Hon Dr JONATHAN COLEMAN (Associate Minister of Finance) on behalf of the Minister of Finance: I move, That the Non-bank Deposit Takers Bill be now read a second time. I want to begin by thanking the members of the Finance and Expenditure Committee for their prompt handling of this bill. The committee received nine submissions and heard from four submitters. This bill seeks to implement the final components of a new regulatory regime for non-bank deposit takers, which are referred to as NBDTs, and comprise in the main finance companies, building societies, and credit unions.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. I apologise for doing it during a changeover in the Chair, but there was another changeover that also occurred. You properly called the Minister in charge of the bill, who was in the House at the time and was here for at least a minute afterwards. I wonder how it is possible for another Minister to get the call in such circumstances.

Mr SPEAKER: The member makes a perfectly valid point. It is not the first time that this has happened in the last couple of weeks, where a Minister in charge of a bill has been in the House and not actually intended to take the call, and the Speaker, as a consequence, has called, on the face of it, the wrong Minister. I called the Minister who was in charge of the bill, who was present in the House, and they then sought to leave, saying “Oh no, someone else is handling this.” I have called the Hon Dr Jonathan Coleman now, and he is now leading the second reading on this bill, but I think the point is well raised. I say to Government Ministers that they need to be watchful of this. It is not good enough to have a Minister in charge of the bill in the House and have another Minister seeking the call to lead off the second reading debate, or whatever the particular debate is that requires the Minister in charge to be dealing with the bill. The point is well made and I would rather not see it happen again.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. Can I seek an assurance that in future your practice will be to comply with the Standing Orders and call the Minister who is in charge of the bill, notwithstanding the fact that they are indicating that they are leaving?

Mr SPEAKER: Again, the member is correct that strictly the Speaker should do that, so I have, I guess, let the Government off on a couple of occasions in recent times, by deferring to the Minister who is obviously intending to handle the bill in the second reading. I alert the Government that strictly I should not do that. The Hon Trevor Mallard is absolutely correct. That is why I do not want to see it happening again.

Michael Woodhouse: I raise a point of order, Mr Speaker.

Mr SPEAKER: I will hear Michael Woodhouse briefly.

Michael Woodhouse: Thank you; it will be brief. I think we run the risk, because there is a transition at the end of question time, for which many members are required to attend parliamentary business in other parts of the building. What we risk doing is having Ministers leaving before the end of question time, and I think that runs the risk of disrespecting that very important part of the parliamentary process. So although I will certainly counsel Ministers to ensure that this does not happen again, I would be disappointed if it did result in that occurring.

Mr SPEAKER: Order! I simply repeat to the senior Government whip that the Standing Orders are the Standing Orders. It is not difficult for a Minister mindful of the Order Paper to leave at an appropriate time. The only time I could possibly see where it would cause a problem is if the Minister is answering the last question on the question sheet, and it is the first business coming up. But there is a small pause as the Clerk announces the reading as the Speaker closes down question time, and Ministers just need to be mindful of their responsibilities in that regard. The Hon Trevor Mallard has raised a perfectly proper point and he reprimands the Speaker appropriately. I have not strictly applied the Standing Orders, and maybe in the future I should.

Hon Trevor Mallard: I raise a point of order, Mr Speaker.

Mr SPEAKER: I will hear the member briefly.

Hon Trevor Mallard: I want to make it clear right now that I am not sending you from the House; you were going to do it anyway.

Hon Dr JONATHAN COLEMAN: What I was saying is that the bill seeks to implement the final components of a new regulatory regime for non-bank deposit takers, and this is with the aim of promoting a sound and efficient financial system. It incorporates the prudential requirements already imposed under Part 5D of the Reserve Bank of New Zealand Act 1989. It also introduces new measures, including the licensing of non-bank deposit takers, suitability assessments for directors and senior managements, restrictions on changes of ownership, and new powers for the Reserve Bank to detect and manage instances of distress or failure of non-bank deposit takers.

The bill continues with a broad definition of “non-bank deposit taker” in order to allow for potential changes as a result of market innovation, while leaving scope for some entities to be exempted or declared out of the full regime. This definition targets the substance of deposit taking to ensure the activity is captured, instead of particular types of organisations. The committee has recommended a number of refinements to this definition to clarify the scope and application of the bill. If a person was a deposit taker under Part 5D of the Reserve Bank of New Zealand Act before the bill comes into force, or is a non-bank deposit taker under the bill once it takes effect, the person will remain a non-bank deposit taker until all the debt securities it had issued are repaid. The new definition will not capture those entities that were not deposit takers before the bill’s introduction, unless their activities mean that they have begun to meet the definition.

An amendment has also been made to ensure that those entities the bill specifies as not being non-bank deposit takers, such as registered banks, remain outside of the regime, regardless of whether they are otherwise caught by the refined definition. However, the bill acknowledges that this definition might at times be too broad or too narrow. It does so by including a regulation-making power that would allow persons to be declared to be or not to be non-bank deposit takers. This has been amended to allow the Governor-General to specify additional detail and regulations as to the circumstances in which a person or class of persons is or is not a non-bank deposit taker. This approach provides useful flexibility to respond to market changes and to exercise control when circumstances mean that control is required. Regulations may also declare certain securities to be debt securities for the purposes of the bill. The Reserve Bank must not recommend such regulations unless satisfied the securities are similar in substance to debt securities. This is to ensure that other forms of investment vehicle, such as collective investment schemes, are not inappropriately captured.

This bill introduces a licensing regime for non-bank deposit takers. The committee has recommended an amendment in relation to applications for licence by overseas persons for the Reserve Bank to have regard as to whether specified aspects of the law and regulatory requirements of the applicant’s home jurisdiction are satisfactory.

Licences may be issued subject to conditions. The bill sets out the consultation procedure to be followed if the Reserve Bank wishes to add new conditions, or amend or revoke existing conditions, of licence. An amendment has been made so that the procedure does not apply when imposing conditions at the time the licence is initially issued. The committee has added an express obligation for non-bank deposit takers to comply with the conditions of their licence, so that a failure to comply with a licence condition becomes a failure to comply with the Act. Breaching such a condition will be grounds for cancelling a licence. As trustees are the direct supervisors of non-bank deposit takers, if the Reserve Bank intends to cancel a licence, then it must notify the trustee of that intention, and also notify the trustee if a licence is to be cancelled.

The committee has recommended an amendment to the Government requirements that were in Part 5D of the Reserve Bank of New Zealand Act to clarify that if non-bank deposit takers include provisions in their governing documents that would allow directors to act other than in the best interest of the non-bank deposit taker, then these are of no effect. The change of ownership requirements have also been clarified. These stipulate that the prior consent of the Reserve Bank must be sought for any transaction that would result in a person increasing their level of influence above a specified level, or above the level previously authorised by the Reserve Bank.

This bill enhances the powers of the Reserve Bank in respect of non-bank deposit takers and their associated persons. These include a direction-making power, which has been amended so that the same range of directions are able to be given to non-bank deposit takers and their associated persons. The Reserve Bank can direct that a non-bank deposit taker replace its auditor, and the committee has recommended amendments to ensure the non-bank deposit taker is able to comply with such a direction. In situations where a direction requires the trustee to disclose information, the committee has recommended that trustees be protected against any civil, criminal, or disciplinary proceedings arising from such disclosure. The Reserve Bank is also able to remove and appoint directors where the non-bank deposit taker is in financial difficulty or is failing to comply with statutory requirements.

The bill now provides that the Reserve Bank must give reasonable notice of its intention to remove a director, as opposed to notice with a minimum period specified. Notice must also be given to the non-bank deposit taker’s trustee. The committee considered that in some cases it might be desirable to appoint an additional director without first removing an existing one, and the bill has been amended accordingly. Where the Reserve Bank has made a decision regarding the suitability of directors or senior officers, those persons have a right to appeal that decision. This has been amended to allow appeals by those who were proposed to be directors or senior officers, but were prevented from doing so by a Reserve Bank decision on their suitability.

The committee has introduced a new clause, carried over from the Reserve Bank of New Zealand Act, that allows the Minister to direct the Reserve Bank to have regard to a Government policy related to the Reserve Bank’s functions. A new clause has also been introduced in relation to incorporation by reference. This will exclude material that is made or issued in New Zealand, is made under the authority of an Act, and is freely available from the need to be certified and made available by the Governor of the Reserve Bank. It is necessary for the governor to certify corrected copies and make them available only if they originate outside New Zealand.

There have also been a number of minor drafting changes. Technical changes have been made to the offence provisions throughout the bill to align more closely with the approach in the Criminal Procedure Act 2011. The bill includes a 12-month transition period for the licensing of existing non-bank deposit takers. As non-bank deposit takers are also required to be on the Financial Service Providers Register, the committee has recommended delaying the commencement of some of the consequential amendments to the Financial Service Providers (Registration and Dispute Resolution) Act 2008, to allow for the licensing transition period.

Once again, I would like to thank the committee members for the work they have undertaken on this bill. It has been significantly enhanced through the committee process. It will increase confidence in the New Zealand deposit-taking sector, helping to maintain a sound and efficient financial system. I commend the bill to the House.

Hon DAVID PARKER (Labour) : The Labour Party will be supporting the Non-bank Deposit Takers Bill through its continuing stages. One of the lessons from the global financial crisis is that regulators all around the world, really, became too lax in the regulation of the financial services sector following years of prosperity, when people and regulators assumed this would carry on forever. It was really only after the collapse caused by some of the risky lending that took places in jurisdictions, mainly overseas, in respect of derivative transactions, but also in New Zealand in terms of some of the non-bank deposit takers, that the regulators and their masters, including parliaments, were sufficiently alert to the need to update regulation.

Indeed, it is only posthumously that one of the leading academics in this field, Hyman Minsky, an American economist, has had his views gain currency. There is a reference, I think now, in the language around these things to the Minsky moment. That is effectively the point when it all tipped over and cascaded downwards, and imploded upon itself; we had cascading failures in the financial sector, locking up the financial sector around the world. Why this is particularly important in the financial sector compared with some other sectors is that if a business unit fails in the non-financial sector, then the rest of the economy keeps working, but when the financial sector wheels stop turning, the rest of the economy stops as well, because financial intermediaries are important to the functioning of the whole economy, not just to the profitability of the financial sector itself.

Hyman Minsky’s view of the world was that regulators have to constantly update financial regulation in order to keep the financial sector from embarking upon risky behaviour that puts at risk the operation of the financial services sector in a way that can impact upon the wider economy. Indeed, Hyman Minsky pointed out that the longer the period of settled prosperity, the greater the need there is for financial regulators to be staying ahead of the moves made by the financial services sector, and that is because the longer the period of prosperity, the dimmer the memories are as to the last time there was a clean-out, and the dimmer the memories are as to what can be the consequences for both the financial services sector and the wider economy of too much risk-taking behaviour in respect of the financial services sector. He also made the point that the longer the period of financial security in the financial services sector, the greater the expectation is that next year the profits will be higher, and in order to have that building profit from year to year, exponentially growing, the only way banks and other financial intermediaries can do it is generally—well, actually, it is not the only way, but a preponderance of later years of long periods of economic prosperity is risk-taking behaviour in respect of our financial institutions.

How that manifests itself is that banks and non-bank deposit takers, in order to do those things, embark upon things that are not controlled, because they do it around the outside of regulations, and therefore they are not caught by some of the prudential rules that apply under the status quo regulations. Hyman Minsky said the regulator has always got to be keeping an eye on what is happening in the market, and always got to be keeping ahead of these changes in practice on the part of the financial intermediaries, in order to avoid these risks becoming heightened, everything falling over at once, and cascading failures leading to the financial sector grinding to a halt and effectively closing down other parts of the economy, in part because consumers who are lending money to these deposit takers are so hurt by the sudden shock of not being able to get their money out of these financial intermediaries. They themselves then do not have money to spend in the economy, and you get into a declining economy and a deflationary spiral, or at least a recession. That is what happened around the world at the end of 2008 and 2009, and as a consequence we have seen financial regulators around the world taking steps to minimise the risk of that happening again. This bill is part of that. This is not in respect of banks; it is in respect of non-bank deposit takers.

This bill imposes prudential requirements upon these non-bank deposit takers by incorporating prudential requirements that are already able to be applied by the Reserve Bank under the Reserve Bank of New Zealand Act 1989, pursuant to a new part that was introduced by this Parliament not so long ago, but the provisions of which have yet to be applied to the non-bank deposit taking sector. That is what this bill does; it extends those prudential requirements through this bill. The Reserve Bank can now apply those prudential requirements to the non-bank deposit takers.

This is therefore worthy legislation, and that is why the Labour Party supports it. But—and you would expect a “but” from me in the Opposition, because there are so many “buts” to be given at the moment—it really does not do anything substantial to overcome New Zealand’s problems. We heard the Minister of Finance saying today that New Zealanders are saving more. Actually, New Zealand debt, as he acknowledged quickly in the early part of his answer, has gone down by 0.2 percent in the 4 years since National came to Government. The trade deficit is projected to go out. There was a 0.2 percent reduction in household debt, and that is at a time of recession, when people are losing confidence. They actually put their cheque books away for a while and they do not buy as many TVs and cars, and they do not spend as much money on their house alterations, etc. Therefore, you would expect, if New Zealand’s economy was performing relatively well, that we would have household debt going down by more than just 0.2 percent in the last 4 years. That, of course, is one of the reasons why we are losing so many people to Australia, including from our resource-rich area Taranaki. You would expect, if the drive to Australia was because of the resources boom, that Taranaki would be different to that trend, even if it was apparent elsewhere in New Zealand, but it is not.

What does the Labour Party say is more important than the likes of this bill? We should be debating real pro-growth tax reform in this country. Does New Zealand need tax changes in order to put on a better footing investment in our productive sector rather than our speculative sector? I think we do. I think it is abundantly clear. Treasury thinks we do. The Reserve Bank thinks we do. The IMF thinks we do. The OECD says—but the National Party refuses to have a debate in this House as to whether we should be passing a capital gains tax. It is absolutely necessary for the health of the New Zealand economy, but not at all on the National Party agenda.

Dr David Clark: They’re worried about the 1 percent.

Hon DAVID PARKER: No, it is a 0.2 percent reduction in household debt. We do need to transition to higher savings. We need more New Zealanders saving. We need a universal KiwiSaver scheme. Improving the regulation of non-bank deposit takers is a worthy thing to do, but if people are not saving more money, then there is not going to be much more money to be lent by those non-bank deposit takers to sections of the economy. This bill does nothing to fix that.

The bill does not change the shape of where investment money is going into New Zealand. It does not increase the amount of investment money in the New Zealand economy, but it does further regulate the economy. So it is somewhat strange that we have got a National Government, which thinks the answer to most things is further deregulation, and I am pleased that it sees in this area that deregulation is not the answer, and that there is a need for more regulation. But I do make the point that it does not lift New Zealand’s economic fortunes in the way we need in order to stem that flow of so many New Zealanders overseas. Forty percent of them now are aged 18 to 30. It is a terrible loss of that resource from New Zealand—those people who do not think they have got hope and opportunity in New Zealand but instead go overseas. They are going because of New Zealand’s problems, because the Government is not discussing these other important issues.

I am going to run out of time to talk about how this bill does not affect Treasury, but maybe Mr Cosgrove or—

Todd McClay: Ask for an extension of time.

Hon Members: Seek leave.

Hon DAVID PARKER: I hear Government members seeking leave for me to have an extension of time, so I am happy to—

The ASSISTANT SPEAKER (H V Ross Robertson): No, no—

Hon DAVID PARKER: I seek leave for another 10-minute call in this debate, in addition to the other contributions that are made pursuant to the Standing Orders.

The ASSISTANT SPEAKER (H V Ross Robertson): Can I say that the member, of course, is perfectly entitled to seek leave of the House, but whether the House gives it to him is another matter. So I am going to put the question. Is there any objection to that course of action being taken? There is. I am sorry, Mr Parker; there is objection.

TODD McCLAY (National—Rotorua) : It gives me pleasure to rise and speak on this bill, the Non-bank Deposit Takers Bill. What I wanted to say was, had the last speaker sought leave to speak after I have spoken, I probably would have said yes. But in this case, I am not able to.

Mr Parker is correct, that it is not often that the National Government wants to seek additional regulation. Indeed, we are firmly focused on lifting economic performance, and in many areas of the economy that is moving away from, getting rid of, unnecessary compliance and red tape that binds businesses, takes up their time, and stops them getting on and doing the things we want them to do—which is work hard and employ others—and often is meaningless. But in this case I do believe it is important that in looking at economic performance we make sure those who are taking finances on behalf of others are doing so appropriately, and that there are appropriate and correct rules and regulations around this to offer the investor a protection, but to hold to account those who, as we have seen through our newspapers over some very long periods of time and under different Governments, have not been held to account to the degree they need to be. Of course, I am speaking of finance companies here.

So the Non-bank Deposit Takers Bill completes several years of work to tighten up the regulation of the sector. I note that in 2006 deposits were about $8.6 billion in the sector, and an amount of this was put at risk around finance industry failures. Both sides of this House have tried to work together to tackle this issue, and I want to touch briefly on some of the things we have been able to do. We have not always agreed, but I do want to say to my colleagues on the other side of the House who sit on the Finance and Expenditure Committee with me that, at least in so far as this piece of legislation is concerned, I think we were as harmonious as it is possible to be in moving forward.

I want to say that the Government over the past 3 years has been supporting measures to ensure the right protections are in place to maintain and build investor confidence. And has not that been important, as the world—as New Zealand—has struggled with a global financial crisis and great difficulty in investor markets. We have established a one-stop shop—the Financial Markets Authority—which has a sharper focus on the enforcement of the law. Already it is unbelievably active and is acting on behalf of New Zealanders. We are seeing people brought to account, being prosecuted, but, more important than that, the rules that have been put in place we see are having good effect when it comes to New Zealanders being able to rely upon the statements that are made by some of these other groups and institutions.

We have tightened oversight of the working of the financial markets—the 33-year-old securities law, leading to the Financial Markets Conduct Bill, has been amended. I believe we have improved financial literacy. Minister Bridges is focusing on loan sharks and bringing some very important work to this House I understand, and combating anti-competitive behaviour such as price fixing, which will be dealt with.

Hon Clayton Cosgrove: Tell us about wheel clamping.

TODD McCLAY: Mr Cosgrove, I know you are speaking next, and I want to say some very nice things about you, so you will do that to me in return. But do not make me think too hard, because I might not be able to come up with as many things to say about you as no doubt you will find to say about me as a chairman. But what I did want to say is the bill is expected to become effective—and some of these previous bills—in October 2013, so it is important this House gets on with its job.

In particular, the bill does a couple of things. The Non-bank Deposit Takers Bill will ensure that the Reserve Bank’s ability to promote the maintenance of sound and efficient financial systems will be reinforced. We are going to give a lot of authority to the Reserve Bank when it comes to directors and senior officials being appointed in these non-bank deposit taker organisations, and put in place sanctions where changes are made that are not in the best interests of these organisations or of the investor, and also not in the best interests of adhering to the laws that we are putting in place.

When we come to the Committee stage I want to delve into this important piece of legislation in much greater detail. Indeed, I do want to say, before we go on, to my colleagues on the Finance and Expenditure Committee that this was an area where we were able to work closely together, and although we did not agree on every issue we were able to debate it widely. I do note that we brought the bill back to the House quite quickly, actually. We decided we did not need to take a lot more time, because we had done quite a bit of work here together. I just want to commend Mr Cosgrove, particularly, for the way he is cooperating with the Government in this committee. I do not want to ruin his career, but we have been able to move some things back to this committee much faster than they thought we would have been able to otherwise without his sterling cooperation, and I thank him for that.

Hon CLAYTON COSGROVE (Labour) : For a moment I was almost in tears! My colleagues will note that very few things in life stun me into silence, but for a moment there I became a tad misty-eyed, I have to say. It is an emotional place, the Parliament from time to time, is it not?

Getting back to this bill, the Non-bank Deposit Takers Bill, the Labour Party does indeed support this piece of legislation. It is part of a series of measures, many of which were initiated when we were in Government, in terms of preserving the integrity and credibility of the financial sector. But I have to say that when I read the bill, given recent weeks and where it talked about non-bank deposit takers, I thought for a moment that they were talking about John Banks. Because you could argue that John Banks, of course, was a non-bank deposit taker—in a number of ways! When we get to the Committee stage, I just wonder whether we could ask the Minister of Finance, when he is in the chair, whether these provisions would apply to all sorts of banks, including the Hon John Banks.

I am sure we could wax eloquent, and in the spirit of Mr McClay’s fondness for my career prospects, I will not delve into that—

Andrew Williams: But did he take a deposit?

Hon CLAYTON COSGROVE: Pardon?

Andrew Williams: Did he take a deposit?

Hon CLAYTON COSGROVE: Well, the member raises a very—not Mr McClay; that would be unfair. Did John Banks take a deposit, indeed?

Dr Cam Calder: He is voting against the bill.

Hon CLAYTON COSGROVE: He is voting against the bill, is he? Oh, that is interesting. But I have to say on a more serious note, given that there is a lot of love in the room, that this bill is about preserving the credibility and integrity of our financial system.

But I would just make this other point in passing, on a very serious note. Although these regulations are about the private sector and, as Mr Parker said, prior to the global financial crisis, we had institutions in New Zealand that fell over, and as a result of that—well, you could argue that they fell over. I do not mean this in a humorous way, but you could also argue that some were deliberately pushed by some of the individuals who now reside in the clink, and yet it is the poor old taxpayer or the investors—thousands of them—some of whom, for those reasons, find their future financial security is in jeopardy. But I just say this: that is the private sector.

There is also a scheme called the Crown Retail Deposit Guarantee Scheme. Although this is not absolutely germane to this piece of legislation, I do note in passing that as the result of the scheme, which was, of course, put in by the Labour Government—I know Dr Nick Smith will jump up and down and become possibly animated if he takes a call about this. It was put into place—and before Dr Smith makes the point on this I will do it for him. I remember the day it was put into place, because I was an Associate Minister of Finance. It was the day of our party launch. I know Dr Smith is fond of saying that that was all done for political hanky-panky sorts of purposes, but it was done because the Australians, as I recall, contacted us and said: “We are doing it. We are letting you know.”, and we had to act that afternoon because we did not want the possible fiscal implication of people saying: “Our deposits are secure in Australia.” Therefore, if the Government of New Zealand at the time was not going to do it, there would have been a run on the banks—not John Banks—and deposits would flow out of New Zealand to Australia, where, in theory, they would have been more secure.

Dr David Clark: Faster than a helicopter to the Dotcom mansion.

Hon CLAYTON COSGROVE: “Faster than a helicopter to the Dotcom mansion.” Mr Clark said. Well, I could not possibly comment. But the point is that that scheme was put in place to ensure that there was not a run on deposits.

The point I am getting to, because this is an important point as we return to the bill, is that that scheme was then inherited by the National Government. We heard before the Finance and Expenditure Committee that there was, we think—the Auditor-General, of course, did a report and there was $300 million, possibly even $500 million, of excess losses, right? Excess losses that the taxpayer had to pay for as banks ramped up, because when the Auditor-General actually came in and spoke to the select committee, I recall her saying that there was no written communication between Treasury and the Minister of Finance over a period of, I think, a month, or a couple—

Dr David Clark: Oh, 3 months.

Hon CLAYTON COSGROVE: —3 or 4 months. So that money just sort of washed out the door. You could argue that the financial sector gamed the Government, because with a guarantee in place, that guaranteed every deposit that was put in there, and when you give a guarantee you have an absolute right to seek information and demand information to ensure you are not being gamed. So for there to be no traffic and no paperwork and no questions asked by the Minister of Finance at the time, Bill English, over a 3-month period, it is absolutely evident in my view, and the view of most of us on the committee—

John Hayes: It’s not related to the bill.

Hon CLAYTON COSGROVE: —on our side that we were gamed. It is interesting that Mr Hayes makes an interjection, because I was about to come to “Sir Les Patterson”, and it is this, and I thank him for reminding me that I had to come back to him. In the Finance and Expenditure Committee we were actually very concerned—very concerned—that there was not appropriate oversight. Members will recall that the Government blocked us from getting Treasury and actually having a proper examination of this. We wanted to do that, because the estimates were $300 million to $500 million of losses to the taxpayer, and Mr Hayes interjected in the committee: “That’s loose change.”—loose change.

John Hayes: No, I didn’t. Quite wrong.

Hon CLAYTON COSGROVE: Oh, he denies that now. I would be very careful denying that on the record, given the number of witnesses who there were. But putting that aside—putting “Sir Les Patterson’s” comment aside—that shows that it is not loose change to lose $300 million to $500 million. Returning to the bill, the comparison I will make is this—

Hon Trevor Mallard: Is this Dotcom’s bank?

Hon CLAYTON COSGROVE: No, no, we were talking about non-bank deposit takers, and I had already referred, Mr Mallard, to John Banks. I know that Mr Mallard, having been a former Associate Minister of Finance, will be eager to take a call on this bill, given his intricate knowledge of non-bank deposit takers, one of whom I think may be residing in this Chamber as we speak—from up north. But getting back to it, we have a set of regulations here that are very appropriate—and we support them—to secure and maintain the security of our private sector financial markets. But the point I make in briefly alluding to the Crown Retail Deposit Guarantee Scheme is that you could argue that because of the lack of oversight from this Government, it was gamed to the tune of $300 million to $500 million. It refused any retrospective oversight by the Finance and Expenditure Committee or to have this debated in the Parliament, so you could ask: does the Government need to up its game in terms of ensuring that there are not unintended financial losses to the taxpayer? I would have thought the loss of $300 million to $500 million is not, as John Hayes said to the committee, “loose change”. It is a substantial amount of money.

So I would argue that if it is good enough for us—and it is and it should be, and the Government has done the right thing in carrying on the work of our previous Government. I am not point-scoring on that. I think both Governments have worked—and certainly Mr McClay is right about the Finance and Expenditure Committee, as we work well together in New Zealand’s interests. But I think if it is good enough for us to make sure that there are strict requirements on the private sector in terms of non-bank deposit takers and ensuring that the private sector’s integrity and credibility is locked in, and, therefore, that confidence is maintained to invest in that market and in that sector, the Government has an equal responsibility to ensure its house is in order. I just say for the record that it is interesting through the passage of this bill that there has been a lot of appropriate effort put into this, but the committee, and Mr English and every Government member, has refused any form of Government inquiry into the Crown Retail Deposit Guarantee Scheme.

Even when the Auditor-General came before a committee and said that there was no written communication between a finance Minister and his department, the Minister of Finance did not say: “Am I being gamed? Are there any controls in place to ensure that financial institutions do not rip the taxpayer off”—if you like—“and ramp up the deposits they take because they are guaranteed by the Crown?”, and the Minister of Finance failed to ask any critical questions. I think one of the excuses that was brought up by Dr Nick Smith, Mr Hayes, and whoever else was on the Finance and Expenditure Committee was that there was an election. Well, for 3 months after the election, the Minister of Finance was derelict in his duty to ask the critical questions, as he provided a guarantee to depositors, to ensure that the Crown was not gamed.

So if it is good enough, I think, for us, through this bill, to ensure that there is credibility and integrity around the private sector, I say for the record that it should be good enough for the Government and its Ministers to at least wake up in the morning and ask the critical questions when they provide a Crown guarantee for deposits. I know Dr Nick Smith—as I said—will get up and say it was all politics. The record is that the Aussies went ahead and did it, and if we had not moved on it that very day—that very day—there was the potential that Sunday for a run on the banks. He will get up and talk about politics, campaign launches, and stuff, but I say this, that “Sir Les Patterson” should get up and tell us why he called $300 million to $500 million “loose change”. Maybe it is because some of the change is a bit loose between his ears.

DAVID CLENDON (Green) :Tēnā koe, Mr Speaker. Kei te mihi nui ki a koutou. I am pleased to make a few comments about the Non-bank Deposit Takers Bill as it proceeds through the House in a reasonably brisk fashion, I have to say, which is appropriate given that the content of it is important. It seeks to plug a reasonably large and gaping hole in our regulatory and oversight legislation. This bill sets out, of course, to improve the level of financial oversight and prudential regulation of the rather inelegantly named non-bank deposit takers, including, obviously, everything from credit unions through to building societies, through to the many finance companies, some of which have fallen into considerable disrepute in the last few years.

The breadth of the spectrum of organisations this bill set out to cover was one of the initial barriers, one of the initial concerns, and I know that this was reflected in the consideration of the Finance and Expenditure Committee. Clearly, organisations like credit unions are honourable institutions. They have a very long history. To my knowledge, we have never had a failure of a credit union, and, in fact, contemporary credit unions agree amongst themselves that none of them will be allowed by their peers to fail in a way that would disadvantage their investors. I think that is a very solid and good approach. Similarly, many of the building societies have a good long history. So the key was to punish the wrongdoers, if you like, and to put barriers in place to the sort of unregulated, unconstrained, incompetent, and often illegal activities that we saw were rife in recent years, but not to impose too much compliance, cost, or regulation inappropriately on some of the smaller and more honourable institutions.

I have to say that the outcome of this bill does seem to be that that quite difficult balance has been struck, and I have to compliment the members of the Finance and Expenditure Committee, who seem to have navigated that difficulty very well. Ideally, we want sufficient regulation and we want to minimise compliance, but also to ensure the integrity of these organisations. The point has been made by a couple of speakers already that we do need to give people places to invest their money other than in more bricks and mortar. We need to rebuild confidence that people can invest their money in productive enterprise using mechanisms like, perhaps, the new generation of finance companies. To the extent that this House can increase that level of public confidence based on genuine integrity and reliability, that clearly will be a good thing.

We know, of course, that the situation that occurred in the 1990s and, indeed, in the early 2000s was to a large extent driven by the excessive deregulation—the madness of deregulation—that was upon us in the 1980s and through into the 1990s. We hope the lesson has been learnt—we fear it has not—that sufficient regulation is necessary to the operation of a genuinely free and fair market. Excessive deregulation counts against that. Hopefully, that lesson has been learnt, and this bill goes some way to putting that in practice—the lessons of that time.

There is a great deal about integrity in this bill. In the Greens, we consider that in much of our legislation around business and financial practice there are still too many legal mechanisms allowing individuals to escape responsibility for their actions. We have no sense that all business failures are the result of incompetence or, indeed, dishonesty. Clearly, things do go wrong, businesses fail, and companies can fail, but we do feel that too often there are too many means by which people can legally avoid individual responsibility. Over time we would like to see further amendments in the broader picture to ensure that where excessive risk is evident or where individuals have not acted responsibly or with integrity there should be much more personal liability. This is partly because we think that would engender a much more thoughtful approach to doing business.

There is an absolute responsibility. If people choose to be reckless with their own money or their own resources, good luck to them, but when people are managing resources on behalf of other people, then that is the point at which the appropriate level of risk has to be ascertained, and that liability must be sheeted home to those who have acted irresponsibly or without due regard for the well-being of the investors.

I have made the point already that this is quite a complex piece of legislation. There are many stakeholders in this, and there are many relationships between this bill and multiple other pieces of legislation, each of them in its own right quite complex. I claim no expertise or experience in commercial law, but even for the reasonably informed layperson it is easy to see that a bill like this could have a lot of unintended consequences. There could be fish-hooks in it that would lead to further difficulties down the track. Again, I would have to say that I think the select committee has probably done a pretty fair job of navigating through that. The idea of delaying the commencement date was, I understand, an acknowledgment that there could otherwise be unintended consequences or consequences that were not preferred by the committee nor, indeed, the affected parties.

So all in all it does seem that a useful piece of work has been done here. It by no means gets us to the end in terms of assuring people that their investments will be secured, will be responsibly managed, and will be surrounded by integrity and a reasonable degree of individual responsibility and liability when things go wrong, but it is a good step in the right direction. For those reasons, the Greens will be happy to continue to support this bill. Kia ora.

Hon Dr NICK SMITH (National—Nelson) : The Non-bank Deposit Takers Bill is part of National’s sensible agenda for restoring public confidence in our financial markets. It is an essential component of the Government’s broader programme around improving regulation, investing in infrastructure, developing our natural resources, investing in skills, and opening up new markets—a whole packet of measures that can provide the brighter future for this country. It gives the Reserve Bank considerably tougher powers to be able to deal with finance companies, building societies, and credit unions that are long overdue. I want to make only a brief contribution, given the wide consensus around the importance of this legislation, but I am very happy to also engage in the broader debate about financial regulation.

I did think it was with gall that the former Associate Minister of Finance Clayton Cosgrove had the audacity to challenge Bill English over being derelict in his duties. Let us put the record very straight. During the term of the previous Government, when Clayton Cosgrove was an Association Minister of Finance, ordinary New Zealanders lost over $7 billion in savings as a consequence of a lack of oversight and regulation of the financial sector. My simple challenge for Mr Cosgrove and his colleagues is to say whether they passed a single piece of legislation to deal with that massive debacle. And the answer is: not one.

Before members opposite get on their high horses and give the sorts of speeches they give, I have a simple challenge for them: please get to your feet and do the honourable thing and apologise to New Zealanders, to those tens of thousands who lost their lifetime savings. I have not heard in over 3½ years that they have been in Opposition any acceptance of responsibility for the financial mess that they left, which has had a disastrous impact on the lives of so many New Zealanders.

The reality is that this Government since 2008 has gone about very responsibly addressing the deficiencies in our financial regulations with the establishment of the Financial Markets Authority and with bills of this sort. So I just simply say to the next Labour speaker: “Where is the apology?”. I ask Labour members to please say sorry, because in my view they have absolutely no financial credibility or economic policy credibility until they accept the responsibility for their poor economic policy.

My worry is this. In the last 2 weeks of parliamentary debate Labour’s answer to New Zealand’s financial woes has been to tax more and to spend more. We have a bill from a Labour member to double paid parental leave—a “nice-to-have”, but when Governments are running deficits of $8 billion, and when you have got developed economies around the world teetering on the edge of bankruptcy, I simply say to Labour members: “Get real. Get real.”

More spending, more holidays, and sideshows on issues like gay marriage are not the issues that this Government should be focused on in these difficult financial times. It is a National Government that is doing the things that are required in these challenging times. We are getting our regulatory environment right, balancing the books, growing our natural resources, and opening up export markets. That is the agenda that is the right one for New Zealand at this time. This bill is an important part of it, and we need to get on with the business of ensuring we build that brighter future for New Zealand.

ANDREW WILLIAMS (NZ First) : Kia ora. I take a call on behalf of New Zealand First on the Non-bank Deposit Takers Bill 2011. Is it not a shame, when there was so much loving going on in this Chamber and so much fondness and goodwill coming from the chairman of the Finance and Expenditure Committee and other members of the committee, that that was all tossed out in one swift stroke of the pen by the Hon Nick Smith? But that is the case. It is unfortunate—

Hon Clayton Cosgrove: He’d gone troppo though.

ANDREW WILLIAMS: It is, but it is quite normal for the Hon Nick Smith, because there is never a lot of loving coming from the Hon Nick Smith normally. I used to find when he was the Minister of Local Government that there was no loving there, at all. In fact, I do not think he liked local government one little bit. He hated local government, so this is just a continuation of that.

But it was interesting. He alluded to the fact that the next Labour speaker should raise this point, but I am not going to wait for the next Labour speaker to raise it; I am going to raise it myself. He did overlook the fact that during the last term of this last National Government, in the last 3 years, Government members sat on their hands for more than 6 months during that Crown Retail Deposit Guarantee Scheme, while it was in operation. The Reserve Bank and Treasury under this Minister of Finance allowed billions of dollars of deposits to continue to be put into that Crown Retail Deposit Guarantee Scheme—billions of dollars—including South Canterbury Finance, which took massive amounts of deposits during that period only to subsequently fail. It failed under this Government, and members of this Government sat on their hands. For a period of 6 months there was no policing of the system, there was no oversight by the Minister of the system, and there was no good governance by this Government to ensure that that Crown Retail Deposit Guarantee Scheme was well and truly under control. As a result, the taxpayers of New Zealand can thank this Government for losing a huge amount of additional money—there was already money being lost, but additional money—that may well not have been lost had the Government been on top of the case, had it been on the ball, and had it actually been keeping control of the books. So it is disappointing to hear the Hon Nick Smith having a huge dig at the former Labour Government over this, when, in fact, in more recent times—in the last 12 to 18 months—there have been some serious wrongful actions on the part of the Government in not keeping a closer look at the books.

But I go back to the Non-bank Deposit Takers Bill. This is a good bill. As we have said in this House before, New Zealand First will support good policy. This is a case of some more good policy coming out of this particular Government, and we will, as a result, support it. We have always said we will support good policy. And why would we not, when this bill legislates a bolstering of the Reserve Bank’s powers? We are in favour of that, because what it allows for is for the Reserve Bank to vet the suitability of directors and senior advisers appointed or elected to any of these non-bank deposit taker organisations. Well, that is a good thing. It is a good thing for the Reserve Bank to be able to vet the suitability of those directors and senior advisers. It also empowers the Reserve Bank to delicense a non-bank deposit taker in prescribed situations. Again, that is a good thing. We like the idea that it can delicense them if they are not up to scratch.

This bill also requires the consent of the Reserve Bank in order for ownership changes to be given approval where a person acquires 20 percent or more of that non-bank deposit taker’s voting securities. Again, that is a good move, because if you start acquiring more than 20 percent, that starts becoming a significant stake in such an organisation, and it should, therefore, have the consent of the Reserve Bank in such a situation. The bill also allows the Reserve Bank to gain more information from those very same non-bank deposit takers. Again, as we have seen in the instance of South Canterbury Finance and some others, had the Reserve Bank been in the position to gain more information at a much earlier stage, and had it not sat around for 6 months doing nothing, perhaps many of the investors in some of these organisations around New Zealand would not be in the sad situation they are in today, having lost most, if not all, of their money in some of these organisations.

Lastly, this bill allows the Reserve Bank to remove directors in special circumstances. Well, that is very good, and we like the idea that directors can be removed. We like the idea that perhaps directors who have been found to be acting either incompetently or in a misleading or fraudulent manner can be removed. So that is a good thing. It is sad that so many people have had to put up with such huge losses around New Zealand while those very same organisations that have incurred those losses have had directors building mansions on Paritai Drive, buying luxury launches on Auckland harbour, buying overseas holiday homes in the likes of Hawaii, and buying all sorts of other luxury items. These sorts of people need to be taken to task. The Reserve Bank does need to have the ability to remove such directors in special circumstances where, clearly, they are out of order. In the past 5 years or so there have been a lot of instances in this case.

This bill brings New Zealand better into line in relation to our partners such as Australia and other major investment countries that we deal with, and in terms of our banking system with the Australasian banks and the major banking organisations in this country. This is the non-banking sector. This is what you would call the others. But it is important to note that this legislation tidies up a lot of our financial services area, and brings in a lot of controls that were not there previously.

It is important to point out that building societies and credit unions are also exempt from this piece of proposed legislation, so although people out there might perhaps think that this is taking away a huge amount of the risk, we do have to bear in mind that there is still a level of risk for any investor, and they still must be very, very vigilant in terms of what they do and how they deposit their money in various schemes. We do still expect a great deal of caution on the part of any New Zealander and investor in any such banking scheme or any deposit scheme, as we all would do with our own money.

I would just like to close by saying that New Zealand First supports any initiatives in this area to tidy up the financial markets in this country. There have been a number of bills in this House in the last month or so in other areas of international banking law, in other areas of international contract law, and in areas to do with the Commerce Commission and tidying up some of these areas. Many of these are long overdue. It is sad that some of these bills have taken 2, 3, or 4 years to get to this House. It is, I think, incumbent on the members in this House from all parties to do our very best to try to tidy up many of these grey areas and many of these loopholes to provide a much higher level of security for the people in this country who are putting money into what is often their major savings scheme or their way of saving for retirement. Therefore, anything we can do in this regard is supported by New Zealand First, and we support this bill.

JOHN HAYES (National—Wairarapa) : It is quite interesting to reflect that on the right-hand side of the House, as I stand here, there has not been a speaker this afternoon on this bill, the Non-bank Deposit Takers Bill, who is not a list member of Parliament. I sat there, listening to what they were saying. What I perceived was a disconnect from the community that electorate MPs represent, and a detachment from the community in New Zealand that those other members purport to represent. I would simply say to the last speaker, Andrew Williams, that I am deeply disappointed that Winston Peters was not available to take a slot this afternoon, because he made a really tremendous contribution to the development of this legislation, and I do not recall the last speaker being on the Finance and Expenditure Committee that was discussing this subject, at all.

Particularly, I felt that the last speaker misunderstood the intent and the value of the legislation when he said that its most desirable quality was the bank being able to dismiss directors. The point of this legislation is that it enables the bank to vet directors before they arrive. That is a much more important point, because we are trying to stop people getting into the House before we run into trouble. Nothing as an MP in the last 7 years has caused me greater anguish than listening to people in my community who have come into my office and said “I’ve lost my life savings because I took advice from people like Money Managers - Masterton.”, and their whole retirement savings have been lost. That is something that I felt very deeply about, and I am very pleased that our Government has been able to bring this legislation to Parliament and process it through the Finance and Expenditure Committee in, relatively, very fast time.

I think that Mr Parker was also critical of the pace at which the economy is moving, but I draw his attention to a document that I noticed this afternoon in Copperfields. It comes from the Parliamentary Library. It is a research paper, and it sets out trends in the economy. It points out that economic growth is averaging 1.7 percent in 2010-11 and 2011-12, and goes on to say: “The rate of economic growth in the March 2012 quarter exceeded expectations, with the economy expanding by 1.1 percent over the quarter. The main contributors to growth came from manufacturing, business services, and agricultural industries.” Those are all things that employ people in this economy. If you look at unemployment, it is consistent at around 6.6 to 6.7 percent. If you look at inflation, it has dropped from 4.5 percent to 1.6 percent. If you look at interest rates, they have dropped from 2.65 percent in 2010-11 to 2.61 percent in 2011-12.

Hon Clayton Cosgrove: How many people are leaving New Zealand? How many people are going to Oz?

JOHN HAYES: When we come to the list member for Christchurch, or wherever it is—he used to be an electorate member of Parliament, but his electorate tipped him out. Mr Cosgrove, I think his name is. Why did they tip him out? Because as Associate Minister of Finance he was responsible for losing $7 billion of taxpayers’ money. That is why they got rid of him.

This bill is another step in the Government’s programme to restore investor confidence in capital markets. That is what this bill is about. In the context of the global financial crisis, and the collapse of finance companies, this bill at least enables the Reserve Bank to have much stronger powers to deal with the non-bank deposit taking sector—that is, anybody who is not a bank. The Non-bank Deposit Takers Bill completes several years of work to tighten up the regulations of the sector. From 2006 deposits of about $8.6 billion were put at risk by finance industry failures. Some of the directors are actually in my electorate, and I know them personally. I know they tried to do a good job, but they did not, and so a key focus of the Government over the past 3½ years has been supporting measures to ensure the right protections are in place to maintain and build investor confidence.

So what have we done? We have established a one-stop shop Financial Markets Authority with a sharper focus on enforcing the law. We have tightened up oversight of those working in the financial markets sector by putting in a new regime for financial advisers, requiring licensing of trustees and auditors, and strengthening disclosure requirements. We have rewritten the 33-year-old securities law, leading to the Financial Markets Conduct Bill. We are working on improving financial literacy. We are cracking down on loan sharks, and we are combating anti-competitive behaviour, such as price fixing.

The bill requires non-bank deposit takers to be licensed by the Reserve Bank when deciding whether to grant a licence, and the bank is required to satisfy itself that an applicant can comply with the sorts of prudential requirements that you would require of a trading bank. All directors must be suitably vetted in advance by the Reserve Bank, and I think that by doing that we will eliminate a whole lot of people from the governance structures of financial markets who are beyond their competence to be involved with. I think the bill also will allow the Reserve Bank to delicense non-bank deposit takers in prescribed situations.

I think this is a particularly good piece of legislation. It is really important for people in my electorate, my constituents, who want to invest their money safely, without risk of losing it. And with that view, I support this bill unreservedly. Thank you.

Hon TREVOR MALLARD (Labour—Hutt South) : I want to thank the previous speaker, John Hayes, and say that generally, like members on this side of the House—list members and constituency members—we are supportive of this bill, the Non-bank Deposit Takers Bill. I was pleased to see that he did not repeat in his speech the comments that he made about the $700 million or $1 billion of taxpayers’ funds that was lost as being small change, as he did by way of interjection. I am not one of the people who think that that unnecessary loss is a matter of small change.

I do want to refer to the speech made by the Hon Dr Nick Smith—

Hon Clayton Cosgrove: Who?

Hon TREVOR MALLARD: Nick Smith. I wonder why he did not quote that financial expert whom he appointed as chair of the ACC board, John Judge. We disagree with many of the things that John Judge did, but he is a person of impeccable integrity. He achieved the financial turn-round for ACC, and someone of his financial expertise was necessary if the Government was to do what it was going to do, and of course we disagree with it. But he has integrity and he did a very good job. I want to quote from Mr Judge’s comments on this ministry. He has called this ministry “pathetic” today. He has said that one of the Ministers needs to become acquainted with the truth. He has said that one of the Ministers just tries to go and blacken good people’s names.

Hon Clayton Cosgrove: Who is that?

The ASSISTANT SPEAKER (Lindsay Tisch): Order!

Hon TREVOR MALLARD: This is John Judge.

The ASSISTANT SPEAKER (Lindsay Tisch): Order! The member must come back to the purpose in the content of a second reading speech.

Hon TREVOR MALLARD: The point I am getting to is that the purpose of this bill is to provide integrity within the financial markets. John Judge is someone who is, I think, universally accepted as having integrity, and he is commenting that this ministry does not. You just then wonder what right, what moral authority, the Government has to bring in this sort of legislation and to promote it when the very Ministers who are in charge of it are being questioned as to their own integrity. I just say that when it comes to a question of Judith Collins or John Judge on a question of truthfulness, I will go with John Judge. He is the person whom I believe in that circumstance. I am very surprised that Nick Smith, who was the Minister who appointed Mr Judge to ACC, has not suggested that he be used further given his integrity and given his expertise in this financial markets area, where his expertise is absolutely clear.

I would now like to go to the list of contents of the bill and look at some of the headings. It is called the Non-bank Deposit Takers Bill. It is a bill that I have not been involved in a lot, and I will be happy if the National Party speaker who follows me wants to elucidate on some of the questions. I am just looking around. Is there a Minister of Finance who is able to answer the questions? No, but I will put the questions down, and I am sure that the Minister, when the Minister becomes available, will answer them.

Where there is a non-bank deposit taker, does that include people who get brown paper bags or plain envelopes from Dotcom or Skycity? Are they a non-bank deposit taker if there are large cheques that are either anonymous or not anonymous, you know? They apparently had the name on them. They were not bank cheques. I wonder whether a non-bank deposit taker could take anonymous deposits or not, and if there was a name on a cheque, whether, for this purpose, that would be anonymous or not. And if it was put into a non-bank account—a “John Banks account” might be a good description, or a “John Banks account”—would there be a requirement to record the source of the deposit or not? It is a relatively simple question about the purpose there. In fact, there are probably some interpretation issues around that as well.

Clause 4 is the interpretation clause, and the question I want to ask members opposite is whether within the clause there is anything that will clarify whether John Banks is included as a non-bank deposit taker at the point he receives the plain envelopes—or even the addressed envelopes—with the large, tens of thousands of dollars’ worth of cheques. If, in that case, he is a non-bank deposit taker, is he also a non-bank deposit taker when he receives brown paper bags stuffed with cash? If he receives a brown paper bag stuffed with cash, is he a non-bank deposit taker?

I want to refer the Chair and the members opposite to clause 6, “Related party defined”, which is within Part 1, “Preliminary provisions”. I want to ask in this particular circumstance whether, if the ACT Party gets a brown paper bag full of money and it discusses it at a tea party with the National Party in front of a whole pile of cameras, that makes the National Party a related party to the ACT Party for the purposes of this legislation. I do not know. I mean, the National Party is clearly a related party now. I think it is fair to say that the National Party—I do not think I can use the expression—is having something done to it by the ACT Party at the moment that is normally seen to be done within a marriage. It is basically being rooted, is it not? I mean, it is being stuffed. The National Party—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! I think that word is completely unparliamentary, and I ask the member to withdraw it.

Hon TREVOR MALLARD: I withdraw. My question is whether John Banks should have at some stage. So there is a related party question. The next question is whether clause 9 applies in this. Clause 9 in this particular bill states: “This Act binds the Crown.” Well, again, it is clearly a case—well, there is a bit of S and M involved in this particular case. I think it could well be that John Banks is putting the National Party in handcuffs for part of this relationship. Certainly, there appears to be a binding of the Crown on the part of John Banks in this legislation. Money is being transacted, a non-bank deposit has been made, and the Crown is being bound by ACT. That is exactly what it says in here; that is exactly the heading of the clause: “Act binds the Crown”.

If I was John Key, I would not want to be bound up by John Banks. If I was John Key, I would not submit to the handcuffing on the part of John Banks. The way that he is at the moment, I think I would be cutting the links—I would be cutting the links. I would be undoing the chains that are binding the National Party, the Government, the Crown to ACT. I think the classic is clause 11. That is the clause that is headed “No holding out”—no holding out. It is clear that John Key has not been holding out on John Banks.

DAVID BENNETT (National—Hamilton East) : Thank you, Mr Speaker—

Hon Clayton Cosgrove: How do you compete with this?

DAVID BENNETT: How do you compete after that last speech? It was really “Thursday afternoon - itis” for Mr Trevor Mallard, who really needs to take a break, I think, and come back at a different stage. Everybody in the House left, with the lack of decorum in that last speech from that member.

But Mr Mallard did ask one question, and I want to give him one answer to that one. The answer to that is that a non-bank deposit taker does include those people who take deposits outside their electorate office, when they are selling items on the street. So, just for his clarity: you would be covered by this bill, Mr Mallard. Just for your own purposes, this is something that is important for you as a member.

It is important that we look at the nature of why this bill is here. Many New Zealanders over the last few years have really felt the impact of the world recession and the financial crisis through the loss of money through finance companies and the like. That second-tier debt, you could say—where people take more risk on the debt and they expect a higher return—has found itself out to be a very delicate and bad investment for many people. Anybody in their electorate office would have seen many sad stories where people, especially later in life, had invested their whole life-savings and lost it; sometimes they have even borrowed to put into finance companies and the like.

We cannot protect people from making some mistakes. The nature of Government and the world, especially in finance, is that you make some choices, you take some risks, and every reward has a risk—the higher the risk, the higher the reward. Many people forgot that, and the financial crisis was a wake-up call that brought back to home that there is nothing out there for free, and if you think you are going to get a higher return by just investing passively, well, you have to take that risk with it.

So we have had to make some big changes. These changes will not solve all the situations. Do not expect the Government to solve all the situations. I think that is the message for everybody in the second-tier debt market. We are not there as a Government to protect in all circumstances, and nor can this Parliament, because whatever rules we make there will be an incentive in the market to provide other instruments that get around these rules. That is just the nature of it, and that will always happen. But what we can do is close up those gaps when we see them. It is very sad when the New Zealand First Party comes in here and abuses this Parliament around this issue.

The Labour Party, when it was in Government previously, started the process of trying to deal with this situation. The National Government took that over and tried to deal with that process, as well. It is all right to come in here and say you are lily-white and had nothing to do with it, but that is not how it works. We cannot tell the future—nobody ever can—and it is a matter of dealing with those situations as they arise.

This is a good bill in that it promotes new reforms in this area, to give some confidence and some comfort to investors. It will not change everything. It will not solve all the problems. The big lesson for all New Zealanders is that you take a risk on some investments, and that the Government and this Parliament cannot deny that risk or take that away. But what we can do is work towards being as constructive as possible in reducing that risk so that we give investors the most protection that is possible. This bill does that. It goes some way to achieving that. That is good for our people. It is something that we need to mix and match with good education and an awareness of the dangers of investment, as well. Thank you.

Dr DAVID CLARK (Labour—Dunedin North) : I want to begin with some words of wisdom that were offered to us in the Finance and Expenditure Committee when we heard submissions on the Non-bank Deposit Takers Bill. We have heard some great submissions in the debate this afternoon. There have been some light-hearted contributions, and we have had some fun with it, but there is a point that needs to be made, and this point was made in relation to this tax legislation by a senior partner at one of the large law firms in town. He said that, basically, this bill moves legislation from one area to another, and it is a total waste of Parliament’s time. That is a direct quote—or he said words very similar to that, which I wrote down immediately.

He was concerned that we are concerning ourselves with matters that are not of significant importance, that most of these matters have already been addressed, and that, in fact, what we are really doing is shuffling paper in this Parliament. I think that this speaks to a wider point, which is around the Government’s priorities and its agenda in the area of financial management, tax change, and so on. We have a Government that is not pushing the big ideas. Instead, it is focused on changing legislation from one Act to another, because it needs to be seen to be doing something. In its current form, the bill is largely window dressing.

Another point made by the same submitter was that this legislation, which has capital adequacy criteria, will tend, because of that, to be more stringent in practice than the advertised minimum capital of 8 percent, and that that will push some unusual behaviours. It may well cause a perverse incentive to loan heavily in the mortgage market, and to drag capital away from productive areas of the economy. If that is indeed true, and if that perverse incentive plays out, what we have here is something that goes in the opposite direction to pro-growth policies. Indeed, that would be consistent with what the Government has done so far. This is a Government with the worst—worst—economic growth record in 50 years. In part, that is because where there is real change to be made, it is shying away. Instead, in this bill, we are dealing with matters that are largely already dealt with.

The previous speaker, David Bennett, mentioned the need to strike a balance in terms of making things clear for investors about risk, and also in terms of making sure that there is appropriate regulation in place. I want to agree with that member. That member sometimes has some wise ideas, and this is one of them. I think that that balance does need to be struck, but we do need to be wary of creating perverse incentives, though, and stepping too far away.

The New Zealand Association of Credit Unions, in its submission, said that it felt that it was ironic that the regulation that is being introduced is going to be borne by the firms that did not collapse. The association was concerned that, in its case, this regulation is a bit tight. The credit unions all have skin in the game in the cooperative business model, and the association felt that perhaps this legislation goes a bit far in terms of regulation, rather than in terms of signalling to businesses what the risks are so that they can make the decisions for themselves about where to invest their moneys. I think it is worth taking that into account as we progress this bill.

The Labour Party will support this bill, because although it is, ultimately, window dressing, there are one or two things that it tidies up that can and should be tidied up. So we are not going to oppose that, certainly. We are concerned that there be integrity within financial markets, which is ultimately the purpose of this bill. That goes to the confidence in the Government as a regulator. We know that that is something that is highly desirable—indeed, necessary—for the future of our country.

Mr Cosgrove, earlier in the debate, made a germane point about confidence in the Government as a regulator, and about the finance sector and the Government’s handling of the Crown Retail Deposit Guarantee Scheme. That discussion is very germane to this bill, because here we have people taking deposits in a scheme that did stop a roll on banks, and that did stop flight of finance to Australia, but it is clear from the report that we got from the Auditor-General, which we asked the Minister of Finance about, that a full investigation has not yet been conducted into the avoidable losses of that scheme, which are really the responsibility of this Government. The avoidable losses of that scheme have been estimated at somewhere between $100 million and $500 million. That is the biggest loss of Crown funds—the biggest preventable loss of Crown funds—in the history of New Zealand. It seems to me—

Hon Clayton Cosgrove: Didn’t we invite Bill English to come in and talk about it?

Dr DAVID CLARK: We did invite Bill English to come and talk about it.

Hon Clayton Cosgrove: What happened?

Dr DAVID CLARK: He has so far resisted any suggestion that he should look into this and answer for the fact that we have potentially the biggest loss of taxpayer funds in New Zealand history—far bigger than INCIS or any other scandal—with additional losses as a result of mishandling this scheme. There were no reports for 3 or 4 months on the additional losses that were incurred. We know, for example, that there was an increase in South Canterbury Finance’s balance sheet in terms of the risk that it was carrying of 25 percent during the period that there was no effective Crown monitoring of the scheme. We know that there was a 10 times increase in another finance company’s loan book—all risky loans. This was all as a consequence, we would argue, of the mismanagement of the scheme—the failure of Treasury to intervene after it had written, effectively, an open cheque on behalf of the taxpayer to preserve taxpayer interests but did not monitor effectively beyond that. This is something that we feel needs to be investigated fully. This gets to the integrity of New Zealand’s position within financial markets, and confidence in the Government as a regulator, which is what this bill is designed to ensure, and we would argue that that is a more poignant and pressing concern than the matters raised in this bill.

Talking further about this bill, we can look at some of the other things it does. One of the things it does is it develops and completes work that the Labour Government started. Although it is tinkering, it is tinkering in a way that is consistent with addressing the concerns that were raised in the finance sector when we were faced with finance company collapses and the world financial crisis. New Zealand faced those challenges, and the Labour Government introduced, for example, the Crown Retail Deposit Guarantee Scheme to ensure that Kiwis could invest with confidence. It is not the scheme itself that we find fault with; it is the handling, management, and monitoring, which the Auditor-General has pointed to and where the Auditor-General has found clear fault. It is that handling of the scheme that has not been addressed or investigated thoroughly. And so it is very hard for New Zealanders to have confidence in the Government as a regulator if it does not address those bigger issues and seems to be focused on addressing smaller issues around the finance sector.

It was 3 years, as well, until the Government got around to the second part of this reform package, which was started by the Labour Government. Since the first reading of this bill, another year has passed. We have got to ask why, if this legislation is so important, it has taken so long to get through the House. This is a Government that seems to be out of ideas. It is not facing up to the reality that we as a country need pro-growth tax policies, we need research and development policies, we need proper savings policies, and we need monetary policy reform to ensure that exporters are supported so we can start earning more than we are spending as a country, and so we can address the real problems with our economy rather than tinkering around the edges, as this bill attempts to do.

In closing, although Labour will support this bill, we take seriously the words of wisdom from submitters and the legal companies that told us this is really a waste of Parliament’s time. We as the Labour Party, if we were in Government, would be doing more serious things to ensure confidence in the finance sector, which is so important to our future as a country.

MAGGIE BARRY (National—North Shore) : I rise to take a short call on the second reading of the Non-bank Deposit Takers Bill. Like many of my colleagues, such as David Bennett, we have heard a lot of things, a lot of difficult and sad stories about people who require assistance and who need a restoring of confidence, and this is what this bill has achieved. It is against a background that has been outlined by other speakers today. There was a need, when Australia moved, for New Zealand to move quickly, and there is now a raft of measures that this Government has brought in to restore confidence in the capital markets. After the global financial crisis, after the collapse of so many finance companies, there were many people who felt that they would never invest again. As my colleague David Bennett said, there were some very sad stories indeed: older people on fixed incomes who borrowed to buy were in difficulties. And this bill, which has rare accord across the House, does complete several years of work to tighten it up.

John Hayes has already gone through some of the regulations that are going to be changed; we have introduced some very good protections in this to maintain and build confidence. I will not go through them all, but the Financial Markets Authority was long overdue. It was needed, to have a one-stop shop, and that does the job. There is a new regime for financial advisers, again, and we have rewritten a lot of the old laws—the 33-year-old securities law—and we have cracked down on loan sharks. These are all things that needed to be done.

Sitting, as I was, on the Finance and Expenditure Committee, on the Non-bank Deposit Takers Bill, we had nine submissions. We had Chapman Tripp, we had the Financial Services Federation, and we had the Trustee Corporations Association of New Zealand, which all came to us and were very happy about the outline. They had some suggestions, and in amongst some robust debate some changes were made—some drafting changes—that have made it a better piece of legislation.

I would have to commend the chairman. I think Todd McClay has done an excellent of job of expertly corralling some of the troops. Is he still in the Chamber? He is here now. I can lavish more praise upon him. He has done a great job.

Todd McClay: I had to run.

MAGGIE BARRY: He had to run—he had to run to come back. See, that is the kind of dedication you like to see in a chair. You know, when you are faced with irascible individuals who will argue with their own shadows, who will pick holes in anything at all—I am not talking about their hairdos. Members in our own team, of course, are above and beyond reproach. But I have to say it has been a rare opportunity to actually agree with some members on the Opposition benches. Every now and again, as a novelty in this House, people do join forces and try to work for the greater good. I believe that that has happened with this bill, and I think it is an excellent piece of legislation. So for its second reading there is not a lot more to be said. It has been covered in great detail. There have been some frivolous and unusual moments, as often occurs in this Chamber, but I commend this bill to the House. Thank you.

• Bill read a second time.

Hon PETER DUNNE (Minister of Revenue) : I move, That the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill be now read a second time. It has been a while since this bill was introduced, so let us just recap briefly on what it does. It is an omnibus bill that makes a number of wide-ranging changes to our tax system. Some of these aim for greater efficiency in innovative tax services, some deliver on changes that were announced in Budget 2011, and others ensure that the current rules continue to work effectively and with greater fairness.

It is a point that is worth stressing repeatedly that in tax administration an important way to simplify the system and to gain greater efficiency is through the greater use of electronic systems—a theme that underpins this legislation. For businesses, the bill’s main thrust is to modernise the record-keeping requirements they face by making it easier for taxpayers to store their records offshore through applications from their data storage providers, and by allowing taxpayers who submit returns electronically to also store them electronically. The bill also contains a proposal to simplify and reduce the costs of record-keeping by removing a number of legal barriers to electronic filing and record-keeping as the Inland Revenue Department moves away from its currently cumbersome paper-based systems towards the greater use of electronic services.

The bill also proposes to rid taxpayers or their agents who send electronic returns to the Inland Revenue Department of the requirement to retain paper copies of those returns. That may seem a simple and, indeed, an obvious step in today’s environment, but it is a significant one that will substantially reduce the cost of keeping records.

It is also worth noting that the bill contains a proposal to give business greater certainty over the tax treatment of costs incurred on software development projects that are unsuccessful by allowing an immediate deduction for expenditure incurred in the year that the development is abandoned. The consequence of this will be a fairer outcome, which should help more investment in innovation.

Continuing the theme of fairness, to bring greater equity to the filing returns system, the bill also amends the tax return filing rules for salary and wage earners. Our tax system works on the principle of paying about the right amount of tax through the PAYE system, and this will even out over time. The advantage for many taxpayers is the removal, therefore, of the annual requirement to file a tax return, meaning a reduction in their compliance costs, and freeing up the Inland Revenue Department from processing those returns to focus its resources on higher-value activities.

Over the years that advantage has been eroded. Some salary and wage earners have been cherry-picking only the most favourable years in which to square up their tax obligations in order to receive a refund, while of course ignoring those years where there might well be tax to pay. This has resulted in the number of refunds for small amounts flowing out of the system and none of the balancing tax to pay it back, if you like, coming back in, so the evening-out process that the legislation—which dates from the late 1990s—sought to put in place is, in effect, being nullified. So what this bill proposes is that taxpayers who choose to file a return for a particular year in which they expect an advantageous result should also be required to file returns for the previous 4 consecutive years.

The bill will also remove the requirement for taxpayers to file an income tax return or to receive an income statement from the Inland Revenue Department merely because of their Working for Families entitlements.

This bill was considered by the Finance and Expenditure Committee. I want to acknowledge the work that the committee did and the fact that, in bringing the bill to its second reading, the committee made two very important recommendations. The first of these is that the proposal to amalgamate the IR3 and personal tax summary return, which members may recall was included in the original proposals, should not proceed. Its second recommendation was that the implementation of the other return filing proposals for individuals that were remaining in the bill should be changed from the 2014-15 tax year to the 2016-17 tax year. These latter proposals can be activated earlier, if that proves necessary, by way of an Order in Council. I think that these are sound recommendations. I think that they will allow the Inland Revenue Department to implement the returns filing proposals for individuals alongside other high-priority changes that are already being implemented.

I should also inform the House today that I intend to release a Supplementary Order Paper on this bill. That Supplementary Order Paper will focus largely on issues relating to the Canterbury earthquakes. I am confident that it will provide real help to the citizens of Canterbury, as the matters that it addresses were all raised by taxpayers and their agents. It will introduce a series of remedial changes to ensure that the international tax rules are also working as intended.

Overall, this is a straightforward piece of legislation. It is consistent with the changes that we have been making over a number of years to simplify and make the process more efficient. It is taxpayer-friendly in the main. It has been well considered by the select committee, and I acknowledge the members for that work. I am now pleased to commend the bill to the House for its second reading.

Dr DAVID CLARK (Labour—Dunedin North) : The Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill follows neatly on from the last that we have debated, and that is because it also is about tinkering. It is an omnibus bill, as the Minister of Revenue has told us, and it does some worthy things—I will not deny that. The Minister is striving to ensure that the tax system we have has loopholes plugged. He is making some useful flip-flops on KiwiSaver, and he is tightening up one or two things that it is good to address.

The submitters to the Finance and Expenditure Committee, which was well run by members opposite, made a number of salient points, and so we had some general consensus around changes that should be made. We heard from Mr Crooks, Mr Gilchrist, Mr Lay, Buddle Findlay, a coalition of insolvency practitioners, Contact Energy Ltd, the New Zealand Law Society, the New Zealand Computer Society, PricewaterhouseCoopers, the Corporate Taxpayers Group, Gerry Rea Partners, KPMG, the New Zealand Bankers Association, and so on. You get the picture. These were a worthy group of submitters who had given this bill full attention. So I think it is fair to say that technically it is a very competent bill, and the Labour Party will support it on that basis.

However, the thing this bill does not do is address the real problems with our taxation system. This bill does nothing to address the 4 percent drop in revenue since this Government came to office 4 years ago.

Hon Dr Nick Smith: The GFC.

Dr DAVID CLARK: The global financial crisis, as the Hon Dr Nick Smith points out, did have an effect on the tax take. The member is quite right. The Inland Revenue Department attributed 1.5 percent of the drop in tax take, of a 4 percent drop, to the global financial crisis. The other 2.5 percent it attributed to policy changes.

We know that the biggest change in recent times is the tax changes of 2010 that the Government made. They have seen Government revenue plummet, and this bill does nothing to directly address that. Sure, it stops a few loopholes. It does make some small amount of difference, but no measurable difference in that respect. The finance Minister continues to describe those changes made in 2010 as broadly fiscally neutral, and with that—we know he takes some licence from his surname—he is really redefining the English language in that respect. The word “broadly” has been given new meaning, I would suggest, because “fiscally neutral” usually refers to the forecast period, which is a 4-year period. Now the Minister is referring to the “business cycle”. He has stopped saying that it is fiscally neutral; he has started saying it is broadly neutral over the business cycle.

This is evidence of a Government that is struggling. It is struggling in this area. It does not have pro-growth tax policies, and so the investment signals that people are getting encourage them to put money into the speculative sector and not into the productive sector. This is something that needs to change. This is not addressed in the bill in any sense, really, other than stopping some loopholes, which, again, could be speculative but are probably not productive. It does nothing to address that.

It also does nothing to increase savings. We need a universal KiwiSaver. This bill does raise the employee contribution rate for KiwiSaver from 2 percent to 3 percent. National has been flip-flopping all over the place on KiwiSaver. Only 2 years ago, I will remind members of this House, National cut the employee contribution from 4 percent to 2 percent. So it has gone down from 4 percent to 2 percent, and now the Government is putting it back up from 2 percent to 3 percent. It is all over the place. The Government has more positions on KiwiSaver than the Kama Sutra, I would contest.

We see that the Government is tinkering with savings, but it does not really have a vision for this sector. The minimum wage increase that my member’s bill puts forward would assist with savings policy, because it would ensure that hard-working New Zealanders could make contributions to this KiwiSaver scheme addressed in the bill.

We know we need pro-growth tax policy. We know we need savings increases. If we look across the Ditch to Australia we see it has $1 trillion in its superannuation scheme looking for a home—looking to support businesses. We have nothing like that in New Zealand. Muldoon scrapped it. A previous National Government leader scrapped this scheme, and if we had it today, we know we would be in a much better position. We would have greater capital depth in this country. But this bill does not directly address that problem. All it does is correct a few loopholes. The research and development tax credits, which could change it, are not in there, nor is monetary policy change to support our exporters.

Why are we not getting that? Why are we getting this kind of bill? I want to contest that it is because we have a problem with the Inland Revenue Department. We have a computer problem in the Inland Revenue Department that this Government has not yet dealt with. We have computer systems that are on their last legs. I want to quote from the Prime Minister, who said in February this year that tax policy is being held up because the computer systems—and here is the quote—“can’t actually support radical changes from Government.” This Prime Minister here—the National Prime Minister—says that his own tax department cannot actually support radical changes from Government. This is the Prime Minister of this country saying that it cannot make significant changes that will be of benefit to our country. This is really troubling stuff. “You don’t want to be in a position where Parliament is held hostage to a lack of technology.” Who said that? That was the Prime Minister.

Chris Hipkins: The Prime Minister?

Dr DAVID CLARK: Yes. He said: “You don’t want to be in a position”—

Hon Trevor Mallard: The current one?

Dr DAVID CLARK: —the current Prime Minister—“where Parliament is held hostage to a lack of technology.” That is precisely what we have got. That is why we have got this watered-down legislation. That is why we have got legislation that is not going to make a difference to New Zealand. That is why our economy is in the doldrums. This is what he told Parliament.

We know that when the Government attempted to do something about this—it was told when it first came to office that this system was on its last legs—Mr Dunne received that briefing and the department did start to try to address some of the issues. It made a $21 million false start—a $21 million false start. That is taxpayer money that went into a system. I think it did the right thing in pulling out, by all accounts—it went nowhere. But what has it done since? We have no plan as to how this tax system is going to be fixed. We have the ageing FIRST core computer system, now more than 20 years old. That was built in 1992, before Google and before Facebook. This is the system that we are reliant on as a country to ensure confidence in our tax system, and we have a Prime Minister who tells us we cannot rely on it.

I want to say that we are in a dire position, and that is why this Government is reduced to tinkering on tax policy. Partly, it does not want to address the big issues, but partly it is hamstrung because it does not have a clear plan as to how it is going to get the systems in place. It is about time the taxpayers of New Zealand were given a clear picture of how this problem is going to be addressed.

This bill does raise the employee contribution for KiwiSaver from 2 percent to 3 percent, after National wound it back from 4 percent to 2 percent previously. It is also true that the big ideas that the Government has are reduced to things like the paper boy tax. We know that that was the big idea in the Budget from the Government. This is along similar lines. We have an omnibus bill. It is worthy and it closes a few gaps, but it really is not going to address those big issues. The tax switch, which all our hard-working New Zealanders are hurting from, is still in place. The top 10 percent of New Zealanders got 44 percent of the value of those tax cuts; the bottom 20 percent got about 2 percent of the value. We have got a tax system that is not fair, and we have got a computer system that can hardly keep up. The Inland Revenue Department computer upgrade, we are told, is going to cost $1.5 billion—$1.5 billion, this new computer system—and yet we do not have a timetable, and we do not have sense of who is going to build it, what it is going to look like, or how it is going to give us confidence as taxpayers that our tax dollars are being properly collected.

We have a Government that needs to get its act together. We need this Government to get its act together, to get our tax system together, so that we can actually make the changes that will take New Zealand ahead as a country. Then we can stop our workers flying away to Australia because there are no prospects here and because the tax system cannot handle pro-growth tax policy. We need to make a difference. I contest that the National Government is not on top of this, and it must get up to speed and fix this issue.

TODD McCLAY (National—Rotorua) : It is a pleasure to rise and speak on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill.

Can I apologise to anybody watching this on television for the speech from the last member, David Clark, because it was full of doom and gloom. The only bit that I thought worth picking up was when he was talking about the bill and suggested that it had more positions in it than the Kama Sutra. Well, I have got to say that there will be people all over New Zealand who have heard that who are thinking of the Kama Sutra and now have a picture of that member in their minds, and procreation around the country will have ceased. So I do not think that we should do that again.

He also mentioned to us that all the bill does is fix a few tax loopholes—a few tax loopholes. Does anybody remember the last election when the then leader of the Labour Party—somebody who is thought of quite fondly now, compared with the new leader—said that a Labour Government policy was to close a few tax loopholes? He said that it would save about $5 million by doing that, and would then use it for $6 billion worth of new spending. So when it comes to closing loopholes, I can say that this bill actually does a very important piece of work. It is a real piece of legislation, and is not like the pie-in-the-sky dreams that we heard previously.

I want to talk about a couple of bits of the bill that I think are quite important for New Zealanders. In particular, I want to talk about KiwiSaver. What this piece of legislation does, and what our Prime Minister has done, is focus on ensuring a very strong and important future for KiwiSaver that New Zealanders will benefit from. Before I do talk about it, though, I want to say that the Government is clearly focused on lifting New Zealand’s economic performance. I want to pay particular attention to this in so far as the work the Government is doing collectively, but also, more important, I want to say that individual members of the Government are also doing their fair share.

On my right we have Mr Paul Goldsmith. Can I say to members opposite that when they go to the airport shortly, before they rush into a lounge there to dine, then go home to their families, they should have a look in the bookshop on the way past. There will be some serious fun to be had, because I have heard that tomorrow a book called Serious Fun will be available to New Zealanders, authored by somebody sitting very close to me. If you pick up a copy, it is good for the economy. The book focuses on lifting economic performance, and if you are nice to Mr Goldsmith—sorry, if the members opposite are nice to Mr Goldsmith—he will sign it for you. I can see already that there is quite a bit of interest in that happening. The title is Serious Fun, and that is what we say about Mr Goldsmith on this side of the House.

I will say just briefly that when it comes to KiwiSaver, the Government has made an absolute commitment to New Zealanders that this is about saving and focusing on the future. The $1,000 kick-start is secured in law and will remain there. That is a commitment on behalf of the Government. The changes that we are making will reduce the Government’s borrowing whilst increasing the focus on saving through KiwiSaver.

I want to give credit where credit is due, because KiwiSaver is a great scheme, and it is one that we know that 1.9 million New Zealanders have opted into. I want to give credit where credit is due. That credit deservedly goes to our Prime Minister, John Key, who secured it, worked hard to deliver on it, and made some important changes here that mean that KiwiSaver is something that New Zealanders can benefit from and rely on. That is actually very much what they also think of this Government. There are 17,500 new members a month joining KiwiSaver—a fantastic number of New Zealanders. There was $9 billion in it 3 years ago. The KiwiSaver fund has grown to $12 billion, and it is expected to be worth $60 billion by 2022—

Dr Cam Calder: How much is that?

TODD McCLAY: —$60 billion by 2022.

I can say very clearly here that not only is the Government committed to KiwiSaver and not only does the Prime Minister support it fully, which is why we have made these important changes, but we will not touch it, as opposed to the members opposite, should they ever get on the Treasury benches again. We will leave it there for New Zealanders. It is for their use in the future. It is the Opposition that will say: “We have closed loopholes, we have saved $5 million, but we have found another $6 billion of spending, and we might have to raid New Zealanders’ piggy banks to do that.” The trust of New Zealanders is firmly in this side of the House. I look forward to the next speaker’s speech. Thank you.

Hon DAVID PARKER (Labour) : I hope not to disappoint the last speaker, Todd McClay. I see the prior speaker has brought up the issue of Serious Fun, a book to be published by Paul Goldsmith, I think. Of course, Paul Goldsmith is the biographer of John Banks—

Dr David Clark: The hagiographer.

Hon DAVID PARKER: The hagiographer—that is right. Actually, there are two biographies already on John Banks. One was a vanity book, which was the one that Paul Goldsmith authored. The other was a more transparent biography of some of his prior things—

Hon Trevor Mallard: Noel Harrison’s book?

Hon DAVID PARKER: —that is right, by Noel Harrison—called Banks: Behind the Mask. Because I stood against Mr Banks, I had the misfortune of reading both. I not sure whether this Serious Fun is poking fun at Mr Banks in the next part of his career or whether it is about some other topic.

There is a serious point to be made about that though, and that is that rather than getting on and dealing with the important decisions that need to be taken through some pro-growth tax reform and through some really significant changes to savings over time in New Zealand, which the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill only tinkers with, this Government has left tinkering and seems to be spending more of its time managing its own faux pas than it does managing the interests of the country. Whether it is fiascos at ACC, with exaggeration as to the level of problems in ACC by Dr Nick Smith—followed by a miraculous cure about a year later. Having jacked premiums up higher than he needed to, he then dropped them down for the election, then he eventually bit the dust because of some other problems. Since then, we have had John Judge dumped. I did not agree with everything he did, but I actually did think he was a decent person and did not deserve the indignities that he has suffered in recent months. We have had other—

Hon Trevor Mallard: Even this morning.

Hon DAVID PARKER: Even this morning it continues.

Hon Trevor Mallard: Judith Collins dumped on him this morning.

Hon DAVID PARKER: Yes, she dumped on him this morning and accused him of sort of covering up documents, rather than those documents having been wiped off a computer by ACC itself. Other things going wrong are legion. The latest Budget we had was all about increasing class sizes to improve teacher quality. What a nonsense. That one fell. That one bit the dust.

This bill itself, as the prior speaker, the man from Rotorua, said, does increase the compulsory contribution under KiwiSaver to “3 plus 3”, but what it does not do is expand the scheme to more people or set out a path for the future that has savings under that scheme growing progressively over time. New Zealand needs both of those fundamental steps if it is to right the wrongs that we have had in this country for decades now, since the last National Government to tinker with saving schemes, Mr Muldoon, undermined—

Paul Goldsmith: You weren’t listening. The member wasn’t listening to the answer to question No. 1 today. It was talking about savings.

Hon DAVID PARKER: Oh, he talked about savings—OK. Mr Goldsmith tries to defend himself by saying that Mr English, in answering at question time today, said that there has been a decrease in household debt in New Zealand in the last 4 years. You would expect that. You would expect that, because in a recession people put their cheque books away. They do not buy cars, they do not buy as many dishwashers or home improvements and things, and they do not buy as many books, Mr Goldsmith—they do not buy as many books. How much to you think New Zealand household debt has gone down by?

Dr David Clark: You’d expect 10 percent or something, wouldn’t you?

Hon DAVID PARKER: By 0.2 percent, Dr Clark—0.2 percent. Those members claim that that is some wonderful success—0.2 percent. I thought Mr English went through that part of the question very quickly. It was almost sotto voce, “0.2 percent”, then he carried on with the rest of his answer.

This Government is failing to address the big issues. We need everyone who is in work, except in cases of hardship—where they have a serious illness, for example—in KiwiSaver. That is the big difference between Australia and New Zealand. We had Mr English again saying: “Oh, it’s resources.” It is resources, he was saying. Then why is it that we have net migration out of Taranaki? When I uncovered that statistic this week, I was most intrigued to think: “Ah well, I’m sure we will have that same old excuse, now that the excuse about Greece is wearing thin.”, given that people are not leaving New Zealand because of Greece’s problems; they are leaving because of New Zealand’s problems.

Andrew Little: A two-speed economy in Taranaki.

Hon DAVID PARKER: A two-speed economy in Taranaki. Unfortunately, they are both a bit slow relative to Australia, because this Government refuses to take the decisions that are necessary in order to get the economy moving. These are long-term entrenched problems, but we will not overcome them unless the Government takes the decision that New Zealanders need it to take and that businesses need it to take, so that the economy starts moving. There are some decisions that business can take. There are some decisions that business cannot take. Our population relies upon the Government taking those right decisions, and they are not being taken.

As we have heard from Dr Clark, real wages are dropping. Then we hear the Minister of Finance say: “Oh, not after tax.” What he does not tell you is his not-after-tax figure. It is true enough if you are one of the highest income earners in New Zealand, who got 40 percent of the tax cuts that went to the top 10 percent; their after-tax real wages have gone up a little bit. But there are other people—

Simon O’Connor: Tell the full story!

Hon DAVID PARKER: I am telling you the whole story. The real wages after tax of the lower deciles in the economy have not gone up. They have not gone up; they have gone down. That is another reason why we have got this great outflow of people to Australia, or this terrible outflow of people to Australia. They have no sense of optimism that they can have a profitable and secure future in their own country. Now we have reached the terrible situation in that the Government promised it was going to reverse this drain to Australia, but we have had it go up, and 40 percent of the people who are leaving are between the age of 18 and 30, from the regions as well as the cities. Those who are leaving from the regions are not replaced by immigration into Auckland. We have an ageing population in our regions. We have a spiral downwards in some of those centres. It is very sad, and I suspect it is not going to change much under this Government.

The Government says that unemployment is not as bad as it is in other countries, and that is true. Unemployment is not as bad as it would be if we were not losing 53,000 per annum to Australia.

David Bennett: Oh!

Hon DAVID PARKER: We have David Bennett say “Oh!” and throw off at that comment.

Hon Clayton Cosgrove: He just woke up. He was snoring.

Hon DAVID PARKER: No, actually he was not asleep. He was not asleep.

Paul Goldsmith: This speech lacks punch. Come on.

Hon DAVID PARKER: This speech lacks punch—OK. Well, I will let Judy over there take the next call.

The Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill does another thing that I am not sure—although overall we are voting for this bill—is right. Contact Energy complains that this bill is changing the laws relating to the taxing of bonus shares issued by companies under profit distribution schemes. The one public company that this was going to affect in New Zealand to a significant extent was Contact Energy. Contact Energy came along to the select committee and said “Look, don’t do this to us.”, because actually what the bill is doing is making it harder for it to raise the capital that it thinks it needs in its business. It currently operates under a rule that enables it to have people retaining some of their earnings in the company and taking a bonus share in lieu of a dividend, which was causing no loss of tax to the revenue, but was causing an increased rate of leaving retained earnings in the company to the benefit of that company, and probably increasing New Zealanders’ savings.

Again, the Government did not listen. It did not listen to Contact Energy, which said that this was going to decrease the rate of savings in New Zealand and decrease the capital available in that sector of our economy for no good reason. The concern that the Inland Revenue Department had was that these schemes could be misused in other parts of the economy, but they are not currently being. So why do we not wait until they are being misused before we fix this fictitious problem? At the moment it is a future problem, rather than a current problem. Instead, the Government moved on this, again a somewhat peripheral matter, when it should have been dealing with bigger issues.

Record numbers of people are going to Australia, exports are decreasing, and the Government is not pulling the levers it has control of to reverse that trend. We are not doing the things that we need to do to improve our productive export economy, and the economy is not rebalancing.

Dr RUSSEL NORMAN (Co-Leader—Green) : I rise to speak on behalf of the Green Party on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. The first thing this bill does, of course, is set the annual tax rates for the 2012-13 tax year. The setting of those annual tax rates fixes in place the great so-called tax switcheroo that the Government introduced. If you remember, the tax switcheroo the Government introduced was meant to pull the wool over people’s eyes. It was meant to trick people—

David Bennett: Come on, switcheroo!

Dr RUSSEL NORMAN: It obviously tricked David Bennett. It would be a pretty easy job, you would have to say. But the idea of the tax switch was that the Government would decrease the taxes on upper-income earners, which it did, and the exchange would be that it would increase GST. So what that would mean is that ordinary New Zealanders would pay by having an increase to the GST on their groceries. Every time you go to the supermarket you have to pay a little bit more GST. You pay a little more GST so that those who are the very upper end of the income scale can have tax cuts. It meant a 5 percent tax cut, effectively, for those at the top end. So if you earned $1 million a year, then the National Government, the John Key - John Banks Government gave you a 5 percent tax cut. So if you earned $1 million a year, you were given an extra $50,000, or about $1,000 a week. Of course, that money has to come from somewhere, so the way that the John Key - John Banks Government organised this was that it said: “Oh well, every time ordinary New Zealand mums and dads, Kiwi mums and dads, go to the supermarket to buy their groceries, they can pay extra GST on those groceries.” And that is the heart of the tax switcheroo. What it meant was a big tax cut for upper-income earners, which is very significant if you are on $1 million a year. That is a tax cut of $50,000 a year, or $1,000 a week, thank you very much, John Key and John Banks. But if you were a middle-income earner, then you have to pay increased GST to cover that cost.

Aside from the sheer inequity of that tax switch, the old tax switcheroo, which was at the heart of this bill that we are considering in front of us—and aside from the sheer unfairness of a system that says we are going to give big tax cuts to those at the very top and we are going to pay for it by taxing ordinary New Zealanders more through their GST—the Government said it would be fiscally neutral or broadly fiscally neutral. That is what the Government told us. Of course, it has been no such thing. It is not fiscally neutral. At no point was it fiscally neutral. In fact, the revenue lost was probably something in the order—it is very hard to get the numbers out of the Government, because the Government is very shifty on these issues; it is the John Key - John Banks Government, after all. It is very hard to get the numbers, but it is probably about $2 billion. That is the deficit. So instead of being fiscally neutral, as we were told at the time, it has, in fact, cost maybe $2 billion so far. If that is the case, then that means an extra $2 billion has had to go on the Government credit card. We have had to borrow that money to cover the tax switch that is implicit in this bill.

So the Government introduced changes that made our tax system much less fair, on the one hand, by taking money away from middle-income earners and giving it to upper-income earners, and, on the other hand, it made the fiscal position of the Government much worse. It made the deficit worse. So that was the heart of the Government’s great tax shift policy that is put in place by this bill. For that reason the Green Party will not be voting for this bill. We think that this bill is fundamentally unjust and unfair because it sets tax rates that are fundamentally unjust and unfair.

But most of all, this bill is part of the Government’s overall economic package—the Government’s dumb, dirty, grey economic package. So instead of having smart Green economics, which is the direction in which the world is heading—smart Green economics is the 21st century economics that we should be embracing as a country—this John Key - John Banks Government is giving us dumb, grey, dirty economics. It is the economics of the 19th century when we should be embracing the economics of the 21st century. That is what this tax package is part of.

So instead of seeing a tax shift that would be progressive, such as moving tax on to capital gains, which is highly progressive, what we are seeing is actually increasing taxes on the poor and cutting taxes on the wealthy. Instead of seeing a tax shift that would reduce the taxation pressure on ordinary people and actually put a carbon charge in place, what this Government is doing is spending about $1.5 billion a year to subsidise greenhouse gas pollution via the emissions trading scheme. And instead of this Government introducing some kind of resource rental—for example, around water, which is one of our most important resources—which could then take some of the pressure off the tax system, so that we would not see the kind of tax rates that we are seeing in this bill, the Government is doing nothing about water. In fact, what it is doing is giving away the rights to water for free. So irrigators who use water and make billions of dollars out of water, literally, do not have to pay anything for the use of that water.

Instead of having a smart Green economic future, where we would actually increase savings and would support KiwiSaver—and an automatic enrolment system would be part of that in order to increase the number of people who are getting into KiwiSaver, thereby increasing our savings—the Government backed away from automatic enrolment in KiwiSaver, because, it said, it cost too much. And, of course, the reason why the Government could not afford it was that it gave away so much money in tax cuts to upper-income earners that it could not afford to make the kind of structural change that we need to make in the economy to actually increase the amount that we are putting into savings through KiwiSaver. So auto-enrolment did not happen.

The other part of it, of course, that is missing in terms of a taxation policy is the Government’s decision to borrow to pay for the rebuild, and, of course, to put a levy on just the people of Christchurch. So it is Government policy now that the people of Christchurch will pay an earthquake levy through their rates, and the Government will borrow to pay for some of the rebuilding costs, but there will not be across the country a temporary, targeted earthquake levy—or a tax, as the Minister for Canterbury Earthquake Recovery, Gerry Brownlee, quite rightly identified, which is fair enough. A temporary, targeted earthquake levy could have been used to take some of the pressure off the Government’s fiscal position to pay for the rebuild, which would have been fair, and would have been spread across the whole country. Everybody would put in a few bucks, it would take the pressure off the people of Christchurch, and it would reduce Government debt. Instead of that being part of this tax package, which it is not, what we are seeing is that the Government has actually put a levy through its rates on the people of Christchurch—the very people who do not need extra burden at the moment. The John Key - John Banks Government has put an extra levy on the people of Christchurch to pay for the rebuild, but the rest of the country has not worn it. Instead of having that levy as part of this package, it has not had it there at all.

In terms of dealing with the structural imbalances that underpin the poor economic performance of New Zealand since the new-right economic revolution of the 1980s and 1990s, which has been an economic catastrophe for New Zealand, we have not seen anything to address the overvaluation of the currency. So whether it is part of this bill, or whether it is part of monetary policy, we have not seen any attempt by this Government to deal with the problem of the overvalued Kiwi dollar. In the middle of the currency war, this Government just says: “Oh well, whatever is whatever.” Even though the Reserve Bank says we have got an overvalued currency, which is destroying the productive sector, and even though all of the leading economists say we have got an overvalued New Zealand dollar, this Government is doing nothing on it and sitting on its hands.

Instead, the Government has gone on a spending splurge. The spending splurge is really amazing: $12 billion or thereabouts on new motorways, which have never been through Treasury’s infrastructure criteria. Treasury has a special thing. It has a special set of rules. If you are going to invest in infrastructure, you are supposed to put it through Treasury’s infrastructure rules. The roads of national significance project, a $12 billion project, has never gone through Treasury’s process. And then we have the $1.5 billion on greenhouse gas subsidies. We have the $120 million to $500 million cost of the assets privatisation programme—still unquantified. The Government will not say how much it is planning to spend on that. Of course, the permanent impact of the privatisation of the assets is that it means that the Government’s deficit is worse by $100 million a year, according to Treasury’s Budget Policy Statement 2012.

So that is the reality of this fiscally imprudent Government. It has many, many hundreds of millions and billions of dollars to give away in tax cuts for upper-income earners, to subsidise pollution, to spend on new motorways, and to subsidise its assets sale programme, and that has put the Government books into a terrible hole. So instead of getting the kind of smart Green economic transformation that we need as a country, what we are getting is very poor economic management from a Government that does not know how to manage the books. What we are getting is a tax bill in front of us here that basically cements in place the old tax switcheroo, which simply gave away large amounts of money to upper-income earners and made middle-income earners pay for it. The Green Party will not be supporting this bill.

PAUL GOLDSMITH (National) : We had to listen again to that great Australian Russel Norman talking about economics. Circa 1955 Eastern Europe was the feeling I had there. Here we have, supposedly, the Government taking the tax off the high-income earners. We have got a tax system now where three-quarters of earners are paying no more than 17.5 percent in personal tax, and a big chunk of that group would be paying no income tax after Working for Families is taken into account. But that is not good enough for Russel Norman. I just wonder what he would be really wanting to have as the top tax rate. He would probably want a 75 percent top tax rate, like Francois Hollande, or something like that. Perish the thought for the country if that man became Minister of Finance in a future Government.

The Labour research unit has obviously got its lines very well organised. Everybody over there talks about tinkering. That seems to be the word that they have been told to get across—“tinkering”. Well, this bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, which we are talking about here at its second reading, is all about tax maintenance. The last thing this country needs right now is to be lurching all over the place with madcap new taxes, as proposed by the Labour Party at the last election. The last thing we need is a capital gains tax. It has still never been explained to me how sticking a new tax on the productive sector, like small companies, farms, and all those sorts of things, is going to somehow improve economic growth and entrepreneurialism in New Zealand.

Then Labour was going to undermine the GST system that we have here, which is the envy of the world. Our GST system is consistent right across the board. Everything is done the same way. There are no exceptions. They were going to undermine that by fiddling around with fruit and vegetables. No doubt, if they had the chance, they would return the top tax rate up to 39 percent or 40 percent and open up a gap between the top rate and the trust rate, which Michael Cullen did previously, which grossly distorted the system, led to a whole lot of avoidance schemes, and undermined the integrity of the system, and yet they have not learnt from that. I am sure if Russel Norman got his chance he would be widening and confusing all the tax rates, leading to an undermined system. I heard in the last speech that we are now going to start taxing water, and he is thinking about how best to manipulate the currency. I can just imagine him watering the milk and trying to do a good idea there.

This Government got the basic tax settings right back in earlier Budgets, where we did the tax switch, focusing on lifting tax off work and income and putting more of it on to spending, and getting that alignment right so that the economy is focused on making work. It never ceases to amaze me, in the Finance and Expenditure Committee, that we talk about smoking and most of the members understand that if you actually tax something you discourage it, and so they are all happy to put the excise taxes up on cigarettes—fully understanding and believing that if they do that it will discourage people from smoking. But they never take the next logical step and understand that if you increase the taxes on working, you will discourage people in that area as well. They do not seem to follow that logic. I just encourage them to think about that, as we go on. It amazes me.

Look at where we have got to on tax. We have a competitive tax system internationally, which is tilting the economy away from borrowing and spending, and towards saving and investment. It is a simple tax system. Two-thirds of the cost of the income tax went into reducing the bottom two tax rates. That is something that Russel Norman never mentions. As I said, three-quarters of the earners are paying less than 17 percent in personal income tax. We have got a company tax rate at 28 percent, which is internationally competitive. A family with two children in this country can earn up to $50,000 a year and effectively pay no tax when Working for Families is taken into account—$50,000 a year. So I hardly think this is a land where lower-income earners are oppressed and are carrying an unfair burden. This is a land where we have got a very good and very equitable spread of the burden of taxation.

Drilling down to some of the specifics of this bill that we have before us at its second reading, the main purpose of it is to simplify tax filing requirements for individuals and support businesses in handling their tax obligations electronically. We have seen here that we have introduced a number of supports, giving people in the business sector more flexibility about how they use online and electronic media in the course of managing their tax affairs. Another area is closing up a loophole that has emerged in the last few years, where people have started cherry-picking their tax returns. If they realise that this year they have got a return due, they pop it in, but if they have had 3 years before where they actually had to pay a little bit of extra tax, they are not paying that. So this bill goes, in a logical sense, to say that if you are going to pick one year, actually you have got to cover the last 4 years and we will even it out. During the course of the select committee we did hear a number of arguments about that and have made some changes so that under the 4-year rule you will not now incur use-of-money interest or penalties from the previous date due. We thought that was a little uncalled-for, and that change has been recommended by the committee.

The application date for changes to the profit distribution plan is another area of this bill. It was interesting to see Mr Parker, defender of the big corporates, on that score. But we did listen, and deferred the implementation of that provision from 1 July to 1 October, which has given those companies more time to make the changes necessary. The application date and savings provision for the proposal to charge GST on late payment fees will be deferred again, from 1 April to 1 January. Again, furthermore, GST will not be charged on late payment fees if the underlying charge is exempt. So some of those things are all, on the whole, good, solid maintenance of a tax system that is working well and that is all about National being firmly focused on lifting New Zealand’s economic performance and taking this country to the brighter future that its people deserve. Thank you.

ANDREW WILLIAMS (NZ First) : I take a call on behalf of New Zealand First on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. It is very interesting that I am giving this speech while the Olympics are on, because much of what we have heard from the National benches could be aligned to some of the Olympics in the last week. In particular, I have seen at the Olympics a number of own goals, and we have here in this Chamber today basically an admission that the Government has made a number of own goals. It is also almost like watching the rearranging of the deckchairs on the Titanic. When they talk about tinkering they are quite correct—there is a lot of tinkering going on around the edges in relation to some of these taxation changes, rather than addressing the big picture of proper tax reform.

In respect of this, you do wonder whether, had this Government not provided those tax reductions for the wealthy a couple of years ago, and had it not knocked a billion or two off the taxes of the wealthy, it would today be needing to rearrange the deckchairs on the Titanic to come up with some of these sorts of nickel-and-dime, margins-of-error amounts of tax on the edges. Had the Government actually kept that billion or two from a year or two ago, which would have been in the coffers today, we would probably be $4 billion or $5 billion better off today, 2 years later. It could have done that, rather than giving all the mates of this Government—mainly the mates of this Government—some significant tax reductions.

In that respect, I had to smile when I heard the previous speaker, Paul Goldsmith, talk about “lurching all over the place”. If it is not lurching all over the place to reduce the employer contribution to KiwiSaver from 4 percent to 2 percent a couple of years ago—or last year, was it—and then bring it back up to 3 percent this year, I do not know what is. It almost feels like many of these Government people were actually sitting in a chair on the Titanic while it was going down, because they have had to hold on very firmly and watch the KiwiSaver employer contribution start at 4 percent, go down to 2 percent, and now go up to 3 percent. People out there in “KiwiSaver land” in New Zealand—New Zealanders who genuinely want to have a good savings scheme—must be wondering what is going on with this Government that it can basically play around with such an important scheme year by year. It puts a huge cloud and a huge doubt over the Government’s long-term intentions in terms of KiwiSaver. That is another own goal; that is the second own goal for the day.

The third own goal is coming up, because it says here, in the introduction to the bill, that it will allow “the capital costs of unsuccessful software development to be tax-deductible”.

Hon Clayton Cosgrove: Is John Banks involved?

ANDREW WILLIAMS: I wondered whether Dotcom was involved in this, and I wondered whether John Banks was involved in this as well, because “allowing the capital costs of unsuccessful software development to be tax-deductible” clearly means that people in the software business who have not been that successful—and there are one or two in Coatesville; there are one or two who live out at the Dotcom mansion who in recent times under this Government have not been that successful—are probably hoping this will go through, because they will be able to deduct it. Hopefully, they will be thankful to this Government that those unsuccessful software developments will be tax deductible. They then will not have to put anything in brown envelopes and maybe give them over desks, board tables, or dinner tables in a Coatesville mansion. They will know that in the future that will be tax deductible, and they will be able to do that quite above board—quite above board—because they know that their unsuccessful software development will be all right. That is another own goal; that is three own goals. It is three nil to the Opposition at the moment—three nil to the Opposition.

But it gets worse. It gets worse. The next own goal is taxing bonus shares issued by companies. Well, holy mackerel! Have we not got bonus shares in State-owned assets, for the power companies, coming up shortly? Those are also going to be part of this scheme. The bill states that taxes on bonus shares issued by companies are going to be part of this review. Why would that be? Is that not convenient that, when you are selling off all the shares in your power companies that you own, that I own, that you own, that he owns, and that she owns—that we all currently own—in the future the taxes on bonus shares given out by companies are going to be part of that? This is the grand scheme. This is the fourth own goal, so we are up to four nil to the Opposition now. This is incredible; it is amazing.

It goes on and on. Basically, this tinkering around the edges, this playing around with all the margins of error in the taxation system, is an excuse for this Government over the last couple of years—coming up 4 years now—to make major changes and give major reductions in tax for its mates, for its business friends, and for its wealthy friends on Paritai Drive who are building $30 million mansions or buying luxury launches on Auckland harbour. The Government is helping them out and giving them reductions in taxation—giving the likes of the former chief executive officer of Telecom, who was earning $5 million a year, another $5,000 a week in savings in tax. It is also giving the Prime Minister, John Key, another $1,000 a week in his back pocket so that he will be better off and can invest in another house in Hawaii maybe, or more shares in the Colorado ski fields, or more investments in Bankers Trust in the United States—wherever else his $50 million is around the world. Basically, a lot of this bill is just tinkering around the edges, but not addressing the big picture of proper tax reform.

New Zealand First has said on the previous bill, the Non-bank Deposit Takers Bill, that we will support any policy that does try to tighten up taxation and banking issues. We are going to support this bill, because there are some merits in it. There are some merits in it. The fact that it is bringing KiwiSaver contributions back up to 3 percent is a good move—it should never have gone down to 2 percent in the first place—as is the fact that it is starting to weed out taxpayers who have not necessarily filed returns when they should have. Again, probably, most of those who have not done it will be the wealthy mates of those on the other side of the House. Most average Kiwis do not get much in the way of a tax refund. Most of them do not, so it does not really apply to—

Hon Clayton Cosgrove: Especially paper boys.

ANDREW WILLIAMS: —paper boys, in particular. How many tax refunds will paper boys get in the next year? Not many. Not many. But the Government did find $14 million from the paper boys and the paper girls of this country a few months ago in the Budget. They will be some of the ones affected in terms of the tinkering around the edges of the taxes.

But we will support this bill continuing through. Taxation is an important matter in this country. It is important for all 4.5 million New Zealanders, who depend on all the services that this country provides, and the services that the State does provide, to have an efficient and effective taxation system. Some of the provisions in this bill do allow for improvements in that area, and therefore New Zealand First will support this bill.

JOHN HAYES (National—Wairarapa) : I sense that that last speech in the House was delivered by somebody who aspires to be the deputy leader of New Zealand First. When I hear people constantly using phrases like “shifting the deckchairs on the Titanic”, “tinkering around the edges”, and “own goals”, these are just euphemisms because the speaker does not understand the bill against which they are talking. It is unfortunate that the member was not involved on the Finance and Expenditure Committee, at least to my knowledge, so, unlike his actual leader, he is not as well versed in the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. He hides his lack of understanding in these glib clichés.

I feel that it is a little bit important to explain something to that member about the issues around taxation. If you have a perfect market, think of it like a supercomputer network. It has sensors in every part of the economy. They reach into brains—even small brains—and they read our desires. Constantly, the market is re-optimising production and allocating resources perfectly. But efficiency is not enough to ensure a fair society. If Bill Gates has got all the money, then the rest of us starve. We need to do something to improve the efficiency of our economy, so, Mr Williams, we have things called taxes. They are inefficient, but we need the money to spend on things like health, police, schools, and roads. But taxes are inefficient, because the market price no longer equals cost, and cost no longer equals value, so the Government faces a dilemma. We want to avoid inefficiency, because we pass up the chance to make someone better off at no cost to anybody else. Most of us want to use taxes to move income from rich to poor.

The Government needs and attempts to make the economy both efficient and fair, and underlying this bill is a drive to do that. Under a Labour Government supported by New Zealand First and the Green Party, I think New Zealand would have, first of all, a capital gains tax—Labour promised that in the last election—on all businesses and farms, which would penalise our productive industry and would add to inefficiency. We would see more than a doubling of employer KiwiSaver costs, Mr Williams. We would see a big gap between the company rate and the top personal rate, which encourages tax avoidance.

We have been through this bill on a first reading, and the changes between the first reading and the second reading can be summarised like this: the changes in this bill are in addition to the biggest tax reforms in the last 25 years, which are helping families to get ahead. They are boosting growth to create jobs and to lift incomes, they are encouraging savings and investment, and they are making the tax rules fairer for all New Zealanders. We have moved from a situation that we inherited from the last Labour Government, where people were spending $1.11 for every dollar they earned, to the position that we are in now, where we are spending only 98c for every dollar we earn.

We have built a more competitive tax system that is tilting the economy away from borrowing and spending—which is what the Labour Government would do if it came back; it would borrow and spend—towards savings and investment.

Hon Clayton Cosgrove: You’re borrowing $300 million a week.

JOHN HAYES: I know, Mr Cosgrove, that you blithely got rid of $7 billion as Associate Minister of Finance—$7 billion—but we are trying to move this economy towards savings and investment.

This bill will produce a simpler and fairer tax system that rewards hard work and protects the vulnerable. Across-the-board tax cuts instituted by this Government already are rewarding hard work and delivering more money to New Zealanders, to every New Zealander—

Andrew Williams: For the wealthy.

JOHN HAYES: —whether you are working or you are retired, Mr Williams. Two-thirds of the cost of the income tax cuts went into reducing the bottom two tax rates. About three-quarters of earners, as Paul Goldsmith said, are paying no more than 17.5 percent personal income tax. We cut the company tax rate—

Andrew Williams: What about the paper boys? What about the paper girls?

JOHN HAYES: —by 28 percent, ensuring that New Zealand businesses remain competitive. A family with two children, Mr Williams, can earn up to $50,000 a year and effectively pay no tax—no tax—when Working for Families is taken into account. After-tax wages are increasing faster than prices under this Government, and we have taken steps to tighten up property tax rules by eliminating depreciation, removing the loss attributing qualifying company rules, and improving Working for Families integrity measures.

Since the first reading, this bill has been revised a little bit since last September. The two main income tax forms for individuals—the IR3 and the personal tax summary—will no longer be amalgamated. Instead, existing practice will continue, because the initiative would have put a lot of pressure on officials from the Inland Revenue Department and their ability to undertake further systems changes. The bill has been changed to contain a proposal to require individuals who choose to file for a particular year to also file for the previous 4 years. The application date for this proposal is to be deferred from the 2014-15 income year to 2016-17. However, the implementation date can be set earlier by Order in Council.

The bill also clarifies that the 4-year rule applies from the most recently ended tax year—[Interruption]—rather than from the year for which an individual chooses to file. I know this is difficult for you, Mr Cosgrove, but then that is the lot of a list MP who has no constituents to look after. Tax debts from the previous years under the 4-year rule will not incur the use of money, interest, or penalties from the previous due date; a new due date will apply instead. Credits and debits arising from the 4-year rule will be used to offset each other, Mr Cosgrove.

Hon Clayton Cosgrove: It’s not necessary to read the bill from cover to cover, John.

JOHN HAYES: These are the changes. I am not reading the bill; I am describing the changes that were introduced from the last drafted bill to this one.

The application date and savings provision for the proposal to charge GST on late payment fees is going to be deferred from April 2012 to January 2013.

Andrew Williams: When are you going to be a Minister?

JOHN HAYES: I know that you did not understand that, Mr Williams, but GST will not be charged on late payment fees if the underlying supply is exempt. Other changes to the GST provisions have also been made, such as clarifying the definition of land, where new apportionment fees for zero-rating supplies can be used. Finally, the foreign investor tax credit scheme will be expanded to investors in foreign investment portfolio investment entities with application from the 2013-14 income year.

This is an excellent bill. The Government has listened to submissions through the select committee process. The bill has been improved, and I have no difficulty whatever in commending its passing to the House. Thank you.

Hon CLAYTON COSGROVE (Labour) : Well, I think we have had a medical breakthrough here in the House tonight. I think for all those insomniacs out there, they will not need to go to their local general practitioner for sleeping pills; they will just put on an endless tape of John Hayes—a loop tape of John Hayes’ dulcet tones talking about the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. I have got to say that it was an extraordinary contribution by Mr Hayes. Mr Hayes said that if the Labour Government got in, it would be borrowing and spending. But in his own Les Patterson - like, unique way, he forgot—or maybe he has not had enough sleep—to mention, of course, that his crew are borrowing 300 million bucks a week to fund a tax cut.

He also talked about tax as shifting resources from the rich to the poor. Those were the sorts of words he used, but he forgot to mention that on top of the $300 million per week that his Government is borrowing, the so-called tax switch—which is the tax swindle—by this Government gave the top 10 percent 44 percent of the tax cuts. And the bottom 20 percent got what? They got 2 percent. Poor old Sir Les Patterson had not got the abacus out; he had not worked out, using all his fingers and toes, exactly what the tax switch had done for New Zealanders. Those earning the most got the most, and those earning the least basically got zip. So I say to John Hayes: use all your fingers and toes. We will even supply some batteries for the calculator, or another abacus if that is broken. I say to John Hayes: try again. Go out and get the standard 4, old-fashioned maths textbook; work out how to add, divide, subtract, etc.; work out percentages; and have another crack. And then he can come back into the House, have another speech, and send the rest of us to sleep again. Well done, I say.

He is an example of the ineptitude exhibited by this Government. You know when it is in trouble, because it sent the big, heavy hitters—seriously heavyweight hitters, some of them—into the House to defend a tax bill.

Hon Trevor Mallard: He’s not as heavy as he used to be.

Hon CLAYTON COSGROVE: Well, using the Maggie Barry principle, I cannot comment on that. Gerry Brownlee probably can, of course, and maybe our friend Parekura, our good mate, but I certainly cannot. I am a shadow next to John Hayes.

But I say this: this bill is interesting because other colleagues have pointed out that it is tinkering. Dr Clark, on our side, pointed out that the Inland Revenue Department computer system has been around since 1992. I will give members an example of how this computer system is inefficient, and why this Government should have done something about it. We all pay tax on interest on deposits, right, and that is an automatic process. It is deducted. The tax on interest is deducted from your account, and it goes to the Inland Revenue Department. But then you get your tax statement, if you want to request one—and I have taken this up with the Inland Revenue Department a number of times, actually—and there is not a line item that says: “Tax on interest”. What you then have to do, in theory, unless you want to just gamble and say that you have paid your tax—and most people do not do anything about it, because the tax has automatically gone in—technically, is you can ring the Inland Revenue Department and advise the department, or send in your tax certificate from your bank, and then the Inland Revenue Department will send another statement out, generate it, and put the line item in.

It is irrelevant, actually, because you have paid your tax. It is an automatic thing if you have given the bank your Inland Revenue Department number. Even if you have not, you are on the top rate. So why is this the case? It is because the Inland Revenue Department computer system cannot reconcile the fact that it has got the money from the bank. The bank has sent it the money—and Mr Hayes’ tax on interest has been sent through—but it cannot reconcile it through its technology so that it appears on your statement. How stupid is that? That is something, actually, because taxpayers want to be reassured that they have—99 percent of them—complied with the law and actually paid all their tax, and most do, of course. But there is an inefficiency, and something that could have been worked on.

I just make this point: when we talk about debt and when we talk about taxes, another history lesson from Mr Hayes that he sort of forgot in his laconic way is that, of course, when we left office, Mr Hayes, we left with net Crown debt being zero. You will find a zero if you go back to the old standard 4 maths textbooks and find out what a zero looks like, Mr Hayes. Have another crack. Zero—

Hon Trevor Mallard: Like he used to look.

Hon CLAYTON COSGROVE: Yes, that is right. Have a look at the scales; there will be a zero on there. Just do not jump on, Johnny. The second thing is that we had 9 years of surpluses—9 years of surpluses. That is the legacy we bequeathed this bunch of tired, inept Ministers and members of Parliament who now run the country. That is what we bequeathed them: net Crown debt at zero, and 9 years of surpluses. The record of this—

Simon O’Connor: So you took too much money from people.

Hon CLAYTON COSGROVE: I will come to you in a minute. The record of this Government, of course, is 300 million bucks a week in borrowings, 44 percent of the tax cuts going to the top 10 percent, and the bottom 20 percent, those on Struggle Street, whom Mr Hayes, of course, has never bumped into in his electorate—he would not know the bottom 20 percent if he fell over it—get 2 percent. What is the great tax reform the Government hit us with in the Budget? It even dealt to the old paper boys. It even put the boot into the old paper boys. I do not know whether John Hayes was ever a paper boy—you know, cycling around, maybe on a penny farthing, or, with a bit of exertion, running around delivering papers. He may not have even embarked on that; he might have been a pizza delivery man. Who knows? They probably get paid more.

Hon Trevor Mallard: The James K Baxter approach to delivering pizzas: they never made it to the destination.

Hon CLAYTON COSGROVE: Indeed. Forgive him, Mr Speaker. That is John Hayes’ legacy, and that is his Government’s legacy.

And then we look at KiwiSaver. This was, of course, a proposition that National in Opposition opposed bitterly—utterly opposed. It opposed it, it has tinkered with it, and it has made changes to it. In terms of making changes to a superannuation scheme—multiple changes in a short period of time, as these geniuses have done—ask anyone in international finance and they will tell you that actually that undermines people’s confidence in that superannuation scheme. I worked in Australia in around 1995, and I remember that the then Prime Minister, John Howard, made substantial changes to what is a pretty gilt-edged superannuation scheme that the general public of Australia, because it is compulsory superannuation there, enjoys. There was a hue and cry about it. Of course, it is compulsory, so you cannot not be a part of it. But where you do not have a compulsory scheme, of course, people say: “Hang on, they are changing the rules. We’re not going to be part of this.” They are not confident that some future crew—this mob, of course—will not come in and next year have another tinker and another change and undermine confidence again. The truth is that this mob—and they are a mob, an outfit; they are not a real political party, they are a mob—this crew over here, do not really believe in KiwiSaver. They never have. They have got it because we put it in, and because there is universal acclaim that people want it.

Andrew Little: People love it.

Hon CLAYTON COSGROVE: People love it. It is just like, of course, them wanting to put the teacher-pupil ratio up. They did not do it, because the people got to them and said that they were not going to accept it, yet they still say, of course, that they were right to do it, which means that they will probably do it again. They have no principle and no backbone, and these are the sorts of tinkering around the edges things that—

Hon Trevor Mallard: You can’t say that.

Hon CLAYTON COSGROVE: Which? These are the sorts of tinkering around the edges policies that we have from this Government as it implodes—as it implodes—and as it becomes—

Hon Trevor Mallard: I raise a point of order, Mr Speaker. I apologise to the member. It is something that I expected the Government to do, and I would have thought you would intervene. It has long been a breach of the Speakers’ rulings in this House to suggest that members opposite lack backbone. For that to go unchallenged, I think, is inappropriate, and if the Government will not stick up for itself, then I will.

Hon CLAYTON COSGROVE: I withdraw and apologise. I want to thank Trevor Mallard for that redemption speech. When you have got Trev behind you, you know—

Hon Nathan Guy: Has he got a backbone?

Hon CLAYTON COSGROVE: Oh, Trev has got a backbone—cast iron.

Dr Cam Calder: Titanium.

Hon CLAYTON COSGROVE: Titanium. And there are a few around this place who might be able to strengthen their backbones by adopting our colleague’s philosophy on life—

Hon Trevor Mallard: I wanted to make sure it was on the record, Clay.

Hon CLAYTON COSGROVE: Thank you. I appreciate that. I have never said a bad word against Trevor Mallard, at all. But anyway—

Hon Trevor Mallard: Hey, that’s a breach of privilege.

Hon CLAYTON COSGROVE: I may have misled the House, yes. The final thing I want to say is I want to address some of Mr Goldsmith’s comments very briefly and simply say this: for that man to talk about debt, when he was a councillor under John Banks’ mayoralty, which trebled—trebled—the debt of the Auckland City Council, is extraordinary. This is the man, of course, Mr Goldsmith, who wrote two books, one on Don Brash, who is gone, and one on Mr Banks, who is hanging by a thread—hanging by a thread. The next one that is due to come out, given that he is so overworked that he has time to write a book, will, I suspect, be The Rise and Fall and Fall and Fall of John Banks, or, perhaps, and we wait with bated breath, it could well be the political obituary of Mr Banks.

DAVID BENNETT (National—Hamilton East) : I want to take just a really short call. I think the Labour Party has obviously run out of things to say on this bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. It is a good bill, it is in the best interest of our tax policy, and we look forward to it passing through the House.

Mr DEPUTY SPEAKER: Is this a split—[Interruption] Order! I will put the question if someone does not—[Interruption] I am addressing the member, the Hon Trevor Mallard. Is this a split call?

Hon Trevor Mallard: Not that I’m aware of.

Hon Member: Yes, it is.

Mr DEPUTY SPEAKER: It is—5 minutes. The Hon Trevor Mallard—5 minutes.

Hon TREVOR MALLARD (Labour—Hutt South) : Only 5 minutes for my speech—that is shocking; that is absolutely shocking, Mr Deputy Speaker. I want to speak to the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, and I think it is fair to say that I would like to focus mainly on the returns filing aspect of this bill. Returns filing is a matter that is currently before the House. The first thing I would like to ask the Minister in charge of the bill—do we have a Minister in charge of the bill in the House at the moment? Could the Minister in charge of the bill put their hand up? Mr Deputy Speaker, is there a Minister in charge of the bill in the House? I raise a point of order, Mr Speaker. I am sorry to interrupt myself. I am just checking; it is a normal practice when officials are in the House for them to be here to advise a particular Minister who is in charge of the bill. I am just trying to check and see, because I want to address questions, but to whom do I address those questions?

Mr DEPUTY SPEAKER: You would do that in the Committee stage.

Hon TREVOR MALLARD: I raise a point of order, Mr Speaker. The only purpose of having officials in the House is for them to advise a Minister, and part of the second reading is getting the questions down for a Minister to deal with at a later stage. I think there are three Ministers here, and all I am trying to do is work out which one of them is the Minister to whom I should be addressing this, because there is always a Minister in charge of a bill at any time.

Mr DEPUTY SPEAKER: The Minister is speaking to the House and any Minister may or may not be listening in his office, or wherever. And it is not the Speaker’s responsibility to ascertain whether officials are in the House or not.

Hon TREVOR MALLARD: I raise a point of order, Mr Speaker.

Mr DEPUTY SPEAKER: No, no, look, I—

Hon TREVOR MALLARD: I apologise. It is not a question of your ascertaining; I can see the officials—

Mr DEPUTY SPEAKER: Order! I think the member is trifling with the Chair. I just ask him to get on with his speech.

Hon TREVOR MALLARD: We will just work on that particular question at the moment, and we will come back to it. The first point that I want to ask—whichever Minister is currently nursing this bill through its second reading—is whether there is any requirement, as part of the returns filing section of this bill, for a person who is filing a return to read it. Because what we have had established by the police in New Zealand on another piece of legislation is that failure to read before signing appears to be an excuse under the law—appears to be an excuse under the law—for filing a false return. I want to know whether this legislation has the same fault in it as the local government electoral returns legislation has—whether a person who signs a document without ascertaining whether or not it is factual is committing an offence or not. It is a relatively simple question that I would like answered.

The next point that I would like to refer to is the limitation on deductions by partners in limited partnerships, which is new section HG in clause 39. What I would like to know is whether that section applies in the case of the limited partnership between John Banks and Skycity, which was established by way of consideration of the receipt of a plain envelope with a cheque in it, which may or may not have been opened. I think it is a matter that is unclear—well, clearly it was opened, because the cheque was banked—with regard to the person who is involved in the limited partnership, if someone else is in receipt of the consideration with regard to that limited partnership and that is the person who opens the envelope. It is unclear whether or not that person can use the deductions that flow from that for the purposes of new section HG of the bill.

The next area I would like to talk about is the taxable distributions from foreign trusts. I think the important point that I would like to ask here is whether this has any relevance to any trusts held in Germany or held in Hong Kong. I ask whether any receipt from any taxable distribution from trusts that are held in either of those jurisdictions are caught in section HC 18 of the principal Act under section CV 13(b), and whether any effect on the Dotcom donations from any of his trusts is affected by the change from “section CV 13(b)” to “section CV 13(c)” in clause 37(1). I would appreciate some comment from the Minister on that particular point.

Dr KENNEDY GRAHAM (Green) : In the interests of House efficiency let me just sum up the Green Party position on this, which was quite ably presented by our co-leader Russel Norman, both in the first reading and in the second reading today. We see that there are small but significant parts to this bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, that are positive.

In a more broad sense we see this bill as essentially the tip of an iceberg of the Government’s general macro policy, which reflects a position that is socially regressive in its GST policy and its income policy, fiscally negative in increasing the deficit, economically irresponsible in increasing the national debt, ecologically destructive in not imposing a resource rental on water and not imposing a true carbon charge, and regionally skewed against Canterbury for failing to impose or introduce a levy that would make it fairer for Cantabrians in the broad recovery process, which is in the national interest. For those reasons the Green Party will continue to oppose the bill.

MICHAEL WOODHOUSE (National) : It is my pleasure to stand in support of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. I have been listening very carefully to the contributions by members on all sides of the House. I certainly respect the different points of view, including those of the Greens, which I simply cannot agree with. One of the things that we have found over the last couple of years is the very eloquent way in which they tell half a story very well. The so-called tax cuts for the rich completely ignore the fact that we now have one of the fairest tax systems in the world once again, I think, whereas we saw increasingly distortionary tax policies being put in over 9 years of a Labour Government, which the Tax Working Group was very clear about. This Government, under the Minister of Revenue and the Minister of Finance, has set out on a path of remedying those distortions, and I think this bill continues that very well.

I am particularly interested in the software changes, and I look forward to talking about them in the Committee stage of the bill. But in the meantime it is my great pleasure to support it.