Hon PHIL HEATLEY (Minister of Fisheries and Aquaculture) on behalf of the Minister of Agriculture: I move, That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a third time. The bill was tabled in the House in October 2010. It had its first reading on 14 October 2010, when it was referred to the Primary Production Committee for consideration. The select committee reported the bill back to the House on 22 February 2011. The bill has now had its second reading and passed through the Committee stage.

The dairy industry is an integral part of the New Zealand economy. The industry contributed $12.1 billion, or 29 percent, of New Zealand’s total merchandise export value in the year to December 2010, and the industry continues to grow. As a result of productivity improvements and the expansion of dairy farming over the past few seasons, New Zealand’s milk production is growing at around 3 percent per annum and there is potential for further growth over the next 10 to 20 years. On the back of this strong milk growth, we have seen increased investment in the industry through the entry and expansion of dairy processing companies and specialised food producers. The increasing diversity of business models entering the dairy industry is providing choice to New Zealand farmers, as well to domestic and international customers and consumers.

The Dairy Industry Restructuring Act has provided the regulatory framework in which new companies are able to enter the dairy processing industry and test the efficiency and profitability of their different business models. The purpose of the pro-competitive measures contained in the Act was to promote the efficient operation of New Zealand’s dairy markets by ensuring that New Zealand markets for dairy goods and services were contestable. The contestability of milk supply provides incentives for all dairy companies to seek innovative opportunities and drive cost efficiencies, and, therefore, improve the value of New Zealand milk and the returns to New Zealand farmers and the wider New Zealand economy. Upon the passing of this bill, the market-share thresholds that trigger the expiry of the pro-competitive provisions of the Dairy Industry Restructuring Act will be extended. This will ensure that the Dairy Industry Restructuring Act will remain in place for a while longer, contributing to the promotion of the efficient operation of dairy markets in New Zealand.

The bill also provides for a new process for the expiry of the pro-competitive provisions, whereby the Minister will request a comprehensive competition analysis of the industry. This will provide the opportunity for the Government of the day to consider whether, when the new market-share thresholds are met, the dairy industry is indeed ready to move to a regulatory regime consisting of generic competition law only rather than the additional industry-specific Dairy Industry Restructuring Act.

As the industry continues to evolve, the Government needs to have a mechanism by which to regulate the behaviour of its participants, at least until we are sure that the industry is ready to move to a less regulated environment. It may be that at some point in the future the industry will have evolved to the extent that the pro-competitive provisions of the Dairy Industry Restructuring Act are no longer needed. Until then, we do need them. This bill extends the life of the Act so it will continue to promote a contestable market for farmers’ milk and ensure that dairy markets in New Zealand operate efficiently. I commend this bill to the House.

Hon DAMIEN O’CONNOR (Labour) : It is disappointing that the Minister of Fisheries and Aquaculture, a Minister who does not know enough about this issue, has introduced the third reading of very significant legislation, the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, although, I have to say, it is perhaps unnecessary given recent announcements. One day after this bill was introduced, in October last year, the Minister of Agriculture made this legislation redundant when he announced the need for a review of the whole legislation. So in terms of the last part of what the Minister read out, we may get to a point where it is no longer needed. In fact, the Minister of Agriculture thinks that that may be the case now. None the less, Labour supports the bill on the basis that it continues to guarantee supply to independent processors. Those processors come in two forms. Some are exporters and some are domestic. Labour supports the provision of milk to those domestic milk industry players. I will talk more about the exporters in a minute.

I will just give some background to this issue. Labour passed the legislation that formed Fonterra. Two big companies and the Dairy Board were merged to be one company, effectively buying the milk, processing the milk, and then marketing the milk offshore. It is New Zealand’s biggest company, and it is owned by New Zealanders. There are not too many companies of its size that are still owned by New Zealanders, so it is very important that we get the legislation relating to Fonterra right. This bill is a small, technical bill, I guess, strictly speaking, but it goes to the heart of some of the debate within the industry. At the time of its formation Fonterra had 96 percent of the milk collected and processed in this country. It was a huge and dominant player. Even just 10 years ago a number of innovations were emerging in the domestic market. There were better kinds of yoghurt, more cheeses, and a number of innovations that the previous Labour Government thought should be supported, aside from the big traditional players like Cadbury and those who were supplying domestic milk at that time. Two companies were owned by the dairy industry, and one of them was forced to be sold. Goodman Fielder came in anyway, but there was a need to guarantee them supply for New Zealand consumers. So Labour facilitated that through the dairy industry restructuring legislation.

But things have moved on. The industry has grown significantly under Labour. I have to say that our 9 years in Government saw very strong growth in the dairy industry, and we welcomed that in terms of export earnings. I think the previous speaker referred to $12.1 billion in exports and 29 percent of our merchandise trade last year—it is a big, big player. But in giving it that dominant position we needed to ensure that there was ongoing supply to independent processors. At that time there were only a couple of other processors exporting offshore—Westland Co-operative Dairy Co. Ltd, which remained independent; and Tātua. There were not many others players. We have seen the development of Synlait, the proposal around Miraka, and a dairy company owned by Māori—a corporation that wants to own its own milk processing plant. The Russians have been down in the South Island. Open Country Cheese Co. is another. It was set up by former members of this House, John Luxton and Wyatt Creech. We have seen those companies develop into competitive exporters of the same products as Fonterra. A question has arisen in the minds of farmers and other fair-minded New Zealanders. Why should Fonterra be forced to collect milk from farmers and then effectively direct a tanker to a competitor’s factory, where they will process the milk and compete in the same markets offshore? That has been an ongoing discussion, and I think it is something that is currently under review by the Minister. Should Fonterra be forced to supply its competitors?

However, there is still a need to ensure that Fonterra supplies innovative domestic products. I picked up today—and we will see many of these articles coming up—adairy industrymagazine article that states: “Soaring milk prices hit cheesemaking.” These are gourmet cheesemakers who are struggling because of the international increase in the price of milk and milk products. They have been forced to pay more for their milk. I think that is fair, but unless we had guaranteed their ongoing supply if they were engaged in a debate or a negotiation over price, Fonterra could have effectively chopped off their milk supply. That is not good enough. They need to have some certainty in their business, and that is what Labour is supporting through its support of this legislation. But we do expect the Government—and Mr Carter is not here—to indicate what is happening with the review. Is the Government likely to change the requirements to supply competitors?

Strange as it may seem, there is one competitor who is getting milk but does not really want it. That may sound a little Irish—with all due respect to my Irish heritage—but that group is from the West Coast and it came to the Primary Production Committee to make a submission on the bill, and it was the most principled submission this House has probably seen for a long time. The Westland Cooperative Dairy said it thought it was bizarre that Fonterra should be forced to supply competitors. But as long as Fonterra was being forced, through legislation, then it, as a competitor, was going to take that milk, and indeed it is lining up to do that. So it was honest enough to come to Parliament and say it did not think that practice should continue but that, as long as Parliament legislated for it, it would seize the opportunity.

There are other competitors who are happy to take as much milk as they can for as long as they can, and then go out into the same markets—not always the same markets—and compete. The danger then is, as we see with the meat industry, that people selling the same products into the same market from New Zealand have only one thing to compete on, and that is price. So we see price and value destruction in the market place, and the ultimate loser from that is New Zealand and New Zealand farmers. That has been very destructive in the meat industry, and it has been very destructive in the wool industry, where competition offshore has undermined value developed and created by New Zealand farmers and the New Zealand economy. We do not endorse the continuation of that. That is why we support a review of the need, through the Dairy Industry Restructuring Act legislation, to continue to supply the competitors.

I want to make a couple of points about Fonterra itself. There is much happening in this area. Fonterra is growing as a company, and there are requirements in the Dairy Industry Restructuring Act that state that if a farmer chooses to leave the company, they are entitled to take all their capital—that is the value of their shares, which are fixed-value shares—with them and move off and supply a competitor. That creates what Fonterra calls a redemption risk—that is, it might have to pay out a huge amount of money if farmers want to exit or if, through a drought, their production drops drastically. I do not buy into Fonterra’s argument completely. It is proposing a total recapitalisation of the company, which will allow trading of the shares between farmers, and then trading of bonds by outside investors. In my view, that opens up the company to potential direct foreign investment and outside influence, and we could very well lose control of New Zealand’s biggest company. That is a big debate taking place at the moment.

I think that the sweet deal done by National and Fonterra whereby Fonterra will hold the price of domestic milk until the end of election year, on the basis that the Government would get through the trading among farmers legislation, has kind of fallen apart. The Minister astutely has worked out that farmers do not actually endorse this trading among farmers completely. They are uneasy about some provisions in the proposals put forward and checked by the Ministry of Agriculture and Forestry, so they want to back out of it. I think this House will see dairy industry legislation in the near future. I just hope it supports and upholds New Zealand’s ownership of Fonterra and that we get a fair deal for farmers.

SHANE ARDERN (National—Taranaki - King Country) : In the 30-odd seconds I have before the dinner break, I say it is a pleasure to rise in support of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. The previous speaker, Damien O’Connor, has outlined the history of the legislation reasonably accurately. I add that this industry is 27 percent of the country’s export earnings, and it is one that we must get right.

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

The CHAIRPERSON (Eric Roy): The House is resumed. Shane Ardern has the call and he has 9½ minutes remaining, should he wish to avail himself of the opportunity.

SHANE ARDERN: I am not sure whether I would make myself popular if I did. Speaking to the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, I think it is probably fair to put a little bit of context around it and talk about what is broken and what we are trying to fix. Effectively, three issues were bothering the board of Fonterra and the Government alike. One was that the original Act, the Dairy Industry Restructuring Act 2001, has the potential to expire some time in the not too distant future, as was set out 10 years ago when it was first put in place, given that the triggers that trigger the expiry clause are close to being met in the South Island, at least, and are probably a year or two away in the North Island. The Government looked at that and decided that the dynamics of the dairy industry outside what is controlled by Fonterra are not strong enough as yet. For that reason, the Government decided it would be suitable to extend the period that the Dairy Industry Restructuring Act stays in force.

The other major issue amongst the farming fraternity, the shareholders of Fonterra, was the price at which Dairy Industry Restructuring Act milk was being sold. The formula being used to set that price had developed into what was being seen by the shareholders of Fonterra as a subsidy to other companies that are able to pick up that 50 million litres of milk per company. So a price was set: Fonterra farm-gate price plus 10c. The 10c was put there to take into account the recognition of the loss of opportunity on the shoulders—that is, a dairy season typically goes up with a sharp peak and comes down again on the far side, with not such a sharp peak but it tapers away. If processing companies can pick up milk at the low points of that shoulder, if you like, then they have a substantial advantage. It was recognised that that was a cost to the shareholders of Fonterra.

People talk about Fonterra as though it is some conglomeration of international executives, etc., but it is worthwhile reminding ourselves at this point that, in fact, Fonterra is a farmer cooperative owned by 10,300 shareholding farmers. So the 10,300 individual small to medium sized businesses—some of them could potentially be described in New Zealand as large, but certainly not internationally—that own this company are subsidising the other companies. In the end the Ministry of Agriculture and Forestry accepted that it was the case that they were subsiding those companies picking up the 50 million litres because they were not getting a fair return on it.

The further point that this bill addresses is the fact that in the South Island, the Westland area was excluded from the catchment that was measured to establish the trigger levels. In the legislation it is prescribed as about 80 percent of all milk collected in New Zealand going through Fonterra, which is referred to in the legislation as the new co-op because that was the name it was given when the legislation was first put in place, prior to the name “Fonterra” being introduced. The Westland area—the Westland Regional Council boundary, I think it is, or the territorial authority boundary—was excluded. The reason for that was the Westland company was one of the original companies that was part of the Dairy Board when the merger of the two major companies in New Zealand took place, including the Dairy Board.

The Westland company chose to stay outside that, and until recently—about two seasons ago, I think—it chose not to collect the 50 million litres of milk that it was eligible to collect under the Dairy Industry Restructuring Act, because it never believed that that was in the best interests of New Zealand. But because the Dairy Industry Restructuring Act is likely to be extended, the Westland company submitted to the Primary Production Committee that it is at a commercial disadvantage by not taking advantage of that 50 million litres, and it has chosen now to do so. It collects milk from mid-Canterbury, carts it across to Westland, and processes it there. So the argument that Westland should stay outside the total catchment of the South Island because there is no real competition in that regard is now null and void. The area of Westland has now been included in the total catchment area for the South Island to establish when that trigger will be met.

A range of other issues has been addressed during the discussions, but I will leave those until another time. I sure there will be further debate in the dairy industry going forward and potentially further legislation. It is our intention to support this legislation.

BRENDON BURNS (Labour—Christchurch Central) : Here we are at the final stage of this important legislation, the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. I acknowledge at the outset the contribution the dairy industry makes to this country. It is a $10 billion export earner, and that underscores the importance Labour attaches to this bill and some semblance, I suppose, of regulation around the pricing of milk in this country.

Having said that, I want to express concern. I am a great supporter of keeping dairying in New Zealand hands, and that has been the model until the Dairy Industry Restructuring Act came in. I think Fonterra controlled about 96 percent of the milk produced. That has stretched somewhat over the course of the last 10 years, and this bill is attempting to provide some final mechanisms to ensure competition in milk supply.

In that 10-year period we have seen some other changes that we as a House need to note. I particularly point to the increasing presence of foreign investment in the dairy industry. I am no xenophobe. Foreign investment has helped build this country, but there comes a point when we have to question the value that foreign investment brings, not just in terms of the implications it raises for us as a nation that is short of capital and is constantly needing to import capital, therefore effectively providing a mechanism that keeps our dollar high and makes export industries like Fonterra more troubled as they try to compete in foreign markets. Foreign investment also brings questions around environmental matters. Although we are assured that everybody is covered by the same laws, I guess we have a feeling, an innate belief, that New Zealand - controlled companies with a stake in this country and with a commitment to the communities of this country will be better environmental stewards than those that are simply here for the returns the investment can bring.

In the passage of this bill I have noted the increasing stake that foreign investors have in the dairy industry. I look at the Synlait plant near Dunsandel, where the plant itself is now 50 percent owned by a Chinese investment company. I do not think it matters whether the shareholding is held in Sydney or Shanghai, the net economic effect is the same. The distance from the communities that underscore New Zealand is reflected in this bill, in that 80-plus percent of the milk market is still controlled by Fonterra. Fonterra is 100 percent pure Kiwi, in terms of its ownership structure. That is relevant, and that is why this bill is in front of us.

We want to see healthy competition. We want to see Fonterra still able to trade profitably. I note one of the submissions to the select committee—and I was on the Primary Production Committee for at least part of the hearing of submissions on this bill—in which Fonterra put up a New Zealand Institute of Economic Research report that suggested that the cost to Fonterra of the regulations that are in place, requiring it to supply its competitors, was in the order of half a billion dollars a year—

Shane Ardern: $700 million.

BRENDON BURNS: I am happy to elevate the figure according to my learned colleague across the way from the dairy industry, Shane Ardern. The cost was $700 million. That is a big price to pay, and if that was engendering competition between New Zealand companies and driving competitive milk prices and the like, I do not think we would have too much of a view about it, but of course we have seen milk prices rise over the last few years, and we have also seen an increasing foreign component in investment.

We have to look at the bigger nations that are short of food. Strategic investments are being made. We have seen the pin-up case of the Crafar farms and the question of whether they will be sold to foreign investors. We are expecting outcomes on that fairly shortly, but that will not be the end of it.

We have the Chinese investment in Synlait and Singaporean investment in Open Country Dairy, and we have had—if we do not still have—a 100 percent foreign stake in the New Zealand Dairies plant down near Waimate. As I say, my concern is not about the ethnicity but about the investment. It does not matter whether the investment is from Sydney or Shanghai, it still creates two issues. The first is to do with the outflow of capital, which keeps our dollar and interest rates high and makes it much harder for companies like Fonterra to remain competitive in very strong and competitive markets, and the second is the question about whether something that is purely there for the dollar return, without the commitment to the communities of New Zealand, as envisaged under this bill, will be able to deliver the same sorts of environmental outcomes, especially in the light of what I think is still very weak environmental law. That is evidenced by the Environmental Protection Authority Bill, which passed through the House only today, and in respect of the national policy statement on freshwater management that was released earlier this week by the Minister for the Environment, which simply fails to enforce any new regulatory controls on delivering safe and clean fresh water.

There is another concern that I will refer to. I noted that the Minister of Agriculture answered a question in the House today in respect of irrigation and water storage. Fonterra and other dairy producers will be the major beneficiaries of the Government’s commitment of nearly half a billion dollars to increasing irrigation and water storage. The dairy industry is most likely to be the major beneficiary of that commitment, and I think the Minister indicated that benefit in talking about the sorts of export returns we could see boosted by that investment of $1.4 billion over the next 7 years. He went on to say that the commitment was about taking a balanced view to deliver economic growth and environmental sustainability.

As I said at the start of my speech, I believe that the dairy industry, as evidenced by this bill, can contribute both economically and on an environmentally sustainable basis, if it is done properly. But I have to note the issues that were raised last year about Lake Ellesmere / Te Waihora, which, according to an Environment Court report back in 2005—6 years ago—was found to have been biologically killed by the flow of nutrients and other pollutants into those waterways. The lake was regarded as one of the world’s top trout fishing fisheries only 30 or 40 years ago, and we have to ask whether the growth that is envisaged in the dairy industry under this bill, which is going through its final stage in Parliament tonight, will mean that we will see more Lake Ellesmeres because we are not seeing, parallel to this bill, strong environmental protection.

I note that a decision was made by the Department of Conservation last year to refuse a grazing licence to a dairy farmer—I am not sure whether he was supplying Fonterra or Synlait, but it will have been one of the two—on the banks of Lake Ellesmere. That decision was overturned after an intervention by the Selwyn MP to the Minister of Agriculture. That underscores the concerns that I have, and that Labour holds, when we debate bills like this one, which will see future growth in the dairy industry, and we see the continued repetition of the line that there will be balance between economic and environmental outcomes under this Government. When we see a situation where a lake has died because of nutrients flowing into it, the Department of Conservation takes an entirely appropriate decision to say no to a farmer having a lease of land right on the edge of that lake, which has died because of nutrification, and a Minister gets involved and assists the farmer to overturn the Department of Conservation decision, that underscores the very strong doubts that I and others on this side of the House hold in respect of that supposed balance.

We are constantly told by the Prime Minister and other National members about getting the balance right between economic and environmental policy—

Sandra Goudie: Try and throw a few facts into the equation.

BRENDON BURNS: The old dairy-snorter across the way there might interject, but the reality is that that is the definition of “balance”. I gave an example of where balance is only at the environment’s expense, and that is why even though we support this bill in respect of the continuance of a competitive model basis for the dairy industry we do so with some very real concerns, as evidenced as recently as in question time in the House today and the answers from the Minister. Balance, for this Government, tends to mean at the environment’s expense.

Dr RUSSEL NORMAN (Co-Leader—Green) : I stand to speak on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill or, rather, the “Movement of the Goalposts Bill”. This bill requires Fonterra to supply subsidised milk to its competitors, but it changes the goalposts. Previously Fonterra could have stopped providing subsidised milk to its competitors sooner, but now we will delay, so that Fonterra will have to provide subsidised milk to its competitors—its overseas-owned competitors, in particular—for a longer period.

There are many reasons why this bill is flawed. We could start with the obvious one. Why are we making a New Zealand - owned producers cooperative subsidise its foreign-owned competitors so that they can compete against it in the foreign markets? That is an absurd proposition and, unbelievably, this House is voting for this absurd bill.

The background as to why this bill is particularly ill-timed is what is happening in commodity prices. Over the last 100 years, commodity prices dropped very dramatically, about 1.2 percent a year across all commodities, looking at food, iron ore, and other minerals, but in the last 7 to 10 years all of that century of drop in the value of commodities has been wiped out, because commodities have increased dramatically in value, right across the board. So a century of slow decline in the value of commodities has been reversed in the course of a decade.

Against that backdrop, those who produce commodities, whether it be milk powder or iron ore, have suddenly found the assets that produce those commodities suddenly become much more valuable than they were previously. In Australia, of course, we have seen the massive boom in Western Australia—linked to iron ore, in particular, but not only to iron ore—and in New Zealand we have seen the boom in prices for land that has access to water to produce dairy solids, and dairy protein has become much, much more valuable as we have seen that dramatic reversal.

Some of the hedge funds, in describing the current situation, have talked about a paradigm shift. It has been a complete paradigm shift, when after a century of slowly declining commodity prices we have suddenly seen this dramatic reversal. Of course, the reason for the reversal is that the planet is finite. It is pretty simple. What we have found is that there is a big increase in demand coming out of China and India, in particular, and there is limited capacity to supply that demand, because, of course, there is not more agricultural land with access to water being created, nor are there more iron ore mines being created, nor is more oil being created. Those are finite resources, so in the context of that backdrop we have seen a big spike in prices.

One of the outcomes of that process is that people who want access to those resources that have become very expensive are looking at how they can secure their supply chains, and New Zealand is part of the global supply chain for food protein, particularly dairy protein. We have seen a lot of overseas interest in buying up New Zealand land, processing facilities, and agricultural processing facilities. We have seen the loss of PGG Wrightson just recently, with its very valuable seed stocks, and other agricultural service companies have become targets for overseas buyers.

As the value of these commodities has increased dramatically, we have seen a much greater overseas interest in buying up New Zealand land and processing facilities, and the supply chains that all go with it. This means that the context for the Dairy Industry Restructuring Act, when it was originally passed, has dramatically changed. It is no longer the same world that it was when the Act was first put in place. When some people come to look at the situation, they treat it as if nothing has changed, but, of course, everything has changed. It means that no longer do these regulations ensure that we have a competitive domestic raw milk market in New Zealand. They do no such thing. They are not designed any more to do that—well, they may be designed to do that, but that is not what they are doing any more. What they are doing now is supplying raw milk to the overseas-owned competitors of Fonterra because raw milk and the dairy protein that comes out of it is incredibly valuable.

The Green Party is a very strong believer in New Zealand production so we are very keen to make sure that raw milk is provided at a competitive price to New Zealand - owned producers based in New Zealand. We want to support New Zealand industry, we want to make sure that the New Zealand raw milk market is competitive, and that milk in that market is at a competitive price. If these regulations were restricted to simply providing raw milk to New Zealand producers, whether it be New Zealand - owned producers, even exporting, or whether it be just for the domestic market, then we would be supportive. But what these regulations do is ensure that raw milk is provided at effectively a subsidised price to the overseas-owned competitors of Fonterra, who then transform that raw milk into the products—mostly milk powder, but not only—which then compete against Fonterra in Fonterra’s overseas markets.

This is what has changed between the original Dairy Industry Restructuring Act and this bill that we are considering at the moment. The problem is that people have not realised that the world is no longer the same, so they are treating the dairy market as it used to be. Part of what stands behind this is we do not want to upset our trading partners. Part of the regulation of the New Zealand dairy sector is to make sure that we do not upset our trading partners and do not attract any kind of World Trade Organization action because of uncompetitive practices within our domestic dairy market. These provisions are in place in order to try to knock aside any attempts to challenge the regulations governing the New Zealand dairy market.

But, of course, what has happened is that in the past, because New Zealand was promoting relatively cheap commodities, it was in our interests to try to break down trade barriers all around the world in order to get those commodities into those markets. But now the exact opposite is happening. Those markets are desperate for New Zealand dairy products. The Chinese are not consuming a lot more of New Zealand dairy produce because of our free-trade agreement with China. They are consuming a lot more of our dairy produce because they need it because it is clean and safe—particularly safe after the melamine scandal—and because they need access to the food protein.

Globally what we are seeing is that food protein is in shorter and shorter supply and it becomes more and more valuable, and those markets where previously we were trying to overcome barriers to get our food in there actually are desperate for our food, and really want our food. So the whole global context has changed. It is kind of like saying, back in the 1940s, the 1950s, or even the 1960s, if we look at the oil market, countries all around the planet wanted oil. They were desperate for oil. The problem with oil was not that there was a trade barrier to oil. People were buying oil because really needed oil. Other commodities are now becoming more and more like oil, because we have a global shortage of those kinds of food commodities. Other countries really want New Zealand primary produce, and that is one of the fundamental things that has changed.

The concern that we have to let overseas companies buy up our land, let overseas companies buy up our processing facilities, and have these regulations in place, all of which are designed to stop any World Trade Organization action against New Zealand, all of which are designed to maintain a multilateral trading environment in which we can get our goods into those markets, has been turned on its head. Now those markets are desperate for our goods. Orienting our entire dairy industry regulations around the concept of trying to avoid World Trade Organization litigation by making sure we sell off our land to overseas owners without breaking our World Trade Organization commitments, making sure we allow Synlait to be bought up by overseas owners, and have these dairy industry regulations in place so that we do not upset our World Trade Organization commitments, all of that has been turned on its head.

Now we are in a powerful position because we have access to something that people want. In fact, what we should be doing is looking after that valuable thing. We should be preventing the overseas buy-up of our land, and preventing the overseas buy-up of our processing facilities and our agricultural servicing companies. We should be protecting Fonterra and not making it subsidise its foreign-owned competitors in New Zealand, through the Dairy Industry Restructuring Act and the amendments that are before us now. It is by understanding how the world has changed in the last decade that we can understand how fundamentally ill-conceived this particular amendment bill is and how fundamentally ill-conceived the framework of the dairy industry in New Zealand is at the moment. The Green Party will not be supporting this bill.

RAHUI KATENE (Māori Party—Te Tai Tonga) : I will take just a brief call on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, which seeks to extend the market share thresholds for the expiry of pro-competitive provisions in the Dairy Industry Restructuring Act 2001. The bill also provides for a new process for the expiry of the pro-competitive measures when the new specified market thresholds are reached.

The key driver in this bill is that there is unlikely to be sufficient competition in the dairy industry to ensure the efficient operation of New Zealand dairy markets, and I want to put forward an alternative frame. The lack of domestic competition in New Zealand has, I suggest, little to do with a lack of local market profits. The barrier to entry is straightforward and well known. It is related to the monopoly domination of Fonterra and the undue influence it controls, both in terms of cost lines and milk, and its revenue line—that is, its retail prices.

James Wheeler, the acting chief executive of the Federation of Māori Authorities, in a recent letter stated it quite clearly: “Fonterra are in a dominant position originally created to compete with the world, rather than this be used internally against suppliers and processors. Their track record of being the recipient of numerous complaints against uncompetitive behaviour to the Commerce Commission indicates that Fonterra actively works against independent suppliers.” In other words, Fonterra’s dominance means that it effectively controls both ends of the business because of its scale. It is able both to set the cost of milk and to control the retail price’s revenue, which in effect might have the undesirable result of squeezing any other domestic players out of the market. That is the unique power held by Fonterra, and this legislation is undeniably influenced by its monopoly stronghold on the consumer market.

Every party in this House is aware of the intense level of public concern about milk prices and the level of competition in our domestic dairy market, and this is essentially where we must agree to differ from the Government on this bill. Although we might accept that the changes proposed in this bill do not affect the particular issue about the price of milk, they do fall into the wider context under discussion—that of milk price and domestic competition. I recall a statement made by Kingi Smiler, the chair of Taupō-based Miraka Ltd, 2 months ago. Mr Smiler, in his submission about Fonterra’s Trading Among Farmers proposal, noted: “As a majority Māori owned company, we are in the dairy industry for the long haul as our land cannot be sold. It is therefore vital that any change to the competition rules to assist Fonterra, preserves the integrity of the system for the benefit of everyone.” This is the essential balancing of interests that we believe has been ignored in this bill.

Although the Minister may suggest this bill is necessary to ensure a stable milk market while the broader issues of the matter are being considered, our view instead is that while the Trading Among Farmers proposal is out there, changes to the governing legislation will bring with them an undesirable level of risk. That is of great concern for Māori because, as we all know, the Māori Economic Taskforce last week released a report by Business and Economic Research that pointed out the Māori asset base. We know that agriculture, forestry, and fishing—in fact, primary produce—is a huge area for Māori investment. With Māori getting more and more involved in the New Zealand economy it is very necessary that we have a competitive environment, and that we do not have monopolies that are keeping the industry held by the throat, as it is now. We cannot support this bill while that is happening and while such levels of anxiety exist in the dairy industry sector. Thank you.

COLIN KING (National—Kaikōura) : It is a pleasure to take a call during the third reading of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. I remember last night we had some great conversations about the sunset provisions, and we said that some time ago the Labour Government was actually saying the primary sector was a sunset sector. From that point of view it is very good that we are actually debating here. When listening to all of those speakers we heard the Labour speakers talking about the environmental degradation that dairying is causing, we heard the Green speaker talking about farmers gouging prices and making unscrupulous profits, and we heard the Māori Party speaker talking similarly. But the point is that unless our farmers are making a profit, this country is in pretty poor shape.

This bill is purely focused on giving certainty in the meantime in relation to provisions tied up in the Dairy Industry Restructuring Act. On that basis, we can be very confident that National looks towards research and development and to sciences to address a lot of the problems that confront the primary sector. We are investing many millions of dollars in the Primary Growth Partnership, and we are very, very proud of the Global Research Alliance on Agricultural Greenhouse Gases, which brings together 23 nations to look at solutions that will impact going forward globally. We export 85 percent of what we produce, and more often than not, as they say, the person who pays the piper calls the tune. The fundamental doctrine that this bill is based on is the fact that we want access to various markets. Although we hear a lot of debate about the comparison of Coca-Cola with milk, the substance of this bill addresses a lot of our trade access issues. On that basis, I have pleasure in supporting this bill.

Dr ASHRAF CHOUDHARY (Labour) : This MP on this side of the House definitely does not believe that the dairy industry is a sunset industry. I explained that last night, too.

I support the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, and Labour supports this bill, because it is clearly very appropriate that we extend the market-share threshold for the expiry of the pro-competition provisions in it. The dairy industry is our primary export industry. In the given international economic environment I believe that the industry is really helping our economy and our living standards in this country.

I have a number of points I will make. The first one is that, clearly, it is rather interesting that the Minister of Agriculture said after the first reading of this bill that there would be a review of the Dairy Industry Restructuring Act. I wondered why he could not wait until after the results of that review were available before he introduced this bill, so he could incorporate into the bill some of those results. Be that as it may, I am pleased to say that this bill certainly allows farmers in the South Island, particularly in the West Coast Regional Council’s area, to now be part of the wider picture in terms of the supply of milk.

It is interesting that when we were hearing submissions on this bill there were clearly two schools of thought. Fonterra was on one side, and the rest—the private, independent producers or processors—were on the other side. Fonterra was clearly not very keen that it had to supply discounted milk to the independents. But the independents were clearly keen to see more of this milk available to them so that they could add value. This is interesting, because a lot of those independents—Synlait, Tātua, South Island cheese makers, and others—came along, too. They want to add value to the milk produced in New Zealand so that they can get some more markets overseas. Of course, the Fonterra side was clearly not happy with the fact that a lot of these independent processors have not really added as much value as they suggested they would, to get some new markets. There was quite an interesting debate among them about that at the time. This bill, and the philosophy of the Dairy Industry Restructuring Act, is to increase competition, so that, hopefully, we can get some more companies—more processors—to add value in our overseas markets.

As we get more into markets such as China, India, and the rest of Asia, I think there will be demand for additional processing for niche areas. I hope the independent processors will make efforts to do that, because Fonterra and the farmers are saying that after the years of research and development they have put into developing this industry, here come these new processors, many of them with overseas interests involved, using the intellectual property and the research and development that has been done over years not only by our farmers and farming community but also by universities and research institutes. Fonterra and the farmers are saying that the new processors get the benefit of that but do not actually create the niche markets that they said they would. That has been an interesting argument, and I think that argument will continue among those producers, because, clearly, we want more high-value products to go overseas so we can get more of this milk processed, just like meat. We want more of this milk processed here onshore so that we can add more value.

At the same time, there is an issue about price. When one looks at what is happening in Australia, one sees that milk is being sold for $1 per litre, and in this country we are paying more than $2 per litre. Again, I hope this competition will increase—there is the sunset clause, as somebody said, to change the goalposts. I hope that we get some more competition so that prices come down, because living costs at the moment, with prices going higher all the time, are not good for consumers, who are suffering.

We invited some time ago a professor from Massey University Jacqueline Rowarth to the Primary Production Committee to tell us what was going on in the agriculture sector. We invited her earlier to talk about agricultural education. Where is the problem in terms of agriculture not doing so well? I clearly remember her saying that the problem is that farmers are not getting a high enough price on the farm. I think it is very important for us going forward that we analyse the situation. Where are the problems in our economy, particularly with agriculture? She came up with a very researched view that the problem is that our farmers—be they dairy, meat, or wool farmers—are not getting a high enough price for their products.

The problem is that it is the middle people, whether it is the processors or the supermarkets, who are really creaming it off. I think that is an issue that Parliament, the Minister, and others involved should be concentrating on: how we can add value to what the farmer is getting within the farm gate, rather than what is happening with price-gouging in the supermarkets, and in processing. We can have all this competition, but, in the end, if the farmers are not getting due value on their farm we will not make a lot of headway.

I will also make a couple of further points. Going forward, as we increase our animal production—particularly dairy—we need to make sure that the environmental impacts are also considered very seriously. I see in the statement from the Prime Minister that there will be some impact from increasing dairy numbers but not a big impact. I really take issue with that. As a scientist I can say that I foresee that the real problem in terms of utrification of our lakes and streams is that we will get more and more of this downpour and source pollution and more nitrates, solids, pesticides, and chemicals will go into our lakes, rivers, and streams. We need to do more research into that. We need to understand the dynamics, because over time if our rivers, streams, and lakes are more polluted, then as we engage with overseas buyers they will come round and have a look at what we are doing.

A lot of what we do in terms of dairy industry mechanisation and productivity we do very well. But I am really worried about the impact going forward. We—and the Minister—need to put more funding allocation from the Primary Growth Partnership into some of these research areas, so that we can understand what is happening in the industry. As I have said on a previous occasion in terms of animal treatment and the issues we dealt with earlier with animal tracing—we have the National Animal Identification and Tracing Bill coming soon—I think this issue is similar in terms of the context we have with the overseas market. With those words I say that I am pleased to speak on the bill. I commend the bill to the House. Thank you.

CRAIG FOSS (National—Tukituki) : I have just a couple of points. I appreciate and thank the previous speaker, Ashraf Choudhary, for his endorsement of the bill that was before the House previously for the Environment Protection Authority formation. The issues he talked about were exactly some of the issues that the new body, which many of his colleagues were opposed to, will deal with, but I am glad to hear that he supports it. That is very good.

The previous speaker bemoaned the fact that with the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill there may be Chinese investors investing in the New Zealand dairy industry. I remind members that the China free-trade agreement was initiated under the previous Labour Government and formalised and signed by the National Government. The point is that when the Labour Government initiated those discussions and negotiations, such issues were on the table and were discussed, negotiated, and forecast. So it is interesting to hear that the other side now does not want investment from China—the same country that Labour initiated the free-trade agreement with. Labour got the free-trade ball rolling with China, and that, to be fair, has served New Zealand so well. There seems to be a contradiction there.

Another speaker talked about returns to farmers not getting to the farm gate. That is quite right, but of course dairy farmers are also shareholders in the distribution and facilitation agency Fonterra. That is how they share in the upside of that industry. Maybe some more thought needs to go into those points.

I am on the Primary Production Committee. I particularly enjoyed the discussion and what the bill has achieved. I acknowledge the majority of members from the other side who are voting for the bill. The bill sets new market-share thresholds and new changes, as other members have spoken about, for the North Island and South Island. The bill brings in the West Coast of the South Island as part of the South Island. It may be news to West Coasters that they were deemed not to be part of the South Island, but subsequent to Mr Chris Auchinvole coming in, they are now part of New Zealand. That is an improvement and an upgrade from the MP there.

We also had an interesting discussion about milk solids versus raw milk. I particularly enjoyed that discussion. I learnt a lot from my learned colleagues who are involved in the industry. The committee came together on many of the issues. Many speakers also acknowledge that a great review of the industry is going on, which Minister Carter recently announced. We all look forward to that. I also look forward to it coming before the select committee. Thank you.

IAIN LEES-GALLOWAY (Labour—Palmerston North) : We are almost coming to the end of the debate on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, which is a reasonably technical bill but nevertheless very important for New Zealand’s dairy industry. We in the House all know and acknowledge that the dairy industry is a huge driver of our economy and an important component of our economy. Certainly, in my electorate of Palmerston North, although it is virtually wholly urban—I think I could just about count on one hand the number of paddocks we have in the electorate—the fact that we have Massey University, the Crown research institutes, Fonterra carrying out its research and development, and a very large service industry in the electorate means it is a pretty big deal to my constituents that we do everything we can to ensure that the dairy industry is able to operate efficiently and appropriately in this country.

The bill seeks to do that by extending the period of time during which Fonterra must provide fixed-price dairy solids to other dairy processors in order to foster competition in the domestic industry. The original Dairy Industry Restructuring Act, which was enacted in 2001, set a sunset clause for this requirement in terms of market share of dairy processing, but at the moment there just is not the confidence that when this threshold is met the independent processors will have developed enough to keep the market competitive. That is why these new sunset provisions have been brought in by the Government and why the Labour Opposition is very, very happy to support the bill.

We want to see a healthy domestic dairy processing market so that consumers potentially have lower prices available to them and, of course, a lot more choice. But also we are looking for much greater added value to our dairy primary products and to all our other primary produce.

We have some reservations about the bill. These have been discussed at some length during all readings of the bill and last night in the Committee of the whole House. We have some reservations about the future of the industry and how long this subsidy for the smaller operators can go on. We also have some issues with where we are going in terms of foreign investment in our dairy industry and what that means for New Zealanders’ ability to own our own future, given the importance of this industry to our economy.

It also has to be noted that a lot of people in New Zealand are very, very concerned about the price of milk. A sign of good competition, which is what this bill is all about, is that prices come down, but we have seen the price of milk and other dairy products go up and up, far outstripping any increase in wages in this country. People, particularly those on middle and lower incomes, who are trying to feed their families well and put good nutritional meals on the table are finding it a little bit harder because the price of milk has gone up so much.

The threshold that this bill changes currently sits at a 12.5 percent market share of the collected raw milk for independent processors in the North Island and a 10 percent market share for South Island processors. The South Island threshold currently excludes the West Coast. That provision was changed by the Primary Production Committee, which I think was a sensible change. These thresholds as they stand currently are likely to be reached about now for the North Island and about this time next year for the South Island. As I said, there was just a feeling that the independent dairy processors have not quite reached the point where they can stand on their own without the support that this bill provides. Extending those provisions gives an opportunity for that industry to develop a little bit further.

We on this side of the House were a little perplexed by the timing of this legislation. In fact, the first reading of the bill occurred just 1 day after the Minister of Agriculture had announced a review of Fonterra’s obligation to supply milk to independent dairy processors. So, it could turn out that all of this is ultimately for naught, and the Minister of Agriculture will come back with the results of the review and throw out this bill altogether. We will find that all this good work from the Primary Production Committee and its excellent chair, who is listening intently over there, could be for naught. That would be unfortunate, and perhaps the Government needs to make sure the left hand knows what the right hand is doing.

The review took place last month, and now we wait to see whether its findings and recommendations will make this bill redundant. Labour members wonder whether that review should have taken place a little earlier so that the bill and any changes arising could have fallen out of that review, rather than the two happening in parallel. It is quite possible that we will be back here next year debating more changes.

But we do support the review of Fonterra’s obligations to supply milk to its competitors. It is a bit of a concern that companies such as Synlait and Open Country Dairy, which are owned by offshore interests, are being subsidised by New Zealand farmers. We have to ensure that foreign investment into New Zealand companies, New Zealand businesses, and New Zealand farms—although we do not want to cut it off altogether—is actually working for New Zealand. We do not think that we have quite got the criteria right at the moment to ensure that foreign investment is working for New Zealand.

I will make a final point regarding the price of milk. This bill is all about competition. As I said, one of the indicators that competition is working well is that the price of raw milk and the price of the milk that people buy at the supermarket comes down. That is simply not happening at the moment. In fact, the price of a litre of Home Brand milk at Foodtown has increased by 20 percent, or 37c, since April 2008. That is certainly of concern to a number of people in New Zealand, and Labour wonders when the Government is going to address that.

In closing, I say that this is a good technical bill that will serve the dairy industry well. The Labour Opposition is more than happy to support it.

SANDRA GOUDIE (National—Coromandel) : I will not take too much of the House’s time, but I do want to echo the comments made by my excellent colleagues. I particularly note the work of the chair of the Primary Production Committee, Shane Ardern. He has done a magnificent job, and probably has one of the greatest understandings of the agricultural sector of anyone in this Parliament.

I also acknowledge every single one of our primary producers in New Zealand, because it is on the back of their hard work that we are able to afford things like health, education, law and order, and, of course, the protection of the environment. I say to all our primary producers and the agricultural sector that they do a magnificent job, and long may that continue.

SHANE ARDERN (National—Taranaki - King Country) : Once again, I think I would be fairly unpopular if I took up all of my 8 remaining minutes on the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill.

When we were last discussing this bill, last evening, we were identifying the reasons why it is necessary. Looking at the work that went on to establish the Government’s position, I can gather that there has been an increase in the power or the strength of airguns. As members will be aware, one or two quite serious crimes have been perpetrated with the use of these guns, and I think one resulted in the death of a police officer.

The Government has looked to see what needs to be changed since the original Arms Amendment Act 1992, and has concluded that some of these military-style semi-automatic firearms are poorly defined and are able to be used in the same way as an airgun. A typical slug gun that a farming family might buy for its children no longer fits the legislative framework designed to govern it. I remember that my own very first firearm was a slug gun. I am sure yours probably was too, Mr Assistant Speaker Roy, although in the deep south, to try to knock back some of those charging deer down there, your father probably got you something a little more powerful than a slug gun. In our case, it was a slug gun, and that was a fairly harmless instrument at that time, but no longer is that the case.

The Government has looked at what it can do, and it has decided that the definition of “military style semi-automatic firearm” has been found wanting. The police have submitted to the Government that there is a need for change, and this bill is designed to address that need. Thank you.

KEITH LOCKE (Green) : It is with pleasure that the Greens will be supporting the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill. It is a very good bill to restrict access to dangerous firearms and to put the right regulations around them. The bill is appropriately called the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill. As the material surrounding the bill explains, there has been a problem with the evolution of military-style semi-automatics, or MSSAs, in that they now have a variety of forms. They were defined previously by having the military pattern free-standing pistol grip, but there has been some variation on that, and this bill allows those firearms to be included under the regulations if they fulfil a number of requirements. Among the most important requirement is what every person would probably expect—that the gun can fire off a whole lot of bullets in quick succession. There are various figures depending on the size of the ammunition, from seven rounds to 10 rounds or 15 rounds, in the regulations.

There is some resistance in the community to the passage of this bill, and I have no doubt that other MPs have been getting emails from what we might sometimes loosely describe as the gun lobby, although I do not want to be too pejorative. It varies in its composition. At the extreme end it includes people whose views are closer to the American concepts of having weapons for self-defence and not needing any regulation, etc., and at the other end it includes the more responsible gun owners. It is interesting to look at some of the emails that come through and some of the arguments that are used. One of the arguments I got in an email on Monday was that this law will affect only law-abiding citizens and it will not affect the criminals. Well, that view is a bit strange. If we were to apply it to legislation we pass quite regularly in this House, we might say that we do not really need tax laws because honest people will pay taxes and dishonest people—tax criminals—will not pay taxes, so we do not need any laws because they will affect only honest people. Clearly, laws are intended to constrain behaviour in a proper manner.

In fact, regulations like these do limit the availability of such military-style semi-automatics, which can be quite dangerous in the hands of criminals, for example. This legislation will limit criminals’ ability to obtain such weapons both in terms of the way the regulations are formulated and because criminals in gangs will be more wary about keeping such guns in their gang headquarters, knowing that there will be penalties if, in raids, they are found to have them. So it will restrict the availability. There are already, according to the regulatory impact statement, 8,000 military-style semi-automatics in the country. I think it is important to make sure their possession is restricted to trusted and registered gun collectors and the like. There is the idea that somehow—and sometimes the gun lobby make this argument—it is just criminals who are creating the problem with military-style semi-automatics, but, in fact, we often find that it is mentally disordered people. If we look at some of the killings that have taken place so far, we see that they have involved people who are either mentally disordered or have gone a bit crazy for a period. Often they involve registered gun owners—for instance, David Gray, who killed 13 people at Aramoana down south in 1990, was a registered gun owner. Jan Molenaar, who killed a police officer, very sadly, in Napier a little while back, had not renewed his registration as a gun owner, but he was still on the books as someone who had registered as a gun owner. So it is important to see this problem not as one that affects just the criminal fraternity. Both David Gray and Jan Molenaar seem to have gone a bit crazy at a particular point.

There is also the question of accidents. Clearly, because military-style semi-automatics fire off a lot of bullets in quick succession, they are more likely to cause casualties in the population. We do get some absurd arguments from the gun lobby. An email I got on Monday said that it is absurd that anyone would think that a military-style semi-automatic is any more or less dangerous than any other firearm. Well, clearly, a weapon that shoots off multiple bullets is more dangerous.

There is sometimes—and this adds to the danger sometimes—a bit of a mystique around military-style semi-automatics, guns that fire off a lot of bullets, and military-style guns. We saw that in the case reported in the Sunday Star-Times and on Radio New Zealand about how the SAS was conducting little sessions with business people from a group called Direct Capital. During the exercise they had last October, the SAS let people from that group fire off automatic guns. Jerry Matepārae, when he did his review, said that they should hold on, that that was not very good, and that they should not be doing that. But I think it shows that military-style semi-automatics can be a bit dangerous and people can be attracted to their use for no good purpose.

Once people who have military-style semi-automatics go a bit crazy, they can cause a huge amount of damage. We had the case back in 1996 in Tasmania in what is known as the Port Arthur massacre where Martin Bryant killed 35 people. Because he had military-style semi-automatics, he was able to kill 20 people in the first 90 seconds. That is what happened, and it would not have happened with a single-shot rifle. So regulations and restrictions are very good.

It would have been good if there had been more of a registration system for firearms. The Green Party does advocate a more systematic registration system for firearms. It would be good to have known how many firearms David Gray or Jan Molenaar had in their possession. At the present time, once someone is a registered gun owner—which is a separate issue from that of the registration of military-style semi-automatics—that person can have as many guns as they like, and each gun is not registered. Someone is registered only as a gun owner. It would be good to register individual guns against the name of the owner. That process could begin in a cost-efficient way by doing something similar to what happens in Australia, where people have to trade guns through a registered gun trader, computer records are kept and stored, and then the trader forwards those records on to the Government database. That provides a lot more control, and means that when the police roll up to a property suspecting an offence has taken place, they are not met by a hail of bullets from guns they did not know were present.

The other part of the bill, which has been referred to already, is the provision to reduce, control, or stop the import of airguns that look like real pistols or military-style semi-automatics. I think that is a good provision, too, because people use those fake pistols in hold-ups at banks or for all kinds of things. It is very, very dangerous. Even if someone is not firing real bullets, it is dangerous in the sense of bank robberies and people living in fear, etc. So that is a very good provision.

All in all, the Green Party is very much in favour of this bill. We would like arms control to go somewhat further towards more systematic registration of firearms in the community.

RAHUI KATENE (Māori Party—Te Tai Tonga) : I rise to take a very brief call on the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill. Before I speak on this bill I register that I have absolutely no conflict of interest on this bill; I do not own a gun, which is just as well because I also do not own a firearms licence. Like many people in this House who, I am sure, grew up learning how to shoot, my first lessons were on a .303 rifle. I have also had lessons on a .22, and I have spent quite a bit of time firing air rifles. I have to report that in very few cases I actually hit the target.

Dr Paul Hutchison: You should be registered.

RAHUI KATENE: Yes, I should be registered. But it is not a problem, because I do not shoot now. That is deliberate. We have had such a big problem here in New Zealand over the last few years with guns, with shootings both accidental and deliberate.

I think that in the case of military-style semi-automatic firearms this bill is perfect, because they are very dangerous. We heard a very good call from the Green member Keith Locke. I think we need to have this bill go through very quickly, because regardless of all the lobbying we have been getting from people, the entire population of New Zealand will win from this bill. We do not need these types of guns in New Zealand. The only people who should have access to these types of weapons are the military and perhaps in some cases the police—I would prefer that they did not. But the general population at large should not have any sort of access to these weapons.

I also support the part of the bill about air rifles that look like rifles. That makes them so dangerous for their owners and for those who come by them in other ways—for example, children who think they are toys, pick them up, and cause a problem to themselves, to their neighbours, and to the people who then call out the police. The armed offenders squad comes out to face they know not what.

The Māori Party supports this bill and we are very happy to continue to support it. Kia ora.

Hon RICK BARKER (Labour) : I rise to support the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill. I note that this is another piece of legislation on firearms. It has some positives and it has some negatives.

The difficulty with firearms is that there are two distinct groups of people in New Zealand. The first group is those who are very, very supportive of firearms. They write emails to tell us that there is a right to bear arms. Well, that may be so in America because of an amendment to the constitution. Some people have doubts about the extent to which there is a right to bear arms, but the constitution is what people believe it to be, and people in the US believe they have a right to bear arms. In New Zealand we do not have a written constitution; nor do we have an amendment that says that members of the public have the right to bear arms. Carrying a weapon is a privilege and it is a licensed privileged.

I am a member of the public who has a licence to carry a firearm. I have owned a firearm for a long time. The first firearm I got was a Lee-Enfield Mk IV bolt-action rifle with a 10 shot magazine, which I got at the age of 18. I went to the local sports shop and said I wanted to buy a rifle to go deer shooting. I was told by the sports shop owner that I had to see the sergeant in charge of firearms at Greymouth Police Station, and present him with the firearm so that he could record the number of it and my name and address, which I did. When I came back and told the shopkeeper I had done that, he completed the sale and I had a firearm. I was registered, and the firearm was registered. That was the way it was when I was a young man.

Then the police decided that it was all too complicated. We changed the law to license firearm owners, not the weapons. So today we have a disjoint between the firearm owner—the person who is licensed to carry the firearm—and the number of firearms they have. But firearm owners have to have a different sort of registration. I am not licensed to have a pistol. I have no desire to have a pistol, but I am not licensed for it, and I am not a gun collector, so I am not licensed for that. The conditions vary.

There is still disquiet in the community about the number of firearms in the community that are unidentified—for good reason. But Parliament has failed to resolve that broader and bigger issue. Gun owners are very concerned that if there were registration of firearms and registration of owners, like there was in the old system, then that would be a short step away from the State deciding to take their firearms off them. This is a view that is widely held. It is one that I do not personally share, but I have to acknowledge that it is a view that people have. The gun-owning community is very suspicious of this place, Parliament, just as many of them are very suspicious of the intent of this bill.

It is fair to say that the nature of firearms in the community and the use of them have changed. As a young person, nearly every house I knew had a firearm. Their owners were either ex-servicemen or country people who shot pests, deer, goats, and did those things. It was an ordinary, everyday event. People had them for dealing with problems around the local area—possums, and so on. Slug guns in those days were .177 and pump action, and, if someone accidently shot a person with one, it did not break the skin. One was lucky if one got a bruise. But this is not the case today. Slug guns today are of larger calibre, such as .22, their pumping mechanisms are much more powerful, they are gas operated, and they have multiple-shot magazines. They are today a very lethal weapon, and they are completely different from the slug gun that was available when I was a young man. The law has to recognise these changes, and we would be kidding ourselves if we did not.

But the issues are quite often misunderstood. Part of the misunderstanding is the definition of a military-style semi-automatic firearm. This bill started its journey because of a court decision over the way in which the law described a military-style semi-automatic firearm. It was defined in a rather negative way, which led to the police being unable to successfully bring a prosecution about a particular military-style semi-automatic weapon. Therefore, Parliament is back to redraw the line.

I suggest to the Law and Order Committee that it will not be an easy matter for it to understand simply from looking at papers. It will not be easy for people to come and describe to us the various types of weapons there are, how they are configured, what their uses are, and what their capabilities are. I suggest to the committee that it adjourn for a day or two and go to a rifle range. There we should be shown by the police and others who are opponents of this bill exactly the nature of the weapons they are concerned about, and they should demonstrate their use. I also suggest to the select committee that submitters on the legislation also be invited to attend the day, or the days, in order to demonstrate on the rifle range the nature of the weapons they think should or should not be covered by the scope of the bill. I think we have to have a very clear and open demonstration of the nature of the weapons and the concerns people have about them.

You see, many people who in times gone by would have lived in households that would have regularly had a firearm in them do not today. Many households have no experiences of firearms. Many households, and many people, are very nervous and apprehensive about firearms—and for good reason. A firearm is designed with one purpose and one purpose only: to deliver lethal force at range and remotely. It is designed to kill. That is the sole purpose of firearms. Yes, they are used for sport, and, yes, they are used for entertainment, but let us not misunderstand the fundamental nature of a firearm. A firearm is designed to deliver lethal force. Therefore, the public have justified concern about firearms, about their use, their ownership, and the purposes they can be put to. To put aside those public concerns—those genuine concerns—would make Parliament remiss in its obligations.

But, on the other side, Parliament does have to recognise that legitimate owners are entitled to enjoy their firearms, and that legitimate owners are entitled to enjoy the sport and recreation of shooting. We have a wonderful outdoors here in New Zealand for deer stalking, goat hunting, tahr shooting, duck shooting—you name it. It is a fabulous feature of New Zealand that we have a great outdoors. It is made much more enjoyable for many people by the opportunity to use firearms and to hunt and to stalk. I for one would be completely opposed to any restrictions on that activity. But we have to find a balance, and this bill is about trying to find a balance. It does have to recognise that there are significant changes in the style of firearm. One style of weapon that concerns people particularly in this case is air-powered rifles.

I make the point again that when I was a young man the only slug gun or air rifle one could get was a pump action .177 slug gun. They were as slow as a wet week. In fact, one could see the slug come out of the end of the barrel—they were as slow as that. They dropped off, as one member has said, like a stone off a bridge. They had no trajectory at all. They were hopeless at knocking over a sparrow—let us face it. Anything bigger than that it was impossible to do any damage to. But the modern air rifle is completely different. The modern air rifle can have a much bigger calibre, can be gas-powered, and can deliver lethal force—of that there is no doubt. The modern air rifle is not a single-shot pump; it very often has magazines with 20 or 30 rounds in them—multiple rounds in them. These rifles are almost like machine guns.

Parliament has to take note and to change the law, but we need to do that in a considered way. Labour welcomes this bill as an opportunity to again debate the issue of firearms, the nature of firearms, and to come to a considered decision. In saying “considered” decision, I hope the select committee takes up my suggestion of having the police and other interested parties come with us to a rifle range and show us exactly the nature of the weapons they want to have restricted and the ones they want to have unrestricted, so that we can have a really informed view and a very good, practical discussion. At the end of that, we will all be informed, and if we are better informed we will make better law. Thank you.

JONATHAN YOUNG (National—New Plymouth) : I am also pleased to speak on the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill. I enjoyed the comments of the previous speaker, Rick Barker, especially about the slug guns of old. I can just imagine the Hon Rick Barker going rabbit shooting, with the rabbits sitting in the paddock saying “Don’t worry, it’s only Rick.”, and being able to watch from a distance as that slug gun failed to make any dent. But my colleague from the Law and Order Committee was right: that was the situation. As he said, unfortunately it is not the situation today.

I quite like the notion of seeing these firearms in the real. As a young student I was in the Territorials. We went to Trentham and we learnt how to fire self-loading rifles, M16s, and the like. No doubt many New Zealanders are very familiar with firearms, and no doubt that will create lots of debate on this bill.

This Government is committed to making New Zealand a safer society, which is why this bill is before the House. I think everyone in our country, including members on this side of the House and the other side, would be in agreement with that. In recent years we have seen a proliferation of military-style semi-automatic firearms that, for the collector, enthusiast, or firearms sportsman may seem safe, desirable, and, perhaps, the pride of their collection, yet increasingly these weapons, in the wrong hands, stand as a threat to the aspiration of that safer community that we all want to live in. It is not just about weapons being in the wrong hands, it is also about how easily they can fall into those hands.

We have seen a big increase in the number of air guns that replicate real pistols and air rifles that one did not need a licence to purchase but which have been used to kill people. Regulations were changed to require the owners of pre-charged pneumatic, or PCP, air rifles to hold a firearms licence from October 2010. Pre-charged pneumatic air rifles have been used in two fatal shootings, including the murder of police Sergeant Don Wilkinson.

I take a moment to remember Sergeant Don Wilkinson, who was gunned down by a high-powered air rifle on 11 September 2008. He was a man who was more comfortable in active pursuits—playing squash, tramping, sailing, and cycling—and he was one of the people I played squash with in west Auckland. He was a good bloke, a man who served our community, and we remember him.

This Government has been looking at what steps can be taken to improve firearms safety not only for the sake of the public but also for the sake of our men and women in the police force who protect us. This bill is part of measures aimed at improving that safety. Thank you.

CHRIS HIPKINS (Labour—Rimutaka) : I am very happy to take a call on the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill.

Hon Clayton Cosgrove: Full of blanks!

CHRIS HIPKINS: Thank you. I come to this debate not being particularly familiar with firearms myself. I am not a large fan of firearms. However, I do think there is a place in this country for responsible firearms ownership. I know that a number of people in my electorate own firearms. In fact, we have two rifle ranges in the electorate, not including the army’s firearms range. Just recently we have also had a deer-shooting park in my electorate. I have to say the deer-shooting park in my electorate has been quite controversial because it is relatively near a domestic area. It is in a semi-rural area and, of course, the people who live in houses nearby are not particularly keen on the idea of having a deer-shooting park anywhere near them, and I can kind of understand that, actually. There are health and safety issues for the farmer next door, there are all sorts of considerations, so it is always a topic of discussion amongst the people in my electorate.

On the surface of it this bill seems like a sensible thing to do. I believe from the information provided by the Minister of Police that the police estimate that there could be up to one incident a week where a member of the public presents an airgun that looks like a real pistol. That is a significant issue for the police, and therefore I can fully understand why tighter controls are required, particularly on the import of these weapons, and it is one of the reasons why Labour members will support this bill’s referral to a select committee. As my colleague Rick Barker said, it is important that when the bill gets to the select committee the committee takes some time to find out what it is all about, get into the specifics of it, work out the different types of firearms, and make itself a lot more familiar with the issue. I am not on that particular select committee, but I think it is definitely something the committee should take a look at.

I understand that this bill basically reverts us to the classification regime that existed between 1992 and 2008. A recent court case has cast some doubt on it, and therefore it needs to be reviewed. So I think it is very sensible that this legislation is introduced. However, it is rather unfortunate that, overall, the Government’s approach to justice issues has been very piecemeal, and this is another example of that. The public of New Zealand would like to know from this Government what its overall approach is, what its overall priorities are, to make New Zealand a safer place. We are not hearing much about that from the Government. Firearms are a really important part of the equation, but they need to fit within a much wider agenda and a much wider programme of making New Zealand a safer place.

New Zealand by and large with regard to firearms is a much, much safer place than many other places around the world. I like the fact that we can still walk down the street in New Zealand and see police wandering down the street who are not bulked up with firearms and all the protective clothing and so on that we see in other places around the world. Our police are very accessible, and one of the reasons for that is that the per capita rate of firearms in New Zealand is, I am willing to guess, fairly low by international standards. I would not like to see us changing the law in any way that made it more likely for people to own firearms.

I repeat that I do not have a problem with responsible firearms ownership in New Zealand, and I think the vast bulk of New Zealanders who own firearms are very, very responsible. My father is one of those. As kids when we were growing up we used to go up to the bach over the Christmas holidays and my father would go out rabbit shooting and bring rabbits back. This was before all the different things that afflict rabbits nowadays. We would then cook them all up and have them for dinner. We do not do that quite so much these days because we never quite know what is in the rabbit.

Hon Clayton Cosgrove: Can you clarify that?

CHRIS HIPKINS: What diseases the rabbit might have. Occasionally my father would take my brother and me out shooting with him. He never managed to hit many when we were with him, because we would always scare them away before he had a chance to take aim. He would always come back with a much bigger haul when we were left back at the bach and he was allowed to do his hunting in peace and quiet.

Hon Pete Hodgson: Were you trying to save them or were you just lippy?

CHRIS HIPKINS: It could be that we were trying to save the rabbits, because if he shot all the rabbits, where would Easter eggs come from? It is a very real issue. I always find it ironic that there is a massive rabbit shoot at Easter. It must destroy Easter for so many kids around New Zealand to see all those pictures on the news of rabbits stacked up on trailers—the Easter bunny being slaughtered at Easter time.

Anyway, I come back to the topic of this bill, which is the importation of air rifles and so on that look like real firearms. At the moment there are virtually no import controls on them. We are told that these air rifles are frequently being used in criminal offending, and therefore a change in the law is required. If that is the case, then that is something Parliament should look at. Tightening the controls will help to reduce the easy availability of these replica firearms, and that is a very good thing. The 2010 court case Lincoln v New Zealand Police was the case that created the uncertainty as to whether some semi-automatic firearms were MSSAs. MSSA stands for military-style semi-automatic firearms. It is important that there is clarity as to what is covered under that. There is not that clarity at the moment and this legislation will create that certainty.

I am looking forward to hearing more about this issue once the bill comes back from the select committee. I am sure the members of the committee will have looked diligently at this legislation. I am not sure which select committee the Government is referring it to.

Hon Clayton Cosgrove: Law and Order.

CHRIS HIPKINS: The Law and Order Committee.

Hon Member: The all-powerful Law and Order Committee.

CHRIS HIPKINS: Well, I would say that the odds of it getting a fair hearing at the all-powerful Law and Order Committee have increased dramatically in recent months with the change of personnel on the Law and Order Committee, particularly the chairmanship, which I understand has improved dramatically.

Sandra Goudie: They haven’t had any meetings. You have to have a meeting to find out.

CHRIS HIPKINS: Sandra Goudie says they have not had any meetings. Unfortunately, the only downside is that we have to have her on the Government Administration Committee instead—the all-powerful Government Administration Committee, I will have members know. Jacqui Dean, the new chair of the Law and Order Committee, has been a member of the Government Administration Committee, and I think she will do a pretty good job of making sure this legislation is well scrutinised.

Hon Clayton Cosgrove: The bar is not that high.

CHRIS HIPKINS: The bar has been raised significantly. It was not very high to begin with, but I think the committee will give this bill a fairly good going-over and good consideration.

Ultimately, firearms laws in New Zealand are important for all New Zealand citizens. They want to know they live in a safe environment where firearms are not abused and misused, and are kept safe. Responsible firearms owners want to know that they will still be able to do what they have always done. As a result, I imagine that the select committee will be very careful in its deliberations to make sure that Parliament does not end up curtailing the rights of responsible firearms owners but does make sure the public of New Zealand are kept safe. We need to ensure that the police do not have to spend a lot of time and put themselves at risk when dealing with replica firearms, as they may be doing at the moment. Overall, Labour will be supporting the bill’s referral to the Law and Order Committee. We look forward to hearing the submissions, and I look forward to seeing the bill reported back to the House in due course.

MELISSA LEE (National) : Until the previous speaker, Chris Hipkins, started talking about the previous chairperson of the Law and Order Committee—who I must say did an excellent job—I had an image of an innocent Bambi running around Rimutaka. His innocence was obviously shot down while he was talking about the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill.

It is a great pleasure to rise and speak in support of this bill, and I am very pleased to have heard Mr Rick Barker’s contribution. He obviously has amazing knowledge about firearms and hunting. When he was saying that a long time ago slug guns had such and such a speed, I did consider how old he might be. I look forward to listening to his and to other members’ contributions.

The legislative changes regarding military-style semi-automatic firearms were made in 1992 as a result of the Aramoana incident, in which David Gray shot dead 13 people. New Zealand has always had licences for people and not for guns. This legislation will give us an opportunity to look at why we need to place restrictions on the importation of airguns that look like military-style semi-automatic weapons and why we need to amend the definition of “military style semi-automatic firearms” in the Arms Act. I look forward to the select committee process and the great debate we will have. Thank you.

• Bill read a first time.

Hon HEKIA PARATA (Minister for Ethnic Affairs) on behalf of the Minister of Police: I move, That the Law and Order Committeeconsider the Arms (Military Style Semi-automatic Firearms and Import Controls) Amendment Bill, that the committee report finally to the House on or before 4 August 2011, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

• Motion agreed to.

Hon HEKIA PARATA (Minister for Ethnic Affairs) on behalf of the Minister of Commerce: I move, That the Auditor Regulation Bill and the Financial Reporting Amendment Bill be now read a third time. Members should consider the Auditor Regulation Bill within the broader context of the Government’s package of financial market reforms designed to restore investor confidence in our financial markets. Investors need to know that the practitioners charged with carrying out independent audits of financial statements prepared by banks, listed issuers, and other entities that accept large amounts of money from the public are highly qualified, skilled, and experienced. This is what the Auditor Regulation Bill seeks to do.

The bill will reserve financial sector audits for the top members of the auditing profession within the major accounting firms. Following enactment, there will be a transitional period before the Auditor Regulation Bill comes into force. The New Zealand Institute of Chartered Accountants will need to establish new systems to carry out its new statutory responsibilities. The Financial Markets Authority will need to establish a system for monitoring and reporting on the adequacy and effectiveness of the New Zealand Institute of Chartered Accountants’ regulatory systems and processes. The Registrar of Companies will need to establish a register of licensed auditors and registered auditing firms. I look forward to the Financial Markets Authority, the Registrar of Companies, and the New Zealand Institute of Chartered Accountants working together to bring these much-needed reforms into place in a timely manner.

I turn now to the Financial Reporting Amendment Bill. This bill provides for the reconstitution of the Accounting Standards Review Board as the External Reporting Board from 1 July 2011. It also provides for the consolidation of all financial reporting, auditing, and assurance standard-setting within the External Reporting Board. These responsibilities are currently split between the New Zealand Institute of Chartered Accountants and the Accounting Standards Review Board, with the New Zealand Institute of Chartered Accountants holding most of the responsibilities. The changes are being made for two main reasons: firstly, placing the responsibilities within a single entity will make it easier to develop and implement coordinated strategies and programmes, and secondly, it is essential that the setting of financial reporting standards is seen to be independent of the interests of the profession, as per international best practice.

I pay tribute to the Accounting Standards Review Board and the New Zealand Institute of Chartered Accountants for their significant contributions to these reforms. The Minister was pleased to announce recently that all current members of the Accounting Standards Review Board will become inaugural members of the External Reporting Board, along with two additional members. The Accounting Standards Review Board has been working through the process of moving from a virtual entity that has no staff or premises to an entity that will have both. I also thank the Institute of Chartered Accountants for the thoroughly professional manner in which it has continued its standard-setting activities throughout the transition.

To conclude, the passing of the Auditor Regulation Bill and the Financial Reporting Amendment Bill will contribute to the strengthening of the financial reporting system in New Zealand, and will bring that system within the range of international norms. I commend these bills to the House.

CLARE CURRAN (Labour—Dunedin South) : I am pleased to speak in the final readings of the Financial Reporting Amendment Bill and the Auditor Regulation Bill. I have spoken a number of times in the House on this particular issue. There are several issues quite dear to my heart that I will touch on.

The first issue is the widespread collapse of major finance companies in New Zealand, which has badly eroded the confidence of investors in the financial sector. I do not think any of us disagree that that has happened. These two bills will go a long way to ensure that investors have faith in the markets and the businesses they invest in. Labour supports these bills, as the bills continue the work of the previous Labour Government. I put that on the record again. Improving the regulatory environment in the financial sector—improving the regulatory environment in any sector—is quite important, and we are seeing the regulatory environment eroded across many sectors at the moment.

It is also important to put on the record and remember that the Capital Market Development Taskforce, which advised the Government to create the new Financial Markets Authority, was established under the previous Labour Government. It was established by the previous Minister of Commerce, the Hon Lianne Dalziel, and I put that on the record, as well. It is a shame the Government has ignored the work of the officials on the establishment board for the Financial Markets Authority, with only one of those officials being appointed to the current board.

This legislation reconstitutes the Accounting Standards Review Board as the External Reporting Board, with that body setting all standards relating to financial reporting and assurance services. It also requires the Institute of Chartered Accountants to regulate auditors as specialist professionals rather than as general chartered accountants. That provision recognises that the role of auditors is crucial in ensuring confidence in financial markets, and makes sure that auditors are held to a high standard and have the skills to competently do their jobs. It is essential that that happens if we are to avoid the disasters that struck mum and dad investors during the collapse of Hanover Finance, Bridgecorp, and numerous other finance companies.

Further, the Financial Markets Authority will be given oversight of auditors to ensure that they are capable of carrying out a large issuer audit. Self-regulation by the Institute of Chartered Accountants was found to be failing in that area. By ensuring that we have an independent regulatory body for auditors, we are bringing our regulation up to international standards. The new Financial Markets Authority—a new and, as I have said several times in this House, as yet untested authority—will be able to prescribe standards for the licensing of auditors and the registration of audit firms, and will be able to promote the principles relating to the quality and integrity of New Zealand auditors. Without that oversight, New Zealand auditors would not be able to practise in Australia, the European Union, and other jurisdictions.

To be clear, these bills will apply only to major audits of large companies or issuers of securities; it is important to acknowledge that. It will not impact on small and medium sized companies or not-for-profits. I think there has been a little bit of misunderstanding around that issue during some of the discussion in the House, and it is important to put that on the record, as well. It is important because we do not want to increase compliance costs for small businesses in tough economic times, but we do want to make sure that big businesses and those issuing securities are being honest and upfront with investors.

The Commerce Committee thoroughly scrutinised the Auditor Regulation and External Reporting Bill. We believe that the changes made will ensure more effective and fair laws. The requirement that both individual auditors and firms be licensed and registered, respectively, recognises that both the firm and the individual auditor need to meet high-quality auditing standards. Also, under the original bill, all partners of an audit firm would be liable for a breach of regulation. That provision has been adjusted so that only partners who were aware of the breach and did not act to prevent it would be committing an offence. There was quite a lot of discussion about that during the Committee stage, and it is a fair adjustment that avoids punishing innocent parties.

There is no escaping that this is complex and detailed legislation. I know that my colleague the Hon David Parker has talked about that several times. That complexity comes at a cost to the auditors, who face compliance costs, and to the average investor, who has to wade through reams of information simply to understand a basic balance sheet. This legislation is about restoring confidence in financial markets and bringing them into line with international standards.

I will touch on another important point that is lacking in this legislation, which was also raised in the Committee of the whole House, and that is financial literacy. Although I am not ignoring the good work this legislation does in ensuring that there is that important confidence in financial markets, it will be undermined if there is no strategy from the Government to ensure that financial literacy is a priority for every New Zealander. I heard what was said during the Committee stage, and we need both sides of the transaction to be fully informed about financial literacy.

Jo Goodhew: It happened tonight. There was an announcement tonight, you’ll be pleased to hear.

CLARE CURRAN: My apologies for not hearing the previous speaker, Hekia Parata, if that issue was mentioned. The important work done by the Capital Market Development Taskforce, set up under the previous Government by the Hon Lianne Dalziel, identified financial literacy as a key issue. A lot of work was put in under the previous Government in relation to that issue, and that work has largely sat on the table and has not been acted upon. I touch on that because it has been raised so many times in the House as an issue we are going backwards on. A number of issues were raised in a report produced by the task force, particularly on financial literacy, that could form an important part of the Government’s strategy going forward. I hope the Government will actually do that.

The task force identified financial literacy as a key issue, and identified that New Zealand’s capital markets are small relative to the size of its economy when compared with other OECD economies. New Zealanders’ savings practices, which included the limited extent of direct investment in capital market products, might suggest that New Zealanders have a limited understanding of these products. The effectiveness of disclosure by issuers also depends in part on investors’ financial literacy. The task force at that time was interested in looking at the current state of financial literacy in New Zealand and the ways it could be improved.

The task force identified that financial literacy could be improved by more strongly promoting it in schools as part of the curriculum, or by making it mandatory. The task force looked at a process of how it could make that happen. It also looked at financial education outside schools, which could be stepped up in a number of ways if additional funding was available for more frequent marketing campaigns. I think we have seen the importance of this issue during the investigations the Commerce Committee has done, with the truth-in-advertising issue and the way that people in the community can be sucked in by prominent celebrity figures fronting for organisations that turn out to be crooked. It also looked at a campaign that could be run purely on investing and how to invest properly. I hope the Government will look at this.

Although Labour supports these bills, we know that many other issues need to be addressed around them.

PESETA SAM LOTU-IIGA (National—Maungakiekie) : It is my honour to stand and speak to the third readings of the Auditor Regulation Bill and the Financial Reporting Amendment Bill.

As has already been stated, there are basically two major changes in these bills. First, they consolidate all financial reporting, auditing, and assurance standards within a single Crown entity. It will be called the External Reporting Board and will be in full operation by 1 July this year. Secondly—and, I think, more important—the legislation introduces auditor licensing for issuer audits. More specifically, it recognises that audits of companies that manage substantial public investments, or where large amounts of money are obtained from the public, must be performed by the top members of the auditing profession. We saw that, as has already been outlined by previous speakers, in 2009 when the Registrar of Companies expressed grave concerns about the capability of some of the auditors and audit firms to carry out finance company audits to the required or minimum standard.

This legislation provides that the licensing of auditors will be carried out by the Institute of Chartered Accountants and by any other professional accounting body that may be accredited by the newly formed Financial Markets Authority. The authority will set the minimum licensing standards, and this reform, as was stated by the Minister of Commerce, is another step in this Government’s ongoing work programme to restore investor confidence in our financial sector, to restore confidence among mum and dad investors, and to bring about the more effective and more efficient running of our capital markets.

Of course, the previous speaker, Clare Curran, said that not much had been done, but let me outline some of the things that this Government has done in 2½ years: the Financial Service Providers (Pre-Implementation Adjustments) Bill, the Financial Advisers Amendment Bill, the Insolvency Practitioners Bill, and the Insurance (Prudential Supervision) Bill, as well as the regulation of exchanges and settlement systems. That is a record of achievement, it is a record that this Government is proud to take into the upcoming election, and it is a record that far exceeds anything that Labour did in the last 9 years of its administration.

The Commerce Committee recommended a number of amendments to strengthen the legislation, and the most significant of those was to provide for auditing firms to be registered. Firm registration will be permitted if the firm includes at least one licensed auditor, and meets any other requirements imposed by the Financial Markets Authority. That change, which is particularly important and was discussed round the committee table—and there seemed to be some consensus on it—reflected the fact that audit quality, which is paramount within this legislation, is reliant on two specific matters. The first is the competence of the practitioner, or the individual who takes the audit. The second is the quality of the auditing firm’s systems, processes, and procedures. At firm level it is about quality of assurance of the firm that undertakes the audit.

I support this legislation, obviously. It is legislation that reserves issuer audits to experts, and it substantially reduces the future risk of audit-issuer failure. I commend these bills to the House. Thank you.

Hon DAVID PARKER (Labour) : I begin by referring to the Financial Reporting Amendment Bill, which is one of the two bills that we are considering at the moment. This bill sets up a new organisation called the External Reporting Board, which takes over from the Accounting Standards Review Board and sets accounting standards.

The functions of the board are described in new section 24, which is being inserted into the principal Act. Its functions are “to prepare and … issue financial reporting standards for the purposes of” various Government and private institutions. The board can, according to new section 27, express standards that apply to “(a) all reporting entities or groups; or (b) specified reporting entities or groups;”, and that is an issue that I will discuss, developing a theme that Labour members have mentioned on a number of occasions in earlier readings on this bill.

We need to be very careful not to over-regulate here. I agree that we need to have someone who sets standards, and that financial reporting standards are important, and I have no particular gripe with the structure that is being proposed—indeed, Labour members are voting for it. But I will be keeping an eye out in the future as to whether the standards that are produced are practical, and to see that we are not over-regulating for all. As a consequence of the need to have very precise and detailed standards in respect of a few entities, we ought not to require that same level of detail and prescription in respect of all the other entities. Otherwise we are over-regulating them, and putting them to great cost. I know we in this House and the accounting profession often get up and say compliance costs are a terrible thing and we must limit compliance costs—and we must. Overly onerous and expensive compliance costs are a bad thing, and they are a curb upon the success of our businesses. They give an advantage to larger institutions over smaller institutions, because for them those costs are a lower proportion of their turnover and profit. Just because we need those higher standards for some, it does not mean we need for them all.

We must take care, as we have ever-improving financial reporting standards for the most difficult of situations, that we are not making them so complex that people find them impractical and too many people cannot understand them, nor should we be driving people to have to always use expensive professionals in order to meet their financial reporting obligations, when simpler standards could be complied with by people working within their own businesses at less cost. I for one am looking forward to the External Reporting Board taking advantage of its breadth of powers to bring forward standards that are fit for purpose and that do not apply the same minimum standard to all sorts of entities.

That leads me to a related concern in respect of the Auditor Regulation Bill. We have heard prior contributions from both sides of the House—and we agree—that there is a need to have an appropriately qualified audit profession, and that its members have, on occasion, different skills from accountants, and need to have their own standards of regulation. But we are in the process again of increasing compliance costs for businesses. Yes, in respect of the compliance costs for large finance companies and the like, I do not mind them being a bit higher in order for them to have proper scrutiny of their business, so as to avoid repetition of some of the poor practice that we have had of late. I do not think that all of those who are responsible can escape their share of responsibility for what went wrong by saying they were not told to do it properly. I would have thought that the existing rules gave plenty of latitude to good auditors to go in there and expose some of the related party lending that was problematic in those organisations, and to check whether some of the wide boys from the last time there was a clean out in the New Zealand financial system were doing it again during the last property bubble that we had.

Having said that, I do not mind seeing an increasing standard, but it does worry me that this will apply to the regulation of all issuers, because not all issuers are the same as finance companies. Although some finance companies have tens of millions of dollars on their books, an issuer can be anyone who issues securities to the public, and that includes an innovative small business trying to raise a bit of growth money. That small business might have been, until this point of growth, a husband and wife, a family, or a couple of partners in a small business that was growing and developing an innovative idea it wanted to take to the next stage of development, which required them to take it offshore. For them to take it offshore they will need to get some more capital, and they will not be able to get more capital from the banks in New Zealand, so they will have to raise it, and we want them to be able to raise it through capital markets. We do not want the only people able to invest money in these companies to be people who are already wealthy and therefore fit the exclusions of the Securities Act—although I do not know whether they would be an issuer, then; maybe an issue is an offer of securities to the public rather than to the big end of town. But the point is that we do not want businesses that are expanding to be unable to do so because of the cost of raising money because they are all of a sudden determined to be an issuer, and are then caught by overly onerous rules relating to the costs of audits and the complexity of the audit rules that they have to comply with. This is a serious problem in New Zealand, and we risk making it worse through this legislation.

Again, Labour members are not saying that has to be the outcome here, but the propensity of those who are in control of these rules is to try to drive things to an ever-higher standard. We know that that is the propensity of people who are in charge of setting these regulations. That seems to be the natural way of it. The sorts of people who are attracted to sitting on these boards are of a mind to do things ever better, but the cost of perfection is sometimes too high. I do not want to eliminate risk. I just want to appropriately guard against improper levels of risk being taken by people who are either misleading people or not properly making disclosure to the public.

I think we have to be very careful, on the implementation of this legislation, that we are not allowing these new regulators to over-regulate—not the finance company end of town, which is where the problem has been, but the small innovative company that wants to raise relatively small amounts of money. When I say “relatively small amounts of money” we are talking about $250,000, half a million dollars, or a million dollars, which when raised from 20 people is not a large amount of money each. We do not want to over-regulate that space. The key to that is who goes on these boards and the skills that they bring, and that those people themselves are focused on appropriately minimising cost, just as they are focused on appropriately ensuring minimum standards. That lies largely within the control of the Government. I have been in this role. On a lot of these specialist boards we normally accept the recommendation that comes from the professional bodies—the accountants and the solicitors. I think we are reaching a point in our experience of how regulations forever grow, where it is appropriate for Governments of the day to say: “OK, we actually accept your competence to do this job, but we want some assurance that you’re not going add to complexity, and therefore to costs, for our businesses in a way that threatens their competitiveness.”

Labour backs both of these bills. It is necessary that we tighten up the control of audits. I do not accept the proposition that some of the things that went wrong ought not to have been able to be picked up under existing laws. I think there have been some failures in that regard, and I am hopeful that some of that will be brought into the open in some of the litigation that will go through the courts in the years that come, as a consequence of the failures of the finance companies. None the less these are good bills and I support them.

DAVID CLENDON (Green) : Kia ora koutou. I am pleased to take just a short call, in order to affirm the Green Party’s support for the Auditor Regulation Bill and the Financial Reporting Amendment Bill. This legislation has been some time in coming, and there are reasons for that. But it certainly does meet a need. I am grateful to Lianne Dalziel, the chair of the Commerce Committee, who has led us through the sometimes tortuous path to get to this point. She has a phrase, which brings us back to it. She asks: “What is the mischief? What are we actually trying to achieve here?”. These relatively complex bills do engage and address a range of related complex issues. It is very useful just to be centred in that way, and to ask what the mischief is. We know there has been mischief, largely emerging from the radical and excessive deregulation of the finance sector over a number of years—over several decades.

The previous speaker, Mr Parker, very clearly outlined the danger of over-regulation. It is absolutely true that restricting the availability of capital, of finance, is a serious problem for some of our most innovative and potentially productive industries. We have some very smart people in business in this country who are able to come up with ideas and processes that can, in time, return significant value in all sorts of ways. We do not want to overly regulate or restrict the availability of venture capital, of expansion money, needed in order to allow those small businesses to grow and to make a really positive contribution for the benefit of all of us. Having said that, I say the need for more regulation is undeniable, and for that reason the Green Party supports this legislation.

It was often remarked, in the course of the select committee process, that people have questioned why, in the failures of the finance sector, there was so much incompetence. There was a degree of incompetence, undoubtedly. People simply got things wrong. This legislation will serve, in part, to shine a light on that level of incompetence, and, hopefully, to drive it out of the sector. But much more than that, I think there has been a failure of integrity. The deregulation, combined with a prevailing attitude of “if you can get away with it, you should”, has led us to a situation where large numbers of people lost money. The problems in the sector did have very unfortunate consequences, and this legislation will enable a tighter rein, a closer eye, to be kept on what is happening in the sector.

We cannot legislate, ultimately, against dishonesty or foolishness; nor should we endeavour to. But what we can do is endeavour to ensure that people can have a reasonable expectation of integrity, of competence, and of adequate regulation, and that the dealings of finance companies, of the finance sector more generally, and of financial transactions will be openly, transparently, and appropriately reported. Again, this legislation takes us some way down that path.

I heard earlier a reference to financial literacy. We know that New Zealanders, perhaps not uniquely, certainly do not have a high level of financial literacy. I suspect again that that is a hangover from an earlier time, when there was a great deal more trust. People who found that they were in possession of a lump of capital, for whatever reason, could and would invest it with a trusted professional, with a reasonable expectation that their trust would be rewarded and well founded. I think we have gone beyond that. I think we have entered a time when the industry did not in its entirety reflect such integrity. There were not good grounds for trust within that industry. We have, in that situation, needed to return to a regulatory response—a mechanism to ensure that there is more protection for investors, and that people will have a much clearer view of what has been carried out and done in their name.

In terms of financial reporting, I have made the point before that we look forward to a time when not only is the monetary flow through a business reported on but auditors go beyond simply reporting on financial transactions. We look forward to a time when auditors and financial reports generally also engage with, and report on, the broader effect of business activities: the environmental effect, the social effect, the costs and benefits—not only economic matters but also environmental and social costs and benefits. That is not something we need to invent; it is becoming increasingly commonplace internationally. There are well-established and well-respected international bodies capable of modelling good reporting that engages social and environmental costs and benefits, as well as the economic and financial aspects. Again, in time we may see value in developing a light-handed regulatory framework to require that. But I think more and more that will come from the business and finance sector itself, as people require a better, clearer, and more comprehensive picture of what is being done in their names, with their money, and of what the social and environmental impact is of business and finance transactions generally.

To return to the general theme of the integrity and trustworthiness of our professionals, whom we expect to perform on our behalf, I think there is a returning, or certainly an emerging, sense in our education and training institutions that alongside competence we need also to teach ethical models. We need to challenge young professionals, in particular—and, indeed, not-so-young professionals—who are responsible for both managing and reporting on financial activity. We need to challenge them to investigate their own value systems and their own belief systems, in order that they will behave in ways that people can reasonably expect to return honest and open transparency to the sector.

In summary, as I said, in some ways we regret the need for this regulation, but that need is undeniable. We need to put in more reins and demand greater transparency and more authority within the sector. We are very happy to support that, and we will continue to do so. Kia ora.

KATRINA SHANKS (National) : It is my pleasure to take a call on the Auditor Regulation Bill and the Financial Reporting Amendment Bill at their third readings. The National-led Government is absolutely committed to improving the integrity of our financial system.

In 2008 Business Week named New Zealand as one of 13 nations at most risk from the global financial crisis. On too many occasions during the finance company collapses we heard of investors losing money and of there being limited recourse for them to find assistance to reclaim it, or any way for them to claim against their losses. That has damaged investor confidence, and if we are to restore that confidence we need to make changes. Our Government wants to assure investors that we are committed to ensuring that the Financial Markets Authority has the powers it needs and is encouraged to use them.

The Financial Markets Authority opened for business on 1 May and takes over the functions of the Securities Commission and the Government Actuary. This new authority will lift the bar in terms of market behaviour, and will have the tools it needs to help to restore investor confidence in our financial markets, which has taken a battering in recent years. It is clear that if we are to broaden and deepen our financial markets to benefit companies looking to raise capital, our financial sector must be subject to clear rules and visible, proactive, and timely enforcement. I believe we have worked hard to create legislation that will strengthen the regulation of practitioners who carry out issuer audits, and that consolidates the setting of accounting and auditing standards within the new External Reporting Board.

When the Commerce Committee met to discuss the legislation, one of the main issues raised was the importance of providing a high level of assurance that financial statements are free from error and can be relied upon. We know that the quality of information is absolutely vital for sound business and economic decisions, and this legislation address that harm. By targeting the class of audits where investors are most at risk of losing substantial amounts of money in the event of audit failure, we can begin to bring back some confidence for investors. The establishment of a single Crown entity, the External Reporting Board, will consolidate financial reporting, auditing, and assurance standards.

We also looked closely at licensing regulations, and, in particular, we made the recommendation that auditing firms be registered. We see that as fundamental to ensuring the competence of practitioners and the quality of auditing firms’ systems, processes, and procedures. The legislation will bring New Zealand’s auditor regulation system up to internationally acceptable standards, ensuring that New Zealanders can work overseas, and can continue to carry out audits of overseas-owned New Zealand entities.

This legislation has substantially reduced the future risk of issuer audit failure, and will ensure that investors once again have the confidence to invest. I commend this legislation to the House.

STUART NASH (Labour) : It is interesting to listen to National members speak on the Auditor Regulation Bill and the Financial Reporting Amendment Bill, because they herald them as major legislation, yet they cannot even speak for 10 minutes on them. I am not sure whether that shows their lack of knowledge in relation to the details of the bills or their lack of enthusiasm for the bills. But whatever it is, I think it is quite poor form.

I stand in support of these two bills, because they do most important work in restoring the confidence of New Zealanders in our financial markets and our capital markets. But before I continue, if Mr Deputy Speaker may indulge me, I would like to correct or comment on something a member said recently. I think Sandra Goudie may have given out some Budget secrets a week too early. When she was speaking on the last bill that we debated, she thanked the dairy industry because it provided all the money. She thanked the people in the industry for all their hard work and all the money, because, she said, they paid for our health, education, and social welfare systems. Those people paid out $26 million in tax last year, so I am wondering whether the budgets for health, social welfare, and education will be slashed to $26 million.

Mr DEPUTY SPEAKER: We are on the third reading.

STUART NASH: I digress.

I thank the Hon Simon Power, the Minister of Commerce, who brought this legislation to the House. It is very good legislation; he is a very hard-working Minister. In fact, I think it was Simon Bridges who told the House that Mr Power has been responsible for over 40 percent of the bills brought before the House—40 percent of the bills brought before this House. Simon Power is certainly a hard-working Minister. I suspect that is the reason that he has decided to resign. He is sick to death of carrying National. Having said that, Mr Power’s plan for getting the country out of its problems is to sell State assets. He is the man who has been put out with a policy to sell State assets. I wonder whether that is a bit of a poisoned chalice.

Mr DEPUTY SPEAKER: I brought it to the attention of the member earlier that this is a third reading speech. Speakers can comment only on what is in the legislation. I refer the member to Speakers’ Rulings; there are a number of rulings on page 117. I ask the member to come back to the content of the bill.

STUART NASH: As I was saying, Simon Power, the hard-working Minister, has done a good job of continuing the work that the Hon Lianne Dalziel started and heralded through the Commerce Committee.

Specifically, the Auditor Regulation Bill recognises that the audits of companies that manage public investments, or that otherwise obtain large amounts of money from the public, must be performed by registered members of the auditing profession. A very good question is why the regulation of auditors needs to be reformed. It is a very good question. The answer is that 69 finance companies have gone broke since the global financial crisis. I understand that that has taken out about $6 billion of savings from good, hard-working New Zealanders. These are people who wanted to retire or who put money away for their grandchildren’s education, and it was ripped out. What has happened has made financial reporting hugely important to investors.

My colleague David Parker talked earlier about the need for investors to have confidence in the professionals who are charged with ensuring that these documents meet the required standard. As Mr Clendon mentioned in his short 10-minute speech, we cannot legislate against incompetence, but I would say, and it is my contention, that when investors are making an investment decision, incompetence is not one of the variables that they should have to take it into account when assessing risk. In fact, what happened is that in a lot of the 69 finance companies that failed, incompetent people were undertaking to provide professional advice. That is one of the reasons why those companies fell over.

I do not want to taint every single auditor. There were a lot of good auditors out there. In fact, there are a lot of very good auditors. They welcome this bill. They welcome this bill because it removes a lot of those sorts of charlatans from the profession. The bill gets rid of people who call themselves professionals but who act in everything but a professional way.

Hon Clayton Cosgrove: A bit ironic.

STUART NASH: Yes. New Zealand’s self-regulatory model was no longer within the range of acceptable auditor regulation systems. New Zealand needed to change in order for auditors to obtain the right to practise in Australia and other jurisdictions, such as the European Union. My colleague David Parker elaborated on that, so I will not go into too much detail.

The actual purpose of an audit is to provide assurance to investors, regulators, and other market participants that a set of financial statements is free from material error. That is quite an important consideration, because business decisions will need to be made on the basis of financial statements. So it is important that audit firms have a very strong reputation. I do not think that is doubted by anyone. In the last 6 months the disciplinary tribunal of the Institute of Chartered Accountants of New Zealand has made orders against four members who, between them, led five failed finance company audits. The tribunal found that those audits were not carried out in accordance with the institute’s ethical, professional, and auditing standards. It is those sorts of people whom this bill will weed out, because the penalty for breaching this legislation is $50,000. For overseas auditors registered in New Zealand, the penalty is $10,000. We discussed the penalty in the Committee stage. It sends a very strong message that every single member of this House recognises that there needed to be a change. This legislation provides that change. It provides that the licensing of auditors will be carried out by the Institute of Chartered Accountants, and by any other professional accounting body that may be accredited by the Financial Markets Authority. The Financial Markets Authority will set a minimum licensing standard to oversee the professional accounting bodies and will be responsible for practice reviews.

What is the Financial Markets Authority? It is a newly constructed market regulator for New Zealand’s financial markets. It is pretty much what the title says it is. It officially started on 1 May this year, so it is very new. The Financial Markets Authority performs the regulatory functions currently undertaken by the Securities Commission—

Peseta Sam Lotu-Iiga: Not currently.

STUART NASH: —previously; I am sorry, Mr Lotu-Iiga—and some of those undertaken by the Government Actuary and the Companies Office. The Financial Markets Authority Act established the Financial Markets Authority, which Labour supported of course; in fact, I think every member in this House supported it. The Financial Markets Authority has powers, functions, and duties that its predecessors did not have, including, for example, the power to exercise an investor’s right to take civil action against a financial market participant, the ability to prevent products from being structured so as to avoid their being supervised by the Financial Markets Authority, and enhanced warning powers. It is not the ambulance at the bottom of the cliff. It is at the top of the cliff; it is the overview. If anything looks wrong, if anything does not look right, the Financial Markets Authority can step in at any point in time and say it requires a change to be made, it needs to see what is going on, or it needs to audit a practice. It is a very powerful body, and again, as my colleague David Parker alluded to, Labour hopes that it exercises the powers that it has been granted in a prudent manner.

I will wrap up by saying the reform represents another important part of this Parliament’s ongoing work programme to restore investor confidence in our financial sector, in our capital markets. It includes other things like, for example, the review of securities law started under Lianne Dalziel. The Commerce Committee, chaired very ably by Lianne Dalziel, recommended a number of amendments to improve and strengthen the legislation. We went through those in the Committee stage. In fact, this is quite unusual legislation, because we are now passing two bills, whereas in the Committee stage the provisions were merged into one bill. Because the two bills are very similar in nature, they are being read as one. This is very important legislation. I think it will go a considerable way towards restoring the confidence of the New Zealand public in our capital markets and financial sector. That is one of the main reasons why I support this legislation. Thank you very much.

MELISSA LEE (National) : This is just a comment that we all support the Auditor Regulation Bill and the Financial Reporting Amendment Bill. I support this legislation and give the House a reminder that it was, in fact, the Registrar of Companies who identified that audit failures contributed to the finance company collapses, that self-regulation alone was no longer acceptable as it was not working, and that independent oversight was needed. This is great legislation. I look forward to it becoming law. I support this legislation. Thank you.

BRENDON BURNS (Labour—Christchurch Central) : I will take the opportunity as, I suppose, the tail-gunner on this important legislation to affirm the importance that the Labour Party attaches to regulation. I once heard regulation described as the necessary price for a civilised society. I have also heard it described as “One man’s chains are another man’s freedom”, and I say these bills, the Auditor Regulation Bill and the Financial Reporting Amendment Bill, will provide financial freedom and security to more New Zealanders than we have seen in the past.

I am pleased that Simon Power was the Minister who brought forward these bills. I shudder to think of the sorts of financial regulations we might have seen if a Minister like Rodney Hide, with a well-known distaste for regulation, had been the Minister chosen to bring through this legislation. We have seen in the past the consequences that ensue from a complete move away from regulation. I think back to the multibillion-dollar issue of leaky homes, which was created by a volatile cocktail of deregulation, leading to poorer building practices and the ensuing results for many thousands of New Zealanders.

These bills are about the oversight of those who have a role in auditing financial companies that are players in financial markets, and those much smaller than that. If I think of an example that I would like to see subject to the sort of scrutiny that these bills embody, I think of the detestable character Bernard Whimp, who, as recently as this week, was still crowing about the money he managed to extract from poor and vulnerable consumers of financial products. He describes this country as being one that wants to wrap everybody in cotton wool. In other words, what he wanted was the opportunity to rape and pillage the financial savings of poor mum and dad investors—not sophisticated people—who presumed that when somebody approached them over purchasing shares, that person was acting in a broad set of interests, not simply the venal self-interest of one Bernard Whimp.

I also think about the two people behind Hanover Finance who used to advertise on our State television news programme with the line: “Hanover, the name you can trust.” In fact, they were taking the mum and dad investors’ money and putting into their highly speculative investments with no accountability, no trail, and no proper audit. That saw thousands of mum and dad investors lose their life savings. That is why we need regulation, as embodied in these two bills. So I am pleased that Labour has supported this legislation through Parliament to this point. I think it makes absolute sense.

I have a final point in support of this legislation. Today we saw the Governor of the Reserve Bank, Dr Alan Bollard, appear before the Finance and Expenditure Committee in an open session. He talked about how we are seeing a more resilient position in the financial system, but it is still subject to volatility and uncertainty. He particularly noted that in the insurance sector, which has come under a lot of stress in New Zealand because of the Christchurch earthquakes, we have already seen one major insurer needing financial reassurance from the Government. He noted that there are new prudential rules for the insurance industry. They do not come into play, unfortunately, until next year, but he is taking a keen interest in how the insurance industry is governing itself prior to it coming into the new regime that takes effect from next year.

Dr Bollard noted that although overall the insurance industry is sound and functioning well, some may fall short of the sorts of standards that are expected under the new licence requirements, and that could lead to some industry consolidation and exits. Already we have seen one company, Western Pacific, go under. I know personally of people who have lost their insurance cover on buildings in Christchurch as a result of that company going under. It clearly was not subject to the sorts of regulations that this legislation is bringing in for another sector of the financial markets. That is why we need this legislation and why we need regulation. We do not want heavy-handed regulation but we do need to see people in this country being able to invest with confidence. I support these bills.

• Bills read a third time.