Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6090] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 Part 2 of the Crown Retail Deposit Guarantee Scheme Bill provides for the powers that allow the Minister to specify types of entities and criteria. It will allow the Minister of Finance to give a guarantee according to those criteria. It requires the Crown to assume creditors’ rights and sets out the responsibilities of payment in respect of guarantees. This is the meat in terms of the operations of the bill and in that regard it is appropriate for us to turn to the relevant assessment in the regulatory impact statement of the extension options. 
Three broad options were considered. One was a continuation of the status quo which we have described as the cold turkey option. It is the option that the scheme will terminate in October 2010. As one member opposite rightly pointed out the reason for having an early decision—although we believe the process should not have been as truncated as this—is to allow institutions to manage their books. The data is that about one-third to 40 percent of the debt is for a period shorter than 1 year in duration. About another third is for a period of between 1 year and 2 years and that third is now within the window of the closure of the current scheme. So it is appropriate that we are considering now the future of the scheme. 
The arguments in favour of allowing the scheme to go cold turkey at that point were that we would remove so-called distortions from the market whereby the risk to investors is masked because of the guarantee scheme—that the lame were covered as much as the only partly lame. The argument was put up that by having banks and non-bank institutions with different credit-ratings put together—albeit at slightly different interest rates—the risk and the return were blended and that that was opaque to the market. So that was the first argument. The second argument for going cold turkey was that it was the fastest way to reduce the exposure to risk of the Crown. 
If the Government is to be believed when it says the recession is over then it would seem sensible for it following its own philosophy to allow the banking sector to adjust to the new post-recession era by removing these guarantees altogether. However it has decided not to do that. The reasons for extending the scheme by one year are firstly to roughly match the timing of the extension to the duration of the Australian scheme thereby preventing a flow of funds from New Zealand institutions to those across the Ditch and secondly to ease the sector into a post-guarantee era and to more gently match the withdrawal of protection to what the sector may consider to be a slow and perhaps fragile recovery. 
We believe that the Government has been trying to have it both ways on the rhetoric of this recession. At the same time that the Minister of Finance has been saying the Government should never waste a good recession and that it should prepare for privatisation and for other radical measures like raising GST as soon as he can get the working-group to report on that—let us not waste a good crisis—he has also been telling us that gardens are growing the green shoots are up the sun is out spring is here and the worst has passed. Treasury has said it will be all hunky-dory with only 7.5 percent of people unemployed. That is only double what the figure was before the election! That is only 2 people losing their job their identity their family’s livelihood where it was one before the election—so there are serious serious consequences. 
That was the argument for a slower return to a post-guarantee world and on balance that is what the Government has gone with. We believe that it was the right decision. We believe that it is right to match our scheme with the Australian scheme and we think it is right to give the sector some time to adjust. We also think it is fair enough to have reasonably tight criteria so that we do not mask undue risk. Although we acknowledge that it is harder for small companies to get credit ratings we believe that there has to be some relatively objective measure of creditworthiness. That is kind of enough of a shared zone for us to vote for the bill. 
But we do have major reservations which show up in this part again about the role of the banks. It is our considered view that it would be more secure for the Crown in terms of the spread of risk and of less exposure to the Crown in terms of fiscal revenue streams if the banking sector were expected to be included in both the retail and the wholesale schemes. In taking both together the risk while being partly masked is bundled in a way that we believe adds more security to the system as a whole and protects the Crown from a revenue loss because the income stream is greater. As we said in a previous intervention the magnitude of potential loss is in the order of 95 percent bank and 5 percent non-bank. That really is a huge huge difference. So by allowing the banks to opt out the Government is concentrating the risk on the part of some of the smallest entities and vastly reducing what could be described as the premiums that are paid for that insurance. 
But at the end of the day the Opposition believes that mum and dad investors need to be protected. There have been enough families ruined and sadly tragically there have been too many suicides by ordinary New Zealanders whose lifesavings have been lost due to the inappropriate management of risk and companies being caught by the international recession. We certainly want to send our condolences to any families that have been so affected. It is therefore of paramount importance to us that New Zealanders have the protection of a scheme like this throughout the duration of the recession and the early phases of whatever recovery is coming and that is a key reason why we are supporting this bill. 
The technical complexity arises in Part 2 and my colleague the Hon Lianne Dalziel put very eloquently that we think more consultation here would have been appropriate. The Minister has said it was a judgment call and the Government thought it would get the bill through. The Opposition’s point of view is that even a 1-week process to allow a select committee to question officials and get matters on the public record would have been very very useful as we look back on this experiment if you like in years to come. 
But the bottom line is that there is no doubt that it is worth having a statutory power for the Minister of Finance to operate under and it is recognised that the only reason why that did not occur prior to the last election was that Parliament had been prorogued and we were in an extraordinary situation. So no one wants to go back to the dark days of September-October. We do want to regularise this matter and the Labour Party will be supporting this part of the bill. Thank you Mr Chairman.