not like the shiny suits in the National Party. They do not like the fact that their party has been taken over by the currency speculators and the traders and the speculators. They have had a gutsful of that. They have had a gutsful of the sorts of people whom John Banks says he represents. John Banks, the member for Epsom, said he loves farmers. His electorate, Epsom, is full of farmers—Queen Street farmers! They are the guys who have never done a day’s work in their lives. They are the guys who would not know how to pull on a pair of gumboots. They are not the guys who are out there at 4 o’clock in the morning, milking the cows, or out there in the rain, as I was last weekend, helping to deliver lambs. They would not have a clue about that. That is what has happened to the National Party: it has been taken over by the Queen Street farmers.

It is all very well—[Interruption] They are excited now. You see, there is a huge division within the National Party between the old National Party—people like Shane Ardern and Ian McKelvie, who actually know what a farmer is like—and the, I was going to use a term that I cannot use, smart, shiny-bummed people in the National Party who would not understand a sheep or a cow if they fell across one.

I was concerned that David Carter talked about the lack of cross-party support. I was in the House and in Cabinet when the Labour Government passed the 2001 Dairy Industry Restructuring Act. We did that very carefully. Shane Ardern nods his head, and he was right—and so was David Carter, actually. We consulted, we listened, and we took the process carefully. We took all the time that it needed, and we won consensus for that. It was worthwhile making that effort, but not in the case of this bill. This bill, if you read the minority report from the Opposition parties, was rushed through the Primary Production Committee. The committee did not listen. It did not consult. It did not look at all the alternatives. It did not have answers to a lot of the questions that the submitters put to the select committee. It was a poor process, and the result of that poor process is that this important piece of legislation is going through with the House as deeply divided as the farming community.

I want to pick up the Minister on the other point he made. He said that 66.5 percent of the farmer vote was in favour of the bill. That is wrong. It was 66.5 percent of the milkfat production, and it was the farmers who were responsible for that who voted for it. I am told, and Damien O’Connor is told, and Shane Ardern probably knows, that the figure was actually closer to 50 percent. If it was not close to 50 percent, I issue this challenge to Federated Farmers and the National Party—that is, the Federated Farmers in gumboots—release the figures. Release the figures. We know that at least a third of the farmers in this country bitterly oppose this legislation in its current form. Actually, I think the figure was close to half, and I believe that, because if it was not close to half, the National Party would have released the figures or Federated Farmers would have done so.

What we wanted from this bill was quite simple. We wanted a statutory cap on the number of bonds representing share value that could be sold from the fund. After consultation with Federated Farmers, that was set at 23 percent. It will probably try to set the figure lower, and I welcome that, at 20 percent, but it gave it a bit of room to manoeuvre. Why 23 percent? Because it is lower than that commonly accepted figure of 24.9 percent, where a minority shareholder can nevertheless determine the future and the direction of the company. It was not too much to ask. It could have been done. It should have been done. It would have provided guarantees that we would maintain the cooperative nature of Fonterra, and it would have given those guarantees to farmers and to New Zealanders.

I spent a lot of my career as a Minister going out and fighting for Fonterra. It was a company worth fighting for. It provides 15,000 jobs. It provided last year close to $11 billion worth of dairy exports. It is an efficient industry. It is a good company. I want to make sure that that company thrives, but I am concerned when the Prime Minister of this country stands up and says that he believes that Fonterra shares should be floated on the stock market. I ask the three farmers sitting there in a row—I will not use the pun of three people sitting in a row there—I ask any one of them whether they support that as National policy. Do they support it as National policy?

Shane Ardern: It won’t happen. They won’t get floated—don’t worry.

Hon PHIL GOFF: Don’t worry, he tells me. John Key, their Prime Minister, said that it would be great if Fonterra shares were floated. Whom do I believe? Do I believe three backbenchers, representing the diminishing support of the farming community for National, or do I believe the currency trader John Key? I will tell you whom I believe: John Key. This is the top, as Shane Ardern said, of a slippery slope to oblivion of a cooperative enterprise, and a New Zealand - owned and controlled enterprise.

The truth is that this lot over there, the National Government, would sell anything it could lay its hands on—sell anything. It is already selling our basic productive resource: the land. Where was the concern expressed within the National Party about 8,000 hectares of prime dairy land going to Shanghai Pengxin? Where was the concern about that? Where was the concern from Bill English about thousands of hectares of prime dairy land in Southland going to German investors? This Government will sell the land. This Government will sell the shares in our biggest and most important export company. This Government will sell the shares in our electricity companies, and see the profits made from that fundamental strategic resource flow out of this country. It will even sell the prisons, and it will sell the right to gamble or make profits out of gambling. It will sell anything. There is no principle underlying the National Government about controlling New Zealand’s future, about owning our future, about running New Zealand for New Zealanders by New Zealanders.

That is what we would once have heard from the National Party, but it has given up. It has given up on protection of this country’s future. It looks back to the past, and it was not a bad past, but what about the future for our kids? What will our kids own? What will our kids control? What will sovereignty mean in this country if our biggest and most important export industry ultimately falls into the hands of foreign investors? And how does it help our current account deficit, up by $480 million in the last quarter, which will be billions of dollars more within 2 years? This bill does not contain the clauses, the safeguards, that it needs to contain, and that is why the Labour Party will be strongly opposing it.

IAN McKELVIE (National—Rangitīkei) :Tēnā koe, Mr Speaker. Kia kaha. This bill, the Dairy Industry Restructuring Amendment Bill, ensures we continue to have the most efficient and effective dairy industry in the world. It will ensure our dairy industry is able to meet the significant challenges ahead, both at home and abroad. Frankly, having listened to the last half-hour in this House, I could spend the next 20 minutes challenging almost everything that has been said, but I will not.

Hon Phil Goff: Oh, go on! Just have a go at it.

IAN McKELVIE: No, I would not do that to you, Mr Goff. I will not waste time. I have got a very short time here. This industry—

Hon Phil Goff: That’s true.

IAN McKELVIE: On account of my age.

Hon Phil Goff: It’s about another 2½ years, I’d say.

IAN McKELVIE: Well, I am older. This industry has, as a result of this legislation, the confidence and ability to significantly assist the creation of new jobs for New Zealanders and to assist in the development—and not only the development but the creation—of a new way in relation to our environment and farming in New Zealand. It needs to have the strength and the confidence that this structure will give it to achieve that.

Many dairy farmers were uneasy about the ability of this Parliament to interfere in their business. They were a little nervous about what Parliament might do to their industry. I am pleased to say that we have not damaged their industry but strengthened it by the actions of this House. In the Trading Among Farmers scheme its market price, in my view, will be set by the response to the market. It will eventually manage the milk prices well. What I mean by that is that as this system eases into place, the share price will eventually measure and monitor, or set, effectively, the milk price. So I think this scheme, Trading Among Farmers, is an extremely good scheme for the future of the dairy industry and I think it will give some resilience to Fonterra and some resilience to this industry that it much needs.

There has been a lot of talk about the fact that Trading Among Farmers sells the New Zealand industry to overseas interests or to other people. I can assure members of the Opposition that the only people who will sell this industry are the New Zealand farmers; no one else has the ability to sell it. So if it is ever sold, it will be the New Zealand farmers who will do that.

Mr Browning, a member for who knows where, accuses us of selling out the industry, as I said. I think he has also made a lot of statements during the course of this bill about the environmental matters created by the dairy industry. As I said earlier, this bill will give this industry the confidence and the income to significantly change the way that it works. The ball is now clearly in the dairy farmers’ hands, and I am convinced they will pick up the ball and run with it hard for the benefit of us all.

I just very briefly want to acknowledge the great effort put into the development of this legislative process by so many passionate and enthusiastic dairy industry people. There were a large number of diverse opinions expressed during the course of this bill’s passage through the House, and indeed it was a mission for us on the Primary Production Committee to get our heads around some of the early parts of this bill. There have been a number of statements made about the time that the select committee had this bill for. Frankly, I got my head around it, and I think everyone had plenty of time to get their heads around the matters that were raised both by the submitters and by other members who presented to that select committee, so I think the process was a good one.

I am confident this bill has the best interests of New Zealand and its dairy farmers at its crux. I guess I am a little perplexed, as I said, that the entire House did not get their heads around how this would be moved forward. However, I am confident that we have made the very best decision for both New Zealand and the dairy industry, and I am pleased to recommend that this bill progress through the House. Thank you.

The ASSISTANT SPEAKER (H V Ross Robertson): Just before I call the next member I advise the House that this is a split call and members will be given a warning bell with 1 minute remaining.

SUE MORONEY (Labour) :Tēnā koe, Mr Speaker. It seems I am going to be talking about milk quite a lot this week in Parliament. Tomorrow I will be speaking about breast milk, but for today I am talking about the milk that keeps this country strong. Yes, that probably is breast milk as well, but with regard to this bill, the Dairy Industry Restructuring Amendment Bill, we are talking about the future of our dairy industry.

The future of our dairy industry is something that we must take very seriously indeed. I am very concerned to hear the reports, although I was not on the Primary Production Committee, of how rushed this legislation was through the select committee. After all, this is the industry that is the backbone of our nation. The legislation ought to have been taken seriously by all sides of the House.

For Labour’s part, we feel very strongly about the hugely successful cooperative model that has actually seen Fonterra become one of our few international success stories. In New Zealand we do not have many companies that can actually compete in the international market in the way that Fonterra does, and it is a huge success story for something different from the corporate model—the cooperative model. It is a model that has been owned successfully now for many, many decades by New Zealand farmers. I guess the rest of us also feel that we have shares in Fonterra, because it is such an important part of our economy. It is such an important part of everything that happens in our country, and for those of us who live in the provinces—and I am from the Waikato area—it is such an important part of how our local economies operate.

So this should not have been a piece of legislation that was ever rushed through select committee. I believe that it was rushed through for entirely the wrong reasons. There was a bit of a panic going on. There was a panic going on from Government—and have we not seen that? It is a bit of a theme for this Government as it panics its way through a number of political mishaps at the moment. I sincerely hope that this does not become another one of those political mishaps, but it certainly could easily do so.

This bill does open up the opportunity for our successful flagship cooperative model company to have shares sold off overseas. Again, it is a continuing theme that is happening through this Government as we are also dealing with the State assets sale issue at the moment as well, so there are themes running through. I know that Fonterra was deeply concerned about this issue.

I talked about farmers and the rest of us as if I do not fall into that category myself, but I actually fielded a phone call from Fonterra as it got a bit panicked about how the vote might go on Trading Among Farmers. I received one of those phone calls at home as a Fonterra shareholder, asking me to participate in a survey in the days leading up to that vote. I think Shane Ardern looks like he may have participated in such a survey as well. Perhaps there was a high proportion of MPs who actually got asked the survey questions from Fonterra, but the phones were running red hot as Fonterra did urgent surveys to try to find out whether it would get that slim majority—which, in fact, it ended up getting—to get this Trading Among Farmers through. But it is very controversial, and I know that there are deeply held concerns within the farming community, and, more broadly, the agricultural community. Farmers are part of that, but the entire community, which relies on this very important industry as the backbone of what we do in this country, has a concern about the lack of protection in this bill to ensure that we keep that very successful and very important cooperative model.

I am very proud to say that I am, with my Labour colleagues, in opposition to this bill. I think it has too many risks. We have a very successful model in Fonterra. I want to keep that very successful model in place. It has been sustainable in the past. I do not accept the arguments coming from the Government and I oppose the third reading of this bill.

EUGENIE SAGE (Green) : E te Māngai o te Whare, tēnā koe. Tuarua, ki ngā mema o tōtātou Whare, tēnā koutou katoa. Tuatoru, mihi atu ki te Wiki o Te Reo Māorinā reira, tēnā koutou, tēnā koutou katoa.

[Greetings to you, the Speaker of the House. Secondly, greetings to you all, members of our House. Thirdly, acknowledgments to Māori Language Week, so greetings to you all collectively.]

The Green Party would have liked to support the Dairy Industry Restructuring Amendment Bill. We have concerns about the environmental management of dairying, but we want Fonterra to succeed. The bill introduces a new milk price regime to strengthen the existing incentives for Fonterra to operate in accordance with the existing contestability standards in the substantive Act. It gives statutory backing to Fonterra’s existing governance and transparency processes by including them in the bill. It also introduces a new system for monitoring the farm-gate milk price to be done by the Commerce Commission, and the Commerce Commission will assess whether the farm-gate milk price provides incentives for Fonterra to operate efficiently.

That is useful, but the Green Party’s concerns with the bill centre on the new share trading system, Trading Among Farmers. The purpose of Trading Among Farmers is to provide a capital base to act or to use as a buffer against redemption risk or the risk of losing capital because farmers leave the cooperative. Government members argue that Trading Among Farmers is an effective substitute for existing share issue and surrender obligations when farmers enter or leave the cooperative so that they can continue to do that freely. Our concern is that introducing Trading Among Farmers signals a shift to the demutualisation and corporatisation of Fonterra.

Leonie Guiney summed up these concerns in her submission to the Primary Production Committee. She framed the issue as a choice between keeping Fonterra New Zealand - owned and able to put cash into communities through the milk price, or enabling Fonterra to become a target for large-scale overseas investors. She said that Trading Among Farmers was “a temporary solution to a problem of redemption risk that is being exaggerated, with an eventual loss of farmer ownership and control.” The Green Party agrees. The bill will benefit capital markets from trading, but it is questionable whether in the long term it will benefit dairy farmers.

Fonterra is the world’s No. 1 dairy cooperative. Trading Among Farmers creates a hybrid structure and two competing sets of principles between those regulating stock markets and those governing cooperatives, and that is where our concern lies. As a cooperative Fonterra currently aligns the interests of dairy farmers who want their milk collected and a fair price given and the fiduciary duties of the board to act in the interests of suppliers. But Trading Among Farmers changes that, and as the James Morrison Consulting report, as independent advice to the select committee, said: “The introduction of a new class of external investor as proposed in TAF creates a conflict for directors that is not resolved by the dairy farmer retaining voting rights …” and “The tensions that will inevitably arise between farmer suppliers to Fonterra, external investors, and the Fonterra board’s fiduciary duties to those investors, cannot simply be contracted out of by the proposed systems. They represent”—Mr Morrison said—“a high risk of ongoing conflict between investors and supplying farmers.” And the result and likely outcome of that will be, he said, that the ownership of Fonterra becomes increasingly separate from farming over a timeframe of several decades.

As other speakers in this debate have noted, where you get this conflict of interest between investors and suppliers, every cooperative that has introduced external investors to its capital structure has eventually either demutualised or reverted back to a full cooperative by excluding those external investors. The fundamental changes to the successful cooperative structure of Fonterra are the reason why the Green Party is opposing this bill.

MIKE SABIN (National—Northland) : This is a short call, but I am pleased to take a call on the third reading of this very, very important bill for all New Zealanders, the Dairy Industry Restructuring Amendment Bill. The overarching aim of this bill is, of course, to ensure that New Zealand has the most efficient dairy industry that we can possibly have. The Dairy Industry Restructuring Act was passed some 10 years ago. It was an innovative and quite unique approach for this country and, indeed, globally that maximises our trade opportunities out there in the big wide economy, and also provides the opportunities and competitive balance, which are required domestically. It has provided a tremendous platform, and we can see that by the level of growth in Fonterra. Dairying is now recognised as earning this country twice what the nearest sector behind it does, and I very much want to commend the farmers and Fonterra for the passion and the work that they do for themselves and this nation. It is very important. This bill introduces a new regime related to Fonterra’s milk price setting and, of course, the proposed capital restructure that we have been discussing today as Trading Among Farmers.

Interestingly enough, earlier this year I met with a number of farmers as the policy proposal rolled forward, and it would be fair to say that about 90 percent of them raised significant issues with the following matters. They were around square curving and the ability for competitors to take milk at a time and a price that suited them; the virtual processes and a little bit of smoke and mirrors that has evolved in the 10 or so years since Fonterra was created; and the ability for competing companies to take their 50 million litres of milk ad infinitum. All these matters are being addressed as part of this legislation, and I am very happy to say, after many conversations and meetings with famers, that they are very much satisfied with the direction that the National Government is taking. I will also say that the issue of Trading Among Farmers, actually, was very much a background issue and continued to be so, certainly in my electorate.

Just very briefly on the farm-gate milk price, in essence what we have is a situation where this bill will provide a greater level of transparency. A regulatory agency will release a report to add value to this transparency, and I think this is in the interests not only of Fonterra but also of all New Zealanders and competitors, and it is about having the appropriate balance. Trading Among Farmers—I only have one comment to make on this, and that is that this bill enables it; it does not impose it. The member Steffan Browning said that Fonterra does not have a mandate after the 66 percent vote returned, because he believes that not enough people voted. I am not sure how he worked that out—perhaps he has a crystal ball he could share with other members in the House. He also thinks that because it is not a one farmer, one vote system it is patently unfair. I would like to point out to that member that, in actual fact, Fonterra set the terms of its vote. Fonterra certainly advertised and made Fonterra shareholders very much aware that the vote was going on, and they participated in that vote. By anyone’s count that is a mandate, and I would suggest that the contribution of Mr Browning, that Green member, is about as much use to this House as teats on a bull. For that reason I am very pleased to support this bill, and to commend it to the House.

Hon PAULA BENNETT (Minister for Social Development) :Tēnātātou e te Whare. I move, That the Families Commission Amendment Bill be now read a first time. I nominate the Social Services Committee to consider the bill, and at the appropriate time I will be moving that the committee reports back to the House finally on or before 27 November 2012. This bill will allow the Families Commission to be more relevant, efficient, and purposeful than ever before. It will focus the commission on independent monitoring, evaluation, and research, specifically filling current gaps within the social sector, as well as its current function of acting as an advocate for families generally.

The purpose of this legislation is to enable the technical changes that underpin this restructure. The amendments to the Families Commission Act will introduce a new function in research, monitoring, and evaluation; establish a social science experts panel; remove the title of commissioner from all but one member, who becomes the sole Families Commissioner; require the Families Commission to develop the annual Families Status Report; and give the commission access to statistical information in accordance with the relevant sections of the Statistics Act 1975. These changes give effect to the National and United Future confidence and supply agreement. Essentially, the bill enables some technical changes to be made so that we can refocus the Families Commission to get the best out of it. I welcome the select committee scrutiny of this bill in respect of these technical changes.

Let me explain the vision, though, that will follow these changes. Although it was outside the scope of the bill for the select committee’s purposes, I think it is helpful in terms of explaining the context. We are taking $3.5 million of the $8 million a year in funding and channelling it into the new Social Policy Evaluation and Research Unit, known as SuPERU. This unit will independently monitor and evaluate programmes and initiatives in the social sector—a job currently done largely by Government departments. I believe giving that role to a more independent body is beneficial, and will see more NGOs entering into more robust evaluation and monitoring. The truth is, how many NGOs are actually going to go to the body that funds them, to get a true evaluation done on their effectiveness, if they feel that at some level that funding might be under jeopardy, depending on what that sort of outcome is? Having a more independent body where they can get that robust research and evaluation done I think gives a level of distance from Government, which is important. I hope that we eventually see it being even more independent than what it currently is, and that we set it up accordingly.

In New Zealand there is a serious lack of evidence of what works in this country. We have thousands of social organisations working in the community, often with very vulnerable and at-risk families and individuals. But we often lack sufficiently robust evidence, through monitoring and evaluation, to be able to confidently say whether they are making a positive and tangible difference. The Social Policy Evaluation and Research Unit will be able to radically change that picture over time. It will not be an overnight kind of change. But unless we start setting out the right avenue and the right place for that to happen, then we cannot get the change that we need.

An important part of this is the rigour that will be alongside of it—academic peer review and guidance from a social science experts panel. This is being headed up by the Prime Minister’s Chief Science Adviser, Sir Peter Gluckman. That panel will bring academic and scientific rigour, which will ensure the Families Commission’s future as a highly regarded centre for evaluation. The type of research that I anticipate a unit of this calibre will commission will be pertinent, relevant, and really useful. It may not be doing all of the research itself, but currently we do not have a place of excellence where the research that the Government is commissioning, as far as research from universities goes, has somewhere to go through and actually collect all of that data. So individual departments do it at the moment—quite well, in some cases—for specific purposes, but it is not actually being collected in one place and having that right kind of avenue to go through it. I think that is going to make a huge difference.

Let me give you a bit of an example, which I think is the best way to describe it. An example could be that a town has decided that it wants to set up a youth programme, because anecdotally it believes there is a need for it. They are seeing young people in the street—and we hear this all the time. I see them being able to go directly to the Social Policy Evaluation and Research Unit. So they may get money from a philanthropist, they may have saved some funding themselves, or they may get money from Government—and that is a reality—to fund that bit of research. The first thing they will do is get the scoping work done. They will scope what really is there, get it done slightly independently, and then they can have the research done and get an idea of what is best practice. I imagine that the Social Policy Evaluation and Research Unit will have the five components that are really necessary to make a successful youth programme, and then they can design it around that to be the best programme.

At the moment, we have it done in a very ad hoc way. A good organisation will go out and meet other good organisations and ask them what they do and how they do it. They may try to get a bit of research done themselves, or look at what research is available. But it is not done in a way where it is collected easily, and it is at the whim of, usually, an individual who goes out and does it. Imagine having a place that has that kind of rigour behind it, and has that kind of academic research. I eventually see Governments accessing more research through this unit. I see them asking for assistance from it.

The other thing is that the Families Commission, with the other $3.5 million, will be doing what it does already: the White Ribbon Day campaign, and the family violence prevention work it does. We will also be requiring a families status report, which for the first time will be really analysing each year where families are at and how we measure that against it, which I think is very important.

The organisation remains an autonomous Crown entity. There are changes to the governance structure. So there will be one commissioner, as I have said, and then there will be a board underneath that. That board will be made up of everyone from people on community organisations to philanthropists and others. Then there is this, I think, very important experts panel under Sir Peter Gluckman that will have that academic rigour behind it, which I think will really enhance the quality of the work that is coming out and its relevance.

The one thing I have learnt in this job is that you cannot go backwards and start collecting information differently from how you do collect it, so that you can analyse it and get the right evidence. The truth is that in the first year when I was there and looked at what programmes were working for my own Ministry of Social Development’s $550 million spend on about 4,500 contracts to 2,300 organisations, I could not tell the New Zealand public how effective they really were. Then when I did an analysis of all of those, which took quite some time, what came out of it was: 20 percent were evaluated and doing a very good job, 20 percent were doing an absolutely shocking job and in some respects may actually have been doing harm, and the truth of the matter is that for 60 percent we did not know. So we have dropped the contracts for the 20 percent that were doing such a poor job, and we have backed the 20 percent that are doing a great job. For that 60 percent, which is obviously most of them, that are in the middle, we are now trying to collect information, get their outcomes more focused on what we are trying to achieve, and in many cases work our way through what is such a massive job of building up that kind of evidence base that we need as to what does work. But it is not a job that happens overnight.

I think this bill and this research unit are going to make a fundamental difference to how we get that kind of evidence behind it to be used by NGOs, to be used by financial institutions, and to be used by government, and have that level of independence. I commend this bill to the House.

Dr RAJEN PRASAD (Labour) :Tuatahi, e ngāwhānauwhānui o te motu ka nui te mihi ki a koutou, nō reira, tēnā koutou, tēnā koutou, tēnārā koutou katoa. Kia ora, Mr Speaker.

[Firstly, to the families at large of the nation, a huge acknowledgment to you collectively, so greetings, greetings, and greetings indeed. Thank you, Mr Speaker.]

Labour will support the Families Commission Amendment Bill going to the Social Services Committee. Labour certainly is committed to families and believes that families are the foundation of our society and that family well-being is critical to the development of our children and to other members of our families and communities. However, it is important to note that National has never been a strong supporter of the Families Commission, and it was only going to be a matter of time before it began to restructure the commission in this way. Judith Collins certainly regularly attacked the commission in Opposition, as did the Minister for Social Development.

Of course, this restructuring that the Minister has talked about is not starting with this bill. It has actually been going on for some time: the types of appointments that have been made to the commission, the transfer of funds from the commission to other entities, and “shaping” the work of the commission—so much so that in recent times even the current chief commissioner has resiled from probably one of the best pieces of work that the commission has done, on paid parental leave, because he took the particular political line that the country could not afford it. That demonstrates the way in which the commission has, in a sense, been prevailed upon by this Government and by this Minister.

The Families Commission is an autonomous Crown entity, and that means something. It has to work at arm’s length from the Government. The amendments to the Families Commission in this bill actually, from our perspective, begin to seriously circumscribe the role of the commission. It is beginning to look a lot more like a Government department or a Government ministry. We make those comments with some thought.

The commission will have a new evaluation and monitoring role for the social sector. The Minister has just now explained what her vision is as to how that might operate. I guess if we are setting up a unit within an autonomous Crown entity to have a monitoring, evaluation, and research function in that particular way, it is really difficult to see where it might end up. In new section 8A in clause 7 we get a more detailed statement on how the Government sees the commission operating. With its additional functions here, it appears to us that the commission will do the Minister’s bidding. Under the Crown Entities Act, which applies to the Families Commission, currently the Government can direct the commission only to have regard to Government policies. But when we look at new section 8A, the commission actually becomes an arm of government, and is required to do a whole bunch of stuff for the Government. New section 8A says that the additional functions, including evaluation, are “to commission research in the social sector on behalf of the Government”. Why is the Government not doing its own research? This is an independent commission set up to work in a particular way and to manage contracts. Now the commission, this particular unit within the commission, will be managing the contracts in the social sector on behalf of the Government. Those are just two of the provisions of that particular clause. The commission will now undertake research on behalf of the Government and will manage contracts.

Hon Simon Bridges: This is a front-bench bid, Rajen—bidding for the front bench.

Dr RAJEN PRASAD: Has the member from Tauranga read this bill? Does he know anything about this particular bill, or is he still bored with his own portfolio? Mr Bridges, listen—you might learn something.

The commission, through these kinds of provisions, is being developed into not a Crown entity but an arm of government, and therefore a department or ministry. We have to ask, and we will ask in the select committee, whether this should remain a commission. That is an important question. If it is circumscribed in this way and is being directed by the Minister to this extent, then why is it a commission? Autonomous Crown entities are supposed to go and do the work on contemporary issues themselves. The commission should do its work and then put the evidence of that where it lies. That is the work of an independent body.

The Ministry of Social Development has a multimillion-dollar Centre for Social Research and Evaluation. It is the activities from there that are being transferred to the Families Commission. They actually belong to that particular unit. Here is a multimillion-dollar centre—tens of millions of dollars have been spent there—but this function is to be transferred to the Families Commission, which has about $3 million to do that with. One can see the sincerity of that particular approach, and we have major questions.

The other change is the change to the advocacy function of the commission. This is the strength of the commission—to go and examine topics, to do the work, and to bring it back. In addition to all of that, clause 6 requires the commission to prepare an annual Family Status Report. That is a large piece of work, and quite a lot of resources will be gobbled up by that particular role. What kind of report will be produced? The Hon Peter Dunne says he has seen the English example and that the English example is one he wants to emulate. I have the English examples here, both the first and second reports: The State of the Nation Report: Fractured Families, and the second one, which is recommendations, Policy Recommendations to the Conservative Party. Larry Baldock will be very pleased with the approach taken in the state of the families report.

So what is being done here? At the select committee we will want to know what is the scope of that particular report and what kinds of things are required. That might give us a bit more of a steer as to what the Minister or the commission has in mind. Again, the expertise for that kind of work lies in the Ministry of Social Development. The ministry produces the Social Report, and it takes a lot of resources to produce that. This is a kind of social report on families. Why are those two things not being linked, and the largest department that has the greatest amount of resources doing that work? No, it is being transferred into something that is an independent commission. Here we have the role of Government departments being transferred on to an autonomous Crown entity—the Families Commission—and we have to ask why, because that really is saying that we do not need a Families Commission. If that is what the Minister is saying, would it not be honest to actually come out with that?

Then there is this notion—the Government’s arrangements with the commission are also being changed. There will be one Families Commissioner. There will be a board and there will be one Families Commissioner. The role of the Families Commissioner is not defined. In fact, it is left to the board. Currently other—

Hon Simon Bridges: We’ll put you on it if you sit down.

Dr RAJEN PRASAD: I have been there, Mr Bridges. I know a lot more about it than you or all of your members put together, which is why I am talking carefully and with some experience on the bill. That member is so bored with this. If you do not know something about something, Mr Bridges, do not go there.

Indeed, this is a problem. Can the Minister not describe what the role of the commissioner in the Families Commission is? That person will not necessarily be the chair of the board. They will be with the transition, but not necessarily, as members will describe.

In addition to that, there is also a review panel. Here is the Minister telling a research institution how to do its work. The Minister has good grounds to ask for peer review. That then opens up for the commission; it is doing that work now. Any expert in New Zealand or internationally is used by the Families Commission for peer reviews. But here we are putting this panel right in there. I think it is interference, and I think it is designed to hold and control the commission so it does not get lost anywhere, does not do the kinds of things it might do, and does not criticise Government policies. Well, if that is what the Government’s agenda is, then we will ask—and we will keep on asking—why we have a Families Commission, because what this bill does is make it look more and more like a Government department. It makes it look more and more like a ministry, and many of its functions are already today in ministries with far greater resources. Significant roles are being transferred from there on to a commission. It looks like the commission accepts those, but we will want to question it as to how it is going to fulfil these roles with the rather limited amount of resources it currently has, and how it is going to address the real advocacy functions that, indeed, are the cornerstone for this particular commission. We have serious concerns. We will ask them, but that will happen at the select committee. Thank you.

MELISSA LEE (National) :Tēnā koe e te Mana Whakawā, koianei Te Wiki o Te Reo Māori me whakanuia e tātau. Kia ora.

[Greetings to you, Mr Speaker. This is Māori Language Week and we must celebrate it. Thank you.]

I hope I did that correctly in te reo. It is, after all, Māori Language Week. It was interesting to listen to the member who just sat down, Rajen Prasad. Obviously, as he said, he was a Families Commissioner, and he does, in fact, know probably more than most of us as to what goes on in the Families Commission. But it was interesting to note how he forgot to mention that is was, in fact, his party’s policy to get rid of the Families Commission. I believe that it was Annette King who tried to get rid of it, in the previous Government.

Families are the very heart of our community. They make us laugh; they often make us cry. Different people, different generations, and different cultures have different expectations of what families should do. In New Zealand, with our diverse culture, there are so many different expectations of what families should be, but there is one core function that our families have in common, and that is the nurturing, rearing, socialisation, and protection of our children.

The restructuring of the Families Commission will streamline the core function, which is advocating for families. It was really wonderful to see the vision from the Minister for Social Development, the reason why she wants to streamline the Families Commission, and how she actually sees the Social Policy Evaluation and Research Unit working. It was lovely to actually get some detail on that.

The Families Commission will remain an autonomous Crown entity and will continue to work on issues that are important to families, within a leaner, more focused structure—and focused and leaner is actually really good. The commission will be more streamlined, as I say. The new families status report will measure just how New Zealand families are doing. I think that will be a really wonderful read. I would love to read that report at the end of it, because, over generations, families have changed. The way we operate has changed, and the definition of families has changed as well. It will be wonderful when every year the Families Commission comes up with the status report on how our New Zealand family is performing.

The Families Commission Amendment Bill is a great bill, and I look forward to the submissions to the Social Services Committee. I commend this bill to the House.

JACINDA ARDERN (Labour) : Thank you for the opportunity to contribute to the debate on the Families Commission Amendment Bill. Obviously we are discussing the commission that was established under a Labour Government. At that time, I think it is fair for us to point out, Peter Dunne was a significant driver of the establishment of the Families Commission. I do have to raise—

Andrew Little: He insisted on it.

JACINDA ARDERN: He did, indeed, insist on it, says my colleague Andrew Little. I do have to question, and I will be asking this question of the Minister in the chair during the Committee stage: would she still have the Families Commission in place if it were not for Peter Dunne’s ongoing role in propping up the National Government? What may be called “streamlined” by that side of the House is actually neutering, if we are honest. What this bill does is rip the guts out of the Families Commission and leave it. It loses its advocacy role.

Hon Simon Bridges: Well if it’s neutering, it’s not the guts, Jacinda.

JACINDA ARDERN: So let us get into a little more detail. I will have Simon Bridges speak no more of neutering. I know how he feels about animal welfare. So we will leave it at that.

Labour does support this bill going to the Social Services Committee, but our view is that this does not go far enough. In fact, it is Labour’s view that the Families Commission should be disestablished altogether. I will spend a little more time talking about that.

But why does it not go far enough? Well, originally, the Families Commission was established to advocate for families in whatever form they existed. I think we have seen clear evidence in recent times that the Families Commission has lost that role. I would not wish to guess as to the reason why it has done that. I could hazard a guess that political pressure has played a role, because if you look at one example where we have seen the Families Commission push aside its advocacy role, there would be no better than paid parental leave. We had the Chief Families Commissioner stand up and tell the New Zealand public that on one of the most soundly based, in terms of evidence, policies around the importance of child development and the role of the first 6 months in forming an attachment with their family in developing a strong, stable footing for a child in those first 6 months, he was not sure New Zealand could afford it. I would say that New Zealand cannot afford not to bring in a policy like that, supported by Sue Moroney and her member’s bill. To have the Families Commissioner stand up against the extension of paid parental leave—how is that acting as an advocate for families? That was absolutely nonsensical to me. What happened to evidence? What happened to advocating based on research and sound practice and evidence? That, for me, was the point at which we really saw the Families Commission tip over the edge.

If we want to talk about streamlining, which the Government member who just took her seat, Melissa Lee, talked about, the ultimate form of streamlining would be to get rid of it entirely and beef up the Children’s Commissioner and the Office of the Children’s Commissioner. In fact, add some additional support around that from the central government perspective, as well. Bring in a Minister for children, create a children’s ministry where the Office of the Children’s Commissioner is acting as a direct advocate, and put pressure on the children’s Minister to act in the best interests of children. That would be the ultimate form of streamlining. Surely, we can all accept that advocating on behalf of children, a strong Children’s Commissioner, and a strong role within central government would be in the best interest of families as well, so there by default picking up the job that the Families Commission has long since abandoned.

This bill, instead, keeps the Families Commission. But it does, as I have said, weaken the role that it plays, and Rajen Prasad would know that well. Given that he was once in the Families Commission, he can see intimately the changes that have been made here and what a difference it will make to the way it operates. Moving to one commissioner, as I have said, would be pointless if they are not an advocate, anyway. What is the point of one commissioner who does not advocate for families when you have seven who currently do not, anyway?

Then it is creating a centre for family and whānau. Again, if you cannot guarantee the independence of this group, are we not then creating a new unit within a Government department? If the Minister cannot demonstrate to us that that is not going to happen, then, again, I do not see the point of that. Surely, then, we should just ask the Ministry for Social Development to pick up that role—it is, indeed, funded to play that kind of role.

We have heard much discussion and celebration from the other side of the House around the introduction of something called the annual families status report. In its own right that report might sound interesting or useful, but I would ask Government members to at least canvass this space in which they are now thrusting out this annual families status report. What already exists? Well, we have got the Social Report, which used to happen every year. It was a really comprehensive, important report, and it became the foundation of a lot of work that the Ministry for Social Development was doing for our families. But, unfortunately, the Social Report is no longer happening every year; it is happening every 3 years. We could probably have saved ourselves a lot of money by simply returning that report to an annual basis, and perhaps diluted the need for an annual families status report. We also have The New Zealand Children’s Social Health Monitor. We have Bryan Perry’s excellent work on the report Household incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2010, which generates, again, a lot of the policy development we see coming out of not just the Ministry for Social Development but other agencies working in this field. And we have the OECD income inequality report.

We have the critical but underutilised Growing Up in New Zealand research, which is probably going to be the most useful piece of research for future development around children’s policy and the policy for our families over the next 10, 20, 30 years. It is an extension of the kind of work that we had done in Dunedin—the longitudinal study. I see that the Growing Up in New Zealand work is going to be transferred to this unit, and I can guarantee to the Government that this side of the House will be keeping a very watchful eye on the preservation of that critical piece of work. It is so important that we understand across a cross-section of our New Zealand families what it is to bring a new child into New Zealand and grow up in New Zealand. That is why that report is so, so key—we have had two reports thus far. I would like to see the Ministry for Social Development utilising it a lot more. And I hope to see it in the alternative white paper; if it is not, we will be asking some big questions.

But that is not the only report. Add to that the Salvation Army status report, the health report, the report coming out from the Health Committee on the first 1,000 days, the green paper, the white paper, and the Māori Affairs Committee work that Louisa Wall has been instrumental in instigating. All of these pieces of work exist, and my big question would be: how will the annual families status report add to that comprehensive list of work that already exists? And, secondly, if it is going to add to it—I will be interested to see how it will bring something new to the table—will we actually do anything with it? As Rajen Prasad has pointed out, we have certainly had plenty of pieces of work, including on paid parental leave, coming out of the Families Commission that have since been ignored—not just ignored, but contradicted—by the Chief Families Commissioner. It is one thing to produce a report; it is another thing to do something with it.

My final point is whether this newly structured Families Commission has the independence it needs when it comes to the research and evaluation function it will have through the new $3.8 million research and evaluation unit. New section 8A, “Commission’s monitoring, evaluation, and research function”, states: “In order to perform its monitoring, evaluation, and research function, the Commission has the following additional functions: (a) to identify opportunities where evidence and research will assist in determining or achieving the Government’s priorities in the social sector:”. That is the wrong way around. The old legislation used to state: “to encourage and facilitate the development and provision, by Ministers of the Crown, departments of State, and other instruments of the Executive Government, of policies designed to promote or serve the interests of families:”. It used to be that the research did not come with any bias. It was used to inform what the Government did. Now we are using the research and evaluation to prop up and support existing Government policies and ideas. It is the wrong way around.

In fact, much of this bill is the wrong way around, and it is our contention that the way forward is to scrap this commission altogether. That is what we will be proposing when this bill goes to the select committee. I look forward to the Government members trying to justify this neutered commission’s existence.

DENISE ROCHE (Green) :Tēnā koe, Mr Deputy Speaker. Ki te Whare, tēnā koutou, tēnā koutou katoa. The Families Commission was set up in 2003, and I think that before we change something, it is quite useful to have a look at what it has been doing. The commission has been an able advocate for the interests of families and children. Its independent, critical role is not one that our society can afford to lose at this time. The Greens are concerned that the Families Commission Amendment Bill may negatively impact on the commission’s capacity to continue with that work.

The Families Commission’s work has included supporting and developing programmes like White Ribbon Day—a day recognised internationally, when men call for an end to domestic violence. This has now moved to a model of being self-funded, with communities and individuals promoting these events.

The commission conducts fabulous research, including research into the causes of family violence and, amongst others, that fabulous paper on paid parental leave, which suggested that paid parental leave leads to better child outcomes. It has rightly identified that poor-quality rental accommodation is a major issue facing New Zealand families. In its submission to the Productivity Commission, when it was reporting on housing affordability, the Families Commission noted that poor-quality housing not only has a negative impact on family health outcomes but also can prevent families from accessing other support, because of the stresses associated with living in substandard, overpriced housing. Maybe this is the reason why the Government is restructuring the Families Commission, with this bill. These are not issues that this Government is interested in addressing.

The Government, I note, has been remarkably inconsistent about the Families Commission. In 2008, before the election, Mr Key put forward three different policies regarding the Families Commission, in 4 days. On the Monday he attracted applause from the NZ Forum on the Family by indicating that National would rather put the money currently spent on the Families Commission into NGOs. The next day he appeared to have changed his mind, and said that National would rebalance the Families Commission in a way that United Future—the party that championed its establishment—would find tolerable. Then, 2 days after that, Mr Key was reported as saying that it is likely that National would subsume the Office of the Children’s Commissioner into the Families Commission, while criticising the worth of some of the Families Commission’s work. I am just highlighting the shifting sands of the Government’s thoughts on the Families Commission, because today we are looking at yet another change of direction.

So, about this bill: firstly, we strongly support the monitoring and evaluation of programmes and services offered to prevent, and intervene in, the social issues that impact on our nation. We think there should be much more of it. We need to be continuously learning from new initiatives and the outcomes they produce. This needs to be much more than measuring the outputs of programmes; it needs to be the actual outcomes for individuals accessing them. This means learning from mistakes and fostering successes. Most important, it means listening to the service users who have the insight of experience, so we can ensure that the money we spend makes a real difference in people’s lives.

We note that under this bill the monitoring and evaluation function will be transferred to the Families Commission. Until now that role has been undertaken by the Centre for Social Research and Evaluation, under the auspices of the Ministry of Social Development. The question remains why Sir Peter Gluckman has recommended that an evaluation function be moved to the Families Commission. We promote the idea of an evaluation of services, funded by the taxpayer, in theory, but we want it to be produced by a non-biased third party.

I want to know why it is not working. Why can evaluation and monitoring not be effectively and efficiently carried out by the existing Centre for Social Research and Evaluation, given that good public management includes the provision of free and frank advice to the Minister? Is there a problem within our public management system? Did the Minister or Sir Peter Gluckman have concerns about the ministry’s ability to provide these evaluations? Is this sending us alarm bells of other, more endemic problems within the ministry?

Secondly, a newly appointed social science experts panel, which this bill will set up, gives us some concern. We are alarmed at how this may impact on the provision of non-biased, free and frank advice to the Minister. This Government’s reliance on advisory groups is a worrying trend. The Welfare Working Group is a case in point. We are concerned that this Government will use these advisory committees to buy the advice and research that, frankly, fits with its own ideology. What we saw with the Welfare Working Group was a series of recommendations that fit with the policies this Government is keen to adopt, and now we see that playing out.

Last week we saw the passing of the Social Security (Youth Support and Work Focus) Amendment Bill, where we see a more punitive approach—under the guise of sanctions—to young people who are either unemployed or young parents, and work testing for every other beneficiary, from here on in. We will be seeing drug testing of those on the unemployment benefit, too. Basically, we are revisiting models that have failed elsewhere in the world, but, funnily enough, they were suggestions from the advisory group the Government hired to back up its preconceived ideas. So it will introduce them anyway.

Of particular concern in this bill is the change to section 13, which says that the commission must be readily accessible to a wide range of views, but this applies only to the commission’s advocacy function, not the monitoring, evaluation, and research of key issues, programmes, and interventions.

Thirdly, in the Families Commission’s statement of intent we note that the budget for monitoring and evaluation has been decreased from $8,700 to $7,369. We question the volume and quality of evaluations that will be achieved on the commission’s reduced budget. We also note that the performance measures and standards for the advisory services function do not indicate the number of programmes to be evaluated. It just says they will be done monthly or on request. We can assume from the statement of intent that there will be fewer programmes to look at. This does not reassure us that programmes will be adequately monitored and evaluated, and the findings disseminated to where they can be put to the most use.

At the end of May we asked the Minister, in a written question, about what work, if any, would be shifted from the Ministry of Social Development’s Centre for Social Research and Evaluation as a result of the move to set up a new social policy evaluation and research unit within the Families Commission. We received the reply that apart from the report on Growing Up in New Zealand—a good report, no doubt—no decisions had been made on any staffing changes or distribution of research and evaluation responsibilities between the Families Commission and the Ministry of Social Development.

Contrast this reduced budget and lack of focus with Australia, where the state and territory Governments have agreed to build a more solid evidence base on domestic violence and sexual assault as part of their national plan to reduce violence against women and children. They are committed to developing a centre of excellence to enhance the evidence base and improve on-the-ground responses to violence against women and children. The Federal Government is investing $86 million in national initiatives to improve the lives of women who have experienced violence, and towards stopping violence against women altogether. A centre for excellence versus a reduced Families Commission—I know which country is investing in families. I hate to admit it, but the Australians are way ahead of us on understanding that there are longer-term costs associated with doing nothing about these social issues.

We will be voting against this bill. We believe it hands far too much power to the Minister to dictate research results that support the ideology of the day. We are unconvinced that the advocacy role of the Families Commission will remain unchanged, and, most important, we think that it does nothing to advance good outcomes for families. Nō reira, tēnā koutou katoa.

TIM MACINDOE (National—Hamilton West) :Tēnā koe e te Mana Whakawā. Kia ora e te Whare.

Hon Members: Kia ora.

TIM MACINDOE: Thank you, Dr Prasad. Hōmai te pakipaki. This measure needs to be seen in the context of the Government’s commitment to the delivery of better public services for all New Zealanders. It provides for a leaner and more focused Families Commission, which will be taking on a new role, providing for independent monitoring, evaluation, and research to measure the effectiveness of initiatives across the social sector. We need to be confident that the Families Commission will be able to make a difference for families who are struggling, and we—sorry, I should have put my glasses on! We need to be able to invest in interventions that we know will work. This is a serious matter, and I will be looking for evidence of that, and assurances to that effect, in our Social Services Committee deliberations. I support the first reading of this measure.

Mr DEPUTY SPEAKER: The Speaker has been informed that New Zealand First intends to split its call. There will be a 4-minute bell.

BARBARA STEWART (NZ First) : I rise on behalf of New Zealand First to speak to the Families Commission Amendment Bill. New Zealand First will be opposing this bill. We need to be consistent with the approach that we had in 2003, when we opposed the setting up of the Families Commission. We opposed it then because we could not see how it could provide the practical, hands-on assistance that New Zealanders were actually looking for at that point in time—and National opposed it too—when we were told that research was going to be the prime focus of the Families Commission. Of course, we were also concerned with the millions of dollars that were needed to set up this research unit.

New Zealand First is a family-friendly party, as are all the parties in this House, and we recognise the strength of the family unit. As my former colleague the late Hon Brian Donnelly said so many times—and I have to quote this when it comes to the Families Commission—“The quality of the future that we will leave to our children will be determined by the quality of the children whom we leave to the future, and the quality of those children will be determined by the quality of family relationships.” So we do recognise how important this family unit is.

In 2003 we were told that the main focus of the Families Commission would be family-focused research, much of which was already being undertaken by the Ministry for Social Development. So why would one want to try to duplicate this role and spend extra dollars to get the same result? At the very outset, it was very easy for the Families Commission to become so nebulous that it could become all things to all people. We know that no organisation can survive if that is the path it has to follow.

What we are seeing now is that the role of the Families Commission is being ramped back significantly. One must ask whether we really need this Families Commission. We have been told that hard economic times are upon us, and research in hard economic times must be focused and must have a very tangible output. One wonders, when one reads the Bills Digest, whether or not the new family status report, which is going to be developed to measure how families are getting on, is really what we are looking for.

Unfortunately, it appears that the Hon Peter Dunne has sold out the Families Commission, which he negotiated so hard for with the Labour Government. New Zealand First would have thought that once a Minister had established a commission such as this as part of a confidence and supply agreement, carefully monitoring the result and ensuring that the output was the best possible would be a personal priority, and would be carried out, particularly when the Minister establishing it has always been a part of the Government—but apparently not. I found a quote from One News from Minister Dunne stating: “I am on the record as saying the Families Commission lost its way early on under Labour administrations that milk-sopped it into a politically correct institution.” Where is Mr Dunne’s work in this particular area? Why has he not stood up for the Families Commission?

What we are seeing here is that version No. 1 of the Families Commission did not work out, so we have another version that is focused and leaner—so we have been told. We can only hope that this time round the Families Commission is carefully monitored on a regular basis to ensure that the output meets the needs. There is a definite limit as to how many versions of a Families Commission there can be before people lose their confidence in it absolutely and totally.

One must wonder what the remaining staff of the Families Commission are actually going to do. What are they going to research? What are they going to advocate for? What sound evidence are they going to be able to produce? We believe that there is a limit on the amount of research that can be carried out. The select committee process around this is going to be very interesting. In New Zealand First we would like to see something that will be useful to New Zealand families for the money that is spent, and we are going to be carefully monitoring the outputs.

Le’aufa’amulia ASENATI LOLE-TAYLOR (NZ First) : Kia ora, Mr Speaker. E ngā mana, e ngā reo, e ngā hau e whā, e rau rangatira mā, tēnā koutou, tēnā koutou, tēnātātou katoa. The Families Commission Amendment Bill proposes drastic changes that undermine the importance of families and diversity in New Zealand. Despite its overall mission of providing independent monitoring, evaluation of programmes, and intervention across the social sector, the bill makes little difference and gives less convincing proposals of how effective those programmes will be on New Zealand families. The Families Commission Amendment Bill hides behind New Zealand families by this proposal to downsize and reallocate funds. This is why New Zealand First opposes this bill.

The Families Commission should be at the forefront of supporting New Zealand families through initiatives that seek to speak for the people, and not try to avoid any public backlash concerning the commissions that aim to speak for them. It is pertinent to mention the emphasis on how they may better reflect New Zealand families and provide positive remedial reform.

I find it troubling that Peter Dunne can just cut his ties with the Families Commission, considering the fact that this was an initiative United Future supported and agreed to during its coalition with the Labour Party 8 years ago. His attitude and the ease with which he distanced himself from his initiative is indicative of how he wants to be at the forefront of positive initiatives in the early stages, but then takes a step back when they crumble. He should protect his 8-year-old project and aim to find more alternatives, instead of relying on National to sort out his mess. This handover inevitably loses the original substance and essence of the Families Commission. Its potential to make wide-ranging positive outcomes is limited through the proposed changes to the size and allocation of funding.

The Families Commission Amendment Bill aims to cut down seven commissioners to one—no doubt that will be Carl Davidson. He will chair the board alongside the Government’s Chief Science Advisor and four other appointees. From the outset, we can see that the board may be appointed with National Party mates, who may have little experiential similarity to constituents who live in low socio-economic areas. There needs to be a clear link from the bottom up. We cannot expect top-down solutions to trickle their way to the bottom and impact equally on all New Zealand families. There needs to be greater transparency, and also improved communicating of ideas more effectively to all stakeholders.

New Zealand First addresses the issues and themes that New Zealand families are confronted with. We have found this bill to contradict its label. We might as well convert the title of the commission to the “Elitist Commission”, as it may benefit only a small few at the expense of many. The proposed changes send out a clear message to the public that despite the current hardships many New Zealanders’ families face, the National Government is content with downsizing commissions that are not geared towards improving its livelihood, and that it does not mind cutting jobs in the process. I am sure Simon Bridges and his friend from Hamilton East, David Bennett, would be very familiar with this.

Not only does this contradict the importance of tackling barriers that prevent New Zealand families from living happy and dignified lives, it also undermines the National Government’s optimistic desire to protect New Zealanders from losing their jobs. Maybe it wants to make Australia more desirable. Cutting down the sheer size of commissions illustrates the magnitude at which this Government is attentive to the social, political, and economic barriers that New Zealand families face and experience. This is the reason why New Zealand First strongly opposes this bill at this stage. Thank you.

MIKE SABIN (National—Northland) : This bill, the Families Commission Amendment Bill, is another good example of the Government and its priorities, delivering on those better public services for New Zealanders. That is what New Zealanders expect of a responsible Government. That is why we are in Government and those members opposite are not. Long may that continue. I commend this bill to the House.

Dr MEGAN WOODS (Labour—Wigram) : I would actually like to give a 10-minute response to that 2-second speech we have just heard from the member opposite Mike Sabin. What we have had is a member stand up and say that this piece of fundamental legislation around families and children and how they are cared for in our society, the Families Commission Amendment Bill, is about Government priorities and better public services. We have heard a chorus of calls from the other side that Labour wants to scrap the Families Commission and that this is supposedly a bad thing. But, yes, it is Labour’s ultimate aim to not have the Families Commission, because we want to see a real and genuine commitment to child-centred policy in this country. We want to see something meaningful, something beyond rearranging some deckchairs.

We have done some very detailed and evidence-based policy work around how it is that we can best serve children in this country. The policy work that the Hon Annette King did prior to the last election that has been picked up by my colleague Jacinda Ardern in her role is exceptional work, and it actually provides a real way forward on how it is that we can better serve the children of this country. The bill that we have before us does not do this. None the less, Labour is supporting this bill’s referral to a select committee, and we are supporting this bill’s referral to a select committee because this is a conversation that needs to be had. We do need to have a real and genuine conversation about doing something real and about doing something meaningful to lift the standard for so many of the children and families in our country. That is why we will support it. Labour believes that families are important, and that families are a crucial part of our society and a crucial unit of our society. This is where children, the future of our country, get their best start in life.

The National Party has never been a fan of the Families Commission. We have seen this all over the place. If we go back to 2008 and the stoush in the 2008 election campaign, we see that John Key had to backtrack on his off-the-cuff offer to scrap the Families Commission, because he was afraid of losing a coalition partner. It has always been a history of compromise in relation to the Families Commission. Mr Dunne was reported to be disappointed in 2008. Well, with one vote in the House now, we certainly cannot be seeing that. That would be what you would call a disappointed majority, and that would not be something that we would be doing.

National has repeatedly criticised the commission since it was set up, and has continued to do so. In 2008, when John Key did his backtrack on his off-the-cuff offer to scrap the commission, he offered a shake-up—a shake-up of the commission is what he described in 2008. Fast-forward to 2012, and in the legislation we are debating now we are having a rebalancing. Rebalancing is obviously the 2012 version of a shake-up. It shows what happens in a second term of Government, when you have been there for a while.

What are we seeing under this legislation? Let us dig down beneath the rhetoric of members opposite talking about—well, actually, not talking about—how important the Families Commission is. I mean, I think we are seeing the importance that the party opposite puts on this bill and puts on the Families Commission by its contribution to this debate. But what we really are seeing here is funding for the Families Commissioner being slashed—and we are seeing the number of commissioners cut from seven to one—but not with any real plan to replace it. There is no real plan for how it is that we are going to provide for the children of our country, and no real plan for how it is that we are going to guarantee that New Zealand children get the start in life that they deserve.

Of the $32.48 million of funding that the Families Commission receives over 4 years, the Government is going to rearrange the deckchairs with this money. It would use a minimum of $14.2 million over those 4 years to set up the new Social Policy Evaluation and Research Unit, which I will talk about in a while. My colleague Jacinda Ardern has talked extensively about the families status report that will be produced within this funding, and the reports that are currently there. We are seeing that a further $4 million over the 4 years will be redirected out of the Families Commission to fund the extra parenting and relationship education in schools of the Prime Minister’s Youth Mental Health Programme. This is a rearranging of the deckchairs around supporting children, families, and young people in this country. It is not new funding, as it has been heralded; instead, it is reprioritisation for better public services, but without doing anything to fundamentally address the causes that are there.

Labour has a number of questions and concerns around this bill, which we want to see addressed when it goes to select committee. My colleagues Dr Rajen Prasad and Jacinda Ardern have already articulated many of those concerns and many of those questions. We really are concerned at the watering down—or the gutting—of the advocacy role of the Families Commissioner that we will see under this bill. What we are seeing is clause 5 amending section 7 of the principal Act, which is the section that currently provides that the commissioner’s main function is “to act as an advocate for the interests of families generally.” The new section retains this as a main function of the commission—the advocacy function, that is—but it adds a new function. So what we are seeing is that the commissioner is going to be asked to do more work with less resource. It simply will not be able to fulfil its advocacy function, which is prescribed under the current Act, if this new piece of legislation goes through. We are going to see its views on what is best for families and children in this country not being adequately advocated for.

This week is a fantastic week for us to be talking about the independent role of the Families Commissioner, with my colleague Sue Moroney’s member’s bill, the Parental Leave and Employment Protection (Six Months’ Paid Leave) Amendment Bill, coming up for debate tomorrow. What we have here is a very good example of how it is that the Families Commissioner’s role has been tinkered with. It has been shaken up and now it is being rebalanced, to use the current language, so that, instead of independent advice that is about advocating for the betterment of children and families in this country, we are seeing a commissioner who is increasingly asked to do the Government’s bidding. It is not for the commissioner to take a political position on whether or not paid parental leave is affordable. That is a matter for the politicians. It is the role of the commissioner to provide advice and advocacy on the impact of policies on children and families. What we have seen is that the way in which National deals with the commissioner is going to be intensified under this legislation, and we will see less of an advocacy role out of the commissioner than we should be seeing.

We also look at this new unit that is being set up to provide research advice. The bill sets up the Social Policy Evaluation and Research Unit within the commission, with a predetermined annual budget of $3.55 million. We have been told this is because National wants to provide us with evidence-based policies. That is something I commend. I think that is a great thing, but this capacity should have been used before. It theoretically exists within existing ministries and departments and should be there. In reality what we are seeing is a watering down of the advice that can be offered, and the kind of evidence base that we can get on policy. What we are going to see is a Families Commissioner who will be asked to do research into what the Government dictates, rather than issues that the commissioner sees as important for advocating the betterment of children and families. Poverty, literacy, paid parental leave, family violence—these will not be choices that the commissioner can make, but instead will be directed by the Government.

Currently what happens is that the commissioner uses a range of peer reviewers from a number of our universities and other research centres and independent researchers. Under this new piece of legislation that advice will be limited to four people. We have some very clever and talented social policy and social science academics in this country, but I cannot think of four of them who can provide advice right across the whole plethora. Labour has serious questions about this bill, and we need to see them answered at the select committee. Thank you.

DAVID BENNETT (National—Hamilton East) : I am just wanting to support my colleagues and their very good speeches on this bill, the Families Commission Amendment Bill, and to draw attention to the Labour Party’s not wishing to have a Families Commission. National is making the right adjustments to make sure the Families Commission is effective and delivers for New Zealanders going forward. Thank you.

Mr DEPUTY SPEAKER: Another split call—4-minute bell.

LOUISA WALL (Labour—Manurewa) : E ngā mana, e ngā reo, e rau rangatira mā, tēnā koutou, tēnā koutou, tēnā koutou katoa. For many of you listening at home you might be wondering what need this Families Commission Amendment Bill is addressing. What need is this bill addressing? Well, actually, I can tell you that the need was in the confidence and supply agreement that National and United Future came up with. If you look at the actual quote from this coalition agreement: “The Families Commission will have two broad functions—the existing functions will be headed by a single Commissioner,” we should note that the position of that single commissioner, Carl Davidson, is very interesting, particularly on paid parental leave, given he is supposed to represent an organisation that is representing New Zealand families. The research is unqualified in its support for paid parental leave. We know that parents being able to stay home with their children not only benefits children but also actually benefits communities. It is at the heart of community and family resilience, which was actually one of the two primary roles of the Families Commission, and my colleague Dr Rajen Prasad, will know this well because he was the original Chief Families Commissioner.

The commission was empowered to identify and have regard to factors that help to maintain or enhance families’ resilience and families’ strengths, so I find it incredible that we are discussing the change to a bill that will actually change the function of this institution, which has always been about being a voice for our families. It is going to change from becoming an autonomous Crown entity to, basically, a Crown agent. It will have to have give effect to Crown policy and in fact it says in the documentation in the bill that this bill adds these functions to assist in determining or achieving the Government’s priorities in the social sector, to commission research on behalf of the Government and others, and to manage contracts for research in the social sector on behalf of the Government.

I note the whole intention of the Families Commission in the early days, and I want to highlight one of the original commissioners, a woman called Carolynn Bull, who was a member of the Māori Women’s Welfare League and represented Ōtautahi very well. She was very staunch in promoting not only to me but also to many people The Couch. For people who do not know what The Couch was within the Families Commission, it was actually a formal mechanism for families and people who were interested in issues related to families to have a formal say in what the needs and interests of our communities were. The Couch was set up to promote the interests of all families and promote a better understanding of family issues and needs amongst Government agencies and the wider community. That is the issue with this change in orientation—interesting word—of the Families Commission. What it is going to become is a Government voice. We do not need Government voices advocating for families. Actually, what we need is family voices advocating for families.

What the Government has done by reorienting this bill is justify why Labour, when we are in Government, will not have a Families Commission. We will get rid of the Families Commission and create a ministry for children. We will have a Minister for children who will advocate and speak on behalf of New Zealand families and New Zealand children, which is completely opposite to what these changes propose to do. So we, in this first reading, will let New Zealanders have a say, and we will support this bill’s referral at first reading to the Social Services Committee. But people out there must know that we will be ensuring that your voices are captured in this debate, because the orientation of this new bill is going to ensure that New Zealand families do not have a say. The needs and interests of New Zealand children are not a priority for that Government, and we know this because child poverty is growing in this country. A bill that relates to paid parental leave should be something that the Families Commissioner is the champion of. That is not what is happening, and this bill will ensure that it does not. Kia ora.

HOLLY WALKER (Green) : E te Māngai o te Whare, tēnā koe. Tuarua, ki ngā mema o tōtātou Whare, tēnā koutou katoa. Tuatoru mihi atu ki Te Wiki o Te Reo Māori, arohatia te reo rangatira. Tēnā koutou katoa.

[Greetings to you, Mr Speaker of the House. Secondly, to the members of our House, greetings to you all. Thirdly, acknowledgments to Māori Language Week; cherish the chiefly language. Greetings to you all.]

I am pleased to rise in the first reading of the Families Commission Amendment Bill to support my colleague Denise Roche in articulating the Green Party’s position on the future of the Families Commission, Kōmihana ā Whānau. The Green Party will be opposing this bill at the first reading.

We have an interesting history with the Families Commission, because we did, in fact, oppose its original creation in 2003. We saw it then as an unnecessary, additional bureaucracy created to meet the demands of a political agreement between the then Labour Government and United Future without meeting the urgent needs of New Zealand children and families. I think it is probably fair to say that the history of the Families Commission since then, in terms of its relationship to various coalition agreements, has continued on the same track.

We expressed at the time our concern about a lack of clarity in the role and function of the commission, and I guess in some ways that lack of clarity may have led now to this Government bill, which seeks to streamline and make more efficient the functions of the commission. However, we cannot support the changes outlined in this bill and we share many of the serious concerns outlined by the Labour members in this debate. For the Green Party, however, these concerns are significant enough for us to be voting against this bill at the first reading.

I want to address the issue of research—the quality of Government social research and the supposed need for a new families status report, which will now be produced annually if this bill is passed into law. I would like to echo the concerns that Jacinda Ardern raised earlier in the debate about the Social Report and Bryan Perry’s excellent Household incomes in New Zealand report—both very comprehensive, high-quality reports on the status of families and children across a range of social and economic indicators produced by the Ministry of Social Development. Where these were once released with some fanfare, they now appear unceremoniously on the Ministry of Social Development website once a year—or, in the case of the Social Report, now only once every 3 years—and I have significant concerns about the future of this important research when the work currently performed by the Centre for Social Research and Evaluation in the Ministry of Social Development is, under this bill, subsumed into the newly altered Families Commission.

I also question the additional value of a new families status report in addition to the existing research from the Ministry of Social Development and from a huge range of other organisations and academics that produced high-quality research on the well-being of children and families. I think I would probably speak for many thousands of New Zealanders when I say that I think we are getting sick of more and more reports telling us how bad things are for our children. We are impatient for genuine cross-party action to end child poverty and reduce inequality in New Zealand, and I do not see this bill as helping that agenda in any way.

The Green Party is also concerned about the restructuring of functions away from the Ministry of Social Development and towards the oversight of a new advisory panel in this bill. This, I think, is part of a trend that we are seeing towards ministerially appointed advisory groups dictating our social policy in New Zealand, and it is nothing to be celebrated. First, we had the Welfare Working Group, then we had the recently announced welfare reform board, and now we have a social science experts panel, and I have to question whether in fact there is a job for Paula Rebstock in this bill as well.

• Sitting suspended from 6 p.m. to 7.30 p.m.

HOLLY WALKER: Tēnā koe, Mr Speaker. When we broke for dinner I was talking about the trend towards ministerially appointed advisory groups such as the social science experts panel, which is established in this legislation. The Green Party is pretty concerned about this trend, and would question both the value for money of moving towards these highly paid panels, which are more akin, we would contest, to boards of directors than they are to appropriate social policy expertise, and the independence of a ministerially appointed panel such as this. Other parts of the bill cause us to question that independence, as well.

The emphasis on advancing the Government position is very concerning. As we heard before from the member Jacinda Ardern, we think that is the wrong way round. Of particular concern is the amendment to section 13 of the Families Commission Act, which previously stated that the commission must maintain mechanisms to ensure it is at all times readily accessible to a wide range of views. This bill will amend this section so that it will apply only to its advocacy function and not the monitoring, evaluation, and research of key issues, programmes, and interventions. That lack of independence, that change, is very concerning to us, coupled with our concern about the future of high-quality research currently coming out of the centre for research at the Ministry of Social Development and, indeed, some longstanding concerns that we have had with the Families Commission, the direction of the current Government, and the lack of action on child poverty and inequality. We remain very concerned about this bill and we are very proudly voting against it at its first reading. Thank you.

Hon PETER DUNNE (Minister of Revenue) :Tēnā koe, Mr Speaker. I am delighted to take a call on the Families Commission Amendment Bill. I am only sorry I was not able to speak earlier in the debate, but a range of other commitments prevented that.

I support this bill because what it does is take the Families Commission forward into its second decade, effectively. When we set it up back in 2004, this was groundbreaking territory. I want to acknowledge the work that the former Chief Families Commissioner Dr Prasad did in those early years. I note the constructive comments he made earlier in this debate. It is a great pity they are at variance with the comments made by the remainder of his colleagues, who, unlike Dr Prasad, do not see a future role for the commission; they want to abolish it. But, then, I should not be surprised, because as early as the launch of the White Ribbon campaign in 2004, just a few months after the commission had been established, Mr Maharey, the then Minister responsible, was talking to me about whether it should be abolished. So here was the Labour Party, which entered into a confidence and supply agreement with United Future in 2002 to establish the Families Commission, within 2 years starting the process that culminated in its policy position at the last election of trying to white-ant it. So its criticisms today really do not bear a great deal of credibility.

There are a couple of very important provisions in this bill. The restructuring of the governance arrangements to provide for a single Families Commissioner, supported by a board, deals with one of the issues that has been problematic for the commission since its inception: the relationship between the commissioners, plural, and the staff of the secretariat. This change in this bill makes a very important statement and clarifies the relationship vis-à-vis the governance of the commission and the work it does as an advocate, as a policy adviser, and as a deliverer of a variety of different programmes.

The second important thing this bill establishes, and I have heard some comment already this evening that I think is misplaced, is the institution of an annual state of the family report. This idea draws on work that the coalition Government in the United Kingdom has put in place in the last couple of years to provide for an annual reporting mechanism over a range of indicators about how well family performance is being monitored and policies are being implemented to give effect to those issues in the United Kingdom. I think for a long time it has been an issue that has been a missing link in New Zealand. If you go right back to the early 1990s, we passed the Fiscal Responsibility Bill, which put a lot of stringent requirements on Government in terms of reporting on its achievement of its fiscal objectives—greater clarity and greater transparency around those. At that time we toyed briefly—it was during the period of the National - United Future coalition Government in the mid-1990s—with a social responsibility bill to get the Government to be required, on an annual basis, to report on how it was meeting its social obligations in parallel with the Fiscal Responsibility Bill.

The relevance to this legislation is that the state of the families report is, in effect, the modern incarnation of that concept of reporting on the achievement of broad social responsibility objectives. So it is a welcome step. The commission is well-placed to deliver it. It still retains its statutory independence. It still retains that degree of distance from Government, but it is also part of the policy-making and advisory mix. What this bill does is position the Families Commission for its next decade. What this bill does is take the learnings of the first nearly 10 years, repackage those in a way that is fit for purpose in today’s context, and set the commission forward with a new, more clear, and more straightforward mission as it approaches its next decade.

Finally, can I make the observation that consistently since 2004, around the world the Families Commission in New Zealand has been looked to as an example of a premier body, recognising and taking account of the interests of families in terms of the relationship to government. This legislation enhances that role.

I am very delighted to support it. I was proud to be able to negotiate with the Government, post-election, on the changes that have occurred, and I think they will be, overall, hugely beneficial for New Zealand families, and that is the ultimate test of this commission.

Hon CRAIG FOSS (Minister of Commerce) : I move, That the Companies and Limited Partnerships Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. The Companies and Limited Partnerships Amendment Bill will strengthen the rules that apply to the governance, registration, and reconstruction of companies. New Zealand has an international reputation as one of the best and most trusted places in the world to do business. We have a high rating for the ease of registering a business. However, this has the potential to increase our vulnerability to overseas interests using New Zealand - registered shell companies to undertake criminal activity. I note that the corporate risk profiling team in the Companies Office has removed nearly 2,600 companies from the register since 2010, including companies that have been identified in the media in recent months. But we cannot remain complacent, and that is why this bill was introduced.

The registration provisions in the bill are designed to reduce the potential for the misuse of New Zealand - registered companies and limited partnerships for overseas criminal activity. The provisions are limited in nature and relate only to the company and limited partnership registration process. The bill aims to strike a balance between deterring the activities that threaten the integrity of New Zealand’s company registration system and maintaining ease of business for New Zealand companies.

The measures in the bill form part of the Government’s wider approach to strengthening New Zealand’s resistance to organised crime. They are linked to other work aimed at deterring money-laundering and making it easier for New Zealand law enforcement agencies to find the ultimate owners of companies.

The bill introduces a requirement for every registered company to have either a director or a resident agent who lives in New Zealand or in an approved jurisdiction. It is proposed that Australia be described as an approved jurisdiction, as regulatory criminal fines can be enforced in that country through the Agreement between the Government of New Zealand and the Government of Australia on Trans-Tasman Court Proceedings and Regulatory Enforcement. The resident agent must be a natural person and must otherwise meet the qualifications of being a director. The resident agent is liable if the company does not carry out certain administrative responsibilities, including the filing of documents with the Registrar of Companies and the maintenance of company records. The role of the resident agent is essentially administrative and not that of a de facto director. The provisions make clear that the resident agent is not responsible for the content of any document where there has been a breach of the Act unless they had knowledge that the content of the document was incorrect.

In addition, the bill gives the Registrar of Companies enhanced powers to investigate, respond to, or remedy non-compliance with the Companies Act, and to take effective administrative action against companies and directors that do not respond to his requests. These provisions apply to all companies and not simply to those that require a resident agent. I would particularly welcome the select committee’s views on these matters.

The bill aligns the rules applying to limited partnerships with those applying to companies. This is to ensure that persons misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead. The changes to the Limited Partnerships Act made through this bill are to introduce qualifications for general partners—those responsible for the management of the limited partnership—while also requiring a resident agent where the general partner has no connection to New Zealand, to give greater scope for the registrar to deregister limited partnerships that do not comply with the Limited Partnerships Act, and to introduce grounds for banning persons from acting as general partners.

The next major feature of the bill is to better align the Companies Act with the Takeovers Code. This is to ensure that shareholders understand the effect that changes in companies’ control will have on the value of their shares. The Companies Act includes reconstruction provisions, which set out procedures to be followed when two or more companies want to amalgamate into one, or a company wants to come into an arrangement with shareholders as to a change of control. The proposed changes address a loophole that enables companies to which the Takeovers Code applies to take over another company using the reconstruction provisions of the Companies Act rather than using the Takeovers Code. This means that takeovers can be undertaken with less information provided to shareholders and with a lower level of shareholder participation or support. Where there is an amalgamation involving a company that is subject to the code, this can also mean a lower level of regulatory oversight by the court or the Takeovers Panel. The Takeovers Panel expressed concern about this and recommended to the former Minister of Commerce that this loophole needed to be closed. For this reason the use of amalgamations that do not require the approval of the court will be prohibited where one of the amalgamating companies is subject to the code. In circumstances where a reconstruction arrangement must be approved by the court, the court must be satisfied that shareholders of the company would not be adversely affected by the transaction being undertaken under the Companies Act rather than the Takeovers Code, or the applicant must have filed a statement from the Takeovers Panel indicating that the panel has no objection to the scheme being approved by the court. The amendments ensure that processes under the Companies Act are consistent with the procedures for changing control of companies under the Takeovers Code.

The final set of reforms in the bill is the introduction of criminal offences for directors who commit serious breaches of two duties under the Companies Act. The relevant duties are to act in good faith and in the best interest of the company, and to not carry on business in a way that risks serious loss to the company’s creditors. These reforms recognise that substantial harm can result when directors breach the duties they owe, as was evident from a number of finance company collapses where the investors lost much of their savings. They are in addition to the civil remedies that are already available to the company and its shareholders.

These provisions give public enforcement agencies, the Registrar of Companies, and the Financial Markets Authority the role of taking action in the public interest. I am mindful that some submitters on this proposal were concerned that adding this criminal liability would deter people from taking up directorships. The offences will require the prosecution to prove that the director knew that their behaviour would be seriously detrimental to the interests of the company or would result in serious loss to the company’s creditors, depending on the particular breach of duty. This is a high threshold aimed at serious misconduct and would not catch an inadvertent act or omission by a director.

In conclusion, it is essential that New Zealand remains a trusted and well-regulated place to do business. The changes in the bill to our registration, reconstruction, and governance rules aim to increase the confidence in New Zealand’s financial markets and its regulation of corporate forms. I commend this bill to the House.

Hon CLAYTON COSGROVE (Labour) : I can say from the outset that the Labour Party will support this Companies and Limited Partnerships Amendment Bill, at the very least at the first reading. Obviously, we will want to see the details as to how this bill progresses. We all agree that New Zealand has an international reputation as a trusted place to do business, and we all agree that that reputation should be protected and enhanced at all costs. I note that the World Bank and the International Finance Corporation have ranked New Zealand the easiest of 183 countries in which to start a business, and Transparency International ranks New Zealand the least corrupt country of the 183 surveyed. That is a tribute to our business people and our regulatory agencies in policing the laws and regulations of our land.

However, it has to be said that lately attention has been drawn, both domestically and internationally in respect of the media, to overseas interests exploiting New Zealand’s incorporation processes by using New Zealand - registered shell companies to undertake illegal activities. In fact, I am advised that a New Zealand - registered company was used to run a $25 million Ponzi scheme. I know that the National Party is very fond of that term in recent days, given that it has some relevance to other matters before the House. But that Ponzi scheme was run by an American chief executive and owner who is now facing up to 15½ years in a United States jail after pleading guilty.

So the question arises: this is sound in principle, and this is a sound piece of legislation, yet the Government has taken some time to process and have this bill introduced in Parliament. My recollection is that this was unfinished business by the previous Minister of Commerce, the Hon Simon Power. Yet, despite the threats to New Zealand’s reputation, the reputational risks that we face as a result of some of this nefarious activity in terms of exploiting New Zealand’s incorporation law, this bill has sort of languished. One wonders—and we will be asking him in the Committee stage—what priority the Minister of Commerce has given or is giving to the reputational risk management process for New Zealand, given that this bill has languished for months after being introduced.

I would have thought, and I do echo and agree with the Minister’s words, that New Zealand’s business and commercial reputation is paramount. The question then arises, as “The Maestro” sort of grins across the Chamber at us—

Hon Dr Jonathan Coleman: 17 grand. He would have rushed it into the member’s ballot.

Hon CLAYTON COSGROVE: Well, who is it going to be? Which declaration would we like to start with first on that one, team? Would we like to start with Mr Foss, or “The Maestro”, or Mr Young, or any of them? I am very happy to have this debate—very happy to have this debate—anywhere, anytime, inside or outside this Chamber. And then we will see—then we will see. So which hen over there, which rooster over there, is going to have their head cut off, because if that—

Hon Member: Mr Brownlee.

Hon CLAYTON COSGROVE: Well, Mr Brownlee—because if that member wants to start it, I will finish it. But getting back to more serious matters—and the Minister might look at the conduct of some of his own colleagues. But if you want to start it, I will finish it.

I say that this bill has languished—

Hon Dr Jonathan Coleman: Come on. If you’re going to tell us to step outside the House next.

Hon CLAYTON COSGROVE: I will not need to. I will just ante up with some paperwork on you—not you, Mr Deputy Speaker, that one over there.

Hon Dr Jonathan Coleman: You’re all talk.

Hon CLAYTON COSGROVE: Oh yes, talk and actions, mate. Roll the dice. So I say that the question before this House is why this legislation has languished for so long. Obviously, the smoke signals that “The Maestro” is putting up—because we all know he likes a cigar occasionally—show that he wants to divert some attention away from a serious piece of legislation.

In fact, what I found astounding doing the research on this bill was that—given the lack of priority that was given to this—earlier this year, which the Minister did not mention, New Zealand, along with Russia, was struck off the prestigious European Union banking and corporate white list over this country’s weak money-laundering and terrorism financial controls. I was the Associate Minister of Justice when Labour introduced and put through the anti - money-laundering legislation, as required through our international obligations. Because this Government has been introverted and self-obsessed with its own crises and its own mess-ups—whether they be asset sales or a whole raft of other things, ACC, the list goes on—New Zealand’s reputation has been damaged.

We have been removed from that white list. I know that Mr McClay, who I believe worked for the European Union or some of its agencies in a previous lifetime, will know very well the value of that institution and the value of being on the white list. We were struck off, and what that means is that banks and institutions in the EU “will not be entitled any more to make simplified research for banks and financial institutions registered in New Zealand”. And it also means, as I am sure Mr McClay is aware—and he might want to proffer some advice to his Minister—that European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

I recall the anti - money-laundering legislation very well. We got all the banks in and the financial institutions, because we were at pains to come up with a scheme of arrangement—given that we were obliged to put this legislation and these rules in place—that was appropriate, and at an appropriate level. It was not Rolls-Royce, it was not gilt-edged, but it allowed the financial processes to go through, and it also preserved and enhanced our reputation as a country engaging in international commerce. Because this bill has languished and nothing has been done about it, we are off the white list. We are off the white list because this Minister and his Government do not see this as a priority.

However, I had a phone call last week from a venerable journalist of the National Business Review, who was at pains to ask me and other colleagues about where this issue was at, when this anti - shell company legislation was going to come back into Parliament, and noted that it had languished for so long. Then, hey presto, an article appears in the National Business Review, and, my word, here we are today on Tuesday night at 5 to 8 in Parliament, the Minister’s feet have been put to the fire by the media, and we are processing the bill. Well, I want to thank that journalist. I want to thank him from the bottom of my heart, as do the business people and commercial entrepreneurs around this country, for attempting to call this Minister and his Government to account, and to ask the question as to when this legislation would ever see the light of day.

This is important. Any legislation, regulation, or scheme of arrangement that preserves our transparency, preserves our reputation as incorruptible, and keeps us right at the top of the rankings of transparency internationally and those other international watchdogs is vital, in terms of easing business and allowing our companies overseas to do deals, and allowing overseas companies in New Zealand to have confidence that they can come here and trust in our institutions. So I have a question for the Government and the Government members when they stand up to take a call—and I am sure Mr Coleman, being the vocal sort of fellow he is, will be rushing to jump up on the shoe leather and advance arguments in respect of this. What I would like him and his colleagues to tell us is why it has taken so long.

I recall Simon Power—and I have got to say, he was a pretty diligent Minister of Commerce; fair go. We disagreed on a few things around the edges in the justice portfolio, but a—

Hon Member: He had a brain.

Hon CLAYTON COSGROVE: My colleague said he had a few brains—absolutely, more than a few. He now resides, I think, in the biggest or second-biggest financial institution in New Zealand. He put this up. He started, you know, kicking the ball. The ball started rolling, and then there was an election and he shuffled off to a different life, and this Minister was put in charge of this. So I want an answer from the Minister and his colleagues as to why this has taken so long to get on the Order Paper, and get before Parliament.

The bill, as we know, requires each company to register in New Zealand and to have a registered agent if there is no director living in New Zealand or in an approved jurisdiction. This is important because it provides a modicum of accountability within this country. We know that registered agents will be responsible for ensuring that companies provide accurate information to the Registrar of Companies, and will be liable if companies breach their record-keeping and filing requirements under the Companies Act. This bill gives new powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act, and this includes, of course, the power to flag companies on the register that are under investigation.

These are actually critical provisions, because, again, it is a form of accountability. I mean no slur to New Zealand companies, but we do know that New Zealand has been preyed upon, given the Ponzi scheme out of the United States, and given other alleged nefarious activity by those who simply want to use our good name, use the good name and reputation of our country and commercial enterprises to engage in those nefarious and criminal activities. It is incumbent upon this House to ensure that this legislation—which I am pretty sure will have basic bipartisan support, although we will be seeking detail, obviously, because we agree in principle with it. But it is incumbent upon this Parliament to take whatever measure is necessary to ensure that our reputation as a country is managed well and protected.

I say again to the Minister that we will be very interested in getting reports. I invite him, in the advice that he and his officials provide to the Commerce Committee, to tell us up front why it took so long. That is important. If this is a precedent, and if it has taken so long and we are off the white list in the European Union, then that is a problem, and that is a black mark against our name. Thank you.

JONATHAN YOUNG (National—New Plymouth) : I am very pleased to stand in support of the Companies and Limited Partnerships Amendment Bill, which is sponsored by the Minister of Commerce, Craig Foss. The Companies and Limited Partnerships Amendment Bill is outlined in National’s 120-point Economic Development Action Plan and the commerce election policy, and falls under one of the Government’s four priorities this term, which is to build a more competitive and a productive economy. National is focused as a party on boosting growth, and this is another important step along that way. This bill seeks to strengthen rules applying to the governance, registration, and reorganisation of companies and limited partnerships.

New Zealand does have a good international reputation as one of the best and most trusted places in the world to do business. It is quite surprising that after the introduction—the previous speaker, Clayton Cosgrove, mentioned it—of his anti - money-laundering bill, we were taken off the white list. Obviously, this work needs to continue in order to shore up our reputation, which we are doing. Our reputation does stand under threat from overseas interests using New Zealand - registered shell companies to undertake criminal activity. One recent case was a company called S P Trading Ltd, a New Zealand - incorporated company controlled from overseas, which was involved in chartering a plane, later used in weapons trafficking, in contravention of United Nations sanctions. It was reported by the Stuff website that a former fast-food worker: “was the sole director of Queen St registered SP Trading Ltd, a company that hired a plane discovered at Bangkok airport [in December 2009] flying 25 tonnes of arms from North Korea to an unknown destination, believed to be Iran. [The person] pleaded guilty to 74 charges of giving false residential information to the Companies Office, which registered multiple companies with [this person] as a director.” Such cases where foreign-controlled New Zealand companies are engaging in criminal activities are likely to seriously impact New Zealand’s international standing. These things happen, and we must close the hole in the net by which these things do occur. Fish will always swim through the hole in the net, and if our commerce laws have holes in them, they will attract all sorts of unsavoury species who would seek to take advantage of the opportunities that can be exploited. It is imperative that we discover these vulnerabilities, and we close them.

The previous speaker talked about the World Bank’s report on the ease of starting a business in New Zealand—it being the easiest jurisdiction in the world. That is due to the ability of an overseas person or a person resident in New Zealand being able to register a company here via the internet. If the person is overseas they can do that, with no apparent intention of operating in New Zealand. It creates an acceptable shop front to an unacceptable backroom criminal activity, as we saw in that previous case. We know that the Companies Office has already been responsive to this situation, to this vulnerability that we find, in closing down this anomaly. It has already, as the Minister of Commerce mentioned, removed nearly 2,600 at-risk companies from the register since 2010 when these matters were discovered.

The measures in this bill are linked to other work aimed at deterring money-laundering and making it easier for New Zealand’s law-enforcement agencies to find out the ultimate owners of companies. This bill will aid in stamping out this kind of behaviour and help ensure New Zealand remains a trusted place to do business. Thank you.

Hon DAVID PARKER (Labour) : The Labour Party will be supporting this bill, the Companies and Limited Partnerships Amendment Bill, going to the select committee, as the Hon Clayton Cosgrove has already indicated. I want to start by saying, in response to the comment that was made by the last speaker on behalf of National, Jonathan Young, that this matter came to the knowledge of authorities in 2010. Those were his words, and I will take him at his word on that. In 2012, 2 years later, we are considering the first reading of this bill and the question has to be asked why it is, after 2 years of knowledge of serious fraud being committed around the world, in a way that besmirches New Zealand’s reputation and therefore imposes long-term costs on the New Zealand economy for our businesses, whose ease of doing business in offshore jurisdictions has been undermined by these instances of fraud, that the Government has taken 2 years to get this bill, from 2010 to 2012, into a first reading in this House.

We know that New Zealand has a long-standing reputation, which has taken approximately two centuries to cement in place, as being one of the least corrupt countries in the world. We know, because we are very good at using information technology to reduce business compliance costs in New Zealand, that New Zealand is an easy place in which to form companies, and we have known for some years now that some people have been taking advantage of that ease of setting up a company, and of the lack of checks and balances as to whether people are telling the truth when they are filing the documents that are filed via the internet when they form a new company, yet we have had such a lax approach by this Government that it has taken 2 years from the date when these problems became evident in 2010 for it to take some legislative step to bring about a remedy and protect New Zealand’s reputation overseas.

What have been the consequences of that in the meantime? Well, New Zealand has already been taken off a low-compliance white list in some overseas jurisdictions. Until we were struck off this white list in Europe, the European banking system was able to rely upon documentation originating from New Zealand as evidence that the entity was non-corrupt. They could take these things at face value because New Zealand had a reputation for properly policing our system and pushing against corruption, which is one of the reasons why, until now, we have been seen by Transparency International as one of the least corrupt countries in the world. But because of the lack of speed, the lack of alacrity, with which we responded to these problems that were being experienced, we have been struck off that white list, which means that the banks and the other institutions in the European Union are no longer entitled to carry out a simplified level of research, and they cannot accept and acknowledge customer identification and corporate identification at face value now.

That is of detriment to every New Zealand company that operates in Europe and has dealings with these European financial institutions that now have to be satisfied with more information being provided by the New Zealand corporate, which no doubt increases their compliance costs as a consequence of this problem not being remedied earlier.

The bill not only has restrictions on the registration of companies but enhances the registrar’s ability to investigate allegations of ill-dealing and deregistration powers for companies and, as the Minister rightly said, limited partnerships, which, if they were not covered, could be used as substitute incorporated structures. There are some preconditions that are set out in the bill. Obviously the registrar has to have reasonable grounds before they exercise these powers, otherwise we could be creating other injustices. Or if the registrar writes to the companies concerned and does not get a response from these companies because, using the example that Jonathan Young referred to, where there was a front of a Queen Street address where someone in the fast-food industry had registered companies on behalf of somebody else, it is likely that if there were queries put to that person by the Registrar of Companies they would not get an adequate response, or, in fact, they might get no response because the address might be fictitious or old, in respect of those instances where the registrar does not get a response or does not get other information to confirm the correctness of information that might have been provided, then there is a discretion for the registrar to strike those companies off. Indeed, even before striking them off, my understanding is that the bill confers some powers to put warnings on the register so that if someone is accessing those registers via the internet—and that could be someone in New Zealand, but it could also be someone who is having business dealings with them in an offshore jurisdiction—that person could see that the registrar of the New Zealand Companies Office had some concerns and they might have cause to doubt whether they should take the information at face value or look a bit further. That will improve New Zealand’s standing in the international community and therefore make it easier for New Zealand to protect its reputation and for our legitimate corporates to go about their business, because we will be taking a step to protect their legitimacy and the trustworthiness with which they are viewed by people overseas.

There are also other amendments, which are unrelated to this aspect, that relate to takeovers and amalgamations. Currently there is a route under the Companies Act 1993 that enables schemes of arrangement, including amalgamations or compromises that act a wee bit like mergers, to go outside the rules that relate to the Takeovers Code. So the protections that lie, for example, with minority shareholders, or requiring a certain level of shareholder support before a takeover can be put into effect under the Takeovers Code, have had this alternative route under the Companies Act, which they have been able to utilise in a way that avoids the Takeovers Code. This legislation makes changes to ensure that shareholders of the companies that are meant to be covered by the Takeovers Code cannot be disadvantaged by the company affected making the same changes under an alternative route under the Companies Act, as opposed to under the Takeovers Code. There is a prohibition introduced on code companies using long-form amalgamations under the Companies Act. They will have to do that—if my understanding is correct—through the Takeovers Code rather than under the Companies Act. There are also changes to the voting thresholds that are required in respect of schemes of arrangement, amalgamations, and compromises under Part 14 of the Companies Act. There is a mechanism to seek a ruling, a no objection statement, from the Takeovers Panel—it may be of assistance to the parties, if they are going through a court-related process, to gain some tick-off, if you like, from the Takeovers Panel that it does not have an objection to what is proposed.

The other change made by the bill that we are supportive of is the criminalisation of certain breaches of directors’ duties. There has been some terrible conduct on the part of some finance company directors that has been exposed since the global financial crisis caused a clean-out of finance companies. Not all of those finance companies were being improperly governed, but some were. Some of the finance companies failed in what has been the greatest recession around the world since the Great Depression, and you would expect, following a recession like this, that there would be some finance companies that would fail and that some people would lose some money. Certainly, on this side of the House we are not saying that in finance companies there ought not to be some level of risk that could come to pass that causes people a loss—we do not go that far. But where directors are so errant in their responsibilities that they recklessly pursue a course of conduct that they know will put investors at risk in a way that is not properly disclosed to investors, that is criminal—especially where they are profiting themselves personally, or where through related parties like family trusts they are profiting. The greatest ill-gotten gains in that regard in recent years in New Zealand were probably by Mr Petricevic, who has met some criminal penalties but who has not met criminal penalties for these sorts of breaches of duties, where he probably should have faced legal risk in respect of them. This bill criminalises some of these more serious offences by introducing a term of imprisonment of up to 5 years or a fine of $200,000, and in the worst of these cases that is absolutely appropriate.

Dr RUSSEL NORMAN (Co-Leader—Green) : I rise to speak on behalf of the Green Party on the Companies and Limited Partnerships Amendment Bill. The Green Party will be supporting this bill. This bill, I think, demonstrates, in a way that perhaps few others do, the poor economic management of the Government. This is a problem in the New Zealand economy—the problem with regard to the lax law around company registrations. This has been a problem in New Zealand for a number of years, and it has resulted in many New Zealand - registered companies being engaged in very large-scale tax-laundering and fraud, internationally. The New Zealand Government has been aware of this problem for some time. In fact, under written questions that I put in 2011, the then Minister of Commerce, Simon Power, said that Cabinet had agreed to the proposals to fix this up on 28 July 2010. So nearly 2 years ago to the day when Cabinet finally managed to get around to agreeing to do something to fix this major problem, which is damaging New Zealand’s international reputation, the bill finally appears in the House.

However, in the meantime—remember, the Cabinet decision was on 28 July 2010—in 2011 the Green Party got a bit bored waiting for the Government to do anything about it, and started asking a lot of questions about it and raising the issue in the media. We were concerned about the damage that was happening to New Zealand’s international reputation as a result of our very poor company registration process, and we made the offer to the Government at the time that we would support legislation in order to make urgent reforms to company law, reforms that were urgently needed back then in 2011. But the Government still did absolutely nothing. It sat on its hands. It was drafting a bill. There was nothing in front of this Parliament.

And then on 8 February this year finally the EU had enough of New Zealand. The European Union decided that it was time to remove New Zealand from the European Union white list—along with Russia because it was so corrupt—because our laws around company registration are so terrible and so weak, and so many New Zealand companies are being used in international fraud. So on 8 February 2012 New Zealand was removed from the EU white list, and now in July 2012 we finally have the bill before Parliament on which the decision was made nearly 2 years ago. If the Government had followed the Green Party advice in September last year and actually introduced the legislation that we told it to introduce, to tighten up the rules around the registration of companies in New Zealand, New Zealand would not have been removed from the EU white list. If the Government had not had all sorts of other priorities—mining or whatever—and if it had actually focused on making sure that legitimate New Zealand businesses were operating under a proper regulatory framework around the registration of companies, then New Zealand businesses would not now be facing the increased cost that this Government has imposed on them because of New Zealand’s removal from the EU white list. No doubt many other regulatory agencies all around the world are now watching New Zealand companies with distrust, because so many New Zealand companies have been involved in fraud and money-laundering—companies that are registered in New Zealand but, in fact, have overseas controllers.

At that time we told the Government that it needed to change the rules, and the Government did nothing. The Government sat on its hands. As a result, it has now imposed a whole new layer of cost and regulatory burden on New Zealand companies that are trying to operate internationally, because it refused to introduce the rules that were needed back then to tighten up the registration around New Zealand companies. The problem was—and the problem still is until this law gets changed—that basically a person can register a company in New Zealand, but there is no requirement for that person to have a New Zealand - resident administrative agent. What this bill does is begin the process of making sure that the registration of companies in New Zealand meets the bare minimum of good practice internationally. And the fact that the Government has delayed this bill for so long—2 years after Cabinet made the decision—has imposed more costs on New Zealand business as a result of its inaction.

The other part of the bill—aside from requiring a New Zealand - resident administrative agent for companies and limited partnerships—will enhance the Registrar of Companies’ power to regulate companies and limited partnerships, and it will criminalise some breaches of directors’ duties. What this bill does is start to improve the process of registration of New Zealand companies so that it is harder to register hundreds and hundreds of companies in New Zealand, and so that someone cannot just pick any particular residential address they like but have the company controlled from overseas and then used in international criminal activities, which many New Zealand - based companies have been used for.

However, even though the Government has sat on its hands for years, and even though it knew of the problem and was told of the problem—the Green Party told the Government what was going on—it did nothing to fix the problem and so has imposed more costs on New Zealand business. So much for all the Government’s rhetoric about decreasing cost. It does not regulate properly; it adds cost to business. This bill, even now it has come in, is still quite weak. It falls short of best practice. This bill does not require registered companies to obtain Inland Revenue Department numbers. This bill does not address the problems around nominee directors.

Without addressing these problems, it is still an improvement—no question about it—and for that reason we will be supporting this bill. However, it still does not go far enough in terms of international best practice. If we want New Zealand companies to be viewed as credible organisations internationally, we need a regulatory framework in New Zealand that makes sure that we have best practice in New Zealand, and that companies in New Zealand cannot be easily used to engage in international fraud and criminal activity. That is what has been happening in New Zealand.

We have had over 2,000 companies taken off the companies register because they are probably engaged in illegal activities. No doubt it is a greatly larger number than that. Certainly, in his responses to the questions that we put to Simon Power in 2011, he said that it was hard to actually know how many New Zealand companies were engaged in this kind of illegal activity internationally.

When we put these kinds of proposals to the National Party, the National Party says: “Oh, that’s the nanny State.” They go: “Oh, you can’t have proper regulation of companies; that’s the nanny State.” They go: “Oh, you wouldn’t want to do that; it restricts business.” Actually, it is the exact opposite. By having a proper regulatory framework around the registration of companies in New Zealand, we facilitate New Zealand businesses doing their work internationally. So the fact that National has sat on its hands because of its anti-regulatory, knee-jerk reaction to any proper regulatory framework has meant that New Zealand’s international reputation has already been damaged, because so many New Zealand - registered companies have been involved in very large-scale fraud, corruption, and money-laundering. It means that New Zealand has been taken off the EU white list—thank you very much, Mr Foss and Mr Power, for slowing down this process so much that we have been taken off the EU white list, causing more cost for New Zealand companies. It means that it is harder for businesses in New Zealand to do international business. No longer do others look at New Zealand business and go: “Well, New Zealand businesses are the best in the world—high quality, no corruption.” Instead, they go: “Oh, New Zealand businesses have been involved in many very prominent international fraud and criminal money-laundering cases all over the world.” And that is why we have been taken off the EU white list.

So, yes, we will be supporting this bill. It is way too late—it is 2 years too late, possibly more. The Government had ample opportunity to progress this bill before. We offered the political support to get it through the House. We put pressure on the Government, as did others in the media, over a very long period to try to get this law in place. But because the Government took so long, our reputation has been damaged and we have been taken off the EU white list. We urgently need to fix the law around the registration of companies, and I hope that when this bill goes through the Commerce Committee, we will improve it further. And I hope the Government does not drag the chain at the select committee as much as it dragged the chain between now and when Cabinet made the decision—nearly 2 years ago, on 28 July 2010—to fix this thing. Yet tonight is the first time we have seen this bill in front of the House. So when the Government says: “Oh, we’re all pro-business”, it is not really—it is not really. It just has a knee-jerk, anti-regulatory response, and the effect of that sometimes is that it makes it very difficult for businesses to operate internationally, and adds more costs to them. We need a good regulatory framework around the way business operates, so that New Zealand businesses can go into the world and people know that our domestic regulatory framework stops the kind of corruption, money-laundering, and criminal activity that we have seen out of New Zealand - registered companies that are being operated by overseas criminal syndicates. We will be supporting this bill to go to the select committee; we hope it improves. Thank you.

KANWALJIT SINGH BAKSHI (National) :Sat sriakaal and tēnā koe, Mr Speaker. Thank you for the opportunity to speak on the first reading of the Companies and Limited Partnerships Amendment Bill. The Companies and Limited Partnerships Amendment Bill falls under the National-led Government’s priority for this term to build a more competitive and productive economy. This legislation is required because, at the moment, some overseas interests use New Zealand - registered shell companies to undertake criminal activities. The Companies Office has been acting vigilantly and has already removed a number of companies from its register.

The purpose of the bill is to strengthen rules applying to the governance, registration, and reorganisation of companies and limited partnerships in a bid to eliminate this kind of behaviour. Of course, the larger aim is to protect New Zealand’s interest and to ensure it remains a trusted place to conduct business.

The bill will promote investors’ confidence and participation in our capital market. I personally believe that the Minister of Commerce, the Hon Craig Foss, has done very well in maintaining a balance between tackling action that threatens the integrity of our company registration system and maintaining ease of business for New Zealand companies. I congratulate the Minister on this and commend this bill to the House.

ANDREW WILLIAMS (NZ First) : I take a call on behalf of New Zealand First in the first reading of the Companies and Limited Partnerships Amendment Bill. I also note that this is the first reading, and we, similarly, have the concerns mentioned by some of the other Opposition parties that this bill has taken 2 years to get to this House for its first reading, while many other bills have been pushed through under urgency by this Government in order to follow its agenda of selling State assets, pushing through social welfare reforms, and other such things. As something that does assist the New Zealand economy, does tighten up the laws in terms of the way companies act onshore and offshore in relation to New Zealand commerce, and has unanimity across this House, across all parties, to support it, it is somewhat concerning that this Government has sat on its hands for 2 years and done very little since the days of the Hon Simon Power taking it to Cabinet back on 28 July 2010.

It is disappointing too that this bill is seen suddenly as being able to be pushed up to the top of the list, while bills that, for instance, a month or so ago were in the name of the Hon John Banks, such as the Trade (Safeguard) Measures Bill and also the Regulatory Reform (Repeals) Bill, which were right at the top of the list and being considered, mysteriously disappeared off the list around about the same time as the inquiry by the police commenced in terms of the mayoral electoral returns for the Auckland mayoral race. So it is somewhat disappointing that this Government chooses to operate in this manner in that suddenly bills disappear off the list that were previously being considered—because of other agenda reasons, it chooses to take them off the list and remove Ministers from being in the firing line or in the debating chamber to respond to such things—while others, because of, obviously, media attention, such as that given to this one in the last week in the National Business Review, suddenly rise to the top.

However, it is at the top and we are very pleased that it has now finally surfaced. It is particularly pleasing that it has surfaced in the 19th birthday year of New Zealand First. How appropriate that it does come to the fore. We will support it as a party, as we did, all those years ago back in 1994, the wine-box inquiry into corruption and incompetence in those days. You can imagine how pleased our party is. It has always been the party that has championed and pushed for investigation into corrupt and incompetent practices in commerce, and we are very pleased to see that this bill has now seen the light of day, 2 years after it first went to Cabinet.

It is disappointing to hear that we have been dropped off the EU white list, along with that other vanguard of good commercial practice, Russia. New Zealand is now linked in the same boat as Russia, having been dropped off the EU list, and it is concerning that our country comes to that point with our very good friends in the European Union. We would hope that this bill can be moved through very quickly so that we can perhaps once again get back on to that auspicious list, to ensure that, as a result, New Zealand is not held in lower regard.

Basically, there are some very good points in this bill in that it does require a New Zealand resident administrative agent to be living in this country. So it will take away the risk where, up until now, companies have been able to register from offshore in New Zealand, and, basically, there is no one residing here. Therefore, as we have heard in the House tonight, activities have been able to occur through “window” companies and shell companies. It is a very good move to close that loophole down. It also means that at least one person must live here who is legally responsible for the entity’s administrative affairs, and therefore there is somebody answerable in this country for what is going on within the particular company or organisation.

The bill also gives the power to warn the public about suspect entities by a note in the register. Again, this is a good move. These enhanced powers of the registrar allow the public to be warned about things in the register. This is a good thing and it alerts unsuspecting people in New Zealand and internationally to, perhaps, some of the goings-on within organisations and companies.

I also like the fact that, in terms of the criminalisation of breaches of certain directors’ duties, the bill does now allow for imprisonment not exceeding 5 years, or a fine not exceeding $200,000. Again, that is a good direction in terms of sending the right message out there that if people are going to break the laws of New Zealand in relation to the Companies and Limited Partnerships Amendment Bill, when it becomes an Act, they could face up to 5 years’ imprisonment as a result.

Also, it is interesting that this bill basically tidies up a lot of other administrative errors in terms of some of the commerce things to do with the Limited Partnerships Act, and other, similar Acts to do with commerce and other commercial Acts. Therefore, really it is very much also an administrative bill to close some of the loopholes, to tidy up some of the red tape around some of the commercial activities, and to ensure that the Companies Office and the registrar’s office are able to act according to these prescribed laws in this bill.

So New Zealand First is happy to support the bill. It has got the support of all the parties across the House that we have heard from tonight, which is very pleasing. We commend the Minister of Commerce, and hope that this bill does not go back down to a lower level on the list. We hope that it is maintained at pace and moved through the Government’s business and Government bills before this House. We hope that it can be expedited very quickly so that the reputation of New Zealand and our standing in the international commercial community can get back to where they were. So New Zealand First supports this bill and commends it to the House.

SCOTT SIMPSON (National—Coromandel) : It is a pleasure and a privilege to rise to speak in favour and support tonight of the Companies and Limited Partnerships Amendment Bill. I am delighted to hear from across the Chamber that there is broad support for this piece of legislation and its introduction. Minister Foss, the Minister of Commerce, and my colleagues who have spoken earlier in the debate have gone through the detail of the legislation, so it is not my intention this evening to make anything other than some overview comments about the importance for New Zealand’s economic and commercial sector that we have faith and confidence in our incorporation laws and our incorporation regime. That is not just important for us domestically; it is also important that internationally our market place has its reputation, which it has guarded over so many years, protected, and that our well-trusted reputation is in fact enhanced by this piece of legislation. So this piece of legislation puts in place a few simple protections to enhance our incorporation laws. It preserves the transparency of, and protects the confidence others have in, our rules and regulatory environment. As I said, it is with great pleasure that I speak tonight in support of this piece of legislation. Thank you.

CLARE CURRAN (Labour—Dunedin South) :Tēnā koe, Mr Assistant Speaker. I would like to speak tonight in support of the first reading of the Companies and Limited Partnerships Amendment Bill. As you have heard, Labour is supporting this bill. We are supporting this bill because we understand that New Zealand has an international reputation as a trusted place to do business.

New Zealand has also got an international reputation as being one of the least corrupt countries in the world, and we take that very seriously. Therefore, we do not agree with the Prime Minister, John Key, who yesterday told the media that trade-offs had been made by allowing New Zealand to be the easiest place in the world to set up a company. He said that the changes being made were to preserve the country’s reputation, but in talking about trade-offs—and I will be talking about that in a minute—there are some serious questions, I think, that have to be asked.

Questions have to be asked about just what the Government’s intent is around this legislation, and, when it gets to the select committee, whether or not there will be any attempt to reduce its impact and water it down in any way. I have got a few questions for the Minister of Commerce about that, particularly given what he has said today on this bill. But the first point to make is really a big ups to Simon Power, the previous Minister of Commerce, who had the wherewithal to get this legislation drafted to deal with what is a pretty serious issue.

I just want to point out that in a legal opinion that was given by Bell Gully around this issue, this bill was seen very much as being an important piece of legislation that was developed after so many of these issues came to light, and that the legislation was brought in—I think it was described as being in the dying days of the previous administration—as we came towards the election.

The Ministry of Economic Development, at the time, said that it was thought that this legislation was going to be coming before the House as a matter of urgency. We are now 7 or 8 months down the track, and it is only now appearing before the House. I think you have got to ask yourself why that is. A new Minister was in place, and I would have thought he would put it pretty high on the list of priorities. Either he did not understand its importance or he was just not that bothered about protecting New Zealand’s reputation in the world.

As a result now, we are off the white list. As you have heard tonight, New Zealand has actually been taken off that important white list. It has been described as the prestigious European Union banking and corporate white list. Earlier this year New Zealand was removed—along with Russia—over our weak money-laundering and terrorism financing controls. Being struck off that white list, as we have heard tonight—although I note that the Minister did not actually mention this in his opening remarks to us tonight—means that banks and institutions in the European Union “will not be entitled any more to make simplified research for banks and financial institutions registered in New Zealand”, and that European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

I do acknowledge that one of my colleagues on the Commerce Committee who spoke tonight has mentioned a couple of these instances, but I thought I would mention a couple more, because there have been quite a few of them, as we have heard. Despite the fact that there are some measures in place to ensure that there is more monitoring of this, they have not necessarily gone away.

At the root of this issue, which is what I hope will be discussed in full when the bill comes before the Commerce Committee, is the fact that this is about our reputation. You cannot buy a reputation. You cannot manufacture a reputation. You earn it, and once it is gone, it is a bit hard to win back. So this is important, this legislation. It is important that we are sending a strong signal out there in the international community that we do take this stuff seriously, that we guard jealously our reputation as not only a good place to do business and to set up businesses but a place that you cannot take advantage of, and a place where you cannot set up companies that are essentially rorts and are into money-laundering.

Here we have just a few of them that I thought it might be worth mentioning. The London-based NGO Global Witness uncovered the movement of billions of dollars in suspicious transactions through AsiaUniversalBank in Kyrgyzstan by New Zealand, British, and Bulgarian companies. This was reported in April 2010. Hostas, I think it is called, was named in a 2010 report prepared for the Ukrainian Ministry of Finance, where a Ukrainian company entered into government contracts with the Ukrainian Ministry of Healthcare. It was a company that was registered in Auckland. There was nobody in New Zealand who actually was attached to that company.

Falcona Systems Ltd was allegedly used to gain $150 million in kickbacks for Ukrainian and Latvian officials. Investigators found that it was registered to another address in Albany, Auckland, and it was struck off the companies register in October 2011. Tormex Ltd allegedly washed $680 million through bank account in Riga, Latvia. A multi-national investigation pointed to Russian mafia connections. A company registered in Queen Street—which I think might have been the company that Jonathan Young referred to—SP Trading Ltd, was found to have chartered a Georgian-registered plane to fly embargoed arms. That is the instance that was mentioned earlier.

These are just a few quite serious incidences of this issue, which the Government has been aware of for some time. This bill is part of addressing this issue, but it has taken, as has been pointed out on numerous occasions tonight, 2 years to actually get to this point where it is going through its first reading and going to the select committee. I suppose the point that I am making tonight is that when it gets to the select committee, let us hope that it is actually treated with some importance and actually goes through that process and comes back to the House as soon as possible.

Today I have just read a piece that has come out in the media reporting remarks from the Minister of Commerce around this where he said that there might be some changes at the select committee. Well, that is fair enough. Any bill needs a good bit of scrutiny and a look at how to improve it and make sure that it is actually going to be a good piece of law, because that is what we do on the Commerce Committee. But he said: “There’s a fair bit of opinion around some of the broader details of the Bill … There has been discussion around criteria for directors. That’s the big one.”

This gives me a warning bell, because this may be—and this is what I would like some clarification on—around the introduction of criminal offences for directors who commit a serious breach of their duties. This is where these offences become criminal activities, where they are liable for imprisonment for up to 5 years or fines of up to $200,000. If we are going to take this issue seriously, if we jealously guard our reputation internationally as a good place to do business and as a place that is not corrupt, then we do need to ensure that, internationally, people looking at this country will know that there will be serious sanctions if they do engage in criminal activity and if they think that they can try to use our country for their illegal activities.

Labour supports this bill. I am looking forward to the discussion in the select committee. Thank you.

PAUL GOLDSMITH (National) : It is my pleasure to speak on the Companies and Limited Partnerships Amendment Bill. I do not want to trespass too long on the time of the House, other than to say that, ultimately, this is a result of a good thing—that is, the ease of setting up companies in New Zealand, which is something that we have celebrated over an extended period. But human nature being what it is, we have seen over the last few years some problems emerging through criminal activity being undertaken through New Zealand - registered shell companies. We have heard throughout the evening of the problems that this has caused. This bill sets out a very straightforward, systematic, and sensible way to deal with that serious problem for New Zealand, and I commend it to the House. Thank you.

Raymond Huo: Mr Speaker.

Mr DEPUTY SPEAKER: Is this a split call, Mr Huo?

Raymond Huo: No, I understand the Greens are not going to take a call.

Mr DEPUTY SPEAKER: So you have a 10-minute call. Is this by agreement? Are the Greens happy? Please proceed, you have the call.

RAYMOND HUO (Labour) : Listening to the contributions from members from various political spectra, I believe members will agree with me that in the context of this bill—namely, the Companies and Limited Partnerships Amendment Bill—New Zealand has presented two conflicting images to the world. On one hand, New Zealand has an international reputation as a trusted place to do business. Both the World Bank and the International Finance Corporation have ranked New Zealand the easiest of 183 countries in which to start a business. Transparency International ranks New Zealand the least corrupt country of the 183 surveyed. On the other hand, New Zealand has been subject to domestic and international media attention on overseas interests exploiting New Zealand’s incorporation process by using New Zealand - registered shell companies to undertake illegal activities.

It is saddening to read the Fairfax New Zealand news that New Zealand, together with Russia, has been struck off a prestigious European Union banking and corporate white list. Russia has been struck off the list because of the levels of corruption. Although no reason has formally been announced by the EU, from the reports we understand New Zealand has been struck off over New Zealand’s weak money-laundering and terrorism finance controls. Being struck off the white list means that banks and institutions in the EU “will not be entitled any more to make simplified research for banks and institutions registered in New Zealand”. It also means European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

In the final days of the 49th Parliament, the outgoing Minister of Commerce, the Hon Simon Power, introduced this bill. This is an omnibus bill that covers a number of proposed reforms seeking to tighten requirements around company registration and company directors to help protect New Zealand company registration processes against criminal activity from overseas jurisdictions and to apply similar measures for limited partnerships. Between then and about the time New Zealand was struck off the EU white list, there was a 6-month or so gap, so time was of the essence.

The bill requires each company registered in New Zealand to have a resident agent if there is no director living in New Zealand or in an approved jurisdiction. Resident agents will be responsible for ensuring companies provide accurate information to the Registrar of Companies, and will be liable if companies breach their record-keeping and filing requirements under the Companies Act.

The bill also gives powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act. This includes the power to flag companies on the register that are under investigation. The bill makes similar changes to the Limited Partnerships Act so that those misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead.

The bill aligns the Companies Act with the Takeovers Code to ensure shareholders understand the effect that changes in company control will have on the value of their shares. The bill enhances the registrar’s investigative and deregistration powers in relation to companies and limited partnerships. Also, the bill introduces criminal offences for directors who commit a serious breach of their duties to act in good faith and in the best interests of the company.

I look forward to the development of this bill, and support those measures introduced, in principle. It is shocking to note that one of the incidents at the centre of the domestic and international media attention involved a New Zealand - registered company with a vacant driveway in Auckland’s Albany as a registered address. It was that registered company that had been one of the key players in the US$1.2 billion money-laundering scandal in central Asia.

New Zealand has an international reputation as a trusted place to do business. We must restore that confidence in the international business community. Thank you.

LOUISE UPSTON (National—Taupō) : I am very proud to stand in the first reading of the Companies and Limited Partnerships Amendment Bill. My colleagues have ably given good content on this bill, and I support the Hon Craig Foss in this reading.

Mr DEPUTY SPEAKER: The question is that the motion be agreed to. Those who are of that opinion will say Aye, to the contrary No. There are no votes recorded against, so a party vote is not required. I declared on the voices that the motion was agreed to. I shall revert to that. The motion is agreed to.

• Bill read a first time.

• Bill referred to the Commerce Committee.

Hon CRAIG FOSS (Minister of Commerce) : I move, That the Commerce (Cartels and Other Matters) Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. The bill amends the Commerce Act 1986 to deter hard-core cartel conduct by clarifying the scope of the prohibition against hard-core cartels and introducing criminal sanctions for serious offending. Although it might not be reflected in the title, the other important aspect of this bill is that it encourages pro-competitive collaboration by encouraging an exemption for collaborative activity and a clearance regime. This bill also makes a number of other amendments to the Act, including to the provisions that govern jurisdiction and penalties.

The Government believes that a competitive, innovative economy trading successfully with the world is the best way to build sustainable economic growth that creates jobs and grows incomes. Effective competition underpins the productivity of individual firms and the public sector, and as a result plays an important role in the overall economy. The bill provides a vehicle to build a stronger, more competitive economy by encouraging pro-competitive collaboration and innovation, and deterring hard-core cartel conduct.

Hard-core cartels are formed when rival firms agree not to compete with each other, by fixing prices, restricting outputs, allocating markets, or rigging bids. They cause harm to consumers and have a negative effect on economic efficiency. In 2010 Cabinet agreed to release a discussion document exploring the introduction of criminal sanctions for hard-core cartel conduct. Submissions identified problems with the current regime. In particular, there was uncertainty over the scope of prohibition and whether it prohibited legitimate pro-competitive conduct. Submitters suggested that if the scope of the prohibited conduct was ill-defined, then introducing criminal sanctions could exacerbate existing problems by having a chilling effect on commercial behaviour and increasing compliance costs. In response to this, the policy process has focused on clarifying the law around hard-core cartel behaviour and ensuring that any changes support pro-competitive business arrangements. To facilitate this, Cabinet agreed to develop and consult on an exposure draft bill.

Turning to some of the amendments to the civil regime, the bill amends the current prohibition on hard-core cartels, which has been criticised as being unclear in scope. The amendments specifically prohibit price fixing, restricting output, allocating markets, and bid rigging. During the policy process there was discussion about whether the prohibition would focus on the purpose or the economic effect of the cartel arrangements. Given the negative effects of hard-core cartels, this Government considers it is important that the prohibition extend to both. It is not enough to say: “But my purpose wasn’t to fix prices.” when it was reasonably foreseeable that the conduct would have the effect of fixing prices, allocating markets, restricting output, or rigging bids.

To ensure that the bill encourages collaboration, it has a number of key features. These include two new exemptions: the collaborative activity exemption and the exemption for vertical supply arrangements. It also introduces a clearance regime for collaborative activities. The collaborative activity exemption replaces the current joint venture exemption. It should make it clear to businesses that pro-competitive and efficiency-enhancing activities are encouraged under the Commerce Act, not prohibited. The collaborative activity exemption has been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption. It asks whether the collaborative activity has a legitimate collaborative purpose—in other words, that the activity does not have a dominant purpose that is anti-competitive—and whether the cartel provision is reasonably necessary to achieve that purpose. The exemption for vertical supply arrangements ensures that vertical supply arrangements within a vertically integrated company, which are commonplace and generally considered to enhance consumer welfare, are exempt, except where they have an anti-competitive purpose.

The bill introduces a clearance regime that allows businesses to approach the Commerce Commission prior to entering into an arrangement. Clearance provisions provide confirmation for a business that the proposed collaborative activity would not breach the Act. These features act as safeguards to ensure that the bill appropriately targets anti-competitive conduct, which harms New Zealand’s productivity and competitiveness.

The introduction of criminal sanctions remains an area of contention. I believe that with the introduction of criminal sanctions, New Zealand stands to benefit in three ways. First is the increased deterrence of hard-core cartels due to the severe sanctions, associated stigma, and possible restriction of an individual’s freedom. Second is the increased detection of hard-core cartels from improving the effectiveness of the leniency regime by increasing the value to the individual applying for leniency. The leniency regime is administered by the Commerce Commission, and encourages cartelists to come forward in return for leniency. Third is an improved ability to cooperate and detect cartel conduct. This is particularly important for global cartels, where information is more likely to be shared with countries that have criminal regimes. People who intentionally participate in hard-core cartels deserve to be sanctioned in the same way that those who participate in tax evasion, fraud, or other white-collar crimes are. For this reason the bill proposes that individuals be subject to a maximum criminal penalty of 7 years’ imprisonment.

There is a real opportunity for the select committee process to add value by carefully considering the relationship between the civil regime and the criminal regime. We have the opportunity to enhance the workability of the regime where potential issues are identified in advance. I would encourage both competition law and criminal law specialists to consider the relationship between the two regimes, and I will be particularly interested in the submissions that the select committee receives.

The bill makes a number of other amendments aimed at resolving specific issues that have arisen since 2001, when the last major amendment was made to the competition provisions in the Commerce Act. I would particularly welcome the select committee’s views on the new regime, which encourages parties to mergers that take place wholly offshore but affect a market in New Zealand to apply to the commission for clearance. The regime sets out a process that would enable the commission to apply to the High Court for a declaratory judgment that an offshore merger substantially lessens competition in a market in New Zealand. The High Court would then have the power to make an order against the New Zealand - based company to remedy the competition concern.

The regime raises a number of issues that are more complex than meets the eye. As currently drafted the bill allows the Commerce Commission to apply for a declaration where an overseas person acquires a controlling interest in a New Zealand company. The controlling interest test in the bill creates a brightline test for overseas companies. However, it sets a higher threshold for intervention than the test that would be applied if the merger was between two domestic entities. During the policy process some submissions suggested that it may be appropriate to have two different tests. This is a discrete but important issue, and I will particularly welcome the select committee’s views.

I would like to thank those who have contributed to the policy process for this bill so far. Your submissions have helped shape the bill that is currently before us. I hope that all stakeholders continue to engage with the select committee proceedings in a similar manner. New Zealand has a world-class competition regime. The competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001. Consequently, this is a significant piece of law reform that will ensure New Zealand is well placed in relation to its major trading partners. I commend the bill to the House.

Hon CLAYTON COSGROVE (Labour) : Similar to the last piece of legislation, the Companies and Limited Partnerships Amendment Bill, the Labour Party will support the Commerce (Cartels and Other Matters) Amendment Bill at the very least being referred to the Commerce Committee. We reserve the right—as I said with the last piece of legislation—to examine the detail of the bill.

I must say from the outset that this legislation is unlike the last piece of legislation we dealt with, which had sort of languished around the Order Paper—well, it had not even got on the Order Paper, I think, since the respected Minister of Commerce the former Minister Simon Power had kicked it off. This Minister of Commerce had let it languish, to the detriment of our international reputation, including, as I said in the debate on the last piece of legislation, New Zealand being struck off the European Union white list. This legislation has, I think, at least to a high degree, been put together in a far more positive and constructive way in terms of consultation with the industry and with the sector.

Cartels make markets, as we know, less competitive and they lower output or increase prices to consumers. They are insidious. There has been activity in respect of cartels within the New Zealand context. There have been cases. For instance, in the wood chemicals case in New Zealand the cartel was estimated to have caused an overcharge of $9.7 million over 5 years, but at that time—and currently, of course—the penalties were wholly inadequate in that the total penalties came to $5.4 million. So it is timely—again, for the reasons I outlined in the last piece of legislation—that we are brought into line and that our reputation as a country and as commercial entrepreneurs is managed and carefully protected, but, more important, we are brought into line with other major trading partners such as the US, Australia, the UK, and Canada, which have criminal sanction regimes already in place. I think it would be fair to say that the time for this legislation has certainly come. The time for us to get very serious about the detection, the process of dealing with it, and the penalties associated with that process—getting serious about those—has come, indeed.

Cartels, of course, can be difficult to detect, and to ensure that they are adequately discouraged, our view is that substantial criminal sanctions are required. I do note, as the Minister did, that within the bill the criminal penalties are up to 7 years’ imprisonment, three times the commercial gain or 10 percent of the turnover, and, I believe, up to $10 million. These are substantial criminal sanctions for hard-core cartel activity. The bill also helps, obviously, to promote the deterrence of hard-core cartels while not deterring efficiency or deterring efficient, collaborative activity. So it takes nothing away from entities that want to collaborate appropriately.

Cartels, of course, as I have said, are an illegitimate transfer of wealth from consumers to businesses. This bill will bring us into line, as I have said, with other countries, but especially with Australia, which introduced these sanctions as far back as 2009. I suppose, without rehearsing arguments, again it does beg the question in respect of priorities. I take nothing away from the Government’s process of consulting and having exposure drafts with the industry, but I wonder, when Australia dealt with this issue in 2009, why we have sort of been dragging the chain on this issue. It is now halfway through 2012 and this bill appears before the House. So I suppose my message to the Minister and the Government would be that the Government sets its own priorities, the Government sets it own agenda, and we have heard that there is a 120-point plan—or plans; there are so many plans that this Government is running out of paper and ink—but there is a difference between having a plan on a piece of paper and actually implementing it, executing that implementation, and making it happen. When our biggest trading partner, Australia, has had legislation in place since 2009 with tough sanctions for hard-core cartel activity, I do not think it is incumbent on us to be the junior partner and poor relation and sort of languish for 2 or 3 years until somebody turns their mind to actually introducing a piece of legislation.

I say to the Minister that, obviously, there is some bipartisan support for this bill, because it is in all our interests, in respect of our country, to ensure that our commercial and country reputation is protected and enhanced, but, again, I will be asking the Minister—and I am sure the select committee will want to know again—what exactly the priorities are for this Government. This legislation may not turn the lights on for many in the media and it may not be some sort of ruggedly populist activity or populist policy that is going to light up hundreds of thousands, or millions, of the populace, but it is a damned important piece of legislation. I believe, and the Labour Party believes, that it should have had greater priority than, for instance, other pieces of legislation we have dealt with, like the John Banks regulatory reform bill, which was awe-inspiring in its stupidity of repealing 31 Acts that are spent or do not exist. The Government thought that was a greater priority, until John Banks came a gutzer, of course. I mean, he has disappeared without trace, like the Invisible Man. But it thought a bill that repealed 31 Acts that basically had no effect on anybody was a greater priority than this piece of legislation and the previous piece of legislation we have dealt with just a few moments ago in this House.

So you have got to ask of this Minister of Commerce where his priorities and those of his Government lie: 31 Acts that do not exist, or this. This is important, and if you have been in business—and I know that many members of the House, including me, have been in business—you know the importance of appropriate competition law and of appropriate regulation that unleash a sort of esprit de corps and spirit of entrepreneurship in this country, and also allow our commercial entities to act appropriately and make deals in other jurisdictions, knowing there are international safeguards. So if we do not line up, if Australia has these institutional requirements and we do not, then which is the more attractive market to do business in if you are looking as an international company, New Zealand or Australia? I just ask the Minister again where the priorities are, where the work programme is, and why we have waited so long.

We know, of course, that at least 6,000 companies from 57 countries have been alleged or proven members of international cartels, and that comes from the American Antitrust Institute working paper, which has been around for some time. That is international research. So 6,000 companies in 57 countries have been alleged or proven members of international cartels. The total known effect of sales by international cartels is some US$16 trillion—US$16 trillion. That is a substantial amount of money, and it gives us motivation to get this bill in an appropriate shape to ensure that it is examined in detail and progresses through this Parliament in a timely way.

The bill, as we are aware, will apply to some conduct outside New Zealand in order to capture all New Zealand cartels. It will make forming a cartel subject to pecuniary or criminal penalties, and make any contracts formed involving cartels invalid. The banned cartel conducts, as the Minister has pointed to are price fixing—that is, companies agreeing on a set price or discount—restricting output, where companies agree to reduce the supply of goods or services; market allocating, which is agreeing to pursue different customers so as not to compete; and bid rigging, which is agreeing on prices to submit for tenders. These provisions only apply, of course, between companies that compete with each other, not between supply and distributor, or other vertical arrangements. Joint ventures between companies would also not be caught by this legislation.

I think, in essence, it is one of those moments where we can agree that the substance and the detail of this legislation are important. Those of us who have been in business know that. It is important. It will be supported. I would perceive that, unless there is a catastrophe, the Labour Party will support it right through—and by catastrophe I mean the Government mismanages this issue in the same way that it has mismanaged things like asset sales and other important issues before this Parliament—because we believe, like all parties, that we have to ensure that the regime that business operates in, both domestically and internationally, allows our entrepreneurs to grow their businesses, to make the money to put bread on the table, and to employ people, because that is what a business does. Some decry business. Without business, we would not have economic growth. Some people decry economic growth, I think, in this Parliament—one or two interesting folk from the Flat Earth Society—but economic growth is important, as are exports.

But I just say to the Minister please get your priorities right. Please ensure that we do not have silliness like dealing with the repeal of Acts that do not exist while legislation like this lies upon the Table and languishes. It is important for New Zealand.

JONATHAN YOUNG (National—New Plymouth) : I am very pleased to stand in support of the Commerce (Cartels and Other Matters) Amendment Bill. This amendment bill will help achieve one of the objectives of the single economic market, which is that firms operating in both Australia and New Zealand jurisdictions are faced with the same consequences for the same anti-competitive conduct.

Only a robust economy that ensures businesses have a level playing field will see the investment, effort, and entrepreneurship required to build economic growth. If businesses collude to rig bids, control prices, restrict outputs, or choke supply to lift prices, then what we see is those companies trying to dishonestly protect their margin or increase their margin at the expense of the consumer and also at the expense of other businesses seeking to enter that market. This puts a tourniquet on the economy, which will restrict the lifeblood of investment we so desperately need.

More than anything else, this country needs the sense that the aspiration and hard work to commercialise new ideas can be rewarded. One of the fundamental values of the National Party is reward for effort. We cannot and must not allow cartel behaviour to choke off and stifle the engine room for economic growth. Cartel and anti-competitive behaviour attacks innovation and entrepreneurship by slewing disadvantage to one while creating an advantage to another. We look forward to this bill coming to the Commerce Committee, where we can progress it so that we can continue to build a great foundation for business success in this country. Thank you.

Hon DAVID PARKER (Labour) : Ever since we had the United States some years ago embarking upon Operation Enduring Freedom or the coalition of the willing, I have been suspicious of loaded names when they come before Parliament. So I have been somewhat intrigued to hear all of the speeches so far in this debate that talked about “hard-core cartel behaviour”. Immediately I had something springing to mind that was in the publishing industry that was not really at the Mills and Boon end of romance. But then I looked further at this Commerce (Cartels and Other Matters) Amendment Bill and I saw that other than in the explanatory statement, where there is this loaded reference to “hard-core cartel behaviour”—

Dr Russel Norman: Domicility, are you talking about?

Hon DAVID PARKER: Domicility? No, I am not talking about domicility or other hard-core cartel behaviour in the vernacular! I was surprised when I read the bill, having picked up the copy that was on the Table in the House in front of me, to see that other than in the general policy statement, there is no reference to “hard-core cartel behaviour” because it actually is not a term of art, or a term of science, or, indeed, a reference to hard-core publications. I think it is intended to be a reference to bad or serious cartel behaviour, rather than some sort of cartel behaviour that might not be quite so serious.

After that little diversion, I think it is appropriate to record that there are repeated incidents around the world, including in New Zealand, of inappropriate cartel behaviour by certain large industries that have dominance. There are a small number of players who can influence price inappropriately to their commercial advantage and to the disadvantage of consumers, who have to pay more for their products or cannot get them when they should be able to. We have seen instances of that, some of which have been referred to by the Minister already and by my colleague the Hon Clayton Cosgrove, who made reference to some of the wood chemical price fixing that was going on, which cost New Zealand industry a considerable amount.

Perhaps the largest of these events to have happened in New Zealand recently, which is referred to in the regulatory impact statement that is on the Table of the House, dealt with air freight, which was at a cost of some $200 million over a period of 7 years. It shows that the additional money that can effectively be stripped out of the New Zealand economy and out of the pockets of consumers to the benefit of corporates that embark upon illegal, anti-competitive practices can be quite significant. This legislation attempts to control that.

If we want another example of where the ethics in business are sometimes less than they ought to be, of recent note has been the controversy in respect of the bank liability rates in the United Kingdom and the United States, where there was effectively cartel-like behaviour over there that led to interest rates being set to the benefit of banks to the tune of probably billions of dollars over the period, and that would effectively have been at the cost of other participants in the economy.

Cartel behaviour can exhibit itself in a number of ways. You can have an agreement to charge prices that are less than competitive. You can have agreements to carve up market share in a way that results in less competition, which results in higher prices. You can have agreements to limit the supply of a good or service in an artificial way where, because there is an inadequate supply of that good or service, the price is driven up because there are more people who want to acquire that good or service than there is available to be purchased because of this constraint on supply that is artificially orchestrated by those within the cartel. So all of these things have to be covered.

As prior speakers have said, you also have to be careful that you are not stopping things that are not inappropriate—inappropriate levels of collaboration, or, in some cases, vertical integration of some aspects of industry can be in the interests of consumers and can be an outcome of competitive behaviour, which is to the advantage of society, because prices are not higher than they need to be. And we all know that if prices are higher in one area, then something else suffers in another. For example, if someone has to pay too much for their electricity, then they might not be able to buy some clothes that they need for their kids, etc.

So although this bill is good in so far as it goes, it is interesting to me that the Government is lauding the fact that it is introducing competition in this area, where in another area of the economy it is probably causing a cost to the average residential consumer of about $200 per annum as a consequence of what will be the effect of the State-owned enterprise sale. We know that the average amount that is currently charged by a State-owned enterprise to a residential consumer is about $200 per annum less than the private sector competitors. We know that the electricity market is limited in its competition. That is why it has got so many rules. Rules for the conduct of the electricity market are thicker than the Bible, in an effort to make that market more competitive than it would otherwise be. It is still not a perfectly competitive market. We know that from the analysis that has been done by Molly Melhuish and others, and it remains uncontroverted despite the fact of some of the National Party—I have heard Tony Ryall taking issue with a very small part of her analysis—trying to discredit the whole thing. We know that in reality the absence of true competition in that market, followed by strengthening this private sector effort to try to maximise profits through increasing prices in the electricity sector, will have far more effect on consumers than this Commerce (Cartels and Other Matters) Amendment Bill, which, although a worthy thing for consideration by this Parliament, will not be as influential on the interests of New Zealanders as will the effect of the sale of interests in those State-owned enterprise companies, where the prices will move towards the private sector competitors following privatisation of those public company shares. So although the Labour Party supports this bill, I note that the bill will not have as much effect as that other measure that I have talked about, which goes in the other direction.

One of the reasons why it is necessary to update this is that we know that the pernicious effects of cartel behaviour can be wide-reaching and we know that currently the penalties are inadequate. If you are a cartel and you get away with it for a period of years, the civil penalties are at the moment so low that you could be quids ahead despite the fact that you eventually get caught and are brought to justice through the New Zealand courts. The civil penalties will be less than the amount that the cartel has taken out of the New Zealand economy. So for that reason it is necessary to change the penalty provisions to make it clear that the payment that can be sought from the cartel more accurately reflects the loss that has been caused.

The regulatory impact statement makes the point that even after this legislation is passed, not all cartel behaviour will be caught. It is very hard to pinpoint this cartel behaviour on occasions where some of the conduct is commenced outside the shores of New Zealand and these arrangements are very opaque. The regulatory impact statement, if I read it correctly, estimates that even after this bill has passed, only about one-third of the cartel behaviours, on best estimates, is likely to be uncovered, which means that two-thirds of the cartel behaviour will go undiscovered and unpunished. So this will not be a universal panacea to the problem, but it is an appropriate step. It will align us more closely with the steps that have been taken in other Western jurisdictions that have identified that this problem does need to be addressed and have introduced penalties similar to those being proposed here. The closest comparison is probably in Australia. They have had this for a couple of years, which does point to the fact that this amendment in New Zealand is probably overdue, rather than ahead of its time.

Dr RUSSEL NORMAN (Co-Leader—Green) : I rise to speak on the Commerce (Cartels and other Matters) Amendment Bill on behalf of the Green Party. The Green Party will be supporting this bill.

This bill essentially has a number of elements, but the most prominent element, of course, is that it is introducing criminal sanctions for cartel behaviour. Essentially, the rationale for that is one of deterrence. Currently, those caught engaging in cartel behaviour, which is basically anti-competitive behaviour to restrict competition and hence drive up prices for consumers and other businesses, face financial penalties. They can be at an individual level or at a corporate level. At an individual level there can be significant penalties, but there is no guarantee that the companies that are employing those individuals will not, effectively, indemnify them. Although it is illegal to indemnify them, companies can, effectively, do it. So if a managing director is convicted under the current law and faces a fine, then the company could give them a bonus the following year, or so forth, in a way to, effectively, mitigate the risk to any particular individual who might be caught engaging in cartel behaviour. Part of the rationale for this bill is to try to address that problem. To introduce real deterrence against cartel behaviour, this bill will be introducing criminal sanctions. For that reason, we think it is essential that we match our regulatory framework to that of Australia, and introducing criminal sanctions is part of that.

The reason why competition policy is very, very relevant to New Zealand is the nature of our market. The OECD economic survey 2011 pointed particularly to the nature of New Zealand’s market being very small. In a number of sectors there are a small number of firms that dominate those sectors, and this means that anti-competitive behaviour is more likely in New Zealand than perhaps in some larger economies where you would find many players who are competing with each other. When you look at some of our sectors you find that there are very few players. Whether it be banking, whether it be shipping, telecommunications, or electricity, there are a small number of players that dominate the sector.

It is interesting when you look at shipping, because currently shipping is exempt, effectively, from the anti-competitive provisions of New Zealand law. For those of you who remember the Ports of Auckland dispute, one of the remarkable things that I did not realise until the Ports of Auckland dispute is that the shipping companies can lawfully engage in cartel behaviour, and presumably do. I was looking to see whether this amendment bill would try to take on the shipping companies that are engaging in anti-competitive behaviour, but it became clear as I read the bill that the Government does not have the courage to do that yet, even though the Productivity Commission, in its most recent report in, I think, April this year, recommended that the Government head in that direction, as the EU has recently done, and remove the exemption for shipping industries from anti-competitive laws. The problem we have in New Zealand, which a lot of other countries have but, particularly, a small country has, is that the shipping companies engage in cartel behaviour to drive up the price of shipping from New Zealand to the rest of the world. So it seems to me that there is a strong argument for making sure that the shipping companies, as well as other companies, are covered by anti-competitive legislation, particularly that around cartels. So we are disappointed that that is not in there. But none the less the bill is progress.

I think when we are looking at why this bill is important, an example of why we need some kind of criminal sanction is that of the Australian banks in the tax avoidance case. The tax avoidance case was the biggest theft from the New Zealand taxpayer that has ever been caught, I guess. The Australian banks were found to have stolen around $2 billion from New Zealand taxpayers, and eventually were forced to pay it back by the courts in New Zealand, after the Inland Revenue Department went after them. Westpac and all the rest were caught stealing from the New Zealand taxpayer. Not a single person from any of those organisations went to jail—not one. No manager, no managing director, no director from the boards—none of them—went to jail. So from their point of view tax avoidance was simply a business proposition, and when you look at it from that point of view it is just tax avoidance. You know, the companies try to minimise the amount of tax they pay, so they take advantage of everything that tax creates in our society—the basic institutional frameworks that are only possible because of tax. Civilisation is possible only because of the taxation system. But the Australian banks then stole from New Zealand taxpayers about $2 billion, probably more, and were finally caught. But they did that knowing that it was a purely commercial proposition, because none of them was going to end up in jail—where they should have gone, obviously. Anyone who steals that amount of money from the New Zealand Government should go to jail. That is why criminal sanctions are important—so that those who are engaged in this kind of activity, whether it be anti-competitive activity or stealing from the taxpayer, know that further down the track it will not just be a commercial proposition but they themselves could end up in jail. That is why this part of the cartel law is important to change—so that it is not just a commercial proposition, and those who are engaging in this behaviour understand what will happen to them.

The other issue, I think, that we have really struggled to get our heads round in relation to competition law in New Zealand is the application of competition law to large multinationals that are operating here versus New Zealand companies that are based in New Zealand and trying to export to the rest of the world. I would argue that we need an uneven playing field in respect of those two different kinds of companies. And the reason is this. If you have a number of multinationals operating in New Zealand, often in an oligopolistic market—so a small number of players, which, of course, is the nature of the banking sector, for example—there is a temptation for those players to not operate in a competitive way, and we have certainly seen that in the banking sector. When Labour, the Greens, and the Progressive Party had our banking inquiry in the last parliamentary term, it was very clear from the evidence we got that it was only the entry of Kiwibank that substantially increased competition in the banking sector, and that the big four Australian banks were operating in an anti-competitive behaviour in order to maximise profit and reduce competition for market share—because trying to compete for market share is expensive. So in terms of the way that we regulate those kinds of sectors we need very, very strong regulation to maximise competition, and we may also need, as was the case in the banking sector, the intervention of the State to put a real competitor in the field that could compete with the big Australian banks. That is what Kiwibank did, and Kiwibank, of course, has driven down the cost of credit in New Zealand quite substantially, and has saved the entire New Zealand economy many hundreds of millions, if not billions, of dollars by increasing competition in the banking sector.

But when we look at the export sector, when we look at New Zealand owned and based companies trying to export to the rest of the world, it does not necessarily suit us to have exactly the same approach to competition. Fonterra, of course, is the obvious example. Parliament effectively created a monopoly in Fonterra. Although it is essential that we regulate Fonterra’s activities in the New Zealand domestic market so that we do not have higher prices of milk, it is also important that Fonterra and companies like Fonterra have the critical mass they need to project into the rest of the world, and sometimes that critical mass means being large players in the domestic market from whence they come. Applying exactly the same rules to New Zealand firms that are trying to project into a globalised world in an open market that we apply to multinational corporations that are operating in oligopolistic sectors within New Zealand does not make sense. So a level playing field is not always the most sensible way for a small, open economy to regulate competition. We need to regulate competition in a way that maximises the advantages to New Zealand. So we reduce the cost to the consumer where you have large, overseas-owned businesses operating in New Zealand, but also allow New Zealand businesses projecting into the rest of the world to get the critical mass they need in order to effectively do that.

I think that our thinking around competition policy is insufficiently sophisticated and needs to be more sophisticated. Rather than our taking a universalist view, a kind of new-right economic ideology of what competition policy should look like, we should adopt competition policy that makes sense for a small, open economy a long way from its markets, and that kind of competition policy needs to be rather more subtle and sophisticated than the kinds of policies we have seen out of this Government so far, if we are to have the kind of economic development we need.

KANWALJIT SINGH BAKSHI (National) : Thank you for the opportunity to speak in support of the first reading of the Commerce (Cartels and Other Matters) Amendment Bill. I think this bill is critical to New Zealand’s economy. This bill seeks to amend the Commerce Act to introduce criminal sanctions for individuals and companies who get involved in such cartels. I commend this bill to the House.

ANDREW WILLIAMS (NZ First) : I rise on behalf of New Zealand First to speak on the Commerce (Cartels and Other Matters) Amendment Bill. New Zealand First will be supporting this bill through the House. However, we still do have some concerns, like the previous bill that was discussed tonight, about some aspects of it.

I personally can recall over the last few decades how New Zealand has been subjected to influences of what could have been termed cartels. From my experience in the shipping and meat industry over many, many years, we certainly were subject to price fixing by international shipping lines serving this country. Being an island State and dependent on our exports of meat and foodstuffs, it was certainly disappointing to see that occurring over many, many years. The cost of shipping containers 20 years ago was absolutely horrendous. For a period of time I worked for an independent shipping line, ABC Container Lines, which challenged the cartel and brought independent cheaper freight rates, particularly for wool, to New Zealand. As a result the returns to New Zealand wool growers, returns to the Wool Board, and returns to sheep farmers in New Zealand increased considerably, because the cost of freight to Europe and other markets was lessened. Likewise, during my time in the air cargo business I was certainly witness to the fact that there was a great deal of price fixing on the part of airlines, and, in fact, it was very difficult to get New Zealand cargo into many markets without having to take a fixed price on the freight rate, because there simply was not much choice over many, many years.

We are asked often in this country, to this very day, whether we still have cartels in this country, and whether there is price fixing. One has to ask the question, really, when we continue to see the price of petrol being adjusted by the major four companies, basically following each other within minutes or hours of another moving their prices. You do wonder how much independence there is in the price of petrol in this country, when you drive down a road and you see the same prices at every consecutive petrol station. Likewise, when you go into the supermarkets and see the bottles of milk there, from one major chain to the next major chain, and they are an identical price, you do start to wonder how much independence there is there and whether there is true competition in our milk pricing. Similarly, New Zealand is one of the most expensive countries in the world for telecommunications. Our mobile phones are extremely expensive. Again, you do wonder how much competition is out there. Is it genuine competition, or is it just working the system to ensure that the consumers of New Zealand pay as much as they can take out of them? Likewise, as was mentioned by the Green Party tonight, you do wonder similarly about the banking system where again many of our bank rates and many of our bank charges are so similar, particularly coming out of the Australian banks, how much is “wink wink, nudge nudge”, and let us just get on with it. So there is a lot there on the table, and certainly I hope, and New Zealand First hopes, that the Commerce (Cartels and Other Matters) Amendment Bill will address some of these issues.

At the same time, we would hope that this bill addresses situations where there could be what is called the rigging of bids or the fixing of bids. One does have to ask whether this sort of situation is occurring in New Zealand as well. We are not saying it is, and we are not pointing any fingers, but with this Government dismissing three or four bids for the International Convention Centre, in favour of only one bidder, one does start to wonder whether there is price fixing in this country or there is “wink wink, nudge nudge” from the Government—the same Government that chose to have its conference last weekend at that same Skycity convention centre, had its victory party for the election at that same convention centre, had its campaign launch last year at that same convention centre, and gave that convention centre another 500 pokie machines—or is going to. Within this situation, and where this bill refers to price fixing or rigging of bids and being pro-competitive, you do hope that the same rules will apply to the Government as well. We also see in Christchurch, again where there is a huge amount of work being done, questions being asked as to whether the one preferred contractor of the Earthquake Commission and the Government is in fact providing a competitive situation. This week they have reduced the rates of pay by $6 per hour and the labourers and workers have simply had to take that pay cut or leave it—lump it or leave it. They are the only Government-appointed contractor, and you do again wonder whether within this country there is price fixing and arrangements going on that are not necessarily competitive, but which are actually anti-competitive.

In closing, I would note at the front of this bill the following paragraph. I would like to read this out because I think it is very, very pertinent and the people out there perhaps listening to Parliament should be aware of it. It says on the front of this bill: “As noted by the OECD in 2003, the pernicious effects of cartels on economic efficiency are wide-reaching. By raising prices above the competitive level and decreasing output, cartels have the effect of making consumers either pay a higher price for the product, or forgo the product entirely. The consumer is therefore an unknowing participant in the illegitimate transfer of wealth to the cartelists.” That is very damning in terms of how this could occur in this country, how it has occurred in the past, how we would want to stamp this out, and how we do not want to see “wink wink, nudge nudge” deals done by the private sector or the Government sector, or indeed by the Government itself, or indeed by Cabinet in this country to provide a situation where the “wink wink, nudge nudge” deals get done, while others are left out in the cold and in an anti-competitive situation. New Zealand First will support this bill.

NIKKI KAYE (National—Auckland Central) : I am pleased to speak on the Commerce (Cartels and Other Matters) Amendment Bill. I want to make a brief call just to acknowledge that one of the objectives is to ensure that firms operating in both New Zealand and Australian markets are faced with the same consequences for the same anti-competitive conduct. We know that anti-competitive behaviour and cartels are bad because they lead to increased costs. Where do those costs often end up? They end up with the consumer.

The purpose of this bill is to ensure that we amend the Commerce Act to introduce criminal sanctions for hard-core cartel conduct. There is a 7-year imprisonment penalty for it.

I want to make a couple of other points in terms of how big this issue is. One of the things I was really surprised about, from reading the regulatory impact statement, was some of the figures. My understanding is that in Australasia at least 6,000 companies from 57 countries have been alleged or have been proven to be members of international cartels. The known affected sales by international cartels is $16 trillion. That is a huge amount of money.

I commend this bill, because it brings this law into line with our major trading partners, the UK, Australia, and Canada. Thank you.

CLARE CURRAN (Labour—Dunedin South) : I would like to take a call on this bill, the Commerce (Cartels and Other Matters) Amendment Bill. It is actually one of the most important pieces of legislation that has come before this House in recent years. I do have to put on record, because I sit on the Commerce Committee, that I am pretty disappointed with the lack of enthusiasm or with the significance that is being given to this issue by the other side of the House, which seems to think that a couple of minutes spent discussing it is important. I would like to remind that side of the House about the whole point of the Commerce Commission and the values that lie behind the role of the Minister of Commerce, and that is, actually, to ensure that there is competition in this country that is for the long-term benefit of consumers—the long-term benefit of consumers. Cartel behaviour is one of the most significant issues—collusion and activities about price fixing that go on between companies—and all kinds of other activities that essentially impact on consumers, on affordability of products, and on the ability of businesses to actually operate effectively when up against the power that cartels can hold.

I would like to say again—this is the second time in the House tonight—that I have actually given a great big tick to the previous Minister of Commerce, Simon Power, for the work that he did on this issue. I would like to draw the House’s attention back to—

Kris Faafoi: He’s watching.

CLARE CURRAN: —I think it was 2009—and I do hope he’s watching tonight, because this is a significant moment for him, to actually bring this piece of legislation to the House. The bill followed on from the work that was done by the previous Labour Government. It does not seem to be being taken all that seriously on that side of the House, and I am a little bit fearful about what might happen to it when it gets to the select committee.

I would like to remind the House that in 2009 the previous Minister of Commerce came before the Commerce Committee. He was asked point-blank whether he would consider criminal sanctions for cartel behaviour, and he said yes. It took a couple of years to get that legislation together, but he said that, yes, he would consider the possibility of jail sentences for those operating price-fixing cartels. Just so that everybody knows when that was, it was 18 June 2009—more than 2 years ago. That was a significant moment, and it followed on from the work that had been done in the commerce portfolio, principally by my colleague the Hon Lianne Dalziel, around bringing these issues to the fore and making sure that they were on the agenda.

I want to make a couple of comments. One is around some of the messages that were being delivered on competition law through the legal profession at that time, in 2008—which was before this Government took over—around the absolute importance of this issue in our region, across the world, and particularly with our trading partners. They were taking this issue more and more seriously. New Zealand has lagged. Unfortunately, New Zealand has lagged behind in this area, and you have got to ask yourself why, because catching people who are engaging in cartel behaviour is actually a really significant issue. Not only is it a significant issue but also putting sanctions in place that are actually going to act as a deterrent is the most important thing. That is what this piece of legislation does, and what we should be saying to each other tonight—there is pretty wide support across the House around this—is that this is a critical issue.

I note that my colleague from New Zealand First, Andrew Williams, raised a few issues around different industries. I would just like to say that New Zealand is a country of duopolies. It is a country that has two major telecommunications companies, two major supermarkets, and two major petrol chains. It is a country where our competitive environment is constrained by our size, but as a result it is an environment where we need scrutiny. We need the sanctions in place to ensure that behaviours do not occur where consumers are affected. Particularly in an environment where industries and an infrastructure are being developed that are supposed to underpin the growth in our economy in the future, then we have to be extra vigilant—extra vigilant around ensuring that there is not exploitation and practices going on that are ripping people off.

I refer particularly to our ultra-fast broadband environment, because that is the pipes that go into your home with the fibre, but alongside that goes the content that is going to come through and into our homes. We have to ensure that we have a competitive environment. If we are going to be a country that is going to use technology as a transformational tool, then we have to truly use it as a transformational tool and make sure that there is not rorting behaviour, that there is not monopolistic behaviour, and that there is not behaviour that is about ensuring that one company gets preference above another when it comes to tendering or behaviour in the market place. This is why we need an active Commerce Commission that is out there examining these issues, has the jurisdiction to do it—and I would be interested to know what the Minister’s view is on this—and then has the ability to impose penalties when there is behaviour that is unacceptable.

Cartels: the arrangement between two or more businesses to regulate output—that is what this bill is about. But there is a wider issue around the behaviour of companies in general in this country. If we are going to be a country that is using technological advances and using infrastructure to drive our economic future, then we have to ensure that we have the regulatory underpinning to make sure that we are taking the best advantage of that, for the whole of New Zealand, not just for a few companies. Therefore, we need to ensure that the effect of collusion, the effect of the behaviour that cartels can have on economic efficiency—this Government likes to talk about economic efficiency. Well, it needs to put its money where its mouth is. That is why this legislation is so important. It is just part of the regulatory environment that we need to ensure we have in this country, which will ensure that there is adequate competition so that we have companies and businesses that are able to thrive in this country, make profits, produce exports, and develop an economy that is going to thrive. Thank you.

JACQUI DEAN (National—Waitaki) : The introduction of criminal sanctions against cartels via the Commerce (Cartels and Other Matters) Amendment Bill will bring New Zealand into line with many of its trading partners, including the United States, the United Kingdom, Canada, and Australia. This will allow New Zealand to play a more active role in the global fight against hard-core cartels.

I commend the Minister for bringing this bill to the House, and I know that the Commerce Committee will give it due consideration. Thank you.

RAYMOND HUO (Labour) : Mr Speaker—

Mr DEPUTY SPEAKER: Is this a split call?

RAYMOND HUO: That is my understanding.

Mr DEPUTY SPEAKER: Are the Greens happy?

Hon Member: No, it’s not. It’s a 10-minute call.

Mr DEPUTY SPEAKER: Right, a 10-minute call, Raymond Huo.

RAYMOND HUO: I meant to say that given the time constraint I would like to take a short call, but I have got a thumbs up from the Minister of Commerce, the Minister responsible for this Commerce (Cartels and Other Matters) Amendment Bill. I feel flattered and honoured.

I would like to echo what my Labour colleagues said earlier. The reasons are obvious. Firstly, from the regulatory impact statement, at least 6,000 companies from 57 countries have been alleged or proven members of international cartels, and, secondly, almost all of our major trading partners, such as the USA, the UK, Australia, and Canada, have criminal sanction regimes already in place. Thirdly, cartels are designed to control prices and limit competition. They are an illegitimate transfer of wealth from consumers to businesses.

This bill will effectively bring New Zealand into line with Australia, which introduced sanctions in 2009. The bill amends the Commerce Act 1986 to introduce criminal sanctions for serious cartel behaviour, and makes a number of other amendments, including to the provisions that govern jurisdiction and other penalties. If enacted, the bill will fundamentally alter the scope and enforcement of New Zealand’s competition law, and will be the most substantive reform of the Commerce Act since it was passed in 1986.

There has been no survey of public attitudes towards cartel criminalisation in New Zealand, but it is interesting to note that the results of a 2008 survey of public attitudes in the United Kingdom precisely mirrored the results of a similar survey recently conducted in Australia—that is, there is substantial majority support for the view that cartel conduct is unacceptable, but a minority of that think that cartel conduct should be a criminal offence, and less than a quarter think that individuals should be jailed for it. It is difficult to see why public attitudes would differ greatly in New Zealand.

Now, what is a cartel? A cartel is a group of similar, independent companies that join together to control prices and limit competition. The banned cartel conduct includes price fixing, restricting output, market allocating, and bid rigging—namely, companies agreeing on prices to submit for tenders. During the initial consultation process Russell McVeagh raised a concern that the new regime will chill competitive contact due to the uncertainty of its application. The Ministry of Commerce has responded by allocating a budget and asking the Commerce Commission to, among other things, develop prosecution guidelines that outline when it would take a criminal prosecution, and undertake advocacy and education initiatives to promote better understanding of the prohibitions in the Commerce Act, particularly the cartel prohibition. I look forward to the development of this bill. Thank you very much.

• Bill read a first time.

• Bill referred to the Commerce Committee.