Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — Second Reading 
Text is incorporated into the Bound Volume 
Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — Second Reading 
[Sitting date: 21 February 2013. Volume:687;Page:8139. Text is incorporated into the Bound Volume.] 
Reserve Bank of New Zealand (Covered Bonds) Amendment Bill 
Second Reading 
Debate resumed from 14 February. 
ANDREW WILLIAMS (NZ First) 
: 
 I take a call to continue the debate on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. As we have heard in the previous reading this is all about providing a bonded system through our banking system to ensure that there is some certainty for international investment in New Zealand through our banking scheme. Covered bonds have been used by our banks for several years. This bill formalises the arrangements. The BNZ I think was the first New Zealand bank to start issuing them but without the formalities of Parliament that is required to confirm the arrangements internationally. 
We have a few reservations about this which we would like discussed at Committee level—the first being that they are talking 10 percent here in terms of the bond percentage to the banks. Australia has 8 percent and other countries have less. I think Canada’s is as low as 4 or 5 percent. It is questionable whether New Zealand should go as high as 10 percent for covered bonds when our partners across the Tasman are on 8 percent. We will question through the Committee stage whether New Zealand should be more in line with Australia rather than at the higher level and what impact that would have on our banking system by being at the slightly higher level. We are always trying to be on a level playing field with Australia and it would seem to be more sensible that we were the same. 
Although these covered bonds are necessary in a way to provide an element of certainty to our financial institutions and for people investing in our international institutions it also means that of course these covered bonds have a higher ranking in terms of their status over other investors in the bank. We have already had a case of something like 61 financial institutions in this country going belly up in the last few years. It would be somewhat concerning if we were at a level of deposits up to 10 percent that had international first preference over our banks and should heaven forbid there be a problem with one of our major banks in this country and they had first call on the funds ahead of good hard-working New Zealand local investors. In that respect that is another reason perhaps to reconsider the 10 percent level because we certainly do not want a situation where New Zealand investors are second cab on the rank behind international investors who would dearly love probably to have that extra security here in this country and at the same time come and take advantage of what interest rates are being offered compared with the virtually zero interest rates in parts of Asia the United States and elsewhere. 
Covered bonds have been around for several hundred years. I think they were first introduced in Sweden in the 17th century or thereabouts. They have been used extensively by various European banks over several hundred years. They are an international mechanism to provide a better security base; a basis for the banking system. We are very fortunate that the Australian and New Zealand banks are held in high regard internationally. Through the whole global financial crisis certainly the Australasian banks have weathered the storm extremely well compared with many of their counterparts in Europe the United States and elsewhere. In that regard therefore we are even more attractive perhaps for international investment as a result. However having said that we certainly want to ensure that New Zealand comes out of this on the right side of the ledger and that we are not just seen as an easy target to put money into for better security than other places in the world that perhaps do not have the same level of confidence in their particular banking systems. We are very fortunate that we are living in a good stable democracy where the value of the banking system is highly valued. In this regard this does provide added weight to that banking system. 
New Zealand First is always looking for mechanisms by which the banking system is controlled in a better way. We believe it was very remiss that we had 61 institutions in this country going belly up. We believe that an instance such as the South Canterbury Finance situation where $1.6 billion had to be written off by this Government and taken up by this Government paid for by New Zealand taxpayers was incorrect. It was particularly disappointing that in the last 6 months of that bank so many more additional funds were invested there because of the Crown Retail Deposit Guarantee Scheme that the Government offered and that that oversight was allowed to continue for 6 months unfettered and unrestrained by the Reserve Bank or Treasury and not properly monitored by the Minister of Finance to ensure that banks such as the South Canterbury Finance bank did not go belly up. 
In that regard we have got something to learn from some of the errors in our banking system. But in this regard this is good legislation that provides another element of certainty to our banking structure. It will encourage sound investment in this country. It does start to question the need for the sale of State assets when we have been told by the Government that that is a way of securing more investment in this country through the sale of State assets. New Zealand First does not believe that is the case. We believe there are many other mechanisms to encourage investment in this country including supporting our manufacturing and our drive to encourage the growth of our economy not from the sale of assets. New Zealand First will be supporting this bill and we commend it to the House. 
DAVID BENNETT (National—Hamilton East) 
: 
 The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill will I think get a lot of support throughout the House. It is not really so much about encouraging investment as the last speaker Andrew Williams said but more around certainty for those that are going into these markets. The covered bonds market is something that is there and banks use it. We need to provide that certainty. The Reserve Bank is going to do that through this legislation around the rules and regulations. It is good legislation. It is in the best interests of our financial sector. We look forward to it passing through this House. 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 It is a pleasure to follow that contribution from Mr Bennett which was more fulsome and thoughtful than his usual contributions in this House are. 
This particular piece of legislation the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill protects big business. What this piece of legislation does is protect big business. Labour will be supporting this bill for the very reason that it does also achieve something else. It preserves New Zealand’s trading environment it makes it more stable and it makes our country a little more secure in the tides of international change. So for that reason we will be supporting it but we do it with reservation because it does also advantage big business over small business. It advances the interests of large international players— 
David Bennett 
: Rubbish! What a load of rubbish! 
Dr DAVID CLARK 
: —over local small-business interests. Mr Bennett says that is rubbish. With respect I suggest that he has not understood the issue if that is his view because there is a range of reasons why it advantages big business. The first is because they are the first in the queue to redeem their money when a business goes flop. That is plain and simple—clear. That is what the whole legislation is designed to achieve. It is designed to attract those big businesses so that we have investment in New Zealand but in return for that it advantages their interests when a business goes flop and says: “You get the first call on the money.” That means small businesses miss out. Inevitably that is what it means because the big business has gone flop and then there is a queue of people after that who might receive some payment if they are lucky if there is enough to go around. With respect I need to point out to Mr Bennett who sat on the Finance and Expenditure Committee that he clearly has not understood the legislation if that is what he thinks. 
I also want to speak more widely about how this particular legislation fits with a pattern because it does fit with a pattern of a National Party that hates small business it seems. National is constantly disadvantaging small business and I want to bring several examples to bear on this. The National Party in this term in Government has forwarded a series of legislative pieces that I have observed really do disadvantage small business such as the one we have just talked about with the way in which big business is advantaged through these covered bonds. It has stretched it out to 10 percent. I contend—and I think several of my colleagues would agree—that it could be less. It could be 8 percent of the total financial interest that is protected in this way and we would still get the same result. That is what they do in Australia. In Canada it is as low as 4 percent. So the Government has stretched that envelope to say that big business here is protected more than it is in Australia and over twice as much as it is in Canada. That is the road it has gone down with this covered bonds legislation. 
It is also true if we look at recent examples such as Mainzeal Property and Construction which we know has just gone belly up. Who are missing out here? It is the individual contractors the small-business folk who are missing out who cannot get their tools back who cannot get on to earn further money and who are further down the queue. Labour is proposing solutions to make sure that small businesses which are the lifeblood of our economy are looked after and that the interests of individuals who work hard—those Kiwis who work hard to help New Zealand to help us get ahead—are looked after. We see National sitting on its hands. We hear those members saying “Oh well. Oh well the big businesses are OK. They’ll get out. They’ll pass the contract on to another big business. Big business will be fine.” They seem unconcerned by the flow-on effects from the Mainzeal collapse and we think that is wrong. 
When it comes to the minimum wage I had a bill earlier this year that would have raised the minimum wage to $15 an hour. That bill would have actually advantaged small and medium businesses over larger enterprises. The chain stores that aim for the bottom price that give the lowest wages to their staff and that force wages down would have been forced to bring their wages up to the level that you get at the local fish and chip shop or the local retailer who say: “I know my one or two staff and I know how much it costs to raise their families and I value them as employees and therefore I am going to pay above the minimum wage.” So they are already paying a bit more. The playing field would have been levelled a little if all of those big less scrupulous players had been forced to raise their wages to match them. The small-business people would have been advantaged through that minimum wage legislation. Unfortunately again National sought to defeat it as soon as it could because it is interested in big business only. It is not really interested in those small contractors in the individuals in the workers and in those entrepreneurs in New Zealand who have not yet amassed a scale that is international. 
Another thing that we have observed from this Government is red tape. This Government has introduced red tape particularly in the taxation area. It has brought in extra costs for businesses for example and even for contractors. If people are employing paper boys for example now they must report and keep full records about how they pay them. It is the same with after-school cleaners. There is a whole lot of extra red tape. We will see it in the child support legislation as well. The Government will be expecting business owners to take on some extra reporting tasks. It is the kind of thing this Government does without compensating small-business owners because it says that they should just absorb the costs or they should move out of the way. 
We see it in the amalgamations in the rest home sector. We are seeing it in the district health boards at the moment. Things are being amalgamated in the interests of big business in the interests of international players. We have seen it in Dunedin. Presbyterian Support has lost an important contract. The biggest local provider with all the local experience has lost out to an Australian-owned provider that has no experience in delivering home support services and the Government’s fingerprints are all over it. The Government is interested in big business and it does not care about the small providers in New Zealand. 
We see it too with our high interest rate. This Government refuses to give the Reserve Bank extra tools to manage New Zealand’s interests in terms of economic growth and employment. It says: “We’re sticking with the 1980s economics. We’re sticking with inflation. That works for big business. There is no problem to see here.” But there is a problem. We see it in the manufacturing sector in a kind of advanced way—not in the primary sector; the primary sector keeps turning out milk products and that is a good thing. But in the secondary manufacturing sector 17000 jobs were lost last year—17000 jobs. Those are Kiwi jobs that have been lost because of this Government’s neglect. It refuses to admit that the model is not working. It refuses to acknowledge that unemployment is the highest since National was last in Government. It refuses to admit that real wages have not grown under this Government. It is interested only in protecting its corporate mates. 
We see in all of those examples that small-business folk in New Zealand are disadvantaged. Those members over there hate small business—they hate small business. [ 
Interruption 
] I hear them baying for small business’ blood across the House. They do not want to see small-business people get ahead. They do not want to see entrepreneurs succeed. They are interested only in protecting vested money. That is true because National is the party of capital. It is the party of protecting vested money. That is that party’s interest. Those members are not in the Labour Party. They are not interested in those who are working to make their way up through the system those hard-working Kiwis who put their own savings on the line to start small businesses. 
Another example is just yesterday in this House we were debating my member’s bill to Mondayise Waitangi Day and Anzac Day. We know that the only survey done of business on that topic saw 50 percent of small-business owners in favour of it and 37 percent neutral. The reason that small business is either neutral or in favour of my bill—87 percent support the bill or are neutral towards it—is that small-business owners know they want to have time out with their families and friends as much as anyone else does and they want to know that their partners and their families can get that time off in a reliable way every year not just 5 years out of 7. Small-business owners want those holidays but again National is not listening. It gets lobbied by the big-business groups and says: “No we don’t care about tourism. No we don’t care about what small-business owners think. We’re going to go our own way. We will listen to the 13 percent who oppose it maybe and we might listen to big business but we are certainly not listening to small business generally and their opinions because we don’t believe in small business.” 
That is what National says. That is what National says in the legislation it passes. That is what it says in the moves that it makes and the things that it is not fixing in our economy. The things in our economy that are disadvantaging small business are advantaging big business and that is whom it is trying to protect with this covered bonds legislation. That is whom it is trying to protect generally. This shows that the National Party is not interested in hard-working Kiwis who want to get ahead want to save and are saving and want to do the best for themselves and their families. This Government is determined to protect the interests of big capital and that is overall bad for New Zealand. It is affecting all of us in a negative way. I would encourage National members to rethink their position on this. They could move an amendment I am sure to lower the threshold for covered bonds to do one small thing for small business. 
There are many more things they could do for small business—I have outlined several in this speech—and I am hoping that this Government will prick up its ears because small business is the lifeblood of New Zealand and the longer National shows that it detests small business the worse things become in New Zealand. Our economic growth record which is the worst in 50 years under this Government will continue to be poor until this Government learns that small business is important. 
CHRIS AUCHINVOLE (National) 
: 
 I commend this Reserve Bank of New Zealand (Covered Bonds) Amendment Bill to the House. 
Mr DEPUTY SPEAKER 
: Is this a split call? 
Hon Trevor Mallard 
: It is a split call Mr Speaker. 
Mr DEPUTY SPEAKER 
: Right. Five minutes—the Hon Trevor Mallard. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 The Labour Party is supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill albeit with some reservations. If you go right to the core of why we are supporting it it is that they exist anyway. The banks have issued them and the Reserve Bank appears to have unfettered power to have more than the 10 percent that is in the legislation to approve the banks doing this. What happens when that occurs is that the situation gets even worse than what is in this bill. While my colleague— 
Chris Auchinvole 
: David Clark. 
Hon TREVOR MALLARD 
: —yeah—was talking about small business what he was not talking about were the mums and dads who have their deposits with the banks. It is pretty awful what this bill does. What it says is that if you are a big overseas corporate lender to the banks or even a parent company with one of the tax-dodge arrangements lending to New Zealand banks then you get priority over the mums and dads or their grandmothers and grandfathers who have a few dollars in the bank when and if the bank runs into trouble. 
 The counterargument is that if you have some stable finance and an ability to draw down what is effectively preferential debt then that might help with the bank’s stability. That could well be right. So you then get to the question of how far do you go. I am not asking you how far you go Mr Deputy Speaker; I am saying that the House is faced with a question about how far does one go. Other jurisdictions have made decisions. The Canadians have decided on 4 percent. They have decided that to get a 4 percent draw-down in this area is sufficient that they can give cover. In that way they are giving better protection to the mum and dad investors. 
Dr David Clark 
: Mr Key said he would go all the way with Skycity. 
Hon TREVOR MALLARD 
: Well he certainly put the chips on the table with Skycity. I think actually politically he might have gambled and lost. I think one of the questions of course is whether Skycity will apply for a banking licence as well as a gaming licence; if so will it have covered bonds and will Television New Zealand (TVNZ) put any of its money there? I am told that the Prime Minister promised the TVNZ land for $100 worth of pokie chips. Is that correct members opposite? Is that true? Is that part of the deal? Millions of dollars a year—millions of dollars a year—of promotion money for Skycity has been promised by John Key. Millions of dollars promised and a TVNZ arrangement which I understand—I will not anticipate a matter before the House but I think some of us are looking forward with some excitement to 2 o’clock next Tuesday when the Prime Minister comes in here to make his withdrawal and apology for misleading the House because of course it must be that the first item of business next week will be the Prime Minister— 
Mr DEPUTY SPEAKER 
: This is the second reading of a bill. 
Hon TREVOR MALLARD 
: That is right—the broadest possible— 
Mr DEPUTY SPEAKER 
: No not as broad as that. 
Hon TREVOR MALLARD 
: The broadest—thank you for the reminder. This is the broadest possible debate and the question of whether the Prime Minister TVNZ or Skycity get banking licences and are involved in covered bonds is I think well within—well within—the ambit of this debate. But as one can probably tell this is legislation that we support because it is better than not having it but we regret very much the decision of the Government to favour overseas big money as opposed to the deposits of mums dads grandparents and small business. 
STEFFAN BROWNING (Green) 
: 
 The Green Party is going to be supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill but of course like so many bills it does not go far enough. 
Hon Trevor Mallard 
: Or it goes too far—one or the other. 
STEFFAN BROWNING 
: That is right; they are generally all over the place. We see that the Reserve Bank is certainly not taking a strong enough stance on currency. Those here who are from a primary production area are certainly very very aware of what is happening in terms of a currency that is not being managed well enough. It is far too high. It is costing many people whom we know through the sector very very dearly. 
There have been a number of calls from the Green Party for the Reserve Bank to look at the different methodology that it is operating. We believe that it should be re-examined in quite a strong way so that we can actually do something about these currency issues. We realise that across the House there is a range of opinions on the way currency is managed but certainly at the moment more New Zealanders are hurting than are gaining. It is almost like the National Party does not recognise the sovereign boundary. 
Debate interrupted.