Lees-Galloway Iain: Local Government Borrowing Bill — In Committee 
Lees-Galloway Iain: Local Government Borrowing Bill — In Committee 
[Volume:675;Page:21167] 
IAIN LEES-GALLOWAY (Labour—Palmerston North) 
: 
 I will add to the positive comments of my colleagues about the Local Government Borrowing Bill particularly Part 1 which establishes the New Zealand Local Government Funding Agency Ltd. I suppose this is a type of third way approach. There is either public spending by councils themselves or of course the alternative approach which is to privatise assets or to go into public-private partnerships. This is an excellent idea. I believe it is a mighty fine idea as I think Pete Hodgson probably said at some point in his contribution. It not only ensures that councils can borrow for their own infrastructure that they ultimately will own themselves and that allows those councils to own their own future but it also gives New Zealanders an investment vehicle that is reasonably safe and helps to deepen our pool of capital available here in New Zealand. 
I suppose that is what brings me to ask a question of the Minister in the chair the Minister of Local Government about clause 7. I am happy to admit that I come to this debate very much as a layman when it comes to these matters. I suppose I am going to ask a question to which there will be a very clear and easy answer but I think it is a question that any New Zealander would ask about this legislation. Clause 7 states: “Part 5D of the Reserve Bank of New Zealand Act 1989 does not apply to the Funding Agency.” Part 5D of the Reserve Bank of New Zealand Act has a number of sections in it. Part 5D refers to deposit takers and specifically in section 157I the fact that deposit takers such as the funding agency that is being established under Part 1 of the bill must have a current credit rating. Section 157I states: “A deposit taker must have a current rating of its creditworthiness or if required by regulations made under section 157K the creditworthiness of the borrowing group of which the deposit taker is part that—(a) complies with the requirements prescribed by regulations made under section 157K; and (b) is given by an approved rating agency.” 
Putting to one side the fact that the credibility of ratings agencies is I suppose a bit iffy shall we say in the second decade of the 21st century I think what New Zealanders will want to know having put their money into finance companies—and some people have taken some serious losses there—is what certainty they have in investing in an agency like the New Zealand Local Government Funding Agency if it does not have a credit rating. Is there a mechanism by which the Government provides that certainty? Is there an alternative mechanism to a credit agency rating that gives people who want to invest in that funding agency some concept of the risk that is involved in investing in that agency and of how secure that agency is? I am quite certain that at this stage of the bill having been through the Local Government and Environment Committee there is an easy answer to this question. But I am very keen to hear what the answer is from the Minister because I think that what we are trying to do here is to provide not just a source of capital for local government but also a safe and secure investment vehicle that we might be able to encourage more New Zealanders to invest in. 
We know that we do not have a great savings track record in this country. We have a very heavy reliance on foreign capital and that is because we do not have deep capital pockets here in New Zealand. So anything that encourages people to save more and to invest more in New Zealand’s own infrastructure is I think a good thing. But I suspect that that might pose a barrier for people who want to directly invest their money by purchasing these bonds. If the funding agency does not have a credit agency rating against it then that might prove to be a barrier. We want to make sure that there are as few barriers as possible to encouraging people to invest in these bonds so that the money is available for local government. I know from feedback from my own city council—