Volume 641 Week 53 - Tuesday 21 August 2007 
Volume 641 Week 53 - Tuesday 21 August 2007 
[Volume:641;Page:11253] 
Tuesday 21 August 2007 
Madam Speaker 
 took the Chair at 2 p.m. 
Prayers 
. 
Visitors 
People’s Republic of China—Education Science Culture and Public Health Committee National People’s Congress 
Madam SPEAKER 
: I have much pleasure in informing the House that members of the Education Science Culture and Public Health Committee from the National People’s Congress of the People’s Republic of China led by Ms Zhu Lilan director of the committee are present in the gallery. I am sure that members would wish that the delegation be welcomed. 
Questions to Ministers 
Finance Minister—Confidence 
1. JOHN KEY (Leader of the Opposition) 
 to the  
Prime Minister 
: Does she have confidence in the Minister of Finance; if so why? 
Hon Dr MICHAEL CULLEN (Deputy Prime Minister) 
 on behalf of the 
 Prime Minister 
: Yes because he is still a hard-working and conscientious Minister. 
John Key 
: Does she agree with her Minister of Finance that targeting inflation through the operation of monetary policy may adversely affect the New Zealand economy—a view that he admits is probably at odds with the Reserve Bank; if so like him is she proposing a higher inflation environment for New Zealand? 
Hon Dr MICHAEL CULLEN 
: If that were the Minister of Finance’s view I would be most surprised and I would disagree with it but as it is not I do not. 
John Key 
: Has she asked the Minister of Finance why he no longer thinks that the current inflation targeting undertaken by the Reserve Bank works—a statement he made last Thursday in a speech to Ernst and Young; if so why did he sign the policy targets agreement with the Reserve Bank only 3 months earlier totally unchanged? 
Hon Dr MICHAEL CULLEN 
: What the Minister of Finance said last Thursday—and I recall it quite well—was that the consensus view for a long time had been that monetary policy could have no impact on the long run rate of economic growth and the Minister of Finance expressed reservations about that consensus based on the fact that very long periods with an overvalued exchange rate could affect the confidence of the exporting sector to invest in future growth. 
John Key 
: Does the Prime Minister support her Minister of Finance’s other musings which included amongst other things the introduction of a mortgage levy or the invoking of section 12? 
Hon Dr MICHAEL CULLEN 
: The Prime Minister has already ruled out a mortgage levy. The section 12 issue has certainly receded further into the distance given changes to the exchange rate over recent times. But what the Prime Minister certainly did do was that when the New Zealand dollar was dropping she did not support the Leader of the Opposition in calling for the New Zealand dollar to rise to US83c and thereby do immense damage to the exporting sector. 
Rt Hon Winston Peters 
: Does the Prime Minister think it is about time that we re-examined the workings of the Reserve Bank of New Zealand Act which has produced today in New Zealand internationally the most volatile currency in the world and one that is doing such incredible damage to our exports in an export-dependent economy? 
Hon Dr MICHAEL CULLEN 
: There are a number of matters there. First exports have risen quite strongly over the last year despite the high dollar particularly in some of the newer technology areas. The Finance and Expenditure Committee is looking at the operation of monetary policy not so much at the issue around the Reserve Bank of New Zealand Act itself. The Government fully supports the committee in undertaking that work and believes that a number of interesting and significant submissions have been made to the select committee. 
John Key 
: Does the Prime Minister think that the Minister of Finance understands just how much of the borrowings that are used in the New Zealand economy come from offshore? 
Hon Dr MICHAEL CULLEN 
: Yes; that is why he introduced KiwiSaver. 
Rt Hon Winston Peters 
: Does the Prime Minister think it is now the time to consider more seriously the importance of exporters over currency traders paper shufflers and junk bond dealers? 
Gerry Brownlee 
: I raise a point of order Madam Speaker. I wish no disrespect to the member but it was very difficult to hear his question. I do not know whether it is the sound system but that question was almost impossible to hear. 
Madam SPEAKER 
: I certainly heard it I must say. Could the member repeat the question for the member. 
Rt Hon Winston Peters 
: Does the Prime Minister think it is now the time to reconsider the importance of exporters in respect of our economy over the interests of currency traders paper shufflers and junk bond dealers? 
Hon Dr MICHAEL CULLEN 
: I think it is appropriate that in consideration of economic policy the interests of the tradable sector both those exporting and those competing against imports rank very high in consideration—certainly more important than the interests of consumption. 
John Key 
: If the Prime Minister thinks that the Minister of Finance understands the reliance that New Zealand has on foreign borrowings why does she think that the Minister of Finance made a statement in his speech on Thursday when the New Zealand dollar was at extreme volatility and had fallen 12c in the last 4 days including that day calling for the exchange rate to fall even further—a thing that caused enormous issues around the financial markets forcing up the 90-day bank bills and causing a potential credit crunch in New Zealand? 
Hon Dr MICHAEL CULLEN 
: I tell the member three things. Firstly since that statement was made the New Zealand dollar has stabilised at around US69c. Secondly the New Zealand sharemarket has stabilised. Thirdly the Treasury bill issues today were oversubscribed six times. 
Rt Hon Winston Peters 
: Has the Prime Minister received any reports as to the effects of political parties that have not supported savings strategies within New Zealand in either 1997 or in the last two efforts by the current Government; and what does she make of those who now complain about the dependence on foreign borrowings? 
Hon Dr MICHAEL CULLEN 
: I am aware that the National Party opposed KiwiSaver in its original form and opposed the additions to KiwiSaver that its spokesperson on finance has said that savings are not important and that its leader has consistently called for the dollar to go up higher. 
John Key 
: In the Prime Minister’s opinion why would the Minister the Finance make such a stupid statement as that of last Thursday calling for the exchange rate to fall even further and faster at a time when there was a global credit crunch that saw $400 billion being pumped into the global liquidity in the markets; and was he aware that at the time he was making that statement the New Zealand banks were very concerned about their ability to source credit and in fact were meeting on just that topic? 
Hon Dr MICHAEL CULLEN 
: The Minister of Finance did not say some of the things that the member said he did. What the Minister of Finance actually said was that the New Zealand dollar was still at that time—and is still right now—at the upper end of its normal range over the economic cycle at around US70c. In that situation it is quite likely that the equilibrium rate of the dollar is below where it currently sits. If the member thinks otherwise I suggest he looks at the graphs. 
Jeanette Fitzsimons 
: Is the Prime Minister surprised to find that inflation and borrowing are out of control when successive Governments have encouraged increasingly fast throughput of scarce resources and energy have measured the quantity only of GDP and never its quality and have taxed “goods” like work and enterprise rather than “bads” like waste and pollution; and when will she ask her Minister of Finance to respect the limits of a finite planet? 
Hon Dr MICHAEL CULLEN 
: There are a number of misstatements in that question. Firstly inflation is not out of control in New Zealand. It is actually well under the 3 percent limit at the present time. Domestically generated inflation has been running at around 4 percent per annum for the last 3 years. Although outside the band that is scarcely kind of Zimbabwean in terms of the size of inflation. I think they are running at 100000 percent per annum at the moment and rising rapidly day by day. Secondly it is not possible to generate sufficient Government revenue simply by taxing naughty things or things that we do not like. It is also necessary to tax all consumption goods and to tax every possible source of earnings within the economy. The member comes from a party that tends to support higher Government spending. It is not possible to generate something like $60 billion a year simply out of taxing waste streams and non-renewable resources. 
John Key 
: I seek leave to table the speech made by Dr Michael Cullen last Thursday to Ernst and Young. 
Document by leave laid on the Table of the House. 
Families—Financial Support 
2.  
RUSSELL FAIRBROTHER (Labour) 
 to the  
Minister for Social Development and Employment 
: What reports has he received on proposals to reduce the amount of financial support available to New Zealand families? 
Hon STEVE MAHAREY (Acting Minister for Social Development and Employment) 
: 
 I have seen a report suggesting that Labour’s recent extension of the Working for Families package should be “put to the sword” to fund tax cuts. Under this proposal 160000 families would lose around $50 per week 60000 families would lose entitlements to tax credits and the majority of the losers would be couples with annual incomes of between $45000 and $80000. This is another example of how the National Party’s policy of slashing Government spending to pay for tax cuts would in fact result in New Zealand families being put to the sword. 
Russell Fairbrother 
: What has been the impact of Working for Families on Kiwi families with children? 
Hon STEVE MAHAREY 
: The Working for Families package has enabled up to 360000 Kiwi families to share in the gains New Zealand has made after 8 years of great Labour-led Government. For example a couple with two young children that is earning $45000 a year is now over $7000 a year better off. A couple with four children that earns $90000 a year is over $6000 a year better off. Seventy thousand Kiwi children are being lifted out of poverty because of this package. Unlike the National Party a Labour-led Government wants to provide real opportunities for New Zealand kids and families. 
Judy Turner 
: Can the Minister explain whether the delay in providing grandparents raising grandchildren and other kinship caregivers with more equitable financial support for foster parents is due to financial constraints policy difficulties or is it just not a priority? 
Hon STEVE MAHAREY 
: The member may not be aware that people who are in the position of supporting children through the unsupported child’s benefit or the orphans benefit just received around $20 extra per week. 
Russell Fairbrother 
: What reports has he received on how much better off families are under Working for Families than they would be with tax cuts? 
Hon STEVE MAHAREY 
: I have seen a report where John Key says that no family will be worse off under National’s plan. I have also seen a report where he says that they would be. To help clear up that confusion let me say that a two-child family with a joint income of $60000 a year would lose as much as $82 a week under National’s plans because the money that it would get from this would fund an across-the-board tax cut of less than $5 a week—$5 or $82; I think anybody can figure out it is better off with Labour. 
Hon Bill English 
: Why does the Minister waste his time on speculating about hypotheticals when he should be doing something about those people on the average wage who today pay more of their income in tax than they did when he came to Government because his Government has done nothing to implement the promise it made twice to increase tax thresholds and reduce fiscal drag? 
Rt Hon Winston Peters 
: I raise a point of order Madam Speaker. That cannot possibly be a question. The member began by asking: “Why does the Minister waste his time on speculating about hypotheticals …” and then he made a statement. Which part of that has ministerial responsibility? 
Madam SPEAKER 
: Yes members are reminded that this is question time and not a time for making statements or debating. Could the member please rephrase that as a question. 
Hon Bill English 
: It was a question actually but I am happy to state it again. 
Madam SPEAKER 
: If the member is quite happy that it has actually gone through would he please be seated. I think my problem is the ministerial responsibility—whether in fact it was a question that would have been better directed to either the Minister of Finance or the Minister in charge of income tax so the question is ruled out of order. Are there any further supplementary questions? 
Gerry Brownlee 
: I raise a point of order Madam Speaker. In answer to an earlier question Mr Maharey spoke about people being better off under Labour and he seemed quite happy to make that statement against general public opinion now but nonetheless he then surely opened himself up to a challenge about the assertion he is making as the Minister responsible for the family support package. 
Madam SPEAKER 
: I thank the member for his contribution but because it was a combination of question and statements that were made it was very difficult to have the intent known. I have ruled accordingly. 
Rodney Hide 
: I raise a point of order Madam Speaker. I think the difficulty is that there was a statement in there that was out of order but if the question itself were properly phrased it would be within order. It was Mr Maharey himself who drew attention to the comparison of Working for Families with tax cuts and it would strike me that having introduced tax cuts in his answer that would allow a person to question that. It was the statement that was the problem. 
Madam SPEAKER 
: Yes the member is quite right. I gave the member an opportunity to rephrase and he said he had already asked the question. I have ruled on this matter. 
Gerry Brownlee 
: I raise a point of order Madam Speaker. Mr English made that comment before you ruled the question out of order. He did so knowing he had actually used two question words in the phrasing of his question. Confusion has been introduced by Mr Winston Peters—who knows he has confused things here—but essentially what Mr English said was: “When will the Minister…” and then he spoke about an election promise that Labour has made twice and has not delivered on. In the context of both tax and family support it is quite reasonable. 
Madam SPEAKER 
: I thank the member; he is relitigating my ruling. I have ruled on the matter and I have considered it fully. If there is any further debate I am afraid I will have to ask the member to leave. 
Gerry Brownlee 
: Madam Speaker this is a request that rather than to simply take a question off the National Party you allow that question to be re-put given that Mr English declined the opportunity thinking he had asked the question prior to your ruling that the question itself was out of order. 
Madam SPEAKER 
: Leave is sought for another question. Is there any objection? No objection. 
Hon Bill English 
: When will the Minister do something about those families where the principal earner on the average wage was paying 19 percent of income as tax when he came to Government and now is paying 23 percent of income as tax when his Government twice promised to fix that problem and then refused to do so? 
Hon STEVE MAHAREY 
: The member asked a little earlier about the speculation and that is clearly not the case. I am just trying to clear up the fact that as Mr Key leaps from cloud to cloud he tends to leave behind him a series of conflicting statements and what I wanted to say is that to clear up that confusion— 
Madam SPEAKER 
: Would the Minister please get to the answer of the question. I ask the Minister to address the question with no interruptions until the Speaker has an idea as to what in fact are the thoughts. 
Hon STEVE MAHAREY 
: What everyone in the House needs to understand is that every family with a household income over $27000 currently getting family support would lose money if tax cuts of the kind that are being speculated on by the National Party were introduced. Someone with two teenaged children who is on $40000 a year would lose $53; if a person were on $60000 a year with two children he or she would lose $82. The member needs to understand that the comparison is one that means we lose under tax cuts and we gain dramatically under Working for Families. That is what we have done over the last little while. 
Australia and New Zealand—Relationship 
3.  
Hon MURRAY McCULLY (National—East Coast Bays) 
 to the  
Prime Minister 
: Does she stand by her statement “Overall the relationship New Zealand enjoys with Australia is the closest we have with any country. It rests on the firm foundations of common values; a comprehensive trade and economic partnership; a defence alliance; close and effective cooperation across many policy areas and of course on many family links.”; if not why not? 
Hon Dr MICHAEL CULLEN (Deputy Prime Minister) 
 on behalf of the 
 Prime Minister 
: Yes. 
Hon Murray McCully 
: Can the Prime Minister explain to the House how the public statements of senior Ministers over recent days in relation to Air New Zealand’s charter contracts with Australian defence forces including Mr Goff’s accusation today that the Australian Minister for Foreign Affairs Mr Downer had gone “off the deep end” are intended to contribute to maintaining this country’s strong relationship with Australia? 
Hon Dr MICHAEL CULLEN 
: I think I would put it this way: “and I think the right advice from MFAT should have been to tell them”—that is Air New Zealand—“not to do it simply because by association it involves them in something with which the declared position of the Government was not to be involved.” That is a quotation from Mr John Key leader of the National Party. 
Hon Murray McCully 
: Has the Prime Minister been advised by her Ministers who hold the shareholding interest in Air New Zealand that the airline currently conducts tens of millions of dollars worth of business annually with the Australian defence forces; and can she assure the House that that revenue has not been placed at risk by the actions of her Ministers in the past week? 
Hon Dr MICHAEL CULLEN 
: I am advised that the total contract income from contract work last year was $18 million. I am further advised that on Friday Australian troops were transported from Sydney to Honiara and that such transport did not require any advice from the Ministry of Foreign Affairs and Trade because it clearly was consistent with New Zealand Government policy. I am further advised that no attacks were made on Australia last week. The criticism was of the failure of the Ministry of Foreign Affairs and Trade to advise Air New Zealand correctly and of the failure of the ministry to advise its Minister—and indeed other Ministers—of the approach of Air New Zealand which clearly acted properly in seeking advice in that matter. 
Jeanette Fitzsimons 
: Is climate change one of those areas of “close and effective cooperation”; if so does the Prime Minister agree with the Australian Minister for the Environment Malcolm Turnbull that APEC leaders would not accept binding climate change targets or does she agree instead with Opposition environment spokesperson Peter Garrett that without mandatory targets the APEC document made a mockery of claims that APEC would be the most important climate change summit in 15 years and exposed the Australian Government’s weak and inconsistent position? 
Hon Dr MICHAEL CULLEN 
: The New Zealand Government will not intervene in arguments between Mr Garrett who clearly has changed his views about climate change since being part of Midnight Oil and the Australian Minister for the Environment. We do notice however that the Australian Government has announced a “cap and trade” system for emissions and that is consistent with the approach being taken by the New Zealand Government. 
Hon Murray McCully 
: Has the Prime Minister been advised that Air New Zealand provides extensive engineering services for the Royal Australian Air Force worth millions of dollars annually and earns substantial income from servicing the gas turbines on frigates operated by the Australian navy; and will she express confidence that none of those contracts are likely to be lost as a consequence of the actions of her Ministers in the last week? 
Hon Dr MICHAEL CULLEN 
: Let me spell this out as clearly as I can: the New Zealand Government did not support the invasion of Iraq. It has never been confused about its position on the invasion of Iraq. It has never held more than one position on the invasion of Iraq. Therefore it does not deem it appropriate that a company of which it holds nearly 80 percent of shares should be seeking to make money out of transporting troops to the war in Iraq and it is not going to surrender those principles for the sake of money. Of course had Air New Zealand received advice from the Ministry of Foreign Affairs and Trade it could still have proceeded to undertake those charter flights but I am quite clear from the statements made publicly by Mr Palmer that had Air New Zealand had different advice from the Ministry of Foreign Affairs and Trade it would not have undertaken those charter flights. In that situation the issue would never have arisen because it never would have applied for those particular charters. 
Keith Locke 
: Does the Prime Minister agree that one of our common values with Australia is nuclear non-proliferation; if so how does she think Australia is upholding that current value in violating the nuclear non-proliferation treaty by agreeing to sell uranium to India to make more nuclear bombs? 
Hon Dr MICHAEL CULLEN 
: The New Zealand Government does have a very strong stance on nuclear non-proliferation. The Australian Government has engaged in uranium exports for many years. The exact nature and extent of those exports is a matter at the moment for debate between the two major Australian political parties. The New Zealand Government is not going to come into the middle of that debate. 
Hon Murray McCully 
: Can the Prime Minister confirm that she became aware of an Australian Defence Force - Air New Zealand charter that carried troops to Honiara late last week as a consequence of a confidential no-surprises briefing by the airline to its shareholding Ministers; and can she explain why it was in New Zealand’s interests to use that confidential information to slag Mr Downer when that was clearly not the purpose for which it had been provided? 
Hon Dr MICHAEL CULLEN 
: No I cannot confirm that. My understanding is that the Prime Minister is advised separately from the shareholding Minister and there is only one such Minister which is myself. That information was not used to slag Mr Downer at all; Mr Downer was not slagged at all last week. All the Prime Minister has done is take exception to in our view Mr Downer’s rather strong and over-the-top reaction to the fact that we were concerned about the lack of advice the New Zealand Government had received—a point on which the Government has been fully supported by the Leader of the Opposition Mr Key who is clearly in disagreement with Mr McCully. 
Hon Murray McCully 
: Can the Prime Minister advise the House why according to her public statements Mr Downer breached a convention by addressing the National Party conference recently when it was perfectly acceptable for the then deputy British Prime Minister John Prescott and the Queensland premier Peter Beattie to address Labour Party conferences here; and can we take this as confirmation that there is now one rule for the Labour Party and another rule for everybody else? 
Hon Dr MICHAEL CULLEN 
: No the House cannot take that conclusion from that. Firstly Mr Prescott was the Deputy Prime Minister of a fraternal Government a long way away. Secondly the Australian visitors are from state Governments not the federal Government. The New Zealand Prime Minister has declined invitations to speak in Australia in a context that might be considered political. Thirdly and most important all those speeches were given in public not in secret like Mr Downer’s speech to the National Party. 
Keith Locke 
: I seek leave to table an article by Michael Costello headed “Downer knows better” from the  
Australian 
 criticising the decision to send uranium to India. 
Document by leave laid on the Table of the House. 
Keith Locke 
: I seek leave to table a second article. It is from the  
International Herald Tribune 
 last Thursday where Labor leader Kevin Rudd says he will tear up any nuclear deal with India. 
Document by leave laid on the Table of the House. 
Business—Compliance and Red Tape 
4.  
RODNEY HIDE (Leader—ACT) 
 to the  
Minister of Commerce 
: What action if any has she taken to combat red tape facing business and how is progress being measured? 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 We commenced the Quality Regulation Review in May of 2006 as a result of a commitment to address regulatory barriers to business growth. There have been two milestone reports to Cabinet since then. This has been an extensive review which has included consultation with key stakeholders and interviews and forums around the country where we have listened to the concerns of business directly. The Government has already announced or implemented some of the red tape reduction measures that have arisen out of the review. However I am due to present the final report to Cabinet soon and I will be making announcements after that. 
Rodney Hide 
: Does the Minister believe that business does face a problem with high compliance costs and when does she think there will be some relief in sight—not reports or consultation but actual real relief in terms of costs facing business? 
Hon LIANNE DALZIEL 
: New Zealand actually ranks very well by comparison with other jurisdictions in terms of red tape. However I believe we can always do better. That is why we thought it was a good idea to go out and ask businesses what their concerns were and at the same time as asking them what the problems were ask them to identify solutions. That is why I think this has been the most effective review of red tape that this country has ever seen. 
Shane Jones 
: Where does New Zealand currently rank in terms of the World Bank’s survey of the ease of doing business and are there any improvements in the individual indices that may improve New Zealand’s ranking in the future? 
Hon LIANNE DALZIEL 
: New Zealand ranks second only to Singapore in the survey and that may improve as a result of the combined online company registration and allocation of an IRD number which started last month. Sadly it was a month too late for this year’s survey but I raised it with the World Bank when I visited it recently and there may be reference in its next report to what it regards as good practice. 
Rodney Hide 
: Does the Minister really take comfort from that international survey and has she in her consultation trips around New Zealand come across any person in business who believes that it is easier to do business in New Zealand than anywhere else in the world other than Singapore? 
Hon LIANNE DALZIEL 
: Any small-business operator who has operated in any other jurisdiction certainly knows that. 
Keith Locke 
: I seek leave to table the most recent and best example of excessive red tape and compliance costs—namely the Therapeutic Products and Medicines Bill. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? Yes there is objection. 
Electoral Finance Bill—Election Advertising 
5.  
Hon BILL ENGLISH (Deputy Leader—National) 
 to the  
Minister of Justice 
: Does a document need to be either supporting or opposing the election of parties or candidates in order to be counted as an election advertisement under the Electoral Finance Bill; if not why not? 
Hon MARK BURTON (Minister of Justice) 
: 
 As I have said in a previous answer to the member clause 5 of the bill sets out the definition of election advertising. Alongside advertising that specifically mentions parties or candidates the definition covers material that encourages or persuades people to vote for types of parties or candidates with reference to views positions and policies. It also covers advertising that takes a position on a proposition associated with a party or candidate. 
Hon Bill English 
: Is it the case that since I asked this question last week the Minister has now read the bill and how did it escape his notice and the notice of the whole Cabinet over an 18-month period of policy making that the definition of an election advertisement includes anything that takes a position on a proposition with which one or more parties is associated; does he stand by that as Government policy? 
Hon MARK BURTON 
: The member clearly is not paying attention. The intent of this bill is not to hinder organisations that are going about their normal public awareness raising and educational activities—I made that point to the member previously—but rather to ensure that in the context of an election campaign activity that is reasonably described as campaigning is appropriately covered. Failure to provide this protection leaves our electoral system at the mercy of those who would seek to undermine it in the sort of way we saw in 2005 with the National Party endorsing a $1 million secretive campaign. 
Hon Bill English 
: Is the Minister aware that the exemption for the media from the definition of “election advertisement” is quite narrow and for instance a newspaper website as opposed to the newspaper itself may not be exempt and journalists’ blogs such as those that are regularly published now will certainly count as election advertising? 
Hon MARK BURTON 
: As I think a number of my colleagues have urged the member the place to go to have detailed examination and speculation and to seek expert advice about the interpretation of various clauses of the bill is the select committee. The member got up in the course of his question and said “maybe”; the member is speculating. The place for that debate and discussion is in the select committee. I have absolute confidence that the select committee will add to the value and accuracy of this bill. 
Rt Hon Winston Peters 
: Does the Minister think this legislation would have been necessary if there had not been such wholesale abuse of the electoral laws in 2005 in particular by an alleged chauvinist racist group called the Exclusive Brethren— 
Hon Members 
: Pay the money back! 
Rt Hon Winston Peters 
: —which was happy to associate with the National Party a party which has still not paid its GST but has the effrontery to call that out to us? 
Hon MARK BURTON 
: There is no doubt that the genesis of this legislation was the discovery that the rorts that were possible under the legislation in 2005 perpetrated on our electoral system by the National Party and its friends in the Exclusive Brethren necessitated changes to our electoral law. I can say to the member—because he clearly has not got to page 54 yet—that clause 103(2) does help to address the issue of GST which the member clearly needs assistance with. 
Hon Bill English 
: Is it now the Minister’s position that after 18 months of policy making extensive Cabinet discussion and the personal interest of the Prime Minister he cannot as Minister of Justice answer a question in the House about whether the exemption for the media from the election advertisement provisions includes websites or journalists’ blogs and that given that the Government has no idea it will now require the select committee to work that out? 
Rt Hon Winston Peters 
: I raise a point of order Madam Speaker. I withheld from making this point of order. We have just heard Bill English ask his question largely in silence but by way of contrast I say that when I asked mine there was a barrage from about 20 people on my right and you did nothing whatsoever to stop them. I am asking for the same rules to be applied no matter where the question is asked from in this House and I ask what you propose to do about that last comparison. 
Madam SPEAKER 
: I thank the member. I did ask members to observe courtesy to other members to ensure that they are heard by other members in the Chamber. 
Hon MARK BURTON 
: As I have said to the member on a number of occasions the critical issue here is whether the matter that the member is referring to is and seeks to be election campaigning during the regulated period. The intent of this legislation is to ensure a level playing field. A neutral referee is provided for in this legislation to exercise judgment on those matters. 
Gerry Brownlee 
: Where does it say that? 
Hon MARK BURTON 
: The question really should be why the National Party does not want a level playing field and a neutral referee to make those decisions in our electoral system. 
Hon Bill English 
: Has the Minister bothered to read the definition of “publication” which includes the following provisions: to “(c) send to any member of the public by any means; or (d) deliver to any member of the public or leave at a place owned or occupied by a member of the public;” which in practical terms means publication is anything except shouting across the street. 
Hon MARK BURTON 
: The member’s assertion is clearly wrong—the last statement. 
Hon Bill English 
: No it’s not. I read it from the legislation. 
Hon MARK BURTON 
: The member’s statement that it covers anything except shouting across the street is clearly wrong. 
Hon Bill English 
: Can the Minister confirm he is having difficulty in explaining Government policy and this bill to the House and why does he think that the people charged with the enforcement of this legislation being the police are in any better situation than the Minister of Justice—who has had 18 months to think about it—to make interpretations? 
Hon MARK BURTON 
: I am having no difficulty in explaining to the House that the purpose of this legislation is to prevent the sort of rort that Mr Key and the National Party were determined to perpetrate on the people of New Zealand in 2005. It cannot be allowed to happen again. 
Health Services—Initiatives for Children 
6.  
MARYAN STREET (Labour) 
 to the  
Minister of Health 
: Has he received any reports on new health initiatives which will benefit New Zealand children? 
Hon PETE HODGSON (Minister of Health) 
: 
 Yes I have. Yesterday a comprehensive free health check for 4-year-olds began in Wanganui and today a second pilot begins in Counties Manukau. From February next year the roll-out will begin nationally. The Government’s aim is to have every 4-year-old child in this country ready and able to learn. 
Maryan Street 
: Is there any precedent for similar checks of New Zealand children? 
Hon PETE HODGSON 
: Indeed there is. The first Labour Government introduced free comprehensive health checks for our children 60 years ago. Back then Labour was particularly looking for malnutrition amongst our children and children’s health camps were established in response to what was found. Today’s checks however are probably even more comprehensive. They involve hearing eyesight height weight oral health and so on as well as any behavioural issues or developmental concerns that parents might identify. 
Barbara Stewart 
: Will additional assistance be available for the parents of those children who are revealed during the course of the B4 School checks to have serious problems requiring specialist help? 
Hon PETE HODGSON 
: Yes it will be available. Where necessary a child will be referred to a health service or to an education or social service. Indeed one of the reasons we are piloting this programme in Wanganui and Counties Manukau starting this week is to ensure we have sufficient capacity for such referrals. 
Sue Kedgley 
: Has he received any reports about the likely health implications for New Zealand children of Chinese-made clothing some of which have been found to contain formaldehyde at levels far exceeding those that the World Health Organization says can cause eye skin and nasal irritations respiratory problems asthma and in the long-term cancer; if so what is his ministry doing to ensure that New Zealand children are not exposed to unsafe clothing? 
Hon PETE HODGSON 
: I have not received any formal reports on that issue in the last day. I have however read a report from Wayne Temple who heads up the Poisons Centre in Dunedin to the effect that formaldehyde in clothing is capable of causing a range of skin problems—dermatitis and the like—but is unlikely to be a source of respiratory or oncological problems. 
Question No. 7 to Minister 
GERRY BROWNLEE (National—Ilam) 
: 
 I seek the House’s indulgence to leave this question to a time when the Minister of State Services may be available to answer it. 
Madam SPEAKER 
: Leave is sought. Is there any objection? Yes there is objection. 
State Services Commissioner—Confidence 
7.  
GERRY BROWNLEE (National—Ilam) 
 to the  
Minister of State Services 
: Does she have confidence in the State Services Commissioner; if so why? 
Hon PHIL GOFF (Minister of Defence) 
 on behalf of the 
 Minister of State Services 
: Yes; because he is an able and experienced civil servant with a reputation for integrity who has served both Labour and National - led Governments over a long period of time. 
Gerry Brownlee 
: Is she aware that her colleague the Minister of Finance has stated that he expects Dr Prebble to factor in Simon Murdoch’s failure to keep the Government informed of Air New Zealand’s charter flights to Kuwait involving the Australian military at the next performance review; and does she have confidence that Dr Prebble will have the ability to do that objectively when he himself has failed to keep her aware of an important issue inside her State services portfolio? 
Hon PHIL GOFF 
: I have no doubt about the ability of Mark Prebble to carry out the functions that he is required to carry out as the commissioner for State services. He has a long and proven track record of being able to do that. Occasionally State servants being human beings make mistakes. Mr Brownlee might never admit to making a mistake but people do—and Mark Prebble did on one occasion. That should not be held against him in respect of his excellent track record as a first-rate and professional civil servant. 
Gerry Brownlee 
: Why was Dr Cullen so quick to publicly state his disapproval of Mr Murdoch’s failure to keep Ministers aware of the issue when the Minister of State Services was failed for over 2 months by Dr Prebble in exactly the same sort of way; and was that due to the fact that Dr Prebble was covering up for one of the Minister’s ministerial colleagues? 
Madam SPEAKER 
: That question probably should have been directed at least in part to Dr Cullen. The second part was directed to the Minister of State Services so I will allow that. 
Hon PHIL GOFF 
: It is quite improper for that member to make a serious allegation in a kangaroo-court manner that Mr Prebble was involved in a cover-up. I reject that but as the member knows an independent investigation is being done by Don Hunn another man in whose integrity the country would have confidence. Mark Prebble has specifically asked firstly that this investigation be independent of him and secondly that any assessment that Mr Hunn has to make about Dr Prebble should not be withheld from publication. That is open that is transparent and the member instead of making throwaway comments that affect the integrity of proven civil servants should await the outcome of that inquiry. 
Gerry Brownlee 
: Can the Minister confirm that the first the Minister knew of David Benson-Pope’s discussion with Mr Logan regarding the Madeleine Setchell employment matter was in fact on 3 July and that Mr Prebble’s file note will confirm that? 
Hon PHIL GOFF 
: I can confirm from the Minister’s records that she first became aware of the issue on 3 July 2007. Could the member repeat the last part of the question which was garbled? 
Gerry Brownlee 
: I have got enough. I think I will leave it there if that is OK. 
Monetary Policy—Consensus 
8.  
R DOUG WOOLERTON (NZ First) 
 to the  
Minister of Finance 
: What recent reports has he received regarding an accepted consensus on monetary policy in New Zealand? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I think the conventional consensus since certainly the passing of the 1989 legislation is that the monetary policy framework does not have an impact on long-run growth. As I commented last Thursday I am concerned that this view probably no longer holds in New Zealand because of the way in which monetary policy has interacted with the exchange rate and confidence in the exporting sector. 
R Doug Woolerton 
: Does the Minister agree with the reported comment of the New Zealand Exchange Chief Executive Mark Weldon that New Zealand should move from a strict inflation-targeting regime to a framework that targets long-run price stability and output to ensure that exporters are not damaged by the fight against inflation? 
Hon Dr MICHAEL CULLEN 
: No I probably would not agree with that view but I accept that the views expressed by Mr Weldon are well-thought-out. Indeed his submission to the Finance and Expenditure Committee was one of a number of submissions that people put considerable effort into. Clearly it is useful for the committee to engage with those submitters and report back to the House. I regret the fact that Mr English continues to regard this as some kind of useless exercise. 
Hon Mark Gosche 
: Has he seen reports setting out competing views on monetary policy? 
Hon Dr MICHAEL CULLEN 
: I have seen two quite conflicting reports. The first states that the Governor of the Reserve Bank should not have increased interest rates on the last two occasions. The second states that the Government “has been saying too much and not doing enough”. These conflicting reports came firstly from John Key and secondly from Bill English who as always disagree on monetary and fiscal policies. 
Hon Bill English 
: For how much longer does the Minister of Finance intend to keep suggesting that he might change monetary policy only to have every suggestion he makes be knocked over by the Prime Minister and still believe that he can be credible? 
Hon Dr MICHAEL CULLEN 
: The member is actually quite wrong on that. The difference between him and me on it is quite simple: we both probably support the general framework of monetary policy but I am willing to discuss ideas about how its operation can be improved. He seems to think that the last word on all of this was spoken sometime in the mid-1980s and nothing has changed since then. Well life has moved on I say to Mr English. 
R Doug Woolerton 
: What support has the Minister seen for moves to address the issues relating to our monetary policy including that a single focus on price stability has the effect of crippling the export sector on which New Zealand depends; and does the Minister agree that it is time for some rational debate on our monetary policy framework such as that sought by New Zealand First when we attempted to table our Reserve Bank (Amending Primary Function of Bank) Amendment Bill a move that was blocked by the National Party? 
Hon Dr MICHAEL CULLEN 
: All rational suggestions from New Zealand First are welcomed and should be broadly debated. My own view remains that a single focus on price stability is probably still preferable because when there are multiple objectives the bank is placed in the position of deciding from time to time which objective it is trying to meet and that can lead to quite confused accountabilities. 
Hon Bill English 
: Can the Minister confirm that the real reason he keeps raising issues about monetary policy is that he realises that New Zealand households are facing among the highest interest rates in the developed world and with the dropping dollar reduced purchasing power and that is bad news for the Labour Government which has mismanaged growth and he is trying to find some way of blaming someone else for it? 
Hon Dr MICHAEL CULLEN 
: No. What the member should perhaps realise is the fact that interest rates have had to be ratcheted up so high for so long a period and the exchange rate has been so high for so long a period might raise some interesting questions about the operation of monetary policy and that an intelligent open-minded person would not be afraid of discussing them. Welcome to the world of intelligent rational debate I say to Mr English. 
Corrections Department—Confidence 
9.  
SIMON POWER (National—Rangitikei) 
 to the  
Minister of Corrections 
: Does he have confidence in his department; if so why? 
Hon DAMIEN O'CONNOR (Minister of Corrections) 
: 
 Yes but there is always room for improvement. 
Simon Power 
: How can jailed members of youth gang JuvanyleCrip Boys be allowed to post photos of themselves from inside Mount Eden Prison on to a social networking website that apparently also features a photo of Helen Clark arm in arm with gang members titled “Cripn’ Clark”? 
Hon DAMIEN O'CONNOR 
: I am led to believe they used cellphones. 
Simon Power 
: How was an inmate at Rimutaka Prison able to use a cellphone to allegedly mastermind via Thailand an order of $1 million worth of methamphetamine while at the same time a 10-month inquiry into corruption at the prison was being undertaken? 
Hon DAMIEN O'CONNOR 
: That matter is currently under investigation. I have been informed that the Department of Corrections worked very closely with the police to identify and find the cellphones and all those involved in that drug ring and smash it. 
Hon Phil Goff 
: Is the Minister aware of any other criminal offending organised by telephone from criminals behind bars; if so when? 
Hon DAMIEN O'CONNOR 
: Unfortunately yes. A prisoner called a TV show diverting a call made from the prison phone to discuss his escape and the intention of three other prisoners to escape. Following investigation a statement was made: “The more I have investigated the abuse of prison phones the more I have become concerned. Inmates are organising bank robberies ordering drugs arranging death contracts and leading gangs through misuse of the phone system. It just makes a total joke of the justice system.” That was said by the former Minister of Corrections Nick Smith in 1998. That National Government did nothing; we are clamping down on cellphone use in prisons. 
Simon Power 
: How does the Minister reconcile his department’s acquiescence in allowing an inmate to allegedly hire a public relations company to soften his image when it refused to allow an inmate to pay for his own private drug treatment to beat his addiction? 
Hon DAMIEN O'CONNOR 
: I guess that the member is referring to Arthur Taylor a man who has absolutely no credibility within the corrections system. The member incorrectly as he so often does says that the prisoner Justin Rys was not allowed to get a drug and alcohol counsellor paid for. That is in fact incorrect. The member is wrong again. Justin Rys has in fact been able to get access to that counselling if he so wishes. 
Hon Phil Goff 
: Does the Minister have any evidence to back up the damning indictment of the prison system made by Nick Smith as Minister of Corrections about 9 years of a National Government and the misuse of telephones in prisons? 
Hon DAMIEN O'CONNOR 
: There is a huge amount of evidence. The performance of the corrections system under our Government has been outstanding. The escape rates have dropped 80 percent. We have moved on every area of contraband. I hope to make an announcement around the issue of cellphones very shortly. 
Simon Power 
: Can the Minister confirm his department’s response to the Law and Order Committee during the estimates process that despite the construction of four new prisons more than half of New Zealand’s prisons’ capacity is “below standard need to be replaced decommissioned or refurbished by 2014-15.”; and how will the creaking prison system cope when the most recent muster forecast for 2007 has already been exceeded by 131 well before peak season in September? 
Hon DAMIEN O'CONNOR 
: It is a fact that we have clamped down on dangerous and violent criminals. We have locked up more of those people. It is also a fact that a lack of investment by the previous National Government has resulted in a running down of many of the prisons in this country. However that member cannot have it both ways. If he criticises us for putting in under-floor heating and for providing proper facilities he cannot criticise us for then having facilities that are not up to that standard. I ask the member to get it right. 
Simon Power 
: Why were guards allegedly told to “stand back and watch” during riots at Rimutaka Prison when the bill for intentional damage by inmates this year is already $1 million and sure to rise? 
Hon DAMIEN O'CONNOR 
: That is an allegation regarding the actions of guards at that time. I applaud them for handling that incident correctly. The total money spent on repairing vandalism within prisons is less than 5 percent of the total maintenance budget. I would suggest that that is around the figure that most public institutions around this country would spend on repairing vandalism. 
Viet Nam Veterans—Memorandum of Understanding 
10.  
STEVE CHADWICK (Labour—Rotorua) 
 to the  
Minister of Veterans' Affairs 
: What announcements has he made about the memorandum of understanding signed between representatives of veterans of the Viet Nam War and the Government in December 2006? 
Hon RICK BARKER (Minister of Veterans' Affairs) 
: 
 A cross-party announcement will be made later today launching Tribute 08. During the joint working-group’s extensive consultation in 2005 Viet Nam veterans spoke of the negative response they personally felt on their return to New Zealand. Tribute 08 is a commemoration to acknowledge the service of Viet Nam veterans and those who died and the sacrifices of their families. It is an important step to allow the healing process to begin. Veterans organisations are keen that all political parties should come behind this process and broad support shown for Tribute 08 would be pleasing. I look forward to the actual event being held next year on Queen’s Birthday weekend. 
Steve Chadwick 
: What progress is being made on implementing other aspects of this memorandum of understanding? 
Hon RICK BARKER 
: Good progress is being made by the joint implementation group which consists of Government agencies and representatives of the two Viet Nam veterans organisations the Royal New Zealand Returned and Services Association and the Ex-Vietnam Services Association. The most important task is getting a full and accurate register of Viet Nam veterans. So far 3621 Viet Nam veterans and their families have registered. Ex gratia payments are being made. The trust deed of the Viet Nam Veterans and Their Families Trust worth $7 million has been signed and a cheque for $250000 to the Ex-Vietnam Services Association (Neville Wallace Memorial) Children’s and Grandchildren’s Trust has been presented. Work is almost complete on free medical checks and I could continue. Tribute 08 represents another important part of delivering for Viet Nam veterans and their families. 
Pita Paraone 
: Tena koe Madam Speaker. Given a recent report that has indicated that a number of veterans have had declined their applications to Veterans Affairs New Zealand for consideration under the arrangements reached between Government and the bodies that represented these veterans can the Minister advise what will be done to address the health needs of these veterans and their families—needs that have arisen as a result of veterans having served their country in what was described as a “toxic environment” in Viet Nam? 
Hon RICK BARKER 
: I cannot speak on those details because the member has not been specific about them but if he cares to contact my office I will certainly investigate the matter immediately. But I can say to the member and to this House that Veterans Affairs New Zealand currently pays out 1381 war disablement pensions to Viet Nam veterans. So we are taking up the issue of Viet Nam veterans and addressing their health needs. 
Te Ururoa Flavell 
: Tena koe Madam Speaker. Kia ora tatou. Is the Minister aware that at 4 p.m. today Viet Nam veterans will parade on Parliament in protest against what they describe as “the Crown’s consistent and despicable rejection of Viet Nam veterans’ health and welfare concerns” and would he not agree that the continued refusal of the Government working party to meet Maori veterans on marae or to consider the impact of dioxin on the veteran community and others is responsible for the enduring sense of anger and injustice these people experience? 
Hon RICK BARKER 
: There are a number of parts to that question. Firstly the Government has negotiated in good faith with the Royal New Zealand Returned and Services Association and the Ex-Vietnam Services Association and has come to an honourable agreement. That honourable agreement covers all of the nine points raised in the open letter by Viet Nam veterans that was signed some years ago. All of those nine points have been addressed either in part or in total. The memorandum of understanding has about 60 different points and is extensive and ongoing. Finally I make the point to the member that the Government through Veterans Affairs is paying out just on 1400 war disablement pensions to Viet Nam veterans and that these war disablement pensions cover all aspects of health including the results of exposure to dioxins and the toxic environment. This Government does care about veterans’ health and is doing everything it can to ensure they are well looked after. 
Te Ururoa Flavell 
: How does the memorandum of understanding cater for the issue of support and counselling available to veterans—who returned from Viet Nam shell-shocked and traumatised resulting in some cases in alcohol dependency—and the subsequent intergenerational impact of this drug on their children? 
Hon RICK BARKER 
: That is generally today called post-traumatic stress syndrome and I am pleased to be able to report to the member that Veterans Affairs funds a substantial amount of counselling and support for veterans who have post-traumatic stress syndrome. If that member is aware of people who could benefit from that I would be very pleased if he could make their names known to me and I will ensure that they and their families get the support necessary to help them. 
North Shore Hospital—Sculpture 
11.  
Hon TONY RYALL (National—Bay of Plenty) 
 to the  
Minister of Health 
: Was a sculpture unveiled at North Shore Hospital recently; if so by whom? 
Hon PETE HODGSON (Minister of Health) 
: 
 Yes; the Prime Minister in her role as Minister for Arts Culture and Heritage unveiled the sculpture at North Shore Hospital on Friday 10 August. 
Hon Tony Ryall 
: Did the Prime Minister on that day visit the North Shore Hospital emergency department where patients are languishing on trolleys in corridors for up to 4 days and where ambulances are being parked up to provide more waiting areas for patients—or was the Prime Minister more interested in unveiling a sculpture that ironically represents “hope in places where it is needed most”? 
Hon PETE HODGSON 
: I would have hoped the member would know the answer to his question. The Prime Minister did take a brief and unscheduled look through—[ 
Interruption 
] It was for about 15 minutes. She looked through the North Shore Hospital especially the emergency department. She then reported to me within 24 hours that she felt the emergency department was not up to scratch and that she felt it needed to be fixed. I agree with her. 
Hon Tony Ryall 
: Does the Minister think it is quality care for a North Shore woman with a shin infection to sit from 10 in the morning until just before midnight hooked up to a drip in a public waiting area of the emergency department waiting to get on to a hospital trolley where she waited another 18 hours before finally being admitted to hospital; is that the quality service that this Prime Minister has promised? 
Hon PETE HODGSON 
: Struggling though I am to draw a link between fine art in the public health system and the member’s question my answer is that no I do not think it is acceptable. I do not think the Waitemata District Health Board emergency department is providing an adequate service; I do not think so. 
Hon Tony Ryall 
: Does the Minister agree with me that emergency departments are barometers of how well an entire hospital is doing and why is it that so many of the country’s emergency departments are gridlocked and unable to provide the timely care that their patients are seeking? 
Hon PETE HODGSON 
: The health if you like of an emergency department is an important indicator of how the health system is going as a whole but it is by no means the full story. What happens in New Zealand every winter—and it is happening to an even greater extent in Australia now—is that the flu season which of course affects health professionals means that an increase in demand coupled with a reduction in supply comes to pass. In particular what happens is that wards get blocked because the hospitals are full then the flow ends up in the emergency department which is a really difficult position for health professionals and patients to find themselves in. In the case of the Waitemata board however the situation has been complicated by the fact that it is the fastest-growing district health board in the entire country. Over the past 5 years the population increase there has been greater than the entire population of Southland. 
Ann Hartley 
: Is the Minister satisfied with the situation in the emergency department? 
Hon PETE HODGSON 
: No I am not and neither is the board satisfied. Neither of course are the staff satisfied and as we have learnt neither is the Prime Minister satisfied. In the House recently I said that the Waitemata board’s emergency department response times are the worst of all 21 district health boards. But let us also talk a little about solutions instead of just about problems. 
Hon Tony Ryall 
: You’ve no solutions! 
Hon PETE HODGSON 
: The member does not want to know about solutions does he? [ 
Interruption 
] Does he want to know? 
Madam SPEAKER 
: We will have the answer in silence. 
Hon PETE HODGSON 
: The solutions come in the form of first of all more money and the budget for the Waitemata board increased by 8 percent just last month; second they come in the form of more beds and 21 extra beds will be opening next month; third they come in the form of more staff which the board can now afford and it is actively hiring both doctors and nurses; and fourth they come in the form of changes to the way it manages patient flow. There is a particular issue about the design of the emergency department in that particular hospital. 
Hon Tony Ryall 
: Why after 8 years— 
Hon Maurice Williamson 
: Eight long years! 
Hon Tony Ryall 
: —after 8 long years in Government and $5 billion extra a year is the Government only now admitting there are problems at North Shore Hospital after successive Ministers of Health in that failed Government opposite have justified the appalling performance that North Shore people have received in their emergency department? 
Hon PETE HODGSON 
: The member carefully frames his question as though nothing happened in the first 6 or 7 years. Let me give him one statistic. [ 
Interruption 
] He does not want to hear the good news. Let me tell him that 6 years ago the number of doctors in Waitemata totalled 320 and right now the number of doctors in Waitemata totals not 320 but 570. If the member wants to do his sums he will find that is a 78 percent increase in the number of doctors in that one district health board. So let us not say that this is something that has occurred because nothing has happened; let us just say— 
Hon Tony Ryall 
: Why is it worse? 
Hon PETE HODGSON 
: Oh the member does not want to know. If he does not want to know I do not mind. 
Madam SPEAKER 
: The member has an opportunity to ask supplementary questions. Disorder is being created by constant interruptions. 
Dr Jonathan Coleman 
: Does the Minister understand what an insult it is when the Prime Minister goes to North Shore Hospital to unveil a sculpture and in her speech she does not even mention the real issue of the failing accident and emergency department and does he not realise that the ideal spot for a sculpture representing “hope in places where it is needed most” is actually the Labour Party caucus room? 
Hon PETE HODGSON 
: Once again the gentleman opposite takes the cigar for the smart alec comment. The truth of the matter is that the Prime Minister made an unscheduled visit to the emergency department immediately after she had unveiled the sculpture; she then got ahold of her health Minister and said she was not happy. There is a bunch of action around that and we are looking forward to some improvement which we can undertake because we are a party that does not get out of bed in the morning only to reduce the tax take. Our Government proudly invests more into our health system and we will see that investment come to fruition. 
Hon Harry Duynhoven 
: I raise a point of order Madam Speaker. In the supplementary answer before last you asked that the House hear the answer—after the Minister was interrupted several times—in silence. Immediately to your left members were severely barracking the Minister all the way through his answer. We then had another supplementary answer and precisely the same thing occurred except that the barracking was much more widespread. Even when you were quite stridently giving your request to the House just then for order a member on the National side of the House was interjecting on you. Please will you throw some of them out. 
Madam SPEAKER 
: The member’s substantive point is justified and I will ask members to bear that in mind. As you know I try to have a robust debate in this House but when there is a denial of the right of any member to be heard by means of orchestrated barracking then members will leave this House. 
Hon Tony Ryall 
: I seek leave to table an email of a report of a stunned onlooker at the Prime Minister’s visit to the emergency department who said she walked through very quickly making no eye contact with any of the people on the trolleys. 
Madam SPEAKER 
: Leave is sought. Is there any objection? There is objection. 
Financial Sector—Regulation of Non-banking Sector 
12.  
DAVE HEREORA (Labour) 
 to the  
Minister of Commerce 
: What action does the Government intend to take to improve regulation of the non-banking financial sector? 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 In June this year I announced decisions arising from the extensive review of financial products and providers and financial intermediaries. Those decisions were to register all non-bank financial institutions strengthen the current model of trustee supervision strengthen the prudential regulation of non-bank deposit takers provide for more comprehensive regulatory oversight of financial intermediaries and provide for effective consumer dispute resolution and redress. 
Dave Hereora 
: Can the Minister confirm that this review is the last stage of an extensive programme of financial sector reforms? 
Hon LIANNE DALZIEL 
: Yes which is why it is important to continue the process that has been carefully developed with key stakeholders and that follows sound regulatory analysis and principles. However given the recent finance company failures I have asked my officials to examine whether there are any common threads in these failures and to see whether any intermediate steps can be taken to improve the regulatory environment in the interim. I am also discussing this issue this week with the head of the Securities Commission to ascertain whether she feels that the Securities Commission has sufficient powers along with the trustee companies that provide front-line supervision in light of these failures. 
Dave Hereora 
: Has the Minister seen the report in the  
New Zealand Herald  
this morning warning investors they need to do more homework before putting their money into finance companies; if so what is her response? 
Hon LIANNE DALZIEL 
: Yes I have; I believe that the report contains very sensible advice including the kinds of questions that investors should ask their financial advisers such as whether they have read the prospectus why they are recommending this particular investment and what they know about the directors and financial management of the company. When we announced the decisions of the review of financial products and providers I made the point that some of the products on the market are mis-priced which means some investors do not realise the real level of risk they are taking with their hard-earned money. That is why asking these questions is so important. 
Questions to Members 
Regulatory Responsibility Bill—Submissions and Timetable 
1.  
RODNEY HIDE (Leader—ACT) 
 to the  
Chairperson of the Commerce Committee 
: How many submissions have been received to date on the Regulatory Responsibility Bill and what is the timetable for the hearing of submissions? 
GERRY BROWNLEE (Chairperson of the Commerce Committee): 
 I am informed that the Commerce Committee has received some 180 submissions and that the overwhelming majority of those submissions are in favour of the bill as was the case at the House vote when the bill was read for the first time. The select committee will set down a hearing programme that allows all those who want to be heard to be heard and expects to report the bill sometime in mid-November. 
Rodney Hide 
: Is it too late for members of the public to make a submission to the Commerce Committee—would it be possible for the committee to receive those submissions? 
GERRY BROWNLEE 
: The select committee’s deadline for submissions was 10 August so the official period has closed. However I am certain that should people wish to make a submission on this particular bill the committee would be prepared to at least receive those in the interim. One of the things that is striking about this bill is the overwhelming number of submissions in favour of it. 
Income Tax Bill 
In Committee 
The CHAIRPERSON (Ann Hartley) 
: The House is in Committee for consideration of the Income Tax Bill. As determined by the Business Committee on 24 July 2007 there will be a single debate of 4 hours for the Committee stage of the bill. 
Clauses A1 and A2 Parts A to Z and schedules 1 to 52 
Hon BILL ENGLISH (Deputy Leader—National) 
: 
 I think this must be the largest single question that the Committee will debate in this parliamentary session. 
Hon Dr Michael Cullen 
: Ever. 
Hon BILL ENGLISH 
: Apparently it is the largest single question ever. Anyone who is listening to this might wonder why the whole of the Income Tax Bill is being debated as one question. The reason is that at least in the redrafting of the Income Tax Act there is no particularly strong disagreement. This is a project that goes back I think some 10 years perhaps further. It may even go back to the time when I had a brief and glorious reign as the Minister of Revenue or in fact to before that time so it has been a long time coming. 
The idea of having transparent tax legislation that can be understood by a wider range of people than just those well-educated experts was always a noble idea. I am not totally convinced that this bill achieves that end not because of any lack of intent or capacity on the part of those who drafted it but simply because the legislation is very complicated because the situations the legislation is trying to deal with are very complicated. That complexity arises from people trying to minimise their tax legislation so rules have to be written that tell them it is not worth trying too hard. 
In this discussion National members generally will be supporting the Committee stage of this bill because we believe that it will make our tax law more readable—or at least more understandable. But this bill comes at a time when the substance of our tax law itself is headed in the other direction towards greater complexity. The discussion of the bill will also raise a point of political contention around the use to which the new Income Tax Act is put. There are different views in the House on how extensively people should be taxed and on the stewardship of the current Government of the tax system and how it regards that system. 
There is a different point of view from the Opposition. I suppose that difference can be best summed up by the Prime Minister’s description of what the Government regards as its policy for the fourth term. When she was asked what the Government wants to do for its fourth term her comments were directly relevant to the Income Tax Bill. She said: “Well it took us a while to build up the kitty for Working for Families and early childhood education and it took us a while to build up the kitty for”—I cannot remember what the other thing was— 
Dr the Hon Lockwood Smith 
: Interest-free student loans. 
Hon BILL ENGLISH 
:—“interest-free student loans. There will be new things we’ll want to do but we’re not sure what they are.” 
Dr the Hon Lockwood Smith 
: We’re building the kitty. 
Hon BILL ENGLISH 
: They are building the kitty and this is the kitty building tool—the Income Tax Bill. It actually will not matter how clearly written it is. It is being used for one purpose only and that is to gather revenue for a Labour Government that is struggling to retain the confidence of the House struggling to execute a legislative programme and struggling to hold Government support. 
It has now become clear that the Government sees its primary function as the distribution of money taken off other people by the Income Tax Act. In that respect this piece of legislation is absolutely central to the reason for the existence of the current Government not just because of the constitutional significance but because of the way Government members think about it. That is why the Government has until the last Budget been very reluctant to give away any tax revenue on the simple basis that it believes it can use it better than any of those people out there. That is a view shared by some commentators—in my view erroneously. They believe that if the Government leaves a tax dollar in the hands of an ordinary New Zealand household that household’s inclination is to waste it. The use of the tax dollar by the Government is just as important as the way in which it is raised. Would it not be terrific if we could apply as much clarity to the spending of Government money as this bill does to the raising of it? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I thank the member. I think he started off quite well but unfortunately he started to deteriorate reasonably quickly in that speech. 
Let me say that this Income Tax Bill is part of a historic process that was begun if my memory serves me correctly by Wyatt Creech as Minister of Revenue. It is an attempt to rewrite the entire Income Tax Act. A number of other jurisdictions have attempted to do this such as the United Kingdom and Australia. No other jurisdiction has succeeded in this enterprise. That probably in part reflects the fact that despite what the member has just been saying actually the New Zealand Income Tax Act by international standards is relatively simple. 
The corresponding legislation in the United States runs to some 20000 pages whereas this bill is around 2500 pages. I think the United Kingdom legislation is somewhere around 8000 pages from memory. Not surprisingly the attempt to rewrite it has failed in those jurisdictions. That means that they have missed the opportunity to present legislation in a much simpler form in terms of its organisation in a much more logical structure and as far as one can in a much more plain-English approach in the expression of the language within the legislation. 
As we move on from here particularly with the Public Access to Legislation programme coming into force there will be the ability to update legislation much more quickly and on a much more user-friendly basis than by having the old bits of sticky paper stuck inside the volumes which we have been accustomed to for a very long time in New Zealand. The project has been carried on under a very large number of revenue Ministers of which I think Mr English was briefly one and Mr David Carter was another. I think even Mr Ryall had his sticky fingers in the revenue pot at one point. There was myself and Mr Dunne—indeed it was Mr Dunne twice because Mr Dunne was the Minister of Revenue in 1995 and 1996. So there have been a lot of Ministers and the Inland Revenue Department has managed to maintain resources all the way through to carry out this exercise which was not an easy one. 
As the member rightly says there is still a lot of complexity in the legislation. That is inevitable. In an increasingly sophisticated international environment in terms of income and economies tax law cannot be made very very simple at all unless of course one has the simplest kind of tax law which simply gives the department and the Minister an entire discretion in terms of determining how the tax law should operate. But generally speaking in New Zealand we tend to adopt a reasonably brightline black-letter approach to taxation law. One can argue whether that is in fact the best approach but it tends to be the approach we have adopted within New Zealand. Therefore that means having to have a degree of complexity particularly as avoidance mechanisms become more and more sophisticated and tax law has to write its way around those sophisticated mechanisms. 
The bill is not in fact in 26 parts because as members will see although it goes from Part A to Part Z a number of parts are not actually there because for various reasons they have lapsed as the rewriting process has occurred. It is laid out in a very simple fashion in terms of the organisation. “Purpose and interpretation” is first then comes “Core provisions” “Income” and “Deductions”. Basically for most people that is it. Parts A to D really cover the great bulk of the interaction of the public with the income tax system because from there on we are getting into the complex parts which relate largely to the commercial sector. Those are such things as timing and quantifying rules recharacterisation of certain commercial arrangements avoidance and non-market transactions taxation of certain entities and so on and so forth. 
Of course as I think members on all sides will recognise most people do not actually come within that part of the Income Tax Act at all. They come within the first part “Income” provisions and “Deductions”—and they are lucky if they get deductions these days. That is pretty much it as far as most people are concerned. 
I would hope that the debate tries to address some of the issues of principle within taxation legislation and the details as articulated within this particular bill. There is a very large Supplementary Order Paper and I am grateful to the House for its agreement to deal with the third reading of the bill by starting that immediately after the Committee stage. Otherwise it would be necessary to reprint the whole bill for the third reading to proceed and that in itself would take many many weeks. 
The intention is that on the completion of the Committee stage and the moving of the third reading which will be sought to be adjourned immediately the House will return to the third reading on I think 25 October— 
Hon Bill English 
: Can you just run through that again? 
Hon Dr MICHAEL CULLEN 
: The bill on completion of the Committee stage will be set down for third reading forthwith. The Minister—or if he is not here probably myself—will move the third reading but not speak to that and will instead seek leave to adjourn the debate immediately so that there is no debate. That is to avoid having to reprint the whole bill with the Supplementary Order Paper before we get to the third reading which would be many weeks of work and a huge amount of printing as one can imagine. 
Then we will come back to the third reading on 25 October which is the last Thursday in a sitting period. This will give the Clerk’s Office the time to prepare a clean version of the bill ready for passage so that the clean copy can then be taken as quickly as possible to the Governor-General for assent because no other third reading that has been passed after this one can be dealt with until this one has been prepared in a clean copy. 
That is the reason for this slightly strange procedure which the Business Committee has agreed to and which the House has in effect supported. I am extremely grateful for that because it means we can deal with this important achievement for successive Governments in a logical and coherent fashion and as efficiently as possible without creating a great deal of additional expense in reprinting along the way. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First will be supporting the Income Tax Bill right the way through the Committee stage and the Supplementary Order Paper where it is warranted. New Zealand is very fortunate in so far as most people understand our tax laws to be fair. They understand that tax is something that must be paid for the betterment of society—we must have roads schools hospitals and all those forms of infrastructure— 
David Bennett 
: Baubles! 
R DOUG WOOLERTON 
: No not baubles in actual fact but all the necessities of life. To hear the National Party members speak one would think that none of those things should be purchased and that none of those things are needed by society and that they in fact would not have income tax legislation. In fact most people see tax as fair as I said so we have a very high rate of compliance in New Zealand. When people try shall we say to mitigate their taxation they usually do it in a legal manner and in many cases the Inland Revenue Department invites them to have dialogue which I think is a marvellous thing so they can avoid tax in a lawful manner. 
From time to time holes that appear in the taxation system have to be plugged because technology moves on and case law moves on. Thus unintended consequences are taken of and they have been taken care of in this bill which seems like five bills but in fact is only one. So we in the select committee had a lot of discussion on where that was necessary and we understood that those things needed to be taken care of where they appeared. New Zealand First does not intend to get up at every chance and talk about this but we will be supporting this legislation right through the 4 hours to the end. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This is quite an important debate this afternoon because the opportunity for wide consultation and the opportunity for example at the select committee for those who are concerned about precise wording changes to have those changes thoroughly considered are very important in this rewrite process of the Income Tax Act. Let me give members an example. In one part in the Act we have traditionally referred to where a person lives as a person’s “place of abode”. The rewrite proposed to change that to some other terminology—forgive me because off the top of my head I do not recollect exactly what the rewrite proposed— 
Chris Tremain 
: Permanent home. 
Dr the Hon LOCKWOOD SMITH 
: “Permanent home” was the new proposal as distinct from permanent place of abode. But at the Finance and Expenditure Committee it was argued with committee members that that change should not be made because “permanent home” would mean something different from “permanent place of abode”; therefore in the bill before us now the change has not been made. 
Members may wonder why I am referring to this. The reason is that that has been part of why the rewrite process has been successful. I think that it is in schedule 51 or some schedule like that that the intended changes are spelt out and there is a list of intended changes. But what has been hugely important in this rewrite process is that unintended changes have been avoided. Part of the success in avoiding those unintended changes has been the extensive consultation with professionals and when officials and professionals have not been able to agree on wording the chance for the select committee to be able to make recommendations. For example in the rewrite the select committee suggested—and again I am going from memory—that a “loss attributing qualifying company” be changed to just a “contributing company”. Again the select committee was able to be convinced not to change the words and to stick with the terminology that had meaning in New Zealand because a contributing company—and again I am going from memory—could have a different meaning and therefore produce an unintended consequence. 
My reason for raising this concern is Supplementary Order Paper 136 which has well over 250 pages. This Supplementary Order Paper as I see it—and today as we are entering into this debate it is the first time I have seen it—writes into the rewrite of the Income Tax Act the legislation in the new language if you like that has been passed in the last year or so. For example the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 that was passed last year introduced the offshore portfolio investment regime which was commonly called the fair dividend rate legislation. But the rewrite of that legislation because it was so recently passed was not written in the language of this rewrite. 
So we can see that the rewrite of that legislation is certainly covered if we look in this Supplementary Order Paper at the rewrite of sections under new clause DN 6. Clause DN 6(g) for example covers the rewrite of how a fair dividend rate is calculated and relates to former sections EX 48 and EX 49 in the Income Tax Act which are covered in Volume 2 in that rewrite. But in this printed version of course the legislation we passed last year for the foreign investment fund regime or the fair dividend rate is incorporated literally or word for word into this bill we are addressing. This Supplementary Order Paper has the rewrite as I interpret it of that legislation in the actual language I presume of this rewritten Income Tax Bill. 
What is crucial about that is that the select committee has had no chance—no opportunity—to hear from tax professionals about wording changes. The Minister in the chair Lianne Dalziel should tell us which of the legislation passed I presume in the last 12 to 18 months—such as the original KiwiSaver legislation and certainly the Taxation (Savings Investment and Miscellaneous Provisions) Bill which colloquially became known as the RC legislation last year or the 2006 Act that brought in the new fair dividend rate—is covered in this Supplementary Order 136 and the extent to which the Law Society and the New Zealand Society of Accountants are happy with the wording that is now to be incorporated via this Supplementary Order Paper. It is our experience on considering the wording in the principal bill in front of us that there were significant words about which various professional groups came to the select committee and said: “Look you people need to be mindful of this this and this because if you don’t attend to this there will be the risk of unintended consequences—perverse outcomes.” I think we need to know whether the Minister in the chair can guarantee us there are no provisions no wordings and no constructions in Supplementary Order Paper 136 in which there is still any controversy at all among the professional sector out there. This Committee has had no opportunity to read this nearly 300-page Supplementary Order Paper this afternoon—no opportunity. 
What is more I believe it is crucial that the Minister in the chair puts in front of the Committee the key issues. It is hard to believe that all of this can be rewritten in the language of this new bill without there being some controversy surrounding some of the wording and some of the construction. If there is no controversy I guess we will just have to accept the Minister’s word on that but it puts at risk this whole rewrite project whose success has been in the fact that people could come to the select committee and make their points and the select committee could say: “Yes it makes no sense to change that.” There is no opportunity for that to happen this time around because we do not know what those professional taxation bodies have to say about the rewrite contained in Supplementary Order Paper 136 which is important stuff because it covers all of the offshore portfolio investment legislation. 
As I say the bill that we have in front of us without the Supplementary Order Paper will simply be incorporated as we passed into law last year. But I presume that this Supplementary Order Paper does rewrite the legislation. For example if members look at the wording right at the start of that fifth regime at clause DN 6 they will see that the whole clause of the bill is rewritten and that this Committee has no idea whether all of the wording of that is free of any controversial words and structures. So I think we need the Minister to give us very clear assurances on the exact status of this Supplementary Order Paper the extent of consultation and whether there are any wordings in it where officials and taxation professionals are in disagreement. 
If they are in disagreement I do not believe that we should be completing this Committee stage. The provisions in Supplementary Order Paper 136 are too important simply to hope that it will be OK. Many many New Zealanders’ tax affairs are caught up in Supplementary Order Paper 136 and I would certainly appreciate the Minister’s assurances on that. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 I will make some general comments about the Income Tax Bill but I also want to follow along from what Lockwood Smith has just said. I think the Finance and Expenditure Committee worked reasonably diligently on these matters— 
R Doug Woolerton 
: Extremely! 
Hon PAUL SWAIN 
: Well it worked extremely diligently I hear. 
Dr the Hon Lockwood Smith 
: But we didn’t consider that. 
Hon PAUL SWAIN 
: I will come to that point. I do not know whether I hear anything better than “extremely diligently” but it certainly worked very hard on it. The point that Lockwood Smith makes is a fair one. The vast majority of big issues had been resolved but a few issues were still being debated right up to the end of the process. I think the member mentioned issues such as place of abode which was an area where there was some disagreement about whether it would be clear enough as to whether it was in the old or new style. 
I think it would be useful for the Minister in the chair Lianne Dalziel to make a quick comment about whether there was any major debate about Supplementary Order Paper 136. The Minister is nodding in order to show that yes she feels that she might be inspired shortly to rise and give a view on this matter. That would be extremely helpful coming from the Minister whom we know has a deep interest in this matter. 
Having said that I say that it is important to know that there are no outstanding issues when we consider the amendments on this Supplementary Order Paper. I assume that there are not any issues; I assume that the Rewrite Advisory Panel has had a long conversation with the industry and that all is OK. I suppose that all we need is for the Minister to say that all is OK. Her word is good enough for me because she is a conscientious and hard-working Minister as we know. 
Putting that to one side I would say that the issue of course is non-controversial. The bill is a rewrite of the Income Tax Act hopefully in modern plain language. I remember the great comment John Shewan made before a select committee once. He said that trying to explain tax law to people was like trying to explain television to a goldfish. That was probably a fair kind of analogy. 
Chris Tremain 
: What are you saying about the Minister? 
Hon PAUL SWAIN 
: What did he say about the Minister? He did not say anything particularly about the Minister except to make that comment about tax law. 
One of the issues of course is the hope that people and individual taxpayers can more easily understand their obligations. That is the hope and I hope that it comes about. However whether fewer people will now take on tax accountants and take less advice as a result of this legislation remains to be seen. The vast majority of people will probably not wade their way through the one two three four five volumes and now the Supplementary Order Paper in looking at their particular issue. But I do think that this legislation is an important piece of work. It is a huge piece of work as has been pointed out that goes right back to the 1990s and to the previous National Government which began the whole process. 
We have had a number of stages. The first stage was the reordering of the whole Act in order to get that into place. The second stage was a partial rewrite of the core provisions. The third stage in which further parts were rewritten was completed in 2004 as the previous speaker has just said. Today’s bill rewrites the remaining parts of the Act and this is the fourth and final stage. It has been an interesting process whereby an advisory panel has worked with the industry. Bearing in mind that there were no policy issues to be raised it was simply a case of rewriting if you like what was already in the Income Tax Act and transferring that into modern plain language. 
Any policy issue was left to one side and rightly so; it was not the time and place to have the policy debate. I was a bit disappointed in the Opposition spokesperson on finance Bill English who kind of wandered into that debate. I will not really respond to that. 
R Doug Woolerton 
: I thought it was shameful. 
Hon PAUL SWAIN 
: Well in fact it was shameful because we agreed that this legislation is not supposed to be controversial and we agreed that it is not about policy. 
I could easily get into asking exactly what National’s tax policy is and asking who would be worse off who would be better off and what would be cut in order to fund it. I will avoid asking those questions because this is neither the time nor the place for that kind of discussion. 
TIM GROSER (National) 
: 
 This is obviously an issue of major complexity. We have heard people with long experience and long experience of the Finance and Expenditure Committee—I did not participate in the select committee—describe the long genesis of this process going right back to National Government days. The enormous complexity of the task reminds me of a story I once read some years ago about the US tax code which makes this admittedly complex legislation look like a primer on tax policy. Every year the National Society of Accountants the body that represents US tax accountants holds a contest. It picks out a single admittedly fairly complex tax return it excises the name from the tax return it then takes out any personal information that could in any way endanger this person’s privacy and it sends the tax return off to about 300 of its members and asks them to calculate the tax. In the years that this contest has been running there has never been one occasion when the 300 different experts have ever calculated the tax burden to the exact same cent which indicates the enormous complexity of writing tax law when it comes down to this issue. 
 I regard this frankly still as a work in progress. I would be surprised if the experts in the Inland Revenue Department and in other departments who have a major policy interest are not almost literally as we speak starting to develop discussion papers and ideas for the next generation of this bill because this has always to be considered as a work in progress. I remember as a very small boy having been brought up in Perth in Scotland being much impressed with the Forth Bridge over the Firth of Forth which is one of the great monuments to the industrial age in Scotland. What struck me as a small boy was that whenever we went across the bridge on the train people were always painting it. They never stopped painting it. As soon as they got to one end they would start at the other end. So my supposition is that our tax painters are already considering the issues for the next generation of this Income Tax Bill and a future Parliament will be placed in perhaps some 8 to 10 years’ time in the position that the select committee and Parliament as a whole have been placed in today. 
So there is a need to adapt the tax system to the realities of New Zealand’s place in the international economy. That has a technical aspect to it—obviously—which is the focus of this bill and I am very pleased to see that it is being dealt with in a non-contentious way. But—I am sorry to disappoint Mr Swain once again—there is of course a much deeper policy question behind it which is the purpose to which we put tax administration. The role of tax in general economic policy and the overarching question on what Mr English correctly called the stewardship of the tax policy system will remain a very live political question at the heart of the difference between us and the Labour Party in the electoral context and that is where we have a fundamental difference of view. 
The fundamental difference of view—not to be obscured by the reasonably high degree of consensus on the administration issues and the highly technical legal issues—simply comes back to a consideration of first principles around tax policy. They are first that we live in a largely market-driven economy; the incentives drive the allocation of resources; and tax is an absolutely vital aspect of that policy setting. This determines not wholly but very significantly where resources flow where people live and whether people remain in New Zealand or seek their fortunes outside of it. It is all a matter of looking at it in terms of the emerging international economy and the place that New Zealand has. The changing place of New Zealand in the global economy will always require us to come back to tax administration legal issues such as the place of abode. After all it is becoming increasingly redundant to look at the future both in this country and in many other countries of a person as necessarily wholly resident in one country for income-earning purposes and I do not think there is a clear view about where we need to go in this country on that matter. But one thing is absolutely certain: we will have to revisit this question to maintain our position in the international economy. 
But the broader question that is at difference is of course the use of tax policy for general economic purposes and here we have one of the most fundamental difficulties between us and the Labour Party. It has been a difficulty now going back over many years basically for the reasons Mr English put forward—that is the Labour Party’s view that they have a better idea of how to allocate people’s resources than they do so it wants to build up the kitty to build up the policy structures and to direct resources rather than risk trusting New Zealanders to do it for themselves. Right at the start of this phase in the electoral cycle—in 2005 when this Government entered its third term—Treasury advised the Government in unmistakable terms what one of the key issues was that faced it. It said: “…high marginal tax rates on personal and company income are more likely to have a negative impact on growth … by inhibiting the decisions that drive investment and enabling people to make the most of their economic opportunities.” This is hardly complex; it goes right to heart of the incentive-driven nature of our economy. 
So the Labour Party inherited this having created some political fantasy that economic growth started the day it got elected late in 1999 and basically it has not addressed that issue. The fundamental thing for us to consider is of course the competitive nature of tax in the global economy. In the case of Australia there have been I think 13 significant tax cuts since the late 1970s. 
Darren Hughes 
: And what’s their highest rate? 
TIM GROSER 
: I will tell the member what the highest rate is. The highest rate is 45 percent which is higher than 39 percent. But is the member not aware where that cuts in? It cuts in at the equivalent of NZ$180000. Only 2 percent of Australian taxpayers are caught by this largely mythical higher rate. The more important reality is that vast numbers of Australians are sitting in a tax bracket that gives them a 30 percent rate up to the equivalent depending on the exchange rate one chooses of approximately NZ$90000. So Labour members rest their whole case on this largely mythical tax rate in Australia which cuts in at the equivalent of NZ$180000. Two percent of Australian taxpayers—I have seen calculations that would suggest that it is less than 1 percent if people shifted across the Tasman from New Zealand given incomes here—are missing the meat in the middle of the hamburger. The meat in the middle of the hamburger is that if one earns up to NZ$90000 one pays 30 percent in Australia at the marginal tax rate. That is the real tax rate that those opposite should be focusing on. 
The fundamental reason why they have chosen not to do this is that they have failed to address the issue of bracket creep. They know the data. In the last 5 or 6 years there has been roughly a 50 percent increase in the number of taxpayers moving into that crucial $38000 to $60000 bracket. So people earning below $38000 pay 19c in the dollar which is a reasonable tax rate but as soon as they go above that they pay 33c in the dollar. There has been a massive increase under this Government. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I would like to say that I was standing to respond to my colleague the Hon Paul Swain but I am not; I am actually standing to respond to the questions that were posed by Dr the Hon Lockwood Smith. The reason I prefer the question he asked is that I actually wanted to congratulate him on highlighting the only provisions on Supplementary Order Paper 136 that were the subject of a substantive rewrite and they are exactly as the honourable member has stated. They relate to the fair dividend rate in clauses CQ5 and DN6 and subpart EX. So I think that congratulations are in order on his identifying that these were a substantive rewrite. 
I am advised by officials that the New Zealand Law Society the Institute of Chartered Accountants of New Zealand and the Rewrite Advisory Panel were all invited to comment on these rewritten provisions. So that will provide the level of assurance the member is looking for. They had no significant concerns over any aspect of those substantive rewrite provisions. The rest of the provisions in the Supplementary Order Paper involve necessary consequential drafting changes renumbering insertions—for example for KiwiSaver—or drafting corrections. 
It is a substantial Supplementary Order Paper but in essence most of its provisions are not substantive. The ones that are substantive relate to the rewrite of the fair dividend rate. They have been through a very good process in terms of ensuring that those key experts who assisted the select committee in its very detailed analysis of the bill were able to contribute to the process. I trust that will satisfy the Committee. 
CHARLES CHAUVEL (Labour) 
: 
 I shall take just a brief call to comment on the speech made by Tim Groser. It was actually very sad in my view to hear yet another advocate for the strategic deficit that members opposite like to create by starving the Government of spending assets and then taking the view that it is best to deprive the Government of revenue; to criticise the tax take; to subscribe to the Garfield Barwick doctrine that every taxpayer has a duty to minimise his or her exposure to tax; and to pretend that revenue gathering for good purposes is somehow a bad thing. 
I would remind the Committee of some of the things that can be done with the revenue that is being collected from the tax system which will be able to be collected on a more efficient basis from now on once this legislation is passed. We have the research and development tax credit for businesses at 15 percent which was introduced by the Budget. That was not something that members opposite were prepared to do when they were on the Treasury benches. 
Let us look at some other things that are able to be done with this revenue. Creative New Zealand has received funding of $15.5 million this year. In 1999 when this Government took office Creative New Zealand had received $2.4 million. So this year’s funding for the creative sector is seven times that amount. That is quality spending thanks to the revenue able to be collected through the tax system. 
Let us look at another example. The annual average investment on the electricity transmission grid in 1999 was $80 million. Now it is $500 million. So we have more quality spending through the revenue gathered from the tax system. Let us not pretend that that is not a good thing to do for a country in need of infrastructural investment like ours. 
The spending in 1999 on low and middle income families—the same families that now benefit from Working for Families—was zero. Today 350000 low and middle income families benefit from spending on Working for Families. 
There are further examples. Annual funding for land transport in 1999 was $1 billion. It is now $2.2 billion. Funding for land transport including ONTRACK in 1999 was $880 million. Now it is $1783 million. There has been a 750 percent increase in spending on public transport over the period that this Government has been in office. Those are marvellous achievements. 
I could go on—industry trainees numbered 63000 in June 2000 and there were 123202 as of June 2006. There were no apprentices in training when this Government came into office but we had 9466 Modern Apprenticeships in December 2006. So let us not pretend that revenue gathering is a bad thing when it is used efficiently in the manner that this Government patently does. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to the Income Tax Bill and to respond particularly to some comments made by Mr Paul Swain in regard to the Minister in the chair at the time the Hon. Lianne Dalziel. It is interesting to see there has been a change of Minister since that time and it would be good to have the present Minister in the chair the Hon Judith Tizard take a couple of calls on the Income Tax Bill. Mr Swain referred to the Hon Lianne Dalziel as having a deep understanding of the Income Tax Act and I suggest that probably the present Minister has a good understanding as well. But perhaps the comments Mr Swain made about Minister Dalziel in terms of referring to her as a goldfish in respect of how she used to turn on the television set should not be applied to the present Minister. 
For the benefit of listeners out there who are engrossed in the Committee stage of this bill I want to focus on what it has all been about. It has been about the rewriting or reorganisation of the Income Tax Act 1976. As Dr Cullen said earlier it has been a historic process which was commenced by Wyatt Creech many years ago. It has had the hand of many Ministers over that time as has been alluded to today. Tony Ryall has had his hand in there; David Carter has had his hand in there; Minister Cullen himself has had his hand in there. There has been a real mix in regard to bringing this legislation together. 
I remind members that the initial stage was the reorganisation of the Income Tax Act 1976 and that reorganisation was enacted by means of the Income Tax Act 1994. Stage two a dynamic process was the rewrite of the core provisions of the Act and that was completed in 1996. Stage three was a rewrite of Parts C to E and was completed in 2004. But stage four is the one we are debating now in the Committee stage. 
This is the ultimate stage of the Income Tax Bill. It rewrites Parts F to Z. I would like the Minister in the chair to give us an explanation of Parts F to Z. I remind her that Part F deals with the taxation treatment of certain transactions and arrangements. I would like her to address Part G in particular which deals with avoidance issues because the Minister of Finance the “Treasurer” has avoided any sort of discussion around tax—around the philosophical reduction of tax over the last 8 years. That Minister has set about increasing the tax take of this country significantly. Some $20 billion in additional tax has been collected over that period—$20 billion. 
That Minister has also introduced a 39 percent tax rate; that was done in 1999. He promised the citizens of this country that only 5 percent of them would end up in that tax bracket—just 5 percent. But at Budget time this year Treasury papers released on Budget day showed that nearly 14 percent of Kiwis were now in that top tax bracket. So the more worrying point is the tax bracket creep that we have seen. Hard-working Kiwis in this country—workers on the wharf in Napier doctors nurses—have moved through different tax categories. I know that some members on the other side of the Chamber have a strong union background and would be concerned about their members particularly those at the Port of Napier. It would be interesting— 
Moana Mackey 
: Look at the huge pay increase we gave them. We gave nurses a huge pay increase. 
CHRIS TREMAIN 
: Pay increase? People are paying a lot more tax than they did before. The average Kiwi out there is paying $2400 more tax than he or she was back in 1999—$2400 for the average tax earner is significantly more. 
We have seen tax bracket creep over this time. We have seen Kiwis move from paying 19.5 percent to 33 percent and then go from 33 percent into the 39 percent tax rate. But the Minister said not to worry and that the Government would give people a tax break in 2008. It was called the “chewing gum tax break” if members can remember. But did we get that tax break? 
Hon Member 
: Never. 
CHRIS TREMAIN 
: Never! It became fiscally impossible for the Minister to give that. He thought he knew best how to spend the tax he got from people’s income but he could not deliver on his “chewing gum tax break”. 
SHANE JONES (Labour) 
: 
Tenatatou katoa Madam Chairperson. This Income Tax Bill as I said last week in the second reading should not be commented upon until we acknowledge the work of the officials and I am sure I speak for all members of the Finance and Expenditure Committee in singling out Therese Turner and the redoubtable Sir Ivor Richardson who we were told was in a class of his own. 
Unfortunately New Zealand Aotearoa and the House have just suffered the tedium of Tim Groser’s speech. I thought we might have encountered some sweet aroma some high sensation but despite his youthful flight of fancy and experimentation none of it was present in his speech. In fact he reminded us of why the committee functions really well—given that he is not on the committee. 
We have heard a great deal from members opposite as to what is wrong with this bill. This bill is a monstrous improvement: the text is clearer the content is far more accessible and as we have said there are some areas where transitional work is being undertaken. But at a deep fundamental level it is providing a pretext for our friends from the Opposition to put out gingerly a few ideas. 
Idea No. 1 that Opposition members have put out is that there will be tax cuts and that service deterioration will follow. They are using this debate this afternoon to test whether they have the courage or the vigour to tease that idea through. Idea No. 2 is that the State has grown too big and now they are toying with which areas of the State they will excise or lop off. This bill revises historically the work that officials have done and it goes back to Wyatt Creech’s efforts etc. but we should not allow the bill to be subverted so that members of the Opposition can talk about things they are unwilling to talk to the media about on a day-to-day basis in tax policy. 
Our tax policy—partially reflected in this bill—is available on every street corner in every church hall in all four corners of this Chamber and on every marae. We want a blend of policy that enables the core functions of the State especially in those key social areas to continue to deliver high-quality services. So we are not interested in buying into a bidding war where people may be tricked into thinking they will be better off by gaining small improvements in their tax situation only to learn that doctors schoolteachers nurses and a host of other essential contributors to the economy will be hobbled. Of course our friends from the Opposition fear that quality of debate; we look forward to it. 
Mr Tremain will no doubt have his passable speech blighted by a repetition from Mr Foss. They are great ones for commenting on how their ideas will be a great improvement on those of their elders. 
I have a great deal of respect for my fellow Northlander Dr Smith. 
Darren Hughes 
: What? 
SHANE JONES 
: I am not talking about Nick Smith; this is not medicinal legislation. Dr Lockwood Smith is a fellow Northlander. All committees need a good deputy chair and from time to time this chair is known to be absent—very infrequently though I might add but there are certain athletic duties that call from time to time—and the deputy chair has provided some good historical context. I am sure that all members of the Finance and Expenditure Committee agree that this was a successful and overdue effort etc. but where we do not agree is the direction of tax policy. 
Labour will not abandon key groups including the schoolteachers health professionals those who contribute to art and enrich the identity of the country and those who see a future for our infrastructure being funded through public resources. We will not turn our backs on them. But neither will we exaggerate—like the Opposition is doing—how better off people might be through having indiscriminate tax cuts. We are looking forward to a great tax policy coming forward in contrast to the vacuity we have had from members on the other side of the Chamber. Kia ora tatou. 
CRAIG FOSS (National—Tukituki) 
: 
 It is always a pleasure to help to wake up listeners to the radio after the previous speaker. He will be interested to know that I have found some very interesting facts about what goes on up north from another gentleman at a function I was at on Friday night. I look forward to discussing those with him and seeing whether those allegations are true. 
The previous speaker talked about National policy around tax affairs etc. I will ask that member some very very simple questions. What will be in the Government’s 2008 Budget? Why does the Government not release it today? Why does it not tell us and provide some certainty now for electors? Why does it not release it now? What will be in its mini-Budget after the regular Budget in 2008? Why will the Government not release that policy now? What is it doing with tax cuts now? In question time today Minister Maharey seemed to take them right off the agenda. I do not know whether Dr Cullen had actually read that part of his answer because he has been speculating wildly about tax cuts lately. I guess we can contrast that with what Mr Mallard said recently when he put Mr Goff into it. So we really do not know what the policy is in and around things to do with taxation over on the Government side of the Chamber at the moment. The moment the Government tries to get National to bring in its time frame and framework early I will ask the member to start releasing what is going to be in the 2008 Budget. 
I have been part of the Finance and Expenditure Committee. It has been a pleasure working with officials around this bill which has been 10 years or more in formulation. Along with previous speakers I give particular thanks acknowledgment and a bell to Sir Ivor Richardson for the mana he brought to our committee. We all admired his steady hand and would it not be good if we had many more like him in our Chamber today? 
As previous speakers Mr Bill English and Dr Lockwood Smith have noted the Income Tax Bill which has about 3000 pages and I think another 250-odd pages in the Supplementary Order Paper sets the framework for all things in and around income tax. I will put some numbers to that. Another previous speaker Mr Chauvel started lurching back to the previous millennium with various statistics but I think it is more relevant to talk about today and I enjoy talking about today and about ambitions for tomorrow. 
This Income Tax Bill provides the framework for over $52 billion of tax revenue per annum—$52 million. Those 3500-odd pages deal with $52 billion per annum. Fair enough; perhaps that is why the Government took 10 years to get to this point although I did note in my previous speech that it is quite amusing to read in the commentary that some issues were not addressed because of time constraints. But going back to that $52 billion and to the 10 to 12 years the bill has been in formulation I note that that figure is actually $20 billion more per annum than at the time this Government took office in 1999—$20 billion more. 
For the layman I guess that those figures are still crazy numbers with heaps of zeros behind them but I ask listeners out there and people paying attention to Parliament today to note particularly that $1 billion per week will be taken out in tax revenue in the current financial year—that is $1 billion per week. Of those $52 billion $1 billion is due purely to fiscal drag due purely to the inflation that has been seeded and bred by the unproductive spending of the current Government. Yes there was the promise of a tax break an indexation of thresholds to try to deal with that but they were put on the table and were then snatched away. The message taken by the public was that this current Government cannot be trusted one iota in all matters of taxation. We have seen time and time again that the public should ignore totally anything and everything that this current Government is talking about on the potential for tax cuts. 
I acknowledge the New Zealand Institute of Chartered Accountants and the New Zealand Law Society for their submissions to the bill. Yes the legislation is very complex and previous speakers—and the Minister indeed—have noted that. It is a bill in progress and different reasons have been given for that but I admire those two professional bodies because the more complex and the more archaic the taxation law is the more opportunity they have in their professional lives to charge their various clients to interpret the current law. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I would just like to pick up from the comments my good colleague Craig Foss made when he mentioned that this framework legislation now collects for New Zealand $52 billion a year in total tax which is a $20 billion increase under this Labour Government. I note today there was a publication by Dr Alex Robson of the Australian National University. It was a study quite a comprehensive study into the cost of collecting that tax—the dead weight cost. This independent—he is from the Australian National University so I guess he has nothing to do with New Zealand—economist’s paper today has suggested on his analysis that the deadweight losses from all taxes collected in 2005-06 here in New Zealand amounted to between $10 billion and $13 billion. So when I hear that new list member Charles Chauvel or whatever his name is talking about how wonderful the Government is spending money on this that and its other pet project I think he should never forget that the Government actually has to achieve extraordinary efficiency in spending taxpayers’ dollars to overcome that massive deadweight cost. If this economist from the Australian National University is correct the deadweight cost of collecting that $50 billion in 2005-06 was $10 billion to $13 billion. So these tax matters are serious matters. 
I would like the Minister in the chair the Hon Judith Tizard to explain a couple of things about Supplementary Order Paper 136 because I do not think the members of the Committee had seen it until this afternoon. There are a number of issues in it that the Finance and Expenditure Committee has had no chance to address. I would like the Minister in the chair to explain to us the reasons for the change from tax year to accounting year in a number of the clauses in the bill. I would like her to explain that because whereas much of the Supplementary Order Paper has to do with the rewriting of the foreign investment fund legislation the portfolio investment legislation the incorporation of the portfolio investment entity legislation from last year and the original KiwiSaver legislation some of the provisions in this Supplementary Order Paper do not appear—and I stress “appear”. 
The Minister may be able to tell me that yes they are part of those newly rewritten bits that were not part of the bill the select committee considered but I would appreciate her explaining for example why under clause CW 58(2) we are omitting “tax year” and substituting “income year in which the amount is derived”. I hope the Minister in the chair can help us with that because I think most members who are familiar with taxation matters will know there is a big difference between tax year and accounting year. We want assurance that that is not making any change to our current legislation. I ask members to remember that this rewrite is not meant to be changing anything. So I would appreciate the Minister in the chair the Hon Judith Tizard—I think she is the Minister with responsibility for Auckland Issues and Associate Minister for Arts Culture and Heritage—to explain to us why that change is being made. 
The other thing I would like her to explain is why if we go back to volume 1 of the bill and look at the commentary from the select committee we see that the select committee after it had examined these 3000 pages had this to say about Part M—Part M includes the Government’s flagship Working for Families policy—“However given the complexity of the policy underlying the Working for Families Tax Credits and the difficulty of rewriting Part M in the rewrite style we believe that any review of Part M to address these concerns should be undertaken separately.” I would like the Hon Judith Tizard to explain to us a whole lot of provisions on Supplementary Order Paper 136 relating to Part M. I think they start on page 99 of the Supplementary Order Paper for the Minister’s assistance. I ask the Minister to please explain to us the provisions on Supplementary Order Paper 136 relating to Part M which concern the Working for Families scheme. 
For example if we look at clause MA 1 we see that the part now has new wording there. It states: “This Part identifies the tax credits to which a person is entitled under—(a) the family scheme for a tax year:”—that is the Working for Families stuff but this next provision is new; this was not in the old bill—“(b) the superannuation savings scheme for a year beginning on 1 July and ending on 30 June.” But that is not in the bill in front of us so if that is not introducing change I would appreciate the Minister in the chair explaining to us exactly what it is doing. It is not clear. If we just read Supplementary Order Paper 136 on its own it is not clear whether this is a complete rewrite of Part M which the select committee had concluded was too complex to consider doing at this stage. That was the last word from the select committee back to the Committee—I quoted from the select committee’s report to the Committee. If anyone doubts me it is on page 7 of the commentary on the bill in volume 1. If that is what the select committee said the Minister in the chair should explain to us what these changes to Part M starting on page 99 of Supplementary Order Paper 136 are. There are a number of changes there. I would appreciate her advice on whether that represents the rewrite that the select committee was led to believe was too complex and could not be done. If it does not; what is it? 
What does that change to clause MA 1 mean? This Working for Families stuff is hugely important. I would like the Minister in the chair to explain to us whether she is comfortable with the fact that a family with say three dependent children earning between $40000 and $100000 a year which captures most of middle New Zealand—and I would like the Minister to listen to this—will on the next dollar that that family earns have their marginal tax rate range between 55 percent and 61 percent. That is the marginal tax rate over that entire income range. Under this Government’s wonderful Working for Families policy—covered by Part M in this bill—if families have an income range of $40000 through to $100000 a year the marginal tax rate on the next dollar that any family with three children in that income range earns will be between about 55 percent and 61 percent depending on the particular income within that range. 
If the Minister is not moved by that maybe she cares a little more about somebody trying to work his or her way off a domestic purposes benefit. If that person—who is often a woman—is earning $10000 and is still getting a lot of domestic purposes benefit but is trying to get off it then he or she has to earn about $25000 a year to do so. At $15 an hour that is an extra 20 hours of work a week. Is the Minister in the chair the Minister with responsibility for Auckland Issues comfortable that her Government takes in tax 90 percent of every dollar that person earns between the amount he or she earns working 10 hours a week at $15 an hour and the amount earned when he or she works an extra 20 hours a week to get from 10 hours work a week to 30 hours work a week? Is she comfortable that the Government takes 90 percent of all of that income and leaves that person with just 10 percent of it? That is the effect of a marginal tax rate. In other words if someone is earning $15 an hour and trying to work his or her way off the domestic purposes benefit he or she gets to take home about $1.60 of it. I would like the Minister in the chair to tell us that she thinks that is a great policy—a great policy to trap those people in poverty. 
You know one of the mothers that John Key met at McGeehan Close came up to me the other day and said: “Lockwood you are dead right on this. I am trying to work my way off the domestic purposes benefit and I am trapped. The more I try to earn my way off this benefit the more the Government takes and I get nothing.” Someone earning $15 an hour—[ 
Interruption 
]; those are the facts—gets to keep over that entire 20 hours’ extra work a week about $1.60 an hour of it and Labour thinks that that is helping low-income people! It is a disgrace. It is a poverty trap and I would like the Minister in the chair the Minister with responsibility for Auckland issues to tell us that she thinks that it is great. 
In particular I would like the Minister to explain those key issues with this Supplementary Order Paper. What does it mean to go from tax year to accounting year in so many clauses of this bill? Are the provisions relating to Part M—that is the family tax credit part on page 99 of the Supplementary Order Paper—a complete rewrite of Part M? If they are not what are they? Are they just incorporating the portfolio investment entity legislation whereby if someone invests their income in the KiwiSaver scheme through a portfolio investment entity it is not meant to affect their family tax credits because Labour would not want that person taxed at those marginal rates I spoke of. Imagine a family whose marginal tax rate is 60 percent on $50000 or $60000 a year which is the way that every family on Working for Families is. If through investing in the Government’s KiwiSaver scheme that family lost 60 cents in the dollar in tax on all of that savings income they would not be too happy. Maybe these rewrite provisions on page 99 relate to that but I think the Committee has a right to know from the Minister in the chair. 
SHANE JONES (Labour) 
: 
 The contributions to this debate from the other side of the Chamber are deteriorating with each contributor. We have heard from the first of the twins from the Hawke’s Bay Mr Tremain. In other parts of Aotearoa when we see characters who are somewhat similar being difficult to distinguish in terms of rhetoric if not physical appearance they are called peas in a pod. But up there in the Hawke’s Bay the Heretaunga region their contributions—and they do surface from time to time in the select committee—are seeds in a core. But the core of their debate is rotten. The core of their debate has nothing to offer and nothing about it resonates with what New Zealanders expect us to provide through the framework of this bill. 
New Zealanders expect the provision of ongoing affordable safe and secure services which will not come to pass if contributors from the other side of the Chamber have their way. They do not necessarily want to rewrite the text of the legislation that we have before us because it is a lot more lucid than it was previously. Indeed it is a lot warmer now given the content that we have invested into the bill as a result of the regime we have had in place over the last 8 or 9 years. But at a deeper level the Opposition members do not want a system and they do not want a quality of Government that continues to allocate public resources to key essential areas. 
For every problem that the Opposition members identify and try to get New Zealanders to buy into they have no remedy and no solution. Our solutions are very clear. We support work. We support families and families that are in work are entitled to assistance. We are going to give that assistance in a targeted fashion and we are giving it at the moment. They seek to strip that away hidden between the pillars of two false arguments. The first is that people are afraid to go out and work. People definitely want to work which is why the unemployment rate in the area that Dr Lockwood Smith and I come from has just enjoyed a massive drop. 
Members on the other side of the Chamber need to have more confidence in the citizens of our country and should stop leading them astray with promises that they can give richer New Zealanders inordinate tax cuts without the poorer New Zealanders suffering. It just will not work like that. It never has and it never ever will. What will come to pass is that the failings of the Opposition members will become evident as their rhetoric is tested. As we move towards the election next year unfortunately for them taxation policies of an improved nature will come to pass. Kia ora tatou katoa. 
CHRIS TREMAIN (National—Napier) 
: 
 I want to take up from where the previous speaker left off. When he started his speech he was talking about one of the two members from Hawke’s Bay—the respectable and hard-working member from Tukituki Craig Foss. He is the electorate member I would add in that regard. Mr Foss in his speech talked largely about the Income Tax Act and the structure and the framework within which the tax system works within New Zealand. He talked about that structure collecting some $52 billion within the New Zealand economy. Much of that tax take—probably a disproportionate amount of that money I would say—comes from the Hawke’s Bay and much of it is due to the apple industry. I am pleased to be able to say that that industry pays its fair share of tax under the auspices of the Income Tax Act. I am also proud to say that that industry is on the precipice of being able to pay larger tax through higher profits from the actions that Mr Foss and myself began 2 years ago when we helped to lead the Apple Access Group protest to Parliament to shake the shackles from this Government for prompt action and to get it to take finally an action against the World Trade Organization. 
Finally there has been a result and finally there is an opportunity for our apple growers from Hawke’s Bay to take their produce across the Tasman. There is potentially an extra $15 million in revenue across the Tasman. There has been a huge contribution and I think it is excellent. Businesses in the Hawke’s Bay like the pack-houses Apollo Pac Ltd and Crasborne Group Ltd under the auspices of the income tax legislation are now on the precipice of being able to take on that Australian market to pay more taxes. But the point I want to make is that exports such as from those fine apple producers make up only 29 percent of the GDP in this economy now. It is one of the smallest percentages of GDP in the OECD in terms of exports so there is no doubt that we have to increase those exports. In fact in this country we have only 125 companies that export $25 million or more in product. 
Two fine companies in my own electorate are Vectek Electronics Ltd and Future Products Group Ltd. They are doing an amazing job in that regard despite the difficulties they have within the current tax regime. The Future Products Group is doing an amazing job. Can I tell members that story. This company started from two people and now has a contract on the west coast of the United States of America to put in 500 McDonald’s McCafé franchises. That is an amazing success story. 
But these companies in growing to the export market face some significant difficulties. Obviously we have a small domestic market and our geographical isolation is difficult. It is imperative that we have a best-practice benchmark economy. The way we charge income tax is critical to these organisations. I thank the officials for the hard work they have done on the rewrite of the income tax legislation and Therese Turner and Sir Ivor Richardson have done a fantastic job on the review of it. But philosophically these companies are still paying too much tax and individuals in this country are paying way too much tax. They are not in a great position to try to provide a benchmark economy. 
We have seen recently an income tax drop from 33 percent to 30 percent. That is a good thing. But in saying that I point out that partnerships and sole traders missed out on that opportunity and they are the biggest contributors in terms of numbers of business organisations in this country. They did not get the tax break but they got the sting in the tail of an employer contribution to KiwiSaver which they will now have to pick up over the next 4 or 5 years as well as having no tax deduction. 
In summary I say that we need a best-practice benchmark economy. In terms of the rewrite of the tax legislation this bill has tried to make the legislation clearer more concise and more easy for tax practitioners to understand and I think it has done that. In that regard the National Party supports the tax rewrite. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 On this side of the Chamber we have all been resisting having a debate on the wider taxation policy because that is not what this bill is about. The bill is about a rewrite of the Income Tax Act in such a way as to make it simpler for people to understand. That is a good thing. We have heard very little about the fact that that was begun under a previous National administration. It was a good thing to have started and it is to be finished now under a Labour-led administration. But now that the debate has opened up a bit it is reasonable for us to engage in that. 
The first thing we learnt from Chris Tremain who is a member of the Finance and Expenditure Committee—quite a humble member—is that after 85 years of problems with regard to exporting apples from New Zealand to Australia suddenly the problems have been solved by one demonstration and by him personally together with the member for Tukituki. Humility is important but obviously it is not known in the Hawke’s Bay. But let us say it is important that the World Trade Organization situation has been taken up. 
The member also went on to talk about how exporters need more support via the taxation law and of course the strange thing we ask then is why he and the member for Tukituki decided to vote against the really important research and development changes that would have helped export industries. The Government introduced research and development changes after many— 
Chris Tremain 
: Three reasons. 
Hon PAUL SWAIN 
: Oh three reasons. 
Darren Hughes 
: The reason was that he wanted to flatten the tax rate. 
Hon PAUL SWAIN 
: That is right yes. He wanted to flatten the tax rate. But you see the problem here is one of being able to decide the things that one supports and the things that one does not. We would have thought that given— 
Chris Tremain 
: It is all about exports not research and development. 
Hon PAUL SWAIN 
: No research and development does help exporters as I remember the situation—but I might be wrong; I might be naive—but the point is that many industries have been— 
Chris Tremain 
: What about tax breaks? 
Hon PAUL SWAIN 
: Well people have been calling for research and development support and for a better regime and after a long period of time and a lot of consideration because there are major complicated issues there the Government did make some changes which are designed to support our export industries—and the member voted against them. 
Of course the other issue was that the Government decided to reduce the tax rate that impacts on export industries from 33 percent to 30 percent. I would have thought that the member for Napier and the member for Tukituki would support that given the speeches I hear about the importance of our export industries— 
Darren Hughes 
: They are identical speeches! 
Hon PAUL SWAIN 
: Yes they make those identical speeches which they tend to pass back and forward between each other. I would have thought that they would vote for that move but no they voted against it. 
So the problem that people will have in those members’ electorates is that although they may not agree with everything that this very good Labour-led Government has done when there are a couple of specific initiatives that do help exporters I think people there will ask why those members did not support them. People do not understand all the hoo-ha about caucus rules and things like that. What they see is a couple of good initiatives that could help people and they will wonder why the local members did not support them—something that I am sure our people will be pointing out when it gets closer to the election. 
Darren Hughes 
: They will be too busy solving the trade issues for— 
Hon PAUL SWAIN 
: Yes they were probably focusing so much on solving the apple thing which has been going on now for 85 years— 
Darren Hughes 
: They are so clever those lads! 
Hon PAUL SWAIN 
: But it was solved very very quickly—with all humility—by those two members over there. 
If we are to widen the debate out into the taxation policy issue which I now hear members over there wanting to do even though this bill has nothing to do with that certain questions must of course be asked. The first one is who would win under National’s taxation policy and who would lose. We are hearing that no one would lose under National’s taxation policy— 
Craig Foss 
: Everyone is a winner! 
Hon PAUL SWAIN 
: Well given that we have not even seen it yet everyone is a winner. 
Craig Foss 
: You cannot wait to hear it! 
Hon PAUL SWAIN 
: I hear members over there saying that everyone will be a winner under National. I heard Craig Foss say that everyone will be a winner. I do not think National’s leader was quite as specific as Craig Foss about that and that will be interesting later on. 
CRAIG FOSS (National—Tukituki) 
: 
 It is a pleasure to follow the previous speaker but I just need to make one thing clear: I and Mr Tremain did in fact lead two protests around the issue of apple access. In May 2005 I was dressed as Trevor Chappell bowling underarm throughout Wellington at the front of the march and Mr Tremain was dressed as Brian McKechnie. We bowled and hit all sorts of apples all over Wellington while leading the march. I still recall the look of horror on the faces of the two MPs who were later kicked out of Hawke’s Bay electorates but who are still with the Labour side as we unmasked ourselves as leading the march. Funnily enough 2 or 3 months later they were kicked out because although we were supporting our province and what is very important to our region they had long since abandoned it. 
An earlier speaker Dr Lockwood Smith made a very very interesting point when he was talking about Supplementary Order Paper 136 in the name of the Hon Peter Dunne. He asked the Minister to clarify a few points and I think the intent of what we are doing here is worthy of reiterating. Yes we are having a broad debate about various taxation policies etc. but the commentary on the bill needs to be read again: “The Government agreed to promote a remedial amendment to the Act to correct any provision that was found to produce a different result from that which would have been produced under the Income Tax Act 1994 provided that no policy change was intended.” Basically the committee said: “We strongly urge that such a process is adopted for the bill.” 
The National Party is voting for this bill but there is a huge question mark over that Supplementary Order Paper and Dr the Hon Lockwood Smith spent a lot of his speech asking various questions of the Minister. Yes they were somewhat technical but we have officials who are able to assist there hopefully. I think it is very very important—in fact essential—as we progress and go to a vote later on that those questions are clarified and clarified pretty soon. 
I recall going through the bit on page 5 of the commentary at the Finance and Expenditure Committee. In the first write of the bill the word “charities” was taken out and replaced with the term “public benefit gift”. I think we were in general agreement that that was somewhat politically correct and I guess it is a credit to the committee officials etc. that we put back the words “charitable or other public benefit gifts” because we all understand what “charitable” means. Members across the parties were in agreement there. I still cannot quite define what that other term means. 
Interestingly I recall that around the time when we were looking at that issue at the select committee National actually announced its policy on removing the cap on charitable giving. Subsequently because that was such a good policy about 2 months later in the Budget Labour took it on almost verbatim word for word. So to the previous speakers who have again called for us to announce our policy outside our own time frame I say that they should keep hoping. It is interesting to see the anticipation from various retiring members from the Government side of the Chamber and the interest that they have in our taxation policy because I guess it will affect them personally as they wonder what to do with their quite substantial parliamentary pensions and how to manage their assets. 
The previous speaker was talking about the research and development changes etc. and about the various so-called incentives that have been provided. We are actually on a slippery slope here back to Muldoonism I think. Many submitters to the Finance and Expenditure Committee now spend thousands and thousands of dollars on lawyers and accountants because they are submitting and pleading and telling us why they deserve the latest tax credit and why they should have the latest tax bribe or in fact why one should be invented for them. They almost spend more time on trying to minimise their taxation affairs than they do on actually getting on and adding value to the economy. That is “Productivity 101”. I would like to remind the House of an absolute law in many fields which we can apply to tax here. It is a law that I think has been long forgotten in the Beehive: the attraction of tax incentives is totally and positively correlated with the level and the complexity of taxation. It is pretty simple; it goes without saying. 
The Reserve Bank Treasury and all sorts of submitters have told us how complex the legislation has to be now in order to accommodate the various personal tax rates the new change to the company tax all the things in and around the fair dividend rate and portfolio investment entity regimes and the KiwiSaver regime which started on 1 July and then goes privately on 1 October. Some submitters have gone as far as saying it is an administrative train crash that is about to happen but I guess we will wait and see whether that occurs. 
CHARLES CHAUVEL (Labour) 
: 
 It is interesting listening to the debate as it is unfolding and particularly listening to members opposite talk about the headline corporate tax rate because if one looks at the last 25 years when both parties have led Governments for about equal amounts of time I think—probably 14 years for Labour and 11 years for National—one sees who has the better record on the headline tax rate. In 1982 that tax rate was 48c; in 1988 under a Labour Government it was cut from 48c to 33c; between 1990 and 1999 the tax rate remained the same at 33 percent—no change under a National-led Government—and then in 2007 we see a reduction to 30 percent under a Labour-led Government. So what we really need to do is just look at the facts— 
Hon Tau Henare 
: That was some time ago! 
CHARLES CHAUVEL 
: Well it may be terribly inconvenient for members opposite to be reminded of the facts and figures but none the less that is what they are. If one looks at who is trying to put in place a friendlier regime for business as far as the tax rates are concerned one sees that it is clearly Labour. Stack that up with the research and development tax credit and the tax breaks that come in with the introduction of KiwiSaver and we actually have a very equitable package as far as business taxation is concerned. If we combine that with the red-tape cuts that the Minister of Commerce has been working on we can see why New Zealand rates so well internationally as far as its environment for doing business is concerned. 
Dr the Hon Lockwood Smith 
: That’s why Kiwis are leaving in droves. 
CHARLES CHAUVEL 
: Dr Smith talks about Kiwis leaving in droves. If he were a more patriotic New Zealander he would stop talking this country down and stop encouraging that trend. In fact the statistics demonstrate just how well this country is doing. I wish Dr Smith would talk about some of the good news that Kiwis are entitled to hear about economic performance under this Government rather than trying to constantly talk this country down and commit economic treason by encouraging people to leave these shores. 
Let us have a look at some of those facts. For New Zealanders in work seasonally adjusted the figures speak for themselves— 
Dr the Hon Lockwood Smith 
: I raise a point of order Mr Chairperson. I realise that what the member is saying is so boring that you probably were not listening but I do not think that accusing a member of this Committee of treason is acceptable. 
The CHAIRPERSON (H V Ross Robertson) 
: I am sorry I did not hear that. If the member did accuse anyone of treason the member must withdraw and apologise. It is not acceptable parliamentary language. 
CHARLES CHAUVEL 
: I withdraw and apologise. As I was saying the facts as to economic performance speak for themselves. I heard members opposite speaking earlier about high interest rates. Let us look again at a comparison of the interest rate for the average variable first mortgage. Between 1991 and 1999 the rate was 9.68 percent. Between January 2000 and June 2007 the rate was 8.33 percent. The employment figures are also similarly good news. The figure for the number of New Zealanders in work seasonally adjusted in March 1999 was 1741000. In March 2007 that number was 2143000. I just want to make sure that the Committee is reminded of those statistics given that the debate has clearly become quite wide ranging on economic performance. When the facts are actually addressed it is seen that the members opposite do not have a lot to crow about. 
I was also interested to hear the claim that no one would lose under a National Government’s tax policies. It is interesting is it not to consider that claim. Of course the policy of members opposite has been to scrap a large part of the Working for Families package in favour of tax cuts leaving Kiwi families with less money in their pockets and putting that money into the bank accounts of wealthy New Zealanders. Middle to higher income earners are supposedly—according to Mr Key—those eligible for assistance under the Working for Families programme. Under National’s policy settings these people would get the money in a tax cut instead. I was interested to see Mr Key admit in 2005 in the  
New Zealand Herald  
on 14 April that his tax cuts would not actually help as many Kiwi families as the Working for Families package. He said that the number of families paid under a National-led Government will be lower. In other words the reach would be smaller and eventually National would have to look at redesigning the whole families package. 
This legislation is a non-controversial technical rewrite of the Income Tax Act. There are no policy changes in it so it is interesting that the debate has ranged so widely. I think the modern plain language rewrite of the legislation is a desirable thing and I commend it to the Committee. 
The CHAIRPERSON (H V Ross Robertson) 
: Dr Smith just before I call you I want to point out that you have already had four speeches on this part. I recognise of course that there is a single debate of 4 hours for the Committee stage of this bill and in recognising that I invite the member to seek leave of the Committee to be able to speak again. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I am happy to do that Mr Chairman although I do not believe I should have to because this is a time-limited debate. There is no restriction on the number of calls because the debate covers all parts. But I am happy to seek leave if it— 
The CHAIRPERSON (H V Ross Robertson) 
: I think that the Committee will be quite lenient but I want to do it by following the procedure. 
Dr the Hon LOCKWOOD SMITH 
: OK I will seek leave Mr Chairman if that is helpful. 
The CHAIRPERSON (H V Ross Robertson) 
: Is there any objection to that? There is none. 
Dr the Hon LOCKWOOD SMITH 
: I think it is a bit of an indictment on the member who has just resumed his seat Charles Chauvel—and I accept that he is a new member—that he had the chance here to speak on 3281 pages of legislation and he could not do that. He is a member of the Finance and Expenditure Committee. 
I want the Minister to answer some specific questions about the legislation in front of us. Supplementary Order Paper 136 in the name of the Hon Peter Dunne has been dropped on the House this afternoon. It is 250 pages long. We know that part of it is a rewrite of the fair dividend rate legislation that passed through the House in 2006. We know that it is a rewrite of the Taxation (Savings Investment and Miscellaneous Provisions) Act of 2006. I asked specifically a call ago about the rewrite of Part M which starts on page 99 of the Supplementary Order Paper. As I read those changes to Part M it appears to me that what is happening there is that the Supplementary Order Paper rewrites part of the Working for Families tax credit legislation because that is all contained in Part M of the existing Act. 
If members look up Part M in the bill that is in front of us they will see it is covered from page 1692 onwards under the heading “Tax credits for families”. It seems to me that this Supplementary Order Paper incorporates the tax credits under the Government’s KiwiSaver scheme: the tax credits to those who participate as distinct from any tax credits back to employers. It seems to me that tax credits to participators in KiwiSaver will now be covered in Part M of the Income Tax Act. That is quite a significant development and someone from the Government ought to explain it. The member Charles Chauvel should be explaining what the hell the Government’s legislation is doing. I suspect that he does not know. I think that the Government needs to assure us about this legislation. 
If I am right the changes to Part M that start on page 99 of Supplementary Order Paper 136 bring into this rewrite the legislation that was passed through this Parliament on the day of the Budget without reference to a select committee. That legislation was passed through the House following the presentation of the Budget just a short while ago and it passed through all stages without reference to a select committee. Now it would appear—and I stress that it would appear because I do not know this for certain—that those changes are now being incorporated in this rewrite. At no stage has that legislation ever been to a select committee. It went through all stages here following the Budget. As I recollect matters the provisions for tax credits for contributors to the KiwiSaver scheme are part of the Budget legislation. That legislation went through all stages following the Budget and now this Supplementary Order Paper—from page 99 onwards in the various sections in Part M—incorporates those changes into this rewrite. No select committee has ever had a chance to hear submissions on any of that legislation. 
I want the Minister in the chair to address this issue. I am prepared to accept that I am wrong. I am prepared to accept that my reading of this situation is not correct. I stress that I have seen the Supplementary Order Paper only this afternoon. If I am wrong that is great but I believe that the Committee should know what on earth these changes mean. It seems to me that the Supplementary Order Paper does refer to tax credits for people involved in the KiwiSaver scheme. For example new Subpart MK is entitled “Tax credits for KiwiSaver schemes and complying superannuation funds”—there it is in black and white. Tax credits for KiwiSaver schemes were part of the Budget legislation if I remember it correctly and therefore have never been to a select committee. 
How can the Minister assure this Committee that what we are going to incorporate into this hugely important rewrite of the Income Tax Act has been sufficiently thoroughly scrutinised when it has never been to a select committee neither in its original passage through this House nor now—because this Supplementary Order Paper will not go to a select committee? Can the Minister assure us that there are no technical problems on this Supplementary Order Paper? It adds whole new bits to Part M of the Act. Part M of the bill at the moment does not incorporate tax credits for the KiwiSaver scheme. Of course there are no provisions for the tax credits of the KiwiSaver scheme in the bill because when the Income Tax Act was being rewritten that legislation had not been passed. 
I believe that if the Government is taking Supplementary Order Paper 136 at all seriously someone on the Government side ought to know what the devil the Government is doing. Instead of making ignorant contributions like the one that we heard from Charles Chauvel Government members should tell us what the Supplementary Order Paper is doing and whether any select committee has ever had a chance to look at it seriously. They should give the Committee some assurance that it is not full of problems. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise for a third time to speak to the Income Tax Bill and specifically to reply to Mr Charles Chauvel a colleague on the Finance and Expenditure Committee—and an intelligent member of that committee I might add. He stood up here today and told us—he waxed lyrical—about headline tax rates and Labour’s record on them. I just remind the member that Labour increased the headline tax rate to 39c in the dollar in 1999 immediately after coming into Government. If that is not increasing the headline tax rate then I do not know what is. Let us have a look at the effect of that headline tax rate the effect of inflation going forward and the effect of bracket creep with regard to where the average Kiwi has now ended up as a consequence of the economy and that increase in the headline tax rate. 
Dr Cullen told us in 1999 that 95 percent of Kiwis would remain outside that headline tax rate. Well the fact is that that is in no way the case now. Treasury’s  
Key Facts for Taxpayers 
 released on Budget day tells us that that 14 percent of Kiwis are now paying at or above the high headline tax rate. So I ask Mr Chauvel how that shows a good record in terms of the headline tax rate. I just cannot see that for the life of me. 
The other thing which is probably more important is the situation of the average Kiwi. I tend to focus on where the average Kiwis are at with regard to their tax contribution to the country not those “high price” guys. What is important is the average hard-working men and women and what has happened to them. Tax creep over the last 8 years has pushed them from 19.5c in the dollar to 33c in the dollar to 39c in the dollar and what we have seen is an average increase in personal income tax of $2400. So once again I struggle to see how there has been an improvement for the average taxpayer in this country. We are talking tax here in relation to the Income Tax Bill. 
The second point Mr Chauvel went on about was that the facts speak for themselves in terms of economic performance. He then went on to talk about interest rates. Interest rates are only one part of the economic pie. What we need to look at is the result of economic performance. Let us look at our overall wealth as a nation—the average wealth of the average Kiwi. This Government told us early in the piece that its goal was to get us up into the top half of the OECD. That was a big goal. Helen Clark and Michael Cullen proudly set out that goal and I admire that goal. It is a goal we should be aiming at. I fully endorse that. The reality is however that we have dropped two places. So under the structure of the Income Tax Act as it is now New Zealand has dropped two places in the OECD. I say to Mr Chauvel that in terms of economic performance we have come down the ladder. 
This debate has been broad and I want to bring it back to more specific comments about some specific changes brought to the select committee. I want to comment firstly on some of the comments made by some of the submitters. There were not a lot of submitters on this bill. KPMG and the Institute of Chartered Accountants of New Zealand made some specific calls in terms of the definition “permanent place of abode” versus “permanent home”. The advice was initially that they change the definition to “permanent home” as opposed to “permanent place of abode”. It was subsequently decided that that change in definition would have an impact on the legislation so it was decided we should stay with the initial definition. 
The second thing that the Institute of Chartered Accountants recommended was around the definition of “close relative”. The initial definition did not include a surviving spouse a civil union partner or de facto partner. But the revised addition after advice was given by Therese Turner and Sir Ivor Richardson was that the definition should be changed. So the new definition of “close relative” was revised to include “a surviving spouse” and “a civil union partner and/or a de facto partner”. 
There was some discussion about where some other definitions in other legislation should be pitched. Some submitters said that all the definitions should be placed in this legislation. 
ERIC ROY (National—Invercargill) 
: 
 I have been here this afternoon listening to the debate on the Income Tax Bill and I am moved to take a call. Two or three issues have encouraged me to take that course of action. 
The first is that I have in front of me Supplementary Order Paper 136 which is dated Tuesday 14 August. It consists of some 284 pages. For those who are listening to the radio as they drive home I note that a Supplementary Order Paper is an amendment or amendments to a bill. The bill is a significant piece of legislation. [ 
Interruption 
] Well it is five tomes and each one is bigger than the Wellington telephone directory. This bill is a complete rewrite of the Tax Act as I understand it. 
Hon Bill English 
: The Income Tax Act. 
ERIC ROY 
: Yes the Income Tax Act. I guess that for the average punter there is an issue of comprehension. I do not know whether there is anything we can do about it but we are locked into a kind of accountancy mentality and the common man I am sure would have grave difficulty trying to work his way though this legislation. Someone in my electorate has an issue about companies on the “grey list”. I have just been reading the clauses on the Supplementary Order Paper and I have to confess that despite having studied what is there I am not in a position to give any advice to my constituent who came to see me. So my first issue is that this is rather complex legislation and I am concerned that a Supplementary Order Paper of this size—284 pages—has been dropped before the Committee. I think something as big as this Supplementary Order Paper should have been referred to the select committee that considered the five volumes that make up the bill. That may have happened but my understanding is that it did not. If we are going to do these rewrites we need to get them right. Tax is a crucial issue. There are a few areas on which parties across the Chamber have some agreement and I think we would agree that people who should be paying tax should be paying tax and they ought to be able to understand the rules that determine the amounts they should be paying. 
One or two speakers said early on in this debate that there was some kind of loose agreement that we would not get into the philosophical bit about why we pay tax but each person who made that statement immediately dropped himself in there and made it a part of his contribution and I intend to do the same. I can recall very clearly a very wealthy uncle of mine who paid what I considered at the time to be huge quantities of tax. I told him he needed to buy some more investments so that he could have some tax write-offs. He said: “I wish I was paying a lot more tax because then I’d be a wealthy man.” then climbed into his Mercedes 500 and disappeared over the hill. The notion was that the more tax one paid the better off one was. Well that to a degree is right. But the impost of paying tax does have an implication and if I look at the New Zealand economy I have to say there are some issues that we should deal with philosophically. 
Our economy for example gets the speed wobbles if it gets growth rates of over 3 percent. We have never seriously addressed how we get the New Zealand economy to grow and not get those speed wobbles. If we look at Asian models or any other kind of model where growth rates are in double digits we see that they seem to be able to manage it. I would have thought that if we were addressing a rewrite of the Income Tax Act we would look at issues such as the philosophy behind how we tax and why we tax what the levels should be and what the impact on individuals and on the economy should be. You see what we have now with the current administration the Labour-led Government is increasing tax rates and that has occurred not because the rates have gone up but because they have not come down at the rate at which income has gone up. For goodness’ sake some of my kids tell me they are nearly in the top rate now. When they began work 5 or 6 years ago they did not think the top rate was something they would pay in their lifetime. The impact of paying that tax rate is a disincentive. 
I said our economy gets the speed wobbles if growth rates get over about that 3 percent level. We have had week after week in the House the Labour Government extolling the fact that the unemployment level is quite low. Yes it is but so is our productivity level. It seems to be creeping back and back. It is of concern to me because when our productivity level goes down we do not compete as well with other nations in this global village which as an export nation we sell our product to. We need a tax system that incentivises productivity. It is one of those things among the matrix of factors that we build into an economy that can encourage certain outcomes. One of those outcomes which this Government has not performed well on is productivity levels. We have become kind of State dependent in a whole lot of ways. Working for Families has dragged in a whole lot more people. Yes they need support but the mechanism has made them dependent. We have lost that kind of intuitive No. 8 fencing wire attitude—go out and make it in the back shed get in there learn a few more skills go the extra mile work the extra hour—that means we do those bits we need to do to lift productivity. I say that the sort of taxation regime we have where we have not reduced tax as incomes have gone up has a big bearing on the productivity rate on the desire of individuals to go forward and do things. 
Another point about the taxation rate we have is that one of the things this country needs to engage in—and we are well behind in every measure that one likes to take—is our investment in research and development. Some of us about 4 weeks ago went to Taiwan. Over there the percentage of GDP that goes on investment in research and development is 2.4 percent. We came back and looked up the figures here; we are about 0.8 percent. That is just not good enough. When the Government creams off all the tax that it is currently taking there is not really enough left for individuals companies or anybody else in the private sector to do that investment in research and development. 
That is another philosophical difference between the major parties and I believe we have to address it. I believe that when we do a rewrite of the Income Tax Act that sort of philosophical stuff should be discussed and we need to have some focus on it. Quite clearly we have low productivity we have a lack of investment in research and development and we are losing our competitiveness with competing exporting nations around the world—our competitors out there that are producing similar sorts of stuff. We are losing the margins on that and tax does have a very big bearing on that. I am saying quite clearly that here we have a major rewrite—five times bigger than the Wellington telephone directory—of the Income Tax Act plus a Supplementary Order Paper that would choke a bull and we are not really dealing with fundamental issues that this economy needs to have dealt with. If we need to do all this stuff just to institute a fair tax system if we put energy into wading through all that information we should look at the wider picture at the philosophical stuff that we actually need to deal with. 
Hon PETE HODGSON (Minister of Health) 
: 
 I have been listening to the debate with some interest and have not taken a call until now. But I was moved to respond to Eric Roy’s comments. He is a sensible man a good solid Southland citizen and I thought that his comments were interesting but I did not agree with too many of them. As he went on I found myself actively disagreeing with him and I wanted to get up and explain that—it is to do with research and development. 
You see the research and development effort in New Zealand compared with say Taiwan is exactly as the member describes it. This is a low-investment country in research and development. If we unpick where the under-investment is it is relatively speaking in the private sector although our public sector investment is a little below the OECD average. We under-invest a little in the public sector and we under-invest significantly in the private sector and successive Governments have sought to address that. 
The underlying reason for us under-investing in the private sector is the nature of our economy. That is to say that our research into primary production which we are amongst the best of the world in and are very good at is none the less a relatively low intensity research and development sector compared with say pharmaceuticals or aeroplanes or motherboards if one wants to go to Taiwan. 
Yet the truth of the matter is that the member—perhaps unwillingly or unwittingly; I am not sure—was one of those of his caucus who trooped out into the Noes lobby when the tax credit for research and development was put to this House only 3 months ago. A very substantial tax change was made proffered by the Minister of Finance and National Party members almost unbelievably voted against it. They did not set out to split it off in the way that they spoke or in the way that they voted. They said they opposed it. But the truth of the matter is that if there can be more research and development investment made by a private sector business in this country now then there is a very significant tax credit available—very significant. 
That is to say that if the member wants to talk about philosophy then this is the way to deal with that issue. I absolutely agree with him that under-investment in research and development is an issue for us. It is a systemic issue in our economy and there are very many ways of fixing it. His Government when it was in power and this Government now in office have been looking to improve that situation through various policy changes. One of the most significant was always going to be to have a tax credit for research and development and when it came forward in the Budget 3 months ago his party voted against it. I thought the Committee should be reminded of that. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Mr Chairman— 
The CHAIRPERSON (H V Ross Robertson) 
: The member will need to seek leave to have another call. We can have a 4-hour debate so I hope the Committee will be generous to you. 
Dr the Hon LOCKWOOD SMITH 
: I seek leave to take a further call. 
The CHAIRPERSON (H V Ross Robertson) 
: Leave is sought for the member to take a further call. Is there any objection to that course of action? There is none. There may be multiple calls Dr Smith! 
Dr the Hon LOCKWOOD SMITH 
: I probably will not take the full time but we now have a Minister in the Chamber who understands the legislation which is helpful. 
During my last call I asked a reasonable question about Supplementary Order Paper 136. We have established that that Supplementary Order Paper incorporates in the rewrite the provisions of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 and we acknowledge that there are some risks around that because it has never been to a select committee. But a previous Minister in the chair was able to assure us that the tax professionals—the Institute of Chartered Accountants of New Zealand—and the Law Society believe that the wording is satisfactory in respect of those measures particularly the fair dividend rate measures and the portfolio investment measures. 
But in my last contribution in this debate I raised the issues around Part M of the Income Tax Bill—Part M being the Working for Families tax credit provisions. When the Finance and Expenditure Committee looked at this rewrite of the Income Tax Act it concluded that Part M was too complex to include in it—and that is mentioned on page 7 of the select committee’s commentary on the bill—yet Supplementary Order Paper 136 includes a whole lot of rewritten provisions of Part M. It particularly includes the new Subpart MK “Tax credits for KiwiSaver schemes and complying superannuation funds”. The point I made in my last contribution was that if I recollect correctly the legislation that this bit rewrites was passed through all stages following Dr Cullen’s presentation of the last Budget. Tax credits for savings were all part of that legislation. That legislation has never therefore been to a select committee; it went through all stages straight after the presentation of the Budget. We are now incorporating those provisions as I read Supplementary Order Paper 136—the parts that rewrite Part M of the Income Tax Act—in this rewrite without their having been referred to a select committee. 
The issue I want the Minister to address—Dr Cullen is here now and he may be able to give the Committee some assurance—is whether all those involved in the rewrite have had a thorough look at these rewritten arrangements for the Budget legislation. I presume they actually rewrite the Budget legislation which went through all stages just a short while ago. I would like the Minister to assure us that there are no technical problems around these changes because they are quite significant. Part M is now being changed; instead of being tax credits for families it is now tax credits paid in cash and there is a families bit and a bit to do with superannuation savings schemes. I believe we deserve to have from the Minister an absolute assurance that these measures have been thoroughly examined by the various professional organisations and the rewrite advisory panel because no select committee has ever had the opportunity to look at any of that legislation. 
The question was put that the amendments set out on Supplementary Order Paper 136 in the name of the Hon Peter Dunne be agreed to. 
Amendments agreed to. 
Clauses A1 and A2 Parts A to Z and schedules 1 to 52 as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
 on behalf of the  
Minister of Revenue 
: 
 I move  
That the Income Tax Bill be now read a third time 
. 
Debate interrupted. 
Major Events Management Bill 
Second Reading 
Debate resumed from 14 August. 
A party vote was called for on the question  
That the Major Events Management Bill be now read a second time. 
Ayes 109 
New Zealand Labour 49; New Zealand National 48; New Zealand First 7; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 9 
Green Party 6; Maori Party 3. 
Bill read a second time. 
Weathertight Homes Resolution Services (Remedies) Amendment Bill 
Building (Consent Authorities) Amendment Bill 
Third Readings 
Debate resumed from 16 August. 
Hon HARRY DUYNHOVEN (Minister for Transport Safety) 
: 
 Before the debate was interrupted on Thursday my colleague the Hon Judith Tizard on behalf of the Minister for Building and Construction was reminding the House that the Weathertight Homes Resolution Services (Remedies) Amendment Bill does not require that general damages must be awarded. Indeed prior to the High Court judgment such damages had been awarded in only a minority of determinations—just 21 percent. Moreover when there has been an award the amounts have been modest averaging just $9450. The bill clarifies and confirms Parliament’s original intent. It restores to the adjudicators and the tribunal deciding these claims the ability to award general damages for mental anxiety or distress in the same way as do the courts. 
The Minister wishes to thank John Gray and other Leaky Homes Action Group members for their strong support for this amendment. Also thanks are due to the New Zealand Law Society for its active and expert guidance which has been of great value and to the Social Services Committee for the efficiency and focus with which it has dealt with this legislation within a very short time frame. 
The Building (Consent Authorities) Amendment Bill amends the Building Act 2004 by extending the date by which territorial and regional authorities have to be accredited and registered as building consent authorities or by which they have to transfer their building consent functions to an accredited and registered building consent authority—for example a neighbouring council—to perform from 30 November 2007 to 30 June 2008. The legislation also allows more time for territorial authorities to transfer to regional councils the responsibility for issuing building consents for new dams built in their areas. A fail-safe provision allows for the extended deadline to be extended by regulation rather than legislation having to come back to the House in the unlikely event that an extension becomes necessary. 
The amendment to the Building Act 2004 establishes an accreditation and registration scheme for building consent authorities. The scheme will strengthen New Zealand’s building controls system. The aim is to ensure that building consent authorities have the resources and the systems in place to deliver high-quality building consents in a timely manner. Guidance and support is being provided to councils and the Government has provided a $3 million accreditation assistance package. Councils have a strong commitment to achieving accreditation by November or making alternative arrangements. Local Government New Zealand is also providing strong leadership to the sector on this issue. I am advised that so far 72 out of 73 territorial authorities have applied to become accredited and one the Palmerston North City Council has achieved accreditation. Nine regional councils are arranging to transfer their building consent functions to a registered building consent authority and the remaining three are preparing to apply for accreditation. 
Although the vast majority of local authorities are on target for meeting their original deadlines some councils particularly small rural councils with capacity or capability limitations may not complete accreditation or transfer their functions to a registered building consent authority on time. Making the leap to the higher standards that the Government has set for building consenting inspection and approval so as to protect prospective homeowners is proving to be a challenge for some. A few councils simply need more time to come up to speed and make the necessary changes. The Government is making no criticism of those councils; they are working hard to get across the line. Extending the date simply reflects that councils are committed and working hard towards achieving accreditation or transferring their building consent functions but that some are unlikely to be able to complete the process by November 2007. Allowing these councils an additional 7 months ensures the certainty continuity and confidence of building consent activities the building industry and people building and renovating. This is a prudent and common-sense action to take as is using an existing bill before the House to give effect to this action. I commend these bills to the House. 
KATRINA SHANKS (National) 
: 
 I rise to speak this afternoon to the third readings of this legislation—the Weathertight Homes Resolution Services (Remedies) Amendment Bill and the Building (Consent Authorities) Amendment Bill—again because this is the second time I have been prepared to deliver my third reading speech. This legislation certainly has been very interesting. For someone who is new in the House it has been extremely interesting. The way these bills have been put together is actually quite disgraceful. I will give the House a little bit of the history on how we got to where we are today with this legislation. 
In 2002 we started off with the Weathertight Homes Resolution Services Act initially brought in to address the incidence of leaky homes. In 2006—only 4 years later—that legislation was then repealed and the Government brought in the Weathertight Homes Resolution Services Act 2006. From what I understand both those bits of legislation were rushed through the House did not go through the process in a timely manner and were rushed through the submission process. Now 1 year later in 2007 the legislation before us is again being rushed through by the Government without it being drafted properly or having gone through the processes properly. This legislation is to remedy distress and mental anxiety something National had suggested should be addressed back in 2006. Obviously we were ignored because we are here exactly 1 year later discussing the matter yet again. 
But what concerns me most is the process in relation to this legislation—legislation that I have been involved with in the Social Services Committee. The Weathertight Homes Resolution Services (Remedies) Amendment Bill came before the Social Services Committee but we did not get submissions because yet again there was no time for these. The legislation was rushed through the select committee to get it to the stage it is at today. So we went through the first reading the select committee stage the second reading the Committee stage then to the third reading. And whoops! What happened at the third reading stage? It was found that we had got it wrong; that it was not quite right. So instead of going into the third reading the bill was referred back to the Committee of the whole House and this is where it gets really interesting. If we want to talk about writing good legislation then this legislation is not a good example; this is talking about rushing legislation through the House. 
What happened last week when we went back into Committee on the bill? What happened was that Supplementary Order Paper 133 was tabled. What was on that Supplementary Order Paper? It had on it amendments that included extending the time during which a territorial authority may act as a building consent authority. That is very interesting because that actually has nothing to do with leaky homes. So how come this measure got attached to the Weathertight Homes Resolution Services (Remedies) Amendment Bill of 2007 as a New Part 3? The measures on Supplementary Order Paper 133 were rushed through without going to the select committee and without going through the submission process. They were rushed through. 
Clause 18 in New Part 3 on Supplementary Order Paper 133 extends the period a territorial authority may act as a building consent authority. Why has this happened? The reason is that once again the Government had got it wrong. It put in the wrong date by which territorial authorities must put the building consent authority process in place so this amendment has been put through on the back of the Weathertight Homes Resolution Services (Remedies) Amendment Bill which has to do with distress and anxiety and nothing at all to do with leaky homes. Then what happened? We turned round and what did we find? We found Supplementary Order Paper 134. That is interesting is it not? What does that tell us? That Supplementary Order Paper splits off New Part 3. So the Trojan Horse amendment on Supplementary Order Paper 133 goes through attached to the Weathertight Homes Resolution Services (Remedies) Amendment Bill of 2007 then Supplementary Order Paper 134 splits it off. All of a sudden we have two bills one of which has not been to a select committee or through the submission process. It has just been sneaked through to fix yet again an error by this Government in its legislation. What did it create? It created the Building (Consent Authorities) Amendment Bill. That is very interesting is it not? 
Let me talk about that bill. I went back and had a look at what has gone through recently in relation to the building sector. The Building Bill was enacted in 2004 but oh no we had to improve that because once again that was legislation that had been rushed through. Then in 2007 the Building Amendment Bill was introduced to make the 2004 legislation more workable. Now also in 2007 we have the Building (Consent Authorities) Amendment Bill. Why could that not have gone into the Building Amendment Bill that was introduced just this year? 
We have to ask ourselves what sort of legislation we are writing here. I have to say that it is not very good legislation. It is actually disgraceful that we get away with writing this sort of legislation. What does the building industry think of this legislation? It would not know what to think because it is so confusing. It is confusing even for us when Supplementary Order Papers keep appearing and legislation keeps getting repealed and new legislation brought in to improve the workability of previous legislation. Why can the Government not just get it right the first time? What is so hard about writing good legislation? What is so hard about going through a process and having respect for that process? What happened in respect of this Supplementary Order Paper and the Building (Consent Authorities) Amendment Bill was that those pieces of legislation went right outside the process. In fact this has not happened since 1995. Why has it happened all of a sudden? It is a matter of: “Whoops! We’re fixing another mistake in legislation that has let this country down again.” 
Why did we have this legislation to begin with? The reason is leaky homes. That is exactly why the Weathertight Homes Resolution Services (Remedies) Amendment Bill came in to begin with. So we have this new legislation to fix something that is going wrong. How do people get leaky homes in New Zealand? They get them because there is moisture in their homes. That is what creates leaky homes. This can be for a number of reasons—for example it can be due to not putting battens between internal/external walls. But let me think; there is one more thing we are talking about here. Leaky homes are still being built under the current Government. How can that be? Shall we talk about copper piping because I am really good on copper piping at the moment. At the moment copper piping from Britain has about a 50-year warranty from Australia it has about a 50 or 60-year warranty and from China? Copper piping from China has no warranty. Cheap copper piping is going into new spec homes and that is being allowed to happen under this Government. We know that copper piping has been tested by the industry. Those tests found that it would last 7 years—and that is it. So under this Government leaky homes are still being built. 
What does this legislation do to help those homeowners? It does absolutely nothing at all. In fact what does the Weathertight Homes Resolution Services (Remedies) Amendment Bill do to help those people who have leaky homes right now? It does absolutely nothing. All that people with leaky homes want is to have their homes fixed. It is not actually too hard to work out what we need to do. What is this Government doing to fix the homes of these people? It is doing absolutely nothing. It is a matter of: “I know let’s bring in another bit of legislation. Let’s rush it through. Let’s give them a remedy for distress and anxiety.” Does that fix people’s homes? No it does not. If this Government would just commit to fixing leaky homes these homeowners would not have distress or anxiety; they would have homes that are fixed. But in the last 8 years under this Government these homes have not been fixed. 
What happens when people go to mediation or to a tribunal to get their homes fixed? I will tell members exactly what happens: nothing. They may get rewarded for damages or get their houses fixed but how often are those homeowners actually getting the money that is awarded to them? The answer is that it is not very often at all. So this Government has done nothing. This legislation is doing nothing to stop the leaky home situation or to give people some compensation to get their homes fixed. Currently it is estimated that there are 15000 people out there who have leaky homes. 
Hon Harry Duynhoven 
: When were they built? 
KATRINA SHANKS 
: They are being built right now under that Minister’s Government. They are being built right now in 2007. Shall we talk about copper piping? Under this Government copper piping is being put into spec homes right now. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: Order! 
KATRINA SHANKS 
: Sorry Mr Assistant Speaker. 
Hon Harry Duynhoven 
: They were being built by National in the 1990s with no supervision. 
KATRINA SHANKS 
: The Labour Government is currently building leaky homes and the Minister cannot deny it. 
Hon Harry Duynhoven 
: Bollocks! 
KATRINA SHANKS 
: Sorry what was that? 
Hon Harry Duynhoven 
: Rubbish! 
KATRINA SHANKS 
: Before that? 
Hon Harry Duynhoven 
: Bollocks! 
KATRINA SHANKS 
: Ooh and we have many listeners caught in the Auckland traffic tonight going along at 1 kilometre an hour and listening to this Labour Government. And what did it come out with? What was that word again Mr Harry— 
Hon Harry Duynhoven 
: When did those houses first fall down? Why won’t you tell us? 
KATRINA SHANKS 
: No; and I am telling people that if they are building a home or buying a spec home they should be careful because under this Labour Government they might be getting a leaky home. 
Bob Clarkson 
: It had 8 years! 
KATRINA SHANKS 
: It has had 8 years. How many people have received real compensation from this Government to fix their leaky home? I am not talking about $5000 or $10000 but about real compensation. Some homes need about $90000 to fix them. How many of those people under this Labour Government—[ 
Interruption 
] What is this legislation doing to fix leaky homes in New Zealand? Absolutely nothing will be done under this Government to fix those leaky homes. 
PITA PARAONE (NZ First) 
: 
Tena koe Mr Assistant Speaker. One would think in listening to the previous speaker Katrina Shanks that New Zealand did not have a problem with leaky homes. 
Hon Harry Duynhoven 
: She has amnesia. 
PITA PARAONE 
: I will not comment on the state of her memory. I ought to say that listeners out there in Auckland who are gridlocked but who left their offices about 2 hours ago and want to get home before the 6 o’clock news will be amazed at the comments made by National speakers so far. 
During earlier debates on the weathertight homes legislation the House heard from speakers who opposed some of the processes adopted to give urgency to the process so that the legislation could be progressed to this stage. But those views expressed by some members seemed to be at odds with the stated policy of their party were it to become the Government and that policy is to cut Government spending. I refer specifically to the matter surrounding the motion to suspend Standing Order 261 for the purposes of allowing Supplementary Order Paper 133 to be included in the Weathertight Homes Resolution Services (Remedies) Amendment Bill. I was amazed to hear the previous speaker ask what that Supplementary Order Paper did. Clearly it provides the opportunity for local bodies that have not yet been accredited to be given an extension of time in order for that to be done. As of today only one local body has that accreditation. 
We heard from Opposition members that the motion to suspend the Standing Order was at the core of what could be constitutional abuse that the motion should be applied only in a crisis and that New Zealanders were being denied the opportunity to express their views through the select committee process. Of course Opposition members also felt that they were being denied the opportunity to pour scorn on the bill during the different stages. Since the introduction of the Supplementary Order Paper I have not received any communication whatsoever from any constituents complaining about the process—not least from owners of leaky homes. 
Bob Clarkson 
: You must be deaf. 
PITA PARAONE 
: Well I do not know about that. I know for sure that I have not received any communication from anyone expressing concern about Supplementary Order Paper 133 or the suspension of Standing Order 261. 
I ask members opposite in respect of their party’s policy to cut Government spending costs whether they really think that the legislative process does not come at a cost. I would have thought they would welcome the motion. But they did not. As to the argument that the motion should have been moved only if there were a crisis I ask those members who may not think that this situation is a crisis to put themselves in the shoes of people who have had to endure the trials of owning a home then finding it subjected to the leaky home syndrome. I am willing to wager that those people are feeling that their circumstances are those of a crisis. 
We are talking about the suspension of one—and I mean one—of Parliament’s Standing Orders for the purpose of expediting and including the Supplementary Order Paper into this legislation. If people were being denied the opportunity of having a say on Supplementary Order Paper 133 which merely allows local authorities to have the available time to be accredited extended from 30 November 2007 to June 2008 then I certainly did not hear or receive any comments of concern from any member of the public or of an organisation wanting to make submissions on it. 
Having said that I want to come back to the legislation. It follows a recent High Court decision that the intent of Parliament for both the Weathertight Homes Resolution Services Act of 2002 and 2006 was lost by giving due recognition to adjudicators or the Weathertight Homes Tribunal to award general damages for mental distress and anxiety. I know that a couple living in the eastern beaches area of the electorate in which I reside were not able to get the full amount they believed they were entitled to because the court ruled against the adjudicator who dealt with their case. It has been said that this legislation may be too late for them. I am not quite sure whether there is a way to deal with their issue but in terms of other homeowners who are in a similar situation and have yet to have their cases adjudicated on I believe that the legislation will be of some assistance to them. 
This legislation restores to those two entities—adjudicators and the tribunal—the ability to award general damages for mental anxiety or distress in the same way as the courts do. New Zealand First believes that this amendment will restore claimant confidence that their Weathertight Homes Tribunal claims can be resolved in a one-stop shop without the need to seek general damages through the courts. This legislation we believe will save litigants further costs. New Zealand First supports this aspect of the legislation particularly if the award for general damages will help homeowners to regain the position they were in prior to having to suffer the burden that the leaky home syndrome brought to them and their families. The search for resolution has taken such homeowners on a long journey and we believe that the legislation will help to shorten that journey particularly in terms of reaching a resolution. Measures aimed at improving the credibility of and speeding up the process—as long as they are fair and just—will always have the support of New Zealand First. 
This is remedies legislation not repairs legislation. Some of the debate that has been proffered to this House particularly from those who oppose the process of the legislation has been wrong. As I mentioned during earlier readings the legislation has the support of Mr John Gray of the Leaky Homes Action Group who praised the Government for its speedy reaction towards closing a loophole that might deprive victims of getting some recompense. 
New Zealand First supports this legislation as it allows for the award of general damages that will put a person back near the position that he or she was in before suffering any harm. Claimants value these awards as an acknowledgment of the stress they have suffered. New Zealand First believes this amendment is a requirement because the parent legislation itself following a couple of court cases showed that the intent of the original Act had been lost. We support the notion of allowing local bodies to have extended time to be able to become accredited and therefore issue the required documentation that will help to address this situation. In conclusion I make the point that New Zealand First supports this legislation. 
SUE BRADFORD (Green) 
: 
 The Green Party supports the third reading of the bills arising from the Weathertight Homes Resolution Services (Remedies) Amendment Bill because we agree with the Government and other parties that the amendment is needed. 
Given the nature of the original bill and the fact that we had just finished dealing with a much larger bill on the same topic the select committee process was mercifully brief. The main input from an external body was from the New Zealand Law Society whose opinion had been formally sought because of the legally technical nature of the bill’s content. That august organisation the Law Society agreed with the Government—and I think most if not all of the parties in this House—that the amendment is desirable given the result of a High Court decision of 29 March this year which determined that general damages could not be awarded as compensation for mental anxiety or stress under the weathertight homes legislation. 
As someone who sat on the Social Services Committee when it looked at the earlier bill and heard and read submissions from so many people adversely affected by various forms of leaky building damage it was impossible not to agree with the Government and the Law Society that this court ruling although understandable from a legal perspective should be overturned by Parliament. It is unquestionable that the Weathertight Homes Tribunal should be able to award general damages for the huge mental distress and anxiety that leaky homes have caused so many people and that is what this amending legislation achieves. The Green Party therefore welcomes the unusual speed with which this legislation has completed its progress in the House and looks forward to the clarification it will bring to all involved. 
In finishing however I would like to make one final comment in support of what my colleague Hone Harawira from the Maori Party said in the House during earlier debate on the original bill. Although he acknowledged as the Green Party certainly does the reality of the enormous distress suffered by the owners of homes affected by weathertightness issues we also would like to see a lot more political and public awareness of the realities of housing stress still caused by substandard and inadequate housing in so many communities around Aotearoa New Zealand. A disproportionate number of those living in permanently inadequate unhealthy overcrowded and/or insanitary housing are tangata whenua. Many of them live in places like Tai Rawhiti and Northland. We would like to see the same sort of attention given to the ongoing problems of these New Zealanders—many of whose housing issues are just seen I think as too difficult to fix—as is given to those affected by the leaky homes crisis addressed by the legislation before us today. 
In regards to the second bill that has come out of the original bill—the Building (Consent Authorities) Amendment Bill—the Green Party also supports this because we appreciate the difficulties some local councils have had in meeting the deadline to become registered. Although we think it is a pity that a Supplementary Order Paper had to be introduced in an urgent manner to get the legislation through at the same time we recognise the reality of what the local territorial authorities are facing and we look forward to the day next year when all the authorities are registered. 
TARIANA TURIA (Co-Leader—Maori Party) 
: 
Tena koe Mr Assistant Speaker. Tenatatou katoa. Over the last 3 months as the debate over this bill has progressed through the House the Maori Party has consistently raised the question of how anyone can ignore the realities of lower-grade housing for Maori when debating the enhancement of leaky homes claims for other New Zealanders. We have speculated when the day will be when the “Substandard Homes Resolution Services (Remedies) Bill” will come before this House. We have talked about the range of housing-related bills before Parliament this term including data matching for Housing New Zealand Corporation clients and the first and second weathertight homes bills yet none of these bills has come close to addressing the kinds of issues that we have raised throughout the debate. 
I recall the words of Dover Samuels last year who confirmed that Housing New Zealand Corporation had assessed some 1527 families living in substandard housing in Northland. Mr Samuels estimated that about 80 percent of people living in substandard housing in Northland were in fact Maori and that even if 1000 houses were built tomorrow that would not solve the issues. The funny thing is that we know that there are probably enough houses for all the families in New Zealand if they were distributed according to need rather than according to wealth. Instead the rich live in spacious comfortable surroundings while in poor parts of the country people squeeze into small overcrowded and dilapidated homes. We have made these points and we will continue to raise them in the House and outside. 
We have described substandard houses as unsafe dwellings where people may rely on open flames for light heat or cooking. These houses lack basic services such as a freshwater supply and a sanitation system. The infrastructure in some of these areas has been badly neglected as is evidenced in poor sewage disposal and inadequate water and electricity supplies. We know of communities where the septic tanks are failing greatly increasing the risk of hepatitis A and other infectious diseases. These are life and death issues and we must never forget the challenge of overcrowded substandard and dangerous housing conditions. 
But we in the Maori Party in line with our belief in manaakitanga do also acknowledge the deficiencies and the traumatic impacts that have been suffered by the victims of leaky homes so we have consistently supported the passage of this bill through the House in order to ensure that these people are entitled to the general damages for mental distress and anxiety that they should expect. But a funny thing happened just 10 days ago. Immediately prior to the third reading of the Weathertight Homes Resolution Services (Remedies) Bill suddenly it was recommitted with the impact of Supplementary Order Paper 133. In effect the last-minute change brought about what can only be described as an abuse of privilege of parliamentary procedure. 
We started off this whole debacle back in 2002 when under urgency Labour rushed through legislation to set up the Weathertight Homes Resolution Services Act 2002 which was eventually repealed. I take note of Minister Duynhoven’s comments before that these issues in fact happened during the regime of the National Government. Three years later the Government realised it had made a massive stuff-up so a whole new batch of rushed laws was sped through the House. If that was not bad enough another bandage had to be applied so a whole new series of laws is put before us and 10 days ago when one would think no more mistakes could be made the Minister realised that more last-minute emergency surgery had to happen in order to set things right. 
The request for the registration extension from 30 November 2007 to 30 June 2008 looks like a mere technicality from afar. The emergency amendment was dreamed up to extend the period for which a council may act as a building consent authority without registration. It was sold to the House as a mere courtesy to allow more time for councils to get their acts together and get registered by 30 June 2008. That may not be a big deal except that what Labour did was to override the Standing Orders so instead of going through the normal process of working through a Supplementary Order Paper Labour decided to surrender the Standing Orders and put forward a motion to suspend them. 
In the weekend as the Committee on the Elimination of Racial Discrimination released its damning report on New Zealand’s recent race relations policy I came across this quote from Martin Luther King which I thought the House would appreciate in the context of this bill. Martin Luther King said: “Discrimination is a hellhound that gnaws at Negroes in every waking moment of their lives to remind them that the lie of their inferiority is accepted as truth in the society dominating them.” The “lie of inferiority” that this Government believes it can get away with is to push aside any process and to suspend procedures when it suits in order to create a particular type of truth—the Labour truth. Labour pushed through the Electoral Integrity Act in which it validated the invalid and made legal the illegal. In this bill Labour has reduced the time that is available for the perusal of the fine print at select committee. Labour says that giving kids a slave rate of 80 percent of the normal rate—80c to every dollar—that an adult earns is actually a triumph for Labour because it can announce a pay rise 3 months later. 
The Standing Orders of Parliament are here to do just that—to create order. The Standing Orders provide a system of checks and balances that honour the investing of legislative power in Parliament. These are the principles and standards that apply. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
TARIANA TURIA 
: Tena koe Madam Assistant Speaker. Tenatatou. The Maori Party wants to finish by saying that we will not block the rights of New Zealanders who will benefit from the Weathertight Homes Resolution Services (Remedies) Amendment Bill. We think that it is very important that this legislation is put in place to ensure that people are able to get the remedies that they deserve. Kia ora. 
Hon Dr NICK SMITH (National—Nelson) 
: 
 This legislation the Weathertight Homes Resolution Services (Remedies) Amendment Bill and the Building (Consent Authorities) Amendment Bill is about rotting homes but it is also as much about the rotten Government and the awful way in which it has dealt with building laws. We have both the problem with the Weathertight Homes Tribunal and that legislation and we are also fixing up the difficulties with the Building Act 2004. 
The first point I will make is that this legislation is a complete contradiction of what Labour has said to builders. The swansong of the Minister for Building and Construction Clayton Cosgrove has been “Do it once do it right.” Well it is a pity that the Minister has not applied that to the Government’s own building laws. With the Weathertight Homes Resolution Services Act we had the Government’s first attempt to fix the issue of leaky homes in 2002; that was a mess. The Government came along again with the Weathertight Homes Resolution Services Act 2006 after Clayton Cosgrove had said that the Government had to amend the legislation and he asked us to trust him that it had got it right that time; it had not. Now we have this third attempt at trying to get the legislation around fixing leaking rotting homes correct. This legislation is literally the fix-up for the botch-up for the fix-up for the original fix-up. 
The contradiction is that this legislation is exactly what should have been done 5 years ago. The tragedy is this. Five years after the inquiry into leaky homes only 16 percent of claims have been resolved $85 million has been spent on the bureaucracy of the Weathertight Homes Tribunal and we have had eight Ministers from this Government responsible for the issue—it has been passed around like a hot potato. That $85 million amounts to $110000 per home—not to fix it but to pay for the bureaucracy of the process when the average settlement is only $70000! The tragedy of this legislative mess is that the dodgy developers and builders have had 5 years to wind up their companies to disappear into the woodwork and to leave the poor old homeowner without anywhere to go. Furthermore the legislation is now resting on the shoulders of councils and ratepayers. The irony is that the Government is having an inquiry into why rates have gone up! The Government need only have a damned good look in the mirror. One of the things that has contributed to that rate rise has been the botch-up that the Government has made of dealing with the issue of leaky homes. 
But this legislation goes further. At a very late stage through an abysmal process where the Government broke the rules of the House and suspended the Standing Orders it introduced changes to the Building Act. Let me just go through the scale of the mess that this Government has made with that 2004 Building Act. Back in my office over the dinner break I went through some of the speeches that were made before that legislation was passed in 2004. I read the contribution from Lindsay Tisch who said that we should oppose the bill because it was a gross overreaction and would add hugely to the compliance costs of the building industry. That member could not have been closer to the truth. We had assurances from the Minister that there would be no increase in compliance costs. Well let us look at the record and see what has happened. 
Last week we heard the submission from the Registered Master Builders Federation of New Zealand to the Commerce Committee. The federation said to the committee that there has been a 900 percent increase in fees and Government levies since the passage of the Building Act. I had to go back to the original submission because I thought that a 900 percent increase was extraordinary. If one looks through the submission from the federation one gets a picture of why New Zealand has a home affordability crisis. We have it because this dumb Government passed a Building Act that has added hugely to the costs and the bureaucracy of building a home in New Zealand. The submission states this: “It takes longer to sort out consent issues now in New Zealand than it takes to build the house.” Is that not ridiculous? Can members opposite think for a moment about how nutty things have become in our country when it takes longer to deal with the paperwork of building a house than it takes actually to build it? 
Take this comment from the Wellington City Council in this very city for example. It said this: “A typical house plan four years ago was three A3 plans and 9 pages. Under the new Building Act we now require 12 A3 plans”—that is a fourfold increase—“and up to 300 pages of supporting documentation.” That is a tenfold increase! How can this Government say with a straight face that it is concerned about issues of home affordability when its track record is that bad? Let me give some other figures. The median price of a section today is more than the average cost of buying a house was when Labour came into Government. The Government is destroying the dreams of ordinary New Zealanders to buy their own homes. We see for instance in the last census period that every year homeownership has dropped by 1 percent. During the period of 2001 to 2006 when Labour was in Government homeownership in New Zealand dropped by a startling 5 percent. For the record for the preceding 5 years under a National Government homeownership figures in New Zealand were stable. You see the Government’s economic policies have meant that interest rates have gone up from 6.7 percent when Labour came into Government to 10.4 percent now. We have seen the average price of a home go up from $172000 when Labour came into Government to an average now of $340000. Is it any little wonder that we have a home affordability crisis with the policies that are being pursued by this Government? 
Then we come to the very minor tinkering in this legislation. Will the legislation fix the 900 percent increase in Government and council levies on building a house? Of course it will not. Will it fix the fact that it now takes longer to get consent to build a house than it takes to actually build it? Not on your life! Will it fix the problem of the tenfold increase in the amount of paperwork that is required to build a house? Of course it will not. So I say to members opposite that they cannot talk about home affordability when they have put in place dumb legislation relating to New Zealand’s building laws. It is absolutely urgent that there is a review of that legislation that we strengthen the commercial disciplines so that builders and developers are held accountable for their building and construction but that we do not impose the massive amount of red tape and bureaucracy that has been imposed by this Government. 
 I say to members opposite that home affordability will be one of the key issues at the next election. Even the slightest look at what this Government has done to the Building Act will see that change of that legislation is absolutely essential if we are going to allow ordinary New Zealanders to have that dream of owning their own home. National says that Labour has failed New Zealand in the way in which it has dealt with leaky homes. It has failed New Zealand with the huge increase in compliance costs that is reducing homeownership in New Zealand. 
We say that these bills are just another sad botch-up from a Government that does not understand the building and construction industry and because of that complete lack of understanding of how we are going to get maximum quality at least cost it is destroying the dreams of New Zealanders to own a home. How many more bills will we get from this Government on the issues of leaky homes and building before it gets them right? I tell the Government to go back to the drawing board—this legislation will not fix the problem. The Government has failed. It is not just the houses that are rotten but also this Government. 
BOB CLARKSON (National—Tauranga) 
: 
 In regard to the Weathertight Homes Resolution Services (Remedies) Amendment Bill and the Building (Consent Authorities) Amendment Bill—what a flipping mouthful—I say that we are going to change this legislation to allow claims for mental distress. I find this strange. To fix the mental stress we just have to fix the leaky houses. It is as simple as that. People will get over their stress problems straight after their houses have been fixed. Unfortunately that is how it is. We need to back this legislation because some people will be awarded extra funds to cover their stress and they might get paid. I agree that this could happen. 
I ask who will pay these extra funds. In most cases builders have gone broke and they do not pay out in full. In some cases the owners have been left high and dry. They will not get paid out on the house repairs let alone on the mental stress. I suggest we change this amending legislation. I think it should say to vote to get rid of the Minister. He knows nothing about building houses and that is a fact. The guy knows nothing about building houses. He does not know how to fix this major leaky home problem. This is tearing the hearts out of the people of New Zealand. 
I will just jump in here. Today I saw 40 apartments and one house in Auckland and it is just shocking. These people are torn to pieces. They have no money to fix their homes. We should take advantage of all these amendments and vote on whether this Government should be thrown out. On second thoughts I will withdraw the second part. The people of New Zealand have already decided what they are going to do. We are ahead in the polls of course. Labour is like the setting sun. The lights are going out on this party. 
Would the Minister please get real get a decent policy and get it sorted out. Please think of the people involved and how they are being ripped off. The people of New Zealand who have leaky homes just want their houses fixed; it is as simple as that. They should not have to wait for years to have their homes made waterproof. The Minister keeps saying that the Weathertight Homes Tribunal is a good system. He quoted one person in a select committee one day who had had success with the tribunal. He said that this person had sorted out the whole problem himself. He used no lawyers nobody else just himself. He handled the complete Weathertight Homes Tribunal hearing himself without a lawyer and had won the case. I wonder whether that owner was paid out in full. If he was not paid out in full he will now be very mentally stressed. If this new amendment was in place he could have claimed for mental stress. But the funny thing is that he would not get any more money because the builders have mostly gone broke and will not pay out any more money. It is a waste of time. He would end up with a bigger bill from lawyers who would be chasing this extra money. 
Please tell me how this amendment to allow claims for mental stress will help a person who wins a claim at the Weathertight Homes Tribunal hearing when there is no money to pay that person. I will repeat myself. The builder has closed the company down and there is trouble getting money from the defunct company. The Minister is breaking the hearts of many New Zealanders. I suggest that the Minister should concentrate on getting leaky homes fixed. He should stop playing around with different amendments to the legislation and deal with the problem. We have leaky homes. The owners of these houses trusted their builders and trusted the inspectors who signed the compliance certificates. They have no money to repair these houses. I ask the Minister to think outside the square and deal with this problem. Labour will not find the answer; National will. 
To finish I say that claiming for mental distress and winning the claim but not getting paid out in full will not help. These people will end up with a bigger lawyers’ account as I said earlier. I would like to mention something that the MP for New Zealand First said before. He was talking about the Hartley deal in Auckland. This is a funny case. In actual fact the claim was for $270000 and the Weathertight Homes Tribunal through its system got them $90000. The system completely broke down. The Hartleys took their case to the High Court and they got another $90000 which is a total of $180000. You see I can count. But they are still out of pocket. I happen to know that the builder who built that house has offered them a full and final settlement of $46000. If that case had been up now and they had gone for mental distress where was the money going to come from? The builder has no more money. It is almost a waste of time. We have leaky homes that need fixing and we have people who have no money to finalise their affairs. I say again let us find a way to fix these houses. 
We all make bad decisions at some time in our lives. Labour members make a bad habit of blaming National for this but they have had 8 years in which to sort out this damn problem. I say that it takes a good person to rectify a bad decision if they blame us. The point is that those members are not making that decision. They have had 8 years in which to deal with this problem and they still have not dealt with it. The Government has failed and failed just like the amendments have. Thank you very much. 
DIANNE YATES (Labour) 
: 
 I do not know who wrote that last speech but it is a bit disappointing that he or she did not have someone better to read it. I repeat a quote made in the  
Independent 
 and in recent newspapers. They quoted Cicero: “Not to know what has been transacted in former times is to be always a child.” That applies to the lack of weathertight buildings and the problem of leaky buildings. 
I chaired the inquiry into the weathertightness of buildings and I am sorry that Mr Clarkson seems to have forgotten the cause of the problem or should I say the multiple causes of the problem. We learnt that the main reason was deregulation. Who was responsible for deregulation of the building industry I ask Dr Nick Smith? Who was responsible? We all know who it was. We all know that at the time George Chapman a well-known person— 
Hon Dr Nick Smith 
: The member asked me a question so I shall seek leave. I seek leave to table the speech made by George Hawkins Labour MP who said that National had no right to claim any credit— 
The ASSISTANT SPEAKER (Ann Hartley) 
: The member has sought leave for that. Is there any objection? There is objection. 
DIANNE YATES 
: At that particular time George Chapman was chair of the then Building Industry Authority. We know because the inquiry went into a great deal of detail about problems with developers problems with private certifiers and their insurance about the lack of apprenticeships and training in the building industry and about the lack of registered builders. In this bill we still have difficulty in catching up and getting trained people to build houses of quality. 
I have been into houses that were built in this time and it has been disgusting to see what has happened. I have seen the rot I have seen the lack of timber quality; so has Clayton Cosgrove. Thank goodness Clayton Cosgrove is dealing with this problem. 
The previous speaker said that we need a good person in charge and Clayton is the person who is dealing with the problem which was caused over a period of time. It is all very well for members opposite to laugh but if they had built a house and put their life-savings into it and then seen their house rot in front of them because of deregulation because of faults in the past they would know it is not only heartbreaking but it ruins a family it ruins those lives and they have a complete lack of money a complete lack of fortune and the lack of a home. Many people are still seeking redress and this bill is a way of dealing with it. 
I thank the Minister for the good work that has been done and I warn members opposite that if they ever get into Government again they should not ever deregulate the building industry again and bring about the problems that National caused in the 1990s. It has been devastating for New Zealand families— 
Bob Clarkson 
: You had 8 years to fix it! 
DIANNE YATES 
: I say to Mr Clarkson that he has had his chance to speak. It is my turn now. He had his 10 minutes. If he did not use them that is his problem. 
But as we have said to not know what has been transacted in former times and to not know the history of this problem is to always be a child. It is important that the problem is dealt with and it is important that people get quality houses. If we look at what is happening overseas even in Sydney the requirements that people have for building mean that we must build decent houses that will last a family more than just 10 years before the timber rots and they find that their house is no longer of a standard and will not last for the next generation. 
There is no excuse for not building a decent house the same as there is no excuse for not building a decent bridge—as any engineer will know. If the Romans could build bridges that are still around today we can certainly build decent houses that do not leak but are weathertight. It is not just a matter of design it is a matter of multiple causes and this bill is dealing with that issue and with how we try to help the people who have been landed with problems that are not of their own making. People expect to know when they get a consent when they have a builder and when they have an architect that the work of those people is up to standard and that they are getting a decent house. We do not expect the ordinary person who is buying a house to have a full knowledge about building to know all the requirements or to know about timber but they can expect to get a decent house—a house that will last them and their family and their family after them. 
Bob Clarkson 
: You are still there! 
DIANNE YATES 
: It is all very well to snigger and laugh but if it happened to one of those members opposite and their family they would be absolutely devastated. Any legislation we can bring to this House that will improve the lot of these people I totally welcome. 
I thank Minister Clayton Cosgrove for the work he has done on this and the decisive action he has taken. Yes it has taken more than one go because the problems were multiple and the problems that were created for individual people were extremely difficult to deal with. Once a problem is there even like rotten timber it is very hard to replace. It is very hard to rebuild a house. As we know there are a whole range of issues around this to deal with such as insurance and compliance. People would rather pay upfront at the beginning than be faced more than 10 years down the track with a house that is falling around about their ears having paid out a huge amount of money for a pup. 
So I thank the Minister for dealing with this issue and I am sorry that the National people on the other side are not taking a more constructive view of a way to give people a decent place to live in and of ensuring that they get value for money and that there is full legal redress for them. 
Bills read a third time. 
Limited Partnerships Bill 
First Reading 
Hon DAMIEN O'CONNOR (Minister of Corrections) 
 on behalf of the 
 Minister of Commerce 
: 
 I move  
That the Limited Partnerships Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Commerce Committee that the committee report finally to the House on or before 3 December 2007 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 192 and 195(1)(b) and (c). 
The bill establishes a new legal form of limited partnership in New Zealand. Limited partnerships are an internationally preferred means for investing in venture capital. The Government is committed to establishing a regulatory environment that encourages innovation with the consequent development and growth of business. An important part of achieving that goal is to establish a regulatory framework that facilitates the ability of New Zealand businesses to attract venture capital. Venture capital provides a valuable source of funding for new companies and companies that are looking to expand. It can also provide access to new expertise and contacts which can help to develop growth strategies and facilitate access to markets. Attracting venture capital plays a key role in growing globally competitive firms which is one of the Government’s five economic transformation objectives. 
Practical experience in New Zealand and Australia has indicated that the absence of a internationally recognised legal and taxation structure is an impediment to foreign venture capital investment. Of course New Zealand is also disadvantaged through its small size and relative distance from larger capital markets. As a result having an internationally recognised structure that provides liability protection for investors and having the appropriate form of taxation treatment to encourage that investment are vital to facilitating foreign venture capital investment and growing New Zealand’s domestic venture capital industry. New Zealand currently has a form of limited partnership called the special partnership under Part II of the Partnership Act 1908. 
Simon Power 
: It needs updating. 
Hon DAMIEN O'CONNOR 
: As the date of the legislation may suggest it is outdated and does not have all the features that venture capitalists prefer. 
The bill aims to provide an internationally recognised structure and to give New Zealand a regulatory framework that is consistent with international norms meaning that it will be recognised and accepted by investors both in New Zealand and internationally. The particular features that international investors expect to find in a limited partnership vehicle are firstly limited partnerships having a separate legal personality; secondly general partners being liable for all of the debts and liabilities of the partnership and limited partners’ liability being limited to the amount of their contribution to the partnership; thirdly limited partners being able to undertake certain activities commonly referred to as safe harbours that allow them to have a say in how the partnership is run without being deemed to participate in the management of the partnership and consequently losing their limited liability; and lastly flow-through tax status— 
Simon Power 
: What does that mean? 
Hon DAMIEN O'CONNOR 
:—which means that the partnership itself is not taxed I say to Mr Power but that each part is taxed individually at the partners’ personal tax rate. The bill includes those features and as with the overseas limited partnership legislation is designed to create a flexible business structure that encourages investment. 
A key consideration for potential investors when deciding whether to invest is their exposure to liability. Consistent with international best practice the bill provides that limited partners are liable only to the extent of their contribution to the limited partnership but with one exception: if a limited partner participates in the management of the limited partnership and holds itself out to be a general partner it will be held liable just like a general partner would be. The power to set out safe harbours in regulations in the bill is therefore important in order to provide investors with certainty about the activities that they may be involved in without running the risk of losing their limited liability. Regulations setting out those safe harbours will be developed while the bill is in the House. 
Investors also need to know the circumstances in which they can withdraw from a limited partnership. The bill establishes clear rules around the withdrawal of capital and profits from the limited partnership which also aim to protect the rights of creditors. In particular the bill establishes a solvency test similar to that applying to companies which much be satisfied if the partnership is able to make distributions to partners or if a partner wishes to withdraw its capital. 
Rules around the termination of limited partnerships are also very important. The bill establishes an efficient process by which limited partnerships may be liquidated in a similar way to a company. That process plays an important part in protecting the interests of creditors of the limited partnership. 
The bill establishes registers of New Zealand limited partnerships and overseas limited partnerships carrying on business in New Zealand. Those registers will be maintained by the Registrar of Companies. Having a register of limited partnerships will help to provide certainty to third parties that wish to transact with a limited partnership. In particular it means that third parties will know that the entities they are dealing with are properly constituted limited partnerships. Having a register of limited partnerships will also assist in ensuring the effective enforcement of the legislation. 
Because venture capital often operates internationally any limited partnership structure needs to be recognised by legal systems in other jurisdictions. The bill provides a separate legal personality for limited partnerships for that particular reason. In the absence of a separate legal personality there is a risk that the rules around the liability of general and limited partners may not be recognised in a foreign court. 
Taxation treatment is also a particularly vital issue in encouraging local investment in limited partnerships and ensuring that limited partnerships are recognised by international investors. As a result the bill provides for flow-through taxation treatment. Flow-through taxation treatment is a key element of the limited partnership structure internationally and as with the rules governing the liability of general and special partners it needs to be recognised by foreign courts if a limited partnership is going to operate in other jurisdictions. 
It is also important to note that although limited partnerships are focused on developing the local venture capital industry and attracting venture capital investment they may also be used by the broader commercial community as a flexible business structure that has low compliance costs associated with it. The bill places few restrictions on the activities that may be performed by a limited partnership. 
Finally the bill also contains provisions to clarify and simplify the taxation law that applies to partnerships more generally which the Minister of Revenue will address in more detail. 
To conclude the bill establishes a flexible and an internationally recognised structure for encouraging investment. It represents an important contribution to facilitating investment in New Zealand and access to capital by New Zealand companies. I commend the bill to the House. 
SIMON POWER (National—Rangitikei) 
: 
 The National Party will be supporting the Limited Partnerships Bill at its first reading. I take this opportunity to thank the honourable Minister Damien O’Connor for his comments. He certainly cleared up a couple of issues there that had been worrying members on this side of the House. I also take this opportunity to thank the Hon Lianne Dalziel. Right from the start her office was on the phone to me. It gave me a briefing very early in the piece about the contents of the bill and that allowed National members to go to our caucus to seek support for the first reading once we had read the bill and had some discussions with others in a reasonably informed way. 
I noticed that the Minister who has introduced the bill the Hon Damien O’Connor did not mention—and I thought this was quite interesting—the Government’s growth and innovation framework which was launched in 2002. The explanatory note of the bill states: “Venture capital provides a valuable source of funding for new companies and early stage expansion capital.” I will come back to that. It continues: “The Government’s Growth and Innovation Framework launched in 2002 identified promoting foreign venture capital as an element for achieving sustainable economic growth through effective innovation.” I am not sure what that means but I am sure ultimately that the shape of the limited partnerships will provide a proper legal vehicle for international venture capital to feel satisfied that the appropriate legal structure is in place for investment to occur. 
So I thought it was curious as the growth and innovation framework is one of the bedrock strategies of the Government’s economic transformation agenda that the Minister did not mention that framework. I see Maryan Street over there on the Government benches is nodding away furiously to indicate that she will spend some time in her contribution telling us about the strategy and how it links with the Limited Partnerships Bill in providing the necessary legal framework for international venture capital investment. In fairness to Damien O’Connor he is acting on behalf of Lianne Dalziel in seeking to refer this bill to the Commerce Committee a committee that has its share of members who enjoy attention to detail and who I am sure will enjoy dealing with this bill. 
Essentially there are two elements to the bill. The first relates to the establishment of limited partnerships which are as the Minister said international vehicles commonly used to invest across a broad range of jurisdictions. The form of limited partnership presently in the Partnership Act called a special partnership does not have all the features that are preferred by international venture capitalists. New Zealand needs to have a legal structure that other jurisdictions will recognise in order that it can compete internationally for venture capital investment. 
We will see here as the Minister said discussion around how income will be derived from source to partners in proportion to their profit share the flow-through treatment that my colleague Dr Worth will spend some time discussing and discussion around the entry into and exit from partnerships which as I am sure my colleague Dr Worth knows from his expertise in partnership law is not always as straightforward as people think. Partners tend to come and go without the existing partnership structure being dissolved in its entirety and a new partnership structure being formed with new partners. They simply adopt what I guess could be described as a slightly scruffy entry and exit process into and out of a partnership. I know that the Hon David Parker will understand as a former commercial lawyer of some note that when a partner leaves a partnership the entire partnership actually dissolves at law and a new partnership needs to be formed with the remaining or new partners coming into the partnership arrangement. But that is not always observed on the entry into and exit from partnerships. 
The legislation is designed to reduce the likelihood of the under or overtaxation of both the exiting and incoming partners. 
Hon David Parker 
: Particularly for forest partnerships. 
SIMON POWER 
: Perhaps the Minister could take a call and give us a bit of a rundown on how the legislation will affect forest partnerships. Some taxation treatments for limited partnerships will be of interest to the select committee and that is the second element that is dealt with by the bill. The Minister skipped over that part of the bill pretty quickly and to be fair it is complex. Parts 5 and 6 of the bill introduce new taxation rules for limited and general partnerships. At the risk of quoting from an official document and having to table it—though that would require somebody to be paying attention—under the proposed rules the limited partnership vehicle will have separate legal entity status. If the proposed regulatory rules were to be introduced without any change to the taxation legislation I am advised that a limited partnership—and this is important I say to Dr Worth—would be characterised as a company for income tax purposes. I am sure that Dr Worth will be able to talk about that in more detail. As a result of that characterisation income and expenses would not flow through the partnership to be taxed at the partner level but instead would be taxed at the company level. The bill will ensure that limited partnerships will not be taxed. Instead each partner will be taxed individually. 
That sounds a bit complicated and it is. I think the Minister did not do due justice to the bill when he skimmed over its taxation and revenue implications by simply saying to the House and the public of New Zealand that that is something the Minister of Revenue will deal with at some point further down the track. Ultimately the Minister who introduces the bill has the responsibility for doing that and the proposed new partnership rules as set out in the bill will amend the Income Tax Act 2004 in several ways. I do not intend to go into those in detail now because that will be a matter for the select committee. But one thing is certain which is that at first glance this bill appears to be pretty benign. It appears to be a vehicle that is set up to attract and allow international venture capital to flow through to those investing in such a structure in a pretty straightforward way. But there are quite significant taxation and revenue implications from the bill. I see Maryan Street is nodding over there. She is keen to explain that flow-through taxation treatment to the House and the public of New Zealand in perhaps a simpler way than I have been able to. 
I just want to reaffirm that in this first reading debate National earmarks those issues around taxation and revenue as being matters that we will look at closely at the select committee. We agree to support this bill at the first reading because we believe that the structure of limited partnerships for attracting international venture capital and getting over that multi-jurisdictional difficulty is important but the taxation treatment of those investments and the flow through to the partners of the particular entity chosen for that investment will need to be the subject of more scrutiny at the select committee. But as I said National will support the first reading and the bill’s referral to the select committee although we are concerned about the expansive nature of the procedural motion the Minister will put to the House at the point of referral. We certainly will not be supporting the sitting times and proposals the Minister has suggested to the House procedurally but substantively we will support this bill at the first reading. 
MARYAN STREET (Labour) 
: 
 It gives me great pleasure to rise to speak to the Limited Partnerships Bill. I would like to speak in particular about its purpose and the impetus for it. Clearly one of the key concerns the Minister the Hon Lianne Dalziel had in introducing this bill was to enable easier access to investment capital. What that means is that there would be more opportunities for New Zealand businesses to expand and develop. 
Venture capital as a subset of investment capital is a valuable source of funding for new businesses and is a valuable source of early stage expansion capital for businesses in New Zealand. It is part of a programme that I wish to draw the House’s attention to and it is a programme that the Minister of Commerce has been engaged in for some time—that is the improvement of the business environment by the improvement of regulation and in this case of tax treatment for businesses. This has its origins in the Growth and Innovation Advisory Board launched in 2002 and in fact comes out of that board’s work. It is substantially welcomed by business in New Zealand and I will move on to that in a moment. It is important to recognise that this bill is the latest contribution of many to modernising the regulatory environment within which New Zealand business operates. That has been a key concern of the Minister of Commerce. As we have heard already it is clear that limited partnerships are commonly used in many other countries as a vehicle for venture capital investment. So it makes sense to have New Zealand tax rules that facilitate a similar kind of investment here. 
The bill can be largely characterised I suppose as having the following key regulatory features: firstly general partners who are liable for debts and obligations of the partnership; secondly limited partners whose liability is limited to the amount of their investment as long as they do not take part in the management of the partnership; thirdly provision for safe harbour activities so that limited partners are able to participate in strategic activities without this affecting their liability; and fourthly provision for a separate legal personality or identity for limited partnerships. These changes which are promoted and outlined in this bill should really pave the way for New Zealand to have access to the same kind of venture capital markets that overseas businesses have. Essentially the tax rules proposed which are one particular component of this bill are investment friendly and will enable New Zealand to be more competitive in attracting venture capital. Specifically limited partnerships will not be taxed at the partnership level as the Minister who moved the first reading itemised. Instead each partner will be taxed individually in proportion to his or her share of the partnership income in the same way that income from general partnerships is taxed. The limited partners’ tax losses in any given year will be restricted to the level of their economic loss in that year. 
There have been a number of very favourable responses to the introduction of this bill and I would just like to quote from a couple of those. Firstly a press release which is advice from a law firm states: “Regime would position New Zealand as one of the best countries in the world to do business”. It is a modernising instrument. The press release also notes that where New Zealand was ranked 19th out of 55 countries evaluated in the 2007  
World Competitiveness Yearbook 
 the improvements that are needed to increase that ranking are contained in this respect in this bill. In other words this bill will go a substantial way to improving New Zealand’s competitiveness despite our distance and isolation from some markets and it will go a considerable way to improving our competitiveness in accessing venture capital. I could quote from other publications. The New Zealand Venture Capital Association believes that this bill and the regime contained in it is one of the most important current policy initiatives for New Zealand’s private equity and venture capital industries. Now that is no mean feat. 
 What we are keen to do in the Labour-led Government is to continue the process of modernising the rules and regulations surrounding businesses by not only adjusting the tax treatment of limited partnerships but providing sufficiently competitive regulation around them to enable New Zealand businesses to profit by having greater access to venture capital so that they can invest in new ventures and in developments in business that may be at the higher end of risk in the market. With the kinds of accolades that this bill has been receiving in the marketplace from people who have an interest in this area it is clear that we are going in the right direction. I am pleased that the previous speaker has indicated the National Party’s support for this. New Zealand should indeed continue in the trend of making our legal framework our institutions and our approach commercial balanced and world leading. This legislation is a further contribution to that. 
Dr RICHARD WORTH (National) 
: 
 1908 was a pretty amazing year in the life of the New Zealand Parliament because in that year a whole lot of legislation was consolidated. Those of us who went to law school some years ago had to deal with a lot of statutory material that flowed through in that particular year. One of those pieces of legislation which is the subject of this bill by way of change was the Partnership Act 1908. As a previous speaker has said Part 2 of that legislation has very detailed provisions relating to special partnerships patterned on what went on in the UK in 1907. 
In section 49 of that legislation there is a provision that is headed: “Special partnerships may be formed except for banking and insurance”. That is interesting because in this particular bill there is a similar exemption for banking and insurance. The provision in 1908 read in part: “Special partnerships may be formed for the transaction of agricultural mining mercantile mechanical manufacturing or other business by any number of persons upon the terms”—that is the terms set out in the legislation—“… Provided that nothing herein shall authorise any such partnership for the purpose either of banking or insurance.” Now it is an interesting question as to why that exemption has been carried forward into this legislation which as Simon Power boldly acknowledged on behalf of National we support. He has invited me to make a number of comments about flow-through of income expenses and other items. Certainly if there is time I will do that because that involves I think a reasonably complex explanation around clause 116. 
But I thought I would start off by saying what we are talking about when we are talking about limited partnerships. Limited partnerships are a form of partnership very similar to general partnership except that in addition to there being one or more general partners there are one or more limited partners. These general partners are in all major respects in the same legal position as partners in a conventional firm. That is they have management control they share the profits of the firm in predefined proportions and they have joint and several liability for the debts of the partnership. As in a general partnership the general partners have apparent authority as agents of the firm to bind all the other partners in contracts with third parties. Like shareholders in a corporation the limited partners by way of contrast have limited liability. Now that means they are liable only on the debts incurred by the firm to the extent of their registered investment and they have no management authority. 
If one is interested in the history of these sorts of structures then one goes back a long way in history to find limited partnerships existing in a Roman context. The earliest limited partnerships were called societatespublicanorum and they arose in Rome in the 3rd century BC. During the heyday of the Roman Empire they were roughly equivalent to today’s major corporations. Many of them had hundreds of investors and the interests were publicly tradable. However they required at least one partner and often several partners with unlimited liability. So it was really no surprise that in medieval Italy the concept was revived as I understand it around the 10th century as what was called the commenda a business organisation that was generally used for financing maritime trade. If one looks then at what went on in Europe both with Colbert’s ordinance of 1673 and the Napoleonic Code of 1807 one finds that this concept of limited partnership is reinforced. If one goes to Japan—and I do not think I have time to deal with that—one can see that same concept with a number of quite sophisticated subtleties worked through. 
But let me just say something about venture capital now because maybe there is some misunderstanding as to the scope of that phrase and the nature of that activity. It is a type of private equity capital that is typically provided by professional outside investors to new-growth businesses. It is generally made as cash in exchange for shares in the investee company. It is usually high risk but obviously it offers the potential for above-average returns. A venture capital fund is a pooled investment vehicle often a limited partnership that primarily invests the financial capital of third party investors in enterprises that are too risky for the standard capital markets or bank loans. That is not to say that it need be restricted to cash. For example venture capital can also include managerial and technical expertise. 
The hope with this legislation is that we will give venture capital funds a significant impetus. One only needs to look at the information that is in the public domain about the extent of New Zealand venture capital—and the latest numbers available to me are 2005—to see that we have a long way to go. The data that I am most familiar with is work that was done by Ernst and Young in 2005. That work made a number of I think interesting findings which included these: first that $212 million was in that particular year invested across 72 deals which was a 34 percent increase in dollars invested compared with the previous year; and second that $148 million or 70 percent of the dollars invested were private equity funds while $64 million or 30 percent was invested by venture capitalists. As members would expect I guess the leading sectors measured by dollars invested were health and biosciences accounting for 30 percent; technology accounting for 13 percent; and business financial services accounting for 11 percent. So health and biosciences were assisted by the largest individual deal for 2005 being the Ironbridge Capital purchase which some of us will be aware of. If one looks at who the players were in 2004 and 2005 one can see that we can go a lot further than was currently the position then. The players then were companies such as ANZ Capital Intellectual Capital Partners Direct Capital private equity Pencarrow private equity Rangatira and others. 
I would like to take up the invitation that Mr Power has extended to me to talk about the complexity of the taxation provisions which as I have said have a focus on clause 116. One can summarise what clause 116 is about pretty much in this way: the Income Tax Act will be amended to allow income expenses tax credits rebates gains and losses to flow through to individual partners. Income tax credits rebates gains expenditure or loss will generally be allocated to the partners in proportion to each partner’s share in the partnership income. A partner as one would expect will be able to deduct partnership expenditure incurred by the partnership before he or she became a member subject to the other deductibility tests in the Income Tax Act. I do not think I have time to go into those subtleties. 
The changes will apply to income years beginning on or after 1 April 2008. The focus is in new section HD 2 of the Income Tax Bill because it will clarify that the income the tax credits the rebates the gains the expenditure or the loss allocated to a partner in an income year will generally be allocated in proportion to each partner’s share in the partnership’s income under the partnership agreement. If there is no partnership agreement then the position will presumably be that these items will be apportioned to partners under the Partnership Act 1908 or whichever law determines their right to a share in the partnership’s income. So what this is all about is that the proportionate approach prevents streaming of these items to specific partners by requiring them to be allocated to the partners in the same proportion as their respective shares in the partnerships income. There is much more that I would like to say about this legislation but time clearly does not permit it. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First supports the Limited Partnerships Bill. I am sorry that I do not have the education to be able to talk about Roman history as far as it extends to limited liability companies— 
Dr Richard Worth 
: The Japanese example. 
R DOUG WOOLERTON 
: —the Japanese example or any other example. But I have to say that listening to Dr Richard Worth’s intelligent contribution was well worth it and I am just sorry that radio listeners could not share in what we were able to see and that was the rapt adulation with which Bob Clarkson was looking at Richard Worth. That alone was worth the effort of being in this Parliament. I might say that Bob Clarkson is not returning to me a look of rapt adulation at this point! 
We support the Limited Partnerships Bill because it brings New Zealand up to date and aligns our laws with international law in an area where New Zealand is particularly apt and that is in the area of innovation. It is modern stuff we are talking about here. Every day we hear about the intervention of angels which is not the intervention of angels I was taught about at Sunday school or even Bible class. I wonder whether Bob went to Bible class. I do not know whether he did. 
Bob Clarkson 
: Yes I did actually. 
R DOUG WOOLERTON 
: But they are not those sorts of angels. 
Bob Clarkson 
: I’m a Christian too. 
R DOUG WOOLERTON 
: I am a Christian too my friend. It is a broad Church is it not when it can have both of us within it. The thing is that these are not those sorts of angels; these are people who come along and put up money or advance money not always out of self-interest to entrepreneurs who have a business idea that needs to be taken further and needs some pretty big money to go with it. The limited partnerships that we are talking about here are a vehicle for them to be able to do that. 
One of the good things about these limited partnerships is the flow-through treatment of taxation and I am mentioning flow-through treatment of taxation only because it seemed to impress Simon Power. I think that Mr Power felt he is the only person in the House who actually knew what that meant—but he was not sadly. Flow-through taxation is important because these people who put up money are able to get tax advantages commensurate with their wealth. In other words they are not being taxed through the company; it is at the tax rate that they personally have. So that is important. It is something that is undersold in this country because we do not see the fruits of these people’s labour often enough. They start off here they get the venture capital then sadly they usually have to go to Europe or America to take the idea and the business to fruition. 
New Zealand First would like to hope that the day comes—and we hope this will be possible in New Zealand—when we can provide enough venture capital in this country so that these people can see out their visions without having to go offshore with many of them never returning. This bill is one little step on the path to doing that we recommend it to the House and we are proud to support it in its entirety. 
NANDOR TANCZOS (Green) 
: 
 The Greens support the Limited Partnerships Bill because we support measures that will see greater access by New Zealand entrepreneurs to investment capital. It has often been remarked that access to venture capital in particular has been fairly limited in New Zealand for some time. Although admittedly high rates of interest in New Zealand in more recent times has seen capital flow into the country as international financiers have seen the good returns to be made in this country it is not so clear that capital has found its way into the kinds of enterprises that we hope this bill will benefit. Neither should we have to rely on a crippling interest rate to get capital into the country and to our entrepreneurs and innovators. So the Green Party supports measures to establish a tax and legal structure that will facilitate venture capital in particular. 
This position may surprise some observers. The Greens have wrongly been seen by some commentators as anti-business and anti-investment. That is not at all correct. We certainly have concerns about foreign investment rules that allow international capital to buy up major stakes in key New Zealand infrastructure strategic assets and extensive landholding including some of our most iconic coastal high country and other landscapes with little impediment. We have concerns about practically unrestricted access for foreign capital to our most successful businesses and enterprises to the extent that foreign investment in New Zealand has been largely restricted to the buying up of stable and successful concerns. That has sometimes been accompanied by the stripping of the assets. Essentially what we have seen at times in this country has been the ram-raiding of the New Zealand economy aided and abetted by the New Zealand Government. That kind of investment if we can call it that does not help New Zealand or New Zealanders and we will continue to oppose the current overseas investment rules which facilitate if not quite smash-and-grab investment then at least the control of key strategic assets by overseas interests. 
There is a great deal of difference between that kind of investment and the kinds of investment that this bill is aimed at facilitating. The Green Party certainly supports rules that make it easier for New Zealand start-ups to access capital. I know how it is when one has a good idea a lot of energy but few assets. I well remember discussions with my bank manager about getting access to even short-term loans for demonstrably profitable purposes to be told that capital would be available only if I could secure it with property or if I had the equivalent amount of money in a term deposit account. I never quite understood the logic of that because if I had the money I would not be leaving it in a term deposit account to earn less interest than the bank was going to charge me for the money I was going to borrow. Why would I do that? I would be working the money. But it just illustrates the tendency of New Zealand lenders to avoid not even risk but actually anything novel. So instead they support the tried and tested safe business-as-usual options which is why New Zealand companies need to get better access to investors who are prepared to take a risk in order to unlock the very real entrepreneurial spirit that many New Zealanders have not just those who are generally recognised as business leaders. 
 It is interesting to note that Maori in particular have been identified as being one of the most entrepreneurial peoples in the world. I cannot help wondering how many more successful Maori businesses there would be if people with good ideas did not have to struggle so hard against the kind of discrimination I am certain Maori business people face in terms of access to finance. 
I certainly know many young people—actually not so young any more but young when I was young—both Maori and Pakeha who started their own businesses only to see them either fail or struggle for years just to keep their heads above water because they could not get access to the capital they needed to make their businesses really hum. So the Greens certainly see the benefits of introducing measures to improve access to capital for start-ups and for businesses needing capital for expansion and generally to support our entrepreneurial and innovative businesses. 
We also recognise that much of the innovation does not come just from the old school. In fact some big-business operators and investors are not as innovative and entrepreneurial as they claim. They are often conservative and dull. They rely on small fish struggling through with their innovative ideas and if those small businesses manage to survive and even grow then big businesses will gobble them up while smugly telling themselves how innovative they are. It reminds me of a badge I once saw: “I learnt everything I know by killing smart people and eating their brains.” That is the kind of operating system we have in this country when it comes to supporting innovative creative small business. That is not to say that there are no genuinely creative or innovative people in the big-business sector—there certainly are—but simply to point out that if we want to get real about it then we have to find better ways to support the fresh the novel and therefore inevitably the risky and the untried. We hope that this bill will do that. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Tena koe Madam Speaker. Kia ora tatouiteneipo. Hei wawahitakukoreroiteneipo ka huringawhakaaro ki Turangawaewae ki Ngaruawahia ki teneirangiwhakahirahira te raipotaengia a KingiTuheitia hei Kingimo te motu. E taku Ariki tu mai tu mai tu mai ra. KingiTuheitia ko koe tenei e whaianaingatapuwae o ratoukuangaro atu i te tirohanga kanohi. Ko koe tenei e arahineiito iwi Maoriieneirangi. Tu mai tu mai tu mai ra. Kia ora mai tatou. 
[An interpretation in English was given to the House.] 
[ 
Greetings to you Madam Speaker and to us this evening. By way of prefacing my address thoughts turn to Turangawaewae and Ngaruawahia to this wonderful day when King Tuheitia was made a monarch of the land. To His Excellency arise arise rise up before us. King Tuheitia this is you following the footsteps of those who are no longer among us leading your Maori people in these times. Arise arise rise up before us. Greetings to us all. 
] 
I did wonder with regard to the nature of the title of the bill the Limited Partnerships Bill whether we were talking about something very dear to my heart Te Tiriti o Waitangi. I think about the numerous parliamentary petitions court cases tribunal findings pilgrimages to Buckingham Palace Court of Appeal hearings and members’ bills that have emerged and that remind us that the Treaty partnership is indeed a limited one—for sure Madam Assistant Speaker—fore shore! You see a Treaty partnership that honoured the commitment of its signatories would have resulted in tangata whenua being self-determining in all that we do. My vision of an unlimited Treaty partnership would be seen in Maori having an economic base that is not restricted by the stranglehold of Government dependency but that enables us to manage our own resources in our own way. 
I do have confidence however that the contribution Maori are making to the nation is demonstrated by a growing and flourishing Maori economy—an economy that is generated out of our expanding asset base in fisheries forestry and land-based businesses; an economy in which over 16000 Maori are in business; and an economy created by Maori whom the Global Entrepreneurship Monitor has confirmed as the third most entrepreneurial people as Mr Tanczos alluded to earlier. Yet it is an economy I am told in which the Maori untapped employment potential is around $45 billion—an economy in which Maori businesses are threatened by a lack of business expertise financial skills and experience in acquiring capital particularly sustainable capital. That is the Maori Party’s key interest in this bill. We know that Maori business has become a major contributor to the New Zealand economy and that everyone prospers from improvements that could assist Maori businesses to succeed. As the saying goes: “What’s good for Maori is good for Aotearoa.” 
Will limited partnership models be good for us? This legislation sets up a new business structure: limited partnerships. It sets up an internationally recognised legal and tax structure through which venture capitalists can invest meaning that we can attract more foreign venture capital investment. Much like a company limited partners will provide investors with limited liability. The legislation is set out so that limited partners are liable for the debts and liabilities of the partnership only to the extent of their contribution to that partnership. Another key aspect lies in the taxation structure known as flow-through tax status where the partnership itself is not taxed but where each limited partner is taxed individually at his or her personal marginal rate in proportion to his or her share of the partnership’s income. 
So how can this be good for Maori? It is all to do with maintaining the momentum. What we know is that Maori and non-Maori have a similar proportion of start up but the difference is felt in the staying power of the new businesses where currently non-Maori firms have it all over Maori as Mr Tanczos spoke about earlier. So although Maori are great at starting up businesses only 37 percent of Maori entrepreneurial start-ups survive 3½ years compared with 62 percent in the general population. If Aotearoa was to adopt a limited partnership structure consistent with international norms businesses would be more able to access some of the $20 billion to $29 billion that a recent survey predicts will be invested by venture capitalists in the United States in 2007. 
Some of our people would ask: “Why on earth should Aotearoa open up opportunities for wealthy international investors to come to our shores with their fat chequebooks in their pockets?”. We will be looking to the advice of these critics to guide us as to the risks of overseas investors coming here to invest in return for shares equity a measure of control and even the possibility of moving the centre of control from outside of our shores and away from the business owners themselves. Last year Richard Jones Chief Executive of PoutamaMaori Business Trust discussed the potential for venture capital funding to help grow Maori businesses. Although he noted that many Maori businesses are in need of capital he warned that most Maori businesses would be too small to even get a look in. He also warned that such capital comes at a price stating: “they will want to have a stake in the business as well as have some control even to the point of running it so investment of this nature is not for the faint hearted”. 
But we are keen to hear from others involved in Maori business faint-hearted or not and the investment industry to learn whether there are opportunities that limited partnerships and the access to venture capital investments it facilitates may provide. As they say: “Where there’s a will there’s a way.” and if there is one thing that Maori businesses show us it is that will to succeed. The challenge we have always faced in any business ventures we were involved in was the ability to gain long-term sustainable investment on our terms that would provide the general capital to support our ideas. Sure Te PuniKokiri funding is limited to engagement funding—facilitating networks—but it was always insufficient to support the range of business ventures we were keen to explore. 
The challenge for Maori business operators is twofold. First they must attract investment by presenting a proposal that has sufficient credibility to convince genuine investors that the project will be sustainable and yield long-term results. Second they must have done the due diligence in the first place to guarantee that risks have been analysed and to know the market and the capacity of the investor to support their project in the long term. One of the ironies of the Maori business sector in Aotearoa is that although Maori businesses are present right across the export and domestic spectrums there are serious shortfalls in their capacity to attract and achieve sustainable funding. Maori businesses have told us that in reality there is often more likelihood of wealthy international investors being interested in their projects than our own local sources of funding. 
The million-dollar question is to work out the basis of the allegation that New Zealand funders have a prejudice against Maori businesses in the first place. What is the nature of the institutional racism that prevents domestic investors from investing in Maori business entrepreneurs in a way that will achieve long-term meaningful success? I remind the House of the urgent and pressing reality of New Zealand’s demographics. By 2050 it is estimated that half of the population will be brown. So with the right investment today Maori and Pasifika businesses will play an integral role in the economic sustainability and strength of New Zealand’s future. Although answers must be demanded as to why Maori businesses are not attracting local investment the Maori Party will support any initiatives that can open doors for securing a positive investment. 
We look to the new limited partnership business structure as a way of supporting Maori business start-up and expansion and particularly to the high-tech developments favoured by venture capitalists such as telecommunications biotechnology information technology and software development. Our people have a proven track record for technological innovation and we need to be given every opportunity to develop our resources on our own terms and consistent with our own tikanga. The Maori Party will be looking for sufficient security in the legislation to safeguard investment. The last thing we want to see with this legislation is that it opens up Aotearoa to rogue investors and to a further plundering of our natural resources. Maori will do everything in our power to prevent that from happening. 
Over the last few weeks the nation has been grappling with social issues that critics and commentators have been ever so quick to label the “Maori problem”. But when outfits like Bridgecorp fail and many mums and dads lose their savings no ethnic group is identified with that failure. I wonder why that is. As with those issues and given the wealth of people development innovation technological strength and productivity demonstrated in Maori businesses the challenge I would put to members of this House is to ask why those businesses are not receiving the investment funding they should. The demand for strategic investment in Maori small-business enterprise is heavy—at start up early stage development expansion and the ongoing viability stages of business. 
The Maori Party celebrates Maori successes and our international reputation as formidable entrepreneurs. We look forward to the select committee process to see if and how Maori businesses stand to prosper from the Limited Partnerships Bill. Kia ora tatou. 
JUDY TURNER (Deputy Leader—United Future) 
: 
 I stand on behalf of United Future to speak to the first reading of the Limited Partnerships Bill. We are very pleased to support the introduction of this bill which proposes regulatory rules designed specifically for limited partnerships—an investment vehicle that is widely used in other countries for venture capital investment. 
Having an internationally recognised legal and tax structure for limited partnerships in New Zealand will obviously make it easier for our businesses to gain access to investment capital. The associated tax changes are contained in Parts 5 and 6 and they introduce new tax rules for limited partnerships and clarify and modernise the tax rules on general partnerships. Under the proposed rules limited partnerships will be taxed as general partnerships are taxed: each partner will be taxed individually in proportion to his or her share of the partnership income. Limited partners will be subject to new tax loss limitation rules in order to ensure that the losses they claim reflect the level of their economic loss. For tax purposes limited partners will be able to offset only the tax losses to which they have exposure which will help to prevent limited partnerships from being used as tax shelters. 
The bill introduces a new comprehensive definition of “partnership” into the Income Tax Act and clarifies which forms of co-ownership are covered by the partnership rules. At present the Act does not contain a general definition of partnership. The new tax definition will be based on the definition of “partnership” contained in the Partnership Act. It will cover not only partnerships as defined under the Act but also other types of partnerships including New Zealand resident partners of foreign general partnerships and foreign limited partnerships; joint ventures whose members choose to be treated as a partnership for tax purposes; and co-owners of property though not companies or trusts if all the co-owners choose to be treated as a partnership for tax purposes. 
The bill clarifies the apportionment of income expenses and the other items to partners for tax purposes. The new rules will ensure that income expenses tax credits rebates gains and losses flow through to individual partners and those items will generally be allocated to partners in proportion to each partner’s share in the partnership income. The proposed rules will allocate deductions for expenditure incurred through the original partnership to be claimed by new partners subject to their meeting the other tests of deductibility in income tax law. The proposed rules will provide that for tax purposes partnerships will not automatically be treated as having dissolved when there is a change in partners. Furthermore people leaving a partnership will not have to make tax adjustments when the tax effect is not significant. 
In closing we welcome the introduction of this bill. The tax changes it proposes are designed to bring greater clarity and certainty to the rules governing the taxation of partnership income as well as to clarify and simplify the record-keeping requirements for partnerships. We are happy to support this first reading. 
Hon DAVID PARKER (Minister of Energy) 
: 
 I first thank Dr Worth for his very erudite explanation of the principles that lie behind the differences between general partnerships and special partnerships. I do not intend to traverse the area that he traversed so well. I endorse everything that he said and would like to compliment him on the clarity of his explanation. I would like to take it a little bit further in terms of the issue that he touched upon at the end of his speech when he was dealing with the taxation consequences of different structures which is the main reason behind the new principles that lie behind this Limited Partnerships Bill. 
Listeners who are interested may or may not be aware that when people invest in a company except if it is a very small company of up to five shareholders where some different rules can apply the profits or losses of the company are profits and losses of the company and they do not directly flow through to shareholders. So the effect of that is that if one has a new company that is set up to pursue a risky venture which then fails the losses that have been made by that company effectively die with the company. The investor in the company does not get a tax write-off for the losses that the investor has effectively suffered through the company but that are not attributable to him or her except in the limited exception of very small companies called loss attributing qualifying companies. 
So this bill tries to address that issue by creating a new category of partnership where the tax benefits of partnership losses flow-throughs to partners apply without the unlimited liability that normally follows for partners in a general partnership. The general rule in respect of general partnerships is that all members of the partnership face joint and several liability for the debts of the partnership. 
If an individual is investing in a risky venture that may in turn be investing in a risky new product that could be in the interests of the world to be brought forward—because it is a new technology that reduces environmental harm for example—there is none the less quite a level of risk that can attach to some of those new ventures. That risk does not relate just to the loss of money that is invested in the venture; it could relate to product liability risks for a new technology or indeed a new medicine. In those circumstances an older person who does not want to put at risk his or her home if he or she invests in this new venture might well say: “I’m not going to invest in this very worthy project because I don’t want to face joint and several liability if the partnership goes wrong.” That is quite a realistic fear for some people. They might say: “I am willing to risk the money that I want to invest here but I do not want to risk the home that I live in with my family so I am not willing to invest on that basis.” So this bill tries to devise a new structure that overcomes that impediment to investment in new technologies. 
This is part of the Government’s economic transformation agenda. This Government realises that in order to lift the economic performance of New Zealand we need to have higher-value exports. Although it is true that a lot of those higher-value exports will come from our traditional export sources like primary industries and the expansion of existing areas of endeavour it is also true that new areas of endeavour that are backed by venture capital will need substantial investment in order to bring forward these new and high-value products and services that we can sell to the world. Such investment will improve the wealth of our country and help to fund the social services of education and health that we in the Labour Government hold dear. So these new structures will assist by making investment in venture capital endeavours more attractive to those investors. 
We have to take care in this area not to create tax loopholes that can be inappropriately rorted by people. Of course New Zealand has a history in recent decades of its partnership structures being used inappropriately to cause tax benefits that have been disproportionate to the investment made. 
Hon Clayton Cosgrove 
: Who would do that? 
Hon DAVID PARKER 
: Many people did that in the 1980s and early 1990s particularly in bloodstock partnerships and film partnerships that were promoted where there was non-recourse lending that maintained the ruse that there was a real loss being suffered that flowed through to the tax returns of partners in those partnerships. The reality was that those losses were being overstated because through a tax jurisdiction like Hong Kong or the Cook Islands money was actually coming back to the lender of the money in the first place. So this bill has provisions in place to ensure that that sort of rort is not permitted whilst bringing forward the benefits of limited partnerships. 
In terms of one other area that Simon Power mentioned—the terms of entries and exits into partnerships—one of the other parts of this bill creates amendments to the Income Tax Act in order to tidy up what has been existing practice. In theory when people exit from partnerships the whole of the partnership comes to an end every partner’s tax liabilities are triggered by that cessation of partnership and a new partnership in law forms on the same day in respect of the remaining partners if they choose to continue. In effect that meant that in forestry partnerships where there might be 25 people in a partnership that could run for 30 years while the trees grew when one person withdrew from that partnership there was in theory a tax consequence for all of the other partners whose tax liabilities would be affected by the retiring partner. This bill tidies that up by making sure that it is only the tax affairs of the withdrawing partner and any new entering partner that are affected by that sort of transaction rather than those of every partner. 
For those reasons and others which have been well traversed by other speakers I commend the bill to the House. 
LINDSAY TISCH (National—Piako) 
: 
 As members have heard from other National speakers we will be supporting the Limited Partnerships Bill. 
The key features have been articulated but I think it is important to reiterate them. Under this bill a limited partnership can be formed for any business purpose except for insurance and banking—and it is important to identify that—and is formed upon registration with the Companies Office. A limited partnership will be a separate legal entity—and that is significant—unlike a general partnership or a special partnership and any legal person may be a general or limited partner. A limited partnership must have at least one general and one limited partner. The function of the general partner is to manage the business of the limited partnership and the function of the limited partners is to provide money or assets to fund that business. The general partner will be liable for the debts and liabilities of the limited partnership. Limited partners’ liability will be limited to the amount of their contribution to the partnership. The bill also establishes safe harbours that allow limited partnerships to participate in the management of the investment partnership without tainting their limited liability status. 
Another important feature is the special partnerships which Dr Worth mentioned under the Partnership Act 1908. These are to be repealed although transitional provisions permit a special partnership existing on the commencement of the new Act to continue but not to be renewed at the end of its current 7-year term. 
I thought it would be appropriate to talk about and comment on the development of venture capital in New Zealand. Josh Lerner an expert in venture capital at Harvard Business School suggests that market failures have resulted in Government support being a factor in the initial development of all future venture capital markets. He goes on to identify three potential market failures. First there is a heightened risk of research and development spillover to competitors when small innovative firms have scarce resources to defend their intellectual property. Second the increasing-returns nature of a developing venture capital market with the development of specialised venture capital skills and soft infrastructure involving lawyers accountants and business advisers with deep understanding of venture capital processes means that the 100th investment is considerably easier than the first investment. Third severe information asymmetries between venture capital firms and potential investees lead to the requirement that the size of an investment must be significantly large to justify the considerable due diligence costs involved in making investments. Similar asymmetries apply to young venture capital funds that have yet to develop a track record of success and that therefore have difficulty in securing funds from institutional investors. 
He goes on to say that in this context the Government’s initiative in 2002 of establishing the New Zealand Venture Investment Fund on an arm’s length basis from political interference and as a co-investor with private sector investors should be recognised as having been a catalyst for developing the professional venture capital industry in New Zealand. The scope for further development is considerable. For example the size of the New Zealand venture capital sector would need to increase at least fivefold to approach levels comparable with those of Ireland the United Kingdom and Singapore as a proportion of GDP. 
At a more micro level Lerner suggests that New Zealand’s current venture capital market under-services the New Zealand innovation system both in terms of the quantum of capital available from locally based funds and in terms of the breadth and depth of services provided by venture capital managers. It is likely to take quite some time for our venture capital market to mature into a self-sustaining industry. Because successful investments in start-up companies involve 7 to 10-year cycles the existing New Zealand Venture Investment Fund - supported funds will take several more years to develop successful track records to a point where they can attract funds from the majority of local institution investors which will then signal confidence to attract international institutions. In addition given the risks involved in venture capital it would be surprising if all five existing venture capital funds achieved the level of success necessary to continue in business. New funds will need to be established simply to maintain the venture capital market at its current size and further rounds will be required to grow the market towards international levels as a proportion of GDP. So this bill is very important in order for us to be able to meet what the learned Josh Lerner sees as some of the challenges facing venture capital in New Zealand. 
The limited partnership form will be familiar to overseas investors; it operates in other countries. The proposed structure is likely to be very useful for raising investment capital. Industries that have high start-up costs and/or high research and development budgets have significant upfront losses as a result. Examples would be biotech scientific and technology industries and possibly the film industry; all of those would benefit. The flow-through tax treatment allows losses on start-up to be passed through to investors which would be attractive to many of them. 
The limited partnership form offers protection to professional venture capital investors who will not be jointly and severally liable or responsible for the actions of the other partners. The question is whether this legislation is simply a measure to catch up with overseas practice or whether it learns from experience and positions New Zealand more favourably than close competitors for venture capital especially Australia. Examples could be management buy-outs new business opportunities or an investment option available to limited partnerships. National members will want to ask the following questions at the select committee. Are limited partnerships required to make a specified proportion of investments in New Zealand? And is investment permitted in listed and unlisted companies? 
Some law firms have suggested that thought needs to be given to the following issues. The first is the extent of the safe harbours or activities a limited partner can be involved in without contravening the no-management rule. These are to be contained in regulations which need to be developed well in advance of the enactment of this legislation and we will be looking at this issue particularly closely. Then there is the trigger point for someone becoming a limited partner and availing himself or herself of the protection of limited partner status. The draft bill places the obligation on the general partner to get it right. Another is the extent of the power in insolvency to claw back distributions made to limited partners. The current test applies if the limited partner knew that the limited partnership would not satisfy the solvency test after the distribution and applies for 3 years. Written partnership agreements are compulsory for limited partnerships but there is no test of their quality. There is the issue of the continued confidentiality of the names of investments of limited partners including where the information is contained in annual returns. Finally the passing of all losses through to investors is at the moment limited to the capital contributed by the relevant investor. These are issues that law firms have identified in this bill. They are certainly areas that National members will be looking at closely at the select committee. 
There are other advantages of course for small businesses in that the limited partnership will actually allow businesses to have management buy-outs. It will save them from having to list on the stock exchange where the compliance and reporting procedures can be too tough for some small businesses. So we could see a resurgence of money through private equity going into businesses. In fact the latest annual  
New Zealand Venture Capital Monitor 
 shows private equity investment up 250 percent in 2006 to $1.13 billion. But that is still behind Australia the United States and the United Kingdom. 
We will be looking closely in the select committee at the points I have raised. National supports the bill. It is very good legislation. 
Bill read a first time. 
Hon CLAYTON COSGROVE (Minister for Building and Construction) 
 on behalf of the  
Minister of Commerce 
: I move  
That the Limited Partnerships Bill be referred to the Commerce Committee 
 that the committee finally report back on or before 3 December 2007 and that the committee have the authority to meet at any time while the House is sitting except during questions for oral answer 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 192 and 195(1)(b) and (c). 
Motion agreed to. 
Dairy Industry Restructuring Amendment Bill (No 2) 
First Reading 
Hon JIM ANDERTON (Minister of Agriculture) 
: 
 I move  
That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a first time. 
 At the appropriate time I intend to move that the bill be referred to the Primary Production Committee for consideration and that the committee present its final report on or before 31 October 2007. I thank the members of the Primary Production Committee and its chair in advance for their cooperation. I also intend to move that the committee have the authority to meet at any time while the House is sitting except during oral questions and during any evening after 6 p.m. on a day on which there has been a sitting of the House and on any Friday in a week in which there has been a sitting of the House despite Standing Orders 192 195(1)(b) and 195(1)(c). 
The Dairy Industry Restructuring Amendment Bill (No 2) amends the Dairy Industry Restructuring Act 2001. It provides export rights to 11 designated dairy markets at the expiry of the initial allocation of rights held by the Fonterra Cooperative Group. In this way the bill will complete the transition begun in 2001 to a new industry structure without the export monopoly powers of a statutory marketing board—the New Zealand Dairy Board. It will also provide certainty to all parties in the industry about future access to these markets. 
The 11 export markets are Canada the Dominican Republic the European Union Japan and the United States. They are generally where the importing countries have country-specific tariff quotas for specified dairy products of New Zealand origin. This means that New Zealand has access to these markets for specific quantities of product at preferential tariff rates. In 2001 Fonterra was allocated exclusive access to these markets for fixed periods. But these exclusive allocations expire progressively from 2007 with the last expiring in 2010. This bill provides for access to each of these markets in different ways. The different approaches to be applied are necessary because of the different import arrangements applied by the Governments of the importing countries. In respect of the markets for butter in Canada and cheese in Japan the bill will remove all economic export restrictions that currently apply. This will allow any entity to export New Zealand - origin product into these markets and in this way allow a much wider group of New Zealand dairy processors and exporters to access the potential benefits from those export opportunities. Any relevant quality assurance and certificate of origin requirements imposed by the importing country will of course still apply and the New Zealand Food Safety Authority will continue to play a key role in that regard. 
For the remaining markets the bill provides a mechanism whereby export licences can be allocated among New Zealand dairy processors on the basis of objective criteria. Again a much wider group of New Zealand dairy processors and exporters will gain access to these markets and will have the opportunity to benefit from the increased exporting opportunities. The volume of product that a processor will be allocated in an export licence will depend primarily on the volume of milk solids that the processor collects directly from New Zealand dairy farmers. Export licences will be allocated initially for terms of 1 year at a time. For export licences that become available in 2011 and later years export licences will be allocated for terms of 3 quota years at a time to give longer certainty and continuity. The bill also provides for processors to trade export licences allowing licences to flow to those exporters who wish to take full advantage of the market opportunities. All registered dairy product exporters will be eligible to hold export licences. 
To facilitate the effective operation of the new allocation mechanism outlined in the bill additional enforcement provisions have been included regarding penalties for false declarations and various search and seizure provisions. It is important that the allocation mechanism is robust and that the information provided for the purposes of allocation has integrity and accuracy. Two of these markets will have additional rules to ensure that export licences allocated to New Zealand processors can be adequately enforced. For those two markets any entity will be able to export product outside of the quota—that is at the normal tariff rate—but only after the quota itself has been filled. These provisions relate to the market for dairy fat blends in Japan and the market for certain milk powders in the Dominican Republic. 
As a consequence of the new export licence regime set out in this bill the New Zealand Food Safety Authority will need to develop and implement new systems for export certification and reconciliation. This bill therefore provides for amendments to the Animal Products Act 1999 to allow these systems to be developed on a cost recovery basis. 
I believe that the amendments contained in this bill relating to dairy export markets will continue to maximise the economic benefits to New Zealand arising from our access to these markets while at the same time ensuring that we are meeting New Zealand’s international obligations. As well as introducing provisions relating to dairy export markets this bill amends existing regulation-making powers relating to the New Zealand Dairy Core Database—an important industry-good asset containing comprehensive information on dairy herds and their production performance. The current regulation-making powers in the Act apply only to the Livestock Improvement Corporation. The bill provides for regulations to be made that would apply to any other entity operating the database for industry-good purposes. This measure will ensure that the integrity of the database can be maintained into the future. 
The Government would like to see the Dairy Industry Restructuring Amendment Bill (No 2) enacted by 31 October 2007. This will enable the first round of export allocations to be done for some of these markets before Fonterra’s exclusive allocations to those markets expire at the end of this year. I commend this bill to the House. 
Hon DAVID CARTER (National) 
: 
 The National Party will support the Dairy Industry Restructuring Amendment Bill (No 2) to the Primary Production Committee. We do that acknowledging that the quota access for New Zealand dairy products to the European Union to the United States to Japan and to Canada has been hard-earned by New Zealand over many many years. Prior to the previous National Government initiating producer board reform there was a lot of discussion around the allocation of quota. 
It is worth recalling just how it was managed prior to the reform of the producer boards. Of course at that stage the allocation of quota was relatively easy. It was in the hands of the New Zealand Dairy Board which had the compulsory right to market all dairy products from this country. But as the reforms were initiated and intense discussion was occurring in 1997 1998 and 1999 and various alternatives to compulsory marketing by the New Zealand Dairy Board were developed there was a very vexed question around the allocation of these quotas. At that stage there was recognition by all involved—industry players Government officials and politicians—that we as a nation needed to do everything we could to protect the interests of New Zealand producers and to maximise the economic benefits to our country. 
As an Associate Minister at that stage to the Minister of Agriculture John Luxton I remember these discussions well. The ultimate solution that was hammered out at that time was a temporary solution and it was that exclusive access was to be given to the then still to be formed entity Fonterra. There was no free lunch. There was of course a monetary recognition or compensation paid at that stage to the other players within the industry Westland Milk Products and Tatua Cooperative Dairy Co. Ltd. 
It was as I said a temporary arrangement that was meant to be resolved by the Government well before today. I note that two of the quota markets—the Dominican Republic with 4800 tonnes of milk-powder and Canada with 2000 tonnes of butter—have expired and have been extended by regulation. It is fair to say that the Labour Government has never been strong in its connection to agriculture and to rural New Zealand. No one should be surprised that the deadline has passed with not a solution being presented prior to tonight. 
The responsibility for this failure clearly lies with the Labour Government. It is not as though the Order Paper has been full of urgent legislation over the last 12 months. This matter could have been sorted out quite a long time ago. Although I say the responsibility lies clearly with the Labour Government it also lies with the current Minister of Agriculture Jim Anderton. But as most of rural New Zealand knows he is certainly struggling as he grapples with this new portfolio. He was a very surprise appointment by Helen Clark after the election of 2005. He has found it very difficult and I think he would be the first to acknowledge that he has not really had a background of association with rural New Zealand and he certainly has struggled to show any empathy in connection with farmers. 
But to be fair to the industry it gave the Minister Mr Anderton on his surprise appointment every opportunity. He did start with a little bit of promise. He said that he would get out there amongst the country and do some listening. He proceeded to get out amongst the country but it was not long before he gave up the listening and started with the very long speeches that Mr Anderton is now famous for. I am afraid that the industry has well and truly switched off. The dairy farmers do not rely on Mr Anderton to solve the problems they grapple with this one included. 
Hon Clayton Cosgrove 
: They certainly don’t want this member. 
Hon DAVID CARTER 
: I suggest that that member has a look at the current polling. I suggest that rural New Zealand is well attuned to the ability of this member in rural New Zealand as compared with the current Minister Mr Anderton. Anyway I acknowledge he has had his honeymoon. It was a very very short honeymoon and now he has some challenges. 
But we do finally have some action tonight on the vexed issue of quota allocation. As I have said it is too late but having put the Bill into the House tonight I am surprised and disappointed that there is the guillotine clause there which requires the Primary Production Committee to report back by the end of October. The Minister has mucked around for years and years on this issue. He has had the opportunity to get the bill before the House and he gives us a total of 10 weeks as a select committee to advertise for submissions which will take about 3 weeks I guess and then to hear what I suspect will be a substantial number of submissions. I am sure that he said in his speech that the committee is to report back to the House by 31 October and then later in his speech I heard him say that he actually wants the legislation fully enacted by that time. As usual I give the Minister my assurance as chair of the Primary Production Committee that the committee will cope with this challenge diligently. It will fully cooperate and I certainly hope that we can do it without having to go for an extension. 
I suspect we will get some submissions from the likes of Fonterra Open Country Cheese Tatua Westland Cooperative Dairy Synlait and many of the other new players that have appeared within the industry since the original passing of the Act in 2001. As I have said earlier National will support this amendment bill to the select committee because we acknowledge that the issue has to be sorted out to give not only the dairy farmers of New Zealand every opportunity for maximum economic gain but more important all New Zealanders the chance to maximise economic gain. 
It is a pleasure to be part of this debate tonight particularly when the dairy industry—as compared with beef and sheep in New Zealand—is enjoying such buoyancy. I recall my visit to the National Fieldays earlier in June walking amongst many many farmers—particularly dairy farmers—over those couple of days and the angst and anger among the dairy farmers who had just a few days earlier been blamed for inflation in this country by the Governor of the Reserve Bank Mr Bollard. 
Colin King 
: How outrageous! 
Hon DAVID CARTER 
: Colin King says it is an outrageous comment and it was. The Governor of the Reserve Bank had put up interest rates another 25 basis points on that occasion—he has since done it again which makes it effectively 50 points—and at the time of his announcement in June he was saying that the reason he had to do this was that the dairy farmers were receiving too much money. Now the first thing is that he should have actually been celebrating the success of the dairy farming industry which has made so much progress firstly for their own benefit—and I champion that and good luck to them—but more so for the benefit of all New Zealanders. But the other thing that was amazing is that he made that comment early in June in the first week of the new dairy season. There would not have been a farmer in New Zealand who had received any benefit of the announcement of a payout of $5.35. So I think that in that statement Mr Bollard is as out of touch with the dairy industry and its ability to spend as recklessly as he seems to accuse it of as indeed that Labour Government and the current Minister of Agriculture are out of touch. 
Anyway we will support the legislation going to the select committee. We will do our best to get it back on the time line that the Minister has given us tonight. We look forward to the submissions we receive. We encourage anybody who has an interest in this industry and who will be affected by the allocation bill to come forward to the committee because we look forward to their comments on the legislation. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 I am certainly looking forward to working together with David Carter on the Primary Production Committee. I hope we will work very closely as we usually do in the select committee because this is a very important bill for us and for the farmers of New Zealand. 
The Dairy Industry Restructuring Amendment Bill (No 2) deregulates some dairy quota controlled export markets. I want to say a few words about the recent visit that the Primary Production Committee made to the Waiariki block in Taupo. Landcorp is developing huge tracts of land converting them from forestry to dairy production. I must confess I was amazed to see that development and I think in relation to some of the development going on this bill is very timely. We saw thousands of hectares of forestry being converted to dairy farms—and they were state-of-the-art dairy farms too I must say. I was certainly impressed with the equipment being used the equipment being installed in the milking sheds and the machinery being used to convert these lands to dairy production. 
This area was considered to be a wasteland years ago when scientists and farmers did not know about the cobalt issue. Cobalt is an element in the soil. They knew about the selenium problem and they found out later that pastures were not growing very well because there was a shortage of cobalt. Once they found that out an additive could be put into the soil to make sure the pasture grows well and that is what happened as I understand. Now forestry is being converted to dairy farming because that land will be very productive. I must say I have some concerns in terms of the environmental impacts of this conversion although I was told that Landcorp works very closely with Environment Waikato to make sure these conversions are in keeping with the environment in the area. 
 Let me say that this bill will provide assurance to all parties in the dairy industry about future access to export markets and it will provide for access to each of these markets in different ways as the Minister of Agriculture said earlier. In terms of the markets for butter in Canada and for cheese in Japan the bill will remove all export restrictions that currently apply. For the remaining markets the bill provides a mechanism whereby the export licences can be allocated among New Zealand dairy processors on the basis of objective criteria. So in both these cases a much wider group of New Zealand dairy processors and exporters will gain access to these markets and have the opportunity to benefit from the increased exporting opportunity. 
Similar to what happened in the meat markets this dairy deregulation clearly will be a fantastic opportunity not only for businesses to get into the quota-controlled markets but also for the wider group of processors and exporters to be part of the dairy industry. With those few words I commend this bill to the House. 
NATHAN GUY (National) 
: 
 Is it not interesting tonight that when we have a look at this market-by-market summary of these 11 countries that we currently have quota arrangements with we find that two of them have expired—in June and July—and have had to be extended by Order in Council? This legislation went through Cabinet I believe in May 2007—recently—and now there seems to be a mad rush does there not? Once again there is a mad rush. The Minister would have had a briefing on this when he came in when he did not even own a pair of gumboots in 2005. He would have had a briefing and he would have known that the Dairy Industry Restructuring Act was on the agenda and was coming up. The legislation went through Cabinet in May 2007. We have been asking where it has been and when it is coming to the House. Finally the bill is now here and there is a very very tight time frame on it. The Minister wants it reported back from the select committee and through the House by the end of October. We do not know how many submissions we will get. 
This is a big issue for New Zealand dairy farmers; these quota markets are worth about $50 million a year. So I cannot understand. One would have thought that if the Minister were competent this would be before Cabinet earlier than this and in the House way before now. Here we have a Minister who talks big and fails to deliver. We have seen that with the microchipping of dogs and several other things where he has failed to deliver on his promises to the rural community. 
I want to talk a little bit about the bill a little bit about the background and a little bit about what the future holds. I have talked about the 11 markets already and how it is very important that New Zealand farmers as a whole own the quota value which is worth about $50 million a year to them. This legislation will remove the export restrictions it will allow a 3-year period for quota years at a time—which I think is fundamentally very good—and it will open up these markets. 
The Hon David Carter who leads the Primary Production Committee has talked about where we expect some of the submissions to come from. I think we can expect submissions from Fonterra from Open Country Cheese and from Tatua which is a very good niche company up in the Waikato. We can expect a submission from the Westland Cooperative Dairy which is doing particularly well down on the West Coast because it has not got the big share structure overheads that Fonterra currently has. We can expect a submission from Synlait an up-and-comer in the market that I am sure will be interested in this and possibly even one from Gisborne Milk. AFFCO which has put its flag up the pole saying it is interested in getting into the dairy industry may well look to put a submission in as well. 
So I cannot understand why the Minister has taken that long to get this bill into the House. 
Hon David Carter 
: Incompetent. 
NATHAN GUY 
: I think that Mr Carter is right; the Minister is very incompetent. One of the big areas in this bill that I think we need to talk about in the first reading tonight is around the New Zealand Dairy Core Database. A significant part of this bill is around that; it is sort of hidden in there. In essence this bill will expand the regulation powers. Here I am talking about the Livestock Improvement Corporation database. If Livestock Improvement Corporation shareholders want to commercialise it then the bill will allow them to do that. I probably have a few issues about that and I will be interested to see how many submissions we get from possibly the Livestock Improvement Corporation Ambreed New Zealand and whoever else is in that market. 
The Livestock Improvement Corporation has been going for 100 years. It has been doing extremely well in innovation in terms of genetics and reproductive technologies and has been actually driving the profitability for our dairy industry. It is really important that when this bill comes to the select committee these people submit on this very very important part. The corporation does about 3.3 million inseminations a year so it is a big business. For about 80 percent of the dairy industry the corporation manages to do the inseminations into these cows. The future profitability lies in the Livestock Improvement Corporation database I believe being held by the New Zealand shareholders. The corporation has diversified into international markets as well such as Australia the United Kingdom and Ireland. It is very very important that we hear from those people who are at the coalface of the industry. 
The other thing I wanted to talk about—and Mr Carter has already touched on it as well—is how it is interesting that Fonterra has signalled an increase in payout of up to $5.56. If the dollar keeps going down that may increase even higher as well. This is fantastic for the dairy industry. But we need to be mindful of the fact that the dairy industry has been struggling for a couple of years. It has high debt and now interest rates and mortgage rates are going up. So dairy farmers have not actually seen these returns yet. 
It was so interesting when Mr Bollard came out with his statement at about the time of the Fieldays. I am sure he had had a cup of tea or coffee with the Minister of Finance who had probably told him to say: “Look the dairy industry is why we have to lift the official cash rate another 0.25 percent.” But I do not believe that statement at all. The dairy farmers have not seen that increase in payout yet and they are unlikely to see it until the end of the 2007-08 season—right through until about April or May—when this money will flow. It is estimated that about $2 billion will go through into provincial rural New Zealand. 
As we are talking about the dairy industry I will mention something that is very topical. A couple of weekends ago I was listening to the Parliamentary Commissioner for the Environment Dr Jan Wright when she was having a wide-ranging interview on Radio New Zealand National. Here she was spouting on about how the dairy industry is causing all this degradation in water quality in New Zealand. Never did she say: “These are the facts.” Never did she quote any study or any scientific research to say that dairy farming is the reason possibly for some of the water quality problems in New Zealand. So I am really interested to catch up with Ms Wright and— 
Steve Chadwick 
: She will be at our select committee tomorrow. 
NATHAN GUY 
: Well the member can ask her these questions for me: where is her scientific knowledge to say that what she said on the radio is actually correct? That is one question I would like answered. What Mrs Chadwick can say to the environment commissioner tomorrow is that dairy farmers right now are up to 97 percent of complying with nutrient budgets which is fantastic. All the time dairy farmers are very mindful that if there are environmental problems they need to change those and be mindful of the fact that we export 95 percent of what we produce in this country. A lot of it is on the back of what we have here and that is an island nation generally free of pests and all those other harmful things and we are reasonably clean and green and we are doing a pretty good job at it. Dairy farmers are very very mindful that we need to do a bit better but when the Parliamentary Commissioner for the Environment says farmers are bad and are polluting the waterways I do not think she can back that up with science. So I would appreciate catching up with Mrs Chadwick tomorrow when she has had a chance to put those questions to her. 
The other thing I want to touch on with regard to the environment is Dairy InSight which is a levy-based organisation. Farmers pay a levy into Dairy InSight which has signalled that $15 million is going into research and development on a sustainable strategy for the environment and best practice which I think is fundamentally very very good. Huge growth is happening in the dairy industry right around the country. Let us look at Southland I say to David Carter as an example which is not far from where he lives. In 1997 there were 285 dairy farms. Now there are 643 with a queue of people looking to convert. Another 50 or 60 are struggling to get builders to build cowsheds down there. It is changing the whole aspect of how Southland operates and putting more and more money into its economy which I think is fantastic. 
So in summary I cannot understand why the Minister thinks we have to have a mad rush with this bill. He has known for ages that this is coming. We have been quizzing him when he has been in front of the select committee. We have asked: “Where is the bill? When are you going to bring it into the House? When can we start work on it?” and now it is in here with a very very tight time frame. We are expected to report back by 31 October. 
Hon Clayton Cosgrove 
: Do some work. 
NATHAN GUY 
: We do not know how many submissions we will get. 
Hon Clayton Cosgrove 
: Get up earlier then. 
NATHAN GUY 
: Mr Cosgrove chips in all the time—the little strutty rooster. If the Minister had any competence he would have had it in the House in plenty of time. [ 
Interruption 
] What would that member know about dairy farming? All he does is sit in here and interject but he does not know what he is talking about. So there is a tight time frame. The members on the other side of the House really do not know what they are talking about with this bill. At the Primary Production Committee we will do our utmost to get the bill back to the House by 31 October but we should have far more time and if the Minister was competent and we had a nice little cosy arrangement with the Labour Government then we would have had more time to work on this very important legislation. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Tena koe Mr Deputy Speaker. Kia ora anotatou katoa. For a number of years my whanau and I lived in Taranaki. My wife is from Puniho and Parihaka in Taranaki and every day as we passed by some of the beautiful dairy farms in heartland Taranaki she would experience a range of emotions. None of them unfortunately are addressed in this Dairy Industry Restructuring Amendment Bill (No 2). I believe that the issues are of sufficient severity that it is impossible to consider this bill without thinking of the original dairy restructuring that occurred following what the Waitangi Tribunal has called the “wrongful confiscation and subsequent bungled return of Taranaki land.” 
 The context dates back to the New Zealand Settlements Act 1863 the two west coast commissions of the 1880s the West Coast Settlement Reserves Act 1881 and 1892 and eventually the Maori Reserved Land Act 1955 which established a perpetually renewable leasing regime with rents at 5 percent of the unimproved value of the land. The imposition of an unjust leasing regime on the returned land has conclusively been determined as a breach of the Crown’s active duty to protect the rights determined in the Treaty. And so as we come to this latest piece of legislative change a bill that is promoted as allowing for greater participation and certainty in the dairy industry let us remember to consider the concept of greater participation and certainty for tangata whenua who were robbed of the opportunity to enter the dairy industry. 
Having done some homework on this bill I understand that it removes export restrictions from some markets and allocates export rights to dairy quota markets to a wider group. In essence this bill allows a wider group of dairy processors to participate in export markets and the Maori Party supports the opening up of wider opportunities for growth within the dairy industry sector. The Maori Party is also supportive of the concept of future certainty for the industry being provided by export rights becoming available during 2008-10 being allocated for 1 quota year and those becoming available in 2011 being allocated for terms of 3 quota years. 
We are also mindful of course that any interested parties on which this policy will impact most will have another opportunity other than the consultation that occurred at the start of this year to give feedback to the process through the select committee. Amongst that we would expect that the 18000 farming businesses represented by Federated Farmers will want to have a say; they will be pretty keen and I am also sure that the Federation of Maori Authorities would be keen to offer some comment. Within that of course the significant proportion of Maori who are involved in primary industries will have a voice. We know that as at the 2001 census 6.4 percent of people involved in the dairy cattle farming sector were Maori—some 2232. Roughly 20 percent of the population employed in services to agriculture were Maori as well. 
Members may not know that collectively Maori are the largest client of Meat and Wool New Zealand and also of Fonterra and of fertiliser companies. On a monetary basis more than 50 percent of the $9 billion of commercial assets estimated to be owned by Maori is in the primary industries of farming forestry and horticulture. I indicated in an earlier speech that Maori in the farming sector and Maori land - based organisations represent enormous potential for the national economy. So there is an obvious advantage in sending this bill to a select committee to hear from concerned stakeholders including Maori in the dairy-farming sector. 
I want to return to the large-scale land confiscations that the Crown enforced in the 1860s in the process depriving many iwi of their economic base. We recognise too the enduring impacts of discriminatory land laws and pastoral leaseholding arrangements which took effect from the 1850s right through to the 1970s resulting in entrenched alienation of Maori land. The impact of confiscation and alienation was that the prime land the most fertile versatile land was the first to go leaving only the land with fairly limited potential. 
Because of the long-lasting effects of that limited potential a case was taken by Edward RongomaiiraTamati and others on behalf of the beneficial owners of land held by Parininihi ki Waitotara Inc. known as the Wai 790 claim. The findings of the Waitangi Tribunal confirmed that indeed the cost of the claimants entering the dairy industry on their land will only increase as “fair value” shares increase in value. The tribunal found further in its 2001 report that first successive Governments over more than a century had failed to respond to claims for relief; second that that failure was in itself a breach of the Crown’s duty to protect Treaty rights; and third that had the Crown responded in a timely manner the claimants would have been in a position to enter dairy farming prior to the effects of unbundling becoming apparent. The tribunal’s conclusions were clear: the claimants were prejudiced by the difficulties they will encounter in obtaining sufficient capital to buy shares to ensure a right to supply milk from resumed farms. 
Some in this House may question the relevance of the Waitangi Tribunal to the bill. Well the Waitangi Tribunal labels that whole saga as the “whole sorry business of the Crown’s breaches in Taranaki” and they have some relevance to this new dairy industry restructuring amendment bill in 2007. How do the principles of participation and certainty promoted in this bill bear any relationship to the situation in Taranaki—or indeed any area throughout Aotearoa—of prime farming land that was illegally acquired from tangata whenua? Well I say it actually has everything to do with it. 
I return to the Wai 790 claim for one last reference which may make the relationship to this bill a little bit clearer. The Waitangi Tribunal summed up the Wai 790 claim by recommending that “the claimants’ opportunity to become dairy farmers in their own right should not have been allowed to diminish but should instead have been actively protected.” That is what it said; there we have it. The Taranaki dairy farm land case study offers this House an opportunity to learn. It tells us that the ability of Maori people to get back into the dairy industry is extremely limited. Maori interest in entering the dairy industry is very limited. Crown inactivity over subsequent Governments has meant that the opportunity to enter the dairy industry has become even more limited. Maori would need access to enormous investment to be able to buy shares based on milk solids and stock. 
So we support the passage of the Dairy Industry Restructuring Amendment Bill (No 2) on two grounds. Firstly we want to hear how Maori farming interests will be affected by this bill how Maori dairy farmers will benefit from our allowing greater participation and certainty into the dairy industry. The second wider goal is under the cloud of the latest bad report from the United Nations. The Committee on the Elimination of Racial Discrimination concluded in its New Zealand report that actions undertaken by the Crown “tend to diminish the importance and relevance of the Treaty and to create a context unfavourable to the rights of Maori.” We in the Maori Party are very concerned about this finding as every other member of this Parliament must be and it is our absolute commitment to take every opportunity that we can to enhance and consolidate the status of Te Tiriti o Waitangi in every aspect of our work. 
There is no time like the present to begin the pursuit of Treaty justice so the Maori Party will be monitoring the reaction to and developments of the Dairy Industry Restructuring Amendment Bill (No 2) with a view to enabling stronger more confident implementation of Te Tiriti o Waitangi. 
Bill read a first time. 
Hon RICK BARKER (Minister of Internal Affairs) 
 on behalf of the 
 Minister of Agriculture 
: I move  
That the Dairy Industry Restructuring Amendment Bill (No 2) be referred to the Primary Production Committee for consideration that the committee present its final report on or before 31 October 2007 and that the committee have the authority to meet at any time while the House is sitting except during questions for oral answer and during any evening after 6 p.m. on a day on which there has been a sitting of the House and on any Friday in a week in which there has been a sitting of the House despite Standing Orders 192 195(1)(b) and 195(1)(c). 
A party vote was called for on the question  
That the motion be agreed to. 
Ayes 69 
New Zealand Labour 49; New Zealand First 7; Green Party 6; Maori Party 3; United Future 2; Progressive 1; Independent: Field. 
Noes 49 
New Zealand National 48; Independent: Copeland. 
Motion agreed to. 
The House adjourned at 10 p.m.