Volume 710 Week 33 - Tuesday 10 November 2015Text is incorporated into the Bound VolumeVolume 710 Week 33 - Tuesday 10 November 2015[Sitting date: 10 November 2015. Volume:710;Page:7787. Text is incorporated into the Bound Volume.]Tuesday 10 November 2015Mr Speaker took the Chair at 2 p.m.Prayers.Questions to MinistersAustralia—Christmas Island Detention Centre1.ANDREW LITTLE (Leader of the Opposition) to the Prime Minister: What action if any has he taken to follow up on his statement to Malcolm Turnbull regarding New Zealand - born Australian detainees on Christmas Island “I think in the spirit of mateship there should be some compassion shown”?Rt Hon JOHN KEY (Prime Minister):My full statement to Mr Turnbull was: “where someone isn’t the highest risk where someone has a long-term community of interest in Australia I think in the spirit of mateship there should be some compassion shown”. That statement was made with regard to appeals by detainees. Since I met with Mr Turnbull Ministers Amy Adams and Michael Woodhouse have travelled to Australia and with my approval have met with immigration Minister Peter Dutton to get additional information about how Australia is managing the issue. Ministers and officials are working hard to ensure that what I agreed with Prime Minister Turnbull is implemented as soon as possible. Australia has doubled resources to speed up the appeals process. I have made my views very clear to Prime Minister Turnbull and I continue to receive regular updates on progress. I have asked Minister Adams to follow up with Mr Dutton and we expect an ongoing dialogue about where things stand.Andrew Little: What representations to Australia has he made in the last 2 days to raise concerns about events on Christmas Island or to offer his help?Rt Hon JOHN KEY: I personally have made none but of course the officials and my Ministers have worked their way through that process.Andrew Little: Which of his statements of earlier today is correct: his statement to Radio New Zealand that the New Zealand detainees are “free to leave” and “are staying there voluntarily” or his statement to reporters that the New Zealand detainees who wanted to leave face many weeks of delays in a remote detention centre before they can go anywhere?Rt Hon JOHN KEY: For a start I did not make the last statement. What I did point out was that it depends on the circumstances. In terms of an individual there are a number of factors that have to be considered: firstly as I pointed out this morning whether the person has travel documentation a passport; secondly whether the person has a history of violent or criminal activity; thirdly—Hon Annette King: You said it was easy.Rt Hon JOHN KEY: Well it is not actually easy because these people—some of them are rapists some of them are child molesters and some of them are murderers. These are the people whom the Labour Party is saying are more important to support than New Zealanders who deserve protecting when they come back here.Kelvin Davis: A detention centre; not a prison.Rt Hon JOHN KEY: Mr Davis if you want to put yourself on the side of sex offenders go ahead my son but we will defend New Zealanders. [Interruption]Mr SPEAKER: Order! [Interruption] Order! I am on my feet.Andrew Little: Given that Britain Canada France Germany Switzerland the US and many other countries all criticised Australia’s treatment of many of the Christmas Island detainees at the UN just yesterday why did his Government fail to raise any concerns at all about the ill-treatment of New Zealand-born detainees?Rt Hon JOHN KEY: Because we do not need to go to Geneva to do that; we do it in person with the Prime Minister of Australia. We have done that and we do it with the Australian Ministers. I say again that we have a responsibility to those New Zealanders and we will bring them home to New Zealand but we will do so by protecting New Zealanders. We are not on the side of sex offenders; we are on the side of New Zealanders. [Interruption]Mr SPEAKER: Order! [Interruption] Order! I am attempting to call the Leader of the Opposition for a supplementary question. It requires some silence before I do so.Andrew Little: Why is he so weak that he spends his time with Malcolm Turnbull talking about what ties to wear rather than having the moral courage to demand that Australia do what is right for the detainees?Rt Hon JOHN KEY: We spent a considerable portion of the one-on-one meeting that we had with Malcom Turnbull talking about this issue. Two Ministers have gone to Australia to talk to Minister Dutton about this issue. I have raised this issue with Prime Minister Abbott. There have been considerable conversations going on. When it comes to these people coming home to New Zealand they are free to come home and we will allow them to come home and we will ensure that they can come home as long as they have the travel documentation. They cannot go on a commercial aircraft if they are violent or if they have mental health issues. I have a responsibility to the New Zealanders here at home that they are looked after. What the Labour Party is saying is:“To hell with the rest of New Zealanders; these people should be put on a commercial aircraft and despatched to New Zealand.” Well you back the rapists; I—[Interruption]Mr SPEAKER: Order! [Interruption] Order! When I rise to my feet I expect the Prime Minister to then resume his seat.Andrew Little: Why has it taken an inmate to die a 2-day fire and a full-blown riot for him and his Ministers to finally lift a finger to do something about it?Rt Hon JOHN KEY: The member is just completely misrepresenting the facts. I raised this issue in February after it became Australian law in the late part of December. I raised the issue with Malcolm Turnbull all the way through this and our Ministers have been working on this issue. We cannot stop Australia having its sovereign right to ultimately decide to deport people who are serious criminal offenders. We cannot stop that any more than Helen Clark could stop the fact that back in 2001 a whole category of New Zealanders did not get the right to residency. They are the very people actually who if they had residency and citizenship would be able to stay.Marama Davidson: E te Māngai o Te Whare tēnā koe. Tēnā koe e Te Whare. Given that New Zealanders some of whom are people with disabilities some of whom are in there merely for an unregistered vehicle some of whom are in there for driving offences—Mr SPEAKER: Order! [Interruption] Order! I will certainly give some leniency to the questionerin that this is her first supplementary question butwe need to get to the question. There were a lot of givens. Maybe one is acceptable but a whole list of them will not be acceptable. I do need the question.Marama Davidson: Why did the Government not criticise Australia for its offshore detention centres in our submission on Australia’s human rights record at the UN yesterday?Rt Hon JOHN KEY: Because we raised it directly with the Australian Prime Minister.Marama Davidson: I seek leave to table New Zealand’s submission to the United Nations Human Rights Council on Australia’s appalling human rights record.Mr SPEAKER: Can I just check the source of this document?Marama Davidson: It is not public as far as I know and we have searched.Mr SPEAKER: I am in a difficult situation. I do not know whether it is public. The member needs to be very careful that she is not misleading the House. If the member says that it is not publicly available I will put the leave and it will befor the House to decide. I am just going to clarify with the member again whether it is publicly available.Marama Davidson: It is from a journalist as the source.Mr SPEAKER: Then I think that it is available to all members.Marama Davidson: Given Australia’s continued abuse of New Zealanders’ human rights on Christmas Island is it right for the Prime Minister to support Australia’s bid for a seat on the United Nations Human Rights Council?Rt Hon JOHN KEY: As I said earlier in terms of any concerns we have the Government raises those issues directly. We have said for a long period of time that we do not like this policy. This policy is not directed specifically at New Zealanders. It is a policy that they apply to all countries but as I said earlier when it comes to those New Zealanders—who are people by the way who do not want to claim to be New Zealanders; the whole point is that they do not want to come back to New Zealand—I have a responsibility to make sure that other New Zealanders are safe. The people who are in those detention centres have a criminal offence that has seen them incarcerated for 1 year or more or they have serious character issues. If they actually have connection with New Zealand the advice from the Australian Minister is that a third to a half of all those appeals are being accepted. I am sorry I am not just going to take people back into New Zealand without information and without being able to protect the New Zealand public and if those members want to protect sex offenders rapists and murderers go ahead. I am not going to.Grant Robertson: I raise a point of order Mr Speaker. I was going to wait until the end of the question but the Prime Minister has repeated what he said more directly in an earlier supplementary answer when he accused the Labour Party of “backing the rapists”. I am deeply offended at that and I ask that it be withdrawn. [Interruption]Mr SPEAKER: Order! [Interruption] Order! This is a political debating chamber. The member may well be offended by that but in the context of the answers given I am not going to take that as—[Interruption] Order! I do not want to start this week by asking a member to leave the Chamber but I want to make it absolutely clear that when I am on my feet there is no opportunity for members to continue to interject and that applies to both sides of the Chamber.Rt Hon John Key: I raise a point of order Mr Speaker.Grant Robertson: I raise a point of order Mr Speaker.Mr SPEAKER: I just want to clarify with Grant Robertson that it is a fresh point of order. I will hear from the right honourable Prime Minister first.Rt Hon John Key: I do not have the document with me but in the meeting that I held with Malcolm Turnbull—I am not sure whether I can actually table it; I might be able to—he gave a detailed outline of the people who are in question; the New Zealanders who are going to be deported—Mr SPEAKER: Order! The Prime Minister will resume his seat. That is not a point of order. I have dealt with that matter.Grant Robertson: I have taken offence at—Mr SPEAKER: Order! [Interruption] Order! On occasions in this House—and I have heard many rulings and I have given some—it is not a matter of whether the member was offended; it is a matter of whether the House was offended. [Interruption] I do not want to see the whole of this left-hand side evacuated. Members may be offended—[Interruption] Order! I have to judge the seriousness of the allegation and I have determined that the House should not be offended at that. [Interruption] Iain Lees-Galloway I ask you to leave the Chamber. I can only give so—[Interruption]Iain Lees-Gallowaywithdrew from the Chamber.Mr SPEAKER: Are there any further—Chris Hipkins: I raise a point of order Mr Speaker.Mr SPEAKER: Order! I will hear it in a minute. [Interruption] Order! I will hear it in a minute when the House settles.Chris Hipkins: I ask you to reconsider. There is nothing more offensive than being accused of backing rapists—Mr SPEAKER: Order! [Interruption] Order! We have covered that matter. If you take the contents of the Hansard—and I will certainly be looking at the Hansard; I give the member that assurance—as I recall the answers given by the Prime Minister he was saying that the people who are in detention whom some members of the left-hand side are expressing a great deal of sympathy for are there for reasons of serious crimes. That is how I took it. Now we have dealt with the matter. If the members want to continue to stand and relitigate or voluntarily leave they are welcome to do so. Are there any further supplementary questions?Metiria Turei: I raise a point of order Mr Speaker.Mr SPEAKER: I will hear it but if it is—[Interruption] Order! [Interruption] Order! The Hon Gerry Brownlee will also remain quiet while I hear a point of order. Before I accept the point of order I have dealt with this matter—Metiria Turei: Dealt with that matter. This is a different matter.Mr SPEAKER: Yes. Then as a fresh point of order I am happy to hear it—but it had better be.Metiria Turei: I take offence at the Prime Minister’s accusation that the Green Party and particularly Marama Davidson as our representative backs rapists and murderers—Mr SPEAKER: Order! [Interruption] Order! You are only relitigating where I have already been.Marama Fox: What do you say to the family of Kō Rūtene who is a decorated soldier having served for New Zealand in Afghanistan and who has committed no crime in Australia and no crime in New Zealand but who has been detained by the Australian Border Force and is being held in a detention facility in Australia awaiting deportation?Rt Hon JOHN KEY: I do not have the details of his case.Marama Davidson: Then will the Prime Minister today rule out supporting Australia’s bid for a seat on the UN Human Rights Council?Mr SPEAKER: I will allow the question. The right honourable Prime Minister was brought in in an earlier supplementary question.Rt Hon JOHN KEY: The Government put in the submission last night and we continue to support that submission.Economic Programme—Support for Families2.MELISSA LEE (National) to the Minister of Finance: What steps has the Government taken to move its books from an $18.4 billion deficit to surplus between 2011 and 2015 while still supporting New Zealand families?Hon BILL ENGLISH (Minister of Finance): Although money has been tight we have focused on continuing to support New Zealand’s families and making sure that every dollar we spend goes a long way. That is why we have been able to do things like extend paid parental leave from 14 to 18 weeks extend free doctors’ visits and prescriptions for children under 13 and raise benefit payments for families with children which will occur on 1 April next year while still moving the books from a large deficit to a round balance.Melissa Lee: What additional support has the Government provided to superannuitant families in particular?Hon BILL ENGLISH: The payment for national superannuation is automatically indexed to a combination of the average wage and the consumer price index. Since April 2008 the amount a couple receive in national superannuation has increased from $880 a fortnight to just over $1150 a fortnight an increase of over 30 percent. In that time the cost of living has increased by around 15 percent. So superannuitants have had payments increased at twice the rate of inflation since 2008. We are committed to keeping the retirement age at 65 and ensuring that national superannuation keeps pace with the average wage.Andrew Little: No you’re gilding the lily now—gilding the lily. Can’t tell us straight.Hon BILL ENGLISH: Well it is good to see over the weekend the Labour Party adopting our policy.Melissa Lee: How has the Government been supporting families to get better jobs and earn higher incomes?Hon BILL ENGLISH: Of course the job is never done on better jobs and higher incomes but the average annual wage is now $57300. That is over $10000 per annum higher than it was in 2008. Over the last year average wages increased by 3.1 percent when inflation was just 0.4 percent. Of course the unemployment rate is higher than we would like it and the Business Growth Agenda sets out 500 specific policies to assist with more investment and more employment.Melissa Lee: How has the Government been supporting New Zealanders who cannot get a job?Hon BILL ENGLISH: For those who have children in the last Budget we announced an increase of benefit levels for the first time in 43 years coming into effect on 1 April 2016. However we have a very broad and flexible programme through the welfare reform to assist people who do not have jobs. We are now using extensively data that enables us to work out who will benefit most from assistance from the Government and we have been targeting particular groups such as single teen parents and those who have some disabilities either of a mental or physical nature to assist them to get ready to be able to take jobs.Superannuation—Rates and Age of Eligibility3.DENIS O’ROURKE (NZ First) to the Minister of Finance: Is he concerned that Massey University has found that the minimum income needed by a single retiree in the main centres is $489.77 when New Zealand Superannuation is only $374.53 per week and many may have no other means?Hon BILL ENGLISH (Minister of Finance): I reject the premise of the question. In fact the study by Massey University does not report minimum incomes needed or recommend levels of expenditure. In fact it quite specifically says that it is not reporting recommended levels of expenditure. There is an annual survey by the Ministry of Social Development of levels of hardship which shows that levels of hardship among older New Zealanders are low which is one of the reasons that Parliament supports universal national superannuation. The survey that the member is referring to records the average amount spent by households that are on national superannuation—that is income from all sources not recommended minimum expenditure.Denis O’Rourke: How is the Minister planning to address growing elder poverty given the main drivers of this are the cost of accommodation—especially in the main centres—inflation-busting electricity increases and inflation-busting rates increases?Hon BILL ENGLISH: We certainly acknowledge the challenge for some older people of living on a relatively low fixed income for a long time. I think the household expenditure and income survey records that around 40 percent of people over 65 have no income other than their national superannuation. The way that the Government is dealing with it is to fund the significant increases in the weekly national superannuation payment that I referred to in my answer to the last question—that is while those households do feel the pressure of cost of living increases in fact national superannuation over the last 6 years has risen at twice the rate of inflation. So they are in a better position now to deal with those pressures than they used to be.David Seymour: Does the Government face the trade-off between the age of entitlement for New Zealand superannuation and the level of entitlement?Hon BILL ENGLISH: No. We have committed to the policy of keeping the age of entitlement in place and also the current level of entitlement. One of the ways that we are focusing on the long-term ability of New Zealand to pay for that is to deal with all the other long-term liabilities particularly in our welfare system where we have people who are on benefit for 20 25 30 years. We believe that with a more active compassionate and competent welfare State we can get more of those people back into participating in society.Denis O’Rourke: Does the Minister accept that the percentage of the average wage on which superannuation is based needs to be substantially increased; if not why not?Hon BILL ENGLISH: No I do not think it should be increased. We have now had a couple of decades of consensus in Parliament about that particular formula which has been studied in great detail and we believe it is about a fair balance of meeting the needs of older people who cannot earn an income on the one hand and the ability of the wider community to pay for that in the face of an ageing population.Denis O’Rourke: Why has Mr Fin Heads not received the superannuation back-pay and other compensation he is still being deprived of despite the Human Rights Review Tribunal finding in his favour and the Government accepting that section 68 in Part 4 of the first schedule to the Accident Compensation Act needs amendment?Hon BILL ENGLISH: I am aware not of the individual’s circumstances but of the tribunal decision and I understand that matter is under consideration.David Seymour: Can the Minister of Finance confirm his earlier answer that other things being equal there is no trade-off between the age of entitlement to New Zealand superannuation and the level of entitlement?Hon BILL ENGLISH: Yes I can confirm the Government policy which is to maintain the age of eligibility at 65 and to maintain the current level of payment. When we look out ahead over the ability of the economy to pay for that one of the ways we can ensure that is of course a more flexible productive economy and the other is to deal with the other long-term liabilities such as the welfare spending and also control of health spending. In both of those areas we have shown some progress in being able to control spending.Denis O’Rourke: When will the Government next review New Zealand superannuation and can he assure superannuitants and those close to retirement that it will meet their actual needs while also fixing the other obvious injustices and inadequacies?Mr SPEAKER: The Hon Bill English—either of those two supplementary questions.Hon BILL ENGLISH: We are always willing and open to deal with issues that the member might characterise as “injustice”—as I understand in the case he was referring to earlier—but generally we think the settings are about right. There has been much discussion for a long time about national superannuation in New Zealand and New Zealand First should take credit for winning a number of arguments over the last 15 or 20 years about national superannuation. We believe those arguments are largely settled and should remain so.Job Creation and Employment—Statistics and Policies4.ANDREW LITTLE (Leader of the Opposition) to the Prime Minister: When he said that New Zealand is on the “cusp of something special” did he mean 6 percent unemployment and 11000 jobs lost in the last quarter?Rt Hon JOHN KEY (Prime Minister): Actually in retrospect I was referring to things like the Government getting the books back into surplus concluding a free-trade agreement covering 40 percent of the world’s economy seeing the record levels of tourism creating an ocean sanctuary in the Kermadecs giving under-13s free doctors visits signing a free-trade agreement with Korea and joining the World Trade Organization Government procurement agreement to give New Zealand firms access to $1.7 trillion of potential Government contracts. All of these things will help New Zealand to succeed as a prosperous trading nation not just this year but well out into the future.Andrew Little: How can he be surprised that he has lost 11000 jobs in the last 3 months when he refuses to back Kiwi jobs when spending $39 billion of taxpayers’ money?Rt Hon JOHN KEY: One of the fastest ways to back Kiwi jobs would be to say that the member would support the Government in signing a free-trade agreement with 40 percent of the global economy which sees a 93 percent elimination of tariffs and is worth nearly $3 billion to New Zealand.Andrew Little: Why does his Government not make job creation in New Zealand a priority when spending $39 billion of taxpayers’ money?Rt Hon JOHN KEY: It is a priority and that is why over the last 3 years the number of working people has gone up by 160000 and the number of people out of work has gone down by 19000. We have one of the higher levels of employment—one of the higher levels of participation—around the developed world.Tim Macindoe: What steps is the Government taking to support more jobs and higher incomes?Rt Hon JOHN KEY: Firstly it is important to understand that the Government does not create jobs; businesses do that. We have taken several steps to help them do that. For example we have reduced tax on work to encourage more jobs and increase take-home pay; we have introduced a 90-day trial to encourage businesses to hire new staff; we are controlling Government expenditure which helps to keep pressure off interest rates; and we have negotiated New Zealand’s biggest trade deal the Trans-Pacific Partnership to support more jobs and diversify the economy. Every one of these measures has a common theme: they were all opposed by the Labour Party.Andrew Little: Does he agree with Steel Construction New Zealand that the “inevitable outcome” of his Government’s approach to procurement is that “local industry is disadvantaged” and is that why the Glenbrook steel mill may now need to cut 1000 Kiwi jobs?Rt Hon JOHN KEY: I do not think either of those statements is correct. In fact if the member looks at the Trans-Pacific Partnership what it does do is open up much greater and less protected access to New Zealand companies to procurement all around the world for Government contracts as part of the Trans-Pacific Partnership. We encourage New Zealand companies to be involved and we have done lots of things. The Inland Revenue Department’s new computer system has been divided in a way that will make it much more accessible for Kiwis to actually get a chance for that.Tim Macindoe: How has the New Zealand labour market responded to improving economic conditions over the past 3 years?Rt Hon JOHN KEY: In the last 3 years alone the number of working people has gone up by 160000. The number of people out of work has gone down by 19000. The labour force participation rate has increased strongly and at 68.6 percent remains near record levels. The unemployment rate has dropped by 1.2 percentage points and the average wage has increased by around about 8 percent compared with inflation of under 3 percent. So overall the labour markets have improved leaving more New Zealanders in jobs and on average with higher incomes.Andrew Little: Why does he not stop being so gutless and failing New Zealanders and stand up for New Zealanders on Christmas Island and the 151000 who are now out of work under his Government?Rt Hon JOHN KEY: We do stand up for people and their rights but we also have a responsibility to protect New Zealanders. The record as I have just read out stands for itself. In the last 3 years 160000 more people are in work. I know that is very inconvenient for the Labour Party—it did not quite fit in with the speech on Sunday—but actually more New Zealanders are in work than before.Regional Economies—Bay of Plenty5.TODD MULLER (National—Bay of Plenty) to the Minister for Economic Development: How is the Government helping to grow regional economies like the Bay of Plenty?Hon STEVEN JOYCE (Minister for Economic Development): In the last adjournment alongside my colleagues Simon Bridges Anne Tolley and Te Ururoa Flavell I launched the Toi Moana Bay of Plenty Economic Action Plan a set of key initiatives prepared by central government local government and business leaders locally that will help to lift employment incomes and investment across the Bay of Plenty. It identifies nine priority work areas across the wider region in areas like agribusiness agriculture forestry and wood processing geothermal horticulture Māori land utilisation the visitor economy and water management. The Bay of Plenty region is now growing well as a result of the recovery from the kiwifruit Psa crisis and the rapidly growing tourism industry. This action plan will help to ensure the growth is maintained and extended to all parts of that region.Todd Muller: What initiatives and opportunities are identified in the action plan to promote growth in the Bay of Plenty?Hon STEVEN JOYCE: A number of things. For example in agribusiness the action plan sets out a programme to expand mānuka honey production to help meet an increasing global demand for high unique mānuka factor grade mānuka honey. In horticulture the report lays out a plan including additional training irrigation and water use and unlocking Māori land to grow the kiwifruit industry further particularly in the Eastern Bay of Plenty. In the visitor economy the action plan identifies the potential of more cycleways to further grow tourism. And in aquaculture the action plan identifies the Ōpōtiki sea farm and harbour development as a potential significant growth opportunity. The Government agrees and that is why we are funding up to $3 million to finalise the geotechnical investigations and the design options for the new harbour entrance in Ōpōtiki.Todd Muller: What else is the Government doing to help grow regional economies?Hon STEVEN JOYCE: In addition to the Bay of Plenty action plan and regional growth study we launched similar programmes in Northland last year Manawatū Whanganui and the East Coast to help them make the most of their opportunities encourage investment and grow jobs. We are investing in critical infrastructure like ultra-fast and rural broadband and national and regional roading projects. We are rolling out the regional business partners network and regional business hubs to make it easier for businesses to access the help they need. We are establishing regional research institutes and of course we are signing significant international trade agreements like the Trans-Pacific Partnership and the Korean free-trade agreement which give exporters in our regions more access to major international markets and grow more jobs. [Interruption]Mr SPEAKER: Order! [Interruption] Order! We will have the general debate tomorrow.Housing Auckland—Auckland Housing Accord and Building Consents6.PHIL TWYFORD (Labour—Te Atatū) to the Minister for Building and Housing: Does he agree with the New Zealand Herald that it is no surprise his Auckland housing accord has been a flop?Hon Dr NICK SMITH (Minister for Building and Housing): No I do not agree with that editorial. But I do agree with the editorial in the Dominion Post today describing Labour as a corpse and a policy desert and a little party lacking leadership or any new—Mr SPEAKER: Order!Phil Twyford: How many houses have been built in his special housing areas in the 2 years since his housing accord was signed?Hon Dr NICK SMITH: There have been 8700 homes consented in Auckland over the last year. There have been 2049 consents—Phil Twyford: I raise a point of order Mr Speaker. The question was very explicitly—Mr SPEAKER: Order! I agree with that. I am hoping it will be answered. Let us wait for the end of the answer and then we will make a decision. Does the Minister wish to add to his answer?Hon Dr NICK SMITH: There have been 2049 building and resource consents issued in those special housing areas. We will not have accurate data on the number of houses completed because that is only collected through the census.Phil Twyford: Does he agree with the New Zealand Herald which said that at least 25000 new houses should be built or nearing completion by now if his 3-year target is to be met and that the tally of 102 houses completed and known to the council is “pitiful”?Hon Dr NICK SMITH: The number of 102 is a nonsense. It counts houses in only two of 97 special housing areas and even there that is not correct. What is more the housing accord always said that it counted consents over all of Auckland. That number is currently standing at 19921 and is 1000 ahead of the same time the accord projected.Joanne Hayes: Why does the Minister have confidence that the building consent data can be relied upon as an accurate measure of how many houses are actually built?Hon Dr NICK SMITH: The reason I have confidence that the building consent data is reliable is that it almost perfectly matches the census data on the number of new houses. For instance between 2006 and 2013 32600 homes were consented in Auckland and the census showed that over the same period there were 33000 new homes. If we compare all of the census data since 1991 the correlation between consents and new homes is better than 98 percent. Furthermore it makes common sense. Who is going to spend $15000 on getting a building consent if they do not actually intend to get on and build a house within the 12-month period that the consent is valid?Phil Twyford: Why does he continually boast that the consenting rate on his watch is better than it was in the depths of the global financial crisis when the industry all but collapsed and why does he not admit that the current consenting rate means that the shortfall of houses built up under this Government is getting bigger by 4500 every year?Hon Dr NICK SMITH: The number of consents issued in Auckland in the 2008-09 year was 3400. The number of consents that have been issued in the last year is 8700. That shows you the phenomenal growth that has occurred since the disaster that the previous Government left.Phil Twyford: How humiliating was it to have his finance Minister say that the Auckland housing market is “a major risk to the economy?” after 7 years in Government and nearly 3 years while he has been Minister and is that not an admission that his housing policy has been a total failure?Hon Dr NICK SMITH: Over the years that I have been Minister the rate of house build growth in Auckland is faster than at any period in Auckland’s history. It is true that the challenges go on for this reason: during the previous Government we had 40000 Kiwis leaving for Australia each year. They are not leaving they are coming home and that is putting more pressure on the housing market and that is why we need to keep the foot on the accelerator.Joanne Hayes: What consideration has the Minister given to the proposal of the infrastructure for new housing being funded by council debt and repaid by way of specially targeted rates on new housing development rather than the infrastructure costs being included in the price of a section?Hon Dr NICK SMITH: Such an approach is just creative accounting and will make no real difference to the affordability of housing. It just transfers the cost from the homeowner’s mortgage to the homeowner’s rates bill. For instance if the infrastructure cost is $30000 that would mean that they would pay $1500 less in their mortgage but they would pay $1500 a year more in terms of the specially targeted rate. Claims that such an approach is groundbreaking and would reduce new housing costs are nothing more than fool’s gold.SIS—Visual Warrants and Legislative Compliance7.METIRIA TUREI (Co-Leader—Green) to the Minister in charge of the NZ Security Intelligence Service: Does he stand by all of his answers to Oral Question No. 2 on 5 November 2015?Hon CHRISTOPHER FINLAYSON (Minister in charge of the NZ Security Intelligence Service): Yes although in response to a supplementary question from James Shaw asking when I was first made aware that the New Zealand Security Intelligence Service had not provided a copy of two visual warrants to the inspector-general I replied: “From memory about a fortnight before the inspector-general released her report.” I have now checked the exact date. I can advise the House I was made aware on 28 October 2015.Metiria Turei: Given that the New Zealand Security Intelligence Service Act explicitly states that the director must provide copies of visual surveillance warrants to the inspector-general does he believe that Rebecca Kitteridge breached the law by not doing so?Hon CHRISTOPHER FINLAYSON: What I certainly believe is that the New Zealand Security Intelligence Service did not comply with a reporting requirement in the legislation but I also need to say to the House that the inspector-general has not raised any issues regarding the propriety or the lawfulness of the warrants themselves. Both the director and the commissioner and I all read reviewed and approved the warrants for issue in our respective capacities. The failure was the failure to comply with a reporting requirement.Metiria Turei: On what date did the Minister first review the two visual surveillance warrants?Hon CHRISTOPHER FINLAYSON: I do not carry that level of detail around in my head and even if I did I would not say because that would be a sensitive issue that could give rise to issues about who was being surveilled.Metiria Turei: After the Minister approved the two visual surveillance warrants did he immediately follow up with the director to ensure that she had a plan to send those warrants to the inspector-general?Hon CHRISTOPHER FINLAYSON: I do not think the member understands the procedure. I do not approve warrants. The director makes an application to me. The Commissioner of Security Warrants and I both look at the matter and then sign them out. In answer to the particular question—“Did I say ‘Has the reporting requirement been complied with?’ ”—no. I would regard that as an operational issue.Metiria Turei: Why did he not follow up with the director to ensure she had followed the reporting requirements in his new legislation over the many weekly meetings he had between signing off on those visual warrants and being finally told that the reporting had not been done?Hon CHRISTOPHER FINLAYSON: I do not think the member listened to the previous answer. I regard compliance with reporting operations as being an operational matter. I have every confidence in the director to attend to those matters. She is now putting in place steps to ensure that there is no repeat of this failure to comply with a reporting issue.Metiria Turei: On what basis does the Minister have confidence in the director when for a number of months during which she had weekly meetings with him she failed to advise him that she had not completed the reporting requirements set out in new legislation that he had passed just a few months before?Hon CHRISTOPHER FINLAYSON: That is not the correct chronology. The director advised me that she first became aware of the issue on 19 October. When we had our first regular meeting after Labour Weekend she pointed out the issue to me she apologised—as I said in answer to a question from Mr Shaw last week—and she has put in place steps to ensure that this reporting requirement is complied with in the future. That is what I expect of her. She is a very competent and trustworthy person and I expect that this will be done.Metiria Turei: How can the public have any faith in his statements of the competence and trustworthiness of the director when she did not give the inspector-general copies of the warrants as she was required to under his new legislation and she failed to tell him about that failure over many months of weekly meetings or does he blame himself given he failed to follow up and check that the law had been complied with?Hon CHRISTOPHER FINLAYSON: The member is choosing to create a narrative to make this into a first-grade federal crime. The fact of the matter is it was a failure to report to the inspector-general. As soon as the director found out about it she told me and has put in place steps. I ask the honourable member to bear in mind that the propriety of the warrants and the steps taken to see that the warrants were properly executed were all complied with under the law. This was a reporting requirement.Housing Auckland—Building Consents and Reports8.ALFRED NGARO (National) to the Minister for Building and Housing: Can he confirm that the number of building consents issued for homes in Auckland over the last year is at a 10-year high and can he advise what increases have been achieved in each of the last four years?Hon Dr NICK SMITH (Minister for Building and Housing): Yes 8700 building consents were issued in Auckland in the last year and this is the highest for more than a decade. The annual rate of growth in Auckland house build rates over the past 4 years has been 18 percent 31 percent 28 percent and then 27 percent in each of those last 4 years. This is the fastest and longest sustained growth in Auckland since records began. There were 2 years of growth over 15 percent in 2002 and 2003 and 2 years in 1993 and 1994 but never before 4 years of year-on-year growth over 15 percent.Alfred Ngaro: Does the Minister have any other economic data alongside the building consent numbers that supports the picture of rapid construction growth in Auckland?Hon Dr NICK SMITH: Yes I do. All of the relevant data points to a construction boom. The labour force figures from Statistics New Zealand show the number of people employed in construction has gone from 45000 to 75000. That is the highest number ever and with an additional 30000 people in Auckland working in construction shows the pressure we also have to ensure that the quality of building work is maintained. We also have the value of residential building work. That has gone from $1.4 billion per year to $3.5 billion per year. We have the AECOM National Construction Pipeline Report which shows that 80000 new homes in Auckland are to be built over the next 5 years compared with 30000. The last figure I would draw the House’s attention to I accept is crude but is an international measure and that is the skyline crane count which is currently in Auckland at 79 which is also an all-time high.Alfred Ngaro: Have any independent estimates been made of the number of houses expected to be constructed in Auckland in this parliamentary term and how do they compare with other previous Parliaments?Hon Dr NICK SMITH: The National Construction Pipeline Report is produced by AECOM and is based on both actual building consents issued and the forward projections based on the number of subdivisions that have been approved. It projects 36000 homes being built in Auckland during this parliamentary term. That compares with 17000 in the last parliamentary term—so more than double—and that 36000 would actually be an all-time record of more houses built in Auckland during the term of this Parliament than any other Parliament in the history of this country.Serco—Staff Training9.KELVIN DAVIS (Labour—Te Tai Tokerau) to the Minister of Corrections: Does he have confidence in Serco’s ability to train its prison staff; if so why?Hon Peseta SAM LOTU-IIGA (Minister of Corrections): There are a number of issues to do with Serco under review at the moment and my ongoing confidence will be dependent on the outcome of that review. I expect the Department of Corrections to hold Serco to account for the terms of its contracts—that includes the necessary training for staff required under legislation.Kelvin Davis: Does he think it acceptable that after 2 years Serco has still failed to meet the standards set out by the New Zealand Qualifications Authority when training prison staff?Hon Peseta SAM LOTU-IIGA: My understanding of the New Zealand Qualifications Authority report is that 100 percent of those at Auckland South Corrections Facility and 95 percent of those at Mt Eden Corrections Facility had completion rates to qualify as corrections officers as required by the law.Kelvin Davis: What sort of employer has his Government contracted that sends its staff into dangerous situations without proper training and then wonders why there are fight clubs and contraband?Hon Peseta SAM LOTU-IIGA: As I have said in this Housealready those allegations are currently under review. I am awaiting the findings of that review and until we receive those I cannot make conclusions from that.Mahesh Bindra: What training support does the Department of Corrections provide to Serco; and who pays for it?Hon Peseta Sam Lotu-Iiga: I am sorry. Can you just repeat that question?Mr SPEAKER: Would the member please repeat the question.Mahesh Bindra: I raise a point of order Mr Speaker. I am happy to repeat the question and simplify the question to suit the Minister’s level of understanding.Mr SPEAKER: Order! That is the sort of behaviour—[Interruption] Order! That is the sort of behaviour that brings the House into disrepute. Would the member—[Interruption] Order! Would the member repeat the first question as asked.Mahesh Bindra: What training support does the Department of Corrections provide to Serco; and who pays for it?Hon Peseta SAM LOTU-IIGA: According to the New Zealand Qualifications Authority report there is no support in terms of the Serco New Zealand Training Limited services that are provided to Serco.Kelvin Davis: Why did he refuse to front up to Kiwis and give comment to media on this story yesterday?Hon Peseta SAM LOTU-IIGA: Well I front up to Kiwis every day so I do not know what that member is talking about.Emergency Services—111 Calls and Mobile Black Spots10.RIA BOND (NZ First) to the Minister for Communications: Does she have confidence that all New Zealanders have ready access to the 111 emergency call service; if so why?Hon AMY ADAMS (Minister for Communications): I have confidence that the system is working as intended as anyone with a landline or usable mobile connection is able to access this service free of charge 24/7 and call answering targets are not only being met but significantly exceeded.Ria Bond: How can the Government be meeting its Kiwi share obligations given that Spark must answer 111 calls yet there is no obligation or time-scale on this Government to end mobile blackspots in rural New Zealand?Hon AMY ADAMS: Mobile blackspots is drifting quite a long way wide of 111 calling but I can assure that member that this Government has actually invested nearly $450 million in mobile rural connectivity and that means that we now have coverage to more than 97 percent of New Zealanders. We have just announced another $50 million into mobile blackspots and I am just proud to be part of a Government that is doing something about it after years of neglect under parties including that member’s party.Ria Bond: When will she prioritise areas of rural New Zealand such as Mōtatau in Northland and Wyndham in Southland which have no stable mobile coverage as evidenced when I personally tried to save a life in Mōtatau on 24 October and could not—Mr SPEAKER: Order! The question is too long.Hon AMY ADAMS: We prioritised rural connectivity on 8 November 2008 and have been doing so ever since which is why this Government has spent $450 million improving connectivity why we now have rural mobile coverage to 97 percent of where New Zealanders live and work and why we are now spending another $50 million to further enhance mobile blackspot coverage in New Zealand. But it is true that not every single part of New Zealand will be covered. We have an incredibly vast mountainous country including vast ranges of unexplored and undeveloped areas and people going into those areas I think have an expectation that they will not get mobile coverage. But I can say to that member that 97 percent of mobile coverage is I think a very very good position to be in.Ria Bond: In light of her answer is she concerned enough to prioritise alternative infrastructure technology for rural communities to save rural lives; if not why not?Hon AMY ADAMS: As I said at the outset anyone with a landline and anyone with a mobile phone is able to access 111. If you are leaving areas of accepted mobile coverage it is recommended that people carry alternative means of communication like satellite phones when they are out in the high country. But 97 percent mobile coverage is significant. It is better than it has ever been before and yet this Government is still investing further money in it.It is pretty rich for parties that have never done anything to advance it and never supported what this Government is doing to try to now criticise it.Question No. 1 to MinisterRICHARD PROSSER (NZ First): I raise a point of order Mr Speaker. I seek your clarification on an issue that occurred earlier during question time with regard to a member taking offence and requesting that words be withdrawn.Mr SPEAKER: Where is the member referring to?RICHARD PROSSER: It is Standing Order 119. My question is as to what criteria are used by yourself in determining whether the House has taken offence because there appears to be some ambiguity between Standing Order 119 and Speaker’s ruling 61/1.Mr SPEAKER: I can assist the member. I determine whether the House has taken offence judging by the order of the House at the time and the context in which the remark is made. In this particular case I was conscious that the Prime Minister had said that he had information from an Australian politician—I think it was from the Australian Prime Minister—stating that a number of these people who are detained are there for very serious crimes. That influenced the decision I gave earlier. But what the member is doing now is simply taking an opportunity at this stage to relitigate a decision I made earlier. That in itself leads to disorder.Christchurch Recovery—Justice and Emergency Services Precinct11.MATT DOOCEY (National—Waimakariri) to the Minister of Justice: What progress can she report on construction of the Christchurch Justice and Emergency Services Precinct?Hon AMY ADAMS (Minister of Justice): The $300 million Christchurch Justice and Emergency Services Precinct continues to make good progress. The steel superstructures for both the justice and emergency services buildings are now complete with two of the three buildings to have roofs on by the end of this month. Work has also started on the foundations for the car park building which is the final building in the precinct. The project remains within budget and on track.Matt Doocey: How will the Justice and Emergency Services Precinct improve the way the Government delivers justice services in Christchurch?Hon AMY ADAMS: When completed the precinct will encompass around 1100 staff and 900 visitors across five levels 42000 square metres of floor space and 19 court rooms. It will locate the key justice agencies allowing police the Department of Corrections and the courts to share services and resources—for example having one set of secure cells to house offenders saving cost travel time and risk. These financial savings alone are estimated to amount to $9.8 million per year to say nothing of the intangible benefits that will accrue.Trade Agreements—Overseas Ownership of New Zealand Properties12.Hon DAVID PARKER (Labour) to the Minister of Trade: Does the provision at page 8 of Annex II of the New Zealand - South Korea FTA mean South Korea can adopt or maintain a ban on New Zealand people buying South Korean homes?Hon TODD McCLAY (Associate Minister of Trade) on behalf of theMinister of Trade: Yes.Hon David Parker: Is the reason that Minister Groser would not answer that same question last week that he did not know or was it that it shows up his Government’s incompetence in giving up New Zealand’s right to ban foreign buyers of New Zealand homes while agreeing that South Korea can?Hon TODD McCLAY: No. New Zealand has applied a consistent approach to this issue in all free-trade agreements. I understand that the Minister of Trade followed exactly the same strategy as the then trade Minister Phil Goff used with the China free-trade agreement negotiations. The outcome is exactly the same in both the China and the Korea free-trade agreements. They are both high-quality agreements they both deliver jobs and investment for New Zealanders and they both treat property transactions the same. Mr Parker needs to talk to Mr Goff.Hon David Parker: I raise a point of order Mr Speaker. [Interruption]Mr SPEAKER: Order! I have a point of order from David Parker.Hon David Parker: I seek leave to table the relevant pages of the free-trade agreement with China under which New Zealand can ban foreign purchasers—Mr SPEAKER: Order! Again that information is very available to all members if they want to go and look it up.Hon David Parker: I raise a point of order Mr Speaker.Mr SPEAKER: Is it a fresh point of order?Hon David Parker: No it is speaking to that point of order.Mr SPEAKER: I will hear very briefly from the member.Hon David Parker: The free-trade agreement with China runs to many thousands of pages as most free-trade agreements do. It is very difficult for members—and obviously the Minister—to find the relevant clause so—Mr SPEAKER: Order! I have heard enough. I will accept the member’s first point. I will put the leave to the House and it will be for the House to decide. Leave is sought—the member wants to table the relevant pages regarding the section of the China free-trade agreement. Is there any objection? There is none. He can do so.Document by leave laid on the Table of the House.Hon David Parker: Is the Minister saying that the free-trade agreement signed with China stops the New Zealand Government banning the sale of New Zealand homes to foreigners including China?Hon TODD McCLAY: What I am saying is that the approach of the China free-trade agreement negotiation and the Korea free-trade agreement negotiation is the same and the outcome is the same. But in respect of the primary question the Government had a number of priorities it negotiated: preserving sensitive land provisions under the Official Information Act and we were successful in this; ensuring that there were no adverse changes to the foreign investment provisions and we were successful in this; ensuring Treaty of Waitangi exemptions were done; getting a good deal for New Zealand exporters to create opportunities and jobs in New Zealand and grow the economy and that was done; and to ensure the outcome of equal standing to the China free-trade agreement on that issue and this too was successful.David Seymour: Does New Zealand have a history of unilaterally dropping trade barriers; if so to what effect and under which parties?Mr SPEAKER: The Hon Todd McClay—either of those two supplementary questions.Hon TODD McCLAY: One of the challenges New Zealand exporters face is barriers to trade. The high-quality free-trade agreements that have been entered into by successive New Zealand Governments open up access. They level the playing field. They allow New Zealanders to produce and export. They secure jobs for New Zealanders. These are two good free-trade agreements and Mr Parker voted in favour of both of them. He should be proud of that.Hon David Parker: Given that countries like Australia Switzerland and China have bans on the sale of their homes to foreigners why did he not even try to protect New Zealand’s sovereign right to do the same?Hon TODD McCLAY: There are a range of policy options available to the Government depending upon the circumstances but a ban would not be consistent with the Closer Economic Relations agreement with Australia. It would not be consistent with the Singapore the China the Korea or the Taiwan free-trade agreements. This is exactly the same as the Korea agreement. It is a high-quality agreement as are previous agreements that have been negotiated by previous Governments.Hon David Parker: Is he still asserting that the Chinese free-trade agreement prevents the New Zealand Government from introducing a ban on the sale of residential homes to foreigners?Hon TODD McCLAY: I refer to my earlier answers. One thing though that is clear in the text that the member—[Interruption]Hon David Parker: I raise a point of order Mr Speaker. I have asked that question in three forms and he has not answered it—Mr SPEAKER: Order! The way forward is I am going to invite the member to restate that question and then this time we do hope we get an answer.Hon David Parker: Is the Minister still asserting that the provisions of the Chinese free-trade agreement prevent the New Zealand Government from imposing a ban on the sale of New Zealand homes to foreigners?Hon TODD McCLAY: What I am asserting is that the approach to the negotiating of those two agreements and the outcome is the same.Question No. 10 to Minister—Amended AnswerHon AMY ADAMS (Minister for Communications): I seek leave to correct an answer given in question time earlier today.Mr SPEAKER: Leave is sought to correct that. Is there any objection to that course of action—[Interruption] Order! Is there any objection? There is none.Hon AMY ADAMS (Minister for Communications): In answer to a supplementary question during question No. 10 today it has been brought to my attention that my answer may have indicated that the $50 million Mobile Black Spot Fund is in addition to the $450 million this Government is spending on rural connectivity. It is in fact included in that $450 million.Point of Order—Unparliamentary LanguageDENIS O’ROURKE (NZ First): I raise a point of order Mr Speaker. Concerning Standing Order 386(2)(c) which refers to “discreditable references to the House or any member of Parliament” may I respectfully request that you reflect upon whether any of your rulings today were not consistent with the Standing Orders?Mr SPEAKER: I already gave an assurance earlier to Chris Hipkins who asked that I do reflect. I will do so.Point of Order—Leave to Move Confidence Motion Speaker of the House of RepresentativesCHRIS HIPKINS (Labour—Rimutaka): I seek leave to move without notice a motion of no confidence in you as the Speaker as a result of your rulings today.Mr SPEAKER: Leave is sought for that course of action. Is there any objection? [Interruption] Order!Point of Order—Withdrawal of Unparliamentary LanguageJAMES SHAW (Co-Leader—Green): I raise a point of order Mr Speaker. In relation to Speaker’s ruling 61/1 which reads: “The cause for a matter to be withdrawn in the House is not that one member feels aggrieved. A member is required to withdraw something because the House itself is affronted.” You referred to this in your earlier ruling. It says “not one”. How many members would need to feel affronted before you ruled that it would be affronting the House?Mr SPEAKER: There is no formula that I can give the member that may help in a future situation. I have got to judge the tone of the questions that are being asked the tone of the answers that are being given and then make a call. There is no formula that I can give about whether it is four who rise to do so. Often we get the case—in fact I can think of numerous cases—where a member says that he has taken offence I rule that that is in my mind not a matter of offence and three or four otherswill rise almost in an orchestrated campaign to try to join in. That has happened before in the past. I make a call depending on the circumstances as I have explained. As I have said to this House I will certainly review the proceedings earlier today.James Shaw: I raise a point of order Mr Speaker.Mr SPEAKER: A fresh point of order?James Shaw: Well in relation to—Mr SPEAKER: No. I have dealt—[Interruption] No we have spent a lot of time on this matter. I have dealt with it. If the member has a fresh point of order I am only too happy to hear it but at this time I have dealt with this other matter.Urgent Debates DeclinedPolice—Investigation into Abusive ImagesMr SPEAKER: I have received a letter from Tracey Martin seeking to debate under Standing Order 389 the actions of the police in relation to degrading images posted online by a group of high school boys. In order for an urgent debate to be held there must be a particular case of recent occurrence involving ministerial responsibility. It was reported yesterday that the police had warned boys who posted images and that charges would not be laid. Although the Minister of Police is answerable to this House for police operational matters under our system of Government the decision to prosecute or not is not a matter of ministerial responsibility.The purpose of an urgent debate is to hold the Government accountable for an action that has occurred for which it is responsible. There must be a distinct Government responsibility for the particular case that has been sought to debate. An urgent debate is not an opportunity for a general debate of issues of concern to members. The application is therefore declined. [Interruption] Order! [Interruption] Order! That sort of behaviour is—[Interruption] Order!International Finance Agreements Amendment BillIn CommitteePart 1 Preliminary provisionsGRANT ROBERTSON (Labour—Wellington Central):It is a pleasure to take a call on Part 1 of the International Finance Agreements Amendment Bill. As we discussed when the House was looking at this during the second reading it is a bill that did not generate an enormous amount of public interest when it came before the Foreign Affairs Defence and Trade Committee. In fact there was precisely no public interest when it came before the select committee but that is not to say that it is not an important piece of legislation.What I think would be useful here in Part 1 is—obviously Part 1 is the purpose clause and the purpose of this bill is to allow New Zealand to participate in the Asian Infrastructure Investment Bank. In principle that is something that on this side of the Chamber we support. There is no doubt that as the Asian region continues the enormous growth that we are seeing across it the need for infrastructure investment—the need for investment that the international community provides—only grows.The Asian Infrastructure Investment Bank arose out of the belief and I guess you could say the concern of those in the Asian region that the gap in infrastructure investment was too big to be bridged by those organisations that are currently working in the region—in particular we think here of the World Bank and the IMF. That was initially the subject of some significant concern by core stakeholders within the World Bank. There were some media reports that the United States Government and others were lobbying against countries being involved in this but we are told in the report that was provided to the select committee that other agencies like the World Bank have been closely cooperated with and collaborated with in developing the frameworks to allow this to exist and importantly that they will work together with the Asian Infrastructure Investment Bank to make sure that their projects do not cut across each other or are not in fact not working together in the best interests of the countries in the Asian region.So having got to that position it is good to acknowledge that New Zealand officials have been working alongside others to make sure that this bank has the strongest possible governance arrangements and has the best working framework to ensure the investments it makes are going to not only provide that infrastructure but also support other values that are important to New Zealanders. It is worth noting that it was New Zealand officials who worked very hard to ensure that appointments to the board of the Asian Infrastructure Investment Bank will be open transparent and merit-based that there will be a non-resident board of directors and that the appropriate environmental social and procurement safeguards will be put in place around what the bank does. That is very significant because although in principle we can say: “Yes we want this infrastructure to happen.” if there are not the right safeguards around it then we could see infrastructure investment that is less than desirable.So annex 1 of the framework document lists off the draft environment and social framework for the Asian Infrastructure Investment Bank. It is useful to note the environmental coverage is making sure there is an assessment around biodiversity impacts critical habitat impacts protected areas and climate change—the precautionary approach. All of these are really important parts of what makes for good investment. They have been secured in this agreement and from our point of view that is very important. We also have the social coverage which includes social risks impacts on the community impacts on vulnerable groups and gender-specific impacts—an important thing to note on Equal Pay Day today. It also talks about working conditions and the fact that during the implementation of operations working conditions health and safety child labour forced labour and labourrelations standards all have to be taken into account when infrastructure investment is being put in place under the Asian Infrastructure Investment Bank’s work. These are important safeguards and it is very important for New Zealand’s participation that those safeguards are there. New Zealand worked hard to ensure that the governance arrangements and the safeguards were there—that there was stability.Our actual financial contribution to the bank is modest but perhaps appropriate in terms of our relative GDP—well it has to be appropriate in terms of our relative GDP because that is how it is worked out. So we are making an initial contribution of around—well let us do US dollars because of exchange rate fluctuations shall we—US$92 million over the next 5 years. We have also committed US$369.2 million of callable capital. As my colleague Phil Goff noted in his intervention in the second reading New Zealand has never had to call on the capital that we put aside but that is the extent of the contribution that we have made. As I say although that is not a significant financial contribution it is an important stake for New Zealand to say that we are committed to this bank. We are committed to the Asian region and the opportunities that arise.The reasoning for joining the bank was threefold. Economic factors—New Zealand’s economic success is linked to the Asian region. I know that the leader of the Labour Party Andrew Little was in China last week and other Ministers from the other side of the House have visited regularly as well. No one can underestimate the extent of the development that is there and the extent to which China is continuing to invest. The Prime Minister will go with a business delegation to Viet Nam next week—there is a country where there is a need for increased infrastructure investment for it to continue to develop sustainably. It has enormous rates of growth but it is a country that could do that. We have just seen the elections this weekend in Myanmar—there is a country with an enormous infrastructure deficit that could be assisted by the work of this bank. From New Zealand’s point of view all of those are countries with which we will trade and do trade and all of those are countries that we want to see flourish in order for our region to flourish.The second reason was around connectivity to market and our ability to build on the connections that we already have in Asia. We have status within ASEAN we attend the East Asia Summit—that is where the Prime Minister is going next week—and obviously we have the free-trade agreements with China and other ASEAN members. This is a further step in New Zealand staying connected in the Asian region and connected to where we will see much of our future trade relationships.Then there is just the question of the ability to influence. If New Zealand is not there in a discussion like this we do not have the ability to do the very things that I mentioned before—making sure that the governance arrangements are sound and that the bank is working with the systems that we would want.So I will leave my contribution there. Suffice it to say that the Labour Party supports this bill. In this Part 1 of the bill there are no particular changes to deal with. In Part 2 there is one which I will take a brief call on.Hon BILL ENGLISH (Minister of Finance): Can I thank the member for a pretty succinct and sensible summary of the Asian Infrastructure Investment Bank and its purpose as laid out in this bill. Also can I thank the Foreign Affairs Defence and Trade Committee and chairman Mark Mitchell.The legislation is here because the New Zealand Parliament has dealt with it pretty expeditiously. I have just a couple of points to make in addition to those made by the member and I look forward to contributions on the way through this debate. It is a slightly unusual piece of legislation—it is not the only one that has been done like this but essentially we are legislating the Articles of Agreement of the Asian Infrastructure Investment Bank which were not written by us. They are the result of the collective discussions of a significant number of countries.I might say that the way they are laid out in this legislation should be a lesson to our own bureaucracy. There is admiral economy clarity and brevity in these articles for what is a complex multinational institution. It all fits into about 20 pages or slightly more and you can actually read it and understand it. So I would like to give the select committee credit for that but actually it did not have the opportunity toget into the detail of it—although I know Mr Parker could have improved on it.However it does demonstrate something that I think is certainly a feature of a bipartisan approach in New Zealand and that is that under successive Governments New Zealand has been able to carve out a bit of a role as an honest broker in international events and international forums. This piece of legislation here is a product of that actually because when the original proposal was put forward there was a great deal of concern and reticence among a number of countries that this bank may be set up in a way that enabled it to expedite the policies of the Chinese Government and that was it. Of course it was any number of countries that were interested in participating because they were interested in the investment capital and the member Grant Robertson mentioned some of them.But with the early focus on Singapore but particularly New Zealand—because we count in the international world as a developed economy while the much wealthier economy of Singapore counts as a developing economy—as the first developed economy to participate was able to have considerable influence over the articles as we find them here.And finally can I just acknowledge the role of the parties across the Parliament. The speed at which this multilateral institution was proposed and has come into existence is remarkable by any standard. In fact there probably has not been another one like this. That demonstrates I think a wide set of interests in the broader multilateral community particularly to have institutions of a higher quality and a broader base than the current World Bank and the IMF where unfortunately reforms to their make-up that reflect the fact that the balance of world GDP has shifted away from the European and North American economies to a whole range of emerging economies—those reforms simply have not proceeded for various reasons but it has been disappointing. So there has been an interest from the international community in this institution because it can start afresh in the 2010s rather than the 1940s and the world of course is a bit different now.So I want to acknowledge the fact that the Parliament has seen the virtue of that and has expedited this legislation so that we will meet the deadline—by 1 January this will be in place and New Zealand will along with other countries be able to take up its role in the governorship of this bank.Hon DAVID PARKER (Labour): Can I concur with my colleague Grant Robertson and the Minister of Finance’s comments. I do think it reflected well on New Zealand that we were early to the party when it came to saying that we thought that this was a good idea and that we then tried to mould it into a well-governed organisation that will do good in the world. I know that some of the opposition in other parts of the world was not just against the potential—as the Hon Bill English has said—misuse of this fund as an instrument of Chinese Government policy which was one of the original concerns. Actually their concerns were sometimes just about the rising influence of China and a desire that China not be able to exert the influence in the world that it can through this new agreement. That was an inappropriate reason for opposition to this Asian Infrastructure Investment Bank and I am pleased that the New Zealand Government got on the right side of that debate from fairly early on.There is one issuein particular that I would like to raise in respect of Part 1. Part 1 as the Minister has already told the Committee inserts the articles of association that are set out in new schedule 8 in the schedule of this bill. It does that at clause 5 of the bill. Those articles of association include the number of shares that the New Zealand Government subscribes for and everyone who subscribes for a share takes up a capital subscription—or a capital risk if you like; some of it has to be paid across but some of it is just there to be called upon if needed. Every 10 of those shares carries with it a $1 million capital subscription so New Zealand’s capital subscription is $461.5 million for 4615 shares. I have done a quick calculation as to what New Zealand’s share of the total is because there is $75000 million of capital being subscribed for. As a consequence New Zealand’s contribution is 0.64 percent of the capital roughly—less than 1 percent.The proportion that New Zealand takes in these organisations—and the IMF is the same—is lower than it would have been in yesteryear because the New Zealand economy has not grown at the same rate as overseas economies have and as a consequence our proportion of the total of these capital funds is less than it used to be in yesteryear. We saw that—I am not sure whether it was earlier this year or last year—when an Act of Parliament was brought in to change another of the agreements under the International Finance Agreements Act where we amended the IMF articles to note the changing proportion of different countries in the world economy and New Zealand’s percentage of the total capital went down because our share of the world’s economy went down because New Zealand has not done as well as some other countries. At the time of that debate the International Finance Agreements Act was amended to enable amendments to articles of association by way of regulation by the executive rather than bringing those agreements back to this House.The effect of this amendment bill in concert with the earlier amendment bill that says these things can be changed by regulation is that this Parliament is setting up a system in respect of the Asian Infrastructure Investment Bank which is what this bill is mainly about that in the future we are handing over to the executive the power to change. We objected to that at the time when the regulation-making power was being conferred on the Minister of Finance and the Government because we think that we should have these important agreements coming back to this House when they require alteration. It actually does not happen very often. I think the IMF articles have been changed only a few times since they came into force many many decades ago so it is not an onerous task for Parliament to keep an oversight of how our participation or how the rules of those organisations change.I am not going to take much longer on that point other than to note the fact that I would like the Minister in the chair to respond with why it is that he thinks that when New Zealand’s obligations under these articles change because of a change in the articles—where they do have significant monetary effects for New Zealand—why that sort of thing should be able to be done by the executive rather than coming back to this Parliament because that is what we are doing with this clause.Hon PHIL GOFF (Labour—Mt Roskill): Part 1 of the International Finance Agreements Amendment Bill sets out the purpose clause and the purpose is of course to enable New Zealand to become a member of the Asian Infrastructure Investment Bank. Then the rest of the bill implements our obligations under it including the whole of the articles of agreement which take up about 30 of the 34 pages. Labour supports this bill and the reason that we have supported it both at the Foreign Affairs Defence and Trade Committee and here in the Chamber is that there is a gap in infrastructure investment in the Asia region and this enables us to join a bank that will foster sustainable economic development. But I have questions for the Minister in the chair the Hon Craig Foss who I am sure is very well informed about the bill.The first thing—when we assessed whether we should become a member of the bank—was that it was very well known that the United States was opposed to countries joining up to it and it was opposed for basically two reasons. First of all it claimed somewhat curiously that investment needs were being met in the Asian region. I say “curiously” because both the World Bank and the Asian Development Bank which are both operating in this area suggested that a further trillion dollars was needed each year to support economic growth in the region. So it is not a case of the Asian Infrastructure Investment Bank elbowing out other banks but rather supplementing those banks to meet an unmet need. The second reason that the United States appeared to oppose this was that it said it would expand the influence of China. I actually concur curiously with the comments of the Minister of Finance who made it clear that the gap was there and it was real and that the old Bretton Woods institutions were not doing the job. They were not doing the job partly because they reflected the world as it was in 1945 and not as it is in 2015. One of the outcomes of that is that China was actually constrained from playing the full role that it ought to play in Asia under those Bretton Woods institutions.It is quite clear that China is an economic superpower. It is the second-largest economy in the world and equally that gives it responsibilities and obligations to help other countries in the region—and by providing infrastructure investment it can do that. Of course under what is set out in this bill in the articles of agreement China will end up with about 25 to 30 percent of the voting rights. That gives it a significant role and that is because it invested $30 billion out of the $100 billion that will be available for infrastructure investment. But my question to the Minister is this: as we worked through the process of agreeing to become a member of this bank what approaches were made directly or indirectly formally or informally by the United States to try to persuade us not to become members? As it happens its expressed opposition to the bank has not prevented the vast majority of countries in the region—38 regional members of the bank from the Asian and Middle East region and 20 non-regional members—signing up to the bank. That includes other countries like Germany France the United Kingdom and the Scandinavian countries which are clearly very much part of the Western developed world but nevertheless see some real benefit in having this bank set up and operating.I want to just touch briefly on the amount of capital that we are putting into it because I know that other parties in the Committee may have some concern about that. The subscribed capital is US$92 million. That however is payable over 5 years so the amount of money that we are sinking into it each year is less than the referendum on the flags debate. I think it is about $22 million a year that it comes out at. We also put up US$369 million in callable capital but when I did a little bit of research on our participation in like institutions to the best of my knowledge the callable capital that we have committed to has never been called up because the institutions have never run into financial difficulty. I would like the Minister if possible just to confirm that fact. So the US$369 million that we will subscribe in callable capital is unlikely to be called upon.Why are we becoming a member of this bank? That is what the purpose clause addresses. I think the first cause very clearly is economic. Our future now is inextricably linked to the future of the Asia-Pacific region and as such with most of our largest trading partners in the Asia-Pacific region we have a vested interest in how well the region does. I did a free-trade agreement with China and with ASEAN. Those countries are all part of this bank and those countries particularly the ASEAN countries will benefit from having a bank that will improve its infrastructure—the infrastructure of the countries—and improve their economic performance. That will have a flow-on effect for New Zealand. So it is the right thing to do but doing it will also benefit New Zealand economically.The other benefit we get is from our connectivity to the market. We are a country that has origins as a Western European country but we have fought very hard to be seen as an active participating and contributing member in the Asia-Pacific region. As a small country we do not have a very large share in this bank or voting power but it is the symbolic importance of our being seen to be committed to the development of the region. What is really important from my experience in working economically and in trade matters with the Asia region is building relationships. Before you can do business you need to build a relationship and this for us is about building that relationship.The third reason why we are being a member I think is because it gave us a chance to get in very early on in the development of this bank and to influence how that bank would be set up and the rules under which it would operate. I want to again pay tribute to John Whitehead who represented New Zealand in those negotiations. I think he did a fine job. We were able to help ensure that the membership of the bank is broad and open. We were able to ensure that there are sound governance and appointment processes followed by the bank. That was important. I think we probably exercised an influence beyond our size. We were able to establish the principle that decisions have to have regard to environmental and social issues. For us and the importance we place on those things that is also very important.But most important we were able to help ensure that this bank will operate according to economic and financially sustainable principles. As a result there will be proper oversight for investment decisions and for development outcomes. There will be international best practice for the way this institution runs. When we did the international treaty examination of the bank there were also risks pointed out but I think we have been able to mitigate those risks and I think the arguments very clearly are in support of our participation in this bank. I commend those who helped negotiate the agreement. The Labour Party will be supporting this bill through its final stages.FLETCHER TABUTEAU (NZ First): I too would like to acknowledge those officials who undertook that early participation in negotiations in this agreement. I give them credit for the fantastic work that they did. That does not actually preclude our continuing opposition to this legislation.Part 1 enables our participation in this infrastructure bank. Many of the speakers including the Minister have spoken of one of the benefits being the ability to influence economic factors and connectivity to the market. The arguments given are: increased economic development in the Asia region—we have heard that repeatedly; supported increased economic integration—that it augments New Zealand’s existing relationships. Let us take a reality check here and just stop and look at what the officials actually provided this Committee in terms of information. The reality is that there is nothing in this legislation and nothing in the appendices attached to it schedule 8 that says—it actually specifically says that there will be no investment in New Zealand. New Zealanders will not seek for investment to be undertaken in New Zealand under this legislation nor it specifically says will the investment bank itself actually invest in New Zealand.The question was then asked as to what the benefit is to New Zealand of signing up to this financial agreement. We have heard a lot of lovely intangibles but the reality is—and this is the reality—Government officials never undertook a financial impact statement or an analysis of the benefit of this financial agreement with New Zealand because from the outset they established that there would be no or negligible financial benefit to the New Zealand economy. Those were the Government’s own official words. That is the reality of this situation that this Committee is in today. That is the reality of the contribution being given here. It sounds lovely when you hear the words from some of the members today about the impact on New Zealand but that is not the reality. The officials themselves have said so.New Zealand First has questioned the economic impact from the outset. The argument has also been around influence but we would also point out that China for example will trade with New Zealand without a free-trade agreement. In fact trade with China was growing exponentially before a free-trade agreement because China wanted what we had. It wanted our commodities and it was prepared to come and negotiate and work with New Zealanders to do that. Businesses and New Zealand will continue to build relationships with China and the ASEAN communities. We have as Mr Goff so rightly pointed out these free-trade agreements with the Republic of Korea with China and agreements with the ASEAN community. That will not stop because this Government for example would go before them and say: “Look we’re willing to help you write this infrastructure financial agreement because we think we have something to contribute but we actually can’t afford to give you the money.” I think that would have been fair and reasonable and we would not have broken friendships or undermined our relationships if we had said honestly: “Look we’re up to $80 billion to $100 billion worth of Government debt. We’ve sold assets. We’re supposed to be paying for our own hospitals our own schools and investing in our own community. Look the reality is that we can’t contribute that minuscule sum to make this work for you.”The other issue I have and it is actually a question for the Minister in the chair Craig Foss—if I can find my notes—is around our participation and our level of influence. I think it was the Hon Mr Parker who said that we have a 0.64 percentage of share in this bank. He is bang on. My calculation was 0.66 percent; it was even more generous. But if you go into the appendices—I ask the question specifically of the Minister in the chair. Our participation on the board is dependent on those rules and one of those rules says—schedule B of schedule 8 clause 2(a)—that we have to have 6 percent share in this bank in order to be a participative member.Hon CRAIG FOSS (Minister for Small Business): Just to give a quick answer to Mr Goff’s point—yes Mr Goff you are correct. There are similar organisations such as the Asian Development Bank the IMF—the International Monetary Fund—and the World Bank which we contribute to and have capital invested in as well as presumably this one if Parliament passes the International Finance Agreements Amendment Bill. The callable capital has never been called upon Mr Goff for your clarification. To the previous speaker Mr Tabuteau—I guess that if New Zealand was an island nation that had no interest in the development of its region or other economies or peoples or cultures or countries that member may be correct. But actually there is an obligation and responsibility to be part of this region and those other organisations which are similar to the organisation we are proposing to invest in here—for example the Asian Development Bank and the World Bank—invest in the Pacific actually helping sustainable energy projects and helping countries to become self-sufficient. I guess in brief that part of being a leading developed civilised nation with a solid economy and great history in helping other countries develop is that also as these Asia-Pacific countries—Asian countries in particular—that this organisation will be assisting grow their interest in New Zealand products and services grows as well. So it is actually in a roundabout way an investment in our region to help grow our Asia-Pacific region particularly which will in turn over time assist opportunities for the New Zealand economy to grow alongside them. Thank you.STUART NASH (Labour—Napier): I hope there are no media watching this because they may find me in the situation of agreeing with Mr Foss. Mr Tabuteau it was a rather naive speech. The reason I say that is there are a number of reasons why this is a very important development in the international banking sector. First and foremost I think you will find that most 21st century literature says that for an economy to grow it has got to have good sound infrastructure. We are talking about power stations we are talking about roads which are a sort of 20th century infrastructure but in this day and age we are also talking about copper about fibre and all those other things that link the world and allow businesses to locate pretty much anywhere that they can. When you look at the applicants who have joined this bank—we are talking about India Thailand Malaysia Singapore the Philippines Pakistan Oman Qatar Sri Lanka Uzbekistan and Viet Nam—New Zealand was actually the first developed Western country to apply to join. In recent months so have a number of others—Germany and Britain for example.One of the reasons as Mr Goff alluded to that the United States was against this was it cited that it believed that the governance within the Asian Infrastructure Investment Bank would not be up to standard. That is slightly ironic in a way because I believe after the reading I have done that if the Asian Development Bank and the International Monetary Fund and the World Bank had actually undertaken the sort of development and put in place the sorts of strategies that the region needed then this bank would not have been formed in the first place. In fact the irony is that the push for change around the IMF has been supported by President Barack Obama because he himself actually called for reform in the IMF last year. So this has really sprung up as a need in the region. As mentioned it is a massive part of the global economy. It is growing and it is where a huge chunk of our future lies. The thing is when America mentioned the governance arrangements and the concerns it has if you read through chapter V of new schedule 8 in the International Finance Agreements Amendment Bill it lists all the governance arrangements. It seems to me that it is very clear they need a quorum of two-thirds of members. Article 22 states: “1. Each member of the bank shall be represented on the Board of Governors and shall appoint one Governor and one Alternate Governor.” It looks very very robust from a governance perspective. I believe that you would find that the Germans and the Brits let alone other developed countries would not have a bar of this if they thought that the governance structure was not absolutely sound.The other thing I would like to talk about is this. If you go to article 2 “Functions” of the agreement set out in schedule 8—look at the functions. They are to promote investment in the region of public and private capital but when you look at article 2(iii) it actually talks about “to encourage private investment in projects enterprises and activities contributing to economic development in the region in particular in infrastructure and other productive sectors and to supplement private investment when private capital is not available on reasonable terms and conditions;”. One of the legal tests is a reasonable person test and I wonder what “reasonable terms and conditions” means. If that actually means that this bank is going to lend money more akin to the interest rates in Asian nations as opposed to for example in the developed world—in New Zealand for example—then it is perhaps not a bad thing. Infrastructure is vital and the funding is US$100 billion. That sounds like a lot of money and in many circumstances it is. But when we are talking about major infrastructure projects US$100 billion actually is not that much money when you think a large power station can cost $2 billion to $3 billion. It is a lot of money but for infrastructure development in these developing nations I suspect—and it will be interesting; Mr Foss has said we have never had to call down on our capital reserves but you may find that this is the case going forward certainly over 5 years because these economies are growing at a great rate of knots.I agree with a number of the speakers that it is very important that New Zealand is part of this. Mr Tabuteau is right. I cannot see any circumstance at all where the infrastructure would be built in New Zealand out of money from this fund—it is not needed. We have sufficient capital markets and sufficient private investors to allow the sort of infrastructure needed in this country without having to dive into this whatsoever. But these sorts of banks are not set up to help developed countries maintain or grow their infrastructure; they are really about developing countries and the flow-on effect from that can be massive. It is already acknowledged that India is an economy growing at a great rate of knots as is China and a lot of the other economies mentioned. Thank you.TIM MACINDOE (Senior Whip—National): I move That the question be now put.Hon CLAYTON COSGROVE (Labour): I like other members of the Labour Party—we are supporting this piece of legislation. But I do want to touch on a couple of comments that Mr Tabuteau made—and Mr Nash dealt with some of them. In essence the argument for opposing this seems to be that there is no hope of any monetary investment in New Zealand from this institution which as Mr Nash has pointed out is quite right. We are a developed country we are not a developing country and the moneys that will flow from this bank—its purpose is to fill the gap in the infrastructure and development in the Asian region.But that does not mean that there is nothing in it for New Zealand. What is in it for New Zealand if you look quite clearly—as colleagues outlined the membership of this organisation—is that we do have influence we do have connectivity. We have been right at the base and at the foundation of the genesis of this bank to put in place good governance rules and transparency. And as these funds are invested in Asian developing economies what is in it for New Zealand I think is self-evident. As these economies develop their infrastructure as they grow—at its brutal best or simplest—the buying power for goods and services of these nations will increase. They will look to countries like New Zealand to engage in commercial arrangements. We will be a recipient I am sure as other developed countries are of much of the work. And that is in terms of the growth of our economy the investment and the jobs and all the ancillary benefits that flow from that as we are party to other countries as their respective economies develop and grow.The more access that we can get to an economy that is growing and prospering the better it is for our nation. So I see this as part of a tradition that New Zealander has had for many many years. We are members of the UN the Asian Development Bank the IMF the World Bank the World Trade Organization (WTO)and one could argue and it is true that both our monetary contribution as others have said and our voting contribution or proportion are very modest. That again is not an excuse for us not being around the table. One could argue that in every international institution—the ILO the World Intellectual Property Organization and the others that I have mentioned—we have always had a modest role to play and a modest say. A good friend of mine whom some of you will know Mike Moore was fond of saying that New Zealand is—what is it—less than 1 percent of the world’s population; some would argue we have 90 percent of the world’s opinions from time to time.Of course our contribution and our voting muscle at these international institutions are modest but you have to argue that if you look at our seat around the Security Council the positions that we have had within the WTO and within the Commonwealth—the whole host of international institutions—to use the old cliché we have punched well above our weight. We have had influence. As the Minister Mr English said we have been looked to on many many occasions as the honest broker as the country that does not have an axe to grind that can go in between countries in economic dispute or whatever and do the deal. Those relationships are priceless. Mr Goff saidquite rightly as the guy who negotiated the China free-trade agreement that before you can do business in China and in a number of these Asian economies you have to build that relationship. We may be small. Our contribution in monetary terms may be small and our voting rights may be extremely small but we still are respected and we are around the table and we are participating. That is where New Zealand in part gets a massive payoff.I just come back to the original point. This bank its purpose is to target that gap in infrastructure investment within the Asian region. If that gap is plugged if there is access to capital in developing countries those countries grow their economies grow they reach out across the world for goods and services and expertise—and we have an advantage being one part of this institution but we have an advantage because of having the reputation as world-class providers of many goods and services—they will reach out to us and other countries. That is the investment. If you are looking for the investment in New Zealand that is part of a massive payoff—being there being part of it being reached out to and providing those resources that in turn grow our own economy.So I think with respect that it is slightly simplistic to say: “Well we’re investing $126 million initially with a commitment to $504 million going forward but because the bank’s not going to flick a bit of money to New Zealand therefore we should not be part of it.” If that was the case we would never have been a part of the Asian Development Bank or the IMF or the World Bank or other institutions because the likelihood of us receiving capital is as Mr Nash said extremely low. We have good institutions. We have mature capital markets. We can fight our own battle economically. So I think you have got to look at this in its widest possible context.Again as others have pointed out there is always the counter question: what is the cost of not being there? What is the cost of not being around the table part of a growing international institution with Asia the fastest-growing region in the world? You could look to the China free-trade agreement easily and say: what if that had not been in place in terms of the relationships with China? What if we had not participated in the Asian Development Bank and those others—we have ultimate directors there—what would have been the cost to New Zealand? The cost would have been relationships. The cost would have been those tangible—and I would argue they are very very tangible—benefits of goods and services and access to markets. That is a huge cost. So the Labour Party does support this piece of legislation. It is part of New Zealand’s international tradition to be a plank owner a foundation member of these great international institutions.I think we can look back and I do commend those who negotiated this—being in on the ground floor has allowed us to have our say on transparency to have our say on the structure and to have our say on the governorship. As others have pointed out Europeans and others look to this institution with respect. They would not do so if those fundamental arrangements were not in place. And actually by being a memberof this institution—again although we are a small nation we have a massive reputation—I would argue it also gives some credibility and integrity to it. People would ask if New Zealand and others in the region were not there: “What are we doing? What is our purpose?”. So I commend the bill to the Committee.I think it is sad that there was not a heck of a lot of public notice taken of it at the select committee but it is a very very important building block as New Zealand continues to play its part as a respected and mature developed nation throughout the world given that we can contribute our expertise. We do not know everything but we could contribute that expertise. We can continue to act as an honest broker and navigate countries through intricate and complicated procedures. This builds on that tradition.A party vote was called for on the question That Part 1 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Part 1 agreed to.Part 2 Membership of Infrastructure BankThe CHAIRPERSON (Hon Trevor Mallard): This is debate on clauses 6 to 11.Hon PHIL GOFF (Labour—Mt Roskill): Part 2 of the International Finance Agreements Amendment Bill is about the membership of the infrastructure bank. It makes the substantive changes that enable New Zealand to become a member of the Asian Infrastructure Investment Bank. Again I would like to talk about why we should become a member of the bank and why we are supporting this.In that respect just to touch on some of the comments made by my friend and colleague from the New Zealand First Party about whether this brings in only intangible benefits I think Fletcher Tabuteau drew on the analogy that China would have traded with us anyway so we therefore did not need to have a free-trade agreement with China. Well I am sorry; that is absolutely wrong. I know that New Zealand First opposed that agreement at the time. But it was not about intangible benefits; it was about very tangible things in terms of removing the tariffs. Actually making it tariff-free meant that you could increase your trade. Also—and maybe not quite as objective but certainly as strong a factor—there was the profile that it gave us. China always talked about the four firsts. That was in reflection of the relationship that we had with that country. That is why our exports went from $2 billion a year to over $10 billion a year.It is the same thing for this agreement. What would have happened—or what would happen—if New Zealand was the only substantial country in the Asia-Pacific region that did not participate in this bank? What message would we be sending to our colleagues in the ASEAN region? The message we would be sending is that we did not care about their infrastructure needs we were not really part of their region and we did not have an interest in helping them with either the technical assistance this bank will give or with the infrastructure investment assistance. Next time we went along to one of those countries and said to it “OK we’d really like to develop this relationship. We’d like more students we’d like more tourism we’d like to trade more with you.” it would scratch their heads and ask whether this is a country that is really committed to its region. It might still buy our products but it would be less inclined to regard us favourably and to give us the benefit of the doubt at times when a relationship really demands that we need the benefit of the doubt. So I think you cannot simply dismiss our involvement and our commitment to the Asian Infrastructure Investment Bank as being something that is simply an intangible benefit.The fact of the matter is that the greatest tangible benefit is that if we invest in this bank along with other countries that are giving the bank much more capital we will help the development of those countries. They will develop their middle class and their taste for New Zealand products and they will buy more products off us. To consider that New Zealand is an isolated island and can act without regard to the global environment within which we participate is a wrong view and I believe a naive view.What are the tangible benefits then of becoming a member of the bank which is what this part of the bill is about. First of all it is about increased economic development in the Asia region and the flow-on benefits that that will bring. Every study that has been done including by other development banks like the World Bank and the International Monetary Fund has said that there is a huge lack of capital for investment in infrastructure and that that is holding the region back. If they can get that capital if they can develop that makes the whole region better off it makes it more stable it makes it more prosperous and New Zealand benefits.Secondly it is in support of increased integration of the region. When we did the international treaty examination at the Foreign Affairs Defence and Trade Committee that was a key point made by officials reporting to us on our national interests as to why we would benefit from participation in and membership of the bank. It also augments our existing relationships in the region. For years speaking as foreign affairs Minister and trade Minister we were actively involved in the region at ASEAN regional forums at APEC meetings and so on. It is critically important. The majority of our trade flows now not to Europe but to the Asian region. [Bell rung]The CHAIRPERSON (Hon Trevor Mallard): I will give the Hon Phil Goff the call in a second but—I apologise to the members again—I misdescribed the debate. We are now debating Part 2 which includes the clauses I mentioned but also the schedule. Given the size of the schedule it is a fair proportion of the bill.Hon PHIL GOFF (Labour—Mt Roskill): We can indeed talk about the schedule. I thought we would be having a separate debate on the schedule—The CHAIRPERSON (Hon Trevor Mallard): No we are not.Hon PHIL GOFF: OK so let me address some of those things too because what is in the new schedule 8 in the schedule is important—that is the articles of agreement. It is 30 out of the 34 pages of the bill. It is therefore pretty critical.But I want to also address one amendment that the committee made which was to clause 9. Under clause 9 we deleted new section 8(1A). I want to talk about the reasons for that. New section 8(1A) basically gave article 19(1) of the articles of agreement the force of law in New Zealand. So a layperson reading this might ask why we would delete that. What article 19(1) does is prohibit members of the Asian Infrastructure Investment Bank from imposing restrictions on currencies held or used by the bank. That will still govern our actions anyway but the advice that the select committee was given was that it was not necessary. This article and the restrictions that it imposes do not need to have effect domestically for us to still be bound by it so it was not necessary for that to be included. Secondly it would be inconsistent with all of our other agreements with other international financial institutions if we were to include that clause. So not too much should be read into the fact that that clause has been taken out. It is simply that it was not necessary and it would have been inconsistent.Can I come now to the schedule of the bill which is really important. First of all article 1 sets out the purpose of the bill which is to “(i) foster sustainable economic development create wealth and to improve infrastructure connectivity in Asia by investing in infrastructure in other productive sectors;”. Also I think the second factor is significant—“(ii) promote regional cooperation and partnership in addressing development challenges …”. So that sets out clearly what the purpose of this bank is and why we would want to be a member of it. It makes it clear that membership is open to members of the International Bank for Reconstruction and Development—that is the Asian Development Bank as we know it. It talks about the amount of authorised capital stock that the bank shall have. The sum set out under article 4 is some US$100 billion—that is US$100 billion. So what that gives us is a sense of the size of this bank and the significance that it will have in achieving the purpose for which it is set up.We are investing in this bank remember because the Asian Development Bank and the World Bank were not meeting the level of demand in the Asian region for investment in infrastructure and that US$100 billion is clearly large enough to make a difference. Article 5 sets out the way in which we make our subscription to the organisation which is in five instalments each of which is 20 percent of the amount that we have to pay. That represents US$18.4 million a year. So it is a significant sum that we are contributing but compared with the larger countries like the US$30 billion that China is putting in it is relatively small but symbolically it is important and that is deemed to be our fair contribution.Article 13 sets out the operating principles and I think it is important that the bank shall be bound by sound banking principles. If this bank was not going to operate according to those principles and if we had not been involved in the negotiation and we were not confident in that then we would not be making this investment. So that is also pretty important.I want to touch on one other section if I can find it in terms of the election of the president of the bank which is really important. It sets out the principle that the election should be by an open transparent and merit-based process. If we need to have confidence in the way that this bank operates it needs to operate according to best international practice. I think the articles of agreement in front of us can give us that confidence—STUART NASH (Labour—Napier): I would like to speak to Part 2 of this bill and mainly to new section 3(3) inserted by clause 6(2) and new section 10(2)(da) inserted by clause 10(1). New section 10(2)(da) talks about schedule 8 which sets out the text of the Infrastructure Bank agreement as Mr Goff alluded to.I would like to say to Mr Tabuteau that I know he is not in agreement with this bill and he is not supporting our membership of this bank but if New Zealand First is ever in a situation where it has the power to withdraw New Zealand’s membership it can be done. There are clauses under chapter VII “Withdrawal and suspension of members” where a member can withdraw simply by delivering a notice in writing to the bank that we are gone. You get 6 months and you are still liable for all the liabilities and promises that a country has made but the bottom line is that I could not see a case where New Zealand would withdraw from such an agreement especially when you look at schedule 8 and the articles of agreement—why it is being undertaken.If you look for example at schedule 8 “Articles of Agreement of the Asian Infrastructure Investment Bank” one of the main ones is “to remove the financing bottlenecks faced by the individual economies in Asia and will complement the existing multilateral development banks to promote sustained and stable growth in Asia;”. So this is not saying it is an either/or—that a country applying for money from this bank has to choose between this bank and the Asian Development Bank the World Bank the IMF etc. This is just filling a gap that is perceived—well not perceived—it is acknowledged that it does exist.But when we talk about New Zealand’s membership and this is what article 3 does—approval is also given to the New Zealand Government to become a member of the Infrastructure Bank in accordance with the Infrastructure Bank agreement. There are a number of reasons why we would join this. We have talked about this before but one of the things that surprise me is that people have said that the Americans in particular have seen this as China having undue influence over the development of the region. Well the Chinese are incredibly smart as well. They understand that as citizens of the countries that are members of this bank will draw down funds to help their infrastructure move from subsistence living into consumerism the Chinese ability to service that and the Chinese economy’s ability to grow will grow along with these economies.As mentioned we are talking about Malaysia the Philippines Thailand India Viet Nam and Uzbekistan—there is massive growth potential in this region for all the countries that are investing in this bank. As I mentioned Australia is Great Britain is but the United States is not. It is one of the main ones. But there are a number of New Zealand companies that may not only be able to take advantage of the growing consumerism in these economies but also be able to take advantage of the infrastructure development as it occurs. We know that there are a number of New Zealand companies and consultancies that are world-leading experts when it comes to the development of for example geothermal energy cadastral mapping and any number of other infrastructural projects that may be required or that may come from the funding from this bank to these growing economies.The other thing also—I always agree with Mr Goff and I certainly do here—is we have got to stand for something. If New Zealand said: “We only care about ourselves. We don’t care what is going on in the rest of the world.”—and I am not talking about from an economic perspective; I am talking about a social perspective—then that would go against what I believe is a very important part of our global brand and what we actually stand for in the global market and that is for a fairer more equitable society. We do know that infrastructure projects deliver the sorts of social outcomes required to move people from subsistence right through to consumerism. We only have to look at China to see what a developing economy can achieve in the space of a very short period of time. As mentioned this is what we stand for.The economic benefits to New Zealand of membership—as one organisation used to say there are benefits in membership. I think the benefits in this agreement or in being a member of this bank far outweigh the costs. Mr Tabuteau—well not only Mr Tabuteau but a number of speakers have talked about the cost. It is only I think $156 million over 5 years—Mr Goff?Hon Phil Goff: Yes.STUART NASH: As Mr Goff pointed out it is less than we are spending on the flag referendum. So the cost to New Zealand is minimal per year—the cost to New Zealand is minimal but I think the economic benefits are absolutely substantial going forward.FLETCHER TABUTEAU (NZ First): Not to labour the point but everything that has been spoken of in these contributions I actually tend to agree with. Investment in China and in the neighbouring Asia-Pacific region is essential for the development of that region. I concur with the previous contribution from Stuart Nash that investment in infrastructure development in those underdeveloped regions will bring up the social capacity of those memberships.What I wanted to point out and what I still insist on is that the underlying commitment on behalf of this Government to this infrastructure agreement bank is based on lies told to New Zealanders. The Government has sold off our assets and told us they would be used for New Zealand but they are most clearly not being used for investment in New Zealand. That is our issue with this legislation. We cannot agree with the cries about what message it would send to China and what message it would send to the regions when we do not contribute. I contest that New Zealand First as the name might suggest is more concerned with what message it sends to New Zealanders when our commitment to this bank is based on lies from this Prime Minister.I just want to finish my contribution with a very technical question to the Minister in the chair the Hon Craig Foss. You will forgive me Mr Chair. It is actually in relation to our commitments under the joint statement of principles of partnership. New Zealand is expected to ensure adequate consultation with Tokelau on any treaty such as this one that we are committing ourselves to. My understanding is we have not undertaken that consultation. I would be happy—and I would hope—if this could be proven to be incorrect. But we do have a commitment. I would like to understand what consultation has been undertaken on the part of this Government because we are expected to do so under our own legislation when it comes to these financial trade agreements. So I put it to the Minister and I hope I am proven wrong that we have not consulted as per our obligations. I would be intrigued to know what that feedback from consultation is. Thank you for your forbearance Mr Chair.Hon DAVID CUNLIFFE (Labour—New Lynn): Thank you for this opportunity to contribute in the Committee stage on Part 2 of the International Finance Agreements Amendment Bill and I reiterate that Labour is supporting the bill. Part 2 contains a number of operative provisions in clauses 6 7 8 9 and 10—and importantly clause 10 is the linking section that attaches schedule 8 which is the Articles of Agreement of the Asian Infrastructure Investment Bank. I will make only a brief point about clause 8 which is to note that subclause (2) inserts new section 5(e) which says “all payments required to be made … to the … Bank under the terms of the Infrastructure Bank Agreement.” and new subsection (2) which says “Expenses … may be incurred without further appropriation …”. I would like the Minister in the chair Craig Foss to clarify for the Committee whether that means there is a contingent liability risk on New Zealand beyond the US$92.3 million I think it is to which our initial contribution amounts; if so what is the nature of that liability risk and can he put a top-end quantum on it. I think it is important for the Committee to be aware of that.Turning to new schedule 8 and with the preface that I understand that a former New Zealand Secretary to the Treasury Mr John Whitehead was instrumental in contributing to these articles of agreement I say that it is clear that they have been carefully worked through and I wish to turn in particular to the operating principles in article 13. This contains I think it would be fair to say a blend of banking principles and principles that reflect the international nature of the bank. The bank will be guided by sound banking principles; it will not finance any undertaking in the territory of a member if that member objects to such financing; it will pay due regard to the ability of the recipient to obtain financing on reasonable terms from other sources—which I think is important because what that says is that this bank is trying to fill in the financial funding gaps for Asian regional infrastructure not—The CHAIRPERSON (Hon Trevor Mallard): I apologise for interrupting the member. I have been consulting with Standing Orders and I do want to talk to Mr Tabuteau about a comment that he made previously. I want to refer him to Speaker’s ruling 48/2 which states: “The offence of calling another member a liar or implying that another member of the House is a liar is an offence against the House …”. It then goes on to make it very clear that that is not acceptable. I therefore require the member to withdraw the comment and to apologise.Fletcher Tabuteau: I withdraw the comment and I apologise.Hon DAVID CUNLIFFE: Clause 5 of article 13 talks about the ability of the recipient to obtain financing from elsewhere which goes to the point as I said that this is a supplementary or gap-filling fund and that reflects us back on the earlier debate that we had in the first reading of this bill when we were debating whether the creation of this bank represented in some ways a vote of no confidence on the existing Bretton Woods institutions and the sufficiency of the World Bank and the Asian Development Bank. From there that led us into a discussion of the relative interests of the United States as the sponsor of the Bretton Woods institutions and to reflect upon the rise of China as a very important country in the region which had been the principal driver of the creation of this additional institution.I think it is important to turn to chapter V in the articles of agreement and in particular the governance section in articles 22 23 24 and 25. What that does is it separates out the composition of the board of governors from the board of directors and I want to reflect upon those two different roles. New Zealand in agreeing at the outset to be a founder member of the Asian Infrastructure Investment Bank acquires a seat on the board of governors and an alternate governor if our regular member is not able to attend. That allows New Zealand to participate in exercising the powers under article 22 23 and 24 which include appointing directors and the powers thereof are set out later. It includes appointing under article 29 the president and overseeing the role and functions of the bank.It is instructive that in appointing the board of directors the governors are divided into two groups: nine shall be elected under article 25 by the governors reflecting regional members and three shall be elected by governors representing non-regional members thus making it clear that in all ordinary circumstances it will be regional members who will hold the power of appointment over directors or the board of directors. That is significant because it goes to the point of the shifting balance of influence between the non-regional Bretton Woods powers and the regional powers that are largely sponsoring this initiative but with whom New Zealand is pleased to associate on this occasion. The powers of the directors are set out in articles 26 27 and 28 and it is important to note the allocation of voting under article 28. Founding members are allocated 600 founding member votes and then other votes that are proportionate to their financial contributions.New Zealand does indeed get a seat at the table of an important new institution. New Zealand does get visibility to governance—or at least high-level governance—documents. I guess in the articles of agreement we have yet to see the precise nature of the reporting from the board of directors to the board of governors and we would of course anticipate that it is mainly the directors to whom management information will flow. It will be very interesting to see—and the Minister may wish to comment on that—whether New Zealand as one of the smaller founding participants could expect to see New Zealanders on the board of directors of the bank. If that is not the case could the Minister please let the Committee know the extent to which New Zealand will have visibility to reports and paperwork that are going to the board of directors as opposed to the board of governors. We would not want to see New Zealand in a situation where because it is on the higher-level appointment board but not on the day-to-day governance board it loses some degree of visibility to the operations of the bank. So we would like the Minister to take a call on that point.The Foreign Affairs Defence and Trade Committee has commented on a number of the features of the founding documents of draft policies contained in the schedule. It comments for example on the innovative governance mechanisms and attests that the model has adapted from and learnt from the World Bank and the European Investment Bank noting the non-resident board of directors which is less expensive to operate it says than some of the models requiring resident investors. It notes that New Zealand advocated for open transparent and merit-based appointments and that the Asian Infrastructure Investment Bank agreed to write that into the articles of agreement that the president is required to come from a regional member country and that a range of other safeguards have been inserted. The select committee report notes that a lot of emphasis was put on ensuring that the bank has the right safeguards in place including environmental social and procurement safeguards.I have a couple of notes on that. Firstly the articles make clear that procurement can be openly conducted from any regional country which includes New Zealand so we would hope to see New Zealand contractors and service providers getting a share of procurement and I invite the Minister to comment on whether the national interest analysis background documents contain any estimates of the value of the procurement flows in which New Zealand might be expected to participate. The select committee notes that it will be expected to collaborate with global and regional institutions and I do believe that we are going to need reporting on that in the future. The Minister may wish to comment on how he expects to keep tabs on that issue because there is both the potential for constructive gap-filling by the Asian Infrastructure Investment Bank and some degree of overlap and/or competition with the Asian Infrastructure Investment Bank and the World Bank. So exactly how the New Zealand Government would seek to form a view given that it is on the board of governors of the Asian Infrastructure Investment Bank and the IMF - World Bank system to tell whether those relationships are constructive or destructive would be a very important I think thing to consider.I turn the attention of the Committee to article 31 about the international character of the bank. I think there are some important safeguards there. Clause 1 of article 31 states: “The Bank shall not accept Special Funds loans or assistance that may in any way prejudice limit deflect or otherwise alter its purpose or functions.” It is important that its purpose which is infrastructure and other productive development in the region be underlined. There is a very important statement in clause 2 of article 31 especially given the controversy on its founding.Hon CRAIG FOSS (Minister for Small Business): Just briefly I will answer a question the member had regarding Tokelau. Tokelau was informed of our intention and feedback was sought from it regarding our intention to join the Asian Infrastructure Investment Bank. The member may know that Tokelau is not eligible to be a member as it is not a member of the Asian Development Bank or the International Bank for Reconstruction and Development for his interest. Just quickly I note that those shares will go on to the Crown’s balance sheet as an asset and any capital that could be called would be there as the member described as a contingent liability. Thank you.Hon DAVID CUNLIFFE (Labour—New Lynn): Thank you Mr Chairman I do appreciate your indulgence—just to wrap up a couple of technical points in respect of the articles of agreement. Article 31(2) states: “The Bank its President officers and staff shall not interfere in the political affairs of any member nor shall they be influenced in their decisions by the political character of the member concerned. Only economic considerations shall be relevant to their decisions. Such considerations shall be weighted impartially in order to achieve and carry out the purpose and functions of the Bank.”I really would like the Minister in the chair Michael Woodhouse to share with the Committee some examples of the policies that the New Zealand Government would be expecting to see implemented under that all-important provision because for those particularly in the western hemisphere who have alleged that this new institution would be in some way a tool of creeping political influence this safeguard would seem to weigh against that in a healthy and constructive way—but of course it is only as good as its implementation. So Minister if I could turn your attention to that very important clause in the articles of agreement clause 2 of article 31 how will we know—how will the New Zealand governor know—whether that has been implemented in practice and how will it service any concerns that might subsequently take place?There is a range of technical articles going on in chapter VII; in chapter VIII around suspension and termination of operations of the bank; in chapter IX around status immunities privileges and exemptions; in chapter X on various interpretive sections; and then in chapter XI on signature and deposit and ratification and enforcement provisions. Schedule A—the schedule to the schedule—commences on page 30 and then it sets out New Zealand’s relative number of shares which I think is interesting for us all to see—4615 shares being US$461.5 million. That raises a very important point because of course earlier in this debate the House had been tossing around the number US$92 million which converts to approximately NZ$140 million. Here we see that the actual liability is US$461 million which is closer of course to 600 and something or—I have not got a calculator—NZ$700 million. As they say in the language of governance it is a non-trivial amount of liability.It is instructive I think that that comes from the Future Investment Fund a fund of some $16 billion one-twentieth of which approximately would be covered by this liability or fully funded from it. That is a very significant proportion of the funds raised by the Government’s so-called mixed-ownership model asset sales programme the proceeds of which were repeatedly stated to be for the development of New Zealand infrastructure and New Zealand health education and social services. If this—and it is a significant proportion of it; close to one-twentieth of it—is instead to be allocated to the underwrite of the Asian Infrastructure Investment Bank then we need to know exactly what benefits will flow to New Zealand.I would ask the Minister through the chair to comment on what estimates have been provided to the Government on the economic flows to New Zealand that pertain to this subscription. Will it be a measurable flow of procurement services to New Zealand service providers? Will New Zealand qualify for infrastructure projects within New Zealand using Asian Infrastructure Investment Bank funds? Mr Joyce in question time today was celebrating the Crown’s investment of NZ$3 million in a harbour project in the Eastern Bay of Plenty. Would that project which is designed in the first instance to service a marine farming project—I think it is called Eastern Sea Farms a large aquaculture project which I understand is around 50 percent owned by Chinese interests—qualify for Asian Infrastructure Investment Bank funding if the Government does not follow through on what it is quietly indicating may follow in time for the election which is the balance of I think the $29 million or $30 million required to make that project happen?That raises in turn the larger question of whether other infrastructure projects in New Zealand would qualify for Asian Investment Infrastructure Bank funding. The Government seems very reluctant to do major economic development regional infrastructure projects except perhaps some roads. But even those have been concentrated in semi-urban roads of national significance and regional roading has often been put on the back-burner as a result. So I think that is an important question.Will New Zealand get consulting or service-providing contracts from the procurement streams of this bank; if so do we have any idea how much? Will New Zealand service providers be eligible to provide infrastructure construction and expertise in third-party countries? Just for example some of our State-owned enterprises are best world practice I understand in geothermal technology. Will that qualify; if so what estimates have been made in our national interest analysis about the cash flow back to New Zealand? Because US$461 million of liability out of the Government’s Future Investment Fund—so-called—is a big chunk of change. What are we getting for it?That is not to say that Labour opposes the bill. We support the bill and I have taken some time to go through the articles of agreement to indicate provisions that we are by and large comfortable with and indeed New Zealand has materially contributed to. We are comforted with the proscription on political interference. We are comforted with the well-set-out transparency requirements and the layering of the role of the board of governors on which New Zealand will sit and the board of directors. But we ask exactly what level of transparency will be provided to the governors in terms of the operations of the bank as opposed to the board of directors on which it is less likely we will sit and what estimates have been provided to the cash-flow benefits to New Zealand.I have to say that once again the national interest analysis that was provided to the select committee was kindly put more qualitative—well-written but qualitative—than quantitative. That is there are no numbers in it. It says—and the Foreign Affairs Defence and Trade Committee has summarised—that “New Zealand’s economic future is linked to the Asia region” and therefore it is a good thing for us to participate. It is a very general argument and in this Committee stage debate drawing upon the articles of association I think it is incumbent on us to try to get into the detail of that so that we can see what attempt has been made by the Government to quantify those benefits.It talks about on page 3 of the Foreign Affairs Defence and Trade Committee report connectivity to the market beginning with the truism that “New Zealand is part of Asia”. Yes of course it is but that argument alone is not sufficient to justify our involvement in this. And it talks about our ability to influence but even the national interest analysis does not go into the point we have just made in these contributions that we sit on the board of governors but not necessarily the board of directors and that therefore there is a limitation on the influence that we can bring to bear.So on both the financial and the non-financial returns I would ask the Minister in the chair to take a brief call. What quantum has been provided to the Government in terms of financial returns to New Zealand service providers and what level of transparency pertains to the governors as opposed to the directors on the strategy direction and operations of the bank? Thank you.STUART NASH (Labour—Napier): Mr Cunliffe does bring up an interesting point. Mr Cosgrove and I alluded to it but you never know it could arise. Under article 2 “Functions” in clause (iii) of new schedule 8 it actually says the fund is to “encourage private investment in projects enterprises and activities contributing to economic development in the region in particular in infrastructure and other productive sectors and to supplement private investment when”—and this is the important part—“private capital is not available on reasonable terms and conditions;”.I suppose there could be an argument that why would private capital invest in a wharf in—Ōpōtiki did you say Mr Cunliffe? [Interruption] In a wharf in Ōpōtiki. If the Government backs down from saying we will not invest in this and yet there are defined social and economic benefits for that reason then I suppose there is nothing stopping—I do not know whether it would be the Ōpōtiki District Council or whatever applying to the bank and I assume it probably has to be through the New Zealand Government for funds to build this wharf on reasonable terms and conditions. And again what defines reasonable terms and conditions? They may look at the New Zealand market and say: “Well there’s a risk premium in this and therefore it’s going to get quite high interest rates.” Or then again it could be at the rates that you borrow money from a bank in China that has negligible interest rates. Who knows? I mean I find it difficult. It is an interesting proposition but you never know it might occur.What I would like to look at is schedule A of new schedule 8. This lists the countries and the number of shares and their capital subscription to this fund. And it is interesting because there are 37 regional countries and there are 20 non-regional members that have decided to contribute money in varying amounts to this fund. It really goes to show that according to the amount of money going in there really has been a gap in the funding infrastructure or in the funding mechanisms to really drive infrastructural growth forward hence the need for this bank because as a number of speakers have alluded to America has been dead against this because it thinks the old institutions already fit the bill. But I would suggest that by looking at the countries that have invested in this perhaps America is on a little bit of a limb when it believes that in fact there is no need for such a bank. Time will tell.But let us have a look at some of these countries. Let us start at the top: Australia. When we say that one of the Americans’ concerns about this is that the governance would not be up to scratch there are a number of countries here that would not go near this if they believed that the infrastructure or the governance arrangements for this bank were anything but absolutely first-class and in line with the expectations of developed countries. So we have got Australia. Australia is actually putting in $3.69 billion. That is a lot of money. The reason why I think Australia is putting so much money in is—well it has said it is very much part of this region. It is very keen to see these markets grow because being a commodity producer it needs to move its economy from pure commodities towards finished goods and other products and it sees this market as a very important one. So it is putting in $3.69 billion.Azerbaijan is putting in $254 million. I am not even too sure where Azerbaijan is. I know it is part of the old Soviet Union. I had to ask Mr Goff who I think has been to 190 of the 192 countries that exist in the world.Hon David Cunliffe: It’s warm and dry.STUART NASH: It is warm and dry. Even Mr Goff said it is one of the very few countries—one of about three countries in the world—he has not been to. But it has decided—Hon Phil Goff: They used to test nuclear weapons there.STUART NASH: Oh did they? Well they have decided that they need to diversify their economy—their part of this region. They are actually putting in $254 million themselves. I do not know how big the economy of Azerbaijan is but I suspect it is not particularly developed.David Bennett: It’s oil mate. It’s oil.STUART NASH: It is oil? Well Mr Bennett knows a lot about it but I would suggest that this is a substantial amount of money or a substantial commitment from an economy that understands the value of development.Bangladesh—keeping in mind that we committed US$461 million—has committed US$660 million. Bangladesh is a country we tend to see in the newspaper when there is a massive flood that wipes out villages and causes great devastation. It understands the implications of such a bank and I suspect places like Bangladesh will actually benefit substantially from the infrastructural development that will go on in the region and it may well happen in its country. It is committing US$660 million.Brunei—[Bell rung] Mr Chair there are a few more countries.The CHAIRPERSON (Hon Trevor Mallard): I am slightly stretched on the relevance. It is not National Geographic.STUART NASH: Well I am talking about schedule A here. OK well what I will do is talk about how some of the really big economies see the development of this and understand the value of development in this region.We have got China. I mean we all know that China is one of the driving forces behind this. It is the world’s second-largest economy and in my view it is not long before it is the world’s largest. But is it putting in nearly $30 billion. Close to 30 percent of all the money committed to this is being put in by China. India is putting in $8 billion. And again I suspect that India will be a recipient of a lot of the development that goes on in the region because you know it is a country that is on a fast track to developed nation status. Indonesia is putting in $3.3 billion. Even Iran is putting in $1.5 billion. So as we can see this certainly is not an American-backed or a Chinese-backed alliance when we have got countries like Iran—Israel is putting in $749 million which is interesting. Israel comes below Iran in the schedule. I think it is probably the only time you will see them side by side. We have got Korea putting in $3.7 billion. Turkey is putting in $2.6 billion.But it is not only these countries within the region that are putting in a substantial amount of money—it is about three-quarters or $75 billion. Well it is three-quarters of all the money heading into the fund. But the interesting thing for me is the non-regional members that are actually putting in a substantial amount of money. These are the ones that recognise the absolute potential for their own domestic markets in growing the Asia-Pacific market. We have got Brazil which is putting in $3.1 billion. Heaven knows it is spending a lot of money at the moment developing Olympic stadiums and that sort of carry-on. That should be a good tournament. We have actually got France which is putting in $3.3 billion and Germany is putting in $4.4 billion.So when the Americans had concerns about the governance or the arrangements or the legitimacy of this bank I suspect that it is one of very few countries in the OECD that has such concerns. When Germany is committing $4.4 billion to this bank then you know that there is something going on. Italy—$2.5 billion. We have even got Luxembourg committing $69 million. Again I do not know the size of the Luxembourg economy but I suspect—well I do know it is not a particularly big one so $69 million is a lot of money for it to put in.The last thing I would say is there are just a couple more economies from outside the region that are putting in a billion dollars or more. They are the Netherlands Spain and the United Kingdom. The United Kingdom is putting in $3 billion.I suppose the point I am trying to highlight is that this should not be seen as just a regional bank funded by regional players for the benefit of just our regional and local economies. This is a bank that has international buy-in. I think it will play a significant part in the coming years of the development of the economies that are actually going to drive growth within our own economy and certainly the region. That is why I am supporting the bill and I am very pleased to support it. Thank you very much.A party vote was called for on the question That Part 2 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Part 2 agreed to.Scheduleagreed to.Clauses 1 to 3A party vote was called for on the question That clause 1 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Clause 1 agreed to.A party vote was called for on the question That clause 2 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Clause 2 agreed to.A party vote was called for on the question That clause 3 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Clause 3 agreed to.Bill to be reported without amendment presently.Taxation (Bright-line Test for Residential Land) BillIn CommitteePart 1 Amendments to Income Tax Act 2007Hon CLAYTON COSGROVE (Labour): To just put on record it is the Labour Party’s position that we support measures to cut property speculation. However we would argue that this piece of legislation is not only weak but it has been done in haste. It will not achieve the objectives it sets out to. In fact I suspect and I predict that we will be back here before the end of the parliamentary term amending legislation.I want to use an example in terms of the lack of coherence and the problems associated with this bill and turn directly to clause 15(9): the part of the definitions that deals with the “main home”. I want to quote from an article of 9 November 2015 from one Terry Baucher who is an accounting expert who said: “We do not believe that the introduction of a bright-line test for residential land is sound tax policy.” Now that was not a quote from Mr Baucher; that was from the Chartered Accountants Australia and New Zealand—that is CANZ—and was the opening sentence to its submission to the Finance and Expenditure Committee on this bill. If you look at clause 15(9) as an example of a lack of coherence and one definition I think that one could shoot peas through it talks about the “main home” meaning for a person: “the 1 dwelling—(a) that is mainly used as a residence by the person (a ‘home’); and (b) with which the person has the greatest connection if they have more than 1 home.”I would like to start by asking the Minister in the chair the Hon Michael Woodhouse and through him his officials how on earth officials are going to be able to police that “the greatest connection”. Is there going to be some sort of levitation or is the Inland Revenue Department going to sort of find its softer side and start judging people’s feelings and how they define their connection with their main home? The Minister has said in his statement about this bill that “the bill will ensure that people pay their fair share of tax” and “by supplementing the current intention test in the Income Tax Act it will make rules simpler for taxpayers to understand and easier for the IRD to enforce”.Yet if you look at the counterargument put forward in the officials’ report to the Finance and Expenditure Committee in the submissions of both the Chartered Accountants of Australia and New Zealand and Ernst and Young they say: “The Government could achieve its policy objective by supplementing the ‘intention test’ more simply and coherently by amending section CB 6.” They go on to say that the “differences between the brightline test and the current land sales rules are likely to increase uncertainty and cause confusion”. So on the one hand you have got the Minister who says that this piece of legislation will be nirvana will create a simpler regime for taxpayers and will ensure that there is certainty. Then you have the experts—and I know Mr Bennett who chaired the committee is I think actually a chartered accountant or from the profession. So I am going to be really interested in the contribution of that learned member who I am sure knows far more about this legislation than anybody else in the House and whether he joins with Ernst and Young and the Chartered Accountants Australia and New Zealandwho say this will cause increased uncertainty and cause confusion.The basic principle of tax policy as I understand it is that it has to be simple it has to be clear and transparent and generally speaking not retrospective—as parts of this legislation are. I would be grateful if the Minister could tell us how the Inland Revenue Department is going to judge a person’s “main home” in terms of clause 15(9) and the person’s “greatest connection”. What are the criteria for that? How is that going to be defined so that people have certainty and so that this legislation will not create confusion and will stand up to the basic rudimentary analysis that one would expect perhaps from a court of law?There are other exemptions dealt with in this legislation—for instance farmland. I would like the Minister to take us through the definition of “farmland” in terms of the definition of exemptions around farmland. For instance what is the situation where a farm has a number of houses situated on it—perhaps for the farm manager per se. How is that going to be dealt with in respect of this legislation?I would also like the Minister to outline for us why it was that the Government did not take Treasury advice and put in a brightline test of 2 years rather than the brightline test that was suggested that being 5 years. A number of submitters have said that the unintended consequence of this 2-year brightline test—well maybe it is the intended consequence from the Government—is that those that the Government purports allegedly to be going after and that is the speculative community will change their behaviour and will simply hold for 2 years and move after that.Whereas one of the consequences—and where this will actually whack people—is if there is a death in the family an unintended consequence of somebody losing their job hardship per se which is not dealt with in any way shape or form in this legislation that person may well be forced to sell their home inside the 2 years because of the change in their personal circumstances around hardship; where you will get I suspect inequity. A number in the accounting profession—remember the Law Society also opposed this not only the chartered accountants—raised this issue. Nowhere in this bill is it dealt with. So I would like to ask the Minister what happens to Mr and Mrs Bloggs if there is unintended hardship. Say they do lose their job somebody has cancer there is a death in the family—name a number of scenarios that you like—and they are forced to liquidate in order to survive. Where is that dealt with in this legislation? Because it is not.And why was it that the Government refused the Treasury advice to make the brightline test 5 years? I suspect we know the answer and the answer is that this is really a fictitious piece of legislation. It is designed as many actions of the Government are to make it look like it is doing something about property speculation in Auckland because after years of this side of the House putting its feet to the fire and public opinion growing and growing and growing the Government has woken up read its polls and said: “Hey we’d better be seen to be doing something.”—seen to be doing something. And so it has said: “Look we’ll bang out a 2-year hold.” Let us get real about it. If you are making 17 to 20 points per annum as many people are in Auckland in terms of capital gain well you are going to hold for 2 years. Why would you not? Where are you going to get a better return than an Auckland property anywhere in the economy?But if you are Mr and Mrs Bloggs who fall on hard times and something happens in your financial arrangements and you are forced to sell within that 2-year period you get whacked whereas many submitters in eminent accounting firms and others pointed out that the inequity will be a change in behaviour by the speculative community which will simply hold on for 2 years and then do what it has always done. And as noted in the submissions that I read out by Chartered Accountants Australia and New Zealandand Ernst and Young if the Government was really serious about tackling this issue it would deal with and strengthen the intention test—which is as loose as today; in fact the Inland Revenue Department has lost court cases around it—and it would actually deal with that. But that intention test which could be defeated by simply saying: “What was your intention in buying the property?”. “Well my intention was to move to Auckland but then my partner changed their mind and said they didn’t want to move to Auckland so we sold.” That in law is very very difficult to defeat—extremely difficult.So why is it—and what is the meaning of “greatest connection” in terms of the “main home”? That would be a really interesting one to do. Maybe the Inland Revenue Department is going to as I say get the softer side going do a bit of levitation and work out what people’s feelings are towards one of the residences that they deem to be their main home. How is that actually going to work in practice? Because you could shoot peas through that definition. So those are some of the questions as we go through this shambolic piece of legislation—JULIE ANNE GENTER (Green): I rise to speak on the Taxation (Bright-line Test for Residential Land) Bill. The Green Party is supporting this bill but we do have great misgivings as the legislation could be substantially better and have a greater impact in terms of reducing the problem of unaffordability in the Auckland housing market. To that I will be putting forward two amendments today to try to improve this legislation and I would like to speak to those Supplementary Order Papers more in detail but I will start just by stating why it is important—why this bill is important and why dealing with the Auckland housing crisis is important.It is important because every New Zealander has a right to live in a warm safe secure affordable home. Every child in New Zealand should have a warm dry secure affordable place to call home and that is increasingly out of reach for a number of low-income Aucklanders and people elsewhere in the country. We have had problems with unaffordability in Christchurch. So for the Green Party we know that we cannot build a prosperous society if people do not have a place to call home and it is of utmost importance that we prioritise that as a society.But there is a second reason why it is important and that is the financial stability economic stability and health of the country. The fact is that the Auckland house price crisis is a major risk to the financial stability of the country and that is why the Reserve Bank in particular and many others have been very very concerned about Auckland house prices. If we have a bubble and it collapses there will be consequences for the New Zealand economy. It is quite possible that it would be enough to send us into recession even if our banks are solvent. There would be enormous economic repercussions and of course the faster house prices increase the harder they fall when the bubble finally does pop.And of course we know that many people have been asking the Government to act on this issue for a number of years. The Green Party has been calling for a levelling of the playing field of property with other investments and other income through a capital gains tax since at least 2002 if not before that.We know that in 2010 Treasury pushed very hard for a comprehensive capital gains tax and that was its preference. A capital gains tax would still be our preference as a fair way to deal with it. If one earned income because one bought a house that then increased in value over a period of time—if that is an additional 100 grand or 200 grand as may be the case in Auckland—why should one not pay tax on that income just like nurses and doctors and builders and teachers pay tax on their income? It is only fair.But back in 2010 when Treasury pushed this National Government hard to implement a capital gains tax it also proposed a halfway house or a kind of compromise measure which was the brightline test. At that point the brightline test was designed as being 5 years which is the minimum amount of holding period for the vast majority of OECD countries that have similar laws. Unfortunately the legislation we have before us today is not 5 years—it is 2 years—and I will be putting forward an amendment to extend it to 5 years because as we heard from submitters a longer period would be much more effective at achieving the stated objectives of the bill and it is the norm in OECD countries.Of course if National had actually acted on Treasury’s advice back in 2010 we might not have the problem that we do today to quite the same extent. The average house price in Auckland in October 2010 was about $530000; now the average house price is $918000 as of October 2015. So during that 5-year period when there was total inaction from this Government we had an increase of nearly 75 percent in the average house price in Auckland. That is an almost $400000 increase for each house and of course if that change in value is realised by people who are buying and selling properties during that period all the money they earned on that will of course be completely tax-free.And so why would people not invest in the housing market in Auckland? The Government is sending the signal through the tax treatment on property that that is where they should put their money even though it means that it is harder for families to afford homes in Auckland and it is a risk to the financial stability of the country. So I understand why people who have invested in homes may not want to pay tax on their income because currently they have got quite a sweet deal but it is not what is in the interests of the country as a whole—to not deal with this problem.So to the legislation before us today. I was very disappointed and I think it is safe to say that virtually every submitter who came to talk to us was disappointed in the legislation as it was drafted. We simply did not have enough time. Even though the Government has known about the problem and has been advised by Treasury to act on it for over 5 years the legislation when it finally came before the Finance and Expenditure Committee had a curtailed process.We had a shortened period for hearing from submitters. We had a number of questions that we put to officials that they really did not have adequate time to address. Therefore the legislation I think is really lacking and is not the best it could be. We heard from a number of submitters that it is incredibly important that legislation particularly tax legislation be coherent and consistent and this bill does not meet that test.One way in which it does not meet that test is that supposedly the bill is meant to buttress the intentions test. The intentions test has a 10-year period and applies to all land but this bill before us today the Taxation (Bright-line Test for Residential Land) Bill applies only to residential land. This is problematic in several respects and a number of submitters stated this during the hearings of the select committee. Firstly it is difficult to define residential land. This is going to be very problematic and I am not sure that those on the select committee particularly Government members and officials really understand just how difficult it is going to be to define land.Within the bill it refers to the zoning of the land as a test as to whether or not it can be residential. The truth is that under the Resource Management Act pretty much any type of land whether it is zoned industrial commercial or mixed use could be used for residential purposes if the applicant applies and gets a resource consent. So because of the way our resource management law works it assumes that you can pretty much do whatever you want if you have got enough money and enough lawyers to apply for the resource consent and get it from the council which is a pretty high bar admittedly.I think it is going to prove very problematic because there is a huge amount of land that is being land banked by speculators on the anticipation that eventually it will be available for residential use but it is currently not used for residential purposes—it is currently farmland or industrial land on the outskirts of Auckland. So I think we are going to have a problem with the definitions. My proposal to solve that problem with the definitions is simply to stop having the distinction. Why would we want to have a distinction about residential land? It does not matter what the land is used for. It is simply clearer if it applies to all land. If there is not a problem with speculation in commercial land industrial land or farmland then it is not going to be a problem.The intentions test applies to all land; certainly this legislation should apply to all land. It removes a potential loophole by which suddenly other types of land may become a problem. Because we have got the law applying only to residential land there may be sudden demand for property speculation in any type of land that is not residential and that is within the vicinity of Auckland and that is used for other purposes.So I think that it would simply make it a much clearer piece of legislation it would help better address the purpose of the bill and it would not create any loopholes. Certainly I think we heard from most submitters that they agreed that it would make more sense if the bill was going to pass that it apply to all land equally not just residential land and then we no longer have this problem with the definitions. I really do think it is going to prove very very difficult to isolate what is residential land and what is not because theoretically land use can change—it does change all the time and particularly in fast-growing urban areas like Auckland.So my Supplementary Order Paper today which I would ask members of the Committee to consider voting for to improve the bill is Supplementary Order Paper 139. What that does is it removes the references to residential land so that the bill applies to all land. The other Supplementary Order Paper I will be putting forward is Supplementary Order Paper 138 and that is to extend the time frame from 2 years to 5 years.One of the criticisms we heard from submitters during—Hon PHIL GOFF (Labour—Mt Roskill): The Government has introduced a half-hearted and ineffective measure that will not achieve any of the goals that it says that it is setting out to achieve. It will not stop speculation. Treasury itself made that very clear in its report to the Finance and Expenditure Committee. What it will do is mean that the speculator will sell 2 years and 1 day after they have purchased the property. It will not achieve the goal of cutting out the rampant speculation that plays a role in forcing up house prices in Auckland at the present time in a totally unprecedented manner.House prices have gone up $180000 in the last year in Auckland—$180000 which is more than $3000 a week. Is this a bill that shows the Government is on the side of the family home buyer? No. This is a bill that shows that despite what the focus groups say it should be doing this is a Government that is on the side of the property speculators who fund so many of the National Party’s election campaigns.Will this bill stop the exorbitant inflation in house prices? The answer from everybody making submissions to the select committee was that it will not do that. It will not reverse the situation where we have the lowest homeownership rate in the country in 64 years and where 57 percent of Auckland adults are renting because they cannot afford to buy their own home—57 percent of Aucklanders are renting.Alastair Scott: What’s the problem with renting?Hon PHIL GOFF: I will tell you what is wrong with that. Most New Zealand families have the dream—the Kiwi dream—of being able to have a home they can call their own. That is what most Aucklanders still want. This bill will not achieve that outcome.What this bill does do is make one half-hearted admission—and it is in the regulatory impact statement—that I have not heard in 6 years from this Government. It says: “The Government is concerned with high house prices particularly in the Auckland area. Property speculation is seen as one of a number of causes of the current prices.” I thought it was the Resource Management Act—that is all Nick Smith ever talks about.Phil Twyford: Or the council.Hon PHIL GOFF: I thought it was the council’s fault.Finally the one worthwhile thing in this bill and why we will probably support it reluctantly because it is better than nothing but only just—only just—is an acknowledgment that property speculation is playing a role in forcing up house prices causing a housing bubble and stopping New Zealanders achieving what everybody in this Committee has as part of their Kiwi dream which is owning a home of their own. But it will not work.The regulatory impact statement says why Part 1 of this bill will not work because the regulatory impact statement identifies what the actual problem is with the Income Tax Act. This is a quote from the advisers to the Government. Why did it not listen? The regulatory impact statement says the intention test—that is the test at the moment. You pay tax if you are speculating only if you intend to sell the property afterwards. And do you know what the regulatory impact statement says? It says it “makes gains from the sale of land taxable when bought with an intention of resale. This ‘intention test’ is difficult to enforce due to its subjectivity.” It says the test “is particularly difficult to enforce in relation to residential property”.We have an Income Tax Act that is not working. We have people speculating on property and not paying their tax. That is hundreds of millions of dollars in tax avoidance. But what will this bill achieve in terms of cutting off that tax avoidance? Do you know what it says it will achieve?Hon David Cunliffe: $5 million.Hon PHIL GOFF: $5 million a year. You know that is probably the capital gain on one house in Kohimārama. It is ludicrous. That admission in this regulatory impact statement shows the nonsense of the Government’s claim that this bill is going to achieve anything at all. This bill will not achieve that.The other problem with this bill is that it did not follow—and we are talking in Part 1 about the Income Tax Act. There is a particular procedure that is always followed when there is an amendment to the Income Tax Act. Income tax law is incredibly complex and it is prone to having unintended consequences. What normally happens is there is a discussion paper. It goes out to the experts they chew through it they come back with recommendations for change and then it comes into the House. Then there is a period of 7 or 8 weeks at least for people to make considered submissions on the process. Did any of that happen with this bill? The answer is absolutely not. It was introduced as part of the Budget for political reasons because National’s polling and its focus groups showed that the public is disgusted that this National Government is not doing anything about property speculation—about people making money without paying their fair share of income tax.Why is it that the cleaners who clean our offices tonight on their low minimum wages—barely enough to scrape together a subsistence income—will pay tax on every dollar that they earn and the people who are making hundreds of thousands of dollars a year on each property they speculate on will pay no tax at all? Why is it that that is fair? Why is it that that is just? Will this bill do anything about it in Part 1? The answer is no.Do you know how long people were given to make submissions on this bill? It was about 10 days—10 days for a complex piece of legislation. When the people who know something about tax law went to the select committee—the chartered accountants for example; the Law Society; KPMG—every one of them said that this legislation would not work and that this legislation would not achieve its objectives. They said that if the Government was going to catch anybody with this legislation it was the person who sold for genuine reasons not the speculator because the speculator can hold on for 2 years and 1 day and the person who has to sell because of financial difficulties cannot do that. Those submitters damned this legislation. They said that it was incomprehensible. They said that you needed better enforcement of the existing rule not this piece of legislation. This legislation is political trash according to those submitters. It does not do what the Government claims needs to be done. It will not achieve its purposes.The chartered accountants said that speculators will not change their behaviour to hold a property just longer than 2 years and that is why I support what Julie Anne Genter has put before the Committee and I support what Treasury said we should be doing which is 5 years. With 5 years you might deal with some of the speculators; if it is 2 years they will hold on. They will hold on and they will make a lot of money in a short period of time and they will pay no tax on it.This bill will not help people achieve homeownership. This bill will not stop rampant house price inflation. This bill will not require people to pay the tax that they ought to pay on income that they are earning and the sort of tax that every other decent hard-working New Zealander has to pay. This bill is not much better than a speculators’ charter and Government members should hang their heads in shame that they bring something so inadequate into the House when in my city—David Bennett: Your city—what city?Hon PHIL GOFF: —yes the city I live in and I am proud of; that city—57 percent of Aucklanders cannot buy a home of their own. More than half of the adults living in Auckland cannot achieve the Kiwi dream of homeownership and what does the Government do in response to that? It says “There’s a political problem out there. Let’s flossy something up so that it looks like we’re doing something.” but it has come back with a piece of legislation that actually achieves very little.If it were not for the symbolism of the fact that speculators ought to be taxed—that we stop people making a fortune from doing nothing at the expense of the family who buys the property and who will work another 10 years to pay off their mortgage—we would not support this bill. It is an acknowledgment that speculation is a problem and it is an acknowledgment that the law is not working but it fails to solve the problem. It is political floss; it is not real political action.DAVID BENNETT (National—Hamilton East): That was a very arrogant speech from a member who thinks that he would own a city and that it is his city which is not the case. That member Phil Goff has no idea about the Taxation (Bright-line Test for Residential Land) Bill. He was not even on the Finance and Expenditure Committee. He comes into this Chamber and tries a barrage of attacks and yells at this institution to try to explain his point of view. Well let us look at the word that that member used continually through his speech. That was the word “speculator”.Well I have got news for that member: a speculator would pay tax because under New Zealand law and the 10-year rule anybody engaged in the business of buying and selling a property with the intention of resale would be a speculator and they would pay tax. That is a 10-year rule. Those members over on that side say: “No no no no. If we had a 5-year rule instead of a 2-year rule it would be OK.” Well what about 5 years and 1 day? That would have exactly the same problem but that person would be caught because they are under the 10-year rule because they are a speculator in property. Mr Goff if you intend to stand for the mayoralty of Auckland City please understand what property law is about. Please understand the tax law of New Zealand and do not come to this Chamber and mislead the public of New Zealand in a way that shows and demonstrates your lack of knowledge of these issues and your inability to put them across in this Chamber.Hon Clayton Cosgrove: Point of order.The CHAIRPERSON (Lindsay Tisch): No I am going to deal with something first. The member cannot say that a member has misled the House. The member will withdraw that comment and apologise for it. You cannot say that someone has misled the House.DAVID BENNETT: I withdraw and apologise. Going back to the speech from that member the 10-year rule applies to speculators and they are taxable. All this legislation does is deem that within 2 years of that sale it would be automatically considered to be taxable in that way. Just as those members over there want a 5-year automatic requirement this is a 2-year automatic requirement. The 10-year test still applies in both cases and I suggest that that member understands tax law before he comes to this Chamber again.PHIL TWYFORD (Labour—Te Atatū): Thank you.Stuart Nash: Stuart Nash?PHIL TWYFORD: Mr Chairman did not say “Stuart Nash” actually. As colleagues have pointed out in the last few contributions this bill demonstrates what has become a classic pattern with this Government. We see it particularly in relation to the housing crisis where for several years the Government has denied denied denied that property speculation is even part of the problem in the Auckland housing crisis. It has denied it in this House. It has denied it in the media. What we see—and it is a hallmark of this Government—is that it waits and waits and waits denies denies denies and then when the focus groups and the polling tells it that it cannot credibly maintain that position any longer it just does the bare minimum.This bill is yet another bit of legislation that the National Government has brought to this House that does just the bare minimum. We are in this incredibly frustrating position of actually voting for it because it is at least an acknowledgment that speculators are part of the problem in Auckland. It is at least something but it is not much. So we support it but we want to make it absolutely clear to this Committee that it is a completely inadequate response.In the course of this debate we will go through this legislation clause by clause with reference to some of the very trenchant criticism that credible expert submitters made to the Finance and Expenditure Committee about just how pathetic this bill is. The first is that and we can see this in the advice from Treasury this bill is expected to net $5 million—$5 million. There are billions of dollars of tax-free capital gain happening as we speak and every year in the Auckland property market. There are billions of dollars of tax-free capital gain going on right now in the Auckland property market but this Government does not care about that. It does not care about the loss to the economy. It does not care about the social consequences of an entire generation of young New Zealanders locked out of the housing market.This Government does not care about that because John Key has made a political calculation. He has been very candid about it. He has made the calculation that he has more votes to gain by pandering to property owners who are watching their net worth go up by about a thousand dollars a day at the moment in Auckland. He does not care about Generation Rent. He does not care about the generation that is locked out of the housing market. He does not care about all of the downstream effects on people right through to people who are living in cars and garages because the housing crisis means that they cannot afford decent housing. The National Government does not care about that.Treasury said that this bill would at best net about $5 million in new revenue and it said that the small amount is primarily due to the fact that there will be a great deal of avoidance. Because under the bill—it is almost like it was written to encourage avoidance—all that people have to do is hold on to a property for 2 years and 1 day because avoidance is so easy. If that avoidance was not possible then this bill would net something like $40 million. But it will net only $5 million according to Treasury. Because avoidance is so easy why would you not?There is some interesting information that the Ministry of Business Innovation and Employment provided based on core logic data that shows that currently in Auckland there is a huge amount of churn going on in the real estate market but properties that sold within the first year accounted for 8.4 percent of all sales. Within a 2-year period it is 17.4 percent—only 17.4 percent of sales within that 2-year period.That is why it is going to generate only a measly $5 million because subtract all of the people who will hold on to that property for 2 years and a dayfrom that 17.4 percent of all sales and you will see this will make very little difference. And that is why when the Government announced this prior to the Budget John Shewan one of its most respected tax advisers said then and there: “This will not deter speculators”—Jacinda Ardern: “Professionally confused”?PHIL TWYFORD: “Professionally confused”—there are a lot of great quotes that we are going to share with the House. But that is why he said it will not make a blind bit of difference to house prices and it certainly will not deter speculators.The CHAIRPERSON (Lindsay Tisch): I am going to call Fletcher Tabuteau.FLETCHER TABUTEAU (NZ First): Thank you Mr Chair. You have thrown me into disarray there. I did not expect that at all. I just want to make the point in starting my contribution to this debate this evening that we are talking about tax policy that has been introduced with three pieces of legislation and here we are tonight debating one part of that three-part package. So that in itself puts a huge amount of confusion around just exactly what is being debated tonight and what will be debated in the future.Alastair Scott: It’s the second part.FLETCHER TABUTEAU: Oh it is the second part—well done to you. What that member perhaps needs to realise is that in order for this legislation to be enforceable and useful we must and we need to debate the first part or the third part for example so that we can have the full picture. I wanted to make that point to the Committee.This legislation and I commend Labour’s contribution tonight is weak it is insubstantial and it will not achieve its stated objectives. Treasury has told us that it will not capture the speculator. It told us that 5 years ago. Treasury made a submission to the Government. It said that this type of legislation this brightline test will actually not capture the speculator.Homeownership without any doubt in New Zealand is falling backwards. Less and less New Zealanders are able to afford—Hon Ruth Dyson: Fewer and fewer.FLETCHER TABUTEAU: Fewer and fewer. Thank you for that correction; I do appreciate it. So the stated objective of this piece of legislation is to discourage speculation and with that in mind to bring down the price of property particularly in Auckland so that the average first-home buyer can actually buy a home in Auckland. That is the stated objective of this piece of legislation but it will not achieve that stated objective.I will just grab a few quotes. Chartered Accountants Australia and New Zealand said quite simply that this is not sound tax policy: “The overall package of reforms lacks the coherence it requires and will not provide taxpayers with the appropriate degree of certainty.” The New Zealand Law Society said that this legislation should not be enacted as it would not meet the stated policy objectives.This is not New Zealand First simply standing up and opposing legislation for the sake of opposing it. Unlike this National Government we listen to submissions we listen to the experts and we acknowledge their contributions. To add to that they told us that this bill would not dampen speculation. Specifically they spoke to the fact that avoidance would be the main reason for it. So a brightline test gives us that 2-year period. The reality is that speculators will simply avoid that. So 2 years 1 day—one of the issues that I will talk to actually later on in the evening is about that practical application of time: when does the measurement start and what is the 2-year period in actual fact?The other educational point for the members opposite—has been spoken very specifically to—is the tax take from this legislation: $5 million. That in itself just highlights how ineffective this legislation will be. I think it was Mr Twyford who outlined the total value of speculation in New Zealand and the contrast between the take from this to disincentivise speculation is just glaring. This bill will not stop rampant house price speculation.So I just wanted to address Mr Bennett who said that the intention test will still apply. He was yelling it out quite abusively while someone was contributing this evening. He said that the intention test will still apply. So there is one of the confusing facts that the member needs to be aware of. It has been stated many times that tax needs to be simple and it needs to be transparent and clear. So now we have two pieces of legislation that will run in tandem. We will have the brightline test saying 2 years will apply with all transactions although I will come to the fact that just what comes into those transactions is a hugely debatable point. But then Mr Bennett told the Committee that the intention test will still apply. It was this Government’s contention—and I will point this out to Mr Bennett—that the intention test is actually supposedly not working and yet he is using it as a reason to say: “Well it will still apply.”So the reality is and one of the contributors put it quite eloquently—I cannot quite reach the quote now so it is not verbatim. They said that the only people who will be captured by this test are those who are caught by unavoidable circumstances. The reality is that if you are a speculator if you know what you are doing and if everything is going well you will avoid this tax; you will simply avoid it. The point was that the speculation itself will still take effect. So the bill will not achieve what it sets out to achieve.I was going to come to the point about the date of disposal. I am speaking specifically to clause 4(1) which inserts new section CB 6A and clause 15 which speaks about the change of the definition of the date of disposal and it now talks about the brightline date to avoid complication. Yet I make the point again that this will simply complicate issues. Then I draw the member’s attention to the fact that sales of contingent interests off-the-plan sales will have a completely different definition which runs counter to the intent of the date of disposal section. Within the legislation itself the off-the-plan sales will run counter to the intent in terms of date of disposal.And then I want to raise the issue that Mr Cosgrove brought up before around the definition of farmland. The reality is as pointed out previously that farmland in itself will have houses on it. One of the issues raised by submitters was about unused farmland. We are talking about economic units that must be making a profit—that is not quite the right terminology but they must be ongoing concerns and they must be running as a business as it were.But when you talk about a small parcel of land that would be exempt if it were not used in combination with other land for farming business. The definition in the bill as introduced uses the concept of an economic unit which would have ruled out such a provision or situation. So I just put it to the Minister that in regard to the definition of “farmland” we have ongoing confusion and we will need further clarification there.I would like to comment on the contribution from Miss Genter. The reality there is that the definition of “residential land” is that the relevant land-zoning rules would apply. So initially we were talking about how residential land would be defined as including bare land that because of its area and nature is capable of having a dwelling erected on it. But as was pointed out again in an earlier contribution that definition of residential land even within councils’ land-zoning rules is ambiguous and quite broad. Exceptions within that can be brought into play either by those wishing to avoid this or by those who are caught unintendedly because they were not sure of just what is meant in the definition. The courts are going to require a great amount of time to define and outline just what it is we are talking about here. Thanks.JACINDA ARDERN (Labour): I know that my other colleagues are eager to speak because there is quite a lot to be said about the Taxation (Bright-line Test for Residential Land) Bill. I concur absolutely with those of my colleagues who have spoken previously and have outlined our hope that this bill could have done more but unfortunately it has not. No one on this side of the Chamber is disputing the need for action when we have 50-plus percent of the Auckland population renting and the lowest homeownership rates since the 1950s. The fact that this bill has minority reports from every party in the House—almost I believe every party on this side of the Chamber—demonstrates the need for there to be great debate on this bill and to highlight the areas where it is lacking.I wanted to start though by speaking on the regulatory impact statement and some of the alternatives that it canvasses in terms of the definitions within this bill. It talks about the problem definition. It outlines that the Government is concerned with high house prices particularly in the Auckland area. It does highlight property speculation as one of the number of causes of the current prices and talks about other possible causes both supply and demand and says that these have been separately considered—6 years later these are still being separately considered. But on the problem definition around trying to target speculators if that was the major objective of this piece of legislation then I am very confused by clause 4 in Part 1 inserting in the Income Tax Act new section CB 6A “Disposal within 2 years: bright-line test for residential land”. New section CB 6A(1) states “An amount that a person derives from disposing of residential land is income of the person if the bright-line date for the residential land is within 2 years …” and then sets out criteria that sit under that. As has been raised in the House this appears to be totally arbitrary in terms of picking the 2-year cut-off. So I wanted to have a little look in the regulatory impact statement to see the justification for the 2-year line and what the evidence was that was brought to the table in order to determine that 2 years was the place that it needed to be.On the second page of the regulatory impact statement it talks about residential property churn. It says: “There is significant churn and short term speculation in residential property particularly in Auckland.” It then goes on to state that there is particular evidence around churn “for new titles and developments in Auckland. The evidence suggests from 2009-13 59% of all new titles were disposed of within a year and 29% of new developments in North Auckland were traded within 3 months.” That probably speaks to the nature and arrangements of some of this property development but when you look at existing residential properties and sale of dwellings within 1 year 2 years and 3 years existing properties sold within 1 year represented 8.4 percent of sales sales within 2 years represented 17.4 percent and sales within 3 years represented 26.1 percent.Presumably if you were genuinely trying to pick up churn amongst speculators you would have been looking at the greatest reach. That is actually supported again by the regulatory impact statement which canvasses the various options and the cut-offs between say 2 years versus 3 to 5 years. Option one with the 2 years is highlighted as the option preferred by officials. Option two looks at a longer period over 3 to 5 years. It says: “This option would create a bright-line similar to option 1 however with the period of the bright-line being longer at potentially three or five years … This option has similar impacts as option 1 but with greater effect owing to its longer period. It would”—and this is the important part—“best meet the objective of creating an easy to enforce rule and would have the greatest positive fiscal and administrative impact … However this option has the greatest risk of capturing sales that were acquired without an intention of resale.” Surely though the issue over whether or not you are capturing those that were intended for resale or not is not necessarily about an arbitrary time line but around your use of definitions. Your definitions are what determine what is in and what is out not just the time line over a period of which someone wishes to resell.I want to come back to clause 6 which then goes on to talk about some of those definition issues. It seems clear that if the primary objective as set out in the regulatory impact statement was indeed around trying to ensure that we are cracking down on speculators and where there was the greatest churn that actually the Government would have gone for a longer period. That is the reason we are supporting Supplementary Order Paper 138 before this Committee which seeks to extend that period because that would have the greatest impact. But again issues around definition are particularly important. I think it was the member from New Zealand First Fletcher Tabuteau who rightly pointed out that there is a real contradiction when we are talking about trying to create certainty because the Minister of Revenue’s commentary on the bill points out in the overview that the Government announced plans to introduce a new land sale rule to supplement—so not to replace but to supplement—the intention test in the current land sales rules. The intention test makes gains from the sale of land taxable when bought with an intention for the purpose of resale.This intention test is difficult to enforce due to its subjectivity. So one would assume that the bill in clause 6 should step away from any subjectivity but in that clause it talks about the main home exclusion and the fact that any disposal within 2 years does exclude the main home. But if you are looking at how the bill then defines “main home” the main home exemption as talked about in the commentary of the bill states: “As introduced the bill would exempt a person’s main home from the bright-line test. Where a person has more than one home the main home would be the one with which they have the greatest connection.” No wonder submissions from the public including from tax specialists called this “professionally confused”. With clarity and without the subjectivity that was brought about by the intention test how do you define something that you have the greatest connection with? As someone has described previously I think it is a bit like The Castle where you are talking about the vibe of the thing.Chris Bishop: Oh here we go.JACINDA ARDERN: Chris Bishop I would be very happy for you to stand up and give us a full explanation around how you define the greatest connection with a home and whether it is in fact the vibe of the thing.Let me put a scenario that would be picked up by Part 1. If for instance—Chris Bishop: It’s very easy. It’s based on case law. It’s leading case law.JACINDA ARDERN: Oh it is based on case law. So we have to go through the courts to establish what Parliament is unable to define. That is poor lawmaking and the member knows it. The member knows it. If accountants and lawyers are telling you that this will be tested in the court you know you have made bad law in that sense. You know that you have.I would like to put a scenario to the member. If for instance an individual is living in a home and goes on to purchase another home and chooses that they are probably going to dispose of that because it has made enormous capital gain could they technically move into that home for the last 3 months before they dispose of it and claim a connection to that property as their residential property? Could that happen? I imagine it probably could because this is an entirely as I say subjective test and surely your connection is the fact that you are a resident within it even if you are a resident within it for a 3-month period or a 1-month period purely in order to satisfy this completely subjective test that has been set out before us. So that is something I would welcome the Minister of Revenue clarifying for me—whether that scenario that I have put forward could reasonably demonstrate connection to a residential property even if an individual had an additional property that they were then tenanting which was their prior residential property.I think that points out the problem with the definitions. As we have stated the regulatory impact statement was saying that longer periods would pick up a greater amount of churn so surely part of the issue is actually the definition rather than necessarily the period of cut-off. I would like some members from the other side of the Chamber to stand up and tell me how that will make a difference. I would also like to highlight that within the regulatory impact statement it is talking about the fact under the fiscal impacts that it would be difficult to quantify the fiscal impact of the 2-year bright-line test because of “the number of sales that would be delayed in order to exceed the 2-year holding period.” Officials are acknowledging that the system will be gamed by speculators to simply get around this flawed bill. That is a complete lost opportunity when we have a housing crisis in Auckland.JULIE ANNE GENTER (Green): I think the heart of the issue in this debate is really about fairness. We have a problem with our existing tax law in that it is not entirely fair and it favours investment in property over other types of work and income. It is a problem that we all acknowledge and we all need to address.Of course Treasury the Reserve Bank and many economists have been calling for action on this issue for a number of years and understandably Governments have had a hard time taking the steps to close the tax loopholes on property because it is going to affect a number of people. But there has never been a more urgent time for us to come together across the Chamber to find a constructive solution to this problem.I note that even just this week the IMF came to New Zealand on a mission. It made some specific statements about tax measures. It stated: “The newly introduced measures to deter speculative investment are welcome and further steps in this direction should be envisaged. In addition a more comprehensive reform to reduce the tax advantage of housing over other forms of investments could be warranted. This could include reducing the scope for negative gearing.” That is what the Green Party is saying here tonight.I know a number of my colleagues on this side of the Chamber agree that this legislation could be improved to deal with this problem and I am sure there are a number of members on the Government side who agree that this legislation could be improved to have a beneficial impact on all New Zealanders in the long term.I have asked them to consider tonight these very very humble Supplementary Order Papers. They are not particularly ambitious. They are pretty minor changes but they would significantly improve the bill. We have Supplementary Order Paper 138 extending the time frame from 2 years to 5 years as originally advised by Treasury. This is a compromise measure. I am putting this forward as a compromise. This is not the Green Party’s policy. We would like to see a comprehensive capital gains tax excluding the family home which we think would be better because it is only fair that income whether it is earned by a job or whether it is earned from the sale of a property should be taxed in the same way. We think that is fair.But I have come tonight with a compromise measure—it was Treasury’s compromise when it put it forward in 2010—to have the brightline test apply for a 5-year period so that it is much more effective. I know that Mr Bennett has said tonight: “Oh well you’re still going to have the problem that speculators will hold on to 5 years and 1 day.” Well I think we can all agree that there is a big difference between holding a property for 2 years and holding it for 5 years—in fact there is a 3-year difference; it is more than twice as long. It would be substantially more effective at slowing the churn and that is important to limit the fast pace of the growth in house prices in Auckland.It is true that speculators can be land bankers and they can hold property sometimes for very long periods of time but slowing the churn will slow the growth which slows the damage that could potentially be caused when the bubble finally bursts. So it is not a dramatic move. It would just be in line with the vast majority of OECD countries that have holding periods of at least 5 years. There are very few that have less than 5 years and they also have problems with property bubbles. So I ask the Government to consider this constructive contribution from the Greens—I know that other parties will be supporting it—so that we can have a better bill.The other change of course that we are proposing tonight is that this applies to all land not just to residential land. It will be more coherent there will be fewer loopholes and we will not have to deal with this extremely tricky problem of how we define residential land because ultimately land can be used for residential purposes. Even if it is not currently being used for residential purposes even if it is not currently zoned for residential purposes it can in fact be used for residential purposes.So to clean up this legislation there are minor improvements proposed tonight by the Green Party. I hope that the Government will consider listening to us because we do want to have the best outcome for New Zealand. If we are going to go through the steps of passing this legislation it may as well be as good as it can be.Even if it is not our policy we are willing to support this bill. We are voting for it but we think that it could be improved. In line with many of the submitters’ comments that we heard at the Finance and Expenditure Committee our proposals are not particularly drastic and they are not even out of line with the advice that the Government itself received from Treasury a number of years ago.I will make one final comment about this package of bills because this is the final piece of legislation in a package. We tried to make constructive improvements to the previous law—ANDREW BAYLY (National—Hunua): I move That the question be now put.Hon DAVID CUNLIFFE (Labour—New Lynn): We are supporting this bill but only because it is the tiniest—tiniest—conceivable step in a very important direction. It is hard to imagine an issue more central to New Zealand’s economic and social future than the way we are dealing with the rampant house price inflation - property crisis. Labour colleagues are going to be taking a large number of calls on this bill because it is so important to New Zealand that we expose the “why?” the “what is wrong?” the “what does this bill do?” the “will it work?” the “is it sufficient?” and the “what else needs to be done?”. We are going to dive down at considerable length to the clauses that are contained in the various parts of this bill. This is an introductory set of comments because we are on Part 1—the first clauses—in the Committee stage.Why is this a crucial issue? It is simply because there is nothing much more important to New Zealanders and our Kiwi families than achieving the Kiwi dream of homeownership. People pay their mortgages for years and years and years and that dream is slipping away. How we do know? Because homeownership rates are lower today than they have been at any time since—would you believe—the 1951 waterfront strike.Hon Ruth Dyson: Lockout.Hon DAVID CUNLIFFE: Lockout—exactly. The year 1951 was the last time New Zealanders had as little homeownership as we do today. That is a tremendously awful statistic. Why is it? In Auckland alone there has been a 27 percent increase this year in the cost of an average house in my area of Waitakere City. Why do I know? Because I am trying to buy one at the moment. There has been a 27 percent increase in 1 year. A house earned more than almost every worker in the country. Can an average Kiwi family afford an average home on an average income in Auckland? Are you kidding? Are we kidding? Of course an average family is locked out of the property market.The second key thing is that when Kiwis do get a home of their own under the current tax laws which help inflate house prices they are going to stay poor for longer. According to Shamubeel Eaqub’s book Generation Rent whereas a few years ago we were paying on average 30-year mortgages housing is now so expensive that families are paying for 50 years to pay off a home—50 years. New Zealand families are poorer because our property tax system is so so broken.Why else does this matter? New Zealand as a country will stay poor until we put more capital into productive investment and less capital into bidding up each other’s ridiculously overinflated housing prices. Why is the Government not doing more to solve the most important economic problem in New Zealand? I can only see and we will work through the analysis—Sitting suspended from 6 p.m. to 7.30 p.m.Hon DAVID CUNLIFFE: Good evening to colleagues and to viewers. Before the break we were reflecting upon the context for this actually very important and significant tax bill. This is the brightline test that says that if you sell a property that you are not living in minus a few exceptions within 2 years of buying it you pay tax on it as a trader—or at least that is the high-level plan. Before the dinner break we were noting that that is one way into a very very important issue for New Zealand.That very important issue is the twin catastrophe of the housing crisis which is locking young families out of the Kiwi dream and the misallocation of investment capital which means that basically we are spending all our money bidding up each other’s house prices often through speculative investment enslaving ourselves to the mortgage for longer and not investing in the productive investments that will create jobs and incomes for the future. That is an absolutely central issue to the problems of the New Zealand economy and unless we fix it we will quite simply be poorer in years to come and our children will have fewer opportunities.So now the question is whether this bill helpsmaterially. My colleagues and I will answer that by taking quite an extensive range of calls. This is a really important and detailed bill. Let us begin by asking: “What does the bill actually require?”. Well it has got a 2-year brightline test from the date that a person takes title. That brightline test will apply only to residential land—that is to residential real estate. It does not apply to business property and it does not apply to farmland. That is a very very important distinction because residential mortgages are about 53 percent of the total bank mortgage stock farm mortgages are a little over 20 percent and business working capital and business mortgages are about 16 percent. So the definition excludes around about half of the mortgage stock.The brightline testdoes not apply of course to a person’s main home. That is important and we agree with that. We have never thought that there should be any form of capital taxation on a person’s home because it is not just an investment. The brightline test will not apply to property acquired through an inheritance. We also concur with that. When we were working on capital taxes earlier we did not have a disguised inheritance tax there either. Losses arising from the brightline test will be ring-fenced so that they may be used only to offset taxable gains from other land sales. That sounds good but it is actually as we will show later in the debate a very broad ring-fencing provision which reduces the coverage of the bill.At a high level what are the issues with this bill? Let us start with how much it is going to achieve. According to the Government’s advisers—Treasury and the Inland Revenue Department—this bill when fully implemented will take how much tax in a year? Five million dollars. Five million dollars for a property tax across New Zealand in a whole year? Are we kidding? What is that? Two houses in Auckland? It is almost impossible to imagine how a number so small could have even been estimated or calculated. Upon what possible basis could $5 million have been the result? So that is the first clue ladies and gentlemen that there is something deeply wrong with the design of this tax. Five million dollars a year—it is a tax you have when you have not got a tax.OK so why is that? Well the first thing is that of course if it is a 2-year test speculators will hold for 2 years and 1 day and then sell on. At the moment 17 percent of property sales occur within the first 2 years but we would expect that to change drastically with this bill becoming law because people who are holding for a year and a half will simply hold for 2 years and 1 day. It is highly ineffective because it is very easy to game—very easy. It is a massive loophole. It just invites speculators to hold on to their properties and then flick them 2 years later.A tax that applies only to sales in that arbitrary period will not deter land bankers. That is really important because as Mr Twyford has often exclaimed for the last couple of years there has been only a handful of homes built on the Government’s special housing areas. One of the reasons for that in Auckland is that people are land banking even in special housing areas because with Auckland’s rampant price inflation they can be pretty sure that their investment is going to be worth more a couple of years down the track. Again this bill will do absolutely nothing to fix that.The brightline test has been made even weaker by Cabinet agreeing to exempt New Zealand residents from providing their IRD number when buying or selling a house. Well that is kind of odd because you have to provide an IRD number if you are transacting assets in or out of a trust. You need an IRD number if you are transacting assets in or out of a company but you do not need an IRD number here if you are a resident which means that that applies to people who are not even citizens.That is a very very odd exception for Cabinet to have agreed to and the Minister in the chair the Hon Paula Bennett who is the understudy finance Ministerwill be able I am sure to leap to her feet with alacrity and a lot of enthusiasm and explain to us why on earth they have that mile-wide exemption. The Government ruled out a more comprehensive 3-year test or a 5-year period despite Treasury earlier recommending it because it could be interpreted as a capital gains tax. Well although we do not want to use those three words in the same sentence the whole point of this is to tax speculation so if it does not do that effectively then it is probably not worth having.Let us ask ourselves: if in the broad design this tax is so flawed from the outset that it merely nods at the problem but does nothing to solve it then why have we got it here on the House floor? As a colleague said before the dinner break—I think it was Mr Twyford—that is because this is National’s stock and trade: the Government resists pressure for change to the point where the focus groups tell it that it is intolerable to do nothing. Faced with that pressure it does something usually almost nothing and that is what we have here.The only reason we are supporting this is that almost nothing is about $5 million better than absolutely nothing which is what we had before. But almost is only almost. That is the unsolved mystery of the bill and the Minister may be able to explain Cabinet’s rationale. Why would this Government design a tax that is so useless? Who benefits? One thing you have got to say about the current Government is that you know it may be doing the wrong things but usually there is method in its madness.So who are the beneficiaries? Well I can think of some. It certainly is not Kiwi mums and dads because they are going to be paying more for their mortgages and slave for 50 years not 30. It sure as heck is not Kiwi kids because most of them will be growing up in rented homes that they can be kicked out of on a whim on a month’s notice by their landlords—and they will swap around schools and so on and so forth and the effects will be felt throughout their lives.So it is not Kiwi kids. Is it real estate agents? Well yes it probably is because this tax does not quell the property market so they will be riding that bubble as they always were. They certainly are not losers here. Is it the banks? Ah! Maybe here we are a little closer to the heart of the onion because the banks are experiencing record profitability off the housing and property boom. If you think about it if your family is taking out a mortgage for 50 years instead of 30 and you are paying interest for the extra 20 then it is the bank’s profitability that will be lifted particularly in a low interest rate environment as we have at the moment. So it is not Kiwi kids and it is not mums and dads. It is probably the banking system and of course it is the property speculators.I would invite the Minister to reassure the Committee that this bill was badly designed by accident rather than design. There is a rebuttable suggestion that this is a deliberate sham that has been designed to look like the Government is doing something when it knows full well it is not. And the reason it is not is that the powerful interests in the financial system and the property sector have made damn sure it will not even though it knows it would be in the interests of every Kiwi family to have a more effective piece of legislation than the one we are called upon to pass into law through this bill.So Labour MPs and our colleagues on this side of the Chamber will be drilling into this piece of legislation over this evening as we go through the Committee stage. We will go through it part by part clause by clause comma by comma and we will expose for New Zealand why it is not effective why it cannot be as effective as it needs to be and why that $5 million a year for the whole country is really just the cost of a public relations stunt. This is a public relations stunt not real tax law. The members opposite know in their heart of hearts that this is really a tax joke. They know this is not going to make a blind damn of difference to the Auckland property bubble or anything else. All it does is let the National Government off the public relations hook in terms of a rising tide of angry parents and angry householders who are worried sick about meeting their mortgages or being tossed out of their rental accommodation.This bill is a political bill. It is not a substantive tax bill despite the fact that it has taken the time of officials the select committee and this House—and we will do justice to that process. There is no doubting that this bill is not an effective piece of legislation. Labour is supporting it only for the reason that we wish to send a signal that the problem to which this bill supposedly addresses itself is one of the utmost importance to the New Zealand economy and our society.POTO WILLIAMS (Labour—Christchurch East): I can assure the Committee that there is no one more surprised than myself that I am taking a call on a taxation bill but I assure you that I will give it my best shot. There is a very good reason I want to speak on this bill and that is that the intent of this bill is to take the heat out of the speculation in the Auckland housing market. There is nothing more difficult at this stage than people trying to buy their first home in the Auckland housing market.I want to acknowledge that the Finance and Expenditure Committee obviously had quite a difficult time because the process was truncated. I am sure that the people who wanted to submit on this bill could have if they had been given the right opportunity and the time to consult widely rather than just being given 10 days to make their submissions. If that had been the case we may have come out with a bill that really did hit the mark in terms of taking the heat out of the speculation particularly in the Auckland housing market.The bill right in its name—the Taxation (Bright-line Test for Residential Land) Bill—tells us that the brightline test applies. I admit I had to go and look up what a brightline test was. As I understand it it is a judicial rule that will help restore ambiguous issues by setting a basic standard that clarifies the ambiguity and establishes a simple response. So right there right up front at the very beginning in the title of the bill is the intent of this legislation—to clarify any ambiguity and to establish a simple response.So what I thought I would do is actually use this test in terms of some of the provisions of the bill. So let us start off with the definition of the “main home”. I admit I found it a little unusual to be looking at the definition of the main home when looking at the exemptions where the property owner may own more than one property one home. But the main home would be the one that they have the greatest connection to. I guess if you are to use the test from that famous Australian film The Castle you are thinking about the one that gives you the vibe. It is the one that has the vibe. But when you are asking officials from the Inland Revenue Department to make a determination about what the main home should be should you not have a stronger test than the home that gives you the greatest connection?Then we look to the fact that this bill covers only residential land. It does not cover farms or commercial land. It just covers residential land. But under the definition of “farmland” in this bill it says farms but not lifestyle blocks or hobby farms. So if we were to apply the test of establishing a simple response and clarifying ambiguity what is the difference between a farm and a hobby farm? Is it how much income the farm takes? Is it the size? There is no clarity around that and if the Minister in the chair Minister Bennett is of a mind it would be great if she could give us some clarity on that.Next I want to have a look at the date of disposal. In terms of applying the brightline test to that within the definitions the commentary on the bill states: “We recommend using the term ‘bright-line date’ instead of ‘date of disposal’ ”. I am unsure what the difference between those two dates is and again I seek clarification from the Minister. It would be very good to know what that is.My colleagues have already talked about the intent of this bill being to curb speculation by requiring any properties that are held for 2 years or more to when they are sold be subject to tax in that period of time. But we have also heard that about 17 percent or 18 percent of properties come up for resale within that 2 years—actually within 17 or 18 months; that is what has been told to the select committee. But Treasury has recommended 5 years. We can be fairly sure that anyone who is interested in purchasing property for the sole purpose of making money from it will just hang on to that property for 2 years and 1 day before they sell it.But there is a real danger that some people will be caught unintentionally within that 2-year period and they will be for example those for whom there might be a matrimonial property issue or people who may have had some financial concern that would require them to sell off the additional property. When we look at how much this tax—and it is a tax; let us be clear about that—is likely to achieve each year we are looking at $5 million. I would suggest that the $5 million is actually going to come from this cohort of people who are not in a position to purchase homes for speculative gain. The people whom are not intended to be caught by this are those who have matrimonial property disputes. I suggest that that is where the bulk of this $5 million will come from.If we are actually looking to take the heat out of the market we would be looking to the longer period that Treasury has recommended which is the 5-year period. As a previous speaker has already said about 8 percent of homes are sold within the first year and 17 percent or 18 percent are sold within 2 years and then for homes resold within 3 years we are looking at about 26 percent. So if we are really looking at being intentional with regard to ensuring that we take the heat out of the Auckland housing market this Government should actually do the right thing which is to take Treasury’s recommendation and move the period from the 2 years currently to 5 years. There are other issues I am sure that will come up during the course of this debate but at this point I thank you very much for the call.JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.CLARE CURRAN (Labour—Dunedin South): The definition of the brightline rule or the brightline test describes it as being composed of “objective factors” which leaves little or no room for varying interpretation and the purpose is “to produce predictable and consistent results” in its application. I think that you could describe this piece of legislation as being the very opposite of that test. So it is not a bright line; it is a very muddy clouded line that is being produced by this Government as its way of doing something about the rampant speculation in the Auckland housing market and the impact that that is having on our country and our country’s economy and the ability for New Zealanders to afford to buy a home to afford to rent a home and to be able to get ahead in this life. What this Government is doing with this legislation is just turning it into a political stunt—an absolute political stunt—that will require this House within the next couple of years no doubt to be looking at this again because it is so token and so inadequate.With particular regard to Part 1 of this legislation there is the test at clause 15 the test that goes to residential land only; clauses 6 and 15 which exclude the sale of a person’s main home from the test; clauses 4 and 11 which exclude inherited property from the test; clause 10 which excludes the transfer of property as the result of a relationship breakdown; and so on and so on—the point being that the test of a brightline is there for consistency and for there to be no or very very little room for inconsistency in that objective test.Despite the fact that there was a very truncated period for the Finance and Expenditure Committee for the hearings and submissions on this bill there were some very good submissions on this bill. Almost all of them questioned the objectivity the objective test and the consistency of the brightline test which is why we are going to see this legislation back in the House again.I want to refer briefly to an article by Terry Baucher—which no doubt other colleagues have mentioned—who is an Auckland-based tax specialist. He makes the very good point that good tax policy takes steps to remove inconsistency and improve coherence. Well this legislation is not doing that.My concern particularly—because I know that colleagues are speaking about other aspects of this bill—is about the number of people who will get caught up in this legislation who should not be caught up in this legislation and about where the grey and muddy clouded areas will affect them. My concern is about the people who make the decision to sell the home that they have bought within that 2-year period because of personal circumstances and who have no idea of the impact that this legislation will have on them. This legislation has no regard for them or for the impact that it will have on them. Whether they are people who have somebody die in their family who have a divorce in their family or for whatever reason there are unintended consequences from this piece of legislation. That is one of the reasons—JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.PHIL TWYFORD (Labour—Te Atatū): Because of the rushed and truncated time frame for this bill and the fact that it is going to be retrospective we are in the unusual situation of being here at the Committee stage of the bill with the bill basically having been in operation for the past month.When Quotable Value released its October data last week it was quite extraordinary because it basically gave us a snapshot of whether or not the bill has had any effect. Of course the effectiveness of the bill is one of the things that we are debating here and is one of the things that almost all of the submitters at the Finance and Expenditure Committee put a big question mark on over the bill. What we saw when the numbers came out last week was that prices in Auckland rose by $21500 in the month of October and hit a new high of $918000 for the average price. So you have to wonder whether or not this bill in all its glory is being very effective at all based on its first month in operation.I think one of the most interesting quotes from the submitters was from the senior tax specialist who came along to the select committee and said that he was professionally confused by the provisions in this bill. A number of others said that the brightline test was a bad idea incoherent and ineffective. I think people will be getting a little bit of the drift of the response of submitters at the select committee.The provision thatdemonstrates perhaps the level of confusion underlying this billis I think around the so-called “main home”. I am talking about clauses 6 and 15(5) (10) and (11). The main home provisions in this bill have carried over from the non-resident foreign buyers’ legislation that was passed recently. This is a very confusing situation around the main home. The bill basically requires that the land in question be used predominantly as the person’s main home and that it be used as their main home most of the time. In the situation where there is more than one home that could be subject to income tax because it has been sold within the 2-year period that is where we really start to get into the good stuff in this bill.The bill applies what it calls the “greatest connection - test” to determine which of these two properties is the person’s main home. The greatest connection - test determines on an objective basis—which is a bit of an oxymoron in this case—which property is the main home and it applies the following criteria: the time the person occupies the dwelling; where their immediate family if any lives; the person’s use of the dwelling; the person’s employment business interests and economic ties to the area where the dwelling is located; whether the person’s personal property is in the dwelling; and then the coup de grâce is where their social ties are strongest.Can you imagine how much work this is going to generate for tax lawyers in the leafy suburbs of Auckland as they attempt to make sense of these overlapping and vague definitions about which of two homes may have the greatest connection and therefore which one the person would be able to apply the exception to?It is completely confused. It does not actually use the existing established definitions in other comparable legislation—that would have been much simpler. In this case the Government has chosen to apply the vaguest and broadest definitions provide a little guidance on the side and hope that somehow that will deal with the sheer complexity and variety of situations that this law will have to be applied to. The whole issue around “main home” is in fact Mabo—it is the vibe. This bill is a tribute to The Castle. As previous speakers have said we will be back here fixing this up. It was a rushed chaotic and hurried political response to the problem of speculation in Auckland.The CHAIRPERSON (Hon Chester Borrows): I will just give the Committee a bit of an indication. We are even starting to hear the jokes being repeated now. The fact is that there have been 18 calls from the Labour Opposition there have been another 5 calls from the other Opposition parties and 3 closure motions from the Government. Actually if the new material is not novel in any way it will not be lasting long. I have given some latitude bearing in mind that the guts of the bill is in the first part and I am not expecting the second part’s questions to be lasting as long by any means. I call the Hon Clayton Cosgrove for his third call on this bill.Hon CLAYTON COSGROVE (Labour): I give you an absolute commitment that I will not crack any jokes. I do note in passing Assistant Speaker Mallard’s ruling last week when he allowed as you have Mr Chairman very generously quite a bit of latitude where questions were posed on a piece of legislation and Ministers failed to answer any of those questions.But moving on I want to deal with a critical part of the proposal and this is in regard to the 2-year period when it starts and finishes. The Taxation (Bright-line Test for Residential Land) Bill proposes that the 2-year period should start on the date of registration of title rather than the date of entry into the sale and purchase agreement. On the face of it you may argue that that is a logical way to go until you actually look at what submitters were particularly critical of. They were critical of this part of the bill because it differs in the general definition used for purposes of the land provisions in the Income Tax Act. I suppose in plain English that means again because of the rushed and hashed nature of this legislation that definitions that have no case law attached to them and that are not consistent with the Income Tax Act have been put in here.I will give another example. In its submission to the Finance and Expenditure Committee on the issue of coherence with current land rules Chartered Accountants Australia and New Zealand submitted that “The concepts underlying the bright-line test and other reforms and the definitions relied on should be consistent with those in current land rules.”. So essentially in plain English again it is saying that the definitions you put in this piece of legislation should be consistent if you like with the Income Tax Act—I would have thought that the Inland Revenue Department would have said “Yes that makes sense” because we have an abundance of case law in respect of a whole host of definitions—and in respect of the Land Act because again we have a whole host of case laws around the definitions. But hey presto in a sort of David Bennett turbo-boosted special we ram this thing through and there is a total inconsistency in definitions.I would have thought that when you have Chartered Accountants Australia and New Zealand ringing alarm bells around this the Government would have looked at it and said: “Hang on we’ve got to get this right.” I do not blame the Inland Revenue Department officials because they are under instructions from Ministers but you have got to say that this legislation breaks new ground in the level of critique from the private sector taxation profession right through from—as my colleague talked about—the definition of “main home” to the exemptions around farmland and to a whole host of aspects that colleagues have debated here tonight.As I said in my first contribution tax law at its essence has to be simple for people to understand it has to be transparent and very rarely should it ever be retrospective. But we have a whole series of definitions and new terms here that have essentially been invented. The difficulty is going to be as the Chartered Accountants Australia and New Zealand pointed out that this whole piece of legislation lacks coherence and lacks any sort of case law around it. There is an invention of new law. In the old days this sort of stuff would have never got from the Inland Revenue Department to the Minister’s desk. No disrespect to the officials; it would have never landed on the Minister’s desk and if it did certain officials—learned officials who had 30 or 40 years’ experience—would have kicked this for touch and would have said: “Minister there is no way on this God’s earth that this legislation is actually going to work; it’s out.” We have had a litany from revenue Ministers whether it be the car-park tax that got booted or the tax on computers that got booted—it was a laughing stock—and now we have this.Although on this side of the Committee we say that we commend any measure minimal though it may be to crack down on property speculation and give folks not only in Auckland but right around the country the ability to get into their first home and have a fair go you have got to say—and it is not just politicians saying it. Discount everything we say on the Opposition; just discount it and throw it out in the bin if you want but you have got the profession speaking from the New Zealand Law Society to Chartered Accountants Australia and New Zealand to Ernst and Young and on and on it goes. These folks generally I think are not political. They are pretty honourable people they are very learned in their profession and they have said through nearly every aspect of this bill—the definitions of “main home” the farmland and the definitions that I have called out—that it simply will not work.ADRIAN RURAWHE (Labour—Te Tai Hauāuru): Tēnā koe Mr Chairman. Tihei mauri ora! At the end of my speech I want to speak a little bit on mauri and the determination and the notion of mauri when it comes to determining the main home. But first of all I want to talk about the speculators.I do not believe that there is a test within this bill that adequately identifies and determines what a speculator is. Surely it cannot just be based upon the length of time that one owns a property and then suddenly after 2 years and 1 day you are no longer a speculator—well I would beg to differ on that. I believe that we need a test in here that determines what a speculator is on the day that they purchase that particular property. I would further suggest that the test ought to be: is there intent to sell that home; and are they a New Zealand citizen based in New Zealand or are they offshore and purely in this to make money? That should surely be the test—not the length of time. I suggest that that ought to be the test.I also wanted to bring up the matter of the submission from the New Plymouth District Council which the Finance and Expenditure Committee has I believe adequately addressed in determining that the leasehold homes in Waitara on the Pekapeka Block will in fact be exempt should the occupants—the leaseholders—purchase those properties. I believe that is the right thing to do. But I bring that up because at another level it also highlights the truncated process that the select committee was forced to go through for this retrospective legislation. I wonder how many other potential homeowners or leaseholders out there are not covered by this legislation and so I ask the Minister in the chair the Hon Paula Bennett whether she can give us some assurance on this very issue.We have heard from my colleagues on the issue around what the main home is.I have to say that from my perspective—I have many whare like a lot of Māori. I have to say that I find this argument quite silly—Clare Curran: It’s ridiculous.ADRIAN RURAWHE: —and as my colleague Clare Curran has said ridiculous. And I will tell you why. The reason as I see it and looking at it through Māori lenses—you would surely see that one whare being more important than the other—well we do not look at the world like that. And so if we are using—some of my colleagues have referred to the word “vibe”. Well we would call it mauri and the mauri of how you feel about your mother’s marae and your father’s marae can equally be placed in terms of homes. How do you quantify that? I would love to hear from the Minister on these issues. How would you determine that one is greater than the other? As my colleague David Cunliffe has already said I think we will see this piece of legislation back before the House before 2 years is up.That is my contribution to this first part. I hope to take another call in the second part but for now thank you very much. Tihei mauri ora.JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.The question was put that the amendments set out on Supplementary Order Paper 138 in the name of Julie Anne Genter to Part 1 be agreed to.A party vote was called for on the question That the amendments be agreed to.Ayes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Noes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Amendments not agreed to.The question was put that the amendments set out on Supplementary Order Paper 139 in the name of Julie Anne Genter to Part 1 be agreed to.A party vote was called for on the question That the amendments be agreed to.Ayes 26Green Party 14; New Zealand First 12.Noes 95New Zealand National 59; New Zealand Labour 32; Māori Party 2; ACT New Zealand 1; United Future 1.Amendments not agreed to.A party vote was called for on the question that Part 1 be agreed to.Hon RUTH DYSON (Labour—Port Hills): I raise a point of order Mr Chairperson. I seek leave to correct my incorrect vote that I just made.The CHAIRPERSON (Hon Chester Borrows): Leave is sought for that purpose. Is there any objection? There appears to be none.A party vote was called for on the question That Part 1 be agreed to.Ayes 77New Zealand National 59; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 44New Zealand Labour 32; New Zealand First 12.Part 1 agreed to.Part 2 Amendments to Tax Administration Act 1994The CHAIRPERSON (Hon Chester Borrows): Members we come now to Part 2. As I indicated earlier this debate is very narrow. It involves clause 16A and clause 16. Members will speak tightly to the matter before the Committee—Hon David Cunliffe: I raise a point of order Mr Chairperson. As you rightly acknowledged in Part 1 Part 1 did contain the majority of operative clauses in the bill. The Labour Opposition signalled early in the debate on Part 1 that we would be commencing with a number of general contributions and then working through the clauses of that bill in a clause by clause manner. Unfortunately you took a closure motion before it was possible for us to do that. Of course it is going to be difficult to generalise beyond the tight provisions relating to trusts in Part 2 and we will not do so but as we approach clauses 1 and 2 I would ask for your consideration in respect of the scope and duration of that part of the debate because it may be necessary to sweep up some of the technical points that would otherwise have been made in Part 1.The CHAIRPERSON (Hon Chester Borrows): I thank the member for his point of order. I acknowledge that clauses 1 and 2 are generally wide ranging. I do not necessarily accept that there has not been time to fully debate Part 1. I note that the Labour Party has had 16 calls. The member himself has had 15 minutes on this particular piece and at 100 words a minute that is pretty broad-brush. Other Opposition parties took five calls. So there has been substantial debate around Part 1. However I am glad the member accepts that this next part will be narrow and he can let rip on clauses 1 and 2.STUART NASH (Labour—Napier): I am going to speak on Part 2 of this bill. This is about non-active trusts. We need to be very careful when we are looking at this because trusts have been used and abused to hide income from property investments for far too long. Whenever I see in legislation as I see in new section 43B in clause 16 where it says “Non-active trusts may be excused from filing returns” I do not think there should be a point in time when anyone is excused from filing a return even if that return has a nil return in it—nil income or costs etc. etc.—because the law around trusts has been tightened up a lot recently and the reason for that is provisions around gift duty and the recognition that trusts have been abused.Let me give you one example. I think it was in 2009 when the Inland Revenue Department determined that about 10000 New Zealand families were claiming Working for Families because the income derived from a trust was not counted as income for purposes of Working for Families calculations. We did tidy that up and in fact those 10000 people who were deliberately rorting the law were brought back into the tax system. Whenever I see something around trusts that says “may be excused from filing returns” I do not think that is appropriate even though we are supporting this bill.The bill does list what a non-active trust is but by the definition it provides here I do not think that is enough to actually say you are not required to file a return. The last thing we want to do in my view is lose sight of actually how many trusts are holding properties or are holding assets or are in fact being used to hide various forms of income in any way shape or form.Let me give you an example here. New section 43B says that “(1) A trustee of a trust is not required to furnish a return of income for the trust … if—(a) throughout that tax year the trust is—(i) a non-active trust; and … (b) a trustee of the trust has made and furnished to the Commissioner in a form approved by the Commissioner—(i) a declaration that the trust is … non-active …”. But we need to understand what a non-active trust is and that it says in subsection (2) is one that “(a) has not derived or been deemed to have derived any income; and (b) has no deductions;”. That does not mean that the trust is inactive. All it means is that it has not derived income.We all know that among trustees or those that have trusts there is a lot of activity that goes on around this without necessarily deriving income and I do not think that that means that we should not be filing returns because as mentioned the risk around this as I see it is that the Inland Revenue Department loses track of how many trusts are actually out there the assets that are held in trust and what the trustees are actually doing. A simple filing saying there is no activity means that at least there is some compliance that has to be undertaken. So I just think that this stuff should be tightened up; that is all I am going to say on this.Hon DAVID CUNLIFFE (Labour—New Lynn): Mr Chairman thank you for the opportunity and I thank my colleague Stuart Nash for his insights there. I wish to dig down into the drafting of new section 43B(1) in clause 16: “A trustee of a trust is not required to furnish a return of income for the trust for a tax year if—(a) throughout that tax year the trust is—(i) a non-active trust; and (ii) a complying trust … and (b) a trustee of the trust has made and furnished to the Commissioner in a form approved by the Commissioner—(i) a declaration that the trust is a non-active trust and that it will notify the Commissioner if it stops being a non-active trust; and (ii) a statement of such other matters …” that the commissioner may from time to time require.The issues here are quite interesting. The fact that the trustees need to seek permission in advance from the commissioner rather diminishes the purported saving in overhead that the supposed simplification was seeking to achieve. In other words it is no less work for the accountant to write to the commissioner with a declaration that the trust is a non-active complying trust than it is to write and say that it is a nil return so I guess we question whether the construction of section 43B(1) assists in achieving the stated aim of the section which is to reduce a compliance burden.In subsection (2) the plot as they say thickens because there are a number of criteria that need to be met apparently simultaneously for a trust to be deemed to be a non-active trust in section 43B(2). It says “For the purposes of this section a trust is a non-active trust for a tax year if throughout that tax year”—so that is the first point; it must be true throughout the whole of the tax year and any exception to that must be notified again implying probably more compliance than would have been required if it had simply filed a nil return—“the trustee of the trust—(a) has not derived or been deemed to have derived any income;”.So there are two parts to that subsection (2)(a): “derived” and “deemed to have derived”. “Derived” means the trust has produced income and the trustee has self-declared it. “Deemed” means that that has been inferred. I would imagine—and I ask the Minister in the chair the Hon Paula Bennett to clarify if I am wrong—some other party has inferred or deemed the trustee to have had income. So there is a grey area there about what the deeming process is who is able to deem whether they can deem for themselves whether any third parties can deem them—I think that is probably something akin to deeming with faint praise.The definition of income is not specified in the subsection which is you know the first thing one would think would need to be done. Presumably income is defined elsewhere in the Tax Administration Act but there is a very special importance of the word “income” here because the whole brightline test turns on the benefit of capital gain being defined as income if that accrues to a property that is not a farm and not a business that has been sold within 2 years and that is not lived in by the owner—or in the event that the owner has more than one property their wairua or their vibe or their feeling is that it is not the one to which they are the most attached. You can see the hornets’ nest of subjectivity that is opened up through that word “income” especially in subsection (2)(a) if the deeming provisions allow that subjective interpretation to be inferred by a third party. So I think that third party issue is something the Minister really needs to address.In subsection (2)(b)—this is an “and” provision—it must also have no deductions. In the first pass again deductions are not defined in this clause; the clause is reliant upon the general definition and case law of the word “deduction” but it does impinge on the definition of costs because any costs of sale or costs of the land that is being disposed of and thus taxed could be construed as a deduction. The tax test elsewhere is a net test in the sense that the costs for example of real estate fees of interest of any other activity—you know painting the house before it is sold rehousing the family pets you name it—are all costs against the sale and they can be deducted from the sale price in order to reach the net taxable amount. Yet here in subsection (2)(b) there is a “has no deductions” clause and I think that is confusing.The fact that something is a trust rather than a natural person or a different form of legal entity should not obviously determine the definition of deduction so it would be very helpful for the Minister to take a call and specify to the Committee whether the definition of deduction here is the same as the definition in those other parts.In subsection (2)(c) a non-active trust “has not disposed of or been deemed to”—there is that word “deemed” again—“have disposed of any assets of the trust;”. So we are talking trust assets here and the law here is requiring the trustees to certify that there have been no disposals. That should be self-evident; again there is case law around the definition of disposal. In subsection (2)(d) the trust “has not been a party to or perpetuated”—there is a lovely word—“or continued with any transactions with assets of the trust which during the tax year (i) give rise to income in any person’s hands; or (ii) give rise to fringe benefits to any employee or to any former employee.”I am just literally giving a plain English reading of the subsections of the section inserted by that operative clause clause 16 the most important operative clause in this part partly because it is almost the only clause in this part. What is clear already from this cursory romp through the jurisprudence of this one clause is that it would have been a bally sight easier for the poor old trustee to do an email to the commissioner saying “nil income” than to wade through this veritable thicket of definitional quagmire to mix a metaphor.This ain’t simple. There are any number of deemings that could trip a trustee and often trustees are working pro bono especially in family trusts. I know that there has been a great stack-up of liabilities for trustees of late in trust law and that is discouraging people from taking on trustee roles particularly family trustees.Let us turn now to subsection (3)—so we are talking new section 43B(3). In determining whether a trust complies with the requirements of subsection (2) the one we have previously exegeted we turn to paragraph (a) which says “reasonable fees paid to professional trustees to administer the trust;” which goes to the point I have just made. Sometimes trustees are in fact pro bono friends and family who administer a family trust for others. Paragraph (b) says “bank charges or other minimal administration costs totalling not more than $50 in the tax year;”. When are we going to get over the habit of writing numbers like $50 in legislation? Ten years from now $50 will be worth only $40 or at the rate of inflation with the current Government probably $35. Is the Government going to put this bill through the House to adjust for inflation?Why on earth has it put a manual amount as trivial as $50 in the legislation? Surely that is further evidence that this has been rushed through the Finance and Expenditure Committee in an inappropriate manner and that kink was not ironed out at source. It does go to the point that this whole bill is a sham. As we said in the debate on Part 1 if you were really wanting to do something about the Auckland property bubble you would not do a 2-year brightline test that people can avoid by doing it in 2 years and 1 day with more exceptions than I have had hot dinners.Subclause (3)(c) states: “interest earned on trust assets in any bank account during the tax year to the extent to which the total interest does not exceed the total of any charges or costs incurred by the trust to which paragraph (b) applies.” I do not know about you Mr Chairperson but I have got a headache reading through this subclause putting myself in the shoes of “Joe Average” who takes on the role for a friend of being a trustee of their family trust because they are given the ability to state that they have no income and so they should not have to file a tax return. But the mere process of making that statement is so much more complex than filing the tax return as a nil return would have been in the first place so why are we here? Why are we here making complexity when there was no need for any? The answer is that the bill is a shambles.Hon CLAYTON COSGROVE (Labour): I just want to raise a couple of very quick questions. They may seem simple on the face of it in regard to clause 16 inserting new section 43B et al but could the Minister in the chair or officials advise us as to whether any of these provisions in terms of non-active trusts being excused from filing returns differ from the status quo? Because as I understand it a non-active trust—that is a trust that is not making income—would simply advise the Inland Revenue Department commissioner in writing that for instance it owned a property that perhaps the beneficiary or settlor lived in and that there was no rent being charged there was no money changing hands. It just simply owned an asset on behalf of the beneficiary. Therefore there was no income being made nothing being charged no expenses—zero. It was non-active by definition and it would advise the Inland Revenue Department in writing and that would be it. It would not have to file a return until it did become active. If I am wrong please feel free to correct me but that is my limited understanding.My question simply is: are there any deviations from either my interpretation of what the status quo is or if the status quo is different is there any difference from that? Because as we have pointed out without labouring the point in Part 1 there are substantial differences in definitions that do not exist or are not consistent or coherent with other tax Acts—the Income Tax Act and the Land Act. My question simply is: do these differ from the status quo? Because on the face of it—and my colleagues have raised some valid points—there is an advantage as we have tried to communicate in some sort of consistency between the Income Tax Act and this piece of legislation. It would give some comfort if the Minister could advise whether the same scheme of arrangement that has existed outside this piece of legislation in terms of non-active trusts exists within it. If it does I suppose that at least it is consistent with the case law and it is consistent with other pieces of legislation. I mean that in good faith. I think it would be helpful to get it on the record of the House.Likewise in respect of the other matters here in terms of deductions and other bits and pieces are they consistent with existing law other than obviously dollar amounts? My colleague David Cunliffe raises an interesting point about the 50 bucks. I note that in the report to the Finance and Expenditure Committee from submitters—KPMG submitted on the net filing income threshold for individuals and said that the $200 non-filing income threshold for individuals had been unchanged for over 15 years. It made the same point I think as my colleague did. Therefore it is timely it said that the threshold increased to take inflation into account. It proposed a net income threshold of $500. Again in respect of trusts is there any movement in that? What is the justification for the $50 or has it just been plucked out of thin air or is it consistent with any other pieces of legislation? In essence those are the basic questions.As I say I do note Trevor Mallard’s ruling from the Chair that debates continued—maybe it was a ground-breaking ruling; I do not know. Last week he made it very clear that if Ministers were prepared to answer questions then that may aid in the efficiency of debate and its conclusion. But where Ministers did not then—these are very serious questions—that did not aid the debate or contract its longevity. So as I said the simple question is: are these provisions for non-active trusts consistent with the status quo? It is very simple.I think it would be helpful to actually get that on the record of the House—that these issues are in Hansard. Hansard is quoted in case law and is quoted in the courts. If it is not consistent then what would be helpful is to outline what the changes are and why and what the justification for those changes is.I think that is a reasonable request to make given that there is a plethora of family trusts around the country. Many folks have them. Again one or two people pull the wool but family trusts are normally set up for very very good reasons in respect of protection of family assets protection against being sued or whatever—risk management. It is very difficult now I would argue—not wholly not totally difficult but it is reasonably difficult—to pull the wool if the Inland Revenue Department is actively looking at these trusts. On that point it would be helpful to know whether if these rules differ from the status quo the Inland Revenue Department going to embark on any special policing any special auditing or any special legitimate interrogation of trust arrangements to ensure especially under this piece of legislation that if they are non-active they really are non-active.You can make an argument and say well if you put it in writing to the Inland Revenue Department that it is non-active you are not making income and you are just like any other taxpayer you are committing fraud and you are lying if you say “no income” and there is income. That is true but I would have thought given that this is a new piece of legislation that the Inland Revenue Department—if again it is very serious about cutting down on speculative investment—would be running the ruler over many of these entities not in a nefarious way but to ensure that people are complying with their obligations.So I simply raise those questions and I would hope that the Minister may be able to give us some sort of answer to them.A party vote was called for on the question That Part 2 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Part 2 agreed to.Clauses 1 and 2Hon CLAYTON COSGROVE (Labour): Normally—and forgive me there may well be a wee bit of humour injected into the following speeches in respect of the title because I have got to say this bill could have a variety of titles. Most of them I have got to say are pretty negative. Todd McClay—this is the sort of “hospital pass” bill from Todd McClay. It seems that since the Hon Todd McClay got this portfolio from Peter Dunne we have had a litany of difficulties from substandard legislation coming in from cost blowouts around liable parent contributions to cost blowouts around—Chris Bishop: That’s unfair.Hon CLAYTON COSGROVE: —it is not unfair; I am actually defending your Minister—the Business Transformation project where money just flows like water or to use the biblical expression they are raking in the sheaves in the Inland Revenue Department. Mr McClay walks along—as I have said before the guy with the shovel behind the elephant to clean up the mess—and we are delivered this. I think this is a nonsense bill. It could be called the “Nonsense Bill”. It could be called the “Todd McClay Inconsistent Undefined Incoherent Bill”.It could be called a lot of things because as we have seen right through this debate and I note—to be fair to the Minister in the chair Paula Bennett she is not the portfolio Minister—that this is not the first piece of legislation but the third in the last 2 weeks where the portfolio Minister has refused to answer any questions and take any calls. To be fair to the Minister in the chair it is not her basket of goodies as it were in a legislative sense so she may not be well-briefed. She does have some eminent officials behind her but no questions have been answered. This is a prime example—a prime example—of where the Government has simply blindly wandered into the abyss. The design of this bill was designed to pull the wool over a few people and as other speakers have said make it look like they are doing something but not actually addressing the issue.Terry Baucher that eminent tax consultant whom we have quoted many times tonight—there is a headline that could be aptly used in respect of this bill. He asks “Is the brightline test an example of enactment in haste repent at leisure?”—enactment in haste repent in leisure I would wager as would other people. Or as Philippa O’Mara the director of Engine Room chartered accountants asked—the headline on her article was “Taxing land transactions: where’s the bright side?”—where is the bright side?It is interesting that very few apart from that learned colleague of mine David Bennett—learned colleague—have got up. I will say he took a call. It was an unusual call but at least he is consistent with his calls. He has got up and tried to defend the bill. But no one—consistent in his inconsistency. No Minister has got up and tried to defend this. No Minister has got up tonight and even proffered an answer to any of the questions and they have been legitimate questions.You could call this the “Drive a Bus Through It Bill” because if we talked about the definition of the exemption in farmland the definition of “main home” the great intangible connection to your main home—very psychedelic. That is a bit beyond me I know. But you know it is very psychedelic the sort of great intangible connection. We have got a change of the guard there. Maybe this Minister might answer some questions. No one has got up to even provide an intangible justification for the incoherence and the inconsistency or even to bat off the vast amount of criticism from the private sector accounting profession.I know the Inland Revenue Department cannot do it because it has to work through a Minister but it is surprising. This is supposed to be the great flagship Budget proposal to deal with property speculation. This is where Mr Key put a stake in the ground and said he is going to do something about it and then the whole thing just simply peeled like an onion as the Chartered Accountants of Australia and New Zealand Ernst and Young—you name it—and the Law Society all came in and opposed this and said basically that it was bunkum and that it will not achieve in any way shape or form any of the objectives that the Government seeks to go after. It will not do it.Five million dollars is the best estimate of how much revenue will be raised from this bill. Five million bucks when property speculators are making what a thousand bucks a day I think Mr Twyford said in terms of increased values and capital gains on property in Auckland and all it will raise is 5 million bucks. And Mr Bennett said: “Hey we are going after them.” He made a speech earlier today: “We’re going after them we’re going after the big fat boys the property speculators. We’re going after them with the big stick the big 10-year rule.” Well if that is the case if the best he can do is to claw $5 million of legitimate taxpayers’ funds out of them well I do not think the stick is that big at all. It is balsa wood—absolute balsa wood. You could call this the “Biggest Hoodwink Yet By the National Government Bill”—Hon Member: “Smoke and Mirrors Bill”.Hon CLAYTON COSGROVE: “Smoke and Mirrors Bill” my colleague says because it is typical of the National Government. It is a bit like the refugees thing. Suddenly we are against it we are against it we are against it then Crosby/Textor andthe pollsters come back and say the position is unsustainable—Chris Bishop: Here we go.Hon CLAYTON COSGROVE: Mr Bishop in his former profession would know all about that of course. He would know all about that and a few of his mates who are not here now. And suddenly the feet are put to the fire. Mr Bishop gets together with Steven Joyce and a few of the gurus and goes: “Oh we cannot sustain this position because the people have woken up. They have woken up from their slumber and worked out we are having them on so we had better do something.” “Now we do not want to do too much because that is against our ideology” says Mr Bishop “but we had better do a bit just to make it look good around the edges.” You know a few refugees here there and everywhere as they did with that issue and then they come in with a big stick saying “We are going to make a decisive move to deal with property speculators especially in Auckland.” and we get this bill.And Treasury says: “Look it is not going to work Minister and Prime Minister. You need a 5-year rule not a 2-year rule.” That is rejected. Ernst and Young Chartered Accountants Australia and New Zealand—all the best experts come in and say: “Minister it’s not going to work. It’s going to do the opposite of what you want. It’s not going to go after the property speculators because they will just hold for 2 years and 1 day. It is going to go after mum and dad Mr and Mrs Smith who fall on hard times have no choice but to sell the house and they are going to get pinged by it.”And the Prime Minister and Mr Bishop because he is a tactician of great note and Steven Joyce and Todd McClay are in the room and they go: “Oh don’t worry about it. We’ll flick this one past the keeper. We’ll fire one out the back line. The people won’t know. We’ll hoodwink them again.”Well the problem is that it is very rare especially in a piece of tax legislation that you abrogate the generic framework and you get almost the entire profession coming out saying that this is a load of the proverbial—you know bull. Except it is quality bull for the National Government. This is what the National Government is up against. So you could call it—I know the Chairperson is looking slightly worried but I will not continue that analogy. Trust me I am not that bad. But this is the “Smoke and Mirrors Bill”—this is the “Smoke and Mirrors Bill”.For all those young people sitting out there hoping even as they listen tonight or saw the announcement about this bill thinking “Hey maybe for once the Government is going to do something to deal with the speculation and get a bit of a handle on the property prices in Auckland and around the place so that young people can get a fair go.”—they really probably wanted this thing to work but people are going to be sadly and tragically disappointed.I will make Mr Bishop a bet whatever he wants. I will make him a bet that we will be back here before the next election putting elastoplast over this. We will regurgitate the Hansard such that it is because Mr Bishop did not take a call Mr Muller did not take a call the guy there whose name I cannot remember who is on Finance and Expenditure Committee—“Dick Cheney” or whatever his name is. He did not take a call—The CHAIRPERSON (Hon Trevor Mallard): Order!Hon CLAYTON COSGROVE: A memory lapse.The CHAIRPERSON (Hon Trevor Mallard): Order! No no. I ask the member to sit down. It is an old habit but not a good habit to treat people in that way. If the member genuinely does not remember peoples’ names then just do not refer to them in that way at all.Phil Twyford: A senior member having a senior moment.Hon CLAYTON COSGROVE: I am having a senior moment—yes indeed. But we will regurgitate the Hansard such that it is but it speaks volumes that not one Minister could get up here and even put up a tacit defence on this—Phil Twyford: Not even one.Hon CLAYTON COSGROVE: Not even one. Normally they will get up and have a crack and poke a bit of borax at us and at least defend the principle. The Minister of Revenue must have gone down a burrow in this Chamber somewhere because he has not taken a call on the bill throughout the whole debate. It has been left to other Ministers. Obviously officials are not needed because they were not asked for any advice because the Government is not going to answer any questions. So we will regurgitate the Hansard as we come back to try to stitch this thing up.I lament in some ways that we are supporting this bill but as Mr Twyford and others have said I suppose anything anything even this feeble attempt this whitewash this con to the New Zealand people—I suppose even that is better than nothing. But as I have said occasionally over the years the National Government has got to realise that people are not dumb. People work it out. They will work it out—even that member over there. I give him a bit of credit. People are not dumb. They will work this out. They will work out that it is the big end of town that is getting the advantage here. Let us examine this. Let us make a prediction—Hon DAVID CUNLIFFE (Labour—New Lynn): I seek a call on the title and commencement clauses of the Taxation (Bright-line Test for Residential Land) Bill and I would like to put them the other way round and actually go to the commencement date which is 1 October 2015. We are not only passing bad law by I think the House’s general admission that this bill is not well conceived; it is not effective as it will raise only $5 million. And according to the tax profession it is likely to have the perverse effect not of catching genuine property speculators who can easily avoid the bill’s imposition by holding property for 2 years and 1 day or redefining it but of actually hitting families who are in the position where they have to sell for either financial or relationship reasons. That is a perverse outcome.So why are we doing this retrospectively? Why are we passing in November a bill that has its commencement date in October? I think the answer to that is it is a Budget special. It goes I think to Mr Cosgrove’s point that the polling must have come in just prior to the Budget and the realisation dawned on Ministers as they sat feverishly around the Cabinet table that they were in trouble because they needed to be seen to be doing something about the Auckland property market: what could they do that was simple quick and would not actually penalise the constituencies that they are there to represent which are the owners and holders of big capital? So they came up with this little beauty.I remember thinking on Budget day: “Gosh a brightline test. That’ll clarify the former subjective intent test.” I thought: “Well that might be a good thing to be fair to them.” And thank you to the profession because when the accountants came in and the lawyers came in and testified to the Finance and Expenditure Committee they made absolutely clear that this bill was rubbish—absolute rubbish. Officials who would be providing free and frank advice—at least if Iain Rennie ever stood up for them—Chris Bishop: Oh!Hon DAVID CUNLIFFE: Yes Mr Bishop if the State Services Commissioner ever stood up for Public Service prerogatives which in a former life that member specialised in running down because they shall do as the Minister says not as the facts say. But nonetheless officials have said on this bill that it will raise only $5 million—raise only $5 million—so it must have ticked all the boxes for urgent Budget legislation. And then it had a truncated select committee process which identified but could not fix the fundamental problems with the bill. We have been through most of them in Part 1 of this bill.Now we are committing the double sin of passing hasty legislation retrospectively. Why? Because it is poll-driven fruitcake stuff. That is what it is. It is the veil of progress when there is no progress. It is the impression of genuine tax legislation when it is not. That is why we are doing it retrospectively with a truncated select committee process. It was a rabbit pulled out of a hat to make the Budget look better than it was. That is what the public can all see. It is what the profession can see. I think it actually proves the point to members opposite and to the Government that in the end it is good law—good law based on good advice—that will make a difference.So what shall we call this bill? What should its title be? The “Band-aid Tax Bill”? The “Crosby/Textor Tax Bill”? With due respect to our revenue spokesperson the “Clayton’s Tax Bill”? The “Tax Bill You Have When You’re Not Having A Tax Bill”? Is it the brightline test you have when you actually do not want to catch anybody out that might otherwise be your friend a donor a supporter? Goodness knows the property speculators and the banking community will not be waiting up at night to see whether this bill has been passed. They will be sleeping soundly in their feather-fluffed beds.This bill does almost nothing—almost nothing. Maybe that is the proper title for it: the “Almost Nothing Tax Bill”. Or maybe it is the “Waste of Paper and Time Tax Bill” because that seems to have been its main impact on the House. You would think that after 7 years in office and all the resources of Treasury the Inland Revenue Department—with its $1.5 billion computer fiasco—that the current Government could have thought of something just a bit more substantive when it was seeking to address apparently one of the most critical economic challenges of our age which is the twin disasters of Kiwi families being locked out of the dream of homeownership and the misallocation of capital towards speculation not investment in productive business.PHIL TWYFORD (Labour—Te Atatū): I think by some oversight this bill has been misnamed. I wonder whether it is possible to put up an amendment in the title and commencement clauses part of this debate to rename it. I think a much more accurate description of this bill would be the “Taxation (Trying to Manage the Optics) Bill” because that is basically what this bill is. It is an exercise in political cynicism. It points to I think an interesting sequence of political responses that this Government has made to the housing crisis. In the first couple of years it was clearly hoping it would go away—that if it did nothing if it sort of played dead and played possum did not move then maybe the housing crisis would just pass right over them and nothing would happen. But it became clear I think about 3 years ago that the housing crisis was inflicting some pretty serious damage on the Government. It put Nick Smith in the job of being housing Minister. The strategy ever since then has essentially been to look as if they are doing something and this bill is a classic of its kind.It is all about the optics. It is all about trying to do as little as possible while actually conveying the impression of activity. We have seen exactly the same thing go on with the whole issue of non-resident foreign buyers. Members on that side of the Chamber have denied denied denied and rubbished the idea that offshore speculators were having any kind of negative impact in the Auckland housing market and then when this bill was announced its companion was a bill that required non-resident foreign buyers of residential property to register with the Inland Revenue Department. Another nothing another bit of flimflam from the National Party designed to make it look as if it is doing something even though it has denied that foreign buyers are an issue. It is designed to make it look as if it is doing something while having negligible impact.We have seen it with the special housing areas. Again this was a big flagship initiative to increase the supply of housing like this bill basically tackling one of the main causes of the housing crisis. In this bill’s case that is property speculation. The special housing areas as we saw today have delivered only 102 houses in Auckland over the last 2 years but there has been an interesting evolution actually. At the same time that we have been discussing this bill at the Finance and Expenditure Committee what has happened is that the Government’s strategy has shifted a little bit interestingly. I think it is so nervous that the Auckland housing bubble will pop on its watch. The very people whom John Key has been pandering to not wanting to do anything that might disturb the upward trajectory of house prices—up $180000 on average in the last year—The CHAIRPERSON (Hon Trevor Mallard): I am now warning the member to actually speak to the bill—it is not a general debate on Auckland housing.PHIL TWYFORD: The thing that this bill purports to tackle—the rampant property speculation in Auckland that has been driving prices higher and higher that has delivered an increase of $180000-plus on the average Auckland house in just the last 12 months—threatens the very economic stability and financial stability of our markets and the well-being of a third of this country’s population. And probably more because if the bubble in Auckland bursts there will be egg on a lot of people’s faces. It will damage the livelihoods of a huge number of people and probably tip the entire economy into recession. This bill will do nothing about that. It will do nothing to foreclose on that scenario and that is not only an act of political cynicism but an act of utter irresponsibility.So the finance Minister is reduced to now being a commentator talking up the risk of the bubble bursting while his Government is shepherding this bill through the Committee—a bill that will make little if any difference at all. All the commentators have said it from the moment it was announced prior to the Budget. The Law Society the accountants Ernst and Young KPMG—all of the submitters who came along to the select committee have just torn this bill apart and said that it is a chaotic confused piece of legislation.STUART NASH (Labour—Napier): The great thing about the English language is that words have different meanings. Sometimes in this sort of legislation it is hard to know which meaning to take. I mean we are talking about a brightline test. If I look it up in the Oxford Dictionary which is sort of acknowledged as the pre-eminent dictionary amongst dictionaries the definition of “bright” is “giving out or reflecting light”. This bill gives out no light whatsoever. Another definition is “vivid and bold”. There is nothing vivid about this and it certainly is not bold. Another definition of “bright” is “intelligent and quick-witted”.I remember about 5 or 6 years ago the Inland Revenue Department published a paper on the cost of speculation—i.e. the cost of speculators not paying tax and hiding behind things like the intention test. So the Government brings this bill in. It acknowledges there is a problem so the Government brings in this piece of legislation which has the word “bright” in it in order to fix the problem and then the Minister of Finance comes out and says: “It’s only going to raise $5 million.” How do you go from a problem of $250 million a year to raising only $5 million?This is the “not so brightline test”. It is an absolute fail.If we have a look at the Oxford Dictionary definition of the word “test” it is “a procedure intended to establish the quality performance and reliability of something”. Well if this is a test—Rino Tirikatene: It fails.STUART NASH: —you are dead right you are dead right—this fails on every single measure. The reason I say that is that first of all the industry does not like it; secondly it is not going to make any difference; thirdly it has wasted a whole lot of time in this House; and fourthly it is retrospective like my colleague Mr Cunliffe talked about before. This is tax legislation. It is not supposed to be retrospective.We all know how this law was made. We know how this law was made. Mr Key had one of those brainwaves—you know “the intelligent and quick-witted”. Unfortunately the way it was translated—you can imagine it at the Inland Revenue Department. They were sitting there when Mr Key and Mr McClay came out and said: “I know. Let’s put a 2-year brightline test in.” You could hear the guys at the Inland Revenue Department saying “No please please don’t bring this before us.” and he did—and he did. So the Inland Revenue Department officials had to come to the Finance and Expenditure Committee and you could see them—you can tell when they are forced to put legislation in place that they do not like because the eyes sort of drop. Mr Cosgrove goes hard and asks “What about this? What about that?” and they do not really have the answers. The eyes drop. There is no enthusiasm. The Inland Revenue Department—not only KPMG and not only the lawyers but the Inland Revenue Department—knows that this is not good legislation.But what I would say is that there is one group of people one industry that I think believes this is really good legislation and that is the speculators. It is the speculators. As acknowledged by everyone this is not going to catch those speculators in any way shape or form. The $250 million avoidance industry may now be the $245 million avoidance industry but there is still a really big industry out there. So this is a bill you have when you are not actually having a bill—I must admit the phrase has been used before. But goodness me it is not good legislation.So I think it should be called the “Not So Bright-line Test Bill” because it will not fix anything it does not give out any light it does not reflect anything it is not vivid it is not bold it is not intelligent it is not quick-witted and it is not a procedure intended to establish quality. In fact there is nothing quality about this. There is nothing performance about this. In terms of reliability it is easily avoided. This is not what tax legislation is supposed to be about.When we talk about tax legislation around taxing speculator profits in fact do you know what? All the experts say it is not intended to drop the price of houses. It is not intended to collapse a bubble or prevent a bubble. It is actually intended to bring those into the tax system who are avoiding it at that point of time. So when Mr Key comes out and says “We’ve got something. We’ve got a test that we know will dampen the Auckland housing market.” this sort of legislation is not intended to dampen housing markets. It never is and it never does. What it is intended to do is bring people into the tax system who currently are not in it and it fails on that account.A party vote was called for on the question That clause 1 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Clause 1 agreed to.A party vote was called for on the question That clause 2 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Clause 2 agreed to.Bill to be reported without amendment presently.Support for Children in Hardship BillIn CommitteePart 1 Amendments to Social Security Act 1964The CHAIRPERSON (Hon Trevor Mallard): I will just make it clear that this is debate on clauses 3 to 10 and the schedule. There are I understand Supplementary Order Papers 135 136 and 137 that also relate to this part.CARMEL SEPULONI (Labour—Kelston): I am standing to speak in the Committee stage. Firstly I just want to say that Labour does support the Support for Children in Hardship Bill but we have some major reservations that we will talk about in detail tonight. When we were weighing up whether or not we would support this bill of course the primary factor that made it difficult is that there is a small offering being made to these families. It is an additional $25 per family per week. In the scheme of things it does very very little to alleviate the poverty that many of our families are talking about and we will go into more detail about that. But there are some areas in this bill that we do have major reservations about. We have been looking into them thoroughly and we have been discussing them in detail with our stakeholders. I am going to talk to at least one of those areas in this speech right now. I guess our primary concern when really digging down on what this bill does and looking for evidence is that actually there was no evidence gathered by the National Government when pulling together this particular bill. I think it is very fair to say that this bill has seen a National Government blindly making legislation that is ideology-driven rather than evidence-driven. I think New Zealand should be really concerned about that.One of the areas that we have reservations with is the fact that what this bill does is it changes the requirement for work obligations so that the sole parent has to return to work when their youngest child turns 3 rather than 5. Some may ask: “Why do you have concerns about that?”. The primary reason we have concerns about that is that there is no evidence to say that these families will be better off by doing that. In fact when we looked for our own evidence and went and looked at international evidence around this we found in so many countries including in the US where work obligations like this were imposed and where women were pushed out into the workforce at earlier stages like this bill requires in many instances the research says they ended up worse off financially than when they were on welfare. The reason for that in the research is that actually many of them were forced to take on any work that they could get any work that they could get into quickly and more often than not it was poorly paid work. There are issues that have been raised with this particular part of the bill around the safety of children and the fact that these women—largely women; not always women but largely women—who will be required to return to work when their youngest child turns 3 rather than 5 will have to look for childcare for early childhood education. We had some concerns about that because we know as a country that recently in our media our academics have been discussing the fact that there are areas in this country where adequate levels of early childhood education are not available let alone adequate levels of early childhood education that is deemed quality early childhood education. To force these parents back into the workforce when we know that this provision of early childhood education is a real issue is something that we should all be concerned about.There are some Supplementary Order Papers that I have put up tonight. One of them is in relation to the age issue. We will not be supporting the drop from 5 years of age to 3 years of age. In fact I think I will make it really clear from the outset despite the fact that we do support this bill because we found it difficult not to because of that small financial offering that these families will be getting we cannot support the whole of Part 1 and we will be voting against that when we get the opportunity to do so. Part 1 is the part of the bill where we see part-time work redefined from 15 hours a week to 20 hours a week and where we see clauses 4 6 7 and 8 reduce the age of children at which the work requirement kicks in for the parents from 5 years of age to 3 years of age. One of the Supplementary Order Papers that I have put up Supplementary Order Paper 136 deals with those two particular issues. We will not be supporting the drop from 5 years of age to 3 years of age. We are supported by almost all of the submitters in relation to that decision because many of them pointed out the fact that not only is there no evidence to support the fact these families will be better off if they return to work at that point but also there were real concerns that the Government does not support the important role of parenting in this country. We had this discussion at the select committee. Many of the National Government MPs seemed to also not realise that we are not necessarily talking about sole parent households with one or two children sometimes we are talking about a sole parent who has been left to raise and look after three children four children or five children. While I am on that subject I am just going to say how awesome those parents are who make the decision to stick around and look after their children when in all too many cases they have been left by themselves to do that. I think the other side of the Committee fails to grasp that.Clause 4 which changes the definition of part-time work to 20 hours—so it goes from 15 hours to 20 hours—is not supported by us as well. One of the reasons for that—there are a few reasons—is that actually in this country at the moment for 3-year-olds and 4-year-olds we have supposedly 20 hours’ worth of free early childhood education per week. If you take into consideration the amount of time that a parent needs to travel to the early childhood education provider then to work and back to pick their children up then actually if you are saying 20 hours is the amount of time they have to be in work then there is a fair enough assumption that the travel time and those 20 hours is going to be 22 hours maybe 23 hours and if you are in Auckland it could get even more out of control than that. These parents are being pressured back into work but the early childhood education that their children are being provided with is not fully subsidised. When I say “fully” I mean free like the 20 hours that we were talking about. That is an issue. The other issue with pushing part-time up from 15 hours to 20 hours is that the moment we know there are currently 58000 New Zealanders looking for part-time work. The fact is that we just do not have that work available for them so it is an unrealistic expectation to think that we can expect these parents to go from looking for 15 hours of work to looking for 20 hours of work a week.Also I am going to go back to the fact that all too often what it felt like when we were considering this bill was that people were neglecting to realise that actually we were talking in some instances about multiple children. It seemed like everyone thought these were single-child households that we were talking about and that juggling that one child would not be so much of an issue. But we know actually the more children you have the harder that is to juggle but at no point was that ever taken into consideration. Those are the two areas I wanted to talk about at this stage. I know that my colleagues have a lot of other areas they want to talk about and I am going to stand and talk about some other parts of this bill and my thoughts on those when we get a chance. But I want to make it really clear that Labour does not support reducing the age in terms of work obligations from 5 years of age to 3 years of age for that youngest child I have laid out really clearly why and we will not be supporting the increase of hours in terms of part time going from 15 hours a week to 20 hours a week. Thank you.JACINDA ARDERN (Labour): I appreciate the context that Carmel Sepuloni has given on this bill both as our social development spokesperson and also as a member of the Social Services Committee. I think she has rightfully acknowledged a number of really important people and not least those who are raising children in these circumstances. But I think we should also acknowledge the fact that this bill has come to the House and acknowledge groups like Unicef Child Poverty Action Group and the Children’s Commissioner because they have changed the environment in which we are considering child poverty issues.That leads me to then look at the context of this bill and ask in Part 1 are we addressing what has been identified as the key issue around child hardship because it is of course called the Support for Children in Hardship Bill. It is called that for a very specific reason and I just want to talk about that a little bit.There are 305000 children in poverty based on an income measure but that is not whom this bill targets. We can see that by looking at Part 1 of the bill and clause 3 the “Principal Act” which states: “This Part amends the Social Security Act 1964.” We are here amending only the Social Security Act rather than amending broader tax credit legislation for instance that may affect a wider bracket of children. So of the 305000 children we know who are in income poverty we know that two out of five of those children are from families who are in paid work so they are not necessarily solely dependent on the Social Security Act. We know also that some of those children however will be and they might be picked up. But in fact this bill if I recall correctly targets roughly—what is it Minister Tolley—10000 children of a much broader bracket of children.Looking at some of the regulatory impact statements to try to get a sense of if based on information from the Children’s Commissioner we know that there are—and this is incorrect now; it is higher—305000 in income poverty where in this definition the bill was targeted. The Government was quite clear that it wanted to target material deprivation and that is what is then translated into hardship material deprivation which in New Zealand is roughly about 180000 of those children. Those children are ones who based on a scorecard are determined to have a certain number of enforced lack—things that families cannot afford to purchase in order to make sure that their lives reach a certain standard of living. That is where the Government said it wanted to hone in. How then did we end up with amending just the Social Security Act in order to target material hardship? Well we can see a little bit as to why that is in the regulatory impact statement.One of the first bullet points in the regulatory impact statement states: “The fiscal envelope available for the package”—that this bill is set around amending social security—“was based on Ministerial considerations of New Zealand’s current fiscal position and other competing priorities. The Government indicated scalable options should be developed within a fiscal range for the package of up to $1 billion over four years ($250m per year). Because the Government’s overall objective was to take more immediate action to reduce material hardship amongst children Ministers signalled an interest in options that would relatively quickly improve the material resources available to a family through the package.”So we have got two indications there. They want it to be quick and they want it to be within a limited fiscal package. That is important because in this bill in Part 1 instead of an amendment to the Social Security Act we could have been debating an amendment to the Working for Families framework. We could have actually been debating here tax legislation instead of benefit legislation. Why were we not? Well when Bryan Perry came to the select committee at his last appearance I asked that question: “Why Mr Perry did the Government not amend the family tax credit instead of the Social Security Act?”. As this Committee will well know the family tax credit goes both to beneficiaries—which counters the Minister’s claim that this is the first time there has been an increase in income for beneficiaries; Working for Families did that too—and to low-income families. So it would not have targeted just the material hardship kids; it would have targeted the income poverty kids as well. That is an important difference to point out as we debate Part 1 of this bill because it is still a grave disappointment to me that we are debating just the Social Security Act instead of tax legislation.The second reason why it is a disappointment that we have narrowed the frame to the Social Security Act is that Jonathan Boston had done a considerable amount of analysis about what it would take not just to increase the incomes of families in hardship but to lift them over the poverty line. The Minister in the chair the Hon Anne Tolley knows as well as Labour knows how difficult it is to do that and the reason we know that is that we did the analysis ourselves when we looked at the Best Start package.Boosting a family not just up but out of poverty means getting them out of that 60 percent median income threshold or maybe if you are going to be a little tighter—because we know that there are two measures—there are 305000 at 60 percent of the median income or less but those at the hardest end of poverty are at 50 percent or less of the median income. Lifting those kids out as Jonathan Boston modelled would take a lot more than what this amendment to the Social Security Act does. We are looking at up to in reality not much more than 20 bucks whereas on Jonathan Boston’s modelling it is more like $60 if you actually want to make a significant difference—and per child. An important point here is that this is not a per-child payment that we are debating in Part 1. We are debating a per-family payment. So we know that the amendment to the principal Act the Social Security Act is not substantive in that regard and will not necessarily make the difference to children in hardship that this bill purports to make.We are also equally worried as my colleague has pointed out about some of the Part 1 changes in definition. Whilst the Government was chucking out this carrot it obviously decided it needed a stick. I find that really disappointing because overwhelmingly this change was welcome. That stick was not only entirely unnecessary but was actually to the detriment of the families the Government was trying to help and we see that in clause 4 with the change of definition of the term “part-time work”. It now means not less than 20 hours and in combination with that we have also seen a change in the definition of when a family would be work tested. At the moment it is age 5 because we make the assumption that the provision of State schooling kicks in at that point. The Government has dropped it down to age 3.One assumes that makes an assumption around the provision of early childhood education but we cannot assume access to early childhood education in great parts of New Zealand. In fact in South Auckland analysis has been done around the gaps in early childhood education. One simple way that this side of the Chamber and my colleagues Poto Williams and Carmel Sepuloni have put it to the select committee was creating a carve-out to say if you cannot access early childhood education then these clauses should not apply to you. Those tests as set out in clause 4 should not apply to you because simply the assumption is that you are freed up from carer duties if you are able to have a 3-year-old in free early childhood education. That is problematic if that early childhood education is not available. Surely that is a fair and reasonable clause to put in here and we tried this in past welfare bills. We have tried to say that we should create a few exemptions and give the discretion just in case.The other point that I think is really important to make is that this bill is somewhat naive to the nature of part-time work. Let us be honest about where part-time work exists. Part-time work exists in retail hospitality service and call centres—things that operate outside standard school hours. Yet we have seen before that the way Work and Income operates is that if work is available and it considers it to be fair and reasonable you have to take it or your benefit is cut even if it is totally inappropriate when stood up alongside the availability of early childhood education hours. That is another flaw in the bill.In fact the regulatory impact statement even acknowledges that in terms of work itself which the Government is driving as being the sole answer to child poverty you can still exist in poverty even when you are trying to cobble together work. I want to read out from the regulatory impact statement: “A key driver of child poverty for households with adults on lower wages is too few paid employment hours”. It acknowledges there are not enough paid employment hours yet we are about to penalise people who cannot find ghost jobs. It is absolutely outrageous that as unemployment grows we are putting in place penalties for the most vulnerable people. Minister you could have given this carrot without the stick and we would have applauded that.JAN LOGIE (Green): I rise to speak to Part 1 of the misnamed Support for Children in Hardship Bill. This part of the bill does several things. It lowers the child’s age at which parents are required to seek work—it is now from the time their child is 3—and it requires parents to look for 20 hours of work per week rather than the current 15.I do want to talk to several points around this and I will start with a rather beautiful quote from the National Council of Women during the select committee process. The council noted that it thought it was a form of insanity that perfectly capable parents are forced into low-paid work while a more expensive worker without necessarily better skills is paid to care for a child. That is what this bill does. It takes away parents’ choices in parenting. It pushes them into what is most likely to be precarious low-paid work that is—the evidence we had from the New Zealand Council of Trade Unions was that most of the jobs that are available and that many of these parents are likely to be eligible for are night-time and evening jobs. So we are removing parents from their ability to parent and forcing them into unstable jobs that actually lower their chances of increasing their education so they can get to a point of being more likely to be in higher-paid jobs with better conditions that may offer them and their children better life opportunities.I think that the words of the Salvation Army were also quite telling on this point. It also noted that this bill is forcing parents into work where there is an effective marginal tax rate of 80 percent. It noted in a way that I found so compelling that really we are risking children of 3 and 4 years of age for such small return. In the Salvation Army’s mind that was irresponsible. The Green Party agrees—that is irresponsible. That is not in our best interests as a society and it is not in the best interests of those children.I want to go back to another point about the way this has often been discussed—that the increase in hours from 15 to 20 is just another 5 hours a week and it is no particular big deal necessarily in people’s minds—except that the fact is that as has already been pointed out there is the additional travel time on top of that particularly for those families in Auckland. But the key part for me is that 20 hours a week is the threshold that moves you off the benefit. It moves you into dealing with the Inland Revenue Department and not Work and Income.Many many parents have had the experience of being encouraged into these jobs and then finding out that their employer actually is not so great when their child gets sick or when they get sick more than the 5 days a year that they may be eligible for and that they cannot actually manage their needs the needs of their employer and the needs of their child and they need to leave that job. In the existing system somebody wanting to transition back into the workforce maintains that attachment with Work and Income so that if it goes awry they can go back to their case manager and have that conversation. It is much easier to get that sorted out whereas now they are off the benefit and they are dealing only with the Inland Revenue Department and their employer. Then they have to go back and reapply. That sets up a whole degree of instability beyond what we have now and that is incredibly risky. What this also sets up is more potential for sanctions because there are more requirements from the time the child is 3—this requirement to be looking for 20 hours’ work a week.We hear from the Government that if the work is not available—and the point that has been made here previously by Labour speakers is that these jobs are not available. I have heard the Government reply to that with: “Well you know if the jobs aren’t available then that’s fine. They just need to be looking. This is about encouraging them and getting into the jobs.” But there are sanctions that kick in at that intermediary point that would not kick in without this bill for families when their youngest is 3 years old. That is a big risk when we know that over a 14-month period 88000 people have had their benefit sanctioned—that is 44000 children in this country who have had their family’s income cut by half because of sanctions put in place by this kind of legislation.The New Zealand Council of Christian Social Services pointed out that I think two-thirds of those sanctions were because somebody had missed an appointment. We know that sometimes that is happening because somebody’s bus is late. We know that is sometimes happening because somebody has been to a tangi or a funeral and has not been in the position where they are able and thinking to contact their caseworker or able to get through and that caseworkers have caseloads of like 150 people. So I am certainly not blaming the workers in this equation. It is about the system that we have set up.The heart of what I am saying is that we are risking the well-being of our children with these provisions. For what gain? Very very little—locking their parents into chances of lives of low-paid precarious work with little financial return. I also want to point out that it has also been noted that currently over 100000 workers in this country are trying to increase their hours of work. That was evidence from the New Zealand Council of Trade Unions. There are people in this country who have a job and are wanting more hours. Do we really really believe that parenting is so valueless that we should take the parents’ choice away on how to parent and be able to push them into that environment and take away the chances of other workers who are trying to increase their hours by saying: “Well you know these parents they should be doing that more than the other workers even when they could be parenting.”?I really have to remind this Committee again of the fact that there is international research which indicative research in New Zealand backs up that 70 percent of these sole parents are likely to be leaving violent relationships. I have worked in refuges and I have worked with the children who are coming out of violent relationships and one of the things that I have seen time and time again in that situation is the children having different ways of responding. One of the ways is to be really really angry with their mum and to be keeping on pushing back and pushing back because they have taken on the messages from their dad. The time that is required to break that to actually re-establish the trust and to be able to give that child a chance of having a future not determined by that violence is considerable. It is not going to be fixed within the 12 weeks of the work-test exemption that is in place for domestic violence.One of the other things that I have seen is where children do not want to leave the side of their mother. Every time she leaves the room even to go to the toilet they are worried. They are worried that somehow she is not going to come back. When we are saying that these women who are trying to re-establish their lives and provide for their children in that situation have to stop and leave their children and put them into childcare and go into a low-paid job we are not taking domestic violence seriously. We are not. We are not creating the conditions for us as a society to deal with what is an epidemic of domestic violence. We are doing an absolute discredit to ourselves and our children and so many other initiatives will actually fail—Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): I want to take a call on Part 1 of this bill. I am concerned that despite the intent of the bill which we can see in its title the Support for Children in Hardship Bill it will actually have the reverse effect. I think that Minister in the chair the Hon Paula Bennett should take a couple of moments to reflect on many of the statements that have been made so far but I would like her to answer a few questions because the parents of the children this bill purports to help require some answers.One of the questions I have is around the reduction of age for work readiness from 5 to 3. What evidence did the Minister rely on to support a uniform measure such as this? In fact the member Jan Logie made a comment about attachment issues for children. Usually between 2 to 3—and I am sure the Minister will know because she understands this as a woman—there are attachment issues and it is difficult for women particularly to leave the home if there are not some strong key relationships within the household. So what was the evidence to show that reducing the age from 5 to 3 in terms of a mother being tested for work readiness would actually be in the best interests of the child? That is question No. 1. I think it is a fair question that should be asked.The other thing about the reduction in age is that we know from practical experience—and I know that members throughout the House will relate to this—that often between the age of 1 to 5 is when you are experiencing a number of challenges with the general health of your child. There are numerous situations where unexpectedly you are taking your child to the doctor because of a cough that developed in the night or because they have got eczema. There are all sorts of medical issues that will require you to actually understand your child as they are growing in the most critical stages of their lives. This is often from the age of 1 to 3 but more likely you are getting a grip on it from age 1 to 5. Again this comes back to the evidence that the Minister relied on that it was in the best interests of the child to drop the age from 5 years to 3 in terms of parents being work-ready and tested for that.The other part of that question is that even if a parent was able to be work-tested when their child is at age 3 if they are living in small communities there are often scarce pickings for jobs. That is a reality. It is not just a statement; it is a reality. So in that instance people might need to travel further afield from their own local community for the prospect of a job. I have heard time and time again—and it is funny that when you are a mother of young children you tend to hear types of stories about children of the same ages as yours—that the demoralising part of going into Work and Income for your work-readiness test is having to tell your story again and again and again and being told that there are no jobs available for a particular period of time. That does not do anything for your self-esteem.One story I heard was of a young mother who wanted to do the best by her child and was helping out at the local kōhanga doing things like driving the van helping to make the kai and things like that. Then she got notified by her Work and Income case worker that she had to go in for a test and then she had to really start being active around looking for a job. She saw me at her kōhanga and she asked me: “Isn’t helping my child at the kōhanga and helping the kōhanga out a better thing for me and my child and my community?”. I looked her straight in the eye and I said: “Yes it is. In fact 15 more hours spent with your child is much better for your child and that kōhanga community than you going out to work and constantly worrying—constantly worrying—about the care of your child. ”There are other circumstances that put her own views about the safety of her child in another category but the point Minister is that often there are not jobs and the whole process of going to Work and Income can be demoralising if you are constantly being told that there are no jobs. The issues of travel are very real especially when you are in a small community. But again what evidence did you Minister rely on to give you an assurance that it was in the best interests of the child to reduce the age from 5 to 3 for work readiness?The other aspect of this is that in terms of the travel components if the parent does not have access to their own transport and public transport is not available the very real challenges of getting to and from a place of work become stressful. If you are a sole parent looking after your children and you get called at your part-time job and told that you have to come to pick up your child because of an illness or something that has happened at your early childhood centre it may not be that simple to just go back and get your child. There could be costs. There could be again public transport issues that prevent that and that creates more stress for the parent. It does not help either the parent or the child have a positive environment for the child’s upbringing.Here is another question Minister. If the reality was that the best that a parent could do is find maybe 10 hours of cleaning and then maybe 5 hours making up for it by driving the kōhanga van—but they are doing something purposeful—is there enough flexibility in the system for that type of situation to be accommodated? I suspect not but the question needs to be asked because we are talking about real people real kids and opportunities that are actually the only opportunities available.I know that the Minister is dying to get on to her feet and answer some of these very valid questions because they are important but here is the final point that I would like to make. It is really around the voluntary contribution of parents in respect of assisting in the child’s environment especially in early childhood education. What we know specifically for Māori and Pacific families is that lifting the rate of participation in early childhood education is a challenge in and of itself. If there is broader scope to ensure that the contribution of parents in this voluntary way to support their early childhood centre or their kōhanga or puna reo will this ever be recognised as a valuable contribution to the raising of children and the building of community?I think it is about time that we did do that because for far too long we have negated the importance of children’s early years and the value of the contribution of the parent. I agree with most of the sentiments that have been made on this side of the House. Lifting household incomes will make a fundamental difference to alleviating the pressure on some of the most vulnerable families.The question that I have around this bill is about the fact that it does not take account of some of the realities that families are living with on a day-to-day basis or the valuable contribution that parents can make in those early years by being with their children and not being forced out to work. But more important if there is no work let us get real Minister. There has to be enough flexibility and scope within the intent of this bill to account for the voluntary contribution that parents can make to raising their child in their community and spending time with their child so that there is actually a stronger and more resilient individual coming through the “pipeline” in terms of bureau-speak.I am concerned about one other aspect and that is the way in which poverty is being referred to as “material hardship”. You know poverty is poverty. There is no gradient about it. It is unacceptable in New Zealand that we do not have a target to actually try to assure ourselves that across all policy areas reducing poverty can be measured in a very consistent way across a range of policies. Minister I know that you know that these are difficult and challenging issues. What the Ministry of Social Development does cannot be divorced from what happens in housing what happens in health and what happens in employment. But if we had a consistent measure around child poverty and how the combination of policies actually impacts on alleviating the pressures for the most vulnerable—our children—in our society then we would be going a long way towards making a difference.I fear that this bill will not achieve its intent. It will not support children in hardship; it will actually make things much more difficult. That is the concern. I support the amendments that have been proposed by my colleague Carmel Sepuloni in terms of ensuring that the age reverts back to 5. It needs to happenThe CHAIRPERSON (Hon Trevor Mallard): I am going to call Poto Williams but as I do that I think I should explain to members that in deciding who gets the call members of a select committee tend to get some preference but Ms Williams has been calling now for over half an hour which is much longer than any other person who is seeking the call.POTO WILLIAMS (Labour—Christchurch East): Kia ora. Tēnā koe Mr Chairman. Thank you for the opportunity to speak to this bill in the Committee stage. In this contribution one of many I hope to take over the course of this Committee stage I too want to keep my comments specific to subclauses (2) and (3) of clause 4 which are specific to the age your child will be when you are work tested to seek part-time work.There are many aspects of this that concern me. As with many people in this House I too was a single parent of a young child and I know the difficulties that anyone—whether you are parenting whether you are co-parenting or whether you are parenting alone—has with young children when you are required to go out to work and what happens with your child. What concerns me about the lowering of the age at which your child is when you are work tested is that there does not appear to be any evidence given that justifies that that is actually in the best interests of the child. None of the submitters to the Social Services Committee could provide any evidence at all that lowering the age of your child at which you are required to be work tested for part-time work from 5 years old to 3 years old is actually in the best interests of your child.Given this bill is called the Support for Children in Hardship Bill surely the care of your child as its mother or father or the significant adult in its life takes some primacy but there has been nowhere—in the select committee process none of the submitters were able to provide that evidence. I ask the Minister please whether she would take a call and explain to the Committee why the decision was made to lower the age to 3. And why 3? Why not 4? Why not 2½? Why not 3½? Why the age of 3? The only reason I could find for the justification for that age was a comment that the Children’s Commissioner made which was that on average when parents return to the workforce after the birth of their child that child is usually around the age of 3. That is the only evidence that has been submitted to the select committee as the reason why the age should be dropped to 3. There is no other evidence that shows that it is in the best interests of your children—none.All of the select committee submitters disagreed with lowering the age. There was not a single one who said they were in favour of lowering the age so that should be evidence enough to say that this is not a good move and it is not in the interests of the child. Let us quote some of the submitters.The New Zealand Nurses Organisation—not only was it concerned for the well-being of parents but it was also concerned about many aspects of the health of the children—the health and well-being. They say “the stricter work testing obligations and punitive sanctions regime”—because let us face it if for some reason you do not meet the obligations that are required you could face sanctions. There were 80000 sanctions that happened in the last year alone and they impacted 44000 children. When a family is sanctioned it means that money is taken out of their pockets and the children are impacted by that. So the New Zealand Nurses Organisation says that “the stricter work testing obligations and punitive sanctions regime—i.e. requiring parents to be available when their youngest child turns three rather than five as at present—is arbitrary and ignores child developmental and differences in family circumstances.”—arbitrary meaning there is no good reason. It is not acting in the best interests of the child.They also said: “The health of both parents and children is a significant consideration in parents’ ability to work outside the home. Nearly a quarter of Aotearoa New Zealand’s children are affected by asthma for example and are particularly vulnerable in their preschool years. It is a well-known cause of low and interrupted attendance at school and at work. Parents should not be pressured into leaving young children; if a parent is negatively stressed at work the impact on the children is likely to be negative”.Some of the contributors have already spoken about the difficulties in entering into childcare services for their children. Many of us know that if your children become sick they cannot attend childcare. If your child cannot attend childcare you cannot attend work. If you cannot attend work does that mean that your family will have a sanction imposed?Carmel Sepuloni: The only other option is leaving them at home by themselves.POTO WILLIAMS: That is right. So it leaves very few options. Particularly for people who parent alone it leaves very few options and it is not acting in the best interests of the children.Young children particularly in the ages 2 to 3 do get sick often and when they are sick as I say they cannot go to childcare. Where are the services to be set up to support that parent to have some other form of childcare that does not involve going to a public childcare service such as private in-home carers—is that going to be available? Where is the support from the employer when parents have sick children? We know that many of these parents are in precarious low-paid employment where employers can get another worker at a moment’s notice. So if they have any sense of unreliability about them particularly if they have children who are sick and they have to stay home and care for them they are likely to not be employee of the month and to potentially lose their jobs. How is that in the best interests of their children? Minister Tolley I really really urge you to stand and take a call on this.Let us see—what else have we got here? Oh yes I do want to talk about the Council of Trade Unions because it spoke not only of the 58000 people seeking part-time work but of the 100000 part-time workers who are currently looking for more hours. So we are going to require these parents to seek work. We all agree that being in work is beneficial—well-paid work secure work—but balance that against the pressure that they come under to find work when there are 100000 part-time workers seeking more hours diminishing the pool of part-time work available.It also says—this is the Council of Trade Unions submission—that “Single mothers in particular face a range of economic penalties as well as social difficulties. They are more likely to find only unpredictable part-time work making it hard for them to access the childcare and other support they need in order for work to be feasible.” Childcare is not universally available across the country at a time that is suitable for when you may or may not be required to work. We know that many of these parents will be in roles that may be shift work. They may be outside of the normal hours of childcare arrangements. What then? What then? Are they to be—how are they to be in a position where they can find part-time work—The CHAIRPERSON (Hon Trevor Mallard): I regret interrupting the member but the time has come for me to report progress.Progress to be reported presently.House resumed.The Chairperson reported the International Finance Agreements Amendment Bill without amendment the Taxation (Bright-line Test for Residential Land) Bill without amendment progress on the Support for Children in Hardship Bill and no progress on the Weathertight Homes Resolution Services Amendment Bill.Report adopted.The House adjourned at 9.56 p.m.