Tremain Chris: Third Readings 
Tremain Chris: Third Readings 
[Volume:634;Page:5730] 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak on the third readings of the legislation. This legislation is designed to help build confidence in New Zealand’s financial markets and as a result to encourage investment in New Zealand’s financial markets by strengthening the regulatory framework that is embodied in securities and securities trading. The legislation first saw light on 14 December 2004—some 2 years ago—when the Hon Judith Tizard who was then the Associate Minister of Commerce and is now the Minister with responsibility for Auckland Issues addressed this Chamber with a sterling first reading speech. 
The Securities Amendment Bill tightens the regulatory framework with the likes of clauses such as 3A containing new section 17B which allows the sharing of information between the Commerce Commission and the Securities Commission and new section 55F proposed to be inserted by clause 8 which increases the amount of pecuniary penalty under the Securities Act to $500000 for an individual and up to $5 million for a body corporate. New sections 60A 60B and 60C proposed to be inserted by clause 11 also tighten the regulatory framework. New section 60A allows the court to make management banning orders new section 60B allows the management banning orders to be for a period of 10 years and new section 60C allows the contravention of a management banning order to result in imprisonment for 3 years. So the bill brings some real teeth to securities legislation. 
Today however I wish to argue that although the changes proposed to this legislation may strengthen the regulatory framework this will do little to promote economic growth and that recent announcements by this Government have done far more to create damage to investor confidence in our markets than this legislation will ever do to build confidence. 
In July 1999 Helen Clark in an address to the New Zealand Trade Centre said: “In my lifetime our living standards have slipped from the third highest in the world to 25th today. We are in danger of slipping into the next range of nations like Estonia and Latvia in the sub-OECD grouping which have never reached European living standards. We’ve had those living standards but we are losing them and we will continue to unless we can keep our talent at home and create the conditions for rapid growth of new industries.” 
Prior to that speech in another speech delivered to the New Zealand Employers Federation conference Helen Clark said: “Labour knows the economy now is more competitive innovative and dynamic than the economy of 10 years ago.” In fact she said: “We would go so far as to suggest that a large part of that is due to the changes made by the last Labour Government.” She was in fact referring to the introduction of GST the reduction of top marginal tax rates and the privatisation of a number of New Zealand companies including Telecom—which I will speak about later. She must also have been referring to the labour liberalisation laws that had created a dynamic competitive and innovative economy that set the benchmark for solid growth through the late part of last century and the early part of this century. Michael Cullen agreed with the Prime Minister at that point. In his Budget 2001 speech he went so far as to say: “We need to set ourselves a goal of being back in the top half of the developed world in terms of per capita GDP—a position we have not occupied since 1970.” 
Unfortunately the Clark-Cullen Government has given up on that objective. In the face of the results of the recent October  
Monthly Economic Review 
 from the Parliamentary Library the only news of any merit is that unemployment has remained steady at 3.6 percent of the workforce. Of course this overlooks the huge numbers that are now permanently registered on the sickness benefit and the invalids benefit. It ignores the fact that our workforce works the second-longest hours in the OECD yet has productivity rates at the bottom of the scale. 
The rest of the results are far less motivating. Economic growth is down from 3.1 percent to 1.9 percent. Inflation is up from 2.8 percent to 4 percent. The current account deficit is a whopping $3.1 billion above the $12.1 billion of last year at $15.2 billion. Lastly of those key statistics interest rates are heading north from 7.09 percent to 7.56 percent. 
With that backdrop one can understand why we do not hear Michael Cullen getting too fired up about his 2001 speech. I quote again. He said: “We need to set ourselves a goal of being back in the top half of the developed world in terms of per capita GDP—a position we have not occupied since 1970.” No the Government has moved from the semantics about being in the top half of the OECD to those of economic transformation which is an inane description for an approach of “Box on keep our mates happy and do nothing that will actually grow the economy.” 
One of the items that conveniently falls into the economic transformation agenda—one that will not really add one point of economic growth or ruffle too many feathers—is the changes that are proposed in this new securities legislation. The objectives of the legislation are all about promoting confidence in the New Zealand sharemarket. The National Party agrees that promoting confidence in the New Zealand sharemarket is important and it supports the legislation on that basis. However the announcement of yesterday’s $11.5 billion surplus must surely signal that the economy has the ability to handle tax cuts as one legislative item that will promote economic growth. 
 Promoting confidence in the New Zealand sharemarket involves increasing the certainty for market participants in relation to the integrity of the market and the mechanisms for implementing law. A number of factors can influence the level of confidence both in domestic and international investors. Strengthening the insider-trading regulatory regime is only one activity geared at achieving this aim. 
In saying that I comment that we have experienced the unique situation in recent months of one of the biggest examples of market uncertainty in the history of the New Zealand sharemarket. The announcement of the unbundling of the local loop and the messy way in which the announcement was leaked to the market saw billions wiped off Telecom’s share value and confidence in the New Zealand sharemarket go out of the window. On the one hand it is all very well bringing in new legislation such as this which has the potential to improve the law around insider trading to amend the disclosure regime required of substantial security holders and to increase the disclosure requirements of investment advisers and brokers; but on the other hand it is not acceptable that foreign investors lose total confidence in the market because of this bumbling Government’s handling of the Telecom announcement. 
As stated in an article in the  
Dominion Post  
of 19 August: “The regulators can’t be allowed to think their actions are somehow detached from what goes on in the financial markets. Comments alone are capable of huge wealth creation—and destruction.” as was the case with the Telecom announcement. “In May the Government’s announcement that it was to regulate Telecom pared $1 billion off the value of New Zealand’s largest listed company in one day. Commerce Minister David Cunliffe’s remarks to a journalist later that month that Telecom might need to cut its dividend lopped off another $275 million. And then there was Vector. On Monday August 7 the Government made encouraging noises about how regulators needed to give greater consideration to incentives for infrastructure investment. Vector stock added $240 million in value on the Tuesday. A day later the Commerce Commission announced its intention to declare control of the electricity distribution services supplied by Vector. This knocked $300 million off the stock.” As the  
Dominion Post  
quite rightly points out this is “Ridiculous.” 
The biggest concern about all this was the comments around the international investment community—and I quote the  
Dominion Post  
again which stated that New Zealand is almost now “ ‘finished’ as a destination for international investors. The big overseas funds don’t like uncertainty. Any market that delivers the kind of shocks seen in the Telecom and Vector share prices could be seen as too big a risk.” 
The point I make is that it is all very well to have this legislation coming through as part of the economic transformation agenda but to be honest international markets will take very little notice of the legislation compared with announcements such as that made by the good Minister of Telecommunications. It is all about reputation security of investment and a discount rate applied to investments in the New Zealand market. 
David Cunliffe was reviewed by the Securities Commission over the way he handled the Telecom announcement. However the commission was clear in pointing out: “Ministers need to exercise caution when commenting on matters that might affect share prices.” So in one breath although legislation will improve the infrastructure around securities legislation we as a country need to be very careful about the announcements we make to the financial markets because if we are going to continue economic growth in this country those kinds of announcements are particularly important.