Norman Russel: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeNorman Russel: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15022. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green): I rise on behalf of the Green Party to speak to the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. The Green Party will be supporting this legislation even though we have some significant concerns about it.One way to think about this legislation is that it is kind of like the equivalent of raising the private debt ceiling for New Zealand. There has been a lot of debate in the United States about raising the debt ceiling for borrowing by the US Government. I think it is something in the order of US$16 trillion at the moment. Likewise in Australia at the moment there is a very lively debate because the conservativeGovernment over there wants to increase the debt ceiling of the Australian Government to A$500 billion and the Greens have been resisting that suggesting that it should be a lower debt ceiling of A$400 billion. But in some senses what the covered bonds bill does is that it regulates a sector that enables the New Zealand private sector economy to borrow even more. It regulates that kind of borrowing and essentially facilitates more borrowing.So although this bill is a necessary step and we will be supporting it for that reason we should admit and recognise the underlying addiction to debt of the New Zealand economy that this bill is really a reflection of. Essentially it is like raising the private debt ceiling for the New Zealand economy as a whole because what it says is that New Zealand runs these huge current account deficits it has this massive external debt—somewhere in the order of $260 billion now in gross terms—and the plan looking forward is to increase the debt and to not pay our way in the world. That is this Government’s plan. The Government’s plan is to run very large current account deficits currently in the order of 4.3 percent of GDP which is the second-largest in the OECD after Turkey. So New Zealand runs these very large current account deficits.In order to finance these current account deficits we either borrow from offshore or we sell assets. New Zealand currently does a mixture of both so we are slowly selling off our productive land into overseas ownership. Most of the large corporations have already been sold into overseas ownership. We can look at the banking sector for the obvious example of that and in telecommunications it is a similar story. Then the other part of it is that we just borrow from offshore and the banks are the mechanism essentially to do that. So the banks do most of the borrowing and then channel it into the New Zealand economy. What this bill does is regulate a part of the banks’ borrowing the covered bonds section. So the banks borrow offshore using these covered bonds mechanisms in order to lend into the New Zealand economy and increase the debt of the New Zealand economy as a whole.Yes it is good that we are regulating this sector but surely alongside the regulating of this borrowing problem that the New Zealand economy has we should also have a plan to get ourselves out of constantly having to borrow from offshore in order to pay our bills. Unfortunately although this Government came into office—and Bill English said some really important things about trying to rebalance the economy where he recognised this problem. He said that international debt is the central biggest threat facing the New Zealand economy—of course it is the current account deficit that sits behind the growth of that international debt—and Bill English talked a lot about trying to get a balance put between the tradable sector and the non-tradable sector so that New Zealand could trade its way out of its debt position. But as he has failed to achieve that goal which was a very sensible goal he no longer talks about it.So when we look at the difference between the tradable sector and the non-tradable sector what we are finding is that the tradable sector is continuing to flat-line in New Zealand and that means that we cannot solve the debt problem. Because we cannot trade our way out of it we are continuing to borrow offshore in order to finance this debt problem we have. Once we say: “OK there’s no plan from the Government to get ourselves out of increasing our borrowing and increasing our foreign debt”—in fact the Government has a plan to increase the debt—“and if the Government’s plan is to increase the debt then what we need is a mechanism to regulate and facilitate this dramatic increase in debt that the New Zealand economy is loading up.” and that is what this bill does. This bill provides a way in which the banks can go to the offshore lenders and say: “We want to borrow more money to loan into New Zealand but in order to do that we will give you first bid on home mortgages in New Zealand.”So if one of these Australian-owned banks that are operating in New Zealand goes belly up it will be the foreign lenders that get the first bite of the cherry at the carcass of the Australian bank when it rolls over. It is on that basis that the foreign lenders will keep lending into the New Zealand economy. I mean that is the fundamental principle that sits behind the covered bonds bill. It means that if one of the Australian banks goes belly up and you are a depositor in that bank you will not get your money until the foreign lender gets its money because it is essentially first in the queue as a result of this bill.That has a certain logic to it because we are trying to facilitate the constant flow of foreign lending into the New Zealand economy and this bill provides a way to facilitate that and tries to decrease the cost of that lending by providing security to those overseas lenders but what it means is that depositors in New Zealand banks are now not at the front of the queue. It is the foreign lenders who are at the front of the queue when it comes to getting access to the assets if one of those banks goes belly up. You might say: “Well if we are a country that is constantly borrowing this is just what we have to do.” and there is a logic to that. I appreciate that and that is why we are voting for the bill. But surely this should make us look at our economic strategy as a country and say: “Well isn’t it funny that we are sitting here today in Parliament in order to pass a piece of legislation to make it easier for us to increase our borrowing from offshore?”. Should that not make us think: “Is this really a sustainable strategy for New Zealand as a whole to constantly run very large current account deficits”—the second-worst in the OECD—“and use all that offshore money to finance the New Zealand economy?” Is that a sustainable economic strategy for our country? We finance a current account deficit by borrowing which this bill will facilitate by enabling more borrowing and we do it by selling assets. Is that really a sustainable strategy?Of course you could keep doing it for quite a long time. We know that. New Zealand has run chronic current account deficits. So you know the Government says this when we press it about it. It says that New Zealand has run a current account deficit for a long time and that is true. You can keep doing it because we do have significant assets. We have still got a lot of land we have not sold off—probably about 90 percent of the land is still in New Zealand ownership. We still have some large corporates that have not been sold off but most of them have been. We still have some facility to borrow further. As we are seeing with this bill we can borrow more money from our offshore lenders and they will keep doing that for a while because we still have some space to borrow more. But is this really where we want to go?Do we want to say that what we are going to do is max out our ability to borrow cash from offshore using things like this bill—we are going to max the credit card out we are going to sell the house and we are going sell off as many assets as we can in order to fund our current consumption? Because that is what we are doing as our economic strategy as a country and we have now done that for a couple of decades. In order to fund current consumption we are selling off our assets and borrowing from offshore and this bill is the next logical step in that economic strategy by facilitating this offshore borrowing.I would argue that this is not a wise strategy for our country. What we need from our Government is a clear clear strategy for how it is going to get us out of this position. The Greens have put up various proposals on exactly this issue and it is the focus of our economic policy to rebalance the New Zealand economy. The Government made certain noises in that direction but so far it has failed to deal with the underlying problems. But this bill surely should be a moment when we look at ourselves and say: “Why are we standing in this House passing a bill in order to make it easier for us to borrow billions and billions more from offshore?”. Surely that should be a moment to stop and say thatour economic strategy is not working. When our economic strategy relies on offshore borrowing and selling our assets every year for year after year after year after year after year this is not going to have a happy ending. At some point our offshore creditors are going to either dramatically increase the cost of borrowing for the New Zealand economy or start actually restricting our access to credit. At that point there will be a significant adjustment.I would argue it is a much more sane strategy to start to make that adjustment ourselves now so that we can get out of the hole we are in rather than leave it up to our creditors 10 years down the track who are going to make that adjustment for us because they will do that. That is the real choice we have.What this bill does is it puts off the day when we have to make that choice because it says: “Well we’ll facilitate these creditors lending us more money by giving them first dibs on the assets of the banks”—which are the home mortgages—“and then the foreign lenders will lend us more money.” OK that is true. It does put off the day of reckoning. That is true. But to think that this solves the underlying problem is I think extremely foolish. If the Government does not realise that and it does not seem to then we have got a problem and the Government needs to change. Actually we need to deal with that underlying problem as reflected in the current account numbers and as reflected in the gross external debt numbers. This bill does not do anything to do that. It simply enables us to keep borrowing. Thank you.