Boscawen John: Taxation (Business Tax Measures) Bill — Third Reading 
Boscawen John: Taxation (Business Tax Measures) Bill — Third Reading 
[Volume:653;Page:2158] 
JOHN BOSCAWEN (ACT) 
: 
 It has been interesting to listen in this debate to the to-ing and fro-ing between the National Party and the Labour Party. The Labour Party members say that a lot of the work on the Taxation (Business Tax Measures) Bill was their own work—and good on them. Clearly they believe that and it is the case. I sat in the Finance and Expenditure Committee and I heard that argument being raised constantly. We have just heard from the Labour Party that the National Government is not doing enough. National’s point of view is that this is the first bill that it has introduced and taken through the select committee process that it provides for a reduction in tax rates and a reduction in red tape and that those are good things to achieve. I do not want to take a particularly partisan approach—I do not want to make it a them-and-us situation—because I would like to try to put a positive spin on my part of the debate. What I am trying to achieve requires the support of both of the major parties in this Parliament. It requires that support. The reality is that I could look to the support of just one of those parties but I am trying to get the support of both of them. 
As I said this bill is designed to reduce rates on use-of-money interest to take away the red tape and to make it easier for small to medium sized businesses to comply with the law and meet their obligations. As members have heard this legislation is one of the consequences of the recession. The Government is looking to make this change to the law as a consequence of the recession. We are all very aware of the reasons that have led up to the recession but many things relate to and contribute to it. I have said before that I believe that one of the issues that are resulting in the poor forecast for growth in retail sales in our country is the massive loss that has been incurred through finance companies in the last 2 to 3 years. It is massive. What is worse is that it particularly affects the retired and the elderly—the people who have lost some or all of their savings in finance company collapses. Without a doubt that is one of the things that have contributed to the recession contributed to the state this country finds itself in right now and contributed to the need for this bill. 
I talked about bipartisan support. I stood to speak on the second reading of this bill just 2 weeks ago. At that time I made a call for an inquiry at the Commerce Committee on the failure of finance companies and the reasons leading up to the failure of those companies. I was able to say to the House that earlier that day I had received tentative support from the Hon Lianne Dalziel the previous Minister of Commerce and now the chair of the Commerce Committee. She said that subject to agreeing the terms of reference it was something that she could recommend that the Labour members on that committee support. I was very very pleased to hear last night from Simon Power that earlier in the day he had issued his own press release and made his own announcement that he as Minister of Commerce would also welcome an inquiry into the collapse of finance companies and the reasons that led to that. I should stress that it is not Mr Simon Power’s decision as to whether the Commerce Committee has an inquiry but nevertheless from my point of view it is still very welcome that he is prepared to say that if the Commerce Committee members decide to vote for an inquiry he would support it. 
I would be very keen to have the support of both the Labour and National members on that committee because if we have a unanimous vote we will be looking at the issues that have contributed in part to this recession but more important have affected significantly—in some cases very very significantly—the lives of some of our elderly citizens. I say that because in the intervening 2 weeks the Commerce Committee has released publicly a report that it received from Mr Harris the Registrar of Companies as an attachment to its report on the annual review of the Ministry of Economic Development. Mr Harris’ report is a 4-page report that looks at the supervisory framework that currently applies in respect of our finance companies and it makes damning reading. As I stand here and think about it I may decide to send a copy of that report to every one of the other 121 MPs in this House because I think that everyone should read it. I see Mr Hughes nodding and I thank him for that support because the report is damning reading. I am very grateful for the support I believe I had from Lianne Dalziel a fortnight ago when she said that the Labour members would consider supporting an inquiry. 
 I will touch on some of the issues that Mr Harris raised in his report. He talked about the level of corporate governance and said the quality of corporate governance is a key factor to be considered in our attempt to understand the reasons for the failure of finance companies. He detailed a number of issues one of which was the calibre of the directors and how the directors of some of those companies operated. He said for example that too often directors were not adequately informed. They were misled or failed to take sufficient interest in the affairs of the company. Members should think about that. Directors were misled ill-informed and failed to take sufficient interest in the affairs of the company to the extent that directors have contributed to the failure of finance companies through their actions. There are many thousands upon thousands of elderly people who have lost their money in those collapses over the last 2 years. The report is a damning indictment. 
Mr Harris then went on to mention some directors who have previously been involved in collapses over the last 20 years. He looked also at the treatment of non-performing loans. A non-performing loan is a loan where a company has lent some money to a client and that client has not been able to pay that money back. Normally there is a disclosure requirement so that the finance company has to disclose to its potential investors that it has some outstanding loans and have not been paid back. Mr Harris referred to the practice where a finance company rather than disclose the fact that a loan was outstanding and was delinquent issued a new loan. They would issue the borrower a new loan to repay the old loan so they could say “Well whoop-de-do! There is no outstanding loan. This new loan is current and we do not have to disclose that.” The way that some of the finance companies treated non-performing loans gave the impression that the finance company in particular—the company that was soliciting funds from the public—was more solvent and stronger than it really was. 
Mr Harris also talked about the lending practices of finance companies. He talked about the fact that in a lot of cases a lot of money was lent on individual projects. I am personally aware of half a dozen projects where in excess of $50 million was lent against in some cases just bare land—albeit bare land that was proposed for subdivision. He talked about the lending practices of concentrating a lot of money into a very few small projects in the case of some finance companies and in some cases of money being lent to projects that the directors of those finance companies were involved in themselves. The directors were borrowing money from companies that they were directing and Mr Harris said that in some cases those projects would not otherwise have got funding. 
Mr Harris also went on to look at the trustee supervisory model and pointed out a number of defects in terms of the way finance companies are currently supervised and in the management for looking after the supervisory model. I note also in Mr Simon Power’s press release yesterday that he says that is something he wants the Securities Commission to give urgent attention to and to review. I congratulate Mr Power again on that. 
Mr Harris then looked at the question of the auditors and quoted a particular auditor who has appeared before the New Zealand Institute of Chartered Accountants and been ordered to pay $130000. He was presumably found guilty and ordered to pay $130000 for the cost of the hearing. When I read that I asked myself what other action has been taken. Does the receiver have the money to bring a civil action against that auditor? Clearly that auditor is being fined $130000 for the cost of the hearing by the New Zealand Institute of Chartered Accountants. Is there the ability to recover some further funds from the auditor or the auditor’s professional indemnity insurance company? I have no idea what the particular finance firm that the auditor was auditing actually lost. 
There are a number of issues here. This is not a simple issue; it is an extremely complex issue. I stress again that a number of finance companies fail simply because of market forces. Directors may have lent money against projects they thought would be successful and a good business proposition and through no fault of the people borrowing the money or of the directors of the finance companies we have had a change in the market and gone into recession and those loans cannot be paid back. 
I am very grateful for the support of both Mr Power and Lianne Dalziel and of the members of the Labour Party.