Cunliffe David: Westpac New Zealand Bill — In Committee 
Cunliffe David: Westpac New Zealand Bill — In Committee 
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Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 The Labour Opposition supports the Westpac New Zealand Bill. I will begin by acknowledging the member who has just spoken the chairperson of the Finance and Expenditure Committee Craig Foss. As I have said before he does a very good job of managing that committee and he has certainly brought this bill through in good shape to the Committee. 
I think it is appropriate for us to run over quickly what the bill does and why; the rules it seeks to serve which the bill sets out in the preamble we are debating at the moment and why they are there; and the bill’s implications in the broader context which is the stability and security of the New Zealand financial system. Essentially this bill provides a mechanism through an Order in Council for the vesting of assets from Westpac’s New Zealand institutional business which technically are currently owned by Westpac Banking Corporation of Australia in Westpac New Zealand. In doing so the bill seeks to comply more fully with the local incorporation policy for systemically important banks which has been set by the Reserve Bank of New Zealand in consultation with its partners across the Ditch. 
This is special legislation that has been brought to the House because on the basis of testimony from the Reserve Bank and Westpac no other legislative vehicle is available that would allow that vesting to occur. The select committee accepted that expert testimony. But why is the vesting occurring? These systemically important banks in New Zealand are required by the Reserve Bank of New Zealand to maintain a minimum threshold of assets and liabilities within the New Zealand legal domicile. That is done by agreement with Australian banking authorities to ensure that there is sufficient system stability in the New Zealand banking environment. 
The counterfactual would be that if sufficient assets were not vested within the New Zealand domicile then more of that backing would simply be as it were on loan from the parent in Australia. That would bring with it certain system risk around the marginal status of a small market relative to its larger neighbour and in times of crisis as we saw in 2008-09 the potential for risks to be higher on the smaller marginal market than they are on the parent market. 
It is a totally legitimate goal. It is agreed upon on a bipartisan basis across this House and it is one that the Labour Opposition will continue to support. Behind that goal as reflected in the preamble we are debating is the underlying concept that the Reserve Bank of New Zealand should be and will continue to be a full-service regulator that has responsibility for both price stability in monetary policy under the Reserve Bank of New Zealand Act and system stability which if you like is the combined health and well-being of the financial ecosystem that is then able to provide credit on a sustainable and efficient basis to the businesses households and corporations that make up this wonderful country. Without the oversight of a full-service Reserve Bank we would not have the same degree of stability and security for the New Zealand banking system and as a completely legitimate part of that we have a minimum threshold of assets and liabilities for each of the main banks. 
Tomorrow is Budget day so it is appropriate that this bill has come to the Committee today by order of the Government. Clearly the Government wishes us to contemplate in the context of this bill the role and status of the financial system that this bank Westpac New Zealand is part of. It is certainly the view of the Labour Opposition that one of the crucial tests for tomorrow’s Budget is whether it will help New Zealanders to save. 
Westpac New Zealand whose representatives at a senior level I have recently had the pleasure of meeting and having discussions with strongly supports the KiwiSaver scheme. It does so because it is good business for the bank and the bank in turn provides an efficient structure through which KiwiSaver accounts can be managed. That is absolutely relevant to the preamble. The preamble sets out the bill’s purpose which is to provide for the vesting of assets and liabilities of Westpac Banking Corporation in Westpac New Zealand. Those assets include KiwiSaver accounts. Those assets have been growing rather rapidly not only for Westpac but also for other members of the banking industry. They have been doing so because there have been healthy we might say incentives to encourage New Zealanders to place their savings in the KiwiSaver scheme. Members get $1000 when they join and they get up to $1024 per annum as a dollar for dollar tax write-off. That is $20 a week for every $20 saved that people can set off against their tax. 
That was until last week when the Minister of Finance and the Prime Minister indicated that those benefits to saving New Zealanders would be reduced. That has created outrage around New Zealand. The internet is full of it our phone lines are full of it and our electorate offices are full of people wishing to register complaints that this Government has broken its promise sadly and is now moving to reduce the incentives in KiwiSaver again. It reduced them in Budget 2009. 
David Bennett 
: Come back to the bill. 
Hon DAVID CUNLIFFE 
: Westpac New Zealand is inhibited from fulfilling its commercial objectives I say to “Mr Benefit”—Mr Bennett sorry; it is “Ms Benefit”. I am not talking about dairying here so that sector is irrelevant to the purpose of this bill. I will contain myself to the bill and I will not talk about the member’s work in that industry. 
What is important with KiwiSaver is that it is predictable that the public has confidence in it and that Westpac New Zealand like other banks can continue to benefit from it. The Government said last year that it would reduce the default contribution rate and this year the big idea is that the Government will put it back to where it was last year before the Government changed it last time. Kiwis are asking why. They are asking why the Government is breaking its promise not to reduce the benefits in the KiwiSaver scheme. 
David Bennett 
: That’s got nothing to do with the bill. 
Hon DAVID CUNLIFFE 
: But that is enough on KiwiSaver because we would not want members opposite to get too agitated about it. Let us consider another important backdrop to this bill which is the health and well-being of the New Zealand banking industry. It remains a fact that has shocked many New Zealanders that the four Australian banks domiciled in New Zealand make more profit and send more profit offshore each year than all the companies on the New Zealand Exchange combined. 
Hon David Parker 
: The top 50. 
Hon DAVID CUNLIFFE 
: The top 50 that is which is the NZX 50 the New Zealand Exchange I was referring to. And that is not even close. The big banks are very profitable. They have almost recovered their full pre-crash profitability and those profits go offshore. The consequences of that is that when hard-working farmers and others are exporting their products it is virtually impossible for us to make a current account surplus even when we make a trade visible surplus because the invisibles from the financial sector are always so negative that they overwhelm the poor old trade surplus. Stripping back those invisibles we find the net investment balance and the cost of running the finance industry of which this healthy bank is a part. 
New Zealand deserves to spend some time considering how in our future we might own more of our own future by progressively boosting the New Zealand component of the finance industry so that we may progressively see a somewhat lower share of that profit and turnover being repatriated offshore. That will not happen overnight. It should not disturb the normal competitive processes of the market but the Government has an opportunity to stand behind that process by supporting for example the continued gearing up of Kiwibank’s balance sheet. A Labour Government certainly would do so. 
I will refer to one other aspect that is important to Westpac New Zealand which is that its institutional bank is able to play in the market for long-term securities. 
The third part of the financial and economic context is really the increasingly important part in our financial ecosystem that is being played by the New Zealand Superannuation Fund. In the context of this year’s Budget it was very interesting to note the recently released Crown accounts which project an operating balance before adjustments gains and losses of $16 billion. After those adjustments the operating balance is only about $10 billion. That difference is overwhelmingly driven by the improvement in the value of the New Zealand Superannuation Fund’s investment portfolio. That is a good thing. It is a good thing that it has increased by 32 percent or I think by 8.3 percent since its inception taking into account not only the last year but also all the effects of the global financial crisis. It is still almost double the rate of return of the Crown’s cost of capital. In anybody’s book it is a good investment except that the current Government has refused to continue paying into the fund and has thereby prejudiced the Government’s future ability to afford superannuation at the current rate. 
It is very difficult for me to square how the Government can talk the talk about increasing savings when it has undermined KiwiSaver 2 years in a row and refused to continue paying into the New Zealand Superannuation Fund. That is important to Westpac. 
Amy Adams 
: What’s this got to do with Westpac? It’s got nothing to do with Westpac. 
Hon DAVID CUNLIFFE 
: It does have a lot to do with Westpac because Westpac’s institutional bank is a partner with the New Zealand Superannuation Fund which brings me to the next point. I am glad Ms Adams raised it. The next point is that the Reserve Bank of New Zealand which sets the threshold for the vesting being embodied in this bill is also moving to adopt Labour’s monetary policy. Labour’s monetary policy includes macro-prudential policies such as the core assets ratio which just happens to be one of the key drivers that require banks to raise increasing amounts of their capital from domestic savings right here in New Zealand. That in our book is a really healthy development because it makes us somewhat—not totally but somewhat—less vulnerable to the swings and roundabouts of bouncing exchange rates and provides an encouragement to domestic savers. We acknowledge the wisdom of that move we compliment that act by the Reserve Bank we note that Labour has been advocating that policy publicly for at least the last 18 months and we believe that there is future potential to use it for counter-cyclical purposes. 
To sum up the Westpac New Zealand Bill has bipartisan—I imagine it is multipartisan—support because it is a sensible move to allow the vesting of assets and liabilities in the New Zealand offshoot of Westpac Banking Corporation Westpac New Zealand. It does so pursuant to the requirements of the Reserve Bank which are there for good reason to ensure that local banks have enough assets and liabilities to underpin system security. We support that goal. We support the bill. 
I note again the cooperative spirit of the Finance and Expenditure Committee. There are only a couple of minor amendments. I have not bothered to go through them. I could take another 5-minute call but I do not think I would be allowed to. In any case I think the bill is largely intact as it has been received back by the Committee. I commend the bill to the Committee for its support.