Parker David: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Reading 
Parker David: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Reading 
[Volume:667;Page:14305] 
Hon DAVID PARKER (Labour) 
: 
 I will begin by responding to the comment by Rahui Katene that she wished this House could do more to eliminate poverty in families. Rahui Katene sits with the Maori Party and she voted for a Budget this year that increased the gap between the rich and the poor by having income tax cuts of which 35 percent of the value will go to the top 5 percent of income earners. So I say to Ms Katene that she should please not preach to others in this House about those who are less well off and that she should not vote for a Budget that increases the gap between the rich and the poor. 
I agreed with some of the things that Russel Norman said in that we are dealing in this legislation with a reaction to some over-deregulation in different parts of the economy. He mentioned that there had been over-deregulation in a number of spheres. There are some obvious examples like the building industry. We over-deregulated the building industry and we caused billions of dollars of costs to ordinary New Zealanders through leaky homes. Those homes were in large part an outcome of the over-deregulation of the building industry. 
We also had over-deregulation of the electricity industry. I am reminded of the comments we heard from John Carter in respect of the Electricity Industry Bill. He had the temerity to assert that there had been under-investment in transmission because of what the last Government did. [ 
Interruption 
] Well I say to the Hon John Carter that I put on record that he got that exactly wrong. What happened was that Mr Bradford so deregulated electricity transmission that there was a written agreement between Transpower New Zealand which owned the national grid and the energy companies. The agreement said that Transpower could only ever invest in the grid and be paid for it if the people who were paying their bills agreed to the upgrade. That was contained in a written document prepared by Treasury under Max Bradford’s National Government. But what happened was that Contact Energy Meridian Energy and the other companies could never agree on any upgrades so none were done. By the end of the 1990s transmission expenditure had dropped to I think between $20 and $50 million per annum which was woefully inadequate. 
The Labour Government then came in and said that that was nonsense and that we needed to have a regulator that had some oversight of planned investment in transmission infrastructure. The amount in transmission spending following that change increased more than ten-fold to more than $500 million per annum under the Labour Government. That included approval for some massive projects like the upgrade of the Cook Strait cable the transmission upgrade through the Waikato some big upgrades in the northern South Island and some upgrades in Auckland. So I say to Mr Carter that far from that record being proof that a National Government does well and a Labour Government does poorly history shows the opposite. 
In terms of these bills which impose more regulation in respect of the finance sector I agree they are necessary. But I do not think that they absolve the need to have a good look at what has already gone wrong. I am told that 61 finance companies have gone broke in the last 4 years—61 finance companies. The biggest of the recent failures has been South Canterbury Finance. We heard the Hon Bill English a couple of weeks ago in the ministerial statement debate say that most of what had gone wrong in South Canterbury Finance was a consequence of lending prior to the date of the first Crown Retail Deposit Guarantee Scheme. He said that that was the case—and it may be the case—but we will not know until we look into it. I raise that because it seems to me that if there was shonky lending before the time of the grant of the first guarantee we need to know what was known by whom and when. The purpose of the Crown guarantee was not to prop up already insolvent institutions. The purpose of the Crown guarantee was to give investors confidence that already sound institutions would not fail as a consequence of a run on the fund. That is why we did that in favour of banks and also in favour of finance companies. 
If the Hon Bill English is correct in saying that at the time of the original guarantee South Canterbury Finance was effectively already broke then someone has gone wrong. I do not know who that somebody is which is why we need an inquiry. Was it the statutory trustee? There is a statutory trustee for every finance company who has a statutory duty to oversee the terms of the debenture trust deed and to make sure that the finance company is operating in terms of its legal mandate set out in the trust deed. I do not know. There may be some fault by the trustee and if there is the trustee should share the pain that is currently being borne totally by taxpayers who have bailed out the company to the amount of $1.6 billion. I ask Mr Cunliffe whether that is the figure. 
Hon David Cunliffe 
: The figure is $1.75 billion. 
Hon DAVID PARKER 
: That $1.75 billion has gone to depositors in South Canterbury Finance so maybe the trustee should be bearing some scrutiny about whether that trustee has some liability. 
Perhaps it was the auditors. Did the auditors do their job properly in respect of South Canterbury Finance? I am not sure. I find it hard to believe that if the Hon Bill English is right—and I have no reason to doubt his word—then the bad lending had already taken place and the state of South Canterbury Finance was already parlous effectively at the time of the original guarantee. Did the auditors do their job properly? 
Hon David Cunliffe 
: Why did Bill English sign it in? 
Hon DAVID PARKER 
: To be fair I tell Mr Cunliffe I do not think that the Hon Bill English would have signed it in if he had known that. Maybe there was some misrepresentation of the position by the auditors or of what the auditors were responsible for. 
What about the directors? Did the directors of South Canterbury Finance have knowledge about how parlous their loan book was? If they did have that knowledge it ought to have been disclosed to the Crown. It ought to have been disclosed to depositors too but it certainly ought to have been disclosed to the Crown at the time of the guarantee. A $1.75 billion loss is being suffered by taxpayers as a consequence of this bail-out and we need to find out what went wrong. We really need to find out what went wrong. 
One of the other problems in a lot of finance companies is that there have been far too many cosy deals between directors and the family interests of directors including their family trusts and their friends and there have been loans not appropriately secured. We have seen that in Hanover Finance and in a lot of other finance companies where there was related-party lending and where loans were given by companies under the control of directors to entities that were related to those directors. In my opinion this has been one of the greatest failures by regulators because in some of those transactions those directors had prior form from the 1980s cleanout. If regulators cannot keep an eye on the people who had prior form if the trustees cannot and if the auditors cannot why do we have those officials? If they cannot keep an eye on people who had prior form—criminal form sometimes—and who had come back as directors in a later incarnation there is something wrong with our systems. 
I suspect that some of the things that have gone wrong in South Canterbury Finance could include related-party loans—loans to organisations controlled by some of the directors in instances where they did not take appropriate guarantees from family trusts. In that case the benefit of the transaction accrued to some entity related to the director in order to improve the wealth of the number of companies or family trusts those people had an interest in yet the risk was not attached to those assets despite the fact that the directors of those companies knew where the assets were and knew where those guarantees should have been taken from. I am not convinced that there are not tens of millions if not hundreds of millions of dollars in that category—not just in the case of South Canterbury Finance but also in respect of some of those other finance companies. 
This bill is supported by the Labour Opposition but more than anything else we need an inquiry into these finance companies—in particular into South Canterbury Finance—in relation to what has gone wrong there. Why is there no willingness to have an inquiry when $1.75 billion of taxpayer money has been spent? If the inquiry cost $1 million it would be a tiny fraction of the loss. It is not 1 percent not a tenth of 1 percent of the loss; it is even less than that. We must get this in perspective. There has been a $1.75 billion cost to taxpayers; we need to find out what has gone wrong. I am not suggesting mala fide on the part of the Hon Bill English but something rotten has happened here and we need to find out the cause of the smell.