Hon SIMON POWER (Minister of Commerce) : I move, That the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2) be now read a third time. The first objective of these bills is to align New Zealand’s procedures for registering trademarks with international standards to minimise regulatory and business compliance costs associated with the protection of trademarks.

This legislation, which was formerly the Trade Marks (International Treaties and Enforcement) Amendment Bill, amends the Trade Marks Act to implement the international registration regime for trademarks provided for by the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol). The Madrid Protocol is designed to assist business exporting to several countries at one time by providing a simplified procedure to protect their trademarks overseas. Joining the Madrid Protocol will provide New Zealand businesses with the opportunity to have their trademarks protected in up to 82 countries by filing one application in English with the Intellectual Property Office of New Zealand—

The ASSISTANT SPEAKER (H V Ross Robertson): Can I just remind members that it is a convention of the House that if they wish to have conversations that are not related to the issue at hand, they should take them outside and show some courtesy to the member who is trying to address the Chamber.

Hon SIMON POWER: I thought I was doing OK, Mr Assistant Speaker, but, anyway, thank you for your assistance.

Businesses will still be able to apply for trademark protection directly in each of these countries, as is currently the case. The Trade Marks Act is also amended to align domestic registration procedures with the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks, and of course the Singapore Treaty on the Law of Trademarks. By joining these World Intellectual Property Organization, or “WIPO”, treaties, the Government is sending a strong message to the world that New Zealand has a credible and efficient regime for the protection of trademarks.

The second objective of these bills is to provide for the increased enforcement of the criminal offences under the Trade Marks Act and the Copyright Act. Counterfeiters make victims of legitimate businesses and innocent consumers. Counterfeit goods can be of poor quality, and many of these products can also represent a serious risk to the safety of consumers. Internationally there is also evidence that the trade in counterfeit goods is linked to more serious organised crime. It is the intention of the Government not to allow New Zealand to become an easy target for counterfeit and pirated works, and this is particularly timely legislation prior to the Rugby World Cup.

In recognition that the majority of counterfeit goods sold in New Zealand are sourced from overseas, the legislation provides new enforcement powers to the New Zealand Customs Service, I say to Mr Williamson. The legislation clarifies that customs officers are able to seize counterfeit goods and pirated works at the border and undertake investigations to enable importers of such goods to be prosecuted. Customs officers will also be able to require any person connected with the importation of the goods to produce documents concerning those goods or to answer questions. These powers complement the existing border enforcement powers available to them under the Customs and Excise Act 1996.

These bills will provide enforcement officers employed by the Ministry of Economic Development, as well as the police, with tailored investigative powers under the Copyright Act and the Trade Marks Act to gather evidence to bring criminal prosecutions against counterfeiters. I envisage that once these bills are enacted, the Customs Service and the Ministry of Economic Development will work cooperatively alongside the police and right-holders to tackle the counterfeit goods and pirated works industry.

I take this opportunity to particularly thank the officials for the work they have done on this legislation over a long period of time, in particular George, who will know to whom I refer. I commend these bills to the House.

Hon MARYAN STREET (Labour) : I rise to speak to the third readings of the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2), which arise from the Trade Marks (International Treaties and Enforcement) Amendment Bill. I wish to make a couple of comments, because in the time between the introduction of this legislation and its passage now there has been a great deal more discussion about the importance of trademarks and intellectual property, particularly in the context of the Trans-Pacific Partnership agreement negotiations.

I will touch on that for a moment, because it is pertinent to the purposes and the functioning of this legislation. This legislation was introduced on 8 September 2008, under a Labour Government. Labour is supporting this legislation; it was originally ours. Its first reading occurred on 7 April 2009. After that it was referred to the Foreign Affairs, Defence and Trade Committee for consideration, and we on that committee reported back on 15 September 2009. So within about 5 months of the introduction of the legislation we had received submissions, we had deliberated, we had taken extensive official advice because there were some tricky pieces in this legislation, and we had reported back to the House. The report back to the House from the Foreign Affairs, Defence and Trade Committee said under the heading “Commencement clause” that there was discussion on a number of clauses that required implementation by Order in Council—in other words, regulatory items that would not come before Parliament. They were largely procedural matters. But we went on to say that having considered whether these things should be implemented by Order in Council or go before the full Parliament, we accepted that there were valid reasons for commencement by Order in Council, and we said: “[we] urge the Ministry of Economic Development to implement all aspects of the legislation expeditiously.”—expeditiously. That was 15 September 2009.

This legislation had been sitting for 2 years, almost to the day, before it started to get its second reading. Its second reading was on 16 August of this year, 2011, under urgency. Why did the Government suddenly wake up and think that this legislation—which had been languishing on the Government’s Order Paper for 2 years, with the Government having been urged by the select committee to implement it expeditiously—would need 2 years later to be resurrected under urgency and put through? We have heard no explanation at any time from any of the members opposite or from the Minister in charge of the legislation, the Minister of Commerce, as to why a 2-year delay has occurred in the course of the procedure of this legislation.

The other point I make is that this trademarks legislation has three particular purposes. One purpose is for New Zealand to sign up in a timely way—but here we go, 2 years late—to three international trademark treaties. Its purpose is also to enhance the existing enforcement provisions in the Trade Marks Act and the Copyright Act in order to address the issues of the counterfeiting of registered trademarks and the piracy of copyright-protected works. There are a number of technical issues, as well, that are addressed in this legislation.

There is a different colour, a different complexion, now being cast on the issues of intellectual property, because of wide-ranging debates on the Trans-Pacific Partnership agreement, particularly chapters in the negotiations relating to intellectual property. We need to be very careful that everything we do relating to intellectual property protects the creative industries and those who wish not to have their creativity pirated, but at the same time we need to allow for opportunities for trade.

I ask this Government in the short time it has left before the election to ensure that this legislation meets the changed climate around intellectual property. We must not be in the position, having passed what I think is basically good legislation, of trading away our right to copyright protection and trademark protection under the Trans-Pacific Partnership agreement. We know that intellectual property questions are being raised routinely and vociferously by non-governmental organisations, which have a right to be involved and a right to be heard in the process of negotiating the Trans-Pacific Partnership agreement. There are real concerns in this area, and New Zealand needs to be cognisant of them. We need to be sure that we are not trading away, either consciously or unconsciously, anything that undermines our sovereign rights as a country.

This legislation brings us into line with international treaties, and that is a good thing. The protocol relating to the Madrid Agreement and the Singapore Treaty on the Law of Trademarks are important and we need to be consistent with them, but let us not ignore the fact that the narrative is changing around these issues. This is not an area of debate that is cast in stone. It is not an area of debate of the kind where once the treaty is signed that is the end of it, that is the full stop.

This is a dynamic discussion. Issues to do with intellectual property are being revisited daily by countries apart from New Zealand—not just New Zealand, and not just our non-governmental sector. Those issues are being questioned by academics around the world, and we need to be sure that nothing we do in the passing of this legislation, or in the signing of any free-trade agreements in the future, undermines New Zealand’s sovereignty, or undermines our right to protect trademarks, creative products, and industries that can trade in the knowledge sector, not just in the commodity sector.

The legislation is OK as far as it goes. The legislation does what it needs to do, in technical terms. I just alert this House to the fact that these discussions are not over. Thank you.

Hon MAURICE WILLIAMSON (Minister of Customs) : I say from the outset that counterfeiting is always a vexed issue with the general public. If they think of counterfeiting at the level of someone bringing in a fake pair of Reeboks—they would be pretty tatty and fall apart, and so on—in his or her luggage at some stage, they do not think there is much wrong with that. But what I think is really important for the public to realise is that the trade in counterfeited and pirated goods is not only increasing in volume to very huge levels but also becoming very much more sophisticated, and it poses huge threats to public safety. I will cover some of those huge threats to public safety in the future. So if there is anybody out there who thinks “Oh dear God, the Government is now trying to stop someone with a pair of fake Reeboks, or whatever.”, that is not what this legislation is about.

First, let us get the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2) in perspective. Counterfeiting, as I said, is a major growth industry, with the International Chamber of Commerce estimating that counterfeiting accounts for between 5 percent and 7 percent of all world trade. It is worth an estimated value of about US$650 billion a year, and is projected to increase to about US$1.7 trillion by the year 2015. So to get it into perspective straight away, we are not talking about nickels and dimes here; we are talking about very, very large sums of money. Those estimated costs, by the way, do not attempt to include the losses to any of the businesses that developed the intellectual property or are associated with the counterfeiting or the piracy. The chamber also estimates that approximately 2.5 million jobs have been destroyed by counterfeiting and piracy, so for those of us who are worried about employment around the world, that also is a matter that I think is important. Counterfeiting and piracy are insidious activities, although, as I said before, at the trivial end of it—the one-off, or someone who happens to get a fake Rolex or whatever—most New Zealanders say that it does not really matter, and so on. But I can tell the House that those are not victimless crimes.

Quite recently there has been a very, very big move, a very big shift, away from what we used to see as the luxury items—you know, the fake Rolex watches, the fake Gucci sunglasses, or whatever. Now there is a move towards a big industry of counterfeited medicines, food products, electrical goods, toys, automotive parts, and even aeroplane and helicopter parts. I say to everyone out there listening to be very, very thankful that such rules are coming into place, because it would be quite easy for someone to put a very third grade, very low-level-of-safety piece of gyro-equipment into a helicopter and say that it was a genuine piece of whatever the Maserati equivalent of helicopter products is. Everyone would think they had bought and paid for that, but it would turn out to be a complete counterfeit and after a couple of hours in the air it would snap, give up, and there could be quite a loss of life.

So it is not just medicines—we all know that fake medicines cause major mayhem. I think the one that brought a bit of a smile to my face, but that was also a bit shocking, was a year or two ago when I saw on the news that some counterfeit Viagra had been intercepted that was made mainly from bird droppings. The major constituent—

Hon Rodney Hide: Does it work?

Hon MAURICE WILLIAMSON: Mr Hide asked whether it worked. I do not know whether it worked, but Viagra’s main constituency for the fake counterfeit was bird droppings. It was in the news—I see Paula Bennett looking quite quizzical about it, but it is true. I have to say that if people rely on certain medications for their heart illnesses, or if they have respiratory illnesses or something, it is a very serious issue that consumers may be taking a very well-known brand or product for their illnesses but it turns out they are taking a complete fake or knock-off that cost a couple of cents. It could be made of bird droppings or something else, and it could endanger lives.

So counterfeiting is a very big issue. It is not something that we should just put to one side and say that it does not do any harm. Counterfeiting is not a victimless crime. It is not a victimless crime in a number of other areas either. I know the Greens will be concerned about the no-victim crime area when it comes to some of the goods that are produced in sweatshops overseas by labourers who are paid almost nothing, and who have no basic human rights or laws protecting them. A greater and greater number of these counterfeit goods are coming out of those appalling conditions where people are treated in subhuman ways.

So I am delighted that we have reached the third reading of the legislation and that we are bringing into law these protection bills. I know that the Trade Marks Amendment Bill is coming in specifically with regard to the Rugby World Cup, to make sure there are no counterfeits in relation to some of the products there. Even in one of my other portfolios, the building and construction portfolio, we have had a couple of alerts along the way of fake electrical goods—fake electrical transformers, and so on—that look as if they are the real thing. They can be bought quite cheaply and consumers put them into their houses, but who knows? Three or 4 months later those goods could end up bursting into flames and burning a house down. People thought they were buying the Rolls-Royce of electrical equipment, but it turned out to be a complete fake—and I have already covered things like motor car parts and helicopter parts.

I will just talk about the current border protection notice regime. Under the current copyright and trademarks legislation, certain border protection measures are prescribed. Copyright and trademark owners lodge a border protection notice with the Customs Service. The notice regime is designed to facilitate copyright and trademarks owners taking civil action against the importers of counterfeit goods. Under the notice regime, customs officials detain suspected items and formally determine where the suspected infringing goods appear to be subject to a notice. Then the goods are detained for a period of 10 working days, pending civil action by the rights-holder against the importers of those goods. Importers are informed of the detention of their shipment and have the option of voluntarily forfeiting the suspected shipment to the Crown.

Current estimates show that about 85 percent of detained shipments are concluded by the importer using the voluntary forfeiture mechanism. Under the current law, in the absence of voluntary forfeiture by the importer or any legal action taken by the rights-holder, the Customs Service must release the detained goods to the importer. Others import only enough stock at one time to run an online auction site or a stall. I think that is an interesting thing too. If they are bringing in small parcels of these counterfeits, people rely on the fact that customs officers will pick up on only one in every so many and, therefore, it is actually worth the risk. If those importers are bringing in one parcel every 3 or 4 days, and if one in every five gets intercepted and is forfeited, then the importers are making such good margins on counterfeit property that it is worthwhile letting it go.

This bill will bring up to date, into modern law, our protection of those legitimate products that have been made by legitimate companies who put their money into research and development, and who put a lot of work into developing a product. I think the idea that now that one has developed something of real value it should be free domain, or actually able to be copyright breached and so on, is an anathema to a country like New Zealand, where we want to especially protect a lot of the patents and the properties that we develop. I fully support the third reading of the bill.

Hon PETE HODGSON (Labour—Dunedin North) : I have listened with intent to the Minister of Customs and his contribution to the debate. It was, as usual, an informative contribution. We were told, in some detail, of the evils of counterfeiting, and the fact that it is not a victimless crime, the fact that one’s helicopter might fall out of the sky, and so on. It was then the Minister of Customs’ pleasure to welcome the passage of the legislation, and to say how keen he was to see it arriving and to see it arriving in time for the Rugby World Cup.

Well, Labour supports this legislation. My colleague the Hon Maryan Street said it was OK, and therefore that is kind of how it is. So there is not going to be any difficulty in getting this legislation through the House today. But it is time to ask some questions of the Government. I am sorry that I am speaking after the Hon Maurice Williamson, because he is very good at answering questions. However, he cannot take a second call, and he might be good enough to give answers to questions, such as he knows them, to another National speaker in order that we can have these questions answered. Here are the questions.

Question one is probably a bit unanswerable, but here it goes. What took the Government as long as this?

Hon Maurice Williamson: That’s a toughie!

Hon PETE HODGSON: It is a toughie. The Hon Maurice Williamson—[Interruption] There is a person at the back of the House—

Simon Bridges: You know my name. We’ve talked before.

Hon PETE HODGSON: Well, you do.

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

Jacqui Dean: That didn’t go well.

Hon PETE HODGSON: No, it is fine by me.

Jacqui Dean: No, it didn’t go well.

Hon PETE HODGSON: Rowdy little number. I ask what took the Government as long as this, because the legislation came back to the House 2 years ago, and since that time all manner of legislation has passed, but not this. What took it as long as this? And that is a hard one, as Maurice Williamson said. I think it is the hardest question. He might like to give an answer to a subsequent National speaker.

The second question concerns prosecutions. In September 2009 a Ministry of Economic Development official made two comments in a press statement of 24 September 2009. The first was that the ministry would be trying for more prosecutions, so that the offences would have the desired deterrent effect. “No-one is going to be put off”—this is the intellectual property team senior analyst, Mr George Wardle—“trading in counterfeit goods until there are a few prosecutions.” So that was the ministry’s position, and it seems to be a reasonable one. “We have a serious commitment”, says a Customs Service operations manager, Mr Dave Meredith, one of the Minister’s officials, “to intellectual property rights goods now and that’s going to get more intense when we can investigate and prosecute. We will be seeking to make a deterrent and we will be attacking it straight on.” I am reading verbatim the prosecutorial sentiments of officials from the Customs Service and from the Ministry of Economic Development. That was said 2 years ago, in September 2009. They had just witnessed the legislation coming back into the House, and presumably were expecting it to pass into law.

They also said, and here is another reading from the same press statement, “There were no prosecutions under the 2002 Trade Mark Act.” I am assuming that that legislation was regarded by officials as being insufficient, presumably because it is out of date, to effect a prosecution, and that they were looking for prosecutions once the new legislation came into place. So the second question is, did any prosecutions occur between September 2009 and September 2011? My guess is that they did not. So we have Government members standing up and saying they are terribly keen on protecting copyright, terribly keen on promoting trademarks, and terribly keen on ensuring that this is not a victimless crime and the victims are therefore protected—but not passing the legislation, even though they knew that the previous legislation was not able to be enforced.

My third question is this: how come, on the day before the New Zealand against Tonga match kick-starts the Rugby World Cup, we think we can pass this law on to the law books and make it work? Surely all of the counterfeit goods that will be sold during the Rugby World Cup have already come across our border. Surely all of the interceptions that could have taken place have taken place. Surely if there are counterfeit goods being sold because of the Rugby World Cup, they are being sold today, were being sold yesterday, and, actually, will be sold tomorrow. Tomorrow this legislation may not have received the Royal assent. The Governor-General may be busy. The officials may not have finished tidying it up. Typically they have to shift semicolons around for a few days before legislation is sent for the Governor-General to offer the Royal assent. So it seems to me that this legislation will not become law for at least some days yet.

I think the idea that we are passing this legislation now because it is timely is fatuous. I think the Government is making it up. I do not think the passage of this legislation has anything to do with the Rugby World Cup. What I think—

Jacqui Dean: Very grumpy.

Hon PETE HODGSON: What would the member for Waitaki like to offer by way of an explanation? Will she be able to take a call? Will the good lady take a call and explain why it is that 24 hours before the Rugby World Cup gets under way, this legislation will complete its third reading and that at any time in the previous 2 years it would not have been necessary, because the Rugby World Cup had not started—

Jacqui Dean: That member should not be so grumpy.

Hon PETE HODGSON: I am grumpy? I am grumpy? I am merely asking questions. I am merely asking the dear lady questions. I would be interested to see whether she can answer them. In fact, I might resume my seat presently. That is a good idea, is it? I will do that. I will resume my seat presently, and let us see whether the member for Waitaki will get up and offer joyous answers to these questions. I would love to hear what they are.

IAIN LEES-GALLOWAY (Labour—Palmerston North) : I think it is fair to say that I am somewhat surprised to find myself on my feet at this point. I would have thought that Government members would have a little bit more to say about this important legislation, but never mind. They are obviously giving somebody somewhere some time to go away and ponder the important, interesting, and probing questions posed by my colleague the Hon Pete Hodgson. I think they were excellent questions—

Hon Maurice Williamson: We like multiple-choice questions.

IAIN LEES-GALLOWAY: Maurice Williamson said he prefers multiple-choice questions. Maybe the answers are A, C, D, C, A, C, D, and C. I do not know. They are usually the answers that got most people through fifth form—or they did back in my day. Fifth form does not even exist any more these days.

We are on the third readings of the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2). Labour originally introduced this legislation, and we are happy to continue supporting it. It has been described by Maryan Street as being OK legislation. They are not bills that we are showing a huge amount of enthusiasm for, but they are those technical bills that are very, very important to ensure that things keep happening, that our economy keeps moving, and that in this age of the global economy and global trade New Zealand is able to participate in the global economy as a receiver of goods across our borders, and to ensure that the goods we receive and that New Zealanders purchase within New Zealand are of high quality and are counterfeit goods as rarely as possible. The bills ensure that we are able to protect our goods that we send offshore, as well as our intellectual property, our ideas, and all the things that we send out into the world as traders in the global market.

This legislation was originally a Labour bill, and we are happy to support it. In fact, the original bill has been broken into two bills that further New Zealand’s commitment to building international trade rules, which we all know are vital to ensuring that trade is both fair and free. We know in this day and age that people are much more conscious about where their goods come from and about the workplace relations and the employment laws under which people who are making those goods labour. By ensuring that they are buying the genuine article rather than a counterfeit article, people have a much better idea as to where those goods were made, who made them, and under what conditions they were made. That is important to consumers these days.

It is also very important to know that the environmental practices of the companies that are manufacturing these goods are satisfactory and just. People purchasing furniture—and I used this example when we were talking about the National Animal Identification and Tracing Bill the other day—want to know that it has not come from rainforest timber or some operation that is engaging in deforestation. They want to know that that timber is sustainable, and they want to know of the other environmental impacts—the impacts of transport, the impacts of any chemicals that are being used, and all the other potential impacts of manufacturing any type of goods. People have a much better opportunity to trace those goods if they are the genuine, trademarked article, as these bills allow us to enforce. They allow us to enforce the treaties that ensure that those trademarks are robust.

The legislation will, as I said, enable innovative New Zealand companies to more easily protect their trademarks in multiple jurisdictions offshore. We know that all countries and all companies in some jurisdictions struggle to be able to ensure that their trademarks are protected and that, in fact, the local government and local jurisdiction do not actively allow people in those jurisdictions to engage in counterfeiting. The bills enable the Ministry of Economic Development and the Customs Service to more easily enforce criminal offence provisions by providing powers such as entry and examination without a warrant, as well as entry and search under a search warrant.

I found Maurice Williamson’s contribution to the debate to be most fascinating. He discussed the impacts of counterfeiting, the enormous level of counterfeit product that is available around the world, and the projected growth of that product. Indeed, allowing our economic development and customs officials greater scope to enforce the provisions we have to enable trademark and copyright enforcement is an important aspect in trying to curtail that international trade in counterfeit products. The bills expressly provide that the police have the same powers as enforcement officers, and that is an important aspect in that enforcement, as well.

It is important that New Zealand plays its part and is leading some of the areas of standards development in this area. Obviously, as a nation that relies on trade and exports, it is important that we are a leader in this field, and that we are seen to be a leader in this field. Harmonising our laws with international standards makes good sense. I think it is fair to point out that we are not exactly the first country to be signing up to most of these treaties; most of these treaties have long lists of States that are members of the treaty. Even though really we have been practising the terms of those treaties for some time, it has taken us a little while—and Pete Hodgson questioned what has taken us so long—to officially ratify those treaties and to bring them into law. Counterfeit trade can produce a significant amount of money, which is attractive to criminal organisations looking to fund more serious illicit trades. That is another important reason why we should be clamping down on this.

As other members have discussed, by introducing these two laws we are essentially ratifying three treaties and protocols. The first is the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol), which provides a system that simplifies the procedures required for a trademark owner to protect their trademark overseas. Joining the Madrid Protocol will provide New Zealand trademark owners with the possibility of having their trademarks protected overseas by filing one single application for the registration of a trademark with the Intellectual Property Office of New Zealand, and designating one or more overseas countries that are members of the Madrid Protocol where protection is sought. Overseas trademark owners would also be able to use the Madrid Protocol to protect their trademarks here in New Zealand.

Joining the Madrid Protocol will also simplify the subsequent management of overseas-registered trademarks. It is possible to renew or record subsequent changes to the trademark registration in each country using the Madrid Protocol through a single procedural step, rather than making a request directly in each country. The legislation amends the Trade Marks Act to facilitate the implementation of the international registration regime for trademarks under the Madrid Protocol, including providing for regulations to be made for the purpose of giving effect to New Zealand’s obligations under the Madrid Protocol. This is a streamlining process to ensure that people who want to register their trademarks internationally are able to do it simply, without too much fuss or bother. These things are never entirely simple, but this is a method of ensuring that it is easier than it might otherwise be.

The other agreements that we are signing up to are the Nice agreement and the Singapore treaty. The Nice agreement provides a classification system for goods and services for the purposes of registering trademarks, and the Singapore Treaty on the Law of Trademarks aims to make national trademark registration systems more user-friendly, and to reduce the business compliance costs for trademark owners. All of these agreements are making the business of registering trademarks, both here in New Zealand and internationally, much simpler. They allow New Zealand to engage in global economies, and for that reason Labour is very, very happy to support the continued passage of this legislation.

RAHUI KATENE (Māori Party—Te Tai Tonga) : Tēnā koe, Mr Assistant Speaker Robertson. The Māori Party is happy to support this legislation. The consultation that we have been able to have with those who have expertise and experience in the field of intellectual and cultural property suggests that there is low risk from this legislation and that it is, in fact, worthy of our support.

The legislation establishes a mechanism to reduce the likelihood of New Zealand being used as a go-between to avoid other States’ privacy laws. There are also provisions to ensure that personal data originating overseas and sent to New Zealand is subject to our privacy protection. We believe that the commitment to the protection of personal data, not only domestically but internationally, would highlight to other Governments that we take the protection of privacy seriously.

It has also been very positive that the suggestions that came up through the select committee process have been taken into account. It reminds us and reinforces the view that good law is law that is shaped by, and responsive to, the views of the public. In this legislation, for example, the public law committee of the New Zealand Law Society recommended adding a reference in the legislation to international agreements, guidelines, or principles that are relevant to trans-border data flows. This would include incorporating the OECD guidelines directly into the legislation. The recommendation was agreed to by the Foreign Affairs, Defence and Trade Committee and the necessary amendments were proposed. This is exactly how the legislative process should work, and it reminds us of the importance of our Parliament—with a Government that insists that other countries be democratic—being seen to be a democracy also.

The key issue for our discussion in reference to this legislation is around the importance of international relationships. The aim of the legislation to accede to the Madrid Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks means that, basically, we are establishing a context for considering a global trademark. The opportunity to also accede to the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks, as well as to ratify the Singapore Treaty on the Law of Trademarks, is one that we fully support. We do so because we see a global language, a relationship with other nations, as an essential opportunity to build respect and understanding across the globe. I have to say that it is particularly timely, on International Literacy Day, that we are acting in a way that is consistent with our global counterparts. It is extremely positive that this Parliament will be giving effect to commitments that are consistent with international practice.

It is from such a basis that we hope to establish trade relationships with other first-nation peoples. The bill may provide benefits to Māori business owners wanting to apply for trademarks, particularly if they want to trade internationally. We also see support for this bill as being totally consistent with acceptance of the United Nations Declaration on the Rights of Indigenous Peoples, which we see as one of the hallmark successes of the Māori Party relationship with the Government in this term of Parliament.

Again, the timing is interesting. It is almost 4 years to the day since 13 September 2007, when the Labour Government created such outrage amongst tangata whenua in its opposition to the Declaration on the Rights of Indigenous Peoples. That one act, along with the infamous raids undertaken under the auspices of Operation Eight—the raids in Ruātoki—was certainly part of the context that lead to Māori deserting the rank and file membership of the Labour Party. It is a history that was brought home to us vividly yesterday with the not surprising revelations that charges would be dropped due to evidence being inadmissible. We must not allow these events to be forgotten.

Iain Lees-Galloway: I raise a point of order, Mr Speaker. This is the third reading of the bill, and generally that is a fairly tight debate. I think the member has strayed some distance from the bill itself, and I request that you pull her back to order.

The ASSISTANT SPEAKER (H V Ross Robertson): Well, it is not so tight, in terms of the fact that the third reading is often a summing up of what goes on in the Committee stage. I am listening to the member and I am starting to have concerns, so I ask the member to address the trademarks legislation. Thank you.

RAHUI KATENE: I must say that we are disappointed that the legislation does not include the Mātaatua Declaration on Cultural and Intellectual Property Rights of Indigenous Peoples and that it was overlooked in the evolution of this legislation. We need to see Māori-specific indigenous knowledge and intellectual property protection legislation that gives due regard to the unique value of the indigenous brand. We are now calling for a proactive approach to supporting Māori intellectual property protections. We want to support indigenous declarations on cultural and intellectual property, including the Mātaatua declaration, and their expression in domestic and international law.

Finally, I have to place on record that this House must acknowledge the inevitable refinement of policy that will occur following the Government’s response to Ko Aotearoa Tēnei, a report of the Waitangi Tribunal into the claims concerning law and policy affecting Māori culture and identity—that is, Wai 262. This report has been uppermost in all of our minds this week with the sad passing of the kuia who was one of the original claimants, Saana Murray.

The Wai 262 report described two categories of taonga related to cultural and intellectual property, which trademarks reflect. A taonga work is a creation of a pre-existing and distinctive body of knowledge, values, and insights knows as mātauranga Māori. A taonga-derived work is something that is inspired by mātauranga Māori but is not a taonga in itself. It does not reflect traditional narratives and has no spiritual significance. It may look like it contains elements of Māori design, but it has no connection to the ancestors. An example of a taonga-derived work could be the koru on the tails of the Air New Zealand planes, similar commercial logos and motifs, and purpose-written waiata for schools and workplaces.

The Wai 262 report called for new standards governing the use of taonga works and mātauranga Māori with a mechanism that allows kaitiaki to object to offensive or derogatory use or commercial exploitation without consent. Also recommended is the establishment of an expert commission with specialists in intellectual property law, commerce, science, and stewardship, consisting of both Māori and Crown members.

I touch on some of these issues canvassed in the Wai 262 report, Ko Aotearoa Tēnei, as I believe that they will be highly relevant to the future implementation of this bill. At the very least, there should be a qualifier that will give legislators and policy makers a reminder to keep alert to the consequential changes that will be required to address the Wai 262 findings. With these few comments in mind, we will support this bill.

JACQUI DEAN (National—Waitaki) : It gives me great pleasure to rise to speak in the third readings of the Trademarks Amendment Bill and the Copyright Amendment Bill (No 2). I will pick up on a couple of points that have been raised by previous speakers in this debate. They relate to the work that the Foreign Affairs, Defence and Trade Committee did on this legislation when it was first sent to our committee. Points have been made by two Labour members about some aspects of the legislation being brought into being through Order in Council. They were referring specifically to clause 2(2) of the original bill, which provides for 10 clauses—very important clauses in the legislation—to be brought about by Order in Council. The Hon Maryan Street picked up on the point that the committee’s commentary on the bill urged the Ministry of Economic Development to implement all aspects of the legislation expeditiously. The member used that as a bit of an excuse or an opportunity to try to raise a rather weak attack on the Government, in terms of timeliness.

I suggest that that member has rather missed the point. I recall very well the discussion on those 10 clauses in the original bill at the select committee being about such matters as the appointment and powers of enforcement officers and customs officers. I recall very clearly in the select committee—the member may not and her colleague may not, but I recall very clearly—that we had a long and careful discussion about the powers of customs officers. It did seem to members of the committee present—and I know that my colleagues in the House recall it very well—that that was the focus of our discussion. I suggest to the members opposite that the powers of enforcement officers and customs officers are of critical importance. I suggest to that member that we dealt with that issue very thoroughly.

Further to that, we were concerned that the explanatory note of the bill as it was sent to our committee did not adequately explain just why those 10 clauses were to be enacted through Order in Council and would not be in the body of the legislation. I suggest to members opposite that that was the reason why we had concern for that part of the legislation, not any aspect of when the legislation might be read in Parliament.

I note also that this is a busy Government. This is a busy Government that has an awful lot of work on its plate picking up after 9 years of neglect by the previous Labour Government. This Government has undertaken a long body of work.

I also pick up on the Hon Pete Hodgson, who spent a lot of grumpy time, I have to say, in his third reading speech asking a number of questions and table-thumping about why he was not going to get the answers. I suggest to that member that he had a lot of opportunity during both the select committee consideration of this legislation and also the Committee of the whole House stage of this bill to ask those questions. If it has only just now occurred to that member to ask those questions, I suggest that he might have taken a little bit more care about the legislation on its way through our very good select committee process.

Having made those couple of points, I am also very pleased to see this Government putting through this legislation in time for the Rugby World Cup. The eyes of the world are upon us now. It is most important that we have the legislation in place now to cope with the challenges that the Rugby World Cup is bringing upon us. The Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2) will make life easier for the New Zealand Customs Service and New Zealand business, while cracking down on people who import and sell counterfeit goods. As the excellent Hon Maurice Williamson noted, it is all very well to bring into the country a pair of cheap sneakers with some brand name on that will ultimately fall apart within a few days, but that does not do the New Zealand economy any good, and it certainly does not do the good name of the company any good. This legislation overcomes that.

It also gives effect to a number of treaties for the New Zealand Government: the Madrid protocol, the Nice agreement, and the Singapore treaty. I will not use the time of this House to rehearse the impact of those treaties; they have been well canvassed in the House. With those few words I commend the bills to the House.

CLARE CURRAN (Labour—Dunedin South) : I would like to speak in the third reading debate of the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2). This is more quality, Labour-initiated legislation that this Government eventually adopted as its own, although it has taken a rather long time to get to this point, which has been well canvassed. It is not bad legislation, and it deservedly has the support of the House. Although the subject matter might appear to some to be dry, we should not underestimate the importance of this legislation. A number of my colleagues have addressed that. Ensuring that our intellectual property law and enforcement measures are appropriate and effective is fundamentally important to protecting and promoting a healthy business environment in this country.

I note that my colleague the Hon Maryan Street has pointed out that the landscape in these 2½ or nearly 3 years has changed markedly around this whole issue of intellectual property. It is really important to note that, and I will make some more remarks on that later on. It is important legislation because it harmonises our laws with international standards; it furthers New Zealand’s commitment to building international trade rules, which are vital to ensure that trade is free and fair; and it puts measures in place to deal with the enormous and growing problem worldwide of counterfeit goods. Importantly, it enables innovative New Zealand companies to more easily protect their trademarks in multiple jurisdictions, which is a really important, fundamental thing that this legislation will, hopefully, do.

As most members present are no doubt aware, this legislation has two major functions: to bring the New Zealand trademark law into line with the requirements of the Madrid Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, the Nice agreement, and the Singapore Treaty on the Law of Trademarks. And it seeks to enhance the abilities of the appropriate enforcement agencies under the Trade Marks Act and the Copyright Act so that they have the necessary powers to crack down on criminal activity in this area. These international commitments that are being made through harmonising with the treaties are an excellent step forward for New Zealand businesses and rights-holders, but such commitments are effective only if they are supported by good law at home. It is essential that the Government officials have the ability to do their job, especially with the changing landscape of intellectual property infringement. In the last decade the Customs Service has detected a considerable increase in the traffic of counterfeited material into this country, and I think somewhere it is mentioned how much that is. I think the New Zealand Customs Service reported that the volumes of counterfeited goods had risen by over 400 percent since July 2000, with 260,000 items detained by them each year. A number of my colleagues during the debate have talked about that, and it is expected to rise over a wider range of products.

The Ministry of Economic Development has already signalled that the current laws around intellectual property are inadequate for effectively policing this assault. This legislation addresses that concern by giving enforcement officers from the Customs Service and the Ministry of Economic Development greater powers, including the ability to enter and examine premises without a search warrant where there is a suspected breach of the law, and to thoroughly search the premises if a search warrant has been obtained. Those powers are also extended to the police to allow them to carry out their duties with regards to issues like piracy.

The empowerment of Government officials with regard to criminal—criminal—activity is not a decision that should be made lightly. I think it is an issue that the Green MP David Clendon raised during the second reading, and his colleague Keith Locke did so during the select committee process. However, we know—and I think we can be satisfied—that the powers given to the Customs Service and the Ministry of Economic Development are appropriate, considering the work they are required to do. Some in the media painted a picture of a Ministry of Economic Development hit squad making raids on the warehouses of innocent importers, delaying the sale of their products and hurting their profits. Although it is impossible to guarantee that this would never happen in isolated cases, the benefits of a more robust enforcement regime far outweigh those speculative costs.

The protection of intellectual property rights is central to a well-performing economy, and this law will improve the economic environment by ensuring that rights-holders know their intellectual property remains theirs and consumers can have confidence in the quality of the goods and services that they are purchasing. That is really important, and I do want to stress that, because we are talking about criminal activity here for the purpose of counterfeiting goods, pushing them across borders, and then selling them on. That is an issue we need to spend time addressing, and this legislation does that.

This legislation effectively updates present law and brings it into line with the need to address that increased criminal behaviour and the techniques used to breach trademarks and copyright, and the enormous issues with regard to the movement of counterfeit goods across borders. It is commendable that the Government is pushing this, but it does raise an important issue with regard to other legislation that has been before this House recently—in particular the Copyright (Infringing File Sharing) Amendment Bill. It highlights the importance of members of Parliament, members of select committees, and, in particular, Ministers being on top of their briefs, on top of their areas, and being able to grasp the nature of change—in particular, technological change—and the impact it is having on the behaviours of consumers—that is, citizens, and business models. I am referring to the importance of updating legislation to ensure that the law and the regulatory and operational response to breaches of the law are appropriate, effective, and up with the times.

This Government and this Parliament saw the passage of the Copyright (Infringing File Sharing) Amendment Bill, which did not address criminal behaviour. It addressed civil infringement, and an enormous amount of time was spent in the last couple of years trying to work out how to address it. But that bill, which was passed under urgency, focused solely on measures to push vast numbers of New Zealanders who access illegally downloaded share material that they either cannot get any other way or would have to wait for a very long time to access. The distribution channels for that material, whether it is music, movies, TV programmes, or whatever, are locked in the mind-set of the previous century and prefer to turn our kids and ordinary citizens into criminals, rather than change the way their businesses operate to deliver what the market so obviously wants. It is important to have that law, because people should be deterred from illegal behaviour. But it was ridiculous to contemplate disconnecting them from the internet, and it was also ridiculous to introduce it under urgency without taking a wider look at the whole copyright regime.

Mr DEPUTY SPEAKER: Order!

CLARE CURRAN: That is why it relates to this legislation, and what the Government should be doing to encourage new business models emerging in our country or being allowed into our country to distribute content that is affordable in real time.

My point is that with this legislation before us, as with any other legislation that is being updated, changed, and harmonised in relation to other legislation and treaties around the world, we have a responsibility as parliamentarians to bring ourselves up to speed with technology changes and their enormous impact on the way we are conducting many parts of our lives. We have a responsibility to assess all legislation to see what impact the changing technology has on it, and this legislation is no exception. Labour supports it. It was originally our legislation, and we are evolved enough as a party to acknowledge that we must change with the times. Perhaps it is time that the members on the other side of the House acknowledged that too.

Dr PAUL HUTCHISON (National—Hunua) : Thank you for the opportunity to speak on this very important legislation. There is no doubt that it is fundamental for the viability of the international trading market that intellectual property is appropriately protected and observed. In many respects, that is what this legislation is all about.

I absolutely take the point, made by both Maryan Street and the previous speaker, Clare Curran, that the landscape around intellectual property is constantly changing. That has been the case for hundreds of years, and it will continue to change as we see an increasingly rapidly evolving technology.

As the Hon Maurice Williamson so clearly pointed out, counterfeiting behaviour is becoming more and more of a problem internationally, and it is now impinging on the international business markets to the order of hundreds of billions of dollars, and this situation is getting worse and worse. But not only that, there is also the possibility of threats to public safety. I think he brought up the example of counterfeit helicopter blades. During the submission period A J Park pointed out that that threat was one of the issues, along with the increasingly rapid evolution of counterfeit medicines going right around the world. I think the Hon Maurice Williamson’s example was unusual, but certainly with a lot of mainstream medicines, whether heart medicine, high blood pressure medicine, or blood thinning medicine—a whole variety of medicines—all these things have been tried on, to the detriment of individuals.

Of course, though, underlying this is the protection of intellectual property, and that is why it is so apt and appropriate that we have the amalgamation of those three treaties, the Nice agreement, the Madrid Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, and, of course, the Singapore Treaty on the Law of Trademarks. I was very interested to note that this aims to make national trademark registration systems more user-friendly, and to reduce business compliance costs for trademark owners. I think it is very salutary that it comes in the name of Singapore. After all, Singaporeans are so well-known for being efficient and effective. In fact, in many respects that is one of their trademarks, and is something that countries like New Zealand have a lot to learn from.

I remember that in the Committee stage the Hon Pete Hodgson quoted Elspeth Buchanan as being someone who had some reservations. She is from P L Berry and Associates, and is someone who has spent 40 years in the industry. I note that one of the areas she was concerned about was the balance of just how much enforcement we have. This legislation, which has now been split into two bills, requires appropriate enforcement, yet excesses of enforcement may go too far. P L Berry and Elspeth Buchanan cite a recent incident with the Customs Service to show where the potential dangers to legitimate New Zealand businesses can be eroded. A shipment was stopped because of a suspicion that it breached a customs notice, but the customs officer was unable to make a formal determination that the products were counterfeits. This caused a delay and, consequently, a whole shipment of goods for Christmas was not delivered on time, much to the disappointment of the business concerned, and much to the disappointment of the recipients.

Like all of the things in this legislation, intellectual property is a dynamically evolving situation and needs to be revised continually, and this Government is doing exactly that. On the other hand, there is a fine balance to how far one goes in terms of enforcement, and I think this legislation has it about right. It is with great pleasure that I commend the legislation to the House.

CATHERINE DELAHUNTY (Green) : I was not going to take a call on these bills—the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2)—because they are being handled by David Clendon, who is not able to take a call. But I have been inspired by a number of the comments that people have made.

The Greens are voting for the legislation. We think it is interesting legislation because the issue of trademarks has a lot of underlying issues. One issue, as the previous speaker just touched on, is intellectual property, and I would like to acknowledge the Mātaatua Declaration on Cultural and Intellectual Property Rights of Indigenous Peoples, which was from a landmark, leading hui held in Mātaatua, in that part of the country, where a lot of very important kaupapa were laid down. That had a huge influence, and it was then picked up through Wai 262. Those are landmark, if you like, really fundamental issues that I hope this legislation will be able to take account of appropriately. This country’s unique contribution to the global trademark issue is that this is Aotearoa New Zealand and we have the Mātaatua Declaration and the Wai 262 recommendation. I support the leadership of tangata whenua on intellectual property; it has been a profound leadership.

However, I will address the issue of counterfeit, because it is an interesting word and I think we have had examples of counterfeit and unfair trade. In many ways the Green Party would say that the Trans-Pacific Partnership is another example of unfair trade, and another example of how we are not robust enough in our attitudes towards trade. Although the trademarks legislation will assist with this, there are some fundamental issues it cannot address. However, the legislation does raise this issue in a good way, and it does make us talk about what is a good trademark. We can take something like Te Waka Toi, which has been very, very powerful, and which has assisted Māori artists to export around the world. It is a robust trademark, and that is what this legislation is trying to support—the robustness of any trademark available.

But I will talk about counterfeit goods that are less easy to pick up, and goods that customs officers at the moment do not have the tools to pick up, which may not be covered by this legislation. I hope that I am wrong about that. I guess my experience has been particularly with regard to illegal logging products, and those can be paper products, illegal timber, or all kinds of products containing unsustainable and illegally logged rainforests. I brought a member’s bill before this House 2 years ago—which was immediately voted down—that attempted to give tools to customs officers so that they could actually prevent illegally and unsustainably logged products from coming into New Zealand. The Government voted the bill down in less than 20 minutes and did not even bother to talk about it properly, so I am pleased that trademarks are now being taken seriously. But I am still disappointed that at a time when rainforests and the climate are a crucial issue in the International Year of Forests, we have not made much progress on that issue.

The reason it is important is that counterfeit sandshoes and counterfeit helicopter blades are one thing, but there are a lot of issues that are even more basic. I will use the example of toilet paper. At the moment toilet paper from rainforests is being imported into New Zealand, and, even if it is not counterfeit, I am sure that New Zealanders would feel it was counterfeit if they knew that the Cottonsoft brand of toilet paper has been proven to be connected to the illegal and unsustainable destruction of rainforests. As somebody said—I think it was Iain Lees-Galloway—most New Zealanders have a growing consciousness about where things come from. But if something is called Cottonsoft and it is sold in a Kiwi supermarket, then, until the work is done by the Green Party, Greenpeace, and the World Wildlife Fund for Nature New Zealand, very few people will realise that that particular brand is not a trademark that can be trusted. The issue of trademarks and trusts is quite profound. We know that that toilet paper is not to be trusted because Greenpeace has tested the fibres.

It comes back to what is behind the trademarks, which is: what is the chain of custody? What is the certification that can give us the right to believe that that trademark is actually robust? We have a long way to go with chain of custody and certification around timber products in particular. There is only one certification in the world—and I do agree with comments from other members that we need a global approach to many of these issues, because the global market means that goods move freely between borders. That is why this legislation is important, too. It is important because forest stewardship certification is the only robust trademark in terms of forestry products that New Zealanders can rely on. We have organisations like Asian Pulp and Paper that are cutting down rainforests to make toilet paper, and selling it to New Zealanders who do not know about it. We have that happening because we do not yet have a regulatory framework to stop that from happening.

I will be persisting in this issue, as well as the trademark legislation, because I believe that while importers of things like toilet paper are using fake certification, it is not always being defined as counterfeit, and I am not sure that it will be picked up by this bill. That is the problem—a lot of counterfeit things are given what I call “greenwash” certification, or bogus certification. There are all kinds of palm plantation products, and all kinds of certification names and acronyms that people use—sometimes invented by the companies themselves, sometimes with some degree of global scrutiny, but often not at all robust—to claim that these products are actually genuine. They get these lovely trademarks with pictures of animals on them, they are all called natural and they have got this so-called certification. But if one goes into the timber stores of this country, or the retailers, and tries to find out where these products have actually come from, one will see a trademark but it is often bogus. Some stores have made huge progress; we have worked with Greenpeace for a long time, and we have seen many stores step up to the plate.

This is an issue that the New Zealand Imported Tropical Timber Group and New Zealand Forest Owners Association have been working on with the Green Party for some time, because we are passionate that any trademark is a real trademark—that people cannot make claims that they are producing products that have been logged sustainably from the rainforests of South-east Asia and the Pacific when they are not. I asked a question in the House today about the very issue of West Papua, where rainforests are being cut down and their products supposedly certified, but the products are actually counterfeit in terms of labelling. We need to close the gap. We need to stop the cowboy traders who are using a bloodthirsty trade—because people die as a result of the counterfeit trading in illegal logging products; people in West Papua die as a result of standing up to protect those rainforests—and we need a robust regulatory framework such as the Lacey Act, which has been brought in in the United States, and which makes the producers of timber and the people who retail timber products within countries accountable, not just at the border.

It is good that this bill addresses the issues of customs, but I am not sure that the issues I have just talked about will be addressed, because this issue is about so much more than just a trademark. People can so easily manipulate other people into believing that something is sustainable and legal. Within this country we can have a certain amount of control and jurisdiction, but when we go outside our borders we find that it is an absolutely wild scene out there, particularly in relation to paper products and illegal logging. I was shocked to find that people in New Zealand in the 21st century are buying toilet paper made out of rainforests, when we know that without rainforests this planet will not survive, and when we know that people and 132 species a day are being lost because of this.

We will be supporting the trademark and copyright legislation, but we ask for a deeper debate and a more robust definition of what is counterfeit. We must go below the surface; we must stand up for fair trade dealings. This is not about supporting free-trade deals; it is about saying we need to go through a chain of custody. We need to be able to work right back from the retailer of products in Aotearoa New Zealand to the land where those products come from. The day will come when we will be able to pick up an item and trace on it exactly who produced it, but we will need legislation in the meantime, and we will have to make those changes very robust because otherwise people will lie and people will die. That is the most important point I will make about the illegal and bloodthirsty trades that counterfeit as being genuine on this planet at this time. But we do support the bill, and we do see it as progress.

HILARY CALVERT (ACT) : I rise to commend the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2) to the House.

LOUISE UPSTON (National—Taupō) : I am very pleased to conclude the third readings of the Trade Marks Amendment Bill and the Copyright Amendment Bill (No 2). I want to come back to the important context that sits behind the passage of these two pieces of legislation that the Minister of Commerce has brought before the House. Part of that is the fact that one of the key priorities of the Government is actually enabling better cooperation and more consistent legal cooperation across the world. Basically what that does is reduce the costs of New Zealanders being able to trade in the global market. More specifically, another priority for the Government is, of course, to work far more closely with our Australian neighbour in the creation of a single economic market which, therefore, allows businesses to trade more simply and more seamlessly.

In terms of the detail of these two bills, I will not take a long call because we have heard quite a lot about it, but I think it is worth pointing out, in terms of looking at the size of this world problem in counterfeit trade, that the World Trade Organization actually estimates that the size of the counterfeit trade across the world is at least 5 to 7 percent of all world trade. It is a significant issue and this legislation will take us a step forward in terms of being able to reduce the illegal trade. Because I was absolutely staggered and enthralled by the comments that Minister Williamson made around the harm that some of these counterfeit products cause, I thought it was worth going back to the harm that fakes can cause. There have been a number of exposés in particular around counterfeit production of insulin drugs, which of course we know has disastrous effects and, with growing rates of both type 1 and type 2 diabetes, is a significant issue across the world. Our local GNS Science scientists were the ones who discovered what is in some of the counterfeit Viagra products. Minister Williamson confirmed it by his own computing device—of course an original, not a fake—to say that not only did the fake Viagra contain bird droppings but there were bat droppings as well, and other nasty ingredients like arsenic, hair, charcoal, and mercury. Those are some fairly good reasons why we would like to make sure we are able to crack down on some of these fakes.

I will not go through the details of the bill. On the other areas like the enforcement officers, my colleagues Hutchison and Dean, members of Parliament, spoke at length about the international treaties. That is why I am very pleased to finish this third reading on these two very important bills. It is another step forward as National creates a much stronger economy.

• Bills read a third time.

PHIL TWYFORD (Labour) : We do not have long for this debate this afternoon, and that is a good thing, because there is a lot of consensus about the Local Government Borrowing Bill. There was good discussion at the Local Government and Environment Committee. One of two minor items were debated, but there was broad agreement, if I am not wrong, with the intent and the content of this bill.

The purpose of the bill is pretty clear. It is the recognition that debt is a necessary tool for local government in this country. A significant amount of ratepayers’ funds are used for the cost of borrowing money, particularly for capital items. The Local Government Funding Agency, which this bill establishes, will save a significant amount for the ratepayer. There is some question, I think, about whether the amount of $25 million will in fact eventuate, given the fall in interest rates over recent times, but I think it will probably still save a significant sum. The Auckland Council alone estimates that this bill will save it about $10 million a year, and perhaps the Minister in the chair, the Minister of Local Government, might like to take a call and let us know what the latest estimates are.

Part 1 makes a number of legislative adjustments that will give lenders confidence that the Local Government Funding Agency is an institution that they can rely on and will reduce compliance costs for the agency. The Local Government Funding Agency will be borrowing offshore. The bill changes the Local Government Act to exempt the Local Government Funding Agency from the prohibition on local authorities borrowing in foreign currency. The funding agency will also provide a vehicle that will be able to make retail offerings to the so-called mum and dad investors in New Zealand, and that is another really positive benefit of this bill and this initiative. It will add to the efforts to deepen and strengthen New Zealand capital markets by giving mum and dad investors the opportunity to buy bonds and invest in New Zealand’s infrastructure.

I congratulate the Minister of Local Government on this bill. We have supported this bill all the way along, and we have supported the efforts to push it up the Order Paper to ensure that it would be progressed through all its stages and passed before the House rises for the general election. It is particularly important to note that the issue of debt raises different responses from parties across the political spectrum. Parties on the right tend to want to rise to the challenge of how we make the really significant investments that are needed in infrastructure by having recourse to privatisation and public-private partnerships. What we like about this mechanism is that it provides one alternative to those responses. It allows councils and ratepayers around New Zealand more of an opportunity to own their own future, and it mobilises the savings of New Zealanders to invest in water treatment plants, transport infrastructure, and all the necessary capital items that local governments have to invest in.

I will leave it there as an opening statement, and I look forward to hearing from the Minister.

STUART NASH (Labour) : As Labour’s spokesperson on local government, Phil Twyford, mentioned, we support the Local Government Borrowing Bill. Members heard something before that I thought I would never ever hear in this House. I thought I heard Phil Twyford praise Rodney Hide. I ask Mr Twyford whether I was right.

Phil Twyford: It’s true.

STUART NASH: Gee, so it must be good. It must be good. We do support this bill. There are a number of reasons why I support this bill. It makes common sense, and it is very pragmatic. In fact, it was probably one of ours before it came into the House. But one of the main reasons I support this bill is that I think it provides one of those models that could take the place of State asset sales. This allows people to go out there and invest money without selling equity, or it allows local authorities to raise money without having to sell off assets. This is particularly relevant, for example, to my colleague Brendon Burns, who has brought up many times in the media—and I think even in this House in a number of speeches—the concern that he has about the Christchurch City Council selling its assets to fund infrastructural development, redevelopment, and construction. I have no doubt that Mr Burns will be talking about this matter when he takes a call in a couple of minutes.

We are talking about Part 1. This part facilitates the operation of the funding agency. As a consequence of that, and as a consequence, I suppose, of the unique nature of this legislation, in clause 3(2) a number of things have had to be set up to allow this agency to work in a manner that optimises its mandate. For example, paragraph (a) states that Part 1 “exempts the Funding Agency from certain regulatory or taxation criteria that would otherwise apply to it; and (b) applies certain regulatory or taxation criteria to the Funding Agency that would otherwise not apply to it;”. I suppose that that shows the unique nature of this bill, and the fact that it is absolutely necessary.

This agency will issue debt on behalf of all participating local authorities. If the cooperation and support from councils are sufficient, the agency will be expected to achieve a credit rating scale specialisation that will yield significant saving for the participating local authorities. I suppose that in the end that will not only save the sale of these council-owned assets but also allow councils to better manage limited resources. Hopefully, it may allow councils to drop their rates. I know, for example, that in the area I am from, Napier, the council has only about $4 million of debt, but the Hastings District Council has about $60 million of debt, which is expected to blow out to about $90 million of debt in 3 years. The cost to the ratepayer of financing that debt is extremely high, and, of course, every dollar that is spent on financing debt is money that cannot be spent on improving council infrastructure, building council assets, and basically making sure that the city is running. But it also means that councils have to levy ratepayers a much higher amount in order to finance their debt. So that is the second reason why I think this is a very good bill.

Although big is not always better, if participating local authorities are brought together, that allows economies of scale. This is one area where we can get those synergies that allow the benefits I have talked about. The operation of the funding agency will aid in the development of a liquid market in standardised local authority bonds. These will benefit retail and wholesale investors and be positive for the New Zealand capital markets.

If there is one thing I have a concern about it is the lack of depth in our capital markets. I also say that the way to get that depth is not to sell our State assets but to sell these sorts of bonds. I suppose if people have a debt bond backed by a local authority, that provides opportunity for those sorts of what we call ma and pa investors, which I think is a misnomer, actually. People who want to invest in the stock market or in our capital markets will be able to invest. I assume that the bond will be quite a low-risk bond and quite a low-returning bond, but it will provide another option in the whole suite of options that are required to provide depth in our capital markets, which is hugely important. I think that with the collapse of finance companies we are now seeing people becoming more and more risk-averse, so this provides another option, which is great.

The bill provides the funding agency with certain legislative entitlements and exemptions that will allow it to be treated as if it were a local authority, in terms of how it raises money—

BRENDON BURNS (Labour—Christchurch Central) : I join with my colleague Phil Twyford in acknowledging the role of the Minister of Local Government in bringing the Local Government Borrowing Bill to the House, and through the House. This bill may be the last bill he brings to the House, and I want to acknowledge that I think it is very sensible legislation. I acknowledge the good work he has done to bring it to this point.

The bill is good, sensible legislation, because it embodies a collectivist approach. It uses what sometimes might be regarded as the collective power and might of a collection of local authorities—not the power and might of the State—to bring down the rates at which they borrow, and to pass those lower rates on to their ratepayers in order to get more done for their ratepayer dollars. That is a good option for local authorities, and when we consider some of the options and alternatives that are in the market place—and in Government policy at the moment, such as asset sales—I think this is a very sensible measure indeed.

My colleague Stuart Nash picked up on a point that I was going to raise, and it is about one of the options that I think this bill might preclude—one hopes—but it is not clear. My city of Christchurch obviously faces enormous debt costs in respect of the earthquakes of the past year. A very fine plan for the rebuild has been released. It is a futuristic, focused plan from the city council, which has been put together by the city’s planners in just 3 months, when normally a long-term plan like that would take some years. The estimate of the cost of the plan for the rebuild of the central business district alone, for the city council, is of the order of $2 billion.

That is a curious figure in one respect, because the Christchurch City Council also owns about $2 billion of assets. I applaud the council for its visionary plan, and I say that we need instruments like this bill to allow the council to borrow. Christchurch ratepayers are already facing a rates rise this year of about 7.1 percent—7.1 percent—and about 1.5 percent of that is directly related to earthquake recovery costs.

But there is another option that I fear, which is that the city council will be forced to sell its assets by this Government. I would like to ask the Minister in the chair, the Minister of Local Government, whether he has been aware of any discussions in respect of that as this bill has been brought together. This bill embodies a sound principle around an entity like the Christchurch City Council being able to use the funding agency to borrow at competitive rates and to hold down the cost of rates increases for the good citizens of Christchurch as we try to fund our way through the enormous disaster that has befallen our city. As a matter of record, in the 2011 report on the estimates of the finance Minister, from the Finance and Expenditure Committee, there is in fact a recognition of the sale of Christchurch City Council assets as an alternative to the measures that this good bill introduces; it is there on the books.

As the report of the Finance and Expenditure Committee recorded, “As the Canterbury Earthquake Recovery Act allows the sale of Christchurch City Council assets to fund the rebuilding of the city, we asked the Minister of Finance whether he could guarantee that this would not happen. The Minister said that this was a matter for the city council to decide. He added that the Government would discuss cost-sharing with the city council, but that it was important that the council have a stake in the process, which included sharing the costs, to ensure that value for money was achieved.”

So there on the record of the Parliament is the fact that the Minister of Finance has acknowledged that there is capacity under the Canterbury Earthquake Recovery Authority legislation to require the sale of the city council’s assets in Christchurch. I ask the Minister whether he can confirm for us, please, whether that issue was discussed as this bill was brought together. This bill is a sound, logical, sensible, pragmatic way to deal with the debts of Christchurch and other cities. Selling assets is a one-off sugar hit, and it carries enormous long-term costs.

Those assets in Christchurch have returned many hundreds of billions of dollars to our city. Orion—the power network—alone has provided a billion dollars in returns over the last 20 years. Even the Minister of Finance might acknowledge that that is a pretty formidable rate of return for any commercial organisation. The thought that my ratepayers and the citizens of Christchurch may face an option other than the one this good bill provides is a very, very scary prospect. I would like the Minister in the chair to comment on that at some point through the Committee stage.

Hon PETE HODGSON (Labour—Dunedin North) : I think it is really good to be able to say something nice about the Government, and, in particular, about the ACT Party. It is a rare event. I think this Local Government Borrowing Bill is a mighty fine idea, and I would like to congratulate the Minister in the chair, the Minister of Local Government, on it. I welcome the speedy passage of the bill. The origin of it is something I know a little bit about, because we have had trouble with our capital markets for a long time. They have never been particularly deep, and we have had difficulties in many, many areas, especially in the private equity area. When I was Minister for Economic Development we established, yet again, a group to take a look at the issue of capital markets in New Zealand. One of its recommendations was this idea, and I believe it actually made it—although I could have my history wrong—through to the National Government’s attention, if you will, by way of the Job Summit, immediately after the change of Government. Whatever its origin, and wherever it came from, it is a really mighty fine idea.

It is not a new idea. There is a bit of a health sector bank that exists. It does not go to the public to sell bonds, it does not raise money from mum and pop investors, but what it does do is keep the transaction costs for some financial activities of district health boards lower than they would otherwise be. Where district health boards have bridging finance issues, or they are buying and selling land, or they are dealing with Treaty settlements, or whatever, then having a bank for all district health boards is a hell of a lot cheaper than not. This idea, which is not a bank so much as a fund—I understand the difference—is none the less of a similar ilk. I just think that the Government should be congratulated on progressing it. I could get sniffy about the delay. It really is quite a long time, and quite a lot of savings will have been forgone as a result of that delay. But if the savings are worth $25 million, and I understand that is the estimate, then that is $25 million of impost that does not fall on ratepayers around the country, and that has got to be a good thing. It is just straightforwardly a good idea, and it is to be commended.

Different local authorities behave differently. Some of them are well-to-do and some of them are not. For example, Dunedin, at the moment, is characterised by an awful lot of local authority trading enterprise activity and by an awful lot of debt. Some of it was occasioned by the recent construction of the stadium. Indeed, pushing out that debt to a 40-year horizon, instead of a 20-year horizon, is currently being debated by the good burghers of Dunedin. I do not think they will do it. I think the interest costs will be just too high. But this bill, with this idea, takes their problem and makes it a fractional bit less, and it is really excellent. We just heard from Brendon Burns, a member from a city that is in incredible stress in the form of Christchurch. We heard the member for Christchurch Central tell us about the difference it will make for his region, and other regions. The next one up the line from Dunedin is Waitaki. Waitaki frankly does not have a level of indebtedness. It is really rather well-to-do, albeit rather small. So the difference will vary around the country, but, none the less, it is a great idea.

It does occur to me that there is no particular reason why the idea should stop there. As I think through different parts of the economy, I kind of find myself alighting on tertiary education as an area that may enjoy a similar arrangement. As it happens, most universities do not have any debt. In fact, the only one with a lot of debt is the Auckland University of Technology. But nearly every polytech does, and I just think that we should look at the possibility of extending that facility into other parts of what one might call the broader public sector. I might be wrong, and financial analysis is no strength of mine, but I know, having been the Minister for Tertiary Education, that some tertiary education institutions do face considerable financial pressure with their indebtedness, and, of course, the Tertiary Education Commission likes to maintain interest cover ratios, and all sorts of things at certain levels. It would be the case, I am sure, that some mum and dad investors would be very open to the idea of responding to bonds issued in respect of the tertiary sector, as well.

The idea need not stop at local government, but the next thing, of course, is to make sure that it can start at local government. That means the passage of the legislation and it then means the establishment of a fund. I do not know whether the Government will put any more money into it. I think $5 million has gone in—the Minister of Local Government will tell us.

Hon Rodney Hide: It’s $5 million allocated.

Hon PETE HODGSON: It is about to go in—OK. I do not know whether the Minister is of the mood; it is up to him, but he might want to tell us whether he thinks that that is the right sum and, if so, why, and whether he thinks the Government should be doing any more than that. There is a really good case for not doing so, but, then again, if the fund is to be able to be administered, it has to have some capital. I do not know whether the Minister is of the mood, but I will resume my seat in the fond hope that the Minister will give us some idea of what he thinks the role of the Government will be in the case of this fund. I have no particular prejudices about it myself, but it would be interesting to hear about his thinking.

Hon RODNEY HIDE (Minister of Local Government) : To answer the member Pete Hodgson’s question, the Government has set aside $5 million. It will have a shareholding stake in proportion to that $5 million. The money has not been put in yet, other than $950,000 as part of the costs of setting it up. The councils themselves have put in a substantial amount of money as a set-up. The councils will put in $20 million.

IAIN LEES-GALLOWAY (Labour—Palmerston North) : I will add to the positive comments of my colleagues about the Local Government Borrowing Bill, particularly Part 1, which establishes the New Zealand Local Government Funding Agency Ltd. I suppose this is a type of third way approach. There is either public spending by councils themselves or, of course, the alternative approach, which is to privatise assets or to go into public-private partnerships. This is an excellent idea. I believe it is a mighty fine idea, as I think Pete Hodgson probably said at some point in his contribution. It not only ensures that councils can borrow for their own infrastructure that they ultimately will own themselves and that allows those councils to own their own future, but it also gives New Zealanders an investment vehicle that is reasonably safe and helps to deepen our pool of capital available here in New Zealand.

I suppose that is what brings me to ask a question of the Minister in the chair, the Minister of Local Government, about clause 7. I am happy to admit that I come to this debate very much as a layman when it comes to these matters. I suppose I am going to ask a question to which there will be a very clear and easy answer, but I think it is a question that any New Zealander would ask about this legislation. Clause 7 states: “Part 5D of the Reserve Bank of New Zealand Act 1989 does not apply to the Funding Agency.” Part 5D of the Reserve Bank of New Zealand Act has a number of sections in it. Part 5D refers to deposit takers and, specifically, in section 157I, the fact that deposit takers such as the funding agency that is being established under Part 1 of the bill must have a current credit rating. Section 157I states: “A deposit taker must have a current rating of its creditworthiness, or, if required by regulations made under section 157K, the creditworthiness of the borrowing group of which the deposit taker is part, that—(a) complies with the requirements prescribed by regulations made under section 157K; and (b) is given by an approved rating agency.”

Putting to one side the fact that the credibility of ratings agencies is, I suppose, a bit iffy, shall we say, in the second decade of the 21st century, I think what New Zealanders will want to know, having put their money into finance companies—and some people have taken some serious losses there—is what certainty they have in investing in an agency like the New Zealand Local Government Funding Agency if it does not have a credit rating. Is there a mechanism by which the Government provides that certainty? Is there an alternative mechanism to a credit agency rating that gives people who want to invest in that funding agency some concept of the risk that is involved in investing in that agency and of how secure that agency is? I am quite certain that at this stage of the bill, having been through the Local Government and Environment Committee, there is an easy answer to this question. But I am very keen to hear what the answer is from the Minister, because I think that what we are trying to do here is to provide not just a source of capital for local government but also a safe and secure investment vehicle that we might be able to encourage more New Zealanders to invest in.

We know that we do not have a great savings track record in this country. We have a very heavy reliance on foreign capital, and that is because we do not have deep capital pockets here in New Zealand. So anything that encourages people to save more and to invest more in New Zealand’s own infrastructure is, I think, a good thing. But I suspect that that might pose a barrier for people who want to directly invest their money by purchasing these bonds. If the funding agency does not have a credit agency rating against it, then that might prove to be a barrier. We want to make sure that there are as few barriers as possible to encouraging people to invest in these bonds, so that the money is available for local government. I know from feedback from my own city council—

Hon RODNEY HIDE (Minister of Local Government) : Let me do my best to answer Mr Lees-Galloway’s questions. The first thing is that the New Zealand Local Government Funding Agency will succeed only if it does have a credit rating. As the member will see in the Local Government Borrowing Bill, the issue with the credit rating is that the fund is guaranteed by all the local councils that together enter into it. It actually has a very, very strong balance sheet in there as a consequence of that, so people can have some considerable confidence. But one would not get away with not having a credit rating.

The issue with the Reserve Bank exemption relates to the level of capital it needs to hold compared with a bank. Obviously, because it has that guarantee of the balance sheet of the councils, it can get away with a lower ratio compared with, say, a bank that is just dealing in normal loans.

DAVID SHEARER (Labour—Mt Albert) : I thank the Minister of Local Government for explaining that. It was actually one of the issues I was going to bring up in terms of the credit rating, and how it will be properly established. I think, as the Minister said, with more than 80 local bodies investing into this, the huge amount of infrastructure, and, obviously, the rating potential that they have, they are likely to attract an AAA rating, which would bring down the cost of borrowing and be good for them as a whole. It is almost a virtuous circle in the sense of working in that particular way.

I just wanted to reiterate some of the comments of my colleagues that the Labour Party will, obviously, be supporting this bill. I also want to praise the bill in terms of what it will actually be doing. Certainly, in looking at the Auckland situation and the sort of infrastructure that we are looking at needing there to ensure that we move along in the way that we would like it to go, we see it will need a source of funds that enables the Auckland Council to move in that direction.

The New Zealand Local Government Funding Agency will be able to issue debt—and that is what Part 1 in particular speaks to—on behalf of all participating local authorities. If the cooperation and support of those councils is sufficient, the funding agency would be expected to achieve, as I said before, a very high credit rating, and, therefore, save—I think the estimate is, at the moment, certainly according to the regulatory impact statement—about $25 million.

But that is only the beginning of the benefits of this type of scheme. There are other benefits, not only to the councils but also to New Zealand as a whole, as well. They stem from the ability of investors—ratepayers, if you like—to invest in a bond market that will actually invest in people’s own future, the future of the very communities in which people live. That is also to be commended.

I will also reiterate a couple of things that the Minister touched on, as well, which is that the Government would take a minority stake and, as I understand, it would not be guaranteeing the viability of this organisation, because in a sense it is actually guaranteed by the eight or more local councils that put money into it. But the Government will take a minority equity stake by putting $5 million of seed funding into the proposal. As the Minister said, it is not yet there, but we understand that it will be coming.

It will also allow the ability for the Auckland Council to borrow in foreign currencies, which comes more into Part 2. But it is an important point for the Auckland Council, which, as I said before, is looking at an extraordinary amount of capital that needs to be raised to be able to meet the needs that are coming up. I speak to one particular need, which is the inner-city transport link, or the rail link, that Auckland will need, which seems to be getting, at best, lukewarm support from this Government—in fact, “lukewarm” is probably a massive exaggeration, if we listened to Steven Joyce in the House at question time today.

These sorts of moves for the Auckland Council are extraordinarily important, because Auckland grows at a rate of one Wellington City about every 8 years. I do not think that people quite understand that between now and 2030 Auckland will have grown by exactly an entire Wellington City, and more, and for that reason it needs to be able to access sufficient capital to enable that infrastructure to be built—particularly the transport infrastructure, and particularly the transport infrastructure around rail and public transport, because right now the roading network, which has been funded largely by central Government, is effectively complete. There is actually very little of the motorways—

NICKY WAGNER (National) : I move, That the question be now put.

STUART NASH (Labour) : I will take a short call. I have some ever so slight concerns with regard to the funding agency being exempt from Part 5D of the Reserve Bank of New Zealand Act. My concerns are based on this: Part 5D of the Act sets out a whole lot of requirements that financial institutions must take into account: things like, for example, capital ratios, credit ratings—which the Minister has talked about, and the agency will have to have some sort of credit rating, because no one will invest in it if it does not have a credit rating—liquidity ratios, minimum capital requirements, and limits on related party exposures. Maybe the limited party exposure provision is the reason why the agency is exempt. One of the major things that I think is important about Part 5(D) of the Reserve Bank of New Zealand Act is that it requires financial institutions to have a risk management strategy. I know that that is part of good financial management anyway, and I am assuming that any sort of funding agency will have a risk management strategy in place, but this part actually takes that off the table and does not make it a requirement.

The other thing I would like to know—and obviously this agency is not Government-backed but backed by local authorities—is what the risk is of a local authority not being able to service that debt. How will it be passed on to the rest of the local authorities? I mentioned the Hastings District Council before. It has about $65 million worth of debt; I am not saying it has any liquidity problems, at all. But what happens if one of these local authorities cannot meet its obligations? Does that mean that the rest of the local authorities will actually have to pick up that and carry that risk? When I read this bill, I initially thought that this would be low risk but low return, and that is fine. As Pete Hodgson talked about, and as I mentioned before, we need depth in our capital markets. But when I look at the bill I think that maybe the risk is not as low as I initially thought—firstly, because of the exemption of Part 5D, and, secondly, because some of these councils have quite a bit of debt. How will that be apportioned? How will that be allocated?

Another thing I will talk about—Pete Hodgson mentioned this, and I talked about it when I first spoke on this bill—is the ability of New Zealanders to invest through the bond market in infrastructure assets. Pete Hodgson talked about the university sector, for example. I worked at the Auckland University of Technology as its director of strategic development. Pete Hodgson talked about this institution having quite a high debt level. When I was there we talked about how great it would be if we could actually issue bonds. We cannot do that, under law. In fact, no Government agencies can issue bonds, under law, at the moment, but I think, maybe, that this bill is the start of this whole market being opened up, and the depth it could possibly provide is fantastic. It is fantastic. I think Canterbury’s bond offer—the Westpac one—fell over, did it not? Well, having this sort of bill in place could provide so many more options for investors to invest in key infrastructure assets without their having to go to the sharemarket, and without our having to sell our State-owned assets. This is a good idea, but I would like the Minister just to comment on it, in relation to the liability carried by that fund for those that default. This basically relates to clause 10, “Additional requirements to be specified in local authority’s financial strategy”.

The other thing I was a little bit mystified about—members could correct me, because I did not sit on the select committee; it is a pretty easy question—is clause 9, “Exemption from prohibitions and restrictions applying to council-controlled trading organisations”. Clause 9(1) states: “This section applies only if the Funding Agency is also a council-controlled trading organisation.” Does that mean there is a possibility that this funding agency will be a council-controlled funding agency, or not? There is a little bit of confusion here. I read the bill and I think there will be only one funding agency. Is there a possibility that there will be another funding agency? Will there be two: one that manages Auckland bond issues and one that does the rest of the country’s bond issues? I am not too sure. Perhaps the Minister can just clarify that for me. Clause 9(2) states: “a local authority may give a guarantee, an indemnity, or a security in respect of the performance of any obligation by the Funding Agency.” I would have thought that this would not apply just to a council-controlled agency; I would have thought that if any council or local authority is raising money through a bond issue, then it will have to provide some sort of security. Again, I wonder whether this exemption from—

Hon RODNEY HIDE (Minister of Local Government) : I will reply to Mr Nash’s questions. I want him to appreciate the underlying principle here of the exemption of the funding agency to Part 5D of the Reserve Bank of New Zealand Act 1989, which is that local councils are exempt from Part 5D. So if they are exempt from Part 5D, it would be odd to put a collective vehicle of local councils together and make it subject to Part 5D, because that would hobble the thing, relative to their raising their own money. The whole point is to keep the regulatory regime the same as if the funding agency was a council, because effectively that is what it is.

In terms of a council defaulting, of course that debt would then be carried by the other councils. That is implicit in the nature of what is being proposed. In fact, it is that collectivity of the debt that actually gives the advantages being sought. The thing I would point out is that I do not think we have any experience of a local council ever defaulting. If we think about that for a minute—a council in New Zealand has never defaulted. If we wrap up a vehicle that represents them all, the chances of the funding agency defaulting are unimaginable in the New Zealand setting of financial regulation and management.

SUE KEDGLEY (Green) : I will take up the issues that Stuart Nash was raising. It is absolutely true, as the Minister of Local Government has clarified, that all participating local councils will be required to guarantee each other’s debts. So if one council were to default, all would have to pay. But I notice that the Government would not be liable. The Government may contribute, I believe, 5 percent for the first 10 years, but the Government will not be liable; only the councils will be liable. The Minister has said we should not worry, because it is extremely unlikely that councils will default. I agree that it is unlikely that councils would default. It is unlikely because they can always raise the rates to pay for increases in debt if they find themselves in that situation.

However, it is not unimaginable. We have had the situation in Canterbury, which was unimaginable. We could have further situations. We could have one right here in Wellington. We could be in a situation where there are defaulting councils. What worries me is that I do not think most ratepayers are aware that their councils are signing up to this new funding agency. Although there is a requirement that councils inform the ratepayers through their financial statement, the reality is that most ratepayers do not really look at the fine print of the financial statement. I would expect that a lot of ratepayers have no idea that this is going on and no idea of their joint liability through this new funding agency.

Do not get me wrong; the Green Party is supporting the Local Government Borrowing Bill, but we do have some qualms about it. The other one is that once there is cheaper borrowing, which essentially this bill is all about, the temptation will be to increase borrowing, particularly when we are in a situation where councils do not want to put up the rates. We are in a very tight financial situation, and it would be politically unacceptable for most councils to put up the rates in any substantial way. But we have a problem with some councils like the Auckland Council having to make substantial investments—in particular, in public transport. Although the Government will pay 100 percent for roads and motorways, it will pay only 50 percent for public transport, so if a local council wants to develop public transport, it has to invest 50 percent of the cost of any major public transport initiative. Substantial investment needs to be made, and the temptation will be to do all of it through debt.

There is an argument that if we come up with some major infrastructure—like, say, a new rail loop—we can spread the debt over generations. That is fine. But I fear that the temptation will be not to put up the rates, because that will be politically unacceptable and the councillors will all be voted out of office, but to just keep putting everything off and piling it up into this debt mechanism. In time, we could end up with more and more council debt and a blowout of council debt. Down the road—say, 10 years hence—we could find this funding agency with huge debts and we could find some councils defaulting. We could find ourselves in a situation where everyone will ask how it happened, because no one told them that they had signed up to this entity, and no one really consulted them. So we have some real concerns about that.

We think there needs to be much greater awareness amongst ratepayers, and much greater understanding of what we are getting into here, of the joint liability, and of the fact that if any participating authority defaults, the debt will be shared. People need to be going into this with their eyes open. Let us hope this does not end up inadvertently triggering greater and greater amounts of council debt accumulating over the next 10 years because we have made debt cheaper through this mechanism. Thank you.

Hon RODNEY HIDE (Minister of Local Government) : I think Sue Kedgley makes a very important point—and it becomes a general one for councils—that councils do enter into investments and take on debt largely without the awareness of ratepayers. They can actually delay the impost of the consequences of that investment or that debt for some years, and we are now having to deal with some councils that are being forced to put up rates. It can actually also be just the cost of a running down of general infrastructure that gets pushed forward. I accept that point.

What we have attempted to do there is that, with the changes that we made to the Local Government Act, we require councils from the next election onwards to put out a financial report in plain English. We are hoping that through that report, local media and interested citizens can get a much greater sense of the true financial state of their council at the time when it is most valuable to them—that is, the time that they are actually voting—and also of the challenges that that council confronts. I think if we had had that reporting procedure some years back, we might not have got ourselves into some trouble with councils.

It is also the case that if we lower the cost of the debt, we might expect more of it. But bear in mind that there will be considerable discipline on the funding agency, because it will be representing all the councils. It will not be just sitting there like an ATM handing out money for whatever particular project a council might come up with. It will actually look with scrutiny at the debt, because it will be carried by all the councils together. In a way, one of my worries as Minister observing it is that quite a small council that may not be very sophisticated—we quite like the small councils, because they represent the community; we have nothing particularly against them—can easily find itself borrowing on some rather unfortunate investments that get pushed into the future.

Interestingly, in going off to the funding agency, councils will actually have proper scrutiny because the people they are borrowing from are the other councils. In a funny way they will have a better understanding of, and more information about, the situation of local councils than might otherwise be the case. Sure, a particular bank will lend to a council, because it knows that the council can just put rates up into the future. So we may, through this funding agency, actually have a greater discipline, particularly with the smaller councils that may not have that level of sophistication that a larger council would have.

PHIL TWYFORD (Labour) : I thank the Minister of Local Government for making that very interesting point about the extra discipline that will be brought to bear on smaller councils that seek to borrow funds through the new agency. One of the reasons that I think this bill is so worthy of support is that it is another way that small councils—particularly rural and provincial councils, which have been really struggling with the demands of investing in their local infrastructure—can, by tapping into the collective, get the critical mass and the ability to make those investments. It is not unlike the approach to shared services that some councils have been successfully taking. It gives those smaller councils a pathway that avoids some of the difficulties associated with amalgamation. There is no doubt that a lot of those smaller rural councils are facing considerable pressure to amalgamate. As we know, and as we have debated many times in this House, bigger is not always better, and there are real downsides in terms of representation—in terms of local voice and governance—particularly when smaller and dispersed communities are forced into bigger governance units. That, I suppose, is one of the big dilemmas in the local government sector today. The Local Government Borrowing Bill actually offers those councils one way out of that dilemma.

I really appreciated the discussion earlier from Stuart Nash, Iain Lees-Galloway, and the Minister around clause 7 in Part 1 and the implications of Part 5D of the Reserve Bank of New Zealand Act not applying to the funding agency. I appreciated the Minister’s explanation of that. I suppose the underlying principle of this bill is that it is appropriate to treat the Local Government Funding Agency as if it were a local authority. That is the basis on which it is exempted from Part 5D. When Part 5D was put into the Reserve Bank of New Zealand Act originally, local authorities were exempted from it. Clause 7 simply makes this bill consistent with that principle.

I think it is worth noting the reasons why it is logical to treat the funding agency as if it were a local authority. There are a number of reasons, and Local Government New Zealand summarised them quite nicely in its submission to the Local Government and Environment Committee. The agency’s function is to borrow money and lend that to local authorities. It is therefore merely a vehicle for local authorities to borrow collectively. The credit risk faced by lenders is of a similar nature to the credit risk that is faced by lenders to local authorities, because the agency’s debtors will be local authorities themselves. The money that is being borrowed will be applied to exactly the same purposes as money borrowed directly by local authorities. To the extent that any funds are passed on to any entity that is not a local authority—that is, in the form of dividends—that entity will be the Crown, because the Crown is the only shareholder of the agency that is not a local authority. The Crown, of course, is also exempt from Part 5D of the Reserve Bank of New Zealand Act.

The other related issue is the question of clause 9, which exempts the agency from prohibitions and restrictions that apply to council-controlled trading organisations. We heard at the select committee that it is arguable that the funding agency will fall within the definition of a council-controlled trading organisation under the Local Government Act 2002. If it does, there are a couple of consequences. Firstly, section 62 of the Local Government Act will apply to it, which prohibits local authorities from guaranteeing the agency’s debt, and, secondly, section 63 of the Local Government Act may prevent local authorities from lending subordinated debt to the funding agency. Clause 9 eliminates the risk that either—

Hon RODNEY HIDE (Minister of Local Government) : I will respond to Mr Twyford’s comments. I think he is right, just on the broader aspect. This is an example, if you like, of Parliament helping with the shared service. I think that when we look ahead, if we do amalgamate or change jurisdiction, we want to do it for governance reasons, not for cost reasons. I think there is a bit of pressure coming on councils as we pile more functions on as times get tougher. People say: “Well, let’s amalgamate.”, but we are actually trying to amalgamate to save money, rather than for the reason of good governance.

The more that I have been involved in the sector, the more it has become apparent to me that there are huge opportunities for shared services, thereby dramatically reducing the costs for individual councils, and indeed for improving their performance. We can have a whole lot of little councils trying to maintain a very sophisticated operation, each on their own. Even if they have the money, often trying to attract the necessary personnel is quite tough. There is certainly a greater enthusiasm in Local Government New Zealand and within councils to start talking about shared services. We need to think, as a Parliament and as future Governments, about what the role is and what the barriers are to facilitating those opportunities, where councils agree that it is a smart thing to do. Hopefully, that will be part of the review that we have set up with the Smarter Government, Stronger Communities project. We can look at that, because there is definitely a huge potential, of which this bill is a part.

SUE MORONEY (Labour) : Thank you for the opportunity to take my first call on the Local Government Borrowing Bill. I want to speak to Part 1, which is the part that sets up the New Zealand Local Government Funding Agency and is, of course, the meaty part of the bill.

I do want to profess that as I am not a member of the Local Government and Environment Committee, I probably have more questions than answers in terms of this Local Government Funding Agency and what it can be used for. I say at the outset that it seems to me that the one thing that might help the funding agency would be the implementation of a capital gains tax. Why do I say that? Well, it seems to me that if we were to level the playing field for how New Zealand investors choose to invest their money, then perhaps they would look more kindly at this. Perhaps it would have lots of New Zealand investors, who otherwise invest in property and the sorts of things where they can have basically tax-free profit at the moment. If we had a capital gains tax, I think this would become more attractive to investors. Perhaps they would be looking more to investing in a vehicle such as this, in order to improve local infrastructure, or whatever it might be. That would be my opening comment. I think this bill could sit alongside a number of other policies that are being debated, literally as we speak.

But my questions are about the sorts of things that ratepayers and residents are debating all the time in their communities. At the moment in Hamilton, and in the greater Waikato, actually, we have quite a debate occurring, and I know that Iain Lees-Galloway will be very interested in this debate, about funding a velodrome for the Waikato. This proposal has come through from Sport and Recreation New Zealand, which is a Government-funded agency. Sport and Recreation New Zealand has a lump of money that it wants to put into the project and it has chosen Waikato as being the preferred option for this.

Iain Lees-Galloway: Outrageous!

SUE MORONEY: Iain Lees-Galloway is outraged, because Palmerston North is, of course, another city that bid for exactly the same project. But here is the part that I know he will like: I am opposing the ratepayer funding of the velodrome project for the Waikato. I know that Iain Lees-Galloway will be very pleased that I am doing that, and so are local ratepayers, I might say. Although Sport and Recreation New Zealand and BikeNZ might think this is the ideal location for a velodrome, it is the poor old ratepayers who will be asked to stump up for a velodrome that will cost $28.5 million.

That might not seem like a great deal of money, but currently in Hamilton the ratepayers are facing an 8 percent increase in their rates. They are not too keen to have more rates lumped on top of them as well. Also in Hamilton we have just recently experienced a $30 million contribution to hosting the V8 Supercars event. The cost was originally supposed to be $13 million, but it has blown out to $30 million. So there are a number of reasons why ratepayers in Hamilton and the surrounding areas are asking some serious questions. They are asking “Well, hang on, haven’t we funded enough of people’s pet projects?”. If people have pet projects like a velodrome, which, let us face it, will not be used by the vast proportion of the population—cycling in a velodrome is an elite sport—why should Hamilton ratepayers be funding them? Those are the questions that some local ratepayers are asking, and I think they are really valid questions.

In regard to this bill, my questions are around that. Some people are asking why those bike enthusiasts who want to race around a velodrome and not just ride around streets, a cycleway, or anything else we might choose to invest in do not fund a velodrome if they really want it. They ask why they do not spend their money on it. The question I want to ask is whether this is a vehicle where that could happen. Could the group of people who want to see this go ahead actually put money into this funding agency and say that they want it to be used for a loan for a specific project? The question I really have is about some clarity as to whether that could happen. My guess is that the answer is probably no in terms of transparency, accountability, and those sorts of issues, but I would like some clarity on that, because, as I say, it is an issue that we are facing in the Waikato as we speak. If such a fund is used for a venture like the velodrome—

JO GOODHEW (Junior Whip—National) : I move, That the question be now put.

BRENDON BURNS (Labour—Christchurch Central) : I thank the Minister for his ongoing response to the questions that members on this side of the Chamber have been putting. It is a good example to us of how Parliament should work and is, from time to time, known to work. I hope we can continue in that vein. This part, of course, is in respect of the provisions for the new Auckland Council to borrow in foreign currencies. We know that the Government has another set of proposals around asset sales. The proposition there is that mum and dad investors will be those who buy those assets. The question I want to put to the Minister is this: where is the capital likely to be coming from for the Auckland Council? If it is the case that it is able to borrow in foreign currency, is Treasury advising the Minister and the Reserve Bank that that is where the Auckland Council is likely to be taking most of its borrowing from? If that is the case, ipso facto it would suggest that that is the most likely market for other sources of investment. I think we know that at the moment the Chinese Government, for one, is contributing a fair amount of the Government’s debt profile and, obviously, in a situation where we are a debtor nation, we have to be grateful for whatever sources we can rely on for capital. But I think New Zealanders would like some indication of where the Auckland Council is likely to be obtaining its capital from.

The Minister indicated in the last part that the collective way in which the rest of the funding agency works provides some sort of inherent protection, and I want to know how that relates to the Auckland Council in respect of any borrowing that it does offshore, because although I think we know that local government in this country is very broad and soundly based, it is not unknown for councils to get into trouble. I think of cities like Lille in Belgium, which many years ago went bankrupt after high borrowing. Also we are now seeing cities in North America where the rating values have absolutely dropped as factories have moved offshore and the rating bases have dropped to maybe 10 or 20 percent of what their value had been perhaps a decade ago. It has caused enormous problems for some communities in North America. We are not in that prospect, but in the spirit of cooperation we have been having, members would like to know the likely debt profile that Auckland City will be entering into. Where is the capital likely to be coming from?

I raise this concern, too. While we are a debtor nation the best thing we can do is, where possible, create capital internally. Quite a lot of effort is going on at the moment to raise capital. I think of the University of Canterbury, which has been in the market quite recently to try to raise funds for its institution. Obviously, we have huge costs relating to the debts coming out of the Christchurch earthquakes. There will be a big demand upon capital. What will Auckland be competing against in terms of the provision of that capital? Obviously we have seen announcements from the Earthquake Commission in the last few weeks that effectively its coffers have run dry in respect of any further major natural disaster. That will be putting pressure upon debt programmes.

It is a difficult time for us as a nation in respect of borrowing, when we have those various pressures upon us. Auckland obviously has a huge infrastructure demand that needs to develop and grow. Hopefully, a lot of the funding it will be raising under Part 2 will be put towards public transport programmes to assist Auckland to be a viable and sustainable city into the future, rather than endless building of motorways, with all of the climate change implications they bring. I would like the Minister to comment just briefly upon the likely source of capital that the Auckland Council will be likely to attract. Where is it going to be coming from?

I guess the final comment I would make in respect of this is that every dollar that we borrow offshore—and we need to borrow many—carries with it an additional cost. Next week the Reserve Bank governor will announce his latest position on interest rates. The signals are that the market will hold but at some point interest rates will rise, and every time we import capital and it repatriates back out, that keeps our interest rates high and our dollar high.

Hon RODNEY HIDE (Minister of Local Government) : It would be inappropriate for me, I say to Mr Burns, to suggest what the debt profile could be, should be, or would be for a particular council or the Local Government Funding Agency. Let me just explain the Auckland situation.

What we have done is to take four large councils and combine them with four other councils into one. The situation was that the New Zealand capital market could not actually fund the debt of that new council, so the council needed to be in a position, whether or not we had this funding agency, to be able to go offshore. Secondly, because it is such a large council, if it could borrow offshore only through the funding agency, the funding agency would be unduly exposed to one council. So we had to provide for both mechanisms. It was always the intention from day one, once we had an understanding of the debt requirements of the new Auckland Council, to allow it to borrow offshore. But we were very pleased that the council and then Mayor Len Brown committed to the funding agency, because it actually helps the whole system to hold. That was one of the issues that we needed to address in setting up the funding agency—that it would have sufficient support.

Let me acknowledge the new Auckland Council and, indeed, Mayor Len Brown for their commitment to Local Government New Zealand and to local government throughout New Zealand. They understand that although their council is very large and, for so much, could go out on its own, it would be counter-productive for Auckland and counter-productive for New Zealand if it basically said to heck with the other councils and just did its own thing. The council has been very committed to being an active participant in, for example, Local Government New Zealand, so that the smaller councils do not get left behind, and, indeed, it has been committed to the funding agency. We certainly appreciate that as Aucklanders and as New Zealanders.

PHIL TWYFORD (Labour) : Again, I appreciate those comments from the Minister of Local Government. The new Auckland Council, with $28 billion of assets and a debt profile of about $3 billion or a little more perhaps, obviously will have needs far and away in excess of any other local council. It makes sense that this bill, the Local Government Borrowing Bill, has the sort of flexibility structured in that will allow the Auckland Council to go offshore in its own right to borrow the funds it needs.

I am interested to know—and I do not know whether the Minister knows this—what share of the borrowing by the Local Government Funding Agency is expected to end up with the Auckland Council. Presumably, the Auckland Council will borrow some funds from the funding agency but also will be going offshore in its own right. I am interested to know what the proportions are likely to be. As Brendon Burns suggested, Auckland will need some significant capital investment in the coming decade or so if it is going to reach the sort of aspirations that the country has for it, and that Aucklanders have for it.

The city rail link, which has been hotly debated in this House in recent times, will cost between $1.5 billion and $2 billion. There is a whole debate about how the city rail link should be funded, and I think that mum and dad investors in Auckland would probably see it as well worth supporting and investing in. There are a number of other mechanisms—councils have the ability to raise money in various ways—but borrowing through the funding agency would be a pretty desirable way to contribute to the cost of that. It is a shame that Steven Joyce does not see the city rail link as worth investing in for Auckland’s future, because I am sure most Aucklanders would see it as well worth investing in.

I think it makes sense that the Auckland Council has the ability to go offshore in its own right. We heard at the Local Government and Environment Committee that because of the size of Auckland Council’s borrowing requirements and the undesirability of the funding agency lending so disproportionately to one council, it makes sense for it to be able to borrow offshore. The Auckland Council told us—really assured us, I suppose—that the borrowing would be undertaken on a fully hedged basis and that it has the capacity, through its treasury unit, to minimise the risk to the Auckland ratepayer. On this side of the House, we are very comfortable with the provisions in Part 2. If the Minister is able to tell us anything about the likely share of Auckland Council’s lending—no, all right then.

STUART NASH (Labour) : Mr Twyford and the Minister of Local Government have actually outlined some of the points I had, but there are a couple of other points I would like to make in this Committee stage of the Local Government Borrowing Bill. I agree that Auckland is now so large that it needs to own its own future. It has to have the ability to go offshore, because the depth of our capital markets is just not big enough for it. I understand that. I suppose the Auckland City treasury will have to determine itself how much money it wants to put into the rating agency versus how much it wants to borrow on the back of its own council. It would be interesting to know how much it would do that because, again, as the Minister alluded to, I suppose the funding agency will be reasonably dependent upon the level of funding the Auckland Council can put into that, and therefore the scale or the rating the funding agency will have in itself.

There are two points I would like to make and two, not really questions, but reasonably significant points in my mind. The first one is the report to shareholders and stakeholders. The Auckland Council is responsible to well over 1 million people, who pay the rates and who will service this debt. I think it is up to the Auckland Council to make absolutely sure that the ratepayers and the stakeholders know exactly what the Auckland Council is doing and what its policy is. Mr Twyford mentioned that the Auckland City treasury has said it will undertake a fully hedged strategy, and I agree with that. But let me give members a couple of examples, because I think that currency risk is now huge. This adds another risk on top of all the other risks that councils have to manage. I know, for example, and the Minister himself might remember, that when the New Zealand dollar was about US70c at one stage—this was late last century—it plummeted. It went from about US65c down to about US50c in about 6 months. Carter Holt Harvey was, I think, New Zealand’s second or third-largest company at the time. Its treasury had a hedging strategy, but it also played the currency markets to a certain extent. It lost literally millions and millions of dollars trying to bet on the New Zealand currency, which it had no idea about. There were jokes going around about how to play the currency markets. One was that we ask 10 economists and we go with what the minority says.

The bottom line, I suppose, what I am trying to say, is that no one knows how to play the currency markets and win. It is a little bit like putting it on black at the casino: one wins sometimes; one does not win at other times. This is a risk. I think—and I would really like to know but I do not think that the Minister can tell me, because it is an operational matter—that the Auckland Council must tell its ratepayers how it is going to manage. I remember that I went to a seminar once that was conducted by Deutsche Bank, which was at the time—well, it still is—one of the largest banks in the world. This seminar was for small to medium sized business owners. The advice from the head of Deutsche Bank at the time in terms of overseas trading in US dollars was that he would hedge 50 percent and then he would play the currency markets with the other 50 percent. I was astounded that a banker could give this advice to business people who relied on the margin of the deal being done. He was basically advising these people to play the currency markets, and it was astounding that he would give that sort of advice. This is why we have to be very careful and we have to have a very good understanding of the strategy that the Auckland Council will take in terms of borrowing in foreign funds. I have no doubt that at some stage a smart banker will stand up at council and say that if it had not hedged at US83c as the dollar went down to US70c, it would have made a whole lot of money. We are all very wise in hindsight when it comes to currency trading. Believe me, we are very wise in hindsight, but at the time, if the strategy is not on the table and if it is not followed very, very strictly, then I tell members there will be accusations of mismanagement and there will be court cases. Of that I have no doubt whatsoever.

Again, let me give members two examples. I used to deal with two large New Zealand companies that imported. One hedged for the whole time. The other one did not, because it took advice from—I will not name of the bank, but one of New Zealand’s largest banks. This was when the dollar was at around US50c. The bank said not to hedge and not to worry as the dollar would be up to about US55c by Christmas. By Christmas the dollar was down to US45c, and that company had lost about $2 million by just playing the currency markets. I suppose my point is that the council and anyone can take advice from a whole range of people who say they know how to play the currency markets—what they are about and the best strategy to make money with them—but no one knows and no one gets it right 100 percent of the time.

JO GOODHEW (Junior Whip—National) : I move, That the question be now put.

PHIL TWYFORD (Labour) : We had some debate at the Local Government and Environment Committee about the commencement clause, and I will make a few comments about that. The Local Government Borrowing Bill as referred to the select committee provided in clause 2 for a deferred commencement. It provided for the bill to come into force on a day appointed by the Governor-General by Order in Council. We received a submission from the Regulations Review Committee, chaired by Charles Chauvel, that set out the committee’s general disapproval of deferred commencement dates. It reminded us that the general issue is that if we provide for legislation to come into force by Order in Council, we are handing over a power to the executive to decide not only when but also whether that legislation should come into force.

The submission cited the Legislation Advisory Committee guidelines about the risks of deferred commencement—namely, that the will of Parliament could be frustrated by an executive that no longer supports the policies in the bill, and that ultimately there was a risk that courts could be drawn into the legislative process if judicial review was invoked in an argument like that. There was a fair bit of discussion at the select committee about that, and I am sure my colleagues on the Government benches would be happy to get up to take a call and flesh out the discussion about this.

We ended up, I think, wanting to accommodate the concerns of the Regulations Review Committee but mindful that we wanted to get this legislation passed before the recess. We do not want to risk losing the momentum and the great work that had been done in the pre-establishment phase of the Local Government Funding Agency. So we have ended up, under clause 2(1), saying that Part 1—which is really the meat and potatoes of the bill—will come into force “on the day after the Funding Agency is registered under the Companies Act 1993.” That is the compromise, which we thought will go some way towards addressing the concerns raised by the Regulations Review Committee. The commencement is not an open-ended deferred commencement; it is tied to the fact that Part 1 will come into force on the day after the agency is registered under the Companies Act. There is a rider to that that if the agency is not established or registered under the Companies Act, Part 1 will be repealed 12 months after the date on which it receives Royal assent. That is a compromise, and one that goes some way towards meeting the concerns of the Regulations Review Committee.

Part 2, on the other hand, has no amendment proposed by the select committee. It will come into force on the day after the date on which it receives Royal assent. It treats the provisions relating to the Auckland Council’s ability to borrow on international markets quite separately, and will come into force on the day after Royal assent is given.

• Clause 1 agreed to.

• Clause 2 agreed to.

• The Committee divided the bill into the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2), pursuant to Supplementary Order Paper279.

• Bill reported without amendment.

• Report adopted.