Hon JOHN CARTER (Minister of Civil Defence) on behalf of the Minister of Agriculture: I move, That the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill be now read a second time. The bill had its first reading on 14 October 2010, after which it was referred to the Primary Production Committee for consideration. The committee received and considered 13 written submissions and heard eight oral submissions on the bill.

The bill extends the market share thresholds for the expiry of the pro-competitive provisions in Part 2, Subpart 5 of the Dairy Industry Restructuring Act—the DIRA. The bill also provides a new provision for expiry once the new market share thresholds are met. Subpart 5 of the Dairy Industry Restructuring Act promotes dynamic efficiency of the New Zealand dairy industry by regulating the activities of the dominant market player, Fonterra. It ensures that despite Fonterra’s dominant market position it operates in an environment that is contestable—that is, one where it faces potential competitive pressure. This environment drives Fonterra and other dairy companies to improve their economic performance.

Subpart 5 of the Dairy Industry Restructuring Act is, however, subject to sunset clauses because the regulatory intervention is necessary only until competitive pressure can be put on Fonterra by existing or potential competitors. The thresholds in the current sunset clauses could be reached by 31 May this year in the South Island. If that happens and no other action is taken, the Dairy Industry Restructuring Act’s pro-competitive provisions would expire in the South Island. The Government considers that without the regulatory provisions contained in the Act there is currently unlikely to be enough competition to ensure the efficient operation of the New Zealand dairy market.

The bill resets the market share thresholds for the expiry of Subpart 5 of the Dairy Industry Restructuring Act for the North Island and South Island to 20 percent of the milksolids being collected by independent processes in a season. This means that if Fonterra collects less than 80 percent in the North Island in a season, then the pro-competitive provisions will no longer apply in the North Island, and if Fonterra collects less than 80 percent in the South Island in a season, then the pro-competitive provisions will no longer apply in the South Island.

Under the existing market share thresholds in the Act, milk collected from within the boundaries of the West Coast Regional Council is excluded from the South Island market share threshold. When the Act was introduced, it was considered uneconomic for independent processors in the West Coast to purchase milk from farmers in other parts of the South Island and transport the milk across the Southern Alps. The consultation process for this bill told us that independent processors can now economically collect milk outside the boundaries of the West Coast and transport it back to their plants. We are also aware of the discussions between processors and farmers from the West Coast and Canterbury about the transfer of milk supply between those regions. These points demonstrate that there is a single market for raw milk in the South Island. For that reason, as recommended by the select committee, this bill provides that milk collected in the West Coast will be included in the new market share threshold for the South Island.

Another key feature is that the bill requires the Minister to request a report on the state of competition in New Zealand when the new market share thresholds are met in either the North Island or the South Island. This report will provide the opportunity for the Government of the day to consider whether, when the new market share thresholds are met, the dairy industry is indeed ready to move to a regulatory regime consisting only of a generic competition law, rather than the additional industry-specific Dairy Industry Restructuring Act. Some submitters are concerned that there is no time limit for when that report must be completed. Having no deadline could result in uncertainty for the dairy industry while it awaits the report’s recommendations. For that reason, the select committee recommended that the bill include a time limit of 12 months within which the report must be provided to the Minister.

Some submitters were also concerned that the nature of the industry could change considerably, even without the threshold being met. As per the select committee’s recommendation, the bill therefore provides that the Minister must request the report either when one of the market share thresholds is met or in June 2015, whichever is the earlier. If the report is requested in 2015, without the market share thresholds having been met, it would not automatically trigger the expiry of the pro-competitive measures, as the automatic expiry process is tied to the market share thresholds being met. However, the Government could choose, on the basis of the report’s recommendations, to take actions such as promoting legislation to bring about the expiry of the pro-competitive measures.

This bill also introduces a requirement that all processors keep a record of the total amount of milksolids they collect in a season. They must provide this information to the Minister if requested. This requirement is to ensure that the Minister can access the information necessary to monitor the market share thresholds for the expiry of the pro-competitive measures. This bill ensures the continuation of the pro-competitive provisions of the Dairy Industry Restructuring Act until the new market share thresholds are met.

There is currently a significant amount of attention on the dairy industry. Fonterra is proposing a capital restructure. The Ministry of Agriculture and Forestry has commenced a review of the Dairy Industry Restructuring (Raw Milk) Regulations, and the Commerce Commission is considering whether an investigation into the price we pay for milk is warranted. With all this going on, it is important that the Dairy Industry Restructuring Act remains in place and provides a stable reference point for any work being done.

Due to the likelihood of the existing market share thresholds being hit within the next season, it is not possible to wait to make these changes to the Act so that they coincide with one of the other pieces of work. It is imperative that the Act is still in effect in order to promote competition and provide a mechanism by which to regulate the behaviour of the major participants in the New Zealand dairy markets.

The current concerns about the level of competition in our dairy markets strengthen the argument that, in the absence of regulatory provisions contained in Subpart 5 of the Act, there is unlikely to be sufficient competition in the dairy industry to ensure the efficient operation of the New Zealand dairy markets.

I thank the members of the Primary Production Committee for their consideration of the bill, and for the report tabled on 22 February 2010. I commend this bill to the House.

Hon DAMIEN O’CONNOR (Labour) : Listening to the speech made by the member for Northland was a bit like watching grass grow, I have to say. I am surprised, really, because he comes from a big dairying area. I thought he could have done it with a bit of passion, given that the dairy industry is the No. 1 industry in this country, and is still owned—for the moment—by New Zealand farmers, for the most part. The Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill has been, I guess if one wanted to be critical, a waste of the time of the Primary Production Committee and of Parliament. The day before the first reading of this bill, the Minister had indicated that he was going to get a full review of the dairy industry regulations under way, something that is referred to in the Dairy Industry Restructuring Act, and which this bill has addressed in a technical way. If one listened very carefully to every word that the Hon John Carter said—on behalf of his colleague Mr David Carter, the Minister of Agriculture, who could have been in the House explaining this—one heard that, none the less, this is a technical bill that is designed to continue the supply of milk to other companies that take in processed milk that is produced by Fonterra farmers, in summary.

Without going back over the technical parts of this bill, in simple terms there was the potential for the threshold to be met, as set down when Fonterra was set up in 2001 under the Dairy Industry Restructuring Act, and at which time an automatic process was undertaken. That was the review of the regulations, and the uncertainty that that may have created.

So this bill was designed to offer certainty. The Minister then decided he would create more uncertainty by having a full review, and that probably is warranted. Since that time, of course, Fonterra has stepped in and set a fixed price for domestic milk for the rest of the year—until after the election, I would say. That was a move by Fonterra to try to keep ahead of a rising concern around the price of milk—and milk products, I have to say.

This bill ensures supply to those people, some of whom are competitors and others who supply the domestic milk market here in New Zealand. In continuing the supply under a complex set of arrangements to establish the price, there are still many, many questions that need to be answered. There have been indications that the Commerce Commission is currently looking at whether it should investigate, which is a very brave move for the Commerce Commission. It usually takes the commission at least 3 to 5 years to do anything. The commission has decided that it should investigate whether it should investigate. It is an ongoing process. I think the commission has given itself 2 months. I understand that it is struggling to get some information from Fonterra. We have had assurances from Fonterra that it welcomes a review by the Commerce Commission, so that we can get on the table the realities and, I guess, the challenges of pricing milk on the domestic market—milk that could otherwise be destined for export markets that are currently enjoying record prices for commodities and ingredients.

The likelihood is that those prices will continue to climb a little bit, if not hold steady. That means that New Zealanders will probably have to continue to pay quite a bit for their milk—more than they would like to. None the less, Fonterra has held the price. I say that it is a political deal, in an election year, and one that is connected to another issue of recapitalisation of Fonterra, but I will not go into that now.

One of the questions asked of me by my colleague is “What about Miraka?”. This is a small, emerging Māori-owned dairy company in the central North Island. Its plant is under construction, and it is expecting to get milk from Fonterra under the Dairy Industry Restructuring Act provisions. It will continue to be able to get milk until a comprehensive review of the regulations is undertaken—one that the Minister indicated would take place but has yet to decide when it will be completed.

Other companies are getting milk, such as Open Country Dairy, Synlait, and Westland Milk Products, which are all competing with Fonterra in the international market place for the sale of milk powder and other ingredient products. Many farmers think this is a bizarre set-up, that they, as shareholders of the company obliged to take their milk, have to supply milk to competitors. It is a trade-off established at the formation of Fonterra to ensure that although having a dominant position in New Zealand—that is, well beyond 80 percent of the market—Fonterra should be obliged to provide milk in small amounts. I guess 50 million litres of milk is not a small amount if one tries to put it in a bottle, but in relevant terms it is a small amount of milk for our industry. People who are innovative, people who are developing new products, can then get on and do so with certainty over supply. The reality is that we have seen the set-up of companies that are competitors—a number of them foreign-owned, foreign-controlled—and Fonterra and New Zealand shareholding farmers are obliged to supply that milk.

I will not get into the debate around the whys and wherefores and the justice of that, other than to say that for the moment this bill will ensure that ongoing supply. The issue of the price they pay for that milk is one that could be looked at in part by the Commerce Commission if it does decide to do so, if it is brave enough—and it is not very often brave enough, I have to say; if it considers that to be a challenge, then so be it. The commission is rarely brave enough to take on some of the real challenges in our economy around pricing, but if the commission does decide to do this around milk, then it may identify who is really making money from the supply of domestic milk products in this market.

The farmers make a little bit, Fonterra makes a little bit, and the supermarkets make a little bit, so we are told. I think that the inquiry may identify the reality that there are some profits in the whole process, but the underlying driver of the international price for milk is what is actually pushing the price of products to what many in New Zealand consider to be an unaffordable level.

Labour does support the bill. We found it somewhat bizarre that the day the bill was introduced, the Minister had made it redundant. But it is necessary to stay ahead of what are effectively thresholds set down in 2001, which are almost being met.

Before I finish, I would like to comment on the issue of foreign ownership and foreign control, and the issue of the restructuring of Fonterra. I think the Government has done a deal that the price of milk will be held in New Zealand during this election year, that the Government will undertake to commit to process the trading among farmers, and undertake the recapitalisation of Fonterra, which I believe is one step towards the slippery slope of demutualisation and floating on the market. That is my personal view. The Labour caucus has yet to take a position on that. None the less, that will lead to greater levels of foreign—

Hon Dr Jonathan Coleman: And your views and theirs are often different on a range of subjects.

Hon DAMIEN O’CONNOR: It is very good that Mr Coleman has spoken, because it reinforces my suspicion of him as a man who works in the background, keeping happy the supporters and funders of the National Party. I say that there is a level of foreign investment in the New Zealand dairy industry, and that is growing. The international demand for protein will continue to climb as the world population increases. As the prosperity of many in Third World countries increases they will look to take in more protein, much of it through milk. So the opportunities are huge. Many investors offshore are looking for opportunities in the New Zealand market, and the dairy industry is the last big multinational industry owned by New Zealanders, for New Zealanders, that we still control and are proud to own. If we let it go on to the market, I have to say it will be gone before we can say Jack Robinson. That is the way we tend to be, as investors.

I come back to the bill. It is a technical bill. It has taken up a bit of Parliament’s time. Strictly speaking, it is unnecessary. Labour will support it, but awaits the outcome of the Commerce Commission inquiry into the pricing of domestic milk and to see what the Government does with the recapitalisation proposals of Fonterra.

SHANE ARDERN (National—Taranaki - King Country) : It is a pleasure to rise in support of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. Before I speak, I must declare an interest. I am a shareholder in one of the affected parties in this process.

Before we proceed with why we have got to where we are with the Dairy Industry Restructuring Act at the moment, I think we need to remind ourselves a little bit of the history of how the Act came about in the first place. It came about because two of the major and largest dairy companies in New Zealand, Kiwi Cooperative Dairies Ltd and New Zealand Dairy Group, chose to merge, thereby having a very dominant role in supply of dairy products in New Zealand. Also, they merged with the New Zealand Dairy Board, our statutory board at that stage. Hence the birth of the Dairy Industry Restructuring Act 2001.

At that point in time, to allow that to happen, the Government agreed to give the new entity—GlobalCo, I think it was called; the new co-op was another name that was used—a dispensation around normal Commerce Commission regulations. As they say, the devil is always in the detail. An agreement was thrashed out that the new co-op would sell or divest up to 52 or 53 percent of its domestic market products, therefore giving it under 50 percent. So the nonsensical debate that is going on at the moment about Fonterra’s 80 percent shareholding or 80 percent ownership of the domestic market is factually incorrect and is outlawed by the legislation. It cannot by law own that percentage of the domestic market, but no one would let fact get in the way of the debate.

The big debate about domestic milk at the moment has occupied a fair percentage of media time and people’s speculation, and I guess I am reminded, when I see that, of the words of Charles Darwin. He said that it is not the strongest of species that survives, nor the most intelligent, but the most responsive to change. That is the species that survives. So Fonterra, in recognition, despite the facts, has come to the Government and said that it accepts that the Dairy Industry Restructuring Act should be extended on the basis that the Government will hold an appropriate inquiry into who is eligible for this milk. I ask members to bear in mind that what the Act requires Fonterra to do is make available 50 million litres to any one single entity who wants to take advantage of that milk. One of the big debates at the Fonterra farm gate was about the price of that and whether the Fonterra shareholder farmer was getting a fair price. There were arguments on both sides, and the Government agreed in principle —that is, the Ministry of Agriculture and Forestry officials agreed—that the current legislation, which is being amended by this bill, was unfair. In other words, Fonterra shareholders were subsidising that 50 million litres to the competitors that were able to pick it up.

The second and most important issue in that debate was that Fonterra’s farm-gate price is, I guess, as transparent as any price one could get. It is advertised in the paper. People know what it is. Just by the way, as an aside, as a farmer I know that the average price per litre of milk to my farm in the last 10 years has ranged between 35c a litre and, this year, potentially 79c a litre. There is nothing hidden about that. Everybody knows it; it is published, it is in the paper, it is there for anyone to see. So the Commerce Commission inquiry that was spoken of by the previous speaker will be an interesting inquiry. Clearly, the difference between the 79c the farmer gets paid at the farm gate and what mum of Glenfield is paying at the supermarket is substantially different, and it would be interesting to find out where that difference is.

That said, it was decided that this amendment legislation should be passed to improve the farm-gate price—that is, the price Fonterra gets paid for the 50 million litres it must by law make available to its competitors—and the setting for that was the farm-gate price plus 10c a kilogram, to take into account shoulder milk, which I will not explain now, because it would be a bit difficult for people to understand in the time I have available to explain. So it was the farm-gate price plus 10c, which is not hard for anybody to work out.

In the process of submissions on this bill, Westland Cooperative Dairy Co. Ltd , a company who chose in the initial merger of the major companies to stay outside of the new Fonterra or GlobalCo structure, said in its submission that “the correct status for compulsory supply of raw milk is to distinguish between raw milk for domestic retail purposes and industrial product for export. Regulated raw milk supply is appropriate for the protection of domestic customers but not artificially support industrial (ingredient) producers. Westland believes that manufacturers of dairy products for export are competing for an international market share and should not have access to DIRA raw milk.” Now, that was said by one of the small companies, and I happen to agree. The original principle was that a small amount—50 million litres of milk and a total amalgam of that of up to 600 million litres of milk—should be made available by the big new co-op to small start-up companies who were going to deliver products into the domestic market. What we have is some large multinationals using their muscle to invest in small processors and gaining access to this milk. That was never the intent of the original legislation, and the review that, as the Minister announced, will take place in March—and which is now ongoing—should bring some clarity to that and, hopefully, some further transparency to how that process works.

Finally, I must say that this industry collectively is 27 percent of this country’s export earnings. It is our single-biggest industry. It is the industry that will help this Government and successive Governments into the future pay for the social services that this country so badly requires and desires. It is probably the least interesting debate in terms of what people pay attention to in this Parliament. So we have an industry that is one of the largest if not the largest single industry in the country, and it is the one that gets the least attention in terms of some of the detail. I have always found that quite amazing. That said, we are supporting the passage of this bill. We look forward to the review that has been announced and the findings of that review. The submission process was one that was thoroughly gone through, and the end result, I am sure, will be one to the satisfaction of all those involved. Thank you.

BRENDON BURNS (Labour—Christchurch Central) : I was a member of the Primary Production Committee through much of the time it was considering the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill, so I am pleased to take a call in its second reading and to affirm that Labour supports the bill. We definitely want to see a healthy and competitive dairy industry. It is essential for New Zealand’s interests. We want to see a market where consumers are able to get high-quality product at affordable prices, but there are some questions around that, which I will come to in a moment.

The other thing I want to note is Labour’s view that dairy processing companies having the benefit of the provisions of this legislation and its predecessor cannot take comfort from the fact that this will be an ongoing situation. We must get to the point at some time where New Zealand’s dairy farmers in the Fonterra fold do not continue to subsidise their competitors indefinitely. I think it has to be accepted, whatever the arguments put up, that there is an element of subsidy in this. I remember well in the select committee process the former National Minister, Mr Wyatt Creech, who is, of course, associated with dairy interests in the Waikato’s Open Country Cheese Co., railing against the New Zealand Institute of Economic Research’s analysis of the cost to Fonterra of the requirement that it take and process milk on behalf of its competitors. The estimate of that report was in the order of some $400 million to $500 million a year. Mr Creech made some play of the fact that anybody can get the result they want if they pay the consultants the fee. I noted to him that the Government used his services to do a review of Environment Canterbury last year, leading up to the disembowelment of that democratic franchise. So, yes, anybody can probably get the outcomes they want if they are prepared to pay the fee—in some situations.

The reality of the situation is that as this bill was starting to come through the select committee process, we had the Minister announce his own review of Fonterra’s obligation to supply milk to those independent dairy processors. That review was just coming through, and it would have made much more sense to have had that aligned with this bill so that any changes that came out of the review could have been incorporated in the bill. It was an odd process. We acknowledge that we needed to extend the sunset clauses for the industry, but that certainly was not in alignment with best practice, shall we say. Although we support this review and the new clauses in the bill in relation to supply, we have to note that it is concerning to see that, in effect, we have New Zealand - based farmers in the Fonterra fold, all of whose income comes back to New Zealand. It is a critical element in the make-up of our economy. It is a $10 billion export earner, and every dollar that Fonterra makes comes back to New Zealand. It is glorified socialism at its best, I have to say, and Labour has a proud history in respect of the support it gave to the dairy industry back in the 1930s under Michael Joseph Savage. It rescued the industry from its knees, gave it the cooperative structure and the capital for it, and has served the industry well to this very day.

It galls just a bit to see that companies such as Synlait, which is based in my home province of Canterbury, are beneficiaries of this. I visited Synlait a couple of years ago, and I was quite surprised to see the number of Fonterra tankers pulling in and bringing milk to that plant. Of course, it started with the great, grandiose objective of producing product that nobody else was producing. It was going to go into the high-value end of the commodity chain and produce the sort of stuff that Fonterra could never do, but, in fact, as I toured around the plant, it became very obvious it was producing milk powder, as Fonterra does at any number of its plants, and, effectively, competing against Fonterra at the medium end of the food chain rather than at the high end of the food chain, as it began. The other cost and consequence of an organisation like Synlait is that it has just recently had Overseas Investment Office approval; the model it had set up has not proved successful, so at a very early stage it has had to bring in capital from overseas. It is a Chinese investment company, but it makes very little difference whether the company is headquartered in Shanghai or Sydney. The net result is the same: the profits will go offshore. The net effect is we need to find that capital in some other way, and, as a nation that is not generating its own capital, we have to effectively import it. That keeps our dollar high and our interest rates high, and, increasingly, it makes us a poorer nation as time goes on.

Dr Russel Norman: Well, vote against it.

BRENDON BURNS: No, we have to have a bill that will encourage competition, and this is the best we have. I acknowledge the comment from my colleague from the Greens that we do not have the sort of competitive model we need. We need only to compare the price of milk on this side of the Tasman and the other. I was across in Australia just last week for a Finance and Expenditure Committee conference, and I noted that the price of milk there is as low as about $2.58 for 2 litres. Here we pay $4.80, so the model ain’t working, but I would rather see a model where Fonterra continues to dominate than an increasing amount of foreign investment in our dairy industry, and that is in prospect.

We saw the extraordinary situation a couple of years ago when the Minister of Finance, with the wind in his sails, announced a review of foreign investment law that would liberalise the rules, which were “penalising” investors from overseas, and that would open us up to more foreign investment in industries like the dairy industry to provide that true edge of competition. The Prime Minister got wind of the fact that New Zealanders were becoming increasingly concerned at the fact that we were seeing an increasing amount of foreign investment. The New Zealand Herald piece by Brian Gaynor last Saturday noted that in the last 20 years more than 40 percent or thereabouts of the sales of assets listed on the New Zealand Exchange have gone into foreign hands, and that was not including companies that have gone offshore such as Goodman Fielder, Brierley’s, and a number of other companies. We are probably nudging up to half of the sales that have happened through the stock exchange over the last two decades have gone into foreign hands. What has been the particular benefit of that? It has not been bringing more income back into New Zealand and it has not been advantaging us.

That is why Labour is making no bones about the fact we will review foreign investment law and we will make sure we will see a New Zealand benefit in things. I have to note that even after the Prime Minister U-turned the Minister of Finance on this issue and said we would not have a liberalisation of the rules, and the Government has kept the strategic asset test, the reality is that Bill English is still saying we will have greater ministerial flexibility. That gives no certainty whatsoever in respect of foreign investment in our dairy industry or any other industry. The reality is that when questioned about it, the Minister for Land Information, Maurice Williamson, could not say whether the changes to the overseas investment rules would actually amount to much. In fact, he could not say whether they meant he would decline more purchases of New Zealand farmland. The Government is posturing on this issue, and I believe that the net result will be that we will end up seeing more investment under a National-led Government, allied with ACT, in respect of the dairy industry, and that does not bode well for our future.

I think there are members opposite who have come through the Fonterra system, who know its value, and who see that it delivers every dollar back to the farm gate, not to foreign investors. It does deliver for New Zealand—it may not be delivering as well as it should be doing on price, and the Government has been forced to start looking at review options for price, but the reality is that if we do not get a real change in terms of foreign investment laws, we will see increasing foreign ownership, because the world wants more milk and dairy product, and increasingly affluent nations such as China and others want to buy into industries like ours and extract the value and benefits for themselves. It is a very natural thing for them to do, but it is not in the net interests of “New Zealand Inc.” for that kind of process to happen. It is more likely to happen under a National-ACT coalition Government. I note that the former leader of the National Party Don Brash, now the new leader of the ACT Party, is a director of a dairy company down south, which is largely—or was, at least—foreign-owned. So that is the model I am sure he would like to see, and that he will be leveraging to get more of under a returned National-ACT Government. That is not in New Zealand’s interests, it is not in the interests of the dairy industry as represented by Fonterra, and it is an issue that this Government has to address. It has not done that through this bill, and it is about time it did.

Dr RUSSEL NORMAN (Co-Leader—Green) : We stand in the House today debating a bill that will require Fonterra to subsidise its foreign-owned competitors. That is the long and the short of it—that is what the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill does. Pretty much everyone is agreed that that is the effect of this bill. In fact, it is worse than that. Originally when we set up the Dairy Industry Restructuring Act we put a set of goalposts beyond which point Fonterra would not have to continue to subsidise its foreign-owned competitors or its competitors, and now we are moving the goalposts through this amendment bill. Fonterra was about to reach the point where it would not have to subsidise its competitors, but now the Government has said that as Fonterra is about to reach that point, we will move the goalposts so it will have to subsidise them for longer.

It has been very interesting to listen to National members such as Shane Ardern, who talked about being a Fonterra shareholder, and to Labour members saying how this was a terrible thing, yet do members know what they will do? They will vote for it. Both National and Labour will vote for this bill, which requires Fonterra to continue to subsidise its foreign-owned competitors in New Zealand. Not only that, National and Labour are moving the goalposts on Fonterra, so that it will have to do it for longer than it would have otherwise. National and Labour members are standing up in this House with crocodile tears, saying that this bill is a terrible thing, but they will vote for it. Fonterra has its problems, particularly in environmental issues, I will give you that, but it is a fantastically successful company. It is one of the few companies from New Zealand that can stand on the world stage, and we will require it to subsidise its foreign-owned competitors in New Zealand. We must be stupid. What other Parliament in the world would vote for legislation that requires its biggest company to subsidise its competitors?

If that was not ridiculous enough, let us step back for a moment. At the moment we are looking at what is called “the global land grab”, and Mr Burns referred to this to some degree as well. There is, understandably, a great desire around the world for high-quality land with access to water to produce food. In a world that is finite, with a growing population, the price of food can only go up, and access to food is becoming increasingly important. Right now we have a whole bunch of foreign-owned companies coming in and buying up New Zealand land and agricultural companies. The competitors of Fonterra, such as Open Country Dairy, Synlait, and New Zealand Dairies, are overseas-owned. Synlait is the greatest example. It is owned by Bright Dairy and Food, which is effectively owned by the Communist Party of China. That is whom we will have to subsidise through this particular bill. It is just ridiculous. There are also Open Country Dairy and New Zealand Dairies. Fonterra will have to compete with those companies because, of course, all around the world foreign-owned companies are buying up land and agricultural companies. They are buying up access to those resources. We have seen it recently with Agria buying into PGG Wrightson. That was one of the deals that happened just recently. In New Zealand we have seen a series of foreign takeovers of some of our primary producing sectors. We talked about the forestry sector, which has been subject to a foreign takeover, and now is no longer a very high producer for New Zealand, and the wine industry has a similar problem.

Right now the dairy industry is the target of foreign companies, so should we not be standing alongside Fonterra, when it is currently the target of foreign attack, and saying we will support it because it is a really important company? Instead, National and Labour will vote for legislation that requires Fonterra to subsidise its overseas-owned competitors. Those competitors do not lack access to milk; they have heaps of their own milk now. They have heaps of their own bulk milk supplies, because they have been buying to acquire their own bulk milk supplies. What these companies are doing with the milk they are getting from Fonterra now is to use it in the shoulders of the season, which is when production falls off, because by using the milk from Fonterra during that period they can maximise production in their processing facilities. The foreign-owned competitors can maximise the production in their processing facilities, and hence their efficiency, by using Fonterra milk that this Parliament—the people in this room—will make Fonterra sell to its foreign-owned competitors so that those competitors can maximise the efficiency of their processing plants during the shoulders of the season.

Thank goodness the Green Party is here, because otherwise that would not be said. It would just be suppressed and swept under the carpet by National and Labour, with their mad ideology about free trade and so forth, if the Green Party was not here to point out the fact that National and Labour are making Fonterra subsidise their foreign-owned competitors. It must be difficult for Mr Ardern to go to Fonterra shareholder meetings, because when people ask what he is doing, he will say he is voting to make Fonterra subsidise its foreign-owned competitors when he is in Parliament this week.

Shane Ardern: Read their submission.

Dr RUSSEL NORMAN: When we look at the submissions, which Mr Ardern talks about, we look at the submission from Westland Cooperative Dairy. It states that it makes sense to have the dearer milk, the bulk milk, available for domestic producers, and I agree with that. It does make sense to have that milk available in the domestic market, because Fonterra obviously is such a big player. It does not totally dominate the domestic market as much as people think, but it is a huge player. It makes sense to have the dearer milk available around the domestic market. However, how can it make sense to force Fonterra to sell it to the overseas competitors, who will then compete with Fonterra in overseas markets, using milk that Fonterra has been forced to sell to them? How can it make any sense to force Fonterra to sell milk to the overseas-owned processors, who then use that milk and process it to compete with Fonterra overseas? How does that make any sense for New Zealand? It does not make any sense for New Zealand.

What we are seeing today is a Parliament—well, National and Labour, let us face it—that has lost its mind. National and Labour are weeping crocodile tears about how sad it all is, but they will vote for this ridiculous bill. The Green Party will not be voting for this bill. We think Fonterra is a really important player in the New Zealand market. It is one of our most important companies. We do not think we should force it to subsidise its foreign-owned competitors, hence facilitating the foreign ownership of the New Zealand dairy industry. The industry is facing an enormous challenge from overseas buyers who want to come in and buy it up, and that is fair enough. Those buyers want to make money out of it. It provides access to food, to land, and to water. The land is very, very valuable. There is a big grab going on to access land that can produce food, and we are helping overseas buyers. We will help them by forcing Fonterra to subsidise its overseas competitors in New Zealand. It is an absurd situation, and National and Labour should be ashamed of themselves for putting Parliament in this situation. The Green Party will be voting against this ridiculous law.

RAHUI KATENE (Māori Party—Te Tai Tonga) : Tēnā koe, Mr Assistant Speaker Robertson. A fortnight ago in Rotorua at the New Zealand Dairy Business Conference Waikato-Tainui’s Te Arataura chairman Tuku Morgan told delegates that farmers and iwi shared an intergenerational interest in the land and what it produced. He went further and laid a simple challenge to the industry: work with us; work with iwi across the country in genuine partnership. In his kōrero he referred to Māori cultivation of the land prior to its alienation and seizure. He also brought out the critical role that Princess Te Pūea played in establishing New Zealand’s dairy industry when she bought land and began building a dairy herd in the 1920s. The Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill threatens to disrupt this relationship by introducing uncertainty about Subpart 5 in Part 2 of the Dairy Industry Restructuring Act 2001. This subpart is the one that promotes the efficient operation of dairy markets in New Zealand by regulating the activities of Fonterra to ensure that New Zealand markets for dairy goods and services are contestable. The bill states it will provide for a new process for the expiry of the pro-competitive measures when the new specified market thresholds are reached. In its effect, the new legislation provides for a more detailed approach in determining when the threshold is met, and increases the threshold to 20 percent. The new legislation effectively empowers the Minister of Agriculture to forcibly enact the expiry of this subpart in the event that the threshold is met.

So why is there such a concern? Let me go back to the points raised by Tuku Morgan. A review of the Māori commercial asset base for Te Puni Kōkiri in November 2003 showed that there were 436 Māori authorities with substantial businesses. We know also that by farming an area of 720,000 hectares, worth an estimated $7.5 billion, Māori are the largest natural grouping of pastoral farmers in New Zealand. In fact, given the collective nature of their landholdings, and the number of shareholders they support, there is also a strong case for saying they are the most sustainable farmers in New Zealand. Mr Morgan’s challenge to the dairy sector was to take the relationship between iwi and farming to a new level. He promoted the urgent need to recognise Māori concepts associated with the land, such as tikanga, or heritage; kaupapa, or conceptualisation of Māori knowledge; and kaitiakitanga, or guardianship, to work together and create a more environmentally, culturally, and socially sustainable dairy industry. Enter Miraka Ltd.

Miraka is a new entrant to the dairy processing industry, and is constructing a plant at Mōkai in the heart of the Waiariki electorate, 30 kilometres north-west of Taupō. It will commence operations in August 2011. Miraka is backed by a group of Māori trusts and incorporations that have a combined asset base of over $1 billion. These organisations include Wairarapa Moana Inc., Tuaropaki Trust, Waipapa 9 Trust, Hauhangaroa Partnership, Tauhara Moana Trust, and Huiarau Farms, and the Māori Trustee is also an investor. As a majority Māori-owned and Māori-controlled dairy company, Miraka is here for the long term. Miraka’s owners share a vision of sustainable business practices that secure long-term returns for current and future generations from land that will never be sold. Yet if this legislation proceeds unchallenged, it may well be that the unique partnership Miraka can bring to the dairy sector is compromised—in fact, sacrificed—under the possibility of a restricted public market.

In the current arrangements there are consistencies between the current Subpart five of the Dairy Industry Restructuring Act 2001 and the kaupapa of rangatiratanga, as the current subpart provides for effective regulation and transparency of Fonterra’s activities within the dairy industry. So it ensures that, despite its dominant market position, Fonterra operates within an environment that is contestable, such that it faces potential competitive pressure. But this new legislation proposes to provide for the subsequent expiry of Subpart 5 to be timed to enable any future Government to review and/or amend, if required, the pro-competition provisions of the Act to meet the policy objectives of the time. In short, various dairy operators in the sector are telling us that it is unwise to leave the door open in a way that may expose the dairy industry, and independent processors such as Miraka, to an unacceptable level of risk.

As the House will know, there is currently a significant amount of attention on the dairy industry, particularly relating to Fonterra’s capital restructure proposal, the review of raw milk regulations, the domestic retail price of milk, and the way in which Fonterra calculates the price it pays its farmers for milk, known as the farm-gate milk price. The Māori Party is acutely aware of the heightened levels of public concern about the level of competition in the domestic market, as well as the claims of anti-competitive behaviour by Fonterra, and the effects these have on the price of milk. I acknowledge the initiative that has been taken by the Commerce Commission in undertaking some preliminary work to determine whether a formal investigation into the price of milk is warranted. That was great news for our constituents. The Māori Party had called for a commission investigation into milk prices, because of the claims that Fonterra had an effective monopoly in collecting over 90 percent of the milk produced in New Zealand. The advice we received from consumers and dairy producers alike was that the concern related to the proposed share-trading proposal, in that it would sacrifice a fundamental principle that guarantees farmers easy entry into, and exit from, Fonterra, the world’s largest dairy exporter. As is now well known, of course, the Commerce Commission decided it would not hold an inquiry into milk prices, but it did suggest it was open to hearing arguments.

This debate has ranged far and wide across the impacts and effects of the dairy industry legislation, and although one might say that this legislation is not specifically focused on Fonterra’s plan to introduce share trading amongst its farmers, I have to say that there is simply too much uncertainty around for us to be able to agree to repeal and replace the provisions that promote open markets. This bill is being read in a volatile environment. We know that the Federation of Māori Authorities, for instance, has indicated concerns about the Ministry of Agriculture and Forestry’s discussion paper on a regulatory regime to accompany Fonterra’s capital restructuring. The underlying premise in this legislation is that there is unlikely to be sufficient competition in the dairy industry to ensure the efficient operation of New Zealand dairy markets, yet, as the Federation of Māori Authorities will tell us, there is significant scope not only to lift the performance of dairy producers but also to build on linkages between producers, processors, and marketers to capitalise on value-chain opportunities within the dairy industry. We agree with the Federation of Māori Authorities that an open entry and exit mechanism is essential for a competitive dairy market. We also believe that a full and informed investigation needs to be completed by the Commerce Commission before we can be in a position to support this bill going through. To this end, the Māori Party cannot support this bill at its second reading.

COLIN KING (National—Kaikōura) : It is a pleasure to stand and speak during the second reading of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. The bill itself deals with interim procedures to ensure that we retain the structure and the basis of the Dairy Industry Restructuring Act as it stands. That makes sense, because when we look back to the year 2001, which does not seem very long ago, we see that 10 years have gone by. It is very important, from the point of view of cohesion, to ensure that until we get everything within the dairy industry into a structured format, we have consistency. Hence we have this bill.

The bill deals principally with sections 147, 148, and 149 of the existing Act, and it readjusts the very volume at which the trigger is set for us to start to curtail the purpose of the Act as it was set up. When we look at the original section 148, we see that it talks about independent processors collecting 65 million kilograms of milk solids in the South Island, and one processor collecting 25 million kilograms. When we turn to this bill, we see that in fact it repeals sections 147 through to 149 of the Act. New section 147(1) in clause 4(1) of the bill states: “(a) 20% or more of milksolids on or from dairy farms in the North Island of New Zealand … or (b) 20% or more of milksolids on or from dairy farms in the South Island of New Zealand …”. That is an indication of the principal change from the Act as it stands at the moment.

The bill also ensures that there is some consistent process in the event of that happening. It is unlikely to happen, because as a country we produce 1.44 million tonnes of milk solids. When we look at that and do our maths, we see that effectively we are asking a processor to pick up somewhere in the region of 280,000 tonnes of milk solids.

However, it was interesting that during the select committee process in the Primary Production Committee we heard from Westland Cooperative Dairy. The 400 suppliers to Westland Cooperative Dairy have been very, very successful, but as we speak I believe the company is making moves to have a collection point just out of Rolleston so that it can pull back milk from Canterbury, take it through the tunnel, and process it over in Westland. That certainly is a change of thought and understanding of what was the case back when this particular Act was put together.

We look forward to the comprehensive review that the Minister has made clear is to occur. We realise that this legislation is an interim change. It is appropriate, and on that basis we can support the bill with confidence. Thank you.

SUE MORONEY (Labour) : It is a pleasure to rise and speak to the second reading of the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill with its new sunset provisions. But as much as I am pleased to speak to this bill, is it not disappointing? For the last 2 weeks this place has been in what we euphemistically call a recess. During that period of time I have been speaking with people out in the streets and ordinary New Zealanders about what their issues are at the moment. They want to see from members of this Government some sort of plan—any kind of plan—that would show that they have been thinking about what is happening with the economy, because it is flatlining.

Here we are, and this is the best the Government can come up with. This is the best it can come up with that represents anything like a plan. It actually extends some provisions the previous Labour Government put in place to ensure that there was competition in the dairy industry. That was a wise move at the time, but we were in completely different economic times from those we are in currently. New Zealanders want a plan from that lot over there to actually deliver economic growth, but we are debating this legislation instead. I think it is very, very disappointing. Although it just allows a situation that was already happening to continue for a small period longer, it does not do anything to fundamentally shift or grow the economy. That is what this country needs to do, so it is very disappointing.

I think there is another missed opportunity in this legislation. It is the missed opportunity to think about what else we should be thinking about in this Parliament with regard to the dairy industry and the aspect of competition. I am interested in the fact that the competitors that this bill forces Fonterra to subsidise—their competitors, as I think the Green Party quite rightly pointed out—do not have to live by the same rules and regulations with regard to labour standards that Fonterra does. I think that is a very great shame. It is something really positive that this Parliament could be debating. I would look forward to debating a bill that said it does not matter whether a company is Fonterra, Open Country Cheese, Synlait, or whatever, if it employs people to process dairy products, then decent wages and conditions should go with that employment. We do not have that legislation in this country.

That issue was the subject of a very lengthy and bitter dispute in the Waikato in the small village community of Waharoa, in fact, just last year. The Minister of Labour, Kate Wilkinson, is sitting over there, and she knows that that dispute was caused by industrial legislation that means it is OK for Fonterra’s competitors to have substantially lower wage costs than Fonterra agrees to.

From Government members’ perspectives, they do not have a problem, at all, with low wages being paid in the dairy industry, or any other industry, for that matter—any other industry. They do not care that there are no good laws in place to make sure that decent wages are paid. They are quite happy. As Bill English said, they see it as a competitive advantage, in fact, that we have wages that are 30 percent lower than Australia’s. If the Government has an economic plan, that appears to be about the amount of it. Bill English’s plan is backed up by John Key and, I guess, the rest of the Cabinet as well. It is a great thing, says the National Government, to have low wages in this country, because that is apparently our point of competition.

My guess is that on this issue the Government would think it is a great thing that there is competition—that Synlait and Open Country Cheese can significantly undercut Fonterra by paying lower wages to the workforce, even though those workers are doing exactly the same jobs they would be doing for Fonterra. But no, we have silence from the Government on that issue, because those members do not really care about low wages, even though they should know, if they are doing their jobs, that ordinary New Zealanders face a week-to-week and day-to-day struggle to make ends meet because wages are standing still—if they are not going backwards. The cost of living is primarily driven, as John Key said quite rightly in question time today, by that Government’s desire to increase GST on every single food item, or any other item people buy. Those are the issues confronting ordinary New Zealanders. There is a lost opportunity on those grounds.

There is a further lost opportunity to do with milk prices. We know that that is a significant issue—

Sandra Goudie: Oh, here we go. Never let the facts get in the way of a good story!

SUE MORONEY: Let me share some facts with that member, because she may not have heard them from the people she claims to represent. She should be listening. Ordinary New Zealanders will tell her that the price of milk and other dairy products has skyrocketed under National. This bill will do very little to change that. It will do nothing to change it, in fact. New Zealanders have been feeling the squeeze at the checkout as the price of food has increased by 5.5 percent in the last year. Since April 2008 the cost of a litre of Home Brand milk at Foodtown has increased by 20 percent, or 37c. With minimal wage increases Kiwis are finding it harder and harder to afford the basics. Families are cutting back on dairy goods, and the health of New Zealanders, particularly young children, will suffer because of high prices for dairy goods.

Is the Government interested in that issue? It would seem not. Sandra Goudie wants to deny there is even an issue out there with the price of milk, or with the price of anything. We are debating a bill about restructuring the dairy industry. Does it go near that issue at all? No way.

Sandra Goudie: Done your homework?

SUE MORONEY: I ask Sandra Goudie whether she has done her homework. I think she should look at the cost of living statistics that came out recently, which show how high the cost of food has gone in this country. That member should think about what is happening to people’s wages.

Sandra Goudie: Why didn’t she think about that when she had the opportunity to make a difference when in Government? She did, and it failed.

SUE MORONEY: Here we go. Sandra Goudie has forgotten about the minimum wage increasing every single year under the Labour Government. She has conveniently forgotten that wage increases happened regularly for workers across all industries under the Labour Government. She has forgotten that the lowest unemployment in the OECD was achieved by Labour when it was in Government. I tell that member to contrast that to what is happening under National. It does not even rate a comparison.

I challenge that member and all of the members opposite to go out, talk to ordinary people, and ask them one question. It is a simple question that does not take long: “Do you feel better off?”. I challenge every single member of National to go out and ask people on the street that question. I can tell those members that the answer to that question is no, they do not. They feel worse off under this Government. They feel worse off because they are actually worse off under this Government. This Government put up GST and it put up prices on every single thing that people buy. It has done nothing to create growth, which would lift people’s wages. It has done nothing to reduce unemployment, which would create jobs and incomes for families as well.

We are debating the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. It is an interesting little bill, but it will do nothing to improve economic performance. Is that not the hallmark of this Government? The bill will do nothing to reduce unemployment. Is that not the hallmark of this Government? It will do nothing to resolve price increases for ordinary families. Is that not also the hallmark of that Government?

SANDRA GOUDIE (National—Coromandel) : I am delighted to get up and speak to the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. I cannot add much more than my excellent colleagues Shane Ardern and Colin King, so I want just to respond to “Mrs Rip Van Winkle”. I refer to an article in TheCattleman, an annual magazine put out by the Angus Association and the comments that were made by Massey University Professor of Pastoral Agriculture Jacqueline Rowarth. She points out that food is cheaper than it seems. She has statistics on her side because she has done her homework. Sue Moroney, Labour, and the Green Party have not done their homework. When adjusted for inflation, 2 litres of milk in 1999 would in today’s money cost $3.87. In 2009, 2 litres cost $3.48 and today in Woolworths supermarkets house-branded milk is at $3.60. It is actually cheaper. So get that—it is actually cheaper. Do the homework, I say to Labour and the Greens.

Professor Rowarth added an interesting fact: on average, New Zealanders aged over 18 spend $16 million a day—that is $5 each—on impulse buys. She has pointed out that she has the facts to back up that income has risen faster than prices. So if the Opposition and all those other members did their homework, they would be able to pick up on the same facts that Professor Rowarth has. They should do some homework and stop making spurious statements about prices. Those facts are all available to us all on the Statistics New Zealand website. Maybe they would like to do their homework and use it.

STUART NASH (Labour) : If anyone was in doubt why the National MP for Coromandel has been rolled by a person who was the chair of the Epsom local electorate committee, they no longer are. That speech was the reason why someone who was the chair of the Epsom branch of the National Party is now standing in the Coromandel. The National Party said: “We have got to have quality candidates, because we have got no quality candidates. What we’ve got to do is get rid of that candidate in Coromandel because she is doing us an immeasurable amount of harm.”

She stands up here and she tries to tell ordinary New Zealanders that the price of food has dropped—she tries to tell them that the price of food has dropped. That is someone who is so out of touch with reality. That is someone who has not spoken to the people in her electorate about how they are coping in this day and age. The average wage in New Zealand is $50,000. Seventy-five percent of New Zealanders earn below the average wage—75 percent of New Zealanders earn below $50,000. They are people who are really struggling. I am not talking about those 650 people who earn over a million dollars, who got a tax cut of $1,000 a week. I am talking about people in Napier on the median wage who got about $5 a week in the hand. They have seen the price of petrol go through the roof, they have seen the price of milk go through the roof, and they have seen the price of food go through the roof to the point where something has to give. That tends to be things like milk.

There are only three points I will make with regard to this Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. The first one is that Fonterra is of vital importance to the New Zealand economy. If we allow the sale of New Zealand assets to overseas interests, then New Zealanders will become tenants in their own land. The second point I will make is that this bill is simply an interim measure until more can be done—and more does need to be done; we all admit that. The third point is that if I look at the statistics I think the dairy industry is an industry that appears to be under threat and in trouble, and I will talk about that a little bit more.

The first point is about this being of vital importance. About 74 percent of New Zealand’s export earnings at the moment are from the primary sector. We are not talking about just dairy; we are talking about forestry, agriculture, and horticulture, but dairying is a large component of that. This is a very important part of our economy. Let us face facts—we are an agricultural-based economy, a primary production - based economy. That is why this is such an important part of our economy. But it is also why I have grave concerns about what is happening to the ownership patterns of New Zealand’s agricultural sector.

I will give members a classic example, one that has been in the news a lot: the Crafar farms. I do not know why, I cannot find one good reason why, Landcorp does not buy those farms, hold them in some sort of trust, and use them as training farms for young New Zealanders who want to get on the land, who want to learn about dairying. That would keep the land in New Zealand ownership and it would allow our young people to learn how to become great dairy farmers. It would not allow a Chinese company to tie up that whole supply chain from New Zealand farm right through to Chinese market. New Zealanders want to control that supply chain. We want to be in control of landownership. This is our country and I firmly believe that it should remain in New Zealand control.

New Zealanders do not want to become tenants in our own land. New Zealanders do not want to become a nation that has sold its land, sold its assets, and sold its competitive advantage to those large companies so we can be milked. Other countries appear to be a lot smarter around this issue. We are not allowed to buy land in a lot of the countries that are buying our own land. That is wrong.

The second point I will make is that this bill is simply an interim measure. Personally, I have concerns with the fact that Fonterra is forced to sell part of its production to competitors. That concerns me. It is only 6 percent, but it is the principle. That principle is why a company should be forced to subsidise other companies. As I said, it is only 6 percent, but it is the principle. That brings us to the price of milk. I for one am very pleased that the Commerce Commission decided to reopen its investigation on the price of milk. It may be that its conclusion is that everything is fine—that is fine. But all that New Zealanders want is a little bit of transparency. We want the knowledge that we are not being ripped off and rorted.

When I was young I was a milk boy. I used to get up at 6 o’clock every morning and push a trolley round the streets of Napier. I used to drink milk by the pintful. When I got home I would scull a pint of milk. Before school I would scull a pint of milk. After rugby practice I would scull a pint of milk. We were a family of four children. Mum used to put out six milk bottles. That did not cost her much, at all. We used to have milk in schools. Mr Assistant Speaker Roy probably would not remember that, but in the old days we used to have milk in schools. We recognised that milk is a meal in a bottle, milk is incredibly healthy, and milk is a necessity. It is not a luxury, but it has been priced almost at the luxury point. Goodness me, Coca-Cola is cheaper than milk! Something that is rotting the lives of our young people is cheaper than something that builds their lives. Somehow we need to get back to the point where people choose milk over Coke. Would that not be a great day? Because milk is a very healthy food and it is a necessity.

When we hear the statistics—Jonathan Coleman will know this; he is a former doctor—that New Zealand is the third-fattest country in the world, I have to ask what is going on here. I ask where we have fallen down so much that one in four of our children starting school is obese. That is a dreadful statistic, and it is something we have got to do something about. In fact, it is the reason why Labour has decided to take GST off fresh fruit and vegetables. We decided it was time to send a message that we value the health of this nation.

The other thing I will talk about is that this appears to be an industry under threat. Members may ask why I say that. First of all, Fonterra, since 31 May 2007, has made $77.4 billion, but it has had tax credits of $23 million. It has had a profit before tax of $1.865 billion, and a profit after tax of $1.888 billion. So Fonterra has paid no tax whatsoever on $77 billion of revenue. According to Inland Revenue Department statistics, there are about 17,244 dairy farms at the moment, but in 2009 they paid only $26 million in tax. That equates to $1,507 tax per dairy farm.

As mentioned, Fonterra is a vital part of our economy in terms of the export dollars it brings in, but we are getting absolutely no tax from this industry whatsoever. Fonterra has paid no tax since 2007. The dairy farmers have paid $26 million in tax. Obviously, if we look at the statistics, this is an industry that is struggling. That goes against everything we know in terms of the price of milk, so I have some questions as to how those farmers are structuring their businesses in such a way that allows them to minimise their tax to such an extent that there is an average of $1,500 per dairy farmer, but that is an argument for another day.

Just to close, I will make three points. Firstly, Fonterra is vital to the New Zealand economy. Secondly, this bill is simply an interim measure until more can be done—and more needs to be done. The third point is that the dairy industry appears to be an industry under threat. We do support this bill, but we absolutely understand that this is simply an interim measure. Thank you very much.

JO GOODHEW (National—Rangitata) : I rise to speak very briefly on the Dairy Industry Restructuring (New Sunset Provisions) Amendment Bill. It is important that this bill travels through the House at this time, given that we need to have these provisions in place before the conditions are met that would otherwise trigger the expiry of the sunset provisions of the Dairy Industry Restructuring Act.

Dairying is a particularly important industry to New Zealand, to New Zealand’s future, and to New Zealand’s economic growth in the rural community, and it is certainly one that this National-led Government supports wholeheartedly. We are making sure that our markets operate efficiently with competition, and we are also encouraging innovation and enabling faster growth. In my electorate of Rangitata, one-third of the primary production area is used for dairying. I know it is very important that we get the settings right for dairying in this nation. I commend this bill to the House.

Hon Dr JONATHAN COLEMAN (Minister of Broadcasting) : I move, That the Television New Zealand Amendment Bill be now read a second time. This bill amends the Television New Zealand Act 2003, in line with this Government’s wish to replace the current Television New Zealand charter with a less prescriptive list of functions and to leave Television New Zealand to concentrate on being a successful television broadcaster without the shackle of an unrealistic dual mandate. The other core purpose of the bill is to amend the Act to allow the rescreening of TVNZ’s archived pre-1989 television programmes and to provide a process for compensatory payments to individuals with an interest in the works when the archived programmes are rescreened.

This bill provides a realistic framework within which TVNZ will operate. The reality is that for many, many years TVNZ has been predominantly commercially funded. Well over 90 percent of its income is from commercial revenue, and that was the case under the last Government. Indeed, the Labour Government was in denial that it actually owned a commercial broadcaster. It tried to pretend that TVNZ could be all things to all people, and that despite being commercially funded, it was a public broadcaster, rather than publicly owned.

TVNZ has struggled to return a consistent dividend to the Government. This has been due, in part, to the uncertainty created by the Government’s long-term expectations of it. Removing the charter is being honest and not trying to pretend that TVNZ is something that it plainly is not. The real test is to look at what difference there is in TVNZ’s viewing schedule prior to the charter as compared with during it, and the answer is that there is none.

With the passing of this legislation, TVNZ’s functions will be to be a successful national television and digital media company; to provide high-quality content that is relevant to, and enjoyed and valued by, New Zealand audiences; to provide both New Zealand and international content and reflect Māori perspectives; and to include the provision of free-to-air channels available to audiences throughout New Zealand. These at last provide TVNZ with a clear direction and formalise the Government’s expectations as shareholder.

TVNZ will continue to provide broadcasting services to all New Zealanders, and the public will continue to have access to local content on TVNZ, including material with a Māori perspective. The removal of the charter will have little impact on what is shown on the screen. TVNZ will continue to screen events of major public significance, it will still screen content of relevance to a broad cross-section of New Zealanders, and it will still screen high levels of New Zealand content. At the same time TVNZ will have the flexibility it needs to effectively pursue commercial objectives and to continue its transition from a traditional broadcaster to a multi-platform digital media company with diverse income-streams and services.

The proposed functions of the bill will still allow TVNZ to feature content of a public service character as part of its total output. This will be achieved by TVNZ continuing to have access to New Zealand On Air funding to ensure the delivery of high-quality New Zealand content, which reflects the Government’s policy of providing support for public service broadcasting primarily through contestable funding via New Zealand On Air—funding programmes rather than broadcasters.

In terms of the bill’s other functions, Part 4A, which is to be inserted in the Television New Zealand Act by clause 10, establishes a scheme for the rescreening of pre-1989 TVNZ archived works. TVNZ’s archive is a unique and valuable record of New Zealand’s historical, social, and cultural life and an important part of our screen heritage. It is in the public interest that the publicly funded programmes in the archive be available for future viewing. Currently, a significant number of programmes are effectively locked up in the TVNZ archive, unable to be screened because the multiple rights attached to the works would require clearance. The bill provides a means to resolve the issue of rights clearance. The scheme balances public-good objectives of making these works available for current and future generations to see with the rights of those who were contracted to work on the programmes. The existing arrangements between TVNZ and Māori Television for the provision of archived content will continue. The scheme applies only to those works for which TVNZ holds full copyright and not to those produced or co-produced by an independent producer.

I note that Opposition parties have presented two minority views in the Commerce Committee’s report. The Labour view focuses solely on the removal of the charter and asserts that the local production industry will be disadvantaged by the removal of the specific requirement for TVNZ to support it. I remind the House that the charter had a negligible effect on TVNZ’s programming. In introducing the charter, the previous Government did nothing about altering TVNZ’s commercial model or removing the obligation for it to deliver a dividend.

It will be interesting to hear the Opposition members’ speeches in this debate. I expect to hear plenty of misinformation about the death of public broadcasting while they ignore the fact that the Government is spending $231 million per year on all forms of broadcasting. I am also sure we will hear no mention of the fact, as the Listener magazine points out, that New Zealand is the only country of 4 million people in the OECD that funds a public service radio network, an indigenous television channel, and an $81 million contestable fund for local programme making. For the Opposition, the broadcasting glass is always half empty.

We will hear from the Opposition members a repeat of the assertion that public broadcasting is in crisis. Labour’s answer, according to its press release of 14 April, is a call for “the nation’s top thinkers, business leaders, politicians, academics and senior media industry figures to converge to discuss the future of public broadcasting and media in New Zealand.” I will leave the audience to decide whether the Opposition has any credible plan for broadcasting beyond constantly complaining.

I note that the Green Party expressed concerns about the future of public service television and the health of the local production industry. However, I am confident that the Government’s ongoing support for, and commitment to, New Zealand On Air’s contestable funding model and the bill will help to support these outcomes. The Green Party’s minority report expresses concerns that once the bill has passed, TVNZ will own the archive and will be able to charge exorbitant fees for access to archived material. In fact, TVNZ already owns the archive, and outside the purposes of the scheme the bill has no effect on its charging for the use of archived material.

The amendments proposed by the Commerce Committee have strengthened and clarified the bill. I am confident that the legislation will mark a new era for TVNZ. In a converging media environment, TVNZ will have a flexible and realistic set of statutory functions to position it as a modern, competitive broadcaster. The expectations of TVNZ are clarified, and the unworkable, vague mandate of the charter will be gone. The TVNZ archived works scheme will ensure that rights-holders will gain benefit from their work, that the public will no longer be denied the opportunity to view works that are part of New Zealand’s cultural and broadcasting heritage, and that further value will be gained from the public funding invested in the programmes. I commend the bill to the House.

CLARE CURRAN (Labour—Dunedin South) : I will first acknowledge that there has been yet another disaster in New Zealand. Our thoughts are with the people of Auckland tonight who are affected by the tornado.

The Television New Zealand Amendment Bill represents three things the Government is becoming renowned for: weakness, cronyism, and dodginess. The weakness of the Minister of Broadcasting is in not having any real plan for public broadcasting in this country other than to get rid of it. If he had a plan, then he is being rolled. Jonathan Coleman is a weak Minister. The legislation is a disgrace, and his approach to public broadcasting is a disgrace. He is a waste of space. The weakness of the Prime Minister and the Ministers, including the Minister of Broadcasting, is in kowtowing to pressure by corporate media to bail them out while seeing off the important role of public broadcasting. That is cronyism at its worst. TVNZ will be stripped of its charter and its public interest role. TVNZ 7 has been axed. Our new, innovative digital channel is gone while the Government hands over a $43 million loan to its corporate mate MediaWorks, which runs TV3 and some influential radio stations. It is an election year—go figure.

Labour is emphatically opposed to the Television New Zealand Amendment Bill. We are opposed to replacing the TVNZ charter with a statement of functions. We are opposed to the Minister instructing TVNZ that it is no longer a public broadcaster but instead a commercial broadcaster. That was earlier this year—well before this bill is enacted—when the charter was still in force.

I will tell members what TVNZ said to the Commerce Committee on 7 April in response to a question from me about whether it believes that TVNZ is a commercial broadcaster or a public service broadcaster. The TVNZ Chief Executive Officer, Rick Ellis, said that the shareholder, the Government, has made it clear that its primary mandate is to be a commercial broadcaster, a commercially successful company. The announcement that the Minister made yesterday in respect of TVNZ 7, I think, gives weight to that. He said: “Our primary focus is to be a commercial broadcaster, commercially successful,”—TVNZ must be a successful commercial entity. Rick Ellis said the Minister had visited the board in March and expressed that view. TVNZ was instructed to prioritise commercial functions and hence neglect the charter well before the charter had even been abolished—and it has not yet been abolished. The charter is supposed to be abolished with the bill but the charter currently remains in statutory force. TVNZ is supposed to be abiding by the charter, but the Government has blatantly disregarded the law as it stands, because it has already made the decision to axe the charter. This raises some very interesting questions about whether the Government has acted unlawfully in instructing a Crown company through policy to act in a manner that contravenes its statutory functions. Who was the last Prime Minister to do that? It was Muldoon. He made decisions that contravened laws and then changed the law to give his decisions validity. The legal precedent of Fitzgerald v Muldoon in the 1970s was a case of the executive assuming the powers of the legislature—powers it did not have. That is dodgy.

I will tell members what else is dodgy. The Minister Jonathan Coleman claims that the Government did not receive any proposal from TVNZ 7 regarding the possibility of funding TVNZ 6 or TVNZ 7 with commercial revenue from Television One and TV2. However, Labour understands that TVNZ did consider this possibility, but because of the demand for increased dividends it was not possible. TVNZ told the select committee that it approached the Government with a proposal to keep TVNZ 7 going. Jonathan Coleman has denied that. Who is telling the truth? Perhaps the Minister could answer that question.

We also understand that the Government instructed TVNZ to operate, in effect, as a State-owned enterprise and return dividends at a rate of 9 percent, even though the risk-free rate was apparently only 6.4 percent. Where in the charter does it state that TVNZ is required to return a dividend of 9 percent and that that requirement takes precedence over all the other clauses in the charter? If there is such a clause, then I challenge the Minister to read it to the House.

To take the cake, we also understand that on one of the many occasions when the Minister Jonathan Coleman attended board meetings with MediaWorks not only was the future of TVNZ 7 discussed but a strong message was delivered to him by the board to get rid of it. Given that the Minister subsequently did get rid of it and that MediaWorks was handed a cool $43 million loan to defer payment on its spectrum licences, how did MediaWorks get to exert so much pressure on the Government? Perhaps the Minister would like to answer that question. Did the Minister discuss the future of TVNZ 7 with the board of MediaWorks? What was the nature of those discussions and what message was delivered to him? Was it a strong message? Was it a message to get rid of TVNZ 7 or else? He certainly met with the board of MediaWorks on many occasions—nine times to be precise—between 9 December 2008 and the end of last year. I am not sure how many times they have met this year; perhaps he could tell us that. Interestingly, he met with the board six times last year. That is a lot. What did he discuss? In the meantime—

Brendon Burns: Every 2 months.

CLARE CURRAN: That is correct. In the meantime when Minister Coleman has been busy meeting with the board of the commercial broadcaster, public radio broadcasting in New Zealand is in tatters, following a statement made by the new Radio New Zealand chair, Richard Griffin, that he is going to move our State radio broadcaster towards commercialisation. He said that Radio New Zealand will not become a commercial product, but in the next breath he revealed that he was open to sponsorship of some radio programmes at the State broadcaster, even if a law change was needed. He said: “This board has got the will and determination to make it happen not just to enhance the product, but to enhance the revenue for the product.” Richard Griffin, the new chair, is a former press secretary to Jim Bolger, and he denied that his appointment was political. But his agenda fits with this Government’s view to strip our State broadcasters of public broadcasting functions and to turn them towards cost recovery and even profit. He has been appointed to chair that board, after less than a year.

What does this all tell us, and what does this bill being put before the House today tell us? It tells us there is a crisis in public broadcasting in New Zealand.

Hon Dr Jonathan Coleman: I told you. There you go.

CLARE CURRAN: Recently, as the Minister has just helpfully told us, more than 60 academics in New Zealand wrote an open letter of concern to the Prime Minister, the Minister of Broadcasting, the Minister for Communications and Information Technology, and the Minister of Finance. The letter expressed their deep concern about the closure of TVNZ 7. They said that this was “one more in a series of steps by the government to dismantle the little that is left of public broadcasting in our country. … Public service television is even more important in a country of such limited size. Our small population means that New Zealand’s commercialised television channels simply cannot provide the range of programming that viewers want and should be able to access in the interests of democracy as well as cultural identity. In radio, New Zealand has a national public service network, Radio New Zealand (RNZ), and publicly-funded Māori radio stations. In television, it has two publicly-funded Māori channels (Māori TV and Te Reo) which are performing an important function—but there is no national television service equivalent to RNZ.”

So while I am at it, here are a few more questions for the Minister today. I wonder what his response is to the claims made by those academics that most OECD countries have at least one public service television channel, simply because they understand the market will never fulfil this role, and without it the potential of television to create a better-informed society and a stronger democracy will never be realised. There is, as far as I can discover, one other country in the OECD that does not have a public service television channel, and that is Mexico. Now, New Zealand has joined Mexico, and that is shameful.

Last week, Labour called on the nation’s top thinkers—the business leaders, politicians, academics, and senior media industry figures, as the Minister has helpfully said—to converge to discuss the future of public broadcasting and media in New Zealand. I repeat that call today, and it is my understanding that it is getting a good reception. A lot of people out there care about public broadcasting in New Zealand. That Minister is not one of them. Every democracy should have the ability to tell stories, to provide the public with independent, critical analysis, reporting and investigation, and to not be owned by corporate interests.

PESETA SAM LOTU-IIGA (National—Maungakiekie) : It is an honour to stand and support the second reading of the Television New Zealand Amendment Bill. It is an honour because this monumental legislation is all about repealing a charter that is not working, and freeing up Television New Zealand to avoid a dual mandate—the disparate sorts of cross-purposes that currently it is focused on.

National is committed to public broadcasting. It is committed through the $231 million that is invested in public broadcasting across not just television but radio and other forms of media. It is committed to television through New Zealand On Air funding. There is over $80 million of New Zealand On Air funding, which allows television programmes to be made across a number of channels. It is also committed to public broadcasting in the television space through the Platinum Television Fund, from which $15 million per year is available for bidding by local production companies and various providers of content. This bill is about wanting the best for New Zealand viewers, and wanting the best for Television New Zealand: for it to be a successful commercial broadcaster operating across the various media.

There are two basic purposes to this statute. The previous speaker, Clare Curran, talked about the focus on more generic statutory requirements, yet she did not mention once what those statutory requirements were. Instead she questioned the Minister as to what National was doing. But I put it back to the Opposition. I put it back to Labour, which spent 9 years in Government, and I ask how Labour would fund its ambitions for public broadcasting. How, in this economic climate, during this global economic recession, would Labour fund the types of broadcasting platforms that it has been advocating for? That type of funding does not grow on trees.

This bill also enables the screening of pre-1989 Television New Zealand archived works. It is really important that a lot of those works are released for public consumption, and that they are seen. Thankfully, most parties around the Commerce Committee table actually agreed that those works should be released, that the relevant rights-owners should be compensated in some form, and that rescreenings should at least be free for those programmes to be released for publication.

I just mention briefly new section 12, amending the Television New Zealand Act. It provides for Television New Zealand to be a successful, national television and digital media company, providing a choice of different platforms and maintaining a commercial performance. As I said, the dual mandate has not worked. Most people would accept that. It has not worked because on the one hand Television New Zealand is trying to satisfy the requirements of the charter, and on the other hand it is competing with a number of other media companies not just in television but now across a number of other media platforms. It is competing on a commercial basis, and it needs to compete with high-quality content. The other function that is stipulated in section 12 is that Television New Zealand provides high-quality content that is relevant to, and enjoyed and valued by, New Zealand audiences. We can see from that stipulation that there could be a conflict with the charter, in that section 12 is about providing content that consumers are prepared to watch, and content that advertisers are prepared to pay valuable advertising dollars to support being put on the screens. It is also about encompassing New Zealand and international content and reflecting Māori perspectives, which, I think, in the select committee we all agreed with.

As we can see, section 12 is quite narrow. It allows for Television New Zealand to focus on its commercial purpose.

Also, the previous speaker from across the aisle stated that public broadcasting is not effective. Television New Zealand is the winner of numbers of awards not just for news content and sport but also for the content that it produces on a daily basis. The Platinum Television Fund, as I have already stated, has been put in place in order to attract programmes that will deliver high-quality content. They include, of course, current affairs shows like Q+A,and Billy, a docudrama detailing the life of one of our best comedians, Billy T James, as well as other documentary series like Wild Coasts. Through that contestable fund, producers are able to get funding for the production of local content of a high quality that—and this is important—local people want to watch.

I support this bill. The Government has put forward this bill in order to move Television New Zealand into the next century. It is a move in terms of the digitalisation of TV, and we await that with great zeal. This bill certainly facilitates the movement of Television New Zealand into the future. I support this bill. Thank you.

Hon LIANNE DALZIEL (Labour—Christchurch East) : “Good television needs faith. From everyone. The beginning is the most difficult part—finding the faith to have an idea, to stick with it, to believe in it—and believe that it will improve and endure. Then, producers have to keep that faith, not let it be diluted by doubters and skeptics, nurture it, give it time and respect—lead the crusade from the front. Once the idea is whole, the commissioners and programmers need the faith to look outside the dogma that surrounds them and see the worth in the idea, see a place for it—and believe other people will see that worth too. Then, even when it finally gets on screen, the spectators need more than a little faith to give it a first—and maybe a second and a third—chance, before it can repay their trust by becoming something they value and love.

And that’s the problem with the move to fully commercialise—then surely privatise—Television New Zealand. It shows that the government has no faith in local broadcasting, no belief beyond that of its ability to make a profit. And without that faith, everything else in the process becomes more difficult, easier to avoid or refuse, until eventually the faith is lost altogether. That is why the concept of the ‘State Broadcaster’ is still important in these fractured media days. It’s a symbol of the collective belief that local television is more than money-making space-filler. It’s a statement that the worth of New Zealand-made programmes is greater than the sum of the money that’s spent on them. It’s a belief that they are important to us, belong to us. It shows faith—in ourselves, our present—and our memories.”

I wish I had said that. That was from a submission from Jonathan Brough, director and editor and member of the Screen Directors Guild of New Zealand. He made that submission to the Commerce Committee, which heard only 15 submissions on the Television New Zealand Amendment Bill. I think it is a shame that we heard so few submissions, with only 55 submissions having been received. I think the reason the number of submissions was so low, yet the quality of submissions received was so high, was that the Minister had put his position at the outset of his comments on the second reading of this bill. Essentially, the National Government has told the people of New Zealand that they are irrelevant, that their views and input into the development of the charter that we had in place are irrelevant. The Government was progressing this legislation as the charter itself was being renegotiated with the people of New Zealand. This legislation is an absolute affront to democracy, and I am proud of the fact that our party has taken a principled stance to oppose it—and oppose it we will.

The reason that we oppose the legislation is also summed up in the reality of the functions of Television New Zealand that take over from the charter. We have heard two speakers from the Government say that it does not matter that the functions of Television New Zealand are “to be a successful national television and digital media company providing a range of content and services on a choice of delivery platforms and maintaining its commercial performance. In carrying out its functions, TVNZ must provide high-quality content that—(a) is relevant to, and enjoyed and valued by, New Zealand audiences; and (b)”—and this is what replaces the charter—“encompasses both New Zealand and international content and reflects Māori perspectives.”

I am sorry, but that does not replace the charter, which invites Television New Zealand—or, in fact, requires Television New Zealand—to “feature programming across all genres that informs, entertains and educates New Zealand audiences”. It requires Television New Zealand to “strive always to set and maintain the highest standards of programme quality and editorial integrity”. It requires Television New Zealand to “provide shared experiences that contribute to a sense of citizenship and national identity”. Those requirements are somehow dealt with in the requirement that Television New Zealand “encompasses both New Zealand and international content and reflects Māori perspectives.”

The requirement that Television New Zealand “reflects Māori perspectives” is replacing in the charter the requirement that it “ensure in its programmes and programme planning the participation of Maori and the presence of a significant Maori voice”. That is what Television New Zealand had to do under the charter. Now it simply has to reflect Māori perspectives. That is an embarrassment in this day and age, especially with all of the debates that we have had in this Parliament around issues relating to Māori. I suspect that the Māori Party members will condemn this bill when they make their contribution to the debate.

The Television New Zealand charter goes on to require that Television New Zealand “feature programming that serves the varied interests and informational needs and age groups within New Zealand society, including tastes and interests not generally catered for by other national television broadcasters.” I do not see that requirement at all in this set of functions, or the reference to its functions in the bill before us.

In fact, I find it rather interesting. The Screen Production and Development Association made a very interesting comment in its submission: “The current proposed wording of the Bill means that there is neither obligation nor commitment to the commissioning and screening of New Zealand local content. ‘Encompasses both New Zealand and international content’ does not mandate any actual commitment to significant local content. Given that international content is cheaper to purchase and those relationships with providers of offshore programming are contractually ongoing, there is little or no need to legislate for the purchase of international product.” That is a very good point. If that was not written in the legislation, do members think that Television New Zealand would stop buying international content? Of course it would not. It is local content that this legislation should be protecting, because it does not happen just as a matter of course; it happens because there is a commitment to it. A number of countries, of course, have quotas through which those concerns are able to be addressed.

The charter carries on to say that Television New Zealand has to “maintain a balance between programmes of general appeal and programmes of interest to smaller audiences” and “seek to extend the range of ideas and experiences available to New Zealanders”. Television New Zealand has to “play a leading role in New Zealand television by setting standards of programme quality and encouraging creative risk-taking and experiment”. It has to “play a leading role in New Zealand television by complying with free-to-air codes of broadcasting practise, in particular any code with provisions on violence”, and it has to “support and promote the talents and creative resources of New Zealanders and of the independent New Zealand film and television industry.”

That is another point that was made very strongly in the Screen Production and Development Association submission. Basically, it says: “A clear commitment to commissioning and screening of local content is imperative to the stability of the independent screen production sector.” I do not think that anyone could put that better. I think that is absolutely the problem in a nutshell. In fact, the association goes on to say: “It is ironic that, at a time when the importance of the film industry is being recognised and supported in New Zealand …”—well, I saw the National Party bend over backwards to change the law of this country in order to support the film industry. At least, that was the pretence that National used. It changed the law on that basis. We have large budget grants available for our film industry, yet the bill we have in front of us can effectively undermine and remove support for the backbone of the film industry, which is the independent television sector. The submission we heard loud and clear from the Screen Production and Development Association was that without a healthy, vibrant television industry there is no film industry.

I think the National members really have to take that message on board. I do not think anyone on the select committee was left with any doubt that this legislation is bad law. It stands in the way of the things we ought to be encouraging as a nation, and it stops us from exploring all of the ways we can ensure our identity as a nation. I think this bill is a travesty, and we will not support it.

SUE KEDGLEY (Green) : The Green Party, too, considers that the Television New Zealand Amendment Bill is shocking legislation that will strip TVNZ not just of its charter but of any public service obligations or responsibility. It will turn TVNZ into a nakedly commercial broadcaster that is focused solely on chasing ratings and advertising revenues, and that is indistinguishable from any other commercial broadcaster. Once this bill is passed, TVNZ will exist for the sole purpose of returning a dividend to the Government, and it will not be expected to deliver anything other than a profit to the Government. In fact, when the Minister was asked what exactly the point is of the Government owning two television channels that have no public service functions or responsibilities and are solely commercial, the Minister answered that they would play a valuable role in returning a profit to the shareholder. In other words, the Government will own two television channels for the sole purpose of extracting money from them. It is extraordinary.

The Green Party was the first to admit that the previous dual mandate of TVNZ was not a great success. But at least the charter spelt out explicitly and unequivocally that TVNZ was expected to be a public service broadcaster, to serve the public interest, to have high-quality news and current affairs, and so forth. Once this bill is passed, there will be no obligation on TVNZ to provide impartial news and current affairs, to screen documentaries, to screen any children’s television programmes, to screen any drama, or to screen any minority programmes. Indeed, there will be no obligation on TVNZ even to screen New Zealand programmes. We can expect to see fewer and fewer New Zealand programmes on TVNZ for the simple reason, as others have pointed out, that it is far more expensive to produce New Zealand programmes than it is to import cheap programmes from overseas.

That is why, on TV2, we have 17 percent New Zealand content and 83 percent of the content is cheap foreign programmes. Basically, TV2 is just an offshore channel, and this is what Television One will become. It is also, of course, the same reason why the Government refused to fund $15 million a year in order for TVNZ to continue with TVNZ 7. The board of TVNZ told the Commerce Committee that it had put a case to the Government for TVNZ to continue to fund TVNZ 7, but TVNZ was turned down flat by this Government because it is not interested in, does not understand, and does not care about public service television. It wants TVNZ to be a solely commercial broadcaster.

Of course, once this bill is passed, we will be the only country in the Western World that does not have a mainstream public service television broadcaster. The campaign Save TVNZ 7 says that every self-respecting democracy in the world funds a public television broadcaster. In Europe every Government funds one. Most of the Governments in Asia, the Middle East, and Africa fund public service television. Everywhere—except New Zealand—public service television is being funded. And why do countries fund it? They invest in public service television because they understand that public service television is essential not just for the sake of their national identity but also in order to have a healthy democracy and an informed society. Public service television promotes ideas and perspectives that are ignored in commercially driven, ratings-driven television. In commercial television the ratings are the only measure, the sole measure, of the success of a programme, whereas in public service television programmes are also driven by the public interest—not just by ratings.

The most galling thing of all is that at the very time that the Government is stripping TVNZ of any public service obligations, it is bailing out its mates. It is subsiding its mates in MediaWorks, the company set up by Steven Joyce that is, in fact, TVNZ’s commercial competitor. The Government is effectively funding it, subsidising it, by $43 million with a loan deferral scheme. I learnt from a previous speaker, Clare Curran, that the Minister has met nine times with the board of MediaWorks. That is shocking. The Government went against the advice of Treasury and of the Ministry of Economic Development in extending the loan to MediaWorks. They said the Government was effectively acting as a bank for MediaWorks in deferring its loan. So the Government can extend $43 million in a subsidy to MediaWorks, but it cannot afford $15 million for TVNZ 7.

The Minister is yet to outline any clear broadcasting strategy, but it is clear that the underlying strategy is to fully commercialise TVNZ in order to ready it for sale in the next term of Government. That was the agenda back in the 1990s, and now we are here to finish off the unfinished business and to sell off TVNZ. Anyone who thinks otherwise is, I think, being naive.

Another agenda of TVNZ appears to be to move away from free-to-air television into pay television. It seems that the Government wants to remove free-to-air television and have just pay TV. We were told at the Commerce Committee that the main growth area for TVNZ, for the business, is expected to be pay TV, and that TVNZ plans to pitch even more channels to Sky television than it is doing currently. TVNZ is openly courting Sky, which has a 50 percent market share. It has launched the TVNZ Heartland channel exclusively on Sky. Then it announced it will be producing a 24-hour channel for preschool kids on Sky, and it is looking at further opportunities. Indeed, the head of digital services for TVNZ, Eric Kearley, said: “There has been a lot of talk about media revolutions but the real revolution has been a move from ad-funded television to pay.” At the select committee we said that if all of TVNZ’s growth is focused on developing channels for pay TV, surely that undermines free-to-air TV. It must be undermining it. But it is clear that this is the agenda here; the agenda here is to move us along into pay TV.

The problem is that Sky television provides almost no local content apart from sport and is prohibitively expensive. According to some estimates, as many as 2 million New Zealanders will not be able to afford to buy a Sky subscription. So why is this Government moving to switch to pay TV and away from free-to-air television? With the ditching of TVNZ 7, what will be the point for people, like myself, who have invested in the FreeView platform? There will be no channels to watch, apart from Television One and TV2. Once again, once TVNZ 7 is ditched next year, all the incentive will be to move more and more to Sky. That seems to be the Government’s agenda.

Someone recently reminded me that The Hollow Men had revealed a discreet but direct relationship between Murdoch senior and one of his sons and key insider advisers in the Brash campaign. So it is interesting that at the very same time that we have Mr Brash resurfacing in New Zealand to strip, as someone said, New Zealand of our remaining assets, we have the Government, with its Sky-friendly policies, moving to switch, it seems, from free-to-air TV to pay TV. I note that the Government is about to allow Sky to access Government funding, so that is all part of its agenda.

RAHUI KATENE (Māori Party—Te Tai Tonga) : Just over 2 years ago my colleague Te Ururoa Flavell took the opportunity in question time to ask the Minister of Broadcasting how he could best ensure that the participation of Māori can be clearly identified and the presence of a significant Māori voice can be heard. I thought that was a really good question, and one that many Māori viewers were thinking about in the aftermath of that embarrassing admission of the TVNZ boss that TVNZ was meetings its commitments to Māori in programmes such as Police Ten 7 and Shortland Street. In his reply, Dr Coleman responded that the statutory function of reflecting Māori perspectives will be included in the Television New Zealand Amendment Bill. He went further, suggesting that TVNZ has a specific Māori content strategy and its commitment to Māori programming will not change. He also said that New Zealand On Air has a specific strategy for Māori programming. Finally, he noted that the Government is, of course, a supporter of Māori Television.

That all sounded well and good, so in November last year I myself asked the Minister at question time: “Would he like to celebrate the fulfilment of the Crown’s Treaty and legal obligations to protect and promote Māori language through broadcasting, and is weakening the TVNZ charter the best way to achieve that?”. Dr Coleman obviously thought it was OK to do so. I asked him whether he was “aware that there are statutory and legal obligations on TVNZ as a result of the Privy Council’s findings in the New Zealand Māori Council broadcasting case in 1993, and what is he doing to implement those obligations?”. Dr Coleman obviously misunderstood my question, and tried to say that New Zealand On Air and Te Māngai Pāho carry out those functions. I wanted to know what TVNZ was doing, so I was allowed to repeat the question. Dr Coleman said “Yes, and they are being honoured through the new statutory functions for TVNZ.” In fact, if we look at this amendment bill, we find that they are not.

Many other speakers here have noted that very few material changes were recommended following the select committee process. If we look at just one aspect of the bill, the archived works, we might think that that was acceptable. The changes recommended specify that the definition of “archived work” should be changed to make it clear that it would apply only to works made on or before 27 May 1989 for which TVNZ owns the whole copyright. It also recommended that archived works must be screened free to the viewer but between the hours of 6 p.m. and 10.30 p.m. on any day of the week on Television One and TV2, or be “subject to a licence that is sold for profit by TVNZ to screen on any other platform …”. It therefore ensures that TVNZ cannot use the works for profit only.

When we looked through the submissions, it was evident that the changes around archived works were generally supported. But a couple of provisos stood out for us. In the submission from Māori Television it was noted that it was supportive of the objective of the bill to allow material within the TVNZ archive to be seen again, but there was concern noted around the tentative nature of some of the wording proposed. As a case in point, new section 29C1, in clause 10, states: “Provided that TVNZ complies with the requirements of this Part, it may— … (b) grant the Māori Television Service the right to screen an archived work under any arrangement agreed between that service and TVNZ:”. The use of the words “may grant” suggests that TVNZ would no longer have an obligation to provide access to Māori Television, only an option to do so at its discretion.

Māori Television challenged this as contrary to the Crown undertakings made to the court in 1991, as reflected by the 1991 Crown-TVNZ Agreement. In the arguments it put forward, it stated that news and current affairs programmes and others of an historical or review nature make up a significant proportion of the programmes broadcast by Māori Television, and any restriction on Māori Television’s access to the archival material in the TVNZ archive could have a significant negative impact on Māori Television’s ability to produce, and the quality of, new programmes. It would also potentially be anti-competitive, meaning only TVNZ can use such archived material for the production of new programmes.

These concerns become even more disturbing when we look through the entirety of the bill and note, as the Human Rights Commission stated explicitly, the stark references to Māori in the bill itself. In the view of the Human Rights Commission, the removal of the charter from the Act leaves a gap in that it is not explicitly and specifically set out that it is the responsibility of a public broadcaster to reflect the biculturalism of the New Zealand State and the diversity of New Zealand society. So I want at this point to refresh our collective memory about exactly what the TVNZ charter says about Māori. Its charter says that TVNZ shall “provide shared experiences that contribute to a sense of citizenship and national identity”, and “ensure in its programmes and programme planning the participation of Maori and the presence of a significant Maori voice”. It goes even further than broad statements of principle to state that in fulfilment of those objectives, TVNZ will “feature programmes that serve the interests and informational needs of Maori audiences, including programmes promoting the Maori language and programmes addressing Maori history, culture and current issues”.

I would like the House to compare the detail and the specificity of those provisions with the bare-bones statement in new section 12(2) in clause 6, namely that “In carrying out its functions, TVNZ must provide high-quality content that— … (b) encompasses both New Zealand and international content and reflects Māori perspectives.” There is a world of difference between “the participation of Maori and the presence of a significant Maori voice”, and “[reflecting] Maori perspectives”. As the Human Rights Commission spells out in its submission, a mere gesture towards Māori perspectives goes nowhere towards ensuring the genuine representation of Māori at all levels of television programming.

I cannot help but contrast this bill with the amazing precedent that has occurred today with the ground-breaking initiative in establishing a Māori working group to help steer the roll-out of the Government’s Rural Broadband Initiative. Ngā Pu Waea grew out of a submission by the Māori Economic Taskforce on the Government’s Rural Broadband Initiative. It is about taking every opportunity to strengthen Māori participation in developing this nation. The working group is designed to ensure that Māori can maximise opportunities for economic development and that Māori views are represented as the initiative progresses. The working group, representing a range of Māori working in the information and communications industry sector, and iwi and economic leaders, will work with Vodafone, Telecom, and the Government to ensure that Māori communities do not miss out on the promise of the digital age. I want to commend Minister Joyce for working so well with the Māori Party—for honouring the relationship that we have entered into, in order to ensure that the influence and the integrity of the Māori voice is heard in all its many dimensions. If we had one message for Dr Coleman, it would be to look to the leadership offered by this announcement today—and by his colleagues—in affirming the responsibilities of TVNZ to meet its obligations to Māori.

We leave this debate with these points. The Māori Party can see no benefit to Māori in stripping away the substance of the charter and effectively leaving TVNZ to run its own ship. We are also concerned about the tentative nature of some of the wording and the very scant reference to Māori in the bill. We hope that Ngā Pu Waea becomes a significant benchmark for enhancing the quality of this bill, and we place on record our absolute commitment to working with the Government to ensure once again the participation of Māori and the presence of a significant Māori voice in TVNZ programmes and programme planning. Kia ora.

KATRINA SHANKS (National) : The purpose of the Television New Zealand Amendment Bill is to ensure that TVNZ has the capacity to continue to grow and succeed as New Zealand’s national television and media company. In the first reading debate Minister Coleman explained why the current charter was unworkable, and that the bill would have the effect of freeing up TVNZ to function as a competitive multimedia company.

When the bill came to the Commerce Committee we heard some of the reasons why the charter had not made a difference to the content of State television. We looked more closely at why replacing the charter will give TVNZ the flexibility it needs in order to effectively pursue commercial objectives.

In this bill the TVNZ charter is replaced with a statement of functions. Clause 6 substitutes a new section 12, which states that TVNZ will provide services and content on a choice of delivery platforms. That is absolutely crucial to the growth of TVNZ. In order for TVNZ to remain competitive it is important that it keeps up to date with consumer needs. One of the main issues outlined in the select committee hearing was that current legislation does not recognise TVNZ as a multimedia company. Today TVNZ has numerous online services—for example, TVNZ Ondemand, which is very popular and widely used. The TVNZ website receives 1.4 million unique hits per month. The TVNZ Ondemand service has attracted 300,000 unique browsers per month. By replacing the charter with a set of functions those sorts of services will be recognised and encouraged.

With its new high-level functions and its own strategic direction, TVNZ retains its vital role as a willing broadcaster of local content. This role is essential to the contestable funding model, which, in order to succeed, needs broadcasters willing to commission and screen New Zealand content. The Platinum Television Fund, which allocates $15.1 million for projects to screen on any of New Zealand’s free-to-air national broadcasters, gives the best possible projects the chance to make it to our screens. Programmes such as Q+A and other documentaries have been successful applicants for that funding.

The second major aspect of this bill is that it unlocks works that are currently archived by TVNZ. The archived works scheme is ground-breaking in proposing a scheme to enable the rescreening of works that have been unavailable for reuse because of the need to negotiate with multiple contract-holders. This topic was extensively discussed by the submitters, and provisions were amended by the committee accordingly. The committee has recommended that the definition of “archived work” be changed to make it clear that it would apply only to works made on or before 27 May 1989 for which TVNZ owns the whole copyright.

Our Government aims to strike a balance between the public good of allowing those works to be re-shown, and acknowledging the rights of contract-holders. New section 29G, which is inserted by clause 10, also provides for the establishment of the TVNZ Archived Works Fund, from which compensation would be paid for the screening of an archived work.

I believe this bill will allow TVNZ the capacity to grow and stay relevant in today’s environment. Thank you.

BRENDON BURNS (Labour—Christchurch Central) : I would like to talk about a wide range of issues relating to the Television New Zealand Amendment Bill, but I cannot let pass the comments from the member for Te Tai Tonga in support of this bill and how it will serve Māori interests. I note that the charter provisions that this bill replaces, which gave effect to a wide range of programming interests, including the issues of minority groups and Māori, are simply replaced in this bill by the requirement that TVNZ “carries out its functions and maintains its commercial performance.” How that serves the interests of Māori is absolutely beyond me. It is a joke to say that this bill serves the interests of Māori or any other New Zealander.

When I took on the broadcasting portfolio 2½ years ago I took the trouble to take out a video of a film I had watched many years earlier as a young man called Network. It starred Peter Finch as a television anchor in America who was sacked because the ratings of the channel for which he was a frontman were falling. On the last night that he was on air he went mad, the ratings soared, and he was kept on air by the new marketing executive on that channel as the ratings climbed and climbed. The network brought into the news hour people such as “Sybil the Psychic”—who I suppose was some latter-day equivalent to Ken “Moon” Ring—and the programme got more and more bizarre as this madman fronted it. Finally, in the coup de grâce, the television executives ordered the assassination of that news anchor to really put the ratings through the stratosphere.

That is what this bill is about. It is a portent of where we are going with television in this country. It is a disgraceful bill. It will lead to an increasingly disgraceful TVNZ. It comes from a Minister who has absolutely no clout in Cabinet, and it shows in this bill. It is from a Government with an agenda to dumb down TVNZ and prepare it for sale in any second term of a National-ACT Government. If we thought Paul Henry was poor—if we thought his comments about the previous Governor-General not being a suitable Governor-General were poor—well, watch out, because there will be one hell of a lot more of that coming down our TVNZ channels as a result of this bill. As I said at the start, the only requirement that TVNZ will have from here on, as a result of the passage of this bill, is to ensure that TVNZ maintains its commercial performance.

I think back to one of the earlier incidents involving Mr Henry, when the head of news and current affairs at TVNZ tut-tutted, slapped him with a wet bus ticket, and said that he was a naughty boy, but he rated. We have another parallel to this bill in respect of the actions of TVNZ and TV3 against the Broadcasting Standards Authority. The authority tried to suggest that a programme airing on TV2, one of our State broadcasting channels, called Hung, which showed a man performing oral sex upon a woman, might not be worthy of broadcasting on the State channel, and TVNZ and TV3 ganged up against the Broadcasting Standards Authority because they did not want any constraint on their commercial objectives. If someone tries to put up a Māori programme against anything with that kind of content, the viewer will lose big time, and Māori interests will lose big time. They will not gain any audience share in a broadcasting environment where the only requirement of the State broadcaster is to coin it, and to make a 9 percent dividend for this Government. There is no other requirement, compunction, or limitation upon it. All the broadcaster has to think about is the money it will make for the Government.

It is an appalling set of objectives for any Government in a Western democracy to say to its State broadcaster that it does not give a damn what it does, as long as it makes money. It is an appalling indictment on us as parliamentarians. We are living in a democratic system. We must have a broadcaster that is not driven solely by commercial objectives. We should have a broadcaster that needs to consider the issues of balance, fairness, judgment, and propriety, and not simply the question of whether a programme will rate and make more and more money for the Government because that is what the Government is telling us it wants. This is an indictment of this Government. It absolutely symbolises the Government. It says everything about this Government, because it comes down to commercial performance. That is the only measure that counts for this Government. It is an appalling indictment upon it. This is an absolutely disgraceful bill.

Mr DEPUTY SPEAKER: I would like to hear what the member is saying, so I ask members to please calm it down. Interjections should be rare and reasonable. Cross-exchanges are not acceptable. Comment on what the member is saying is fine.

BRENDON BURNS: This bill is an absolutely appalling indictment of this Government and the approach it is taking. It is replacing the TVNZ charter, which required the State broadcaster to consider a range of issues and concerns, such as minority interests, Māori interests, people with disabilities, and people who wanted to see programmes that were not driven by commercial objectives. The Government has simply told TVNZ not to worry about any of those considerations; all it has to do is make as much loot as possible. As I have said, if we think we have seen the worst already in respect of our State broadcaster, we have not really seen anything yet. I will also say, in respect of this bill, that it is part of an agenda towards the privatisation of TVNZ—

Hon Members: Oh!

BRENDON BURNS: Well, Ministers and members opposite were denying they would have any privatisation, but suddenly in the last few months it has become clear that, yes, we will see the sale of State assets to 49 percent after any election that the National and ACT Government is likely to win.

Hon Dr Wayne Mapp: All energy companies.

BRENDON BURNS: I say to the member for North Shore that with his departure, and with the elevation to Parliament, perhaps, of Don Brash, the prospects of TVNZ being privatised have just increased because there is already not much restraint in respect of that party opposite. If Don Brash is elected to Parliament, we will see TVNZ put on the blocks very rapidly. And it will probably be sold to the mates of that Government, who have already seen the abandonment of a review of competition in broadcasting that was desperately needed. The Crown Ownership Monitoring Unit of Treasury actually told the incoming Minister in his briefing papers that the value of TVNZ was being eroded by Sky and its increasing dominance of the broadcasting market in New Zealand. But what did that Minister do? He actually turned down the advice of the officials and said that his Government did not need any review of broadcasting, because it was working perfectly well. But what is happening now? The market share of Sky continues to grow.

FreeView was established by the previous Labour Government, with channels 6 and 7 to make sure people had an alternative to the increasing commercialism of TVNZ. We had two non-commercial channels, which gave people an opportunity to have something a bit more high-brow than Hung. But what has happened? TVNZ 6 has been turned into a youth music channel, and TVNZ 7 is being abandoned from the middle of next year. That is the prescription for broadcasting that this Government is following—if it don’t make a quid, it ain’t got no value. I say to members opposite that they need to think very carefully about this bill and what it prescribes, because if you live by this you will die by it, and you will have the whole situation emerging of an increasingly commercial TVNZ and you will suffer from that as much as members on this side of the House—

Mr DEPUTY SPEAKER: I thought I had indicated to the member that he cannot bring the Speaker into the debate.

BRENDON BURNS: My apologies again, Mr Deputy Speaker—my apologies. Ministers and members opposite will be the people who pay the price, as much as members on this side, because where there is an increasingly dominant commercial environment, then there will be a price to be paid. We have already seen the dominance of Sky in the last year. A year ago this month, I think, it took on the TVNZ Heartland channel, using material paid for by New Zealand taxpayers who cannot even see it on their channels. They have to pay their coins to Rupert Murdoch to watch TVNZ content that was paid for by them in the past. That is a portent of what is happening. That is the future of broadcasting under this Government. There will not be anything made for TVNZ that does not have a commercial return. The independent producers know that the future is very bleak for them, because they will have to compete with that increasingly commercial content drawn from overseas. It will be sexed up so that people will view it, and how on earth will a good documentary screen in that sort of environment? Why would TVNZ put one to air in a slot at a time people can actually watch it when they can buy Hung and other programmes at a tenth of the price from overseas? The content will be sexed up to maximise the audience, increase the revenues, and pay the 9 percent return to the Government. That is what this is about. Alongside the $43 million sweetheart deal with MediaWorks, that is the portent of what this Government is about in respect of broadcasting. This bill is an appalling bill and it is a disgraceful bill. We as parliamentarians, who are at the forefront of democracy, should stand against this bill.

JONATHAN YOUNG (National—New Plymouth) : I am pleased to stand and support the Television New Zealand Amendment Bill. The Government aims to replace the TVNZ charter with a briefer and less prescriptive statement of functions that will enable TVNZ to determine its own priorities against a general set of functions. The bill also specifies that TVNZ will provide content for a range of media, in addition to the conventional television channels.

The review of the TVNZ charter commenced under the previous Government. Many pundits in the industry at that point in time said that the charter was dysfunctional and needed review. Traditional one-to-many television broadcasting remains the dominant medium, but it is being supplemented by a rapidly evolving viewing environment in which people choose personalised content from multiple sources. Part of the work that we want to do through this repeal is to allow TVNZ to determine its priorities regarding the mediums that are being used today for personalised content—such as mobile phones, computers, laptops, and other tablet devices—which people tend more and more to view at their convenience.

Page 3 of TVNZ’s statement of intent states that it intends to “Reach more New Zealanders in more ways: TVNZ will maximise target audience share on all available screens; drive two-way interaction with consumers; provide and promote opportunities for its clients to engage with consumers across all screens; and sustain its leading position as New Zealanders’ first choice for news, information and entertainment.” We need, I believe, to trust the general public in their ability to discern good television. I understand that the members of the Opposition believe that that needs to be prescribed, but we are not prescribing. We are endeavouring to enable those who are involved in the industry to take responsibility, and also to enable those consumers to choose, with responsibility, good television.

We are honouring our election promise to replace the current Television New Zealand charter with this less prescriptive list of functions, and to leave the company free to determine its own priorities. In becoming a television and digital media company, TVNZ will focus on enabling content to be personalised via interactive services, user-generated and shared content, and time shifting of content by digital video recorders. This is the world in which we live; we can, of course, access past programming via the internet. As I said, the list is non-prescriptive, because we believe that, to a large extent, clients and consumers are intelligent participants in the media world.

The functions of TVNZ are to be a successful national television and digital media company. We already know that 90 percent of its revenue is generated through commercial sources. In terms of TVNZ carrying out its functions, we are stating under clause 6 of the bill, which substitutes a new section 12, that “TVNZ must provide high-quality content that—(a) is relevant to, and enjoyed and valued by, New Zealand audiences;”. These statements in themselves say that in terms of this amendment bill, what is produced needs to be broadly relevant to New Zealanders. It needs to generate personal enjoyment for New Zealanders, and also to be valued by New Zealanders; therefore, it must be in the public interest. The content also “(b) encompasses both New Zealand and international content and reflects Māori perspectives. (3) TVNZ’s services must include the provision of channels that are free of charge and available to audiences throughout New Zealand.”

Just as I close, I tell the House that Kiwis now have a greatly expanded choice about what they view and when they view it. Our focus is on funding content, with the public choosing how they prefer to watch it. I am happy to support this bill to the House.

LOUISA WALL (Labour) : I rise to support the very clear and rational articulation of the Labour position on the Television New Zealand Amendment Bill, which is, obviously, to not support it. I have attended one Commerce Committee meeting, which was this afternoon, so I feel more than capable of contributing to this debate.

The TVNZ charter is not the problem. Members on that side of the House want to make it the problem, but the reality is that it is not the problem. There is no empirical evidence or clear rationale about what is broken. National just wants to dismantle our current broadcasting framework because it was a Labour initiative, and because the Government wants TVNZ to make money. It is all about the money. On this side of the House we want TVNZ to make good-quality local programmes that provide the framework for our creative industry. We want to employ people, unlike members on that side of the House, who love to sack people. We want New Zealand - made programmes. That is what we want TVNZ to do, and that is what the Television New Zealand charter instructs TVNZ to do.

I will provide a little bit of history. The TVNZ charter came into effect on 1 March 2003. It established the principles of TVNZ as a free-to-air broadcaster committed to broadcasting content that includes all genres and that informs, entertains, and educates New Zealand audiences. TVNZ is supposed to “contribute to a sense of citizenship and national identity”. We do not ask TVNZ to show us the money, like they do over on that side of the House. We ask it to show us the depth and breadth of New Zealand. The charter does this by ensuring that New Zealanders see New Zealanders on television.

How does TVNZ do that? It does that by fostering programmes that enable all New Zealanders to have access to material that promotes Māori language and culture, by reflecting the regions to the nation as a whole, and by promoting understanding of the diversity of cultures that make up New Zealand’s population. If we let the market do it, I am sure the content will be very white and bland. We will not see Māoris, we will not see Indians, we will not see Asians, and we will not see Pacific people, because that party on the other side of the House does not care about representing all of New Zealand. It just wants to represent some of New Zealand—probably the part of New Zealand that receives $44 million every week in tax cuts. Those cuts do not go to the people Su’a William Sio and I represent.

The leader of National, John Key—let us get it right; he is the leader of National—has said those guys over there were abolishing the Television New Zealand charter because it was not working. He said there had been a number of inquiries. I will go immediately to an article by Peter Thompson. He is a senior lecturer at Unitec in the school of communication, and he has been monitoring TVNZ since 1999, looking at how it balances its public service and commercial responsibilities. He said John Key has got his facts wrong. Oh, what a surprise! John Key got his facts wrong. Mr Thompson said there was only ever one inquiry, and that inquiry did not say the charter was not working. Actually, it said that New Zealand content had increased.

I love how National does not like looking at history all the time. Under the last Government the Commerce Committee, which was chaired by National’s very own Gerry Brownlee, actually did review the charter, because there is a statutory requirement to do that. Unlike the 15 submissions that the current Commerce Committee received, that select committee received 286 submissions—286 submissions that actually said the charter was working well. The charter was endorsed by the Commerce Committee. I love this quote: “any sensible Government in a democratic society should embrace, not eschew the broad cultural and civic aims of the Charter.” But that is not what the other side of the House likes to do. They like to throw things out with the bathwater. That quote is from this particular paper.

Peter Thompson also says in his paper that “National’s drive to dismantle the centrepiece of Labour’s public broadcasting initiatives appears to be motivated by ideology, not empirical evidence,”—surprise, surprise—“and it is currently proceeding with indecent haste in the hope that the Charter will be dead and buried before anyone gets round to generating a rational debate on the issues.” I guess that is what we are engaged in at the moment—a rational debate. Well, one would hope we are, anyway.

From our perspective, I think we have been very clear in articulating that this legislation is very much about money, which is what National is all about. This legislation is about privatising a State asset, which we are obviously completely opposed to. Why are we opposed to it? Because for us, the opportunities our State broadcaster provides are actually a framework for a whole industry that enables New Zealanders to reflect the diversity and the depth and breadth of our New Zealand identity. It encompasses Māori culture; it encompasses Pacific culture. In fact, it is really interesting to look at some of the wonderful programmes the charter has delivered, such as Face to Face, Agenda, and Eye to Eye with Willie Jackson.

Under the charter we have also—historically—been able to see the memorial proceedings for Sir Edmund Hillary. Imagine if we were to reflect the commercial imperative today. I wonder what corporate would actually want to publicly fund the Sir Edmund memorial for all New Zealanders to see. That is a really interesting question to ask. If this legislation goes ahead and TVNZ becomes a commercial entity, who will pay for that? Who will pay for coverage of the Māori Queen or the Unknown Warrior? There have been many, many opportunities for New Zealanders to see ourselves because of the charter.

I will skip to the final paragraph in Peter Thompson’s very informative analysis. He says: “Ultimately, then, the shortcomings of the TVNZ Charter arrangements do not constitute an excuse to reject the desirability of the values and outcomes it aspired to. That’s throwing the baby out with the bathwater. The government may claim a mandate for change, but its mandate is to fix the mistakes of the Labour government’s broadcasting policies, not to abandon public service ideals and revert to the commercial excesses of the 1990s. The cheap and cheerful rhetoric about an exciting hi-tech media environment and policies for the future and the casual dismissal of academic objections as unworldly idealism is intended to stifle open public debate. Because National knows … that empirical evidence and reason will demonstrate that its broadcasting policies cannot deliver the public outcomes it claims, and that the real impediment to establishing public service television in New Zealand is the chronic deficit in political vision and will.”

We see that chronic deficit in political vision and will across that side of the House every single day. We have seen it in the Minister of Broadcasting; we see it in the Government’s leader. I love that term: “the chronic deficit in political vision and will”. The Government has no regard for who we are as New Zealanders. I do not think those members care. I do not actually think they care.

That is me, I think. I think I have given it a good go. Hopefully, Trevor will be marking me highly. I’ve mentioned a few of the things that are very important to us. Thank you very much.

MELISSA LEE (National) : I would call that the nail in the coffin of a terrible speech, but I would like, first of all, to welcome that member back to Parliament again. Actually, the kicker was to quote a submission saying that Labour had failed in its broadcasting policy and that National has to fix it.

The Television New Zealand Amendment Bill amends the Television New Zealand Act 2003, and there are three main areas of focus. Firstly, the bill replaces the TVNZ charter with a more generic statutory requirement—for the television company to focus on being a successful company without the burden of the charter obligation. Several speakers have actually talked about the charter and how it is supposed to be a wonderful thing. I tell Miss Louisa Wall, the new MP who has just joined us in Parliament, that she should not listen to the rhetoric of her party. She should not listen to the propaganda of her party, which comes from people who do not understand what public broadcasting is about, or who do not even understand which programmes were in fact funded by charter money.

Speakers before Miss Louisa Wall actually said that we will lose Asian, Pacific, and disability programmes; Miss Wall apparently said that. Where are the programmes that were funded by the charter? The disability Attitude programme, Tagata Pasifika, and Asia Downunder—all of the special interest programmes people have talked about here—were funded before the charter was available. Charter money never went into those programmes.

The charter money going does not actually mean that public broadcasting or local content will suffer as a result. The $15.1 million is going from charter programming to the New Zealand On Air Platinum Television Fund, which has funded some of the very, very good-quality current affairs and documentary programmes so far. It is my belief that New Zealand On Air is fulfilling, and will continue to fulfil, its mandate to put New Zealand on air—not overseas on air but New Zealand on air. The charter-obligated funds transferred will only boost the quality and quantity of programmes in the future. We already fund $230 million out of New Zealand On Air to put programmes on radio and television. There is $81 million worth of contested funds for television programmes. I do not understand where the Opposition is going with this issue about losing local content.

Let us talk about television. Television is very expensive to produce. Under these difficult economic times where would Labour find the money to produce television with all local content? Where is the money? Where is the money? The second aspect of the bill frees up TVNZ to be more than just a television company. Traditionally, TVNZ had to function only as a broadcaster. However, with the advancement of technology and this superhighway of the internet, TVNZ has had to change its functions and its business model to be a more broader-scope multimedia company working on a multimodal platform. TVNZ Ondemand, as my learned colleague Katrina Shanks said, has had 1.4 million unique hits on its platform. It has been a very popular platform, as well, for Kiwis overseas who want to keep track of news and programmes from home. For people who cannot be home to watch traditional television, then the internet, the online option, and time-shifted viewing have become very popular through MY SKY and TiVo. That is an example of how viewers’ demands are quite different to those of the bygone era of terrestrial television. It means that TVNZ must change to adapt to the changing appetite.

The third aspect of the bill, which took up significant time in the select committee, was about archive programmes—programmes made before 1989—for rescreening. Some concerns were raised that TVNZ would simply count those as local content programmes and not commission new ones. The public demands new programmes; even when money was not available for the charter, TV3 commissioned local content because people demanded it. But having said that, in this fast-paced world we live in I think it would seem a real shame to lock up the old programmes, never to be seen or enjoyed ever again. I would not mind taking a little nostalgic trip back down New Zealand’s history with some of the programmes to be unlocked; I would welcome that. I commend this bill.

Hon PAREKURA HOROMIA (Labour—Ikaroa-Rāwhiti) : Following on from the previous discussion on the Television New Zealand Amendment Bill, I fear for the freedom of speech in this country. That is what that charter did. Certainly, one of the key focuses in the Whanganui Iwi (Whanganui (Kaitoke) Prison and Northern Part of Whanganui Forest) On-account Settlement Bill is to embellish the use of our language and to give people the right to choose and to ensure that there is assurance in our language, as it was handed down. I could carry on about the television charter and how we started Māori Television and all of those things, but I will not.

The Māori Affairs Committee certainly looked at these stages. We heard from the Southern Whanganui Cluster / Tūpoho working group. It strongly felt that the spelling of “Whanganui” should be with an “h”. I certainly commend the select committee for that. Seeing that the bill is about embellishing the language and ensuring that people of Whanganui got what they wanted, I want to proceed in our language, which I hope abounds with the new Television New Zealand Amendment Bill.

I rongo mātou i te kaha hiahia o te Kāihui Wherawhera take o Whanganui ki te Tonga, kia whakaurua te “h”ki roto i te pūngakupu o Whanganui. I te wā o Hakihea 2009 te 18, ka whakaputaina e te Minita mō Toitū te Whenua tana whakatau, arā, tua atu i te ingoa “Wanganui” me whakamahia te ingoa “Whanganui” hei ingoa tūturu i raro i te ture. Ko tāna ka tūmanako mō ngā hinonga Karauna i roto i te haere o te wā, kia kawea e rātou te ingoa “Whanganui”. He kaha anō hoki tō mātou hiahia kia whakaurua te “h”ki roto i te pūngakupu o Whanganui. Nā runga i tērā, ka tūtohu mātou kia whakatikangia te pūngakupu o “Wanganui (Kaitoke) Prison” ki “Whanganui (Kaitoke) Prison”, kia whakatikaina hoki a “Northern Part of Wanganui Forest” ki “Northern Part of Whanganui Forest” puta noa i te pire. Hāunga te “Wanganui” i “Corrections (Wanganui (Kaitoke) Prison)”; nā te mea te mate hoki, e waiho atu roaroa atu te kupu pēnei tonu te whakatikatika te kaha o te komiti te whakahuri atu.

[We heard from the Southern Whanganui Cluster working-group that they feel strongly that the spelling of Whanganui should be with an “h”. On 18 December 2009 the Minister of Land Information announced his decision to assign the alternative official geographic names “Whanganui” and “Wanganui”, and stated his expectation that Crown agencies would adopt the “Whanganui” form over time. We also strongly feel that Whanganui should be spelt with an “h”. Accordingly, we recommend amending the spelling of “Wanganui (Kaitoke) Prison” and “Northern Part of Wanganui Forest” to “Whanganui (Kaitoke) Prison” and “Northern Part of Whanganui Forest” throughout the bill, with the exception being “Wanganui” in “Corrections (Wanganui (Kaitoke) Prison)”; the trouble is that the word has been left like that for such a long time that the committee would find it difficult to rectify it.]

We heard from a whole lot of submitters—especially those people from Whanganui—that they felt that their town’s name was bastardised by the removal of the “h”. It took a whole lot of nerve, tenacity, and commitment by those peoples of W’anganui, both Māori and Pākehā, who were very supportive. There were some people who sat out on the extremes and believed that that would put everything asunder. I said in my last delivery that it was not too long ago when Naida Glavish, the great present Māori leader, dared to mention “kia ora” on the telephone exchange, and everybody went up into the air. That was what was happening in the broadcasting cartel in this country. People were minimising the delivery of the Māori language and the Māori programmes on both stations because of people’s world view in assuming that Māori language and Māori programmes were a waste of time.

We had an adjustment when National first came into Government. Some in the management were arrogant enough to suggest that a great time for Te Karere and Marae was at midnight or at 1 o’clock in the morning. That is how extreme people had become. But it is pleasing to notice that it is now in legislation. After this period of time it will be moved, hopefully, by the majority of the House. We will, as the Committee, be thankful that those people’s wishes in Whanganui have been put to the best test. It is a challenge. It has been a challenge. Even the mayor was really concerned about these issues and the relevance of this.

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

KELVIN DAVIS (Labour) : Tēnā koe, Mr Chair. Harikoa ana ahau ki te tū ake anō ki te kōrero mō tēnei pire e pā ana ki te Whanganui (Kaitoke) Whare Herehere. Ahakoa ko tēnei taku tāima tuawhā hei tū ake, hei kōrero e pā ana ki tēnei kaupapa, e pai ana tēnā i te mea, e tika ana kia whakahōnoretia te iwi o Whanganui i runga i tēnei kaupapa. Nā reira, he mea pai tēnei.

[Thank you, Mr Chair. I am pleased to stand once again and to address this bill about the Whanganui (Kaitoke) Prison. Even though it is the fourth time I have risen and spoken to this, that is fine, because it is right that the Whanganui tribe be honoured on this. So this is wonderful.]

It gives me great pleasure to stand yet again to talk about the Whanganui Iwi (Whanganui (Kaitoke) Prison and Northern Part of Whanganui Forest) On-account Settlement Bill. It is only my fourth call on this particular bill in the Committee stage and each time has been a pleasure. It is such an in-depth bill and, in particular, this whole issue around the “h” in “Whanganui”. I know that many people will be wondering why we have to spend so much time talking about the “h” in the word “Whanganui”, but such, I feel, is the cost of defending democracy. We have traversed the topics, and I will let everyone know—we will put people out of their misery—that this is the last call, I believe, from the Labour Party on this highly important bill. It is important that it goes through the House forthwith so that the people of Whanganui iwi can actually reach the stage where justice will be served and this whole issue will be laid to rest.

I will just touch on the whole “h” issue once again and the issues around it, such as the way that the Mayor of Whanganui at the time, Michael Laws, was so adamant that “Whanganui” should not have the “h”. It was really sad to see the way he treated a group of schoolkids from Ōtaki Primary School who wrote to him to explain that they believed the “h” should be included in “Whanganui”. It was sad to see a person in his position as Mayor of Whanganui malign these kids by saying that their teachers and their parents had put them up to writing the letters, and that they should concentrate on the things that really matter, such as preventing Māori child abuse, as if these kids are part of the cause of Māori child abuse. I thought his arguments were quite ridiculous and quite rude to a group of kids, and to a group of parents who I believe were doing the right thing in talking to their children about the issues relating to themselves and to Māoridom. I think that those parents should be congratulated on taking such an interest in their children’s education.

I did briefly pass the Attorney-General, Chris Finlayson, a few minutes ago. He asked why Labour was “buggerising around with this bill”—those were his exact words—and I said to him that such is the emphasis that the Labour Party places on democracy, we will give this bill our full attention. But to be perfectly honest, it is time that we moved on from this, as I said earlier, so that the people of Whanganui can move on with their settlement and justice can actually be done.

Paul Quinn: We won’t hold them up any longer, Kelvin.

KELVIN DAVIS: It would be really great if my colleague over there, Paul Quinn—we spent so much time together in the Māori Affairs Committee—and also Simon Bridges, decided to stand up and pay tribute to the people of Whanganui over this issue, but I know Mr Quinn will be saving himself for great oratory later on in the evening. Of course, as members on this side always do, we are looking forward to the contribution that Mr Quinn can make to this Parliament. We understand how eloquent he is and what a great orator he is. He brings so much talent to this Parliament. It is a pleasure to have served on the Māori Affairs Committee that oversaw this bill at the time. Kia ora.

• Clause 1 agreed to.

• Clause 2 agreed to.

• Bill to be reported without amendment presently.

CLARE CURRAN (Labour—Dunedin South) : The Auditor Regulation and External Reporting Bill, which we spoke about in the House several weeks ago, strengthens the regulation of practitioners who carry out the audits of issuers. It also reconstitutes the Accounting Standards Review Board as the External Reporting Board and requires the Institute of Chartered Accountants to regulate auditors as a specialist profession, rather than as chartered accountants. It was introduced on 14 September 2010 and is now passing through its Committee stage. Labour supports this bill, and we have spoken about it in depth in the House on a number of occasions, because ultimately it is part of a suite of bills that are about restoring confidence in New Zealand’s financial markets. Although this is a very complex and detailed bill, we have closely scrutinised both this bill and the legislation that sets up the Financial Markets Authority at the Commerce Committee. There has been considerable debate at the Commerce Committee about this bill and about all the other bills that accompany it. It is important, as it is every time we get up to speak on these bills, to acknowledge that the work that was done to underpin this bill and the earlier bills that surround it was done by the previous Labour Government. Certainly, although the work of the select committee has been very important, the work done by the previous Minister of Commerce, the Hon Lianne Dalziel, is also important and must be acknowledged.

Just to recap, this bill now requires the Institute of Chartered Accountants to regulate the auditors who were formerly regulated as chartered accountants as a specialist profession. The Financial Markets Authority will now be responsible for auditor oversight in monitoring and reporting on the adequacy and effectiveness of the Institute of Chartered Accountants’ regulatory system.

A number of changes to the bill went through the select committee. We are debating Part 1 and, in particular, the changes that were made to clause 3. This clause sets out the purpose of the bill, which is: “to regulate auditors who carry out audits in respect of issuers and to establish an independent oversight system … to—(a) promote, in respect of issuer audits, quality, expertise, and integrity in the profession of auditors; and (b) promote the recognition of the professional status of New Zealand auditors in overseas jurisdictions.” Clause 5 relates to the functions of the Financial Markets Authority under the legislation, which will include responsibility for setting the minimum standards for becoming a licensed auditor, granting accreditation to persons as accredited bodies, monitoring those accredited bodies, and carrying out practice reviews. The authority will also have responsibility for regulating overseas qualified auditors, which was formally the responsibility of the Registrar of Companies. Clause 8 stipulates that every person who acts as the auditor in respect of an issuer audit must hold a licence.

There was quite a lot of discussion—particularly in the submissions to the select committee—about licensing. The definition of “issuer” in the Financial Reporting Act 1993, firstly, covers those entities that seek funding through debt and equity instruments that are offered to the public and, secondly, includes banks, insurance companies, mutual funds, and other entities that take deposits. Clause 9 requires audit firms to be registered and for each engagement partner in the firm to be a licensed auditor. Breach of that clause by the firm would translate into every partner or director of the audit firm committing an offence and being liable to a fine not exceeding $50,000 if the breach took place under their authority and knowledge. Knowledge will be determined where they reasonably should have known—

STUART NASH (Labour) : As my learned colleague Clare Curran pointed out, Labour supports the Auditor Regulation and External Reporting Bill. The bill is a very important part of returning the confidence of the New Zealand public in our capital markets.

I point out, even though we are talking about Part 1 of the bill, that Simon Power brought the bill to the House. Simon Power is a very hard-working Minister. I will quote Simon Bridges, who said that Simon Power has been the Minister responsible for bringing over 40 percent of the bills to the House. I do not think it is any coincidence that Simon Power has decided to resign from Parliament. I am not too sure why such a hard-working and enthusiastic Minister would decide to resign from Parliament when he is at his height and is charging ahead, but I suspect he is sick and tired of doing all the donkey work for his colleagues. How many people are in Cabinet? I do not know—12 or 14. There are a lot of them. If one Minister is doing 40 percent of the work, the question has to be asked what the other Ministers are doing. It appears that there is no plan to do anything. The other Ministers are not doing anything at all.

I will get back to Part 1 of the bill. As I mentioned, Labour supports the Auditor Regulation and External Reporting Bill because, as I have talked about in a number of speeches on a number of bills, it is absolutely important that the New Zealand public can have confidence in the people who are responsible for looking after and regulating our financial and capital markets. That did not happen. That confidence has disappeared.

I will take a step back. We all know that about $6 billion has disappeared, mainly from the savings of hard-working Kiwis who invested in these firms and who were let down by people who professed a competency in the tasks required to manage a lot of these funds and finance companies. This is where Part 1 comes in. Part 1 outlines the preliminary and key provisions of the bill. I suppose the main gist of the part is that it talks a lot about the fact that auditors and auditing firms must be registered. In the past a lot of the characters who professed competency in this area and who hawked their services were not registered. As a result, false confidence was built, which has been completely eroded.

If we go back to a provision that Ms Curran was talking about, clause 8, we see that if people breach the law, they are liable for a fine of up to $50,000. That clause will send out the message that Parliament is very serious about what we are doing here. It is simply not good enough to betray the confidence of ordinary, good, hard-working New Zealanders who trust the experts who profess a competence and who put their name on a prospectus or any sort of offering and then absolutely let down those New Zealanders to the tune of up to $6 billion.

A lot of auditors out there are incredibly competent, are registered, have always been registered, have done a fantastic job, and will continue to do a good job. In fact, the Auditor Regulation and External Reporting Bill is the sort of bill, and Part 1 is the sort of part, that those auditors require, and they salute it. The bill gets out of the industry the cowboys who gave the industry a bad name.

Part 1 goes up to clause 9A. Not only does Part 1 make people or firms liable for prosecution if they are not registered and they say they are registered but it makes the other partners of the firms liable. Part 1 ensures that all partners in a firm—whether or not they do other tasks aside from auditing—must ensure that everyone who says they are an auditor is registered, or they could lose their licence or be liable to a fine not exceeding $50,000, which in anyone’s language is quite a lot of money.

Clause 5 sets out the Financial Markets Authority’s function, which again is quite important. A lot of us who have seen the news and the setting up of the new Financial Markets Authority will have seen the chair and the chief executive officer being interviewed. A lot of people are probably wondering what the authority will do and how we can be sure the authority will restore the integrity of our financial and capital markets to a point where people and investors have confidence to jump back in. If one thing is for sure, it is that we need New Zealanders to start investing in capital markets and our productive economy. No longer is it good enough to have investors simply putting their money into houses and the unproductive side of our economy. That investment will certainly not drive economic growth for this country. The Financial Markets Authority is a very good step forward.

If we look at clause 5 and at the functions of the Financial Markets Authority we see that the authority’s function is “to issue licences to overseas auditors and to authorise the registration of overseas audit firms:”. Not only does the clause apply to New Zealand firms but it applies to every single person and firm that wants to say they are an auditor and to operate in New Zealand. That is most important because, as I mentioned, one of the main tasks of the Financial Markets Authority is to in some way restore a lot of that lost confidence.

In the interview with the chair and chief executive officer of the new authority those gentlemen stressed the absolute need for their first task to be restoring confidence in our financial markets. There is absolutely no doubt about that. They were very clear about their mandate. If anyone is unclear of the authority’s mandate, all they have to do is look at clause 5 to see what the organisation has to do. The Financial Markets Authority has to “monitor the audit regulatory systems of accredited bodies, report on the adequacy and effectiveness of those systems, and take action in respect of those systems that are inadequate or ineffective:”.

The authority is not only passive but also active. It is responsible for looking at, and keeping an eye on, everyone who is working under the guise of a registered auditor. If the authority sees action that is inappropriate, inadequate, or ineffective, then it is responsible for jumping in there and ensuring that that action is nipped in the bud. No longer can we have the sorts of financial disasters that have afflicted New Zealanders over the last 3 or 4 years. Like I said, they resulted in the loss of about $6 billion. That is far too much to take out of the savings of good, hard-working New Zealanders who thought that their money was safe.

Clause 5 outlines a couple of other things that the Financial Markets Authority has to do. It has to “perform or exercise any other functions, powers, and duties conferred or imposed on it by or under Parts 1 to 3.” So the brief is quite wide ranging. No one should be under any illusion that the authority does not have teeth; it has a lot of teeth. It has a mandate to go hard, to go strong, to be seen to go strong, and to be seen to restore confidence in our system. The authority has to monitor the audit regulatory systems. It is not simply a passive body that will sit back and do nothing.

The authority has a very strong mandate from this Parliament, and that mandate is supported by all the parties. That is a little unusual, but all the parties agreed that something needed to be done. As a consequence, all parties have worked incredibly hard to ensure that we now have legislation that we can go out and be proud of. We can say to the public of New Zealand that we think and we believe we have got it right—but, as they say, the proof of the pudding is in the eating. Let us hope that the Financial Markets Authority actually does what the law seeks to do. I think it probably will.

If we look at the interpretation clause, we see that “audit firm” means “a partnership or body corporate that carries on the business of providing auditing services (whether or not it provides other services)”. So a general accounting company also has to be audited. I do not know whether people remember the Enron debacle, but that brought down one of the largest accounting and auditing companies in the world. The reality was that there was not enough distance between those who were auditing and those who were giving advice.

This bill ensures that everyone who says they are an auditor is registered. Thank you very much.

Hon Dr WAYNE MAPP (Minister of Defence) : I will summarise what the two very good previous speeches have, in part, covered. As was noted, Part 1 of the Auditor Regulation and External Reporting Bill establishes the purpose of Parts 1 to 3, which is to regulate auditors who carry out audits. That regulation was primarily done by licence and process, and I note that the bill originally provided only for the licensing of auditors. The Commerce Committee recommended that the provision be broadened to allow for the registration of audit firms that include at least one licensed auditor.

The proposed change recognises that the quality of auditing depends both on the adequacy and the effectiveness of firms’ policies and procedures and on the expertise of individual practitioners. I also note that this issue has been widely recognised across the House and that all parties are supporting the change, for the reasons that have been well stated by the two previous speakers. Thank you.

CLARE CURRAN (Labour—Dunedin South) : I would like to return to Part 1 of the Auditor Regulation and External Reporting Bill, and one of the major issues I would like to address is financial literacy. As my colleague Stuart Nash has just said, the bill is about enhancing confidence in New Zealand’s financial markets and the absolute importance of doing that. But one of the things we have to do to get that confidence in the financial markets is to actually ensure that the people who are investing know what they are investing in, and have an understanding and knowledge of the financial markets. That is the bit that is really missing in this bill and in all of the accompanying bills. The question has been put to the Minister in the chair, the Minister of Defence, about financial literacy. I would not mind hearing an answer from him on this issue, which has been raised in all readings of this bill and in all the other bills that have accompanied it. The importance of financial literacy is critical, because it is not just about the way the markets operate. Markets do not operate on their own—somehow out there in the ether somewhere. It is actually people who invest in these markets. How people invest in the markets and their understanding of them is one of the reasons why the Financial Markets Authority has been established—to try to create more fairness in the system. But the bit that is missing, as I have said, is about the understanding people have of how the markets operate, and the trust they can have in the information they are being given. In order to have that trust they need to understand more about how the markets work.

I would like to read out some of the work the Retirement Commission has done, because I think it has a reference to Part 1. The commission has done quite a lot of work around this issue, and if the Minister in the chair, the Hon Paula Bennett, feels moved to respond, that would be quite good in terms of the thinking that the Government has in this area. The Retirement Commission initiated the National Strategy for Financial Literacy in November 2010, so it is quite recent. It states: “With involvement from many individuals and organisations across the public, private and voluntary sectors, New Zealand’s National Strategy for Financial Literacy was launched in June 2008. The strategy sets the direction for improving financial literacy in New Zealand. It provides a range of approaches that will achieve this improvement. Its focus is on developing the quality of financial education, and extending its delivery, sharing what works and working together. These strategies together will help achieve our goal of a financially literate population.” It would seem to me that if we have a financially literate population and have good laws in place, which are strengthened by the establishment of the Financial Markets Authority, by this bill, and by all of the other bills that accompany it, then we are starting to cook with gas, so to speak.

As I said, the bit that is missing—and it has been put across on so many occasions in every speech that has been given on this bill, particularly by members on this side—is that we could have the best legislation in the world, and can have good intentions, but we can still have dodgy practitioners out there who are trying to work their way around it, and we have a population that is not necessarily hugely financially literate. I know that in a previous speech on this bill my colleague the Hon David Parker talked quite a lot about this issue, and the complexity of this sort of legislation—and coming from a legal background he would know all about that. He talked of how the legislation is so complex, and the legislation that accompanies it so complex, that it is extremely difficult for the ordinary mum and dad investor or person in the community who has a bit of money—the number of them is declining right now—and wants to invest to understand it. The other issue that has been touched on as well is about the truth-in-advertising issue, which was brought up again and again in the Commerce Committee, where there is celebrity endorsement of financial products and ordinary people trust the celebrities and what they are saying. When a company is found to crash and people lose all their money, this is an extremely difficult issue for the ordinary person.

I will go back to the National Strategy for Financial Literacy because I would like to know what the Government thinks actually thinks about it, whether it is committed to it, and what it is doing to support it, and how important this is in terms of an adjunct or a complementary strategy that must go with this legislation. Government members said that the worldwide economic downturn in finance company collapses in New Zealand has highlighted the importance of financial literacy, and that it is high on the agenda in New Zealand and internationally. Well, it might be high on the agenda in New Zealand when we have organisations like the Retirement Commission, which is a pretty important organisation, turning up to the select committee and saying it is important. But I would like to see where the Government thinks this is important and what it is doing to support it. Around the world they say that the impact of the crisis on ordinary people has created what we call a “teachable moment” for financial literacy. People are more aware that they need to manage their money well, but unfortunately their knowledge of how to do it is patchy. Although they say that the ANZ Retirement Commission’s financial knowledge survey in 2009 showed some improvement over the same survey in 2006, it is a reminder that we still have much to do. There was little change in the number of New Zealanders with a low level of financial knowledge. I say to the Minister that that is critical. If there is no change happening on the financial literacy side of the equation, where will we see an improvement in this issue? People are important, I guess is the message here.

The survey also highlighted gaps in knowledge in areas for improvement, with low income or less education not necessarily being predictors of low financial literacy levels. The take-up of financial education is varied at school level and beyond. We have to ask ourselves why that is, and whether it is because it is not being taught or there is not enough emphasis on it, and the importance of this issue is not flowing through into the rest of society and through our economy. Evaluation of what works best, in terms of delivery, is still being developed, and as we look for ways to help New Zealanders understand more about the increasingly complex and challenging financial environment, it provides the strategy to ensure it is relevant today, and I would like to know what the Government is doing about that. I think one of the really good examples of that is the evidence of loan sharks and the impact they are having in Auckland, and how, with reference to Part 1, this underpins the importance of this legislation and why we are having it. Although financial reporting is hugely important to investors, regulators, and other financial market participants in the way resource allocation decisions are made, there is also an extremely important issue around financial literacy for New Zealanders.

• The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 1 be agreed to.

• Amendments agreed to.

• Part 1 as amended agreed to.

STUART NASH (Labour) : Part 2 is the guts of the Auditor Regulation and External Reporting Bill. It sets out the licences, registration, accreditation, and role of the Financial Markets Authority.

I will talk about a couple of points initially. They cover licences issued by accredited bodies. I have a couple of questions. If you will indulge me, Mr Chair, I would like to ask the Minister in the chair, the Minister for Social Development and Employment, to answer my questions. Clause 10 talks about licences issued by accredited bodies. If we remember Part 1, we see that part of the role of the Financial Markets Authority is to ensure that the systems of accredited bodies operate in a way that is adequate and effective. Accredited bodies are allowed to “on an application made by a natural person, issue a licence to the person if the accredited body is satisfied that the person—(a) meets the prescribed minimum standards; and (b) is otherwise a fit and proper person to hold a licence.”

I suppose one of the two questions I have is what the prescribed minimum standards are. I have looked through the bill to see whether there is a list, a schedule, or anything that sets out the prescribed minimum standards. This, I suppose, is where we got into a little bit of trouble before. We all know that auditors now have to be registered—that is clear. But Part 2 says how a natural person can get a licence. It states that they have to meet the prescribed minimum standards, but I do not know what the prescribed minimum standards are. If we go through the bill we see that it talks about competency, etc., but it would be good in the schedule or somewhere else just to understand what those minimum standards are.

This is not just for me. As we know, and as I mentioned about 10 minutes ago, a lot of New Zealanders have lost a significant amount of money. As I alluded to briefly, the chair and chief executive officer of the Financial Markets Authority both outlined and underlined the fact that their very important role was to restore the confidence of our investors in our capital markets and our investing economy. Therefore, I think, we all are keen to understand what those minimum standards are. No doubt they are understood by the Financial Markets Authority and no doubt they are understood by an accredited body, but I think investors themselves would like to know.

Clause 10(b) refers to “a fit and proper person to hold a licence.” This may be a little ambiguous; I am not too sure what a fit and proper person is. Of course, I have in my mind what that means. It probably means that person cannot have a conviction for fraud. It may mean that person cannot have any sort of conviction. Does “fit and proper” mean a person cannot have had a conviction in the last 5 years, or ever? I am not too sure. Does “fit and proper” mean they have to be able to run 10 kilometres in under 40 minutes? I suspect not. I suspect that is a different definition of “fit and proper”, but maybe I am wrong. Maybe we require our auditors to be able to run 10 kilometres in 40 minutes, so that when they make a mistake they can get out of there really quickly.

That brings me to clause 11, which talks about licences issued by the Financial Markets Authority to overseas auditors. Here we are saying that accredited bodies can issue licences to New Zealand - based auditors, but my impression is that only the Financial Markets Authority can issue licences to overseas auditors. That sort of makes sense. Who knows the resources of the overseas auditors? Who knows where they are applying for a licence from? Maybe they have to come to New Zealand to do it; I am not too sure. It may be that auditors based in Australia come over to New Zealand to audit large corporates; I am not too sure. I suspect that is the reason, but I am not 100 percent sure. I think a lot of the investing public probably have the same questions as I do.

The bill talks about an overseas auditor being a person who meets the prescribed minimum standards. Again, I am keen to know whether the prescribed minimum standards for an overseas auditor are the same as the prescribed minimum standards for a New Zealand auditor. I assume they probably are. It is a fair enough assumption. But it would be good to know whether my assumption is correct. We all know that if we make an assumption and it is not correct, then we can end up in big trouble. I suspect many of the people who invested in a lot of the organisations that lost significant amounts of money made an assumption that the people who were dealing with their money were experts, when they were not. That is why I am curious to know a little bit about what minimum standards are.

Again, talking about overseas auditors, clause 11(c) states “the person is required, under the law or the regulatory requirements of the person’s home jurisdiction, to comply with requirements for maintaining the person’s ongoing competence, and that those requirements are equivalent to, or as satisfactory as, the requirements under section 17;”. That makes a lot of sense, and I am not querying that. But if we look at clause 17, we see that it talks about ongoing competence requirements. Again, I have just a couple of questions around this. I am sure the Minister can allay my concerns. I am sure that the Financial Markets Authority has a good list that says someone who is an accredited auditor in the United States of America has to meet similar or higher competency standards than an auditor in New Zealand. I am assuming that if an auditor based in Australia is a qualified auditor or a registered auditor, they also have to meet the same competency standards.

If we look at clause 17(1)(a) we see that it “requires its members to complete the competency programmes to maintain their ongoing competence;”. I have friends who are accountants and auditors, and I know that members of the Institute of Chartered Accountants, which I assume is different from auditors, have to have ongoing training. That is fantastic, because as we here know more than most, the law is always changing. Accountants and auditors always need to keep in touch with the latest law so they can advise their customers and their clients accordingly.

But if we look at clause 17(3), we see that “Any competence programme may”—I am not too sure why it does not say “must”—“require a member to do 1 or more of the following, within the period, or at the intervals, prescribed in the programme:”. Again, it makes a lot of sense, and I think I understand what the Act means. But I am not sure what it means when it states: “may require … or the following, within the period, or at the intervals, prescribed in the programme:”—and I am not sure whether that period is annually, biannually, or once every 5 years—“(a) pass an examination or assessment (or both): (b) complete a period of practical training: (c) complete a period of practical experience: (d) undertake a course of studies: (e) anything else that the accredited body considers appropriate.” It sounds great. I really think it will work very well, and I hope it works very well, but I am just not 100 percent sure in my mind what it actually means and how it will work.

I ask members to keep in mind that I started my speech by talking about clause 11, which deals with the granting of licences to overseas auditors. I bring my question back to clause 17 and ask how the Financial Markets Authority will ensure that overseas auditors meet these competency requirements. I have no doubt that it is a lot easier to ensure that New Zealand - based auditors and New Zealand - licensed auditors meet those requirements, because here there are courses all over the place. I am sure that, after what has happened, every licensed auditor will make doubly sure that they meet not just one but a number of these requirements, because they know their reputation is on the line.

Again, we go down the list that the Financial Markets Authority can use in terms of licensing an overseas auditor. It talks about a person being “otherwise a fit and proper person to hold a licence”. I think most of us understand what that means, but, again, I am not sure what the actual test is. It probably relates to criminal convictions and that fact that people cannot have been banned, but I would not mind a bit of clarification around this clause.

The other thing I am interested in is licences issued by the Financial Markets Authority. I am talking about clause 12, which deals with licences held under section 11. Clause 12(3) states: “Every person who fails to comply with this section”—and it is quite a long section—“commits an offence and is liable on summary conviction to a fine not exceeding $10,000.” Why is the amount $10,000 and not $50,000? I suppose that is the question I have here. In Part 1 the fine is $50,000 if a person fails to comply with clause 8, which basically means that if a person hawks himself or herself as an auditor and is not, if one says one is an auditor and is not, or if one markets one’s firm or company as an auditor and it is not, under clause 8 one is liable to a fine of $50,000. Yet if an overseas auditor, or an overseas person who wants to become an auditor and audit a New Zealand company, does not meet these requirements, then they are liable upon summary conviction to a fine not exceeding $10,000. Maybe I am reading this wrong. Maybe they will get a $50,000 fine and then the $10,000 fine, but I am not clear on that.

Hon Dr WAYNE MAPP (Minister of Defence) : I will put on the record the notes of the Minister of Commerce on Part 2 of the Auditor Regulation and External Reporting Bill. Part 2 outlines the requirements that applicants must meet in order to be eligible to receive a licence from an accredited body, including, as has been noted, the requirement that every applicant be fit and proper. The licence must be issued for a maximum of 5 years. Conditions may be imposed upon the licence to specify the kinds of issuer audit in respect of which the auditor is licensed to act.

It is worth noting that a person issued with a licence is required to complete programmes in order to maintain their ongoing competence, and where an auditor has failed to satisfy the minimum standards, the bill enables the professional accounting accredited body to suspend or cancel that auditor’s licence.

The Financial Markets Authority may grant accreditation to any person, provided that the person meets minimum prescribed standards, including that they be fit and proper, and the accreditation may be subject to conditions. Once every 4 years the Financial Markets Authority must also review the quality of the systems, policies, and procedures of every audit firm that includes at least one licensed auditor. The Commerce Committee recommended that the Financial Markets Authority publish an annual report of quality reviews conducted and be allowed to publish further reports on particular quality reviews.

Accredited bodies are responsible for investigations and disciplinary actions against their members who are licensed auditors. Supplementary Order Paper 239 provides that an accredited body must give the Financial Markets Authority reasonable assistance, and it adds an offence provision where a body fails to provide assistance. The Supplementary Order Paper further provides for the cancellation of registration of an audit firm found to have obtained registration through false or misleading actions. Finally, the Supplementary Order Paper provides for protection from liability for accredited bodies in the execution of their statutory auditory and regulatory functions unless it has been shown that the body has acted in bad faith or without reasonable care.

These provisions are needed to protect regulators from legal threats by parties whom they are investigating and to provide them with the incentive to act firmly when it is in the public interest to do so.

CLARE CURRAN (Labour—Dunedin South) : I rise to take a call on the Auditor Regulation and External Reporting Bill, and in particular Part 2, “Licences, registration, accreditation, and role of FMA”. With regard to the issue of licensing firms versus licensing individuals, this bill proposes the licensing of individuals rather than firms. Clause 10 states that only a person who meets the prescribed minimum standards and is otherwise a fit and proper person to hold a licence will be issued with a licence by an accredited body.

I want to refer to some of the submissions received by the Commerce Committee. The New Zealand Institute of Chartered Accountants considered that the primary focus of the licensing regime should be on firms rather than individuals. It recommended that the bill be amended “to provide for the firms to be licensed, with nominated individuals being identified by the firms for evaluation by, and registration with, accredited bodies …”. The institute noted that that approach was adopted in the United Kingdom. It considered that licensing firms reflected how auditors presently operate in the central role that a firm’s systems and processes play in audit quality, and its preferred model was that the licensed firm would be engaged to do an audit and would select which of its registered auditors would conduct the audit.

There was discussion about whether the changes should be made to reflect the major role that the firm’s policies and procedures play in promoting audit quality, but it was noted that the system appearing in the Companies Act 2006 in the UK was not fully consistent with the New Zealand Institute of Chartered Accountants’ preference for firm licensing as an alternative to individual licensing. The UK system licensed individuals and allowed firms to issue licensed audits provided that the majority of partners in that firm were licensed auditors and that the firm was under the control of licensed auditors, which is essentially, I think, the guts of the system we have ended up with.

The second issue that I would like to touch on again, as I did in an earlier speech on this bill, is the limitations on liability. We considered quite seriously whether this bill should be expanded to introduce measures to limit auditors’ liability, but we could not recommend amendments to that effect because the advice given to us at the select committee was that there was no scope for it under the bill. However, the commentary on the bill refers to this issue because we recognise that some form of liability limitation would harmonise—and that is an important issue—the New Zealand system with international practice. It is my understanding that this is generally the intent of this legislation and accompanying legislation to do with the establishment of the Financial Markets Authority. It is about harmonising New Zealand’s legislation with international law and international practice. We spent a lot of time on this issue and we asked for a lot of advice on international practice. We considered it very carefully in light of the jurisdictions that have adopted alternative liability systems and some of the approaches that have been adopted elsewhere.

I note again that there has not been any response from the Minister of Commerce on where this might be going and what might be happening next in this space. In my previous speech on financial literacy, I said that it would be useful if the Minister could give us a response.

STUART NASH (Labour) : As my colleague Clare Curran said in the very first sentence of the very first speech on Part 1 of the Auditor Regulation and External Reporting Bill, this is quite complex legislation. It is indeed. It is a hundred pages. We would think that a bill governing the licensing of auditors would not need to be a hundred pages, but it does. As I look through it, I understand why it is such a long piece of legislation and my colleague’s comment that it is complex legislation.

I am going to lead into why I am a little unsure of the use of some of the language in clause 17. I am a little unsure why some of the language is used. The two words I will focus on are “may” and “must”. To me, the word “may” means if one wants to do it, one can, and the word “must” means it absolutely has to be done. I am not too sure why in some places the word “may” has been used and in others the word “must” has been used. I will give the Committee a couple of examples. I ended my last discussion on this bill by talking about ongoing competency requirements. Clause 17 states that “An accredited body must, in accordance with the requirements prescribed under section 24(1)(c),—(a) require its members to complete competency programmes.” I go to clause 24(1)(c) and I see that clause 24 starts with the title: “The FMA may prescribe licensing, registration, and other matters”. Clause 24(1) states that “The FMA may, by notice in the Gazette,—(c) prescribe requirements for ongoing competence that must be complied with by persons who are issued with a licence under section 10;”. I will not go back to clause 10 again, because that is in Part 1 and we talked about that enough. It is about how one goes about getting a licence.

I am unsure why we talk about an accredited body that must do it under clause 24(1), then when we go to clause 24 we see that the “FMA may prescribe licensing, registration, and other matters”, but clause 24(1)(c) states: “prescribe requirements for ongoing competence that must be complied with by persons …”. Again, when I read clause 24, it says to me that if the Financial Markets Authority does not want to, then it does not have to; but if it wants to prescribe licensing, registration, and other matters, then that is all very well. I think that the word “must” would have been a better word to use there. I say that because as has been mentioned, and as is an ongoing theme in a lot of the speeches on this bill, it is about restoring the confidence of everyday New Zealanders in our financial markets. That is one of the major roles of the Financial Markets Authority. I would have liked to see the title of clause 24 state: “The FMA must prescribe licensing, registration, and other matters.” Clause 24(1) states: “The FMA may, by notice in the Gazette,”. Again, I would like to have seen the word “must” used there. In my humble opinion, that would provide a little more certainty.

I would love to know the minimum standards for licensing. I think the vast majority of New Zealanders would like to see that gazetted, including standards relating to required competence, qualifications, and expertise that a person must meet in order to be issued with a licence by an accredited body or by the Financial Markets Authority. That is pretty important. Let us face facts—that is pretty important. Again, as mentioned, there were a lot of unscrupulous characters out there. There were a lot of good characters and a lot of very good professionals, but there were a lot of unscrupulous characters. I think we owe it to the public to ensure that the standards relating to the required competence, qualifications, and experience is out there and is gazetted.

That is not stated here, but it leads me on to the register, which is talked about in Subpart 3. It is the register of licensed auditors and registered audit firms. Clause 29 is about the register of licensed auditors and registered audit firms. It states: “The Registrar must establish and maintain,”—that is good—“in accordance with this subpart, a register of licensed auditors and registered audit firms.” Again, I may be getting into semantics, but I am a little bit unsure why the words “may” and “must” have been used. We see in clause 30, “Operation of and access to register”, that: “(1) The register may be kept—(a) as an electronic register; or (b) in any manner that the Registrar thinks fit.”

Hon Dr WAYNE MAPP (Minister of Defence) : I will give a brief answer to the issues raised by Ms Clare Curran, which she has raised in respect of both parts to date, about financial literacy. I can advise that the Minister of Commerce has asked officials to develop a financial literacy work stream. The work is in the early stages of development. It is worth noting that the Government has recently transferred responsibility for the Retirement Commission to Vote Commerce, and this recognises the important linkages between the financial literacy functions of the commissioner and financial markets’ regulation. Thus, this should promote increased investor confidence. Thank you.

Hon STEVE CHADWICK (Labour) : I will take a call on Part 2 of the Auditor Regulation and External Reporting Bill. As we get into the nitty-gritty of debate on Part 2 about licences, registration, and accreditation and about the role of the Financial Markets Authority, I find that the provisions in the bill are remarkably similar to initiatives that Labour began when we were in Government about professionalisation of the medical profession and then of the police. Similar models came into being, and I know that the Hon Lianne Dalziel became concerned, when financial market concerns for investors began, that perhaps professionalism needed to be raised and the bar needed to be raised in relation to auditors.

The bill is a good bill, and we are supporting it because it is really important for investors, regulators, and others who participate in the financial markets to know that there is confidence in the information they are dealing with.

I can see that in New Zealand there were indicators at the time of the first failings of companies like Blue Chip and others that started this ball rolling that some of the finance companies lacked the competence that was necessary to carry out the audits or did not have a sufficient degree of independence. Part 2 gives the degree of specificity that we need to make sure that there are ongoing competence requirements. That component of Part 2 is very good.

There is also a right of appeal, which I think is a fair provision for those who may fail to be issued a licence through the Financial Markets Authority. The prescribing of licensing and registration is incredibly important. My colleague talked about the minimum standard. I found the minimum standard in clause 25.

One of the issues that I know the Hon Lianne Dalziel would have liked to talk about in respect of the responsibility of the Financial Markets Authority and the new board that has just been established is that it was a bit of a lost opportunity when the Minister of Commerce did not carry over some of the expertise from the initial establishment board. The board worked really hard and developed great expertise on how the Financial Markets Authority would work in respect of the provisions of Part 2 of the bill.

Ms Dalziel noted that only one member of the establishment board has been appointed to the Financial Markets Authority board, and that another has been appointed as an associate member. I think there was a bit of a failing in that process. Some of the members of the initial board may have decided they did not want to go on to the Financial Markets Authority board, but so much expertise is required in a reform process. When the development of professionalism for auditors was accepted as something that had to happen, it is a pity that the strategic thinking of the initial establishment board was not carried through. That is not a criticism; it is an observation. It is a pity that those people are not on the Financial Markets Authority board.

Part 2, with all it specifies, shows us that the old model of self-regulation of the industry, and of accountants acting as auditors, was outdated, and that we had to move to the changes made by the bill. It is great that the Minister has picked up the bill. It was tabled in September, and here we are in May at the Committee stage. The bill is very necessary and very much required for investor confidence in the financial markets.

Those are the only remarks I will make about Subpart 2. The provisions follow quite a prescribed process, which I have seen applied in other professional regulations. We are learning from this kind of process, and we will be looking at other professional groups. I think that for real estate agents and others we looked at establishing a similar authority. The provisions are good. We may be looking at other professions, and we will learn how the provisions work when they are applied in law as we move towards the bill’s enactment. Thank you.

STUART NASH (Labour) : I seek your indulgence, Mr Chair, to talk again about Subpart 3 of Part 2, “Register of licensed auditors and registered audit firms”. This is a very important provision; I think it is a great idea, personally. It starts with clause 29, which basically states: “The Registrar must establish and maintain, in accordance with this subpart, a register of licensed auditors and audit firms.”

I have a slight issue in respect of clause 30, “Operation of and access to register”, which makes sense. It has to be there. It states that the register “may be kept—(a) as an electronic register; or (b) in any other manner that the Registrar thinks fit.” That makes sense, but then it states: “The register must be available for access and searching by members of the public unless suspended under subsection (3).” I am not too sure what that means, because when I look at subsection (3), I see that it states: “The Registrar may refuse access to the register or otherwise suspend the operation of the register, in whole or in part,—(a) if the Registrar considers that it is not practical to provide access to the register; or (b) for any other reason that is prescribed by regulations”.

Again, I have a little bit of difficulty with the language that is used here. I am just wondering under what circumstances the registrar would decide to refuse access to the register, and what the test is for practicality and for what is not practical. Does it mean that if a bloke comes in at 4 o’clock on a Friday and the registrar has a game of golf at 5.30, as far as he or she is concerned it is not practical? I am using a ridiculous example there, but, again, it has not been quantified. I think the investing public would probably not mind knowing what that test of practicality is, because it is quite important.

Clause 31 talks about the purpose of a register, which is quite important. It will enable any person to “determine whether a person is a licensed auditor and, if so, the status and relevant history of that person’s licence;”. That makes complete sense because, as we say, it is about transparency, knowledge, and getting information out there. If a person has come to me and wants to audit my firm as a licensed auditor, it is only fair and right that I should be able to go somewhere and determine whether that person is telling the truth. If for another reason I want to find a registered auditor, I can go to the register. But if the registrar considers that it is not practical to provide access to the register, what does that mean? When I turn up, does the registrar say: “Sorry, it is not practical.”? It is interesting, and it would have been good to have that quantified a little bit more.

As for the provisions on the purpose of the register, one thing here sets off a little bit of an alarm bell for me. Clause 31(a)(iii) states that the purpose of the register is to enable any person to “know which licensed auditors have been disciplined within the last 7 years.” That is very interesting. Earlier we talked about people having to be fit and proper persons to become registered auditors, but this clause implies that in fact an auditor can have been disciplined within the last 7 years. It may be set out in this bill—as I said, it is a 100-page bill and there is a lot of work here—but under what conditions can an auditor be disciplined yet allowed to remain as a licensed auditor?

I am assuming that this discipline process works by a person putting a case to the relevant authority—which, I assume, in this case is the Financial Markets Authority—their complaint is heard, and maybe the Financial Markets Authority disciplines that auditor. The disagreement in that case might be over the size of the bill charged. But if the person has been disciplined due to a really serious consideration to do with fraud or negligence, is there a process for expelling that person? I would have thought that if a person had been disciplined, they would not fit the “fit and proper person” test. Maybe I am wrong, and maybe I am being a bit too hard, but, as mentioned, the role of the Financial Markets Authority must be to restore the confidence of the investing public in our financial markets. Maybe this is where that role becomes practical. If someone complains to the registrar, saying that it is unfair and breaches their privacy rights that the register states that they have been disciplined, which they do not want people to know, that may be a practical test.

Hon Dr WAYNE MAPP (Minister of Defence) : In relation to some of these issues, it is perhaps a pity that Mr Nash was not on the Commerce Committee. Some of his questions might have been appropriately answered by his colleagues. But for the information of listeners it is worth knowing that the register itself will be an online document, as we would expect, given that the bill itself states that it will be in electronic form.

I have to say that some of the issues that have been raised by the previous speaker are rather tendentious, and people will make their own interpretations as to the amount of time that has been spent in the Committee on this matter.

Stuart Nash: Mr Chair—

The CHAIRPERSON (Lindsay Tisch): No, the member has exhausted his calls.

Stuart Nash: I raise a point of order, Mr Chairperson. The Minister said that the register must be kept online. The bill actually states that the register may be kept online. There is no “must” there.

The CHAIRPERSON (Lindsay Tisch): That is a debating point, and you have exhausted your calls. Maybe a colleague would like to pick up that issue.

CLARE CURRAN (Labour—Dunedin South) : First of all I put on record my appreciation of the comments of the Minister in the chair, the Minister of Defence, on financial literacy and the work that is being done by the Government in that area. I note that it is in its early stages. I am pleased to hear that it is happening, and that it is being seen as important and a priority. I also note that those of us on this side of the Chamber will be keeping an eye on this issue, because we see it as being extremely important.

With regard to Part 2 of the Auditor Regulation and External Reporting Bill and the licensing and registration accreditation issues, I will go back to the harmonisation issue and think about why we are doing this reform—this regulation of auditors—in the first place. As we know, it is hugely important to investors, regulators, and other financial market participants. It has now been acknowledged that, in this increasingly complex world with its increasingly complex legislation, the people doing the investing require more and more assistance with financial literacy.

This legislation is here because in New Zealand there have been strong indications that the auditors of some of those failed finance companies lacked the necessary competence to carry out those audits, or did not have a sufficient degree of independence. I think that demonstrated that New Zealand’s self-regulatory model is no longer within the range of acceptable auditing regulation systems, and that New Zealand needs to change in order to obtain the right to practise in Australia and other jurisdictions such as the European Union, which is where that harmonisation issue comes in. I know that the Minister responsible for this bill, the Hon Simon Power, has that issue in mind, and he has talked a lot about it, but with this legislation we have not yet seen the ability to move towards that harmonisation.

We considered carefully whether the bill should be expanded to introduce measures to limit auditors’ liability—this is going to the limitations on liability issue—and we recognised that some form of liability limitations would harmonise the New Zealand system with international practice. However, we concluded that we could not go down that path, because the scope of the bill would not allow us to. But we signalled that we would like to see the issue addressed in the broader review of securities law, in regard to amending the Securities Act 1978 and the Companies Act 1993 to remove the prohibitions on issuer and company audits being carried out by bodies corporate, and to replace auditors’ current exposure to joint and several liability with alternative systems such as proportionate or capped liability.

There certainly was a lot of discussion in the Commerce Committee about this issue. As I think I said in my previous speech, we asked the officials for really comprehensive advice and they provided it. I certainly acknowledge that comprehensive advice, because it will hopefully provide the underpinning to whatever happens next in relation to this limited liability issue.

Four alternative approaches have been adopted elsewhere, and I will touch briefly on them. The first one is incorporation. In many jurisdictions, companies and limited liability partnerships are able to carry out audits, and those limited liability partnerships are an alternative corporate business vehicle that gives the benefits of limited liability but allows its members the flexibility to organise their internal structures as traditional partnerships. The second approach is proportionate liability, which is where the court determines liability among the negligent parties according to their share of the blame, which allows the courts to have regard to the comparative responsibility of any wrongdoer who is not a party to the proceedings. The third approach is liability caps, with the amount of liability to be capped at a multiple of the fee and/or a fixed dollar amount in relation to any one course of action. The fourth is contractual restrictions on liability; under that approach the auditor or the preparer may contractually agree to a restriction in liability.

We looked at a number of jurisdictions internationally—including Australia, the United Kingdom, Singapore, and Hong Kong—where auditor liability reform had been considered and was still being considered. Some of those jurisdictions, such as Australia, have already settled on their policies and laws, and we would do well to look more closely at them. I hope that in terms of a broader review of the securities law, we will go down that path and look at that jurisdiction. Given the fact that Australia is moving ahead on this issue, and that it is one of the parts of the world where harmonisation is so important, we could well do no better than to look at what is happening over there. Other jurisdictions, such as the United Kingdom, have implemented some reforms, and they are now evaluating their performance. Others, such as Singapore and Hong Kong, are at a stage where they are considering and identifying the issues with their current regimes. They are still at the beginning of the process of considering possible reforms.

As I said at the beginning, although we considered that the amendment around limitations on liability would be outside the scope of this bill, we asked to see this issue addressed in the broader review of securities law. If the Minister is able to give a comment on how and when that issue will be addressed, that would be quite useful. The select committee believes that consideration should be given to amending the Securities Act and replacing the auditor’s current exposure to joint and several liability with alternative systems such as proportionate liability or capped liability. We would very much like to see that addressed. I am interested to see what the response is from the Minister, if possible, and I look forward to hearing it.

• The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 2 be agreed to.

• Amendments agreed to.

• Part 2 as amended agreed to.

Part 3Amendments to other enactments, regulations, transitional provisions, and other miscellaneous matters

Hon GEORGINA TE HEUHEU (Minister for Courts) : Tēnā koe, Mr Chair. Tēnā koutou. I have just a few comments on Part 3 of the Auditor Regulation and External Reporting Bill, “Amendments to other enactments, regulations, transitional provisions, and other miscellaneous matters”. Part 3 of the bill provides for amendments to other enactments and for various regulation-making powers. The transitional provisions allow New Zealand and overseas auditors who have acted as an auditor in respect of an issuer audit at any time in the 2 years prior to be treated as holding a licence, subject to meeting transitional requirements prescribed by the Financial Markets Authority.

Part 3 also includes various miscellaneous provisions that, first, exempt the Auditor-General from the requirement to hold a licence; second, provide the Financial Markets Authority with the power to amend or evoke orders, directions, or notices under the bill; and, third, provide for an offence of making false declarations for the purpose of obtaining any licence, registration, or accreditation under the bill.

Supplementary Order Paper 239 makes a number of consequential changes to the Financial Markets Authority Act, to permit the Financial Markets Authority to exercise its general information-gathering powers and information-sharing powers when carrying out its auditor regulation functions, and to exercise the same statutory management - related powers that the Registrar of Companies has under the Corporations (Investigation and Management) Act, but only in relation to an accredited body. Thank you.

STUART NASH (Labour) : The honourable Minister for Courts has given a pretty good overview of what Part 3 of the Auditor Regulation and External Reporting Bill contains. I will make a couple of points. Subpart 2, “Regulations”, talks about how the Governor-General, by Order in Council, can “make regulations for all or any of the following purposes: … (i) prescribing fees and charges that the Registrar or the FMA may require to be paid to him, her, or it (or the rate at which or the method by which fees and charges are to be calculated)—(i) in connection with the exercise or performance by the Registrar or the FMA”. I just wonder whether the rates have actually been set yet, or whether the Financial Markets Authority or the registrar has any idea of what the rates will be—whether the Financial Markets Authority, even though it has just been established, has come up with a schedule of rates. Again, I suppose my ever so slight concern is that I believe that we need to ensure that the regulations are not expensive in any way, shape, or form—nor should they ever hinder any New Zealander from accessing the register to have a look to see whether an auditor is on the register.

Before Mr Chair Robertson arrived I was talking about the register, which holds the names, occupations, and a whole lot of details of registered auditors. The Minister Wayne Mapp stood up and said that the register is an online document, that of course it is an online document, and that the bill states that it must be an online document. Well, in fact, the bill does not state that, at all. The bill states that the register may be an online document. That is where I have a slight concern. I assume that the register will be an online document. We are in the 21st century, so it is a reasonable expectation. I am assuming that any person can have a look at that online register. It makes sense, I would have thought, that if someone is a licensed auditor, they would want to be on the register. But I hope that there is no cost to access the register, because if there is, it may put people off. That is my only concern. I am just wondering whether the fees have been set.

Clause 75 in subpart 3, “Transitional provisions”, is headed “Certain auditors treated as holding licence”. When I first read the clause, it set off alarm bells. The clause states: “This section applies to a person who,—(a) immediately before the commencement of this section, is a chartered accountant who has, at any time within the 2-year period before that commencement, acted as the auditor in respect of an issuer audit; and (b) satisfies the transitional requirements”. I suppose that has to make sense, does it not? A lot of accountants out there have acted as auditors. I suppose we cannot say that a regime is coming into place, and at that point if someone has acted as an auditor but is an accountant and does not have a licence, then that person can no longer practise business. There has to be a transition period; I understand that. I just hope, again, that the provision is well policed and that the Financial Markets Authority or an accredited body ensures that the provision is very well policed. I know about this requirement. I have a superannuation fund that is audited, as a lot of us do. We talk to a lot of accountants, and they say we must go to a licensed auditor. The message is out there; the word is out there. But I just hope that the provision is not taken advantage of and that it is very well policed.

Going back to clause 72, “Amendments to other Acts”, the other thing I will talk about, which we have talked about on a couple of occasions, is that the legislation is very complex. The name of the bill—the Auditor Regulation and External Reporting Bill—would not suggest that it is complex, but it is complex. It basically turns on its head, or regulates, the whole auditing industry.

As a consequence, a number of Acts have been amended as a result of the bill—for example, the Building Societies Act 1965 and the Companies Act, as one would imagine. The bill seeks to amend Section 198 of the Companies Act, “Appointment of partnership”, which we have talked about before, and states: “A partnership may be appointed by the firm name to be the auditor of a company if,—(a) in the case of a company that is an issuer, the partnership is a registered audit firm: (b) in any other case, all or some of the partners are persons who are qualified to be appointed as auditors of the company.” That makes sense. It is not in the interest of any company whatsoever to say it is a qualified auditor and then send someone who is not a qualified auditor to do an audit.

The bill seeks to amend the Friendly Societies and Credit Unions Act 1982 and the Industrial and Provident Societies Act 1908. That is an old Act. I think it is from before Mr Chair entered the House.

Hon Clayton Cosgrove: He’s not that old, is he?

STUART NASH: Oh, he is not that old, actually.

The CHAIRPERSON (H V Ross Robertson): The member must not refer—

STUART NASH: I apologise, Mr Chair. The bill talks about “a registered audit firm by its firm name to be the auditors of the society (in which case, all the partners in the firm, from time to time, who are licensed auditors are deemed to be appointed as the auditors).” I suppose I am trying to highlight here that the process was pretty lax before the bill came into place. I suppose that is one of the reasons why every single member in the House is supporting the bill.

The process was pretty lax. According to the Acts that will be amended by the provisions in the bill, an auditor did not have to be registered. There is no doubt about it: most of the organisations covered under the Industrial and Provident Societies Act acted with competency. The auditors who did the work there were good people, but my experience with any of those sorts of organisations is like it is with a lot of others. What happens is that a very well-meaning person says they can do the accounts, and everyone else says it is great that there is someone who is prepared to do them. That person can be the treasurer; he or she can do the accounts. [Interruption] It is like a lot of the organisations we are members of. We love people, but it is hard to find a treasurer. But the bill now states that those accounts have to be audited. That makes sense; it protects the societies, the members of the boards, and the governing bodies.

The Public Audit Act changes are quite interesting. The bill states that the “Auditor-General may ask for quality review in respect of audits of issuers (1) The Auditor-General may ask the Financial Markets Authority to arrange for a quality review to be carried out of the systems, policies, and procedures applying to the employees of the Auditor-General who assist in the carrying out of audits of issuers under this Act.” I hope that because the bill states that the Auditor-General may ask for a review—it does not compel the Auditor-General to do so—the Auditor-General asks for a review with monotonous regularity in the first couple of years.

The reason I say that, as I have said before, is that a recurring theme throughout the bill is restoring for everyday New Zealanders confidence in our financial markets. I think that if the Auditor-General carries out a number of these quality audits or asks the Financial Markets Authority to arrange for a quality review, it will help in the ongoing process of building up New Zealanders’ confidence in our financial markets and it will get them reinvesting. After we have taken a hit of $6 billion, a lot of people have been scared off. We do not need that fear, if the economy is to go forward.

The bill seeks to amend the Securities Act 1978 and states: “For the purposes of this Act, qualified auditor means—(a) a licensed auditor; or (b) a registered audit firm; or (c) in the case of an issuer that is a public entity under the Public Audit Act 2001, the Auditor-General or any other person who may act as the auditor under that Act.” I suppose what I am saying again and highlighting is that the Acts being amended really did not meet the requirements of the investing public.

The bill goes a long way to meeting those requirements. This 100-page legislation goes a long way. It will not do it on its own; we acknowledge that. There is still a lot of work to be done. As members of this House will know, legislation that was designed to increase confidence has already gone through the House and been passed.

Another Act that is being amended by the provisions of the bill is the Superannuation Schemes Act 1989. Again, the bill defines an auditor as “(a) a chartered accountant (within the meaning of section 19 of the New Zealand Institute of Chartered Accountants Act 1996); or (b) a licensed auditor”.

The legislation is good. It is complex. That is one of my concerns—that it is complex—but I hope the complexity does not put people off gaining an understanding of what we are trying to do. I certainly hope it does not put auditors off getting licences, or put chartered accountants off becoming licensed auditors, because we need licensed auditors and we need them to do a very competent job. The bill goes a long way. Thank you very much.

CLARE CURRAN (Labour—Dunedin South) : I am pleased to take a call on Part 3, “Amendments to other enactments, regulations, transitional provisions, and other miscellaneous matters”. Going back to the core reason for the Auditor Regulation and External Reporting Bill, which my colleague Stuart Nash has just talked about, it is about creating an independent oversight system for issuer audits in order to promote the quality and expertise of the auditor profession. Although some of us in this House might think that being an auditor is not necessarily something we would aspire to—

Hon Members: Ha, ha!

CLARE CURRAN: —and that is not in any way meant to put down auditors—it is, and it remains, a critical profession.

Lynne Pillay: And respected.

CLARE CURRAN: And it is a very respected profession. Hands up, anybody in this Chamber who is an auditor. There must be a few across—

The CHAIRPERSON (H V Ross Robertson): I am sorry to interrupt the honourable member. The debate is with the speaker standing, not with members across the Chamber.

CLARE CURRAN: Thank you, Mr Chair. I was talking about the importance of the auditor profession. I wanted to underline that, because if we do not have good auditors, then we will not have a financial system we can feel confident about. Taking the merriment out of the debate, I say that it is time to be serious and that it is a critical profession.

This legislation, as has been mentioned on many occasions, is part of a bunch of legislation that is meant to underpin the new Financial Markets Authority. I point out that it is as yet untested.

I am very pleased to hear tonight that the financial literacy side of the equation is apparently being addressed by this Government. I would like to see that extend to the impact that the nefarious loan sharks are having on many unsuspecting people out in the community. I would like to see the Government address that part of the equation, because it all turns on the ability of people—the information that people have, how informed they feel, and how skilled they feel—to invest and to trust the system. Having respectable and trusted auditors is all an important part of that equation.

This is complex legislation. It is 100 pages long, as my colleague has pointed out. It is very detailed, and without it I am sure that the Financial Markets Authority would be poorer.

I also point out that this new regime will apply only to major audits of issuers and large companies. It will not impact on small and medium sized companies and non-profit entities. Issuer auditors are targeted, because the investors in those entities are most at risk of losing large amounts of money, which is the point I made earlier about celebrity endorsements of financial products. That is where the unsuspecting investor can get ripped off and rorted. That relates to another issue that I want to again put on the agenda for this Government to deal with, which is how to deal with the issue of truth in advertising, because that is critical. Not only is it critical in the financial investment side of the equation but also it is absolutely critical in other industries, such as the telecommunications industry. I would like to put that on the record, as well.

Issuer audits are targeted, because investors in those entities are most at risk of losing large amounts of money in the event of auditor failure. In a 2009 report the Registrar of Companies criticised a number of parties for their role in the finance company meltdown, including auditors. The registrar said that the big accounting firms were not particularly interested—

BRENDON BURNS (Labour—Christchurch Central) : I am very pleased to take a call on the Auditor Regulation and External Reporting Bill, having just spent a couple of days in the company of auditors at a conference of the Australasian Council of Public Accounts Committees—or ACPAC—in Perth, Western Australia. I must say that it was an interesting couple of days. I had never thought that spending a couple of days with auditors would be one of my life-changing experiences. There were a couple of very good sessions about managing key performance indicators and getting the best performance out of them. There was a very good session from a demographer.

Lynne Pillay: What about the socialising?

BRENDON BURNS: The socialising was pretty good, too, and auditors do know how to party—I have to say that. They are not just grey men in grey suits, like some members opposite. They are interesting individuals with a commitment to their profession.

The financial rigour that auditors bring is hugely important to us as a society. We need only look back a couple of years to the report of the Registrar of Companies and the criticism that was made about a number of parties and their roles in the financial company meltdowns that took place in this country and across the planet. We need only think about Enron and the rather dubious role of a major accounting and auditing firm that led to the collapse of Enron and to thousands and thousands of investors being duped of their money.

We have a number of parallels here in New Zealand on a lesser scale. So the role of audit is extraordinarily important. That is why Labour supports this bill as introduced by the Hon Simon Power. We recognise the real importance that is attached to an independent oversight system of audit, making sure that the quality and expertise of the audit profession is right up there, and making sure that our audit law is aligned with overseas practice. This is a good bill, and we obviously want to see that we do everything we can to make sure we restore some of the confidence that New Zealanders lost in their financial markets during the last decade, which saw a number of financial companies collapse—about 20, from memory. So it is good to see this bill coming through.

This bill puts into place some better regulation for registration of individual auditors; they need to be licensed, and firms need to be registered. That underpins the quality that is needed. Auditors are there in a sense as the public’s watchdog on the financial probity, the financial health, of a company. We put a great deal of store upon it.

There are some scoundrels still out there in the market place. I think of one Mr Bernard Whimp, who has announced today that he is pulling out of playing a role in basically rorting the system and duping people into selling shares at below their value. He is boasting of having made $2 million and having now retired. So I know what the Financial Markets Authority will be doing. In fact, it has publicly signalled that it will take a very active stance against such practices in the market. It is good to see that that individual has decided to pull in his horns, but, still, a number of people have been duped.

That is why we need strong financial regulation underpinned by a strong, independent audit system. That is why this bill is important in respect of bringing through a little more strength, a little more clarity, and a little more regulation so people can have more faith in the auditing of our companies—mid-sized companies, smaller-sized companies, and bigger companies.

We need to know as a community when we are making investments that there is something underpinning the process, and that there will be some clarity in respect of statements that are made by auditors. Therefore, people will have more capacity to have faith in their investments in financial markets, in companies, and in balance sheets that are correct and true representations of the true state and financial health of a company.

As we have seen all too often in the last few years, some of those balance sheets were propped up and were not truly representative of the health of a company, and people with large stakes in a company sometimes used it as their personal cash resource, and that was not always signalled by the auditing process. So we do need regulation as a nation. It is important. Sometimes it is referred to as “red tape” and “bureaucracy”, but that is part of the price we pay for living in an ordered society where people can have every belief that the system will work for them and for their investments.

Obviously, a lot of people are not wealthy. They put their nest eggs, their retirement funds, into an investment, and they need some assurance that the investment will be seen through, and that it will not be the subject of a rip-off, which has happened quite a lot over the last few years.

This is a good bill. What we will see from it is the newly created—it is just coming into being now—Financial Markets Authority, with a role in the licensing of auditors and in making sure there is oversight of that. I was pleased to see a profile piece in the New Zealand Herald at the weekend of the new chief executive of the Financial Markets Authority. I think he was on Morning Report only this morning, or yesterday morning, talking about recruiting and bringing through people from other Government departments and from the private sector, and trying to make sure there is a good weight of people in that authority.

Part of the role the Financial Markets Authority will take up will be to ensure that the audit profession is underscored by high professional standards and by the requirement that people are licensed, that firms are registered, and that people can have an absolute assurance that when they make an investment in this country, it is underpinned by the appropriate regulation and the appropriate audit system. Thank you.

• The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 3 be agreed to.

• Amendments agreed to.

• Part 3 as amended agreed to.

The CHAIRPERSON (H V Ross Robertson): The debate on this part includes schedule 2.

Hon GEORGINA TE HEUHEU (Minister for Courts) : Part 4 of the Auditor Regulation and External Reporting Bill amends the Financial Reporting Act 1993. The bill provides that the issue of financial statements must be audited by a licensed auditor or a registered audit firm.

Part 4 also regenerates the Accounting Standards Review Board as the new External Reporting Board. The External Reporting Board, consisting of between four and nine members, is responsible for preparing and issuing financial reporting standards; preparing and issuing auditing and assurance standards, including professional and ethical standards; developing and implementing a strategy for tiers of financial reporting from different classes of reporting entities; and giving directions or guidance on accounting policies that have authoritative support. As is already the case under the principal Act, financial reporting standards issued by the board are given the force of law. The board must not issue a standard unless it has taken steps to consult persons who would be affected by the issue of the standard.

Part 4 also provides for levying licensed auditors and accounting and auditing service providers in order to partially fund the work of the board. The Commerce Committee recommended that the levy-setting powers be widened to levy registered audit firms and every person registered or incorporated under a range of statutes, including the Building Societies Act 1965, the Companies Act 1993, and the Limited Partnerships Act 2008. Part 4 also provides that the chairperson of the Accounting Standards Review Board continues in office as the chairperson of the External Reporting Board. Thank you.

STUART NASH (Labour) : As the Minister in the chair, the Hon Georgina te Heuheu, has outlined in her speech, Part 4 of the Auditor Regulation and External Reporting Bill talks about amendments to the Financial Reporting Act. More specifically, the major grunt of this part is the External Reporting Board. There are a couple of things. Obviously, as I mentioned before, such a large piece of legislation has a number of implications for other Acts of Parliament, especially those that have a financial basis or a commerce base. But this is quite a big change, because we are talking about the External Reporting Board, and we are talking about Part 3 here of the Act.

In terms of this bill, clause 88 inserts new section 22, “Continuation of External Reporting Board”, in the principal Act. The External Reporting Board is a Crown entity for the purposes of section 7 of the Crown Entities Act. As the Minister outlined, this is the same body—as everyone will know—as the Accounting Standards Review Board.

Hon Clayton Cosgrove: Oh!

STUART NASH: Yes, the Accounting Standards Review Board. In fact, it might have been set up by Aaron Gilmore—I am not too sure; maybe I am wrong there.

Hon Clayton Cosgrove: He conquered Everest, as well.

STUART NASH: Ha, ha! But just so that people understand what this board is about, I say it has no fewer than four people and no more than nine members. According to the Act, “The Minister must not recommend a person for appointment as a member of the Board unless, in the opinion of the Minister, that person is qualified for appointment by reason of his or her knowledge of, or experience in, business, accounting, auditing, finance, economics … ”. I assume, of course, that the Minister will seek advice and will be given advice. The word “qualified” is quite a subjective word, but again I assume that the Minister will seek advice and that the people who will be appointed will be incredibly competent, independent, and absolutely know what they are doing. There are a number of them around this country, and I am sure they will be lining up to go on this board.

New section 24, “Functions of Board”, states: “The Board has the following functions”, which are basically “(a) to prepare and, if it thinks fit, issue financial reporting standards …”. Again, I have a little concern over that language, especially the expression “if it thinks fit”. I do not even know why that is there. I do not know why the bill does not just state “to prepare and issue financial reporting standards”. “If it thinks fit” is reasonably subjective. I ask what the test is there, and whether board members are to have a meeting around the coffee table and say they think that they should do this. I think it is probably wise that we take out some of the subjective language and just state: “The board has the following functions: to prepare and issue financial reporting standards for the purposes of the Act, the Crown Entities Act, the Public Finance Act, the Local Government Act, and any Act that requires a person to comply with this Act as if that person were a reporting entity.” Paragraph (b) states “to prepare, and,”—it uses this term again—“if it thinks fit, issue auditing and assurance standards for—(i) the purposes of this Act;” or of another Act.

The board must act independently. That is most important. We have said time and time again that the purpose of this Act—as is the purpose of a number of bills that have passed through this House recently—is to restore the confidence of the investing public. This bill is slightly different from the other bills because we are talking about Crown entities here, but in a way it is just as important, because taxpayers absolutely need to know that about the companies they own and, if we listen to that Government over there, the companies that it is going to sell down. In fact, one may find that this part of the Act is not necessary, because when the Government sells down all the State-owned assets, there will not be any need to report on assets owned by the Crown or on State-owned enterprises, as there will not be any left. Who knows—I suspect that might be the case. We do know that that Government is to sell down State assets, and we do know that it has committed to selling down State assets, just as we know that the Prime Minister said today in question time that he is not ruling out appointing Don Brash as finance Minister in this term. Did members see Mr English’s face when he said that? Mr English’s face just dropped. He thought: “Oh my God! Am I going to be stabbed in the back by Don Brash again?”.

But anyway, I will go back to the bill. The board must act independently, which I think is absolutely vital, as does the Committee, obviously, and as does every member in this House, because we are all voting for this provision. I will just outline new section 25, which is to be substituted in the Financial Reporting Act by clause 88: “Except as expressly provided otherwise in this or another Act, the Board must act independently in performing its statutory functions and duties, and exercising its statutory powers, under—(a) this Act; and (b) any other Act …”.

New section 26, “Consultation”, which is also to be substituted in the Act by clause 88, states: “(1) The Board must not issue a specified standard, or an amendment to a specified standard, unless the Board has taken reasonable steps to consult with persons or organisations or representatives … who, in the opinion of the Board, would be affected by … the standard …”.

CLARE CURRAN (Labour—Dunedin South) : I will take a call on Part 4 of the Auditor Regulation and External Reporting Bill, regarding amendments to the Financial Reporting Act 1993. I will take up just some of the important issues that my learned colleague Stuart Nash has mentioned with regard to independence.

The independence issue is really important. It is about the arm’s-length issue of the authority. I remind members in the Chamber today and the public who are watching why we have this important legislation and what it underpins, which is the as yet untested body called the Financial Markets Authority. The authority is a new, consolidated market conduct regulator. It is a regulator. In this environment—in the context of the global financial crisis, the collapse of financial companies in New Zealand, and the issues that we are seeing in terms of anti-competitive behaviour in the market places right now, particularly within the telecommunications market—we need regulation. There is an important place for regulation in New Zealand, and a regulator around financial markets is absolutely critical. The independence of that regulator is also really critical and absolutely essential for a vibrant, thriving, and healthy democracy.

The Financial Markets Authority is new. It started on 1 May 2011. In fact, I was just looking for a website and there is a website for the Financial Markets Authority. The website is looking quite cool—one is allowed to say that in Parliament. The authority will perform the regulatory functions currently undertaken by the Securities Commission and some of those undertaken by the Government Actuary and the Companies Office.

I will also say tonight, while we are talking about the importance of the auditing profession, that the actuary profession, which always seemed a little bit obscure to me—as I am sure it does for many people in the community—is also an important profession. The Financial Markets Authority Act, which was formerly part of the Financial Markets (Regulators and KiwiSaver) Bill, established the Financial Markets Authority. One of the important things to stress again tonight is that Labour did much of the preliminary groundwork around the bill that is before us today and around the establishment of the Financial Markets Authority, in terms of its importance and the principles that underline it. Although it is important to put on record that the Commerce Committee has done a lot of good work and that the Minister of Commerce, Simon Power, has done a lot of good work, essentially Labour kicked off this process.

With regard to Part 4 and the functions of the External Reporting Board, which goes back to the core principle of independence, the select committee recommended that clause 88, which inserts a new section into the Financial Reporting Act, be amended in three ways. Firstly, the External Reporting Board should be allowed to issue auditing and assurance standards for purposes approved by the responsible Minister. That would allow standard setting to be comprehensively consolidated within one body. Secondly, the board should be allowed to give guidance on accounting policies that have authoritative support. Thirdly, the committee recommended removing references to professional and ethical standards as a separate type of standard. Instead, auditing and assurance standards would include professional and ethical standards.

I just note that the new section 29, as amended, states that those standards may, without limitation—and I know that my learned colleague—

BRENDON BURNS (Labour—Christchurch Central) : Part 4 of the Auditor Regulation and External Reporting Bill deals with financial reporting issues and setting standards for them under the new regime. A single case that to me underscores the importance of better financial reporting standards is that of Hanover Finance. Hanover Finance was a company that pretended to be a blue-chip company. We saw Hanover Finance advertised on our State television news programme as the company we could trust. Hanover Finance repeated that advertisement hundreds and hundreds of times. That opens up some discussion—as we have had in the Chamber earlier today—about the commercial imperatives that Television New Zealand is following. I will put aside that issue. What did that advertising mean? It meant that hundreds and thousands of New Zealanders believed that Hanover Finance was what it claimed to be: that it was a financial company we could trust. Nothing could have been further from the truth. That company, which was run by Mark Hotchin and Eric Watson, was taking funds and pouring them into its own speculative investments. That is why we need strong financial reporting. That is why, as is provided under the bill, we need strong accounting and auditing standards. Hanover Finance fleeced thousands of mum and dad investors who believed the hype and the advertising and did not have anybody they could turn to, to say to them that they should not believe what was being said. That is why we need strong audits and financial reporting and standards to underpin the operations of financial markets in this country. Hanover Finance is just one of 20-plus examples of finance companies and others that in the last 3 years alone have gone from—

Stuart Nash: Sixty-nine.

BRENDON BURNS: I am thinking of the bigger ones. My learned colleague Stuart Nash informs me it was 69, but I am thinking of some of the bigger companies, of which there were 20-plus, that have gone belly up and taken with them the life-savings of thousands of New Zealanders. Many of those New Zealanders were not well off. Many of them were putting in their life-savings and retirement savings, thinking they might get an extra couple of percent. They paid an awful price for that investment, because they were never given the financial probity they deserved.

We see under Part 4 a change in respect of who is responsible for the standards. Currently, we see them effectively divided between the New Zealand Institute of Chartered Accountants and the Accounting Standards Review Board. What this part of the bill is doing is establishing a new entity, the External Reporting Board, which commences operations in July this year. The board will have no more than nine members and no fewer than four members. Those members will be drawn from the financial, accounting, and auditing professions and are to be appointed by the Minister of Commerce. I certainly have confidence in the current Minister, Simon Power, that appropriate appointments will be made to the body.

The importance of the appointments is that the board is then charged with acting independently and not at the behest of any appointing Minister. That is how it must be. We cannot have any sense of such a board having any connection with or any requirement to reflect anything other than the absolute truth and probity of the situation. The board will be preparing and issuing financial reporting standards, issuing auditing and assurance standards, and developing a whole series of guidelines and strategies in order to give a framework for the board’s overall direction. That is a great thing to see. The importance I attach to this is that the investment community needs to know that when financial market offers are being made, there is some reasonable capacity to believe they are worth the money that is being invested.

New Zealand has been a bit out of line with some other parts of the world. We have had a self-regulatory model. It has not worked. It is no longer acceptable. As I mentioned earlier, I have just spent a couple of days in the company of auditors and others involved in financial oversight. Australia has a tighter model now. We have to be in line with that model and with the European Union. That is why we are seeing the bill coming through and we are seeing under this part of the bill the establishment of the new board. The board will be independent and will have the responsibility for ensuring that there is a proper set of reporting standards. It is good legislation to see coming through.

• The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 4 be agreed to.

• Amendments agreed to.

• Part 4 as amended agreed to.

Hon CHRISTOPHER FINLAYSON (Acting Minister of Justice) : I move, That the Crimes Amendment Bill (No 2) be now read a first time.

Hon Clayton Cosgrove: Where is he?

Hon CHRISTOPHER FINLAYSON: He is in Australia. At the appropriate time, I intend to move that the Crimes Amendment Bill (No 2) be referred to the Social Services Committee for consideration, that the committee report finally to the House on or before 18 August 2011, and that the committee have authority to meet at any time while the House is sitting except during oral questions, and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

The bill is primarily designed to enhance the ability of the criminal justice system to respond appropriately to the perpetrators of violence against, and of the ill treatment and abuse of, children. One of the goals of this Government, when it came into office, was to develop an appropriate response to violence against children. Consequently, in 2008 the Minister invited the Law Commission, in the course of carrying out a review of Part 8 of the Crimes Act, to have specific regard to how the provisions of Part 8 could better protect children. In response the Law Commission recommended that the scope of the offences and duties relating to the care of children be broadened, an objective standard of care be imposed, and penalty levels be adjusted to better reflect the gravity of the offending. As it eventuated, the Government has decided to give priority to these specific measures, over and above the wider reforms that are sought to tidy up Part 8.

This bill does a number of things. First, it proposes to amend the current duties of the parents and guardians of children, to require the parent or guardian to take reasonable steps to protect the child from injury. This additional requirement builds on, and extends, the existing common law duty to protect the child from illegal violence that is foreseen or reasonably foreseeable. Secondly, the bill requires parents and guardians to protect children up until they reach 18 years of age, the same measure that is employed by the United Nations Convention on the Rights of the Child. Thirdly, the bill makes parents and others more accountable where their actions harm children. It will no longer be possible for a person to avoid liability by claiming that he or she was unaware that their conduct or failure to act would have adverse consequences for the child or vulnerable adult. Fourthly, it is proposed to increase the maximum penalty, in these cases, from 5 years’ imprisonment to 10 years’ imprisonment. This reflects the fact that the ill treatment and neglect of children, and the consequences of it, are felt for a very long time. Fifthly, the bill recognises that others in the community are also vulnerable to abuse and deserving of protection. It is proposed to extend similar duties on those who have responsibility for the care of vulnerable adults.

Finally, I would like to draw attention to a new offence, which is a significant new development in our criminal law and is based on overseas developments. Those members of the household who witness or observe abuse, or who become aware that a child or vulnerable adult is likely to suffer serious injury, have an obligation to take reasonable steps to prevent the abuse from happening, or they will face the consequences. Failure to carry out this responsibility will result in the person being criminally liable for the omission. The proposed new offence departs from the recommendation of the Law Commission in one key respect. The Law Commission had recommended that a person who was under the age of 18 years at the time of the act or omission would not be charged with the offence. The Government has decided that the offence should extend to all parents regardless of their age, to reflect the responsibilities that come with parenthood. It is not the intention of the Government further to victimise young parents who may be the subject of ongoing abuse themselves. In the case of parents under 18 years, in most cases the matter would be referred to the Youth Court for consideration, as that court has considerable flexibility in the way that it deals with such matters.

This new offence has been crafted to draw an appropriate line between personal responsibility and criminal liability. The offence does not apply to all those who come into contact with the child or vulnerable adult. It does not mean that those other persons have no responsibility for the welfare or outlook of the child, but that is not the function of the criminal law. I hope that the biggest impact of this provision will be to encourage those who are in day-to-day contact with endangered children to act proactively to protect children or, if that is not possible, to come forward if they know that abuse or neglect is taking place. We all know that the price of silence in such cases may be the continuance of abuse and neglect over someone’s entire childhood or, in some cases, the savage snuffing out of a young and blameless life.

As a consequence of other Government proposals to amend the Crimes Act, this bill also amends the offence of sexual grooming, to enhance enforcement efforts; increases the maximum penalty for the possession of an offensive weapon, as part of a response to concerns about knife crime; and amends the definition of “claim of right”, so that the defence is available only in limited circumstances.

This bill is another significant step towards making New Zealand a safer place for our children and for vulnerable adults. I commend the bill to the House.

CHARLES CHAUVEL (Labour) : The justice sector, under this Government, is in a serious state of disarray, and one of the reasons for that state of disarray is the piecemeal approach to reform adopted by this Government in this sector. By my count there are eight ongoing reviews at a high level in this sector, ranging from issues concerning the way in which children should be able to give evidence in court through to the way in which the prosecution service should conduct itself, and including a review of the bail system, legal aid changes, and reviews of the Family Court, of regulatory gaps around new media, and of public feedback on legal aid lawyers. Many of these reviews will not come to fruition under the term of this Government and during this Parliament, yet they are absorbing enormous amounts of time and energy in the sector and distracting people within it from getting on with their jobs. In the case of the subject matter of the Crimes Amendment Bill (No 2), caring for our most vulnerable children, that should be a real concern to all of us.

By my count, as far as the legislation affecting the sector is concerned, there are 11 bills—counting this bill, 12 bills—before the House at the moment, with far-reaching significance as far as the reforms that they would enact are concerned. I am very concerned about this piecemeal approach. As I say, it is distracting to those who work in the sector. It is difficult to know with any certainty which reforms, legislative or otherwise, will be brought to a conclusion. It is difficult to keep up with the changes that are being made at any particular time, and certainly legal practitioners, counsellors in the court, and those responsible for enforcing the law are all feeling a significant level of disquiet as a result of all the upheaval. It would be much better, I think, if we could see a coherent approach to reform, one that is principles based and comprehensive, rather than this Government seizing on issues, which is what we are seeing in the sector, and the progression of piecemeal reform. Unfortunately, that is what we are also faced with in this Crimes Amendment Bill (No 2).

Apart from the concern about the Government’s piecemeal approach to reform, there is also the fact that all these reforms are being referred to different select committees. The Minister, in his speech, foreshadowed that he will be asking the House to send this bill to the Social Services Committee. Much of the other legislation relating to justice matters is before either the Justice and Electoral Committee or the Law and Order Committee. I take this opportunity to ask the Minister to consider carefully whether the Social Services Committee is the appropriate committee or destination for the consideration of this legislation. I ask Mr Finlayson to reflect, in particular, on whether the alteration to the claim of right defence should go to a committee such as the Social Services Committee. That committee, surely, is not the correct one to consider that question. It is a matter that ought to go, I would have thought, most obviously to the Justice and Electoral Committee. If the Minister would like to think about that question, it would be helpful. It cannot be a good thing for these reforms to go off to different committees with varying levels of expertise in terms of their ability to do Parliament’s job of scrutinising them appropriately.

As far as the major subject matter of the bill is concerned, it is undoubtedly the case that we have a problem with regard to child abuse in this country. We ought to address it. We ought to do everything we can to ensure that we take it seriously, deal with it, and reduce it wherever we can. But one of the things that the Minister did not deal with when he spoke to clauses 6 and 7 of the bill was the concern that has been expressed by a number of experts in the area that extended obligations around reporting and around liability for harmed children inevitably lead, as far as overseas experience shows, to the covering up of such harm. Rather than leading to greater safety for children, the danger is that by further criminalising or further penalising people for failing to report concerns about the safety of children, we risk driving the problem underground, rather than bringing it to the surface and ensuring that those in the system who need help receive it.

I think it is important to register that concern at the outset. It always gives parliamentarians a nice feeling to think they are doing something about a problem, but often the evidence indicates that the application of a purported solution may well make the situation worse. This House will have to think about that very seriously as far as the provisions of clauses 6 and 7 are concerned, in terms of whether the safety of children will truly be enhanced by the provisions of this legislation.

In terms of the other operative provisions of the bill, it would appear that clause 5, which deals with the grooming offence, and clause 8, which deals with the concealed weapons issue, seem to be sensible reforms, although it is odd that they appear at this time and in this piecemeal bill.

I do want to spend some time on the claim of right issue, which is dealt with in clause 4. The matter was not given great attention in the Minister’s speech, but, of course, we all know the origin of the attempt to confine the definition of the claim of right. This is done by clause 4(2) of the bill, which reads: “The definition of claim of right in section 2(1) is amended by omitting ‘that the act is lawful’ and substituting ‘at the time of the act of a proprietary or possessory right in property, being property in relation to which the offence is alleged to have been committed’. ” In other words, a person asserting the claim of right defence has to have an interest in the property that is damaged in order to successfully assert the claim itself.

This is clearly the Government’s reaction to the outcome of the Waihopai spy base attack, in which the persons who were charged in connection with that attack were acquitted by a District Court on the basis of the assertion of the claim of right defence. Lawyers in the House will know that the claim of right defence is an ill-defined one. It may well be that there is some benefit in looking carefully at its ambit, but to do so in the current circumstances is wrong. Clearly, legislating to change the law because the Government has lost a court case, rather than having pursued the other avenues open to it as a result of having lost that case, not only seems like poor sport but is not good constitutional practice.

So there are some real concerns about this bill, and about the referral of it to the Social Services Committee, given some of the technical and legal aspects that will have to be dealt with as this House looks more carefully at the questions that the bill throws up. The Labour Opposition will support the first reading of the bill, but we have real reservations about it, as I have set out in my speech.

KATRINA SHANKS (National) : I will never forget the story that came over the Christmas break of the 9-year-old girl found hiding in a cupboard, starving, dehydrated, and anaemic from internal bleeding. Hers was just one of more than 125,000 reports made to authorities from people concerned about the safety or well-being of a child last year. The United Nations is concerned about children’s rights in New Zealand, and about our staggering child and infant mortality rate. It is about time something was done. The National-led Government is fast tracking proposals to further protect children from assault, neglect, and ill-treatment. We are committed to closing the worrying gaps in the law around the protection of children.

The Crimes Amendment Bill (No 2) is not only tackling violent crime and making communities safer, it is saving lives—children’s lives. Last year the Minister for Social Development and Employment, Paula Bennett, described a neglected child as a silent time bomb, left alone, unwashed, and unloved. These children may not be physically bruised or injured, but they will be deeply affected. Doctors see this every day. Parents bring in their severely malnourished children. They are listless and glassy-eyed. Their brains have not developed properly, because they have not been fed. They have not been nurtured and they have not been loved. These children fall behind at school. They find it difficult to get a job or to fit into society. This is their lives. To me, it is inexcusable. We live in New Zealand. We have an extensive social welfare system, benefits, accommodation supplements, food grants, temporary additional support, and the list goes on. We have fantastic non-governmental organisations like the Salvation Army and the Red Cross, which are always willing to help out. We have food banks. We have communities. We have neighbours.

The neglect of a child is identified in legislation as serious, but it is not actually defined by New Zealand law. The Law Commission’s 2009 review of the Crimes Act proposes that the term “neglect” is replaced by a gross negligence test. In effect, this will provide a definition of neglect. This bill creates a new offence of the failure to protect a child or vulnerable adult from the risk of death, grievous bodily harm, or sexual assault as a consequence of an unlawful act by a third party or failure of a third party to perform a legal duty. Failure to take reasonable steps to protect a child or vulnerable adult while knowing they were at risk will also be a crime. It will no longer be an excuse for people to say they were not involved in the abuse. People who stand by and do nothing about abuse will be held accountable for their lack of action where our most vulnerable are involved.

Our Government has been working on solutions such as the Never, Ever Shake a Baby campaign and the First Response pilot. We have been introducing social workers into hospitals to help identify children at risk of abuse. We are improving monitoring systems, Home for Life, supported housing, and help for teenage mums and dads. This bill is about ensuring that people are held accountable for their actions or lack thereof.

I look forward to this bill being discussed in the Social Services Committee. I look forward to New Zealand having the debate. We know that children are some of the most vulnerable in our society, so tonight I appeal to all New Zealanders to look around. We must not turn a blind eye to child abuse. We must look out for neglect in our communities and in our schools. We must place protection and safety of the child first.

I have a vision of a New Zealand where all Kiwi kids have the best opportunities in life—education, food, the freedom to go to the beach or play backyard cricket, and love. I have a vision where Kiwi kids have a right to life, and they also have a right to live. Thank you.

LYNNE PILLAY (Labour) : Firstly, I would like to agree with a couple of issues that my friend and colleague Charles Chauvel raised around this bill, the Crimes Amendment Bill (No 2), and it relates to the piecemeal approach that the Government is taking to issues of addressing violence and the neglect of children. As I have said in many speeches in this House, we are still seeing piecemeal bills when we have the very comprehensive Domestic Violence Reform Bill still languishing on the Order Paper that would give much more enhanced protections to victims of domestic violence. As my colleague said, and I know the Minister is listening attentively, I hope that the Minister will consider sending this bill to the Justice and Electoral Committee. Regrettably I am not on that committee any more, but it is a good committee. This Government does not see the strength of continuity, but I think that continuity would be very much enhanced by sending this bill, because it is comprehensive legislation, to that committee.

The bill deals with several issues, but a particular focus is to ensure that children are adequately protected from assault, neglect, and ill treatment. It is on the Law Commission’s recommendation, in terms of mandatory reporting, that creating a new offence or a failure to protect a child or vulnerable adult from the risk of death, grievous bodily harm, or sexual assault as a consequence of the unlawful act by a third party, or the failure of a third party to perform a legal duty—failure to take reasonable steps to protect a child or vulnerable adult, knowing they were at risk—would result in charges with a maximum penalty of 10 years of imprisonment.

We certainly support any measure that would prevent and mitigate the harm or abuse of our children. I acknowledge that New Zealand has a shameful record in terms of some of the abuse cases that we have seen, and that we see in the media. We on this side of the House would support any legislation, or indeed any other means or policies, that would serve to give more protection to our children. Labour will support this bill going to select committee, but although we are doing that, we want to put on record that we are very keen to hear from submitters at the select committee on some of the concerns that have been raised.

One of the concerns was that some mischievous and false reporting had been made. I know it would not happen in many cases, but it may lead to an overloading in those circumstances of social service agencies, which we know are struggling to do a very good job, with considerable cuts to funding and resources under this Government. That could put considerable pressure on people at the front line who are addressing and investigating concerns about our children. In fact I draw the House’s attention to the comments of the Children’s Commissioner, John Angus, who has said that mandatory reporting of child abuse could swamp Child, Youth and Family. He said that New Zealand already has a high level of reporting on abuse incidents, and we need to respond better to those cases, rather than bringing in mandatory reporting. That was the view of the Children’s Commissioner.

Of course we in Labour will support this bill going to select committee, but we feel a concern that this bill, with the best of intentions, may not have the best results. I know that the members on the select committee, be it the Justice and Electoral Committee, or the Social Services Committee—wherever the bill ends up—especially the Labour members, will be listening very carefully to submissions that are made on this really important issue.

I turn to the other provisions of the bill on reducing knife crime. The Ministry of Justice conducted a review and it made several recommendations, including more education of young people, as they were identified as the group that engages in the possession of knives. We think this law will do very little to combat the problem of possession and use of knives in criminal activities, and, as in the Ministry of Justice’s recommendation, we believe that more education is needed. Work on putting more resources and education into the misuse of knives is needed more, arguably, than work on limiting their sale, as is done in other jurisdictions. As I said earlier, we in Labour certainly will not stand in the way of this bill going to select committee.

• Debate interrupted.