Volume 636 Week 34 - Tuesday 12 December 2006 
Volume 636 Week 34 - Tuesday 12 December 2006 
[Volume:636;Page:7047] 
Tuesday 12 December 2006 
Madam Speaker 
 took the Chair at 2 p.m. 
Prayers 
. 
Questions to Ministers 
Employment Relations Act—Review 
1. DARIEN FENTON (Labour) 
 to the  
Minister of Labour 
: Has she received any reports relating to proposed changes to the Employment Relations Act 2000? 
Hon RUTH DYSON (Minister of Labour) 
: 
 Yes I have. I have seen one report that states: “Under National expect quite significant changes. There was nothing wrong with the Employment Contracts Act.” Another states: “Broadly speaking we weren’t planning to make major changes … we haven’t argued … that we would go all the way back to the Employment Contracts Act …”. Both of these contradictory statements are from John Key. 
Darien Fenton 
: Has the Minister seen any other reports on proposals relating to the Employment Relations Act? 
Hon RUTH DYSON 
: Actually I have. The first is a report stating: “We support flexible labour markets because countries with such markets have lower unemployment.” A second report states: “The Employment Relations Act has been one of the driving forces to New Zealand having low levels of unemployment.” Both statements again contradictory were from John Key and both were made in the same month. 
Darien Fenton 
: Has the Minister seen any other reports relating to proposed changes to the Employment Relations Act? 
Hon RUTH DYSON 
: I have seen a report that the Exclusive Brethren sought to change the law in an attempt to bar unions from all their workplaces regardless of size. They described employment relationships— 
Madam SPEAKER 
: We are not having a repeat of what we had last Thursday. Members are entitled to be heard. Interjections are not to create disorder in the House. 
Hon RUTH DYSON 
: The Exclusive Brethren described the employment relationship as one of master and servant. This unsuccessful attempt was supported by the National Party. A second report shows that National’s new industrial relations spokesperson Kate Wilkinson used to work for the Exclusive Brethren as legal counsel in Christchurch. Considering her close associations with the Exclusive Brethren I wonder what concessions she wants to grant them. 
Madam SPEAKER 
: Would the Minister please repeat the answer. I assume that is what Mr Mark was about to request. The member knows full well that reports are sought and reports are being given. 
Hon RUTH DYSON 
: A second report shows that National’s new industrial relations spokesperson Kate Wilkinson used to work for the Exclusive Brethren as legal counsel in Christchurch. Considering her close associations with the Exclusive Brethren I wonder what concessions she wants to grant them. 
Heather Roy 
: Why does this Government have such a problem with two consenting adults freely engaging in capitalist acts for their mutual self-benefit? 
Hon RUTH DYSON 
: It depends whether there are third parties to the relationship who are not willing and consenting. 
Peter Brown 
: Has the Minister seen any reports or is she otherwise aware that many employers—particularly small employers—are not even acquainted with section 67 of the Employment Relations Act which provides for probationary employment; if she is aware of this will she take cognisance of the representations New Zealand First made to her that there should be an education campaign particularly for small employers? 
Hon RUTH DYSON 
: Yes I am aware of that fact. It was very obvious during submissions on Wayne Mapp’s bill that was defeated recently by this Parliament. I have taken notice of the representation of that member and agreed to an education campaign. 
Rodney Hide 
: Why is it this Government’s policy to insert a third party into the employment relationship when many New Zealanders do not want a bar of the unions? 
Hon RUTH DYSON 
: We do have voluntary unionism in New Zealand. 
Energy Strategy—Carbon Neutrality 
2.  
JOHN KEY (Leader of the Opposition) 
 to the  
Prime Minister 
: Does she stand by her statement that New Zealand “could aim to be carbon neutral” and does she think the draft New Zealand Energy Strategy will help to achieve this aim? 
Rt Hon HELEN CLARK (Prime Minister) 
: 
 Yes and yes. 
John Key 
: Why does the Energy Strategy that was released yesterday—presumably the document most likely to impact on climate change in New Zealand—mention carbon neutrality only once and only then in the footnote; and is this the first of many attempts by the Prime Minister to back away from that very unrealistic goal? 
Rt Hon HELEN CLARK 
: Obviously not but then I have never been a climate change denier like the member. 
John Key 
: Does the Prime Minister agree with Michael Cullen’s statement in the House last week that “certainly the Government is committed to achieving carbon neutrality”; if so can she tell the House in what document and under what time frame New Zealanders will be able to see that carbon neutrality is achieved by this Government? 
Rt Hon HELEN CLARK 
: As I told the member in the House last week it is an aspiration—at least we have them. 
John Key 
: Since when has an aspiration become a commitment outlined by the Deputy Prime Minister in the House last week? 
Rt Hon HELEN CLARK 
: As the deputy leader quipped I have the aspirations; he has to fund the commitments. 
Jeanette Fitzsimons 
: Will the Energy Strategy prevent the building of the three big new fossil-fuelled power stations that are imminent: Contact Energy’s Otahuhu C Mighty River Power’s Marsden B coal station and Genesis Energy’s gas station in Rodney which together with the almost built Huntly ep3 Power Station total a 25 percent increase in current generation—all of it fossil—and if it will not prevent them will not the huge increase in fossil fuel generation leave no room for new renewables and take us even further from the Prime Minister’s goal of carbon neutrality? 
Rt Hon HELEN CLARK 
: I would not have described any of those three that the member mentioned as imminent. 
John Key 
: Does it not show that carbon neutrality is just a mirage when the best-case scenario in the Energy Strategy is that by 2030 our carbon dioxide emissions will be back to where they were in 1990 which is net emissions of 26 million tonnes—and that is achieved only after some pretty heroic assumptions; so when is carbon neutrality occurring? 
Rt Hon HELEN CLARK 
: The Government is very committed to making a difference for climate change rather than describing it as a hoax as the member did in this House last year. 
John Key 
: Has the Prime Minister noticed that yesterday’s energy statement in response to climate change gave no commitments no clear signals no timelines and just a bunch of statements prefaced by the word “could”; or does that explain why under this Government 85 percent of new energy has been generated by coal and once again her record does not stack up to her rhetoric? 
Rt Hon HELEN CLARK 
: That question simply confirms that the member has not bothered to read the strategy. 
John Key 
: Can I confirm for the Prime Minister that I have read the strategy; has she read the conclusion that has three lines and reads like a Confucius poem—and I say to her that if she had not put those three lines in there the Government would have been forced to write “This page has been left intentionally blank.”? 
Rt Hon HELEN CLARK 
: All I can say is that the very substantial policy being generated by the Government on climate change issues far outweighs— 
Madam SPEAKER 
: I am unable to hear the Prime Minister’s answer. Would you please start again. 
Rt Hon HELEN CLARK 
: The substantial policy proposals being generated by the Government on this issue far outweigh the two pages the National Party has produced after 7 years in Opposition. 
Assaults on Police—Stabbing or Cutting 
3.  
RON MARK (NZ First) 
 to the  
Minister of Police 
: How many assaults on police where a stabbing or cutting weapon was used have been committed in the years ending July 2005 and July 2006 and between July 2006 and today? 
Hon ANNETTE KING (Minister of Police) 
: 
 For the year ending 30 June 2005 there were six recorded assaults on police where a stabbing or cutting weapon was used there were seven such assaults in 2006 and the figures for the period since 30 June 2006 have not yet been compiled. Police statistics for the calendar year 2006 are due in April 2007. 
Ron Mark 
: I raise a point of order Madam Speaker. In my primary question I asked for the statistics for between July 2006 and today. Those figures surely must have been available to the Minister. She has had 4 hours to get that information and she should have been able to present it. 
Hon ANNETTE KING 
: I am advised by the police that the statistics for that calendar year from July 2006 come out in April 2007. I do not have them. 
Ron Mark 
: What does the Minister have to say to the six officers who were stabbed in the period between June 2004 and July 2005—officers who were told in March in 2004 that stab-resistant body armour was to be introduced within 3 months—and will she inform the House when the police are to finally receive the armour they were promised more than 2 years ago? 
Hon ANNETTE KING 
: I would say to those officers that I very much regret that the body armour has not been available for them. There have been problems in getting the stab-proof body armour for them. I can inform the House that the roll-out starts in Counties-Manukau on Monday in Auckland City on 8 January and all other districts follow by April 2007. 
Ron Mark 
: What does the Minister have to say to the at least nine officers who were stabbed between July 2005 and today—officers who heard the Commissioner of Police promise he would resign if body armour was not introduced during that period—and how can police officers or the public have any confidence in the office of the Commissioner of Police when no vests or resignations have been forthcoming and front-line police are still waiting? 
Hon ANNETTE KING 
: I would repeat to those officers the same thing that I said in my original answer. The Commissioner of Police who made that promise and undertaking is no longer the Commissioner of Police. The deputy commissioner Rob Pope who is highly respected around New Zealand for his role as a police officer undertook to have the stab-resistant vests in place as soon as possible; in fact he flew to London to ensure that the problem they were having with the fabric was resolved. I have now given the member the dates for the roll-out of the vests. 
Ron Mark 
: I seek the leave of the House to table a newspaper report from March 2004 whereby a police headquarters spokeswoman said that police planned to introduce body armour from June 2004. 
Document by leave laid on the Table of the House. 
Ron Mark 
: I seek leave of the House to table a transcript from the Finance and Expenditure Committee dated June 2005 whereby the police commissioner pledged to resign if stab-resistant body armour was not delivered within 1 year. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Ron Mark 
: I seek leave to table the  
Hansard  
transcript from September this year whereby Nick Smith—[ 
Interruption 
] I raise a point of order Madam Speaker. 
Madam SPEAKER 
: No. I remind members that during points of order there should be no comment. So would you please proceed Mr Mark. 
Ron Mark 
: I seek leave to table a transcript whereby Nick Smith objected to photos of stabbed officers being tabled as they were “not relevant to New Zealand”. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Ron Mark 
: I seek leave to table section 10 of the Health and Safety in Employment Act 1992 which states that an employer must make accessible to employees and ensure the use of by employees suitable clothing and equipment to protect themselves. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Keith Locke 
: I seek leave to table statistics from the United States FBI that show that in that police force where there are guns and Tasers the assaults on police using a knife or other cutting instrument are more than double those statistics for New Zealand. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Corrections Minister—Resignation over Death in Custody 
4.  
SIMON POWER (National—Rangitikei) 
 to the  
Minister of Corrections 
: Has he tendered his resignation as Minister of Corrections over the death of Liam Ashley in Corrections’ custody; if not why not? 
Hon DAMIEN O'CONNOR (Minister of Corrections) 
: 
 No; I have a clear responsibility to oversee changes to the corrections system to prevent such a tragedy from occurring ever again in the future. 
Simon Power 
: Who is responsible for Liam Ashley’s death? 
Hon DAMIEN O'CONNOR 
: George Baker committed the murder. The corrections system let Liam and his family down. Mistakes were made. That system has to be changed to ensure that such a terrible tragedy cannot occur again. I am committed to making those changes. 
Ann Hartley 
: What does the Minister intend to do to prevent a similar tragedy from occurring? 
Hon DAMIEN O'CONNOR 
: Immediately following Liam’s death I directed the department to ensure that all prisoners under the age of 18 years are kept separate outside of prison in all circumstances. That will continue to stand. I have directed Barry Matthews to urgently draft a plan of action to implement all of the recommendations outlined in the report in order to prevent such tragedies. There will be further changes as necessary. 
Nandor Tanczos 
: Is the Minister saying that no one at all will be held responsible either for systemic slackness in the corrections system—such as the established practice of regularly transporting young people locked in cages with adults in breach of the law—or for specific errors such as the failure to communicate crucial information regarding risk at hand-over; is he saying that no one will be held responsible for that? 
Hon DAMIEN O'CONNOR 
: A number of mistakes were made in this terrible set of circumstances. The system was not robust enough to protect Liam Ashley when those mistakes were made. I take responsibility for making the changes to ensure that that does not occur in the future. 
Simon Power 
: Does the Minister concede that if just one of at least 10 mistakes committed at an operational level had not occurred then this tragedy would not have occurred; if he does concede that why does he not just accept responsibility do the right thing and resign? 
Hon DAMIEN O'CONNOR 
: That member identifies 10—possibly more—mistakes made in the system. I have a clear responsibility to ensure that the system is changed to prevent those mistakes being made in the future. 
Ron Mark 
: Is the Minister concerned about the report’s scathing assessment of the performance and procedures of the Auckland Central Remand Prison and given that the decision to change that prison from a successful privately run prison to what is apparently now a failure under public ownership was based not on its performance but on blind anti-private ideology by Cabinet with support from the Greens what responsibility does the Government accept for the prison’s failures in this case? 
Hon DAMIEN O'CONNOR 
: Yes I am very concerned that such mistakes could be made anywhere in the corrections system at any prison. We have a responsibility and I do as Minister to ensure that we protect prisoners in the corrections system and that we make the changes necessary to prevent such a tragedy occurring in the future. 
Simon Power 
: Has the Minister seen the comments of Liam Ashley’s mother Lorraine Ashley that his department is “incompetent through and through” and that heads had to roll because “It’s like a pyramid. Someone has to be held accountable.”; and how can he as the apex of that pyramid of incompetence justify the fact that he will not be seeking any resignations or dismissals—least of all his own? 
Hon DAMIEN O'CONNOR 
: I have offered the Ashleys my deepest sympathy at this terrible loss. I can understand their frustration and I too am alarmed at the mistakes made in the corrections system. I have spoken to the chief executive. He has a clear responsibility to carry out actions and changes to make sure this situation will not occur in the future. 
Simon Power 
: Can the Minister confirm that all of the 10 or more mistakes that contributed to Liam Ashley’s death came down to staff and contractors not following procedures; and in light of the fact that his department had not even bothered to make sure that those procedures reflected changes to the law in 2004 and 2005 how can the public have any confidence that the Minister has enough control over his department to ensure it follows any new rules he decides to impose? 
Hon DAMIEN O'CONNOR 
: The overhaul of prison transportation as I have announced will start right at the top at head office to clarify who has responsibility for laying down policies and reflecting changes in legislation. The overhaul will go all the way through the corrections system to any contractors that may be involved in the transportation of prisoners at any time in the corrections system. 
Simon Power 
: Can the Minister confirm that despite the desire of the Ashley family for heads to roll no one has resigned or been dismissed from the Department of Corrections; and what does it actually take for someone from his department to get fired? 
Hon DAMIEN O'CONNOR 
: I know that the Ashley family wants an assurance—an absolute assurance—that the lessons learnt from this terrible tragedy the loss of their son will not be lost and that we will make the changes to ensure that such a loss does not happen again. 
Rt Hon Winston Peters 
: Has the Minister received any reports that the tragedy of the Ashley family was enhanced by a political party that set up the system of moving prisoners in that way and that is now disowning all ownership of it—namely the change in 1988 by the National Government— 
Gerry Brownlee 
: 1988? 
Rt Hon Winston Peters 
: I am sorry 1998—to privatise— 
Gerry Brownlee 
: New Zealand First—Ron Mark. 
Rt Hon Winston Peters 
: No it was not; no we were not. If the big fellow just keeps quiet I will tell him the facts. It was National in 1998 all by itself with Jenny Shipley. It changed the system. So is the Ashley tragedy enhanced by the total disowning of that policy by National? 
Hon DAMIEN O'CONNOR 
: I do not want to make a judgment on whether that was the particular factor. But I can acknowledge that in 1998 the system was changed to allow Chubb as a private contractor to come in and carry out work in the corrections system. 
Simon Power 
: Can the Minister confirm that both he and his chief executive Barry Matthews have claimed in the last day that they will not resign because the mistakes that led to Liam Ashley’s death were systemic; if so who is responsible for systemic problems when they are big enough to lead to somebody’s death? 
Hon DAMIEN O'CONNOR 
: Barry Matthews and myself are responsible for ensuring that the corrections system operates properly. We are responsible for making the changes to rectify faults where they are identified—the changes in policy that need to be made to prevent this happening again. 
Australia / New Zealand—One Country Proposal 
5.  
SUE KEDGLEY (Green) 
 to the  
Prime Minister 
: Does she agree that Australia and New Zealand should consider becoming one country as proposed by the Australian House of Representatives Standing Committee on Legal and Constitutional Affairs; if not why not? 
Rt Hon HELEN CLARK (Prime Minister) 
: 
 No; the decision not to join the federation was made in 1901 and I see no reason to revisit it. 
Sue Kedgley 
: If she does not agree that New Zealand should become the seventh state of Australia why is her Government introducing legislation today that will transfer control of pharmaceuticals and dietary supplements to an offshore agency that is based in Australia is set up under Australian law is dominated by Australian staff and has an unelected managing director who will have unprecedented powers to make delegated legislation; and how can she claim that this is anything other than giving up our sovereignty to Australia by stealth? 
Rt Hon HELEN CLARK 
: There is a very long distance between becoming a state of Australia and having a trans-Tasman agency. 
Sue Kedgley 
: Can she confirm that once the legislation has been passed the unelected managing director of the new agency will have the power to make and enforce rules and orders that will have a direct effect in New Zealand without requiring the approval of this Parliament and that the only recourse that this Parliament will have against rules and orders set in Canberra will be if a member of the Regulations Review Committee successfully moves a motion to disallow a rule in this House—something that has never happened in this Parliament’s history? 
Rt Hon HELEN CLARK 
: The member just answered her own question—there is a procedure for this Parliament to disallow such a rule. But I think it is important that she not spread misinformation about the nature of the agency which is a truly trans-Tasman agency with as the Minister for Food Safety will point out shortly head offices in both capitals. 
Hon Annette King 
: Is it the Government’s intention to help protect the health and safety of New Zealanders from for example complementary medicines that have harmful ingredients in them; if so could she give an example of such products? 
Rt Hon HELEN CLARK 
: There are a number of herbs and ingredients of concern that are used in these products. I note for example that there have been herbal products spiked with undeclared steroids and others spiked with the active ingredient in Viagra. There is a reason for regulation. 
Sue Kedgley 
: I seek leave to table four documents. 
Madam SPEAKER 
: I just remind members that the seeking of leave is to be heard in silence. 
Sue Kedgley 
: The first is a human relations policy options document on the agency which states that of 557 employees it is envisaged that 93 percent of them will be Australian and 7 percent will be from New Zealand. 
Document by leave laid on the Table of the House. 
Sue Kedgley 
: The second is the unanimous report of the Health Committee into the trans-Taman agreement in which it points out the power— 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. [ 
Interruption 
] The member has to identify the document not read it out in full. It was identified for members. 
Sue Kedgley 
: The third is the treaty between the Government of Australia and New Zealand for the establishment of the joint agency in which it points out that the managing director’s powers will be unprecedented. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? Yes there is. 
Sue Kedgley 
: My final tabling is a number of documents in which New Zealand First assures New Zealanders it will not support this legislation and a transcript from Radio New Zealand in which Winston Peters says that those who believe in natural medicines— 
Madam SPEAKER 
: Leave is sought to table those documents. Is there any objection? There is objection. 
Rt Hon Winston Peters 
: I seek leave to table the original legislation which New Zealand First opposed and which is light years away from the legislation going before the House today.  
Document not tabled. 
Energy Strategy—Draft Action Plan 
6.  
GERRY BROWNLEE (National—Ilam) 
 to the  
Minister of Energy 
: What specific changes if any does he expect to see following his release yesterday of a draft New Zealand Energy Strategy outlining a draft action plan across six broad areas? 
Hon PETE HODGSON (Minister of Health) 
 on behalf of the 
 Minister of Energy 
: I expect renewables and energy efficiency to advance. I expect some non-renewable initiatives to be rethought. I expect also the National Party to tie itself in knots as it usually does when Labour leads any debate on a sustainable future. 
Gerry Brownlee 
: How does it give any certainty or direction to the energy industry when the best his draft strategy—with its draft action plan—can say is that when it comes to encouraging low emissions a wide range of policy options are available: we could have an emissions trading regime; we could have a narrow-based carbon tax; we could have a mix of incentives subsidies and regulations; and we could have luck; and how is that supposed to be a strategy that guides anyone? 
Hon PETE HODGSON 
: The idea of a strategic discussion paper is to put options before the public and invite them to make their response. 
Shane Jones 
: Has he seen any reports on the extent to which climate change which some say is driven substantially by the use of fossil fuels in the energy sector is accepted as an issue of consequence? 
Hon PETE HODGSON 
: Yes I have seen two reports. The first states: “This is a complete and utter hoax if I may say so. The impact of the Kyoto Protocol even if one believes in global warming—and I am somewhat suspicious of it—”. The second states: “I firmly believe in climate change and I always have.” Both of these statements came from the National Party leader Mr John Key. 
Gerry Brownlee 
: Back to the Government’s policy; does the Minister stand by his comments made earlier this year on Climate Rescue Radio: “You ask me by what date New Zealand would be carbon neutral. I think you’ll find that becomes clear over the next 6 months.”; if so was this draft strategy not an opportune time to enlighten us all and why does it not? 
Hon PETE HODGSON 
: The idea of the Energy Strategy is to move this country towards a position of carbon neutrality. We have no difficulty in aspiring to a commitment and no difficulty committing to an aspiration. 
Gerry Brownlee 
: Can the Minister confirm that page 26 of the strategy states: “using renewable electricity in place of new fossil-fuel-based generation need not make prices higher provided economic renewable projects can gain consent and are built.”; and does he see the irony in that statement given his Government’s track record of failed consents for renewable energy projects? 
Hon PETE HODGSON 
: Yes and no. 
Gerry Brownlee 
: Why did his press release on the draft Energy Strategy raise the question as to whether carbon neutrality is feasible then not answer but say that the best we can do is take one of “several pathways available to achieve significant reductions in greenhouse gas emissions over the long term”; and how far out does he think the “long term” is for carbon neutrality? 
Hon PETE HODGSON 
: Aspirations are not built in a day but the member should reflect on the fact that a variety of offset options are available to this Government. 
Peter Brown 
: Does the Minister accept the assertion that is being made by some energy specialists that any penalty tax on thermal generation will result in significant power increases across the board and if he does accept that will he advise what he expects to achieve except placing some people on low fixed incomes in hardship positions? 
Hon PETE HODGSON 
: Earlier today in various media a number of commentators thought that “significant” meant a 10 or 20 percent increase in price. The Government’s view is that any increase would be a small fraction of that. 
Gerry Brownlee 
: Does the draft Energy Strategy not just amount to a Christmas wish-list that reads: “Dear Santa it would be nice to have bio-fuels it would be nice to have electric cars it would be nice to have wind farms wave technology and carbon neutrality rather than the large lump of coal you gave us last year which we have been busy getting rid of in our numerous coal-fired generation stations.”? 
Hon PETE HODGSON 
: I did say in answer to the member’s primary question that I did expect National to tie itself in knots. I had not expected it to take such a short time. 
Gerry Brownlee 
: I raise a point of order Madam Speaker—[ 
Interruption 
] 
Madam SPEAKER 
: I must say that the way the question was framed did invite the sort of answer that was given. But I will ask the Minister whether he would like to add a suitable reference to the question. 
Hon PETE HODGSON 
: Why do I not invite the member to repeat the question and then we can all hear it again. 
Gerry Brownlee 
: Is his Energy Strategy not just a wish-list when he talks of bio-fuels electric cars wind farms wave technology and carbon neutrality when this Government continues to be the biggest burner of coal ever in New Zealand’s history? 
Hon PETE HODGSON 
: No it is a vision for the future and I enjoin the member to become part of it. 
Te Arawa—Cultural Redress 
7.  
TE URUROA FLAVELL (Maori Party—Waiariki) 
 to the  
Minister in charge of Treaty of Waitangi Negotiations 
: What is the basis for the Crown being able to confirm that any overlapping claims in relation to any item of cultural redress for Te Arawa have been addressed to its satisfaction? 
Hon MARK BURTON (Minister in charge of Treaty of Waitangi Negotiations) 
: 
 I am satisfied that the Crown followed a fair and transparent process in the Te Arawa Lakes and Te Arawa Kaihautu negotiations ensuring that it was fully informed of all overlapping interests and that these interests were taken properly into account. 
Te Ururoa Flavell 
: Can the Minister confirm that there is an intention to transfer the asset of Ngati Whakaue namely Whakarewarewa thermal valley Moerangi and Roto-a-Tamaheke cultural redress sites into the hands of NgaKaihautu o Te Arawa when the asset in question is part of the Wai 533 claim—the Ngati Whakaue claim to the Waitangi Tribunal? 
Hon MARK BURTON 
: I can confirm that part of the said asset has been transferred to the 24000 people or is proposed to be and that adequate provision has been made to meet any future claims of the other groups that the member referred to. 
Te Ururoa Flavell 
: What would the Minister consider to be the positive implications of the decisions to resolve a settlement by transferring the land owned by one group who are not involved in a settlement into the ownership of another who are involved in a negotiated settlement with the Crown? 
Hon MARK BURTON 
: I do not accept the member’s assertion that that is what is taking place. I would certainly tell the member that I think the positive outcome of this process is that the 24000 claimants can proceed and get on with the positive development that is their clear aspiration. 
Te Ururoa Flavell 
: What possible redress could a collective such as Ngati Whakaue have if their resources are commandeered out of their hands hapu relations are interfered with and a fresh grievance is caused all in the name of simply settling a grievance by another group? 
Hon MARK BURTON 
: As I have said already I do not accept the member’s assertion but of course what is open to Ngati Whakaue as to others who have not yet settled is in due course to properly appoint mandated representatives to negotiate with the Crown. I am confident that that is what will happen. 
Christopher Finlayson 
: How can it be that the Minister and his officials failed to address the obvious issue of overlapping claims for cultural redress when negotiating the settlement with Te Arawa and what does he propose doing about it now? 
Hon MARK BURTON 
: Again the member’s assertion is fundamentally incorrect. The Crown did not fail to address overlapping claims. One cannot settle an overlapping claim until the claimant group concerned lodges a claim and has mandated negotiators. What is critically important is that those groups and those hapu and iwi have the capacity to enter in due course into negotiations with their own mandated negotiators and there are assets aplenty to settle such claims. 
Primary Health Care Strategy—Goals and Progress 
8.  
Hon TONY RYALL (National—Bay of Plenty) 
 to the  
Minister of Health 
: What are the goals of the Government’s Primary Health Care Strategy and what mark out of 10 would he give for progress on meeting those goals to date? 
Hon PETE HODGSON (Minister of Health) 
: 
 There are many goals. One of them is to make primary health care more affordable for all New Zealanders and towards that goal progress is faster than was originally planned. 
Hon Tony Ryall 
: Does he accept the analysis of the New Zealand Primary Health Care Strategy in the latest edition of the  
British Medical Journal 
 which says that the Government does not have a clear vision of what it wants for primary care and that questions abound over whether the reforms have been worthwhile; and how can it be that progress in improving quality is still so hopeless after spending $1.2 billion of taxpayers’ money? 
Hon PETE HODGSON 
: The recent  
British Medical Journal 
 article to which the member refers though published only recently draws substantially on material that is several years old. For example just over half of the bibliography material was published in 2001 or earlier. Things have moved since then and they continue to move. 
Barbara Stewart 
: Does the Minister share the concern of Auditor-General Kevin Brady and health economist Bronwyn Howell that the limited accountability of public health organisations makes it difficult to assess whether patients are receiving the benefits intended in the Primary Health Care Strategy; if not why not? 
Hon PETE HODGSON 
: The member may be unaware that pursuant to the roll-out of the second to last phase of the Primary Health Care Strategy on 1 July this year a number of steps were taken by the Government and agreed contractually to address those concerns. 
Maryan Street 
: What reports has the Minister received about progress on the Primary Health Care Strategy? 
Hon PETE HODGSON 
: I have received a number of reports that primary health organisations are now moving on from the implementation phase and that real gains are being made. Thanks to the reduction in fees alone we are now getting reports that those with the highest need for services are going to their doctor getting treatment and picking up their prescriptions more reliably. I note again that work to lower the cost of seeing the family doctor is opposed by the National Party. 
Judy Turner 
: Can the Minister outline the impact he anticipates of having a robust national medicines strategy on his ministry’s ability to better deliver on the Primary Health Care Strategy? 
Hon PETE HODGSON 
: It seems to me that about a third of that strategy released earlier today for discussion particularly addresses the primary health care aspect of our New Zealand health system. I can see significant changes in the way that we deal with community pharmaceuticals and community pharmacies and I think that the response from the public over the next few weeks until 30 March will be instructive in helping the Government to work out how to better improve medicine management. 
Hon Tony Ryall 
: Is the Minister telling the House that a report written in the  
British Medical Journal 
 published on 9 December co-written by an adviser to the Government and Treasury is seriously out of date; and what did he mean when he told Cabinet that progress towards the strategy’s aim of improving coordination between primary care and hospitals is “still weak” despite spending $1.2 billion? 
Hon PETE HODGSON 
: The answers to those two questions are “Yes” and “Precisely what I said.” 
Rt Hon Winston Peters 
: Can I ask the Minister—seeing that this is the last question time for 2006—whether because primary health care quickly shades sometimes into secondary health care problems Pharmac received advice from its cancer treatments subcommittee that Herceptin should have a low priority for funding; and is there not a conflict of interests here where the advisers—or adviser—who recommended against the public funding of Herceptin stand to make profits out of making it available privately as private practitioners and then on top of that the Government charges GST in such circumstances? Is he aware of that; if he is does he propose to do something about it? 
Hon PETE HODGSON 
: I need to answer that question from memory so there is that caveat. From memory the recommendation of the cancer treatments subcommittee the original group of people who looked at it was that it was not a low but a low-medium priority. Secondly the cancer treatments subcommittee is obliged to look not at cost-effectiveness but at effectiveness only and the Pharmacology and Therapeutics Advisory Committee which then looked at cost-effectiveness made a similar recommendation. 
Hon Tony Ryall 
: Can the Minister confirm that in his $1.2 billion funding for the Primary Health Care Strategy he has funded the Care Plus programme which has an objective of providing care in the community for people with chronic illnesses like diabetes and heart disease to keep them out of hospital; and can he explain why an evaluation of this programme shows that being enrolled as Care Plus patients actually increases hospital admissions by 40 percent? 
Hon PETE HODGSON 
: The member continues to confuse and/or delude himself. The Care Plus programme was originally devised by the sector itself. [ 
Interruption 
] The member may wish to listen. [ 
Interruption 
] The member does not wish to listen so should I give an answer if he does not wish to listen? 
Madam SPEAKER 
: Please members. Sandra Goudie has a loud voice. It is creating disorder. The member is on her last warning. Other members in the Chamber wish to hear the Minister’s answer. 
Hon PETE HODGSON 
: I would say to the member that Care Plus was originally devised by the industry—in other words by folk from the Independent Practitioners Association Council. It was then instituted as amended by the Ministry of Health. The uptake amongst primary health organisations exceeds 80 percent. There are however problems with it so the Care Plus programme has been under review. The review is coming forth to the Government presently. Changes will be made. 
Hon Tony Ryall 
: If the programme is a success can the Minister explain why a programme that is designed to keep people out of hospital actually increases the likelihood of those people being admitted to hospital and is that not exactly what the  
British Medical Journal  
was reflecting: that this Government has no idea of what it wants to achieve? 
Hon PETE HODGSON 
: The member makes it up as he goes along. If I may be blunt the member needs to decide whether he intends to be command and control and prescriptive which is what his question implies or whether he wishes to get rid of the Primary Health Care Strategy in its entirety and double doctors’ fees for New Zealanders which is what National’s policy currently states. 
Jo Goodhew 
: How does the Minister explain the disconnection between New Zealand’s apparently improved access to general practitioners and our record of access to elective surgery and hospital care as reported in the  
Health Affairs  
policy journal where long waiting times are reported—a frightening 85 percent of the time worse than those in Australia Canada the US the Netherlands Germany and the UK? 
Hon PETE HODGSON 
: That refers to research that was carried out earlier this year. In September of this year 8 years after the policy was originally announced by National most district health boards finally became compliant with the policy of successive Governments which is to provide service within 26 weeks to folk who are entered into the elective surgical system. 
Hon Tony Ryall 
: Does the Minister believe that the next extra dollar of health spending should be spent under the Primary Health Care Strategy where the Government has no idea of what it wants to achieve or would he prefer to put the money towards reducing cancer waiting times now that a report out in the last few hours shows that waiting times for radiation therapy at Palmerston North Hospital have now stretched to 18 weeks—18 weeks Minister—four times the recommended safe period for treatment? 
Hon PETE HODGSON 
: Because this Government did not go to the last election with reckless— 
Madam SPEAKER 
: It is very hard to hear with constant interjections. The member has asked his question. Please let us hear the answer. 
Hon PETE HODGSON 
: Because the Labour Party went to the election last year without having reckless tax cuts on its mind we do not need to concern ourselves with how we spend an extra dollar. We can concern ourselves with how we spend— 
Rt Hon Winston Peters 
: Down at this end of the House we can barely hear any of the answers because members of one particular party in the back bench are shouting at the top of their voices. I suggest you give them an early Christmas present or an early holiday and ask them to remove themselves from the House because frankly they have had every possible warning. We are coming now to the last of our questions; they have taken no warnings at all and are carrying on in the same way as before. They have been in Parliament only 5 minutes so what is special about them? 
Madam SPEAKER 
: I have sympathy with the member’s point. I hate to say this but it is the back row. Would you please keep your interventions minimal for the rest of this session. I ask the Minister to repeat his answer. 
Hon PETE HODGSON 
: In brief this Government does not have reckless tax cuts on its mind and as a result does not have to worry about how to spend one extra dollar. We have lots of money to put into health and we are spending it well and wisely. 
Hon Tony Ryall 
: I seek leave to table a number of documents. The first is the analysis from the latest edition of the  
British Medical Journal 
. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Hon Tony Ryall 
: Secondly I seek leave to table the report which the Minister said was soon to be released into the review of the implementation of Care Plus that shows that it increases one’s chance of going to hospital. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Hon Tony Ryall 
: Thirdly I seek leave to table a report out this afternoon that shows that waiting times for cancer radiation therapy in Palmerston North are now at 18 weeks. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Medicine and Dentistry—Education Standards 
9.  
MOANA MACKEY (Labour) 
 to the  
Minister for Tertiary Education 
: What is the Government doing to support excellence in medicine and dentistry education and training? 
Hon Dr MICHAEL CULLEN (Minister for Tertiary Education) 
: 
 I have announced $24.6 million of additional annual funding for undergraduate medicine and dentistry education and training from next year. The increase in funding will support excellence in medicine and dentistry education and training including the development and expansion of curricula to ensure that they are up to date and world-class. 
Moana Mackey 
: How will this package assist in addressing the challenges relating to health care provision in rural areas? 
Hon Dr MICHAEL CULLEN 
: The package specifically includes support to expand training for future general practitioners in rural areas which has been identified as needing development. This complements work recently announced by my colleague the Hon Damien O’Connor to increase support for rural midwives. 
Jo Goodhew 
: What progress has the Minister made towards funding rural immersion experience for medical students in an attempt to address the general practitioner workforce crisis? 
Hon Dr MICHAEL CULLEN 
: As I indicated this very substantial amount of increased funding is related to discussions with both the University of Otago and the University of Auckland around increasing activities in relation to the training of rural general practitioners. The University of Otago of course has been leading in that respect for a number of years. We would like to see the University of Auckland come up to at least the same level as the University of Otago in that regard. 
Ingram Report—Scope 
10.  
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
 to the  
Prime Minister 
: Does she still maintain that the Ingram report was “very comprehensive and thorough”; if not why not? 
Rt Hon HELEN CLARK (Prime Minister) 
: 
 Yes. 
Dr the Hon Lockwood Smith 
: What communication did the Prime Minister have with her then Minister of Immigration the Hon Paul Swain when she received the letter from whistleblower Keith Williams dated 3 August 2005 detailing Taito Phillip Field’s deal with failed asylum seeker Sunan Siriwan and stating that if Siriwan “went to Samoa for 3 months to tile Mr Field’s house” he would be given a work permit after 3 months by the New Zealand Immigration Service? 
Rt Hon HELEN CLARK 
: None. I understand that the letter was received and acknowledged by my office and sent on to the Minister of Immigration. 
Dr the Hon Lockwood Smith 
: What discussion if any did the Prime Minister have with Ministers Phil Goff and Paul Swain when the letter written to her by whistleblower Keith Williams dated 3 August 2005 not only detailed the secret agreement between Taito Phillip Field and Sunan Siriwan but also pointed out that both her then Minister of Justice Phil Goff and then Minister of Immigration Paul Swain had met Siriwan while he was working on the floor at Taito Phillip Field’s house in Samoa? 
Rt Hon HELEN CLARK 
: I have advised the member that the letter was received in my office acknowledged there and sent on to the Minister. 
Dr the Hon Lockwood Smith 
: How does the Prime Minister reconcile her statement made to the House on 30 August this year that Dr Ingram did not raise with officials a request to provide legal advice for a key witness with the statement made by the head of her department MaartenWevers to the Finance and Expenditure Committee that not only had Dr Ingram made such an approach to see whether the Crown would pay legal costs for Mr Keith Williams the original whistleblower on matters covered in the Ingram inquiry but her department head also knew that Keith Williams would not give evidence without legal support? 
Rt Hon HELEN CLARK 
: As the member is aware Dr Ingram did not make that request to MaartenWevers. He sought advice from the Solicitor-General as to whether Mr Williams’ expenses could be covered and the Solicitor-General advised that that was not normal practice. 
Dr the Hon Lockwood Smith 
: Has the Prime Minister made any attempt to discover why her former Minister of Immigration the Hon Paul Swain made—according to information released under the Official Information Act—absolutely no attempt whatsoever to discuss with his Associate Minister Damien O’Connor issues relating to Taito Phillip Field’s involvement with failed asylum seekers after those issues were raised with the Hon Paul Swain on more than one occasion? 
Rt Hon HELEN CLARK 
: Frankly I have not. This matter was inquired into thoroughly by Dr Ingram and he found that the Ministers had acted properly. 
Dr the Hon Lockwood Smith 
: I seek leave to table a document released under the Official Information Act from the Minister of Immigration that points out that the former Minister of Immigration the Hon Paul Swain made no attempt—or at least there is no record whatsoever of his making any attempt—to communicate to his Associate Minister the issues he knew of surrounding Taito Phillip Field. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Nutrition—Children's Health 
11.  
SUE MORONEY (Labour) 
 to the  
Minister of Health 
: What progress has been made in improving the nutrition of New Zealand children? 
Hon PETE HODGSON (Minister of Health) 
: 
 Further progress was made just yesterday with the Labour-led Government signing an agreement with Coca-Cola Amatil and Frucor Beverages Ltd to remove all full-sugar fizzy and energy drinks from secondary schools by 2009. This agreement takes 1.1 million litres of full-sugar beverages out of schools over the next 3 years. 
Sue Moroney 
: How does yesterday’s agreement position New Zealand internationally on the issue of nutrition in schools? 
Hon PETE HODGSON 
: New Zealand can once again call itself a world leader in the fight against obesity. Yesterday’s agreement is the first in the world to be negotiated directly between Government and industry leaders. I thank Coca-Cola and Frucor for their leadership and I hope others in the food industry will be similarly inspired to act. 
Sue Kedgley 
: I seek leave to table a press release by the Obesity Action Coalition expressing its disappointment that the Minister has not followed his colleagues in France and the United Kingdom by removing all fizzy drinks rather than allowing diet fizzy drinks to remain in vending machines in all schools in New Zealand. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Sue Kedgley 
: I also seek leave to table a press release by the Dental Association expressing its disappointment that Diet Coke will allow dental hygiene to be undermined in our schools. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Asia—Trade Opportunities 
12.  
MARK BLUMSKY (National) 
 to the  
Minister for Economic Development 
: Is he satisfied that by showcasing trade opportunities for New Zealand exporters in Hong Kong China and the wider North Asia region he is on target to meet his objective of increasing exports to the region by $25 million over 3 years now that 1 year has passed? 
Hon TREVOR MALLARD (Minister for Economic Development) 
: 
 Yes. We are on track to achieve the targeted net economic benefit of $25 million to the New Zealand economy. 
Mark Blumsky 
: Does the Minister believe that his Government has the skills to oversee its multimillion-dollar retail investment in Hong Kong the New Zealand Focus centre when feedback from many of the suppliers states that sales have been negligible that inquiries from China have been minimal and that a significant number of those suppliers have given up and removed their products from the store after only 1 year of operation? 
Hon TREVOR MALLARD 
: I can confirm that a number of firms that have graduated from the organisation now have good channels into China and no longer use it as a result of the very good start they have had. I also note that this member’s mate missed out on the contract and has been whingeing ever since. 
H V Ross Robertson 
: Is the Minister aware of any other export initiatives that might be of benefit to New Zealand exporters? 
Hon TREVOR MALLARD 
: Yes I am. This Government is investing $33.75 million to increase New Zealand’s export capacity for Export Year 2007 which is something that has been welcomed by everybody but the National Party. 
Mark Blumsky 
: Why did New Zealand Trade and Enterprise appoint Extra Rations Ltd to run the Government retail store in Hong Kong the New Zealand Focus centre and give it $1.3 million per year as well as $1.4 million to establish the store when that organisation was ranked last in New Zealand Trade and Enterprise’s evaluation in the category of retail experience; and has he been satisfied with Extra Ration’s performance? 
Hon TREVOR MALLARD 
: I have not been satisfied with its performance but I will point out to the member that it topped its evaluation which was independent and it beat his mate’s firm hands down. 
Mark Blumsky 
: Why when New Zealand Trade and Enterprise drew up the criteria for retail manager for the Government retail store in Hong Kong as well as including criteria such as long-term strategic vision and management capability was there not a criterion related to being just too busy when that was used as the reason that the retail manager of Extra Rations so loudly lauded by the Minister has just quit after barely 1 year in the job—being too busy to do the job? 
Hon TREVOR MALLARD 
: The thing I know is that that company won an evaluation. It beat the company that that member used to be a director of and he should stop whingeing about it. 
Mark Blumsky 
: Did the Government take into account when it selected the retail product for its retail store in Hong Kong the market prices for the product it selected when for example a whole shelf in the store is dedicated to noodles costing HK$30 a pack when similar noodles can be bought in neighbouring stores for only HK$5; it is a bit like coals—or should I say noodles—to Newcastle? 
Hon TREVOR MALLARD 
: Given the changes that have happened opposite it is very clear that members know nothing about value added. 
Madam SPEAKER 
: Members will be leaving the Chamber for the rest of the day unless they are quiet. The Minister may have thought he addressed the question but he was a bit obscure for the rest of us. Would he please answer the question. 
Hon TREVOR MALLARD 
: Unlike members opposite given their recent changes we recognise added value. 
Hon Dr Nick Smith 
: I raise a point of order Madam Speaker. The answer you had from the Minister was exactly the same choice of words that you previously ruled did not address the question. It was a very serious question about how marketing noodles in Hong Kong might help New Zealand’s trade interests and the Minister should have to justify that. 
Madam SPEAKER 
: Having had time I understand now what the Minister was trying to say. He is being subtle; it would be easier if he could be clearer. Would the member please spell it out in words of one syllable for those members in the Chamber who cannot understand the answer. 
Hon TREVOR MALLARD 
: It is better for New Zealand to have high-value goods being sold and to have additional profits. That is called value-adding which is the opposite of what has happened in the National Party where a useless leader has been traded in for one who is even worse. 
Madam SPEAKER 
: That was not necessary. 
Mark Blumsky 
: Was the new company that is replacing Extra Rations to run the Government retail store in Hong Kong New Zealand Products Hong Kong Ltd one of the original three companies shortlisted by New Zealand Trade and Enterprise; if not having just replaced Extra Rations why was no contract tendered for that position—the Minister is obviously very unaware of his favourite Extra Rations not being now the operator for this store? 
Hon TREVOR MALLARD 
: I am aware; I told the member earlier that I was not satisfied with its performance. That was one of the reasons it went. 
Urgent Debates Declined 
Draft Energy Strategy—Release 
Madam SPEAKER 
: I have received a letter from Gerry Brownlee seeking to debate under Standing Order 380 the release of the Government’s draft Energy Strategy. The announcement by the Minister of Energy David Parker of the draft strategy is a particular case of recent occurrence involving ministerial responsibility. However under Standing Order 380(2)(c) for the Speaker to allow debate the matter must also require the immediate attention of the House. According to Speaker’s ruling 165/4 there must be an element of urgency to warrant the business of the House being set aside. The announcement of the Minister of Energy makes it clear that a series of long-term programmes are being developed. Submissions have been called for on the draft strategy and will close on 31 March 2007. The Minister has indicated that strong input is required to finalise and implement the strategy. The outcome is not yet clear. The matter raised is an important one and there will undoubtedly be other parliamentary opportunities to discuss the finalised strategy as decisions are taken in 2007. In the circumstances there is no need for an urgent debate on the subject today. The application is accordingly declined. 
Valedictory Statement 
Dr DON BRASH (National) 
: 
 Today I come to the end of my parliamentary career just 4½ years after it began. I well remember telling my then press secretary at the Reserve Bank Paul Jackman that I was going to resign from the Reserve Bank to seek election in the 2002 election. He told me that he had never envied me my job as Governor of the Reserve Bank but he envied me the chance of being a member of Parliament. “Being a member of Parliament” he said “is a very rare privilege perhaps the highest privilege that your countrymen can confer on you. I envy you.” 
I agree with him. It has been a great privilege. I admit that initially I found it a bit of a shock. I recall shortly after arriving in this august institution telling my loyal secretary Anne Small that I was going off for half an hour to get my hair cut. “Have you got leave from the whips?” she said. When I was ranked third in the caucus and given responsibility for the finance portfolio I had this dopey notion that my office would be somewhere close to that of the leader when it was of course miles away in the outer reaches of the National Party empire. It took me a little while to learn how offices were allocated. 
But I have had a fantastic opportunity: an opportunity to meet people all over this remarkable country from all walks of life from every cultural and religious background; to visit some quite extraordinary companies and organisations doing things about which all New Zealanders should be very proud; to meet with and gain respect for politicians of all parties in this House—people like Peter Dunne Jim Sutton Tariana Turia and Rodney Hide—and although I disagree strongly with many of their policies I respect the ability of both Helen Clark and Michael Cullen. I will be eternally grateful for the opportunity I have had. 
I have had a lot of fantastic opportunities during the course of my career to date: the opportunity to work on the problems of economic development with Robert McNamara and Lester Pearson; to contribute to the development of a modern money market in New Zealand in the 1970s; to chair the committee of three that designed our GST and other committees that helped to make the New Zealand tax system one of the most efficient in the world; the opportunity while at the Reserve Bank to put on our banknotes four remarkable New Zealanders—Ed Hillary Kate Sheppard Apirana Ngata and Lord Rutherford—and the opportunity to reduce inflation from the double digits of the 1980s to less than 3 percent in the 1990s. 
But I resigned from the Reserve Bank at the end of April 2002 because I was deeply concerned about where the country was getting to—or perhaps more accurately—not getting to. Keeping inflation under control was very important but it was not enough to lift living standards and prevent the exodus of tens of thousands of Kiwis across the Tasman and across the world. Keeping inflation under control was not enough to improve the quality of our school system and prevent a quarter of our children coming out of a decade of schooling barely able to read write or do basic arithmetic. Keeping inflation under control was not enough to get hundreds of thousands of people out of the poverty trap that the welfare system had become. Keeping inflation under control was not enough to fix the hospital system and give all New Zealanders access to the kind of health care they need. Keeping inflation under control was not enough to keep New Zealanders safe from those who would prey on them and their property. Keeping inflation under control was not enough to ensure that all New Zealanders regardless of race are treated equally under the law. And those are the things that desperately needed to be done. 
Looking back over the last 4½ years I obviously have some regrets. I never made it to Government. I never changed a single law. I regret that my views on the Treaty of Waitangi were misunderstood by many as an attack on Maori instead of a serious attempt to deal with issues that if not dealt with effectively can hugely damage the future of both Maori and non-Maori New Zealanders. I regret that my views on the urgent need for reform of the welfare system were misunderstood as an attack on those who depend on that system instead of a serious attempt to free hundreds of thousands of New Zealanders from the shackles of dependency. 
I made some mistakes like sending a letter to the dean of Christchurch Cathedral declining his invitation to speak and making disparaging remarks about Helen Clark’s attitude to religion and the institution of marriage. Although I did not personally write that letter I did sign it and I take full responsibility for it. Given all the circumstances that was not one of my most brilliant letters. Or like confusing friend and foe alike by voting for the first reading of the civil union legislation and against the second reading on the grounds that such a major change in our social institutions should require ratification in a referendum while making it clear that I would vote for civil unions in such a referendum. Or like remaining silent when the National Party caucus decided under previous leadership that had National been in Government we would have supported Australia the United Kingdom and the United States in the invasion of Iraq even though I had serious misgivings about the wisdom of that course of action. 
But I also look back with considerable satisfaction. Democracy works best when the Government is held to account by a strong Opposition. When I arrived in Parliament in July 2002 the National Party caucus was a much diminished and rather demoralised group of 27. Following last year’s election the National Party caucus was a greatly invigorated team of 48 enormously talented and highly motivated people with a huge diversity of backgrounds. New people like Chris Finlayson Tim Groser Nathan Guy Jonathan Coleman Jo Goodhew Kate Wilkinson and Jackie Blue the gene pool from which John Key will be able to choose a Cabinet is as good as that enjoyed by any Opposition party in many a year. Of course last year’s National Party vote the best in any election since 1990 was the work of many of my colleagues and of the party organisation. It was certainly not solely my effort but I believe I can share the credit. 
I also take satisfaction that I have made some contribution to the public debate about the economy. There is now a widespread recognition that we continue to fall behind Australia—not rapidly but relentlessly—and that 7 years after Helen Clark talked about raising New Zealand back into the top half of the OECD within a decade we have not moved up one rung on that ladder. There is even widespread acceptance that reducing the tax burden on hard-working New Zealanders needs to be one part of a package of measures to fix this situation. 
I take some satisfaction that I was able to advance the discussion on relations between Maori and non-Maori in New Zealand and I managed to convert the town of Orewa from a place to a date. So people no longer talk about north of Orewa or south of Orewa but about pre-Orewa and post-Orewa. Almost everybody now pays at least lip-service to the principle that there should be one law for all New Zealanders and that the Treaty of Waitangi established the basis for a single sovereign State providing everybody with the same rights and privileges—not some kind of dual sovereignty. Almost everybody now accepts that having the resolution of Treaty settlements drag on and on decade after decade is seriously damaging to race relations in New Zealand and encourages Maori New Zealanders to believe—against all the evidence—that their economic well-being depends on the size of a compensation cheque. 
Most people now accept that there is no longer any justification for separate racially based electoral rolls with the discussion focused on when rather than whether those separate rolls should be abolished. And most people recognise that affirmative action of the kind that sees some New Zealanders getting access to university courses with lower grades than those required of other New Zealanders is demeaning and patronising and engenders anger and ill will on the part of those not so preferred. 
When I was approached to stand in the 2002 election one of the people I talked to was David Caygill. He encouraged me to stand. He warned me that National was likely to lose the 2002 election but he said that even in Opposition I might have some influence on the national discussion on the national debate. And so it has proved to be. 
I even take some satisfaction on issues where I demonstrably failed. Shortly after entering politics my son Alan persuaded me to read Lynley Hood’s book  
A City Possessed 
 that tells the story of the conviction of Peter Ellis in the early 1990s. I found it profoundly disturbing. Of course I do not know whether Peter Ellis is guilty but Lynley Hood’s book raises very serious questions about the conviction. I take satisfaction that Katherine Rich and I were able to mount a substantial petition calling on the Government to set up a commission of inquiry into the matter and to have it signed by 2 former prime ministers 11 law professors 11 Queen’s Counsel and a great many prominent New Zealanders—including members from most of the parties in this House. We failed to get an inquiry established; Peter Ellis remains convicted. But hopefully there is at least some additional awareness of the dangers of convicting on the basis on which Peter Ellis was convicted. 
I want to thank all of those who have helped me over the last 4½ years: my parliamentary colleagues and especially my deputy Gerry Brownlee my parliamentary adviser Murray McCully and all of those who supported me through thick and thin; my secretary Anne Small; those in the National leader’s office especially Richard Long and Wayne Eagleson my chiefs of staff before and after the election; my special assistant in the 2 years prior to the election Bryan Sinclair; senior press secretaries Jason Ede and Kevin Taylor; those who helped with parliamentary questions Phil De Joux and Sarah Boyle; and those who helped to deal with mountains of letters—and yes some emails—especially Janie Young. My thanks go to all those other staff who have helped me: security guards messengers telephonists librarians VIP drivers Bellamy’s staff and many more. 
Let me acknowledge here the tremendous support I received from the National Party’s board especially president Judy Kirk and general managers Steven Joyce and Greg Sheehan. I thank John Ansell for his award-winning billboard and TV advertising campaign. My thanks go to all the many thousands of National Party volunteers all over the country who collect subs run raffles distribute pamphlets put up billboards and contribute to the policy development process. I am not sure whether I want to thank members of the press gallery—sometimes I think I do and at other times I am not so sure. But I certainly respect most members of the gallery and I have developed a lasting friendship with several. 
Special thanks must go to my wife Je Lan to my family—my children and my sister—and to my close friends. Only the families of those who have been in the heat of the political battle know just how much pain and how much stress families suffer as a result of the careers we in this House freely choose. Without their unstinting support through some pretty difficult times I would not have survived—I say thank you to you all. 
 With just 4 million people New Zealand is not a large country but it is a great country. It is a country of incredible natural beauty a country where it no longer feels awkward to sing the national anthem in two languages a country where the son of a radical Presbyterian minister and a milliner can grow up to be the leader of the National Party a country where I can watch my 13-year-old Eurasian son playing happily with a dozen of his friends and count amongst them two Chinese one Korean one Sri Lankan one Eurasian six Pakeha and the grandson of a Maori activist—all of them New Zealanders. It is a country that has produced people who have succeeded on the world stage such as Ed Hillary Peter Blake Katherine Mansfield Ernest Rutherford Kiri Te Kanawa and Peter Jackson. It is a country where we do not need to bribe public officials to get a fair hearing. It is a country where we absolutely take it for granted that an election will be held roughly every 3 years and that a Government will be elected without bloodshed and with the army safely in its barracks. 
As Chris Trotter remarked after a pleasant dinner while observing the Whangaparaoa Peninsula a few years back: “New Zealand is an unqualified success. We are free we are at peace and we are rich in all the things that matter.” All that is true. But it is also true that this great country is at risk. 
At a time when a trained mind has never been more important for earning a decent income than it is today more than 40 percent of adult New Zealanders are unable to read and write well enough to perform adequately in a modern economy with more illiterate people coming out of our schools every year. At a time when Government spending on health care has never been higher—either in dollars or as a share of the national cake—we have hospitals up and down the land asking those with serious heart conditions to wait and wait. At a time when successive Governments have made a serious attempt to right the wrongs of the past we have a minority of Maori New Zealanders determined to assert a view of the Treaty utterly at variance with the needs of a modern democratic society where every person is equal under the law with nobody more equal than anybody else. At a time of near record export prices we are still spending more overseas than we are earning overseas thereby adding $40 million every day to our already huge external debt. At a time of almost unprecedented buoyancy in the domestic economy we have some 300000 adults of working age—to say nothing of their tens of thousands of children—living on a benefit and on incomes well below those in Australia in almost every walk of life. 
If as seems entirely possible we lose an increasing proportion of our most able to the bright lights of Sydney London and New York there must be a serious danger that the pleasant society that Chris Trotter rightly praised will gradually unwind—with a whimper rather than a bang but unwind nevertheless. I want something much better: a society where every child is loved where every child has a good education where every person is free to pursue his or her dreams—provided they do not cause nightmares for others or expect other people to fund their dreams—where the State protects the natural environment and provides security for all and where all can live at peace irrespective of race or religious belief. 
I do not mean to imply that the dangers we now face are solely the responsibility of the present Government. The dangers have been growing for some years. But I am absolutely satisfied that the track we are presently on will not deal with those dangers. We need to re-establish the principle of personal responsibility reaffirm the importance of family and community and turn our back on the politics of envy—where the party that wins is the one that can take $25000 off a hard-working Kiwi and spread it around to win the maximum number of votes among those who are not so hard-working. I am optimistic about New Zealand and about New Zealanders. I have no doubt that when the issues are clearly explained they will support the policies needed to ensure that New Zealand once again becomes a place to which Kiwis want to return. 
Let me end by wishing my successor John Key and his team every success in promoting those policies that will be of lasting benefit to all New Zealanders. Thank you. 
Appropriation (2005/06 Financial Review) Bill 
First Reading 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Appropriation (2005/06 Financial Review) Bill be now read a first time. 
Bill read a first time. 
Therapeutic Products and Medicines Bill 
First Reading 
Hon ANNETTE KING (Minister for Food Safety) 
: 
 I move  
That the Therapeutic Products and Medicines Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Government Administration Committee that the committee report finally to the House on or before 30 April 2007 and that the committee have the authority to meet at any time while the House is sitting except during oral questions during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 192 and 195(1)(b) and (c). 
The bill is an omnibus bill. Parts 1 to 5 establish a new joint trans-Tasman regulatory scheme for the regulation of therapeutic products. Parts 6 and 7 repeal the Medicines Act 1981 and regulations made under that Act and replace them with updated legislation for controls on medicines such as the scheduling of medicines licensing of pharmacies and prescribing rights that apply after medicines have been approved for the market and are in the domestic supply and distribution chain. My colleague the Hon Pete Hodgson will speak to the new domestic medicine provisions. 
In moving the first reading I would like to focus on the key aspects of the proposed joint regulatory scheme. This is clearly very detailed legislation but underpinning it are some very simple very clear and very significant principles. These principles include the protection of public safety; the creation of a world-class organisation of international standing effectiveness and credibility; and the protection of New Zealand sovereignty and norms of parliamentary accountability. 
I refer now to the agreement and joint scheme. On 10 December 2003 New Zealand and Australia signed an agreement committing the two countries to establishing a joint agency for the regulation of therapeutic products. This signing stemmed from work that began in the 1990s under the National Government. The primary objective in concluding the agreement was to safeguard public health and safety by establishing a world-class agency to regulate therapeutic products. The agreement also aims to reduce barriers to trans-Tasman trade and to enhance Australia’s and New Zealand’s profile and influence internationally. The bill I am bringing to the House today gives effect to that agreement. 
Early next year the Australian Government will release an exposure draft of its own implementing legislation. The preparation of the Australian bill has been undertaken in conjunction with the development of this New Zealand bill with the intention that both bills should ultimately be passed by the respective Parliaments at much the same time. This gives me an opportunity to acknowledge the commitment and assistance I have received from the Australian Parliamentary Secretary to the Minister for Health and Ageing the Hon Chris Pyne in this key initiative for both countries. 
This is not the first time this House has considered the agreement and the scheme it anticipates. There have been two Health Committee reports that have discussed the agreement an initial inquiry in late 2003 and a subsequent examination of the agreement following its referral to the Health Committee by the chairperson of the Foreign Affairs Defence and Trade Committee. The Health Committee recommended that the proposed therapeutic products bill cover a number of matters and I am pleased to record that the bill addresses the matters raised by the committee particularly in respect of governance and accountability. 
The joint regulatory scheme will cover the regulation of the manufacture supply import export and promotion of therapeutic products; the setting of standards in relation to the quality safety and efficacy or performance of therapeutic products; post-market monitoring of therapeutic products; and enforcement of the joint scheme’s requirements. Responsibility for regulating aspects of the therapeutic products covered by the joint scheme will be transferred from Medsafe to a new agency the Australia New Zealand Therapeutic Products Authority. A two-member ministerial council will be established comprising the New Zealand Minister of Health and the Australian Federal Minister of Health and it will be charged with the overall accountability of the performance of the authority. Each Minister will be accountable to his or her own Parliament just as the Minister would be if the body were a domestic body. Reporting to the council will be a five-member board appointed by the council and accountable to it. 
In terms of international and trans-Tasman significance in a broader context the establishment of the joint regulatory scheme and agency is a flagship in our relationship with Australia and the development of a single economic market. The new scheme will be a significant enhancement of closer economic relations with Australia and of trans-Tasman regulatory cooperation consistent with the CER Agreement of 1983 and the Trans-Tasman Mutual Recognition Arrangement agreed in 1996. The Australia New Zealand Therapeutic Products Authority will be the first example of a true trans-Tasman authority. Contrary to what I believe is deliberate misinformation peddled by Green MP Sue Kedgley on Radio New Zealand today the new authority will not be an offshore entity based in Australia; the new authority will be an agency based both in New Zealand and in Australia with head offices in Wellington and Canberra. The new authority will replace Medsafe in New Zealand and the Therapeutic Goods Administration in Australia. 
The establishment of the authority will see New Zealand’s profile amongst the international therapeutic community increase. This will facilitate the export of therapeutic products beyond Australia. It will offer more to other key regulators in terms of information sharing and will act as a potential partner in mutual recognition agreements with other key regulators such as those in the US Canada and Europe. Greater regional and global influence over the development of international regulatory standards and harmonisation initiatives will also be provided. The new authority will regulate therapeutic products consistent with international best practice which includes risk-based regulation of medical devices and complementary medicines. The joint approach aims to enable the two countries to combine their resources to ensure that the health and safety objectives are met while minimising cost to businesses and the Government. The joint scheme will also enable information sharing and an enhanced ability to retain and develop specialist technical expertise. 
In the negotiations on the detail of this scheme and in the drafting of this bill issues have obviously arisen that have required Australia and New Zealand to reach agreed positions that acknowledge and protect the interests of both countries. One example of the success of this has been in arriving at a governance and accountability model for the authority that successfully accommodates the core requirements of both the New Zealand Crown Entities Act and the Australian equivalent the Commonwealth Authorities and Companies Act 1997. 
Another central issue for both countries has been to recognise and preserve the sovereignty of each country. In establishing the new authority neither country wanted to repeat models that have been used in the past but found to be unsatisfactory in respect of sovereignty. This model is a clear and deliberate departure from the model of Food Standards Australia New Zealand whereby New Zealand has a voice equal to the individual Australian states—that is one voice in 10. This was a scheme put in place under a National Government. 
Drafting the therapeutic products provisions of this bill has required ongoing detailed negotiation with Australia. Key to this was the recognition that it is fundamental that both countries’ bills be drafted in such a way as to ensure as near as possible identical outcomes in a seamless scheme. The bill has been designed to accommodate as far as possible the two country’s criminal justice systems and bodies of law but where necessary New Zealand has taken a differential drafting approach. The bill accommodates some differences in the domestic settings of Australia and New Zealand in areas such as disallowance judicial review and merit reviews. However there are new features including tiered offences and so on. The bill introduces a tool kit of lower-key options that provide an opportunity to avoid being taken to court—such things as for example enforceable undertakings and non-compliance notices. 
There is too much detail in respect of complementary medicines to be able to cover today but I do want to touch specifically on the place of complementary medicines in the scheme. There has been a lot of uninformed and in some cases deliberately misleading rhetoric about the place of complementary medicines and medical devices in the scheme. With this bill now entering Parliament I look forward to seeing that debate move to the constructive environment of the select committee and this Chamber. The regulation of medical devices and complementary medicines in New Zealand is minimal. The lack of pre-market regulatory control on medical devices or adequate control both pre-market and post-market on complementary medicines has been a significant gap in the New Zealand regulatory framework. Internationally we are well out of step in both these areas. I recognise that complementary medicines are a popular choice for many consumers and are often perceived to be a safe and natural alternative to conventional medicines but they are not risk-free. It is important that consumers are protected from complementary medicines that are not safe and are able to make an informed choice about the type of medicine they wish to use. The scheme will enhance public confidence by subjecting medical devices and complementary medicines to a regulatory scheme that provides assurance about safety and quality. 
The main risks with the use of complementary medicines are well documented in literature. These can include harmful ingredients adulterated products poor quality control during manufacture interactions with other medicines—for example interactions between St John’s wort and several prescription medicines—and inadequate information to guide safe use. The joint scheme for the first time in New Zealand introduces risk-based regulation of complementary medicines as a subset of therapeutic products using an approach that will enable product sponsors to gain market authorisation by self-certification against the scheme’s requirements. This will enable minimum regulatory requirements to be applied to low-risk products such as complementary medicines and more stringent requirements to be applied to high-risk products such as new prescription medicines. 
This bill does not include rongoaMaori. There is no regulation on products prepared in a traditional way for a patient such as rakaurongoa. Commercialisation of rongoaMaori products for mass-market supply however would be regulated by the authority for obvious safety reasons. 
I commend this bill to the House. There is much in it. It now goes to a select committee. Can I just conclude with one remark: contrary to the remarks made by Sue Kedgley today the managing director does not have the power to make rules. That is one more piece of misinformation that has been peddled on this bill over many years. 
Hon TONY RYALL (National—Bay of Plenty) 
: 
 The National Party opposes this legislation. This regime will be costly restrictive and is unnecessary. We are not prepared to jeopardise the viability of hundreds of small businesses nor the choices of thousands of consumers by supporting this legislation. This legislation is a move that will cost industry and cost consumers. The Australian health products industry is one of the most highly regulated in the world and applying its rules here will serve only to increase the cost of products reduce consumer choice and hurt many businesses. 
There should be regulation of natural health products but not this bureaucratic nightmare. This is a costly regime. We know it is costly because the only way the Government has been able to garner parliamentary support for this bill is to offer a 50 percent subsidy on those costs. If this were a low-cost regime providing the most efficient form of regulation in New Zealand then why is the Government being forced to offer a subsidy in order to get the parliamentary votes from New Zealand First and United Future to get this legislation through? 
Hon Annette King 
: There’s a 50 percent subsidy on animal products which your Government passed. 
Hon TONY RYALL 
: Annette King might pipe up there but the fact is the only way this Government has been able to garner support is because of its appalling performance in offering this subsidy. 
But I will tell members the most appalling performance here and that is the performance of Annette King as the negotiating Minister. I tell the Government that there is no point in harmonising with Australia if it is to the cost and detriment of New Zealand. Annette King has destroyed the opportunity to have a cross-party approach to the regulation of medical devices pharmaceuticals and natural health products in this country. She completely ignored and denied the recommendations that repeated Health Committee inquiries and reviews have made. She did not consult with any other party in this House. She has treated this bill as if it were a health bill that she could push through just on the sheer weight of her huff and bluff and numbers in the House. The fact is she did not have the support. She had the opportunity to work with other parties in this House to get a regime that would be low cost and would do the job for New Zealand but what did this arrogant Minister do? She ignored it. 
This is how bad it is. In trying to justify her consultation and in trying to justify the fact that she consulted with other parties do members know what Annette King claimed? She said that giving a set of overheads to Richard Worth and another member of our caucus was consultation. She said she consulted with National because she gave two members of our caucus some overheads. That is what she said is consultation. The fact is Annette King has destroyed the opportunity for a cross-party approach to develop rules and regulations that would be good for New Zealand. I cannot believe that the Prime Minister allows Annette King to negotiate such a deal that will be costly restrictive and unnecessary for New Zealand. 
We want to have closer working relationships with Australia but we are not going to do it at the cost of New Zealand business and New Zealand consumers. That should have been the bottom line. That is what we told Annette King and that is why she will not get any support for this bill from National. She missed the opportunity to work with other parties to get a cross-party approach that would reduce costs reduce restrictions and provide benefits to New Zealand. There is no point in harmonising if it costs New Zealand. That is why there will be no support from National for this trans-Tasman therapeutic bill. We are opposing this bill because it is bad for New Zealand. It is selling out the interests of thousands of small consumers in New Zealand. It is selling out the interests of hundreds of businesses. 
I tell the Minister that pharmaceutical companies and natural health products companies all around New Zealand are contacting parliamentary parties to say “We oppose this legislation.” 
Steve Chadwick 
: The member is silly. What a retrograde step. 
Hon TONY RYALL 
: Thousands of New Zealanders are coming forward. I tell Mrs Chadwick the next mayoral candidate for Rotorua what is silly. What is silly is that Labour has a Minister who had the opportunity to bring together a sensible option for the New Zealand Parliament of low cost low restriction and focus on the necessary. Through her arrogant disregard and her poor negotiating skills we have a plan being put to the country that will not provide what the Government says it will. 
Hon Annette King 
: Yes it is. 
Hon TONY RYALL 
: It is not. It will be costly and restrictive and it is completely unnecessary as it is proposed. It will jeopardise many hundreds of small businesses and it will restrict the choices of thousands of New Zealanders. 
I have to tell the Prime Minister that it is a very dangerous thing to put Annette King in charge of this bill—a very dangerous thing. Annette King has not performed at all well in bringing a deal that Parliament can support. She has bought off United Future and bought off New Zealand First with this 50 percent subsidy. Do members know that people are now starting to say that the ministry is beginning to be uncertain about what this 50 percent subsidy counts for. I bet members that United Future and New Zealand First members do not know that. There is now significant debate about what the 50 percent subsidy will actually cover. We have to remember that this is the party about which John Tamihere said it can change a word here and change a word there to change the entire intent of what is being proposed. I tell New Zealand First and United Future members to be wary of anything that Annette King is telling them. 
This Government is missing an important opportunity to provide a regime in New Zealand that is low cost effective and designed to fix identifiable problems. Where is the Government on that? It is nowhere. Where is the Government on addressing the concerns stated repeatedly by the Health Committee about compliance costs? Where is the Government on addressing the concerns repeatedly stated by the Health Committee about the process and recognition of costs? 
Darren Hughes 
: Name one. 
Hon TONY RYALL 
: I am saying that to the Government. Name one part where it fixes the concerns; name one part of the concerns that it has fixed when it comes to this regime. We think that the Government should take on board the repeated criticism by the Health Committee and deal with compliance costs and the issues that have been raised. 
This bill comes to this House on the back of a sordid little deal with two little parties whereby a Government that says this is a low-cost regime is being forced to subsidise it by 50 percent in order to try to garner parliamentary support. That is not a low-cost regime. It will interfere with the choices of thousands of New Zealanders. This is a Government that believes that the best way that consumers can care for themselves and take responsibility for their care is to delegate all that authority and control to the Government. That is what Government members think. They think that the best way New Zealanders can take responsibility for themselves is to delegate control and authority to the Government. 
We want a health system that encourages New Zealanders to take responsibility for their health and to exercise control over their decisions about any supplements they want to take. We do not want the Government stepping in over-regulating and taking control of those decisions that thousands of New Zealanders exercise every day. Every day New Zealanders are taking supplements. Every day they are trying to protect and improve their health. The National Party says that New Zealanders do not need to have prices go up and they do not need to have unnecessary and restrictive regulation on those choices. 
We want New Zealanders to know that the regime is low cost not restrictive and that their choices will be protected. But this legislation does the complete opposite. That is why as I know the Australians will know this Opposition has repeatedly opposed this legislation and will continue to do so. The Government has missed the opportunity to negotiate a deal that New Zealanders could be proud of because frankly Annette King would not listen would not talk to anyone and would not consult. She was captured by a few bureaucrats and that is why we have a piece of legislation that New Zealanders know is not in the interests of this country. This bill is a sell-out and it will cost New Zealand business and consumers. 
Hon PETE HODGSON (Minister of Health) 
: 
 That was a bad call by the National Party. With the Closer Economic Relations now over 20 years old and with the building blocks of a single economic market between Australia and New Zealand being put in place one by one I regret that a major political party in this Parliament would turn its back on this opportunity to further cement the relationship between our two countries despite the National leader meeting with the Prime Minister of Australia just last week. It was a bad call. It was short-term politics. It was strategically hollow. It was sad it was shameful and it is straightforwardly wrong. 
Then because of the proclivities of National’s health spokesperson Tony Ryall dropped to personality politics for most of the speech. It was not about the future of our health system not about the future of our medicines regime not about the future of the Australia - New Zealand relationship. It was personality politics only. He misrepresented he misquoted he was misconstruing he was mischief. That is all. There was no policy just short-term political mischief. He knows it was a junk speech. It was a bad call. 
I would like to acknowledge the work of my colleague the Hon Annette King Minister of State Services on this Therapeutic Products and Medicines Bill and thank her for her tireless efforts on progressing the proposed joint scheme with Australia and for her efforts to involve all political parties in this House—with greater success in some areas than in others. 
I will focus my comments on Parts 6 and 7 of the bill which are the parts that relate to New Zealand only. I will also comment on direct-to-consumer advertising of prescription medicines. The bill updates the offence provisions in this country to ensure that they are consistent with the proposed enforcement regime for the joint scheme. Parts 6 and 7 contain similar search and seizure provisions as do those in Parts 1 to 5. The bill retains the ability for officers under the Medicines Act and for the police to obtain a search warrant in respect of offending against the Medicines Act whether or not the specific offence features a term of imprisonment. 
A new continuum of penalties is introduced to reflect the seriousness of each specific offence and to make penalties comparable with other modern legislation in this country. Penalties range between a fine of $5000 for an individual up to a fine of $250000 for a body corporate and 12 months’ imprisonment for serious offending. The bill includes two new offences one to prohibit the prescribing of prescription medicines by individuals who are not prescribers and another for persons who do not dispose of medicines in the manner prescribed in regulations made under the legislation. 
The bill confirms the Government’s policy on pharmacy ownership. It incorporates recent reforms to the licensing regime for pharmacies made to the Medicines Act in September 2004 in conjunction with the passage of the Health Practitioners Competence Assurance Act 2003. The bill requires operators of community and hospital pharmacies to be licensed by the Director-General of Health. Ownership of pharmacies is restricted to pharmacists who must hold at least a 51 percent share of a pharmacy. Companies may also operate a pharmacy as long as a pharmacist or pharmacists own 51 percent or more of the company’s share capital. Neither a pharmacist nor a company may hold a majority interest in more than five pharmacies. Pharmacies legally carrying on business when the bill comes into force will be deemed to have a licence to operate. 
It is proposed that xenotransplantation be covered by the joint scheme but until new controls are in place to govern the safety of the practice regulation needs to be covered by the Medicines Act. The provisions will expire on 31 December 2008 allowing sufficient time for the new controls to be in place under the proposed joint scheme. The bill does however provide for this date to be extended by Order in Council should the need arise. It is important that there is no gap around this challenging technology. 
The bill continues to allow direct-to-consumer advertising. The Government’s preference was to ban direct-to-consumer advertising. However it is clear that there is not the necessary support within Parliament for that to happen at this point. Retaining direct-to-consumer advertising means that advertising and promoting prescription medicines direct to consumers will continue to be permitted in New Zealand. The Government is concerned about direct-to-consumer advertising and its effect on the appropriate use of medicines. I am assured that under a proposed Australia New Zealand Therapeutic Products Authority advertising code advertisements for medicines will need to meet standards for content including that consumers be provided with balanced and truthful information. This will ensure that consumers are better informed about the benefits and risks of medicines and therapeutic health treatments so that they can make better informed choices. 
Feedback on this proposal will be sought when the draft advertising rule under the proposed joint regulatory scheme is consulted on. In March of this year the Ministry of Health consulted on direct-to-consumer advertising. Of a total of 115 submissions received 69 were concerned about direct-to-consumer advertising. Although direct-to-consumer advertising can provide consumers with more awareness of health conditions and treatments branded information in advertisements does not provide further benefits to consumers. Direct-to-consumer advertising can result in discussions between general practitioners and their patients becoming focused on one particular choice of treatment rather than assessing the advantages and disadvantages of all treatment options including non-prescription treatments and lifestyle changes. 
These changes to the Medicines Act 1981 along with the provisions in Parts 1 to 5 will ensure effective regulation and enforcement across the joint scheme and domestically. The result will be more modern and seamless legislation for the regulation of therapeutic products and a still closer relationship between the nations of Australia and New Zealand. 
TIM GROSER (National) 
: 
 In the light of what has already been said I think it is of some importance to work out what the difference of view about this bill is about or is not about. It is not about whether we need appropriate regulatory frameworks in place for pharmaceuticals for complementary medicines and for the other products covered by this bill. I would be astonished if there were a single member in this House who would argue that we should have an unregulated market and that we do not need appropriate regulations. It is not about that. This debate is about the level that is appropriate to fix the scale of the problem. 
Nor is this debate about closer economic relations although we have just heard a great deal along that theme from one of the Ministers. It was a National Government that initiated the closer economic relations negotiation in 1979. It was a National Government that oversaw the negotiation right throughout that process which I spent 7 years of my life on. It was a National Government that put in the 1988 review clause precisely because the Government of the day foresaw the need to continue to allow the closer economic relationship to mature to keep it up to date and to respond to the needs of the day. So it is not about who is committed to closer economic relations and who is not. The next National Government will be as committed as any Government has ever been to continuing the tradition of establishing with Australia the right type of policy frameworks to carry our two countries forward in the age of globalisation. That is not what the difference of view is about. 
The difference of view is essentially about the level of regulation required to fix a problem. It is also about how we manage—or in this particular case I would have to say mismanage—an international negotiation and the democratic processes around that negotiation. Let me tell members how we manage a negotiation properly by referring right back to the founding document for closer economic relations. What happened in that case was the most intimate connections and involvement between a group of Ministers and a group of officials on both sides of the Tasman. We established a joint working party on an inter-agency basis. Hardly a week went by without officials checking not only with their individual vote Ministers but also collectively with what was then the driving political force of the Government of the day—the Cabinet economic committee. This process of interaction between the community the political leaders chosen through the democratic process and the officials responsible for the negotiation gave us under very delicate circumstances a very workable framework. That is how one manages responsibly an international negotiation. 
What I think we have here is a perfect reflection of a sickness that is not just in the health sector but in the State sector in particular. It reflects a bureaucratic mindset a sledgehammer to crack the proverbial nut and it comes from leaving the matter over to officials and expecting that a few reports to the vote Ministers is sufficient to achieve some liaison between the people who are affected by this and the actual end product of this negotiation. 
 What we know is the following: we have in our health sector officials who are wonderful public servants and who are dedicated to the public interest. We applaud them we will always need them and we admire their commitment. But if we step back from that unquestionably fair and true assessment of the state of our health bureaucracy and look at what has happened since the year 2000 in order to understand how it is possible that we could have negotiated this enormous bureaucratic monster we just have to consider the following facts. First of all since 2000 although the number of general practitioners per 100000 New Zealanders has declined from 87 to 73 the number of managers—and I think I am using an exceptionally polite term by using that word—has increased by a fraction under 25 percent. Expenditure on their salaries has increased by 34 percent. Their total salary bill is half a billion dollars. We could build a stadium for that—not necessarily on the waterfront but possibly somewhere sensible elsewhere in New Zealand. What benefits New Zealand derives from this downgrading of the core services and the upgrading of the bureaucratic element is a very wide subject and beyond the compass of this particular bill but it is precisely that tendency that has produced the massive document here with us today. 
In case people do not understand exactly the culture that this bill comes from—the “managerialism gone mad” culture—I will quote again in case people missed it at the time what the retiring chief executive officer of the Waitemata District Health Board said on precisely the cultural problem this bill represents. Dr Crombie stated: “The amount of compliance of auditing and monitoring is gobsmacking really. It has become an industry in itself. What we are doing is demonstrating that it should be safe by showing the paperwork”—like this bill—“whereas we should be putting more of our energy into changing some of the systems.” It is exactly this mindset that has produced this bill. There are only two possibilities. One possibility is that the Ministers were deeply involved—and this bill does indeed reflect their own personal predilections and approach to policy formulation and negotiation. The other possibility is that it was done with a very light regime over the top of officials and that this was presented as a fait accompli at the end of the process. 
Steve Chadwick 
: What a strange speech. 
TIM GROSER 
: I just heard the point made about Australian officials. I have spent years working with Australian officials and with the exception of the Australian Treasury and some sections of the Australian Department of Foreign Affairs and Trade I can tell members that their mindset and regulatory frameworks are if anything more bureaucratic than the typical default option of most New Zealand public sector workers. If people do not believe me they should get hold of any publication issued by the Australian Productivity Commission and comb through its reports. There they will find abundant evidence of why our negotiators should have gone in on an inter-agency basis with their eyes wide open as to what would happen in this negotiation and of why Ministers should have been involved intimately and continually throughout the negotiation process. 
We have here a mixture of legislation that unquestionably does some useful things—let us be clear about that. But on the other hand it contains a whole lot of unnecessary overlay of sectors— 
Darren Hughes 
: Like what? 
TIM GROSER 
: —well like the complementary medicines sector if members really want to know—that is simply not required to fix the problem. Nobody has explained to the New Zealand public precisely what the problem is in the complementary medicines sector that this bill is intended to fix. What is the dimension of the problem that requires a one-size-fits-all heavy-handed approach to regulation? I personally am not a great user of natural medicines. I am rather more inclined to be a folklore sceptic I will use the phrase. 
Darren Hughes 
: Like John Key on climate change—don’t worry; you’ll change. 
TIM GROSER 
: I was deliberately doing that to set the member up. I prefer to rely on the European Enlightenment and the science that it produced. But I do recognise that those are my views. Health is a very very personal matter. We know that increasing numbers of New Zealanders hold different views from mine and we know that many of those people will deeply resent the vastly increased costs that this will impose on that particular sector once the subsidy regime has come and gone. 
I was simply astonished by the way when I heard the political fix. This is from a Government that wants to talk the talk on all occasions about reducing compliance costs and speeding up regulatory frameworks but on every occasion when we come down to the wire we find that Government members cannot walk the walk. When I found out that the fix to get this legislation through the House was a subsidy to offset the cost of implementing the scheme I simply refused at first to believe it but this is the approach we are landed with. 
I would like to see the following: if this bill is indeed enacted into legislation—which remains to be seen—as it passes through Parliament and the select committee process the National Party will be looking for signs that we can put down as a marker for the future when we can address all the cost compliance issues that unfortunately we are certain this legislation will involve. 
BARBARA STEWART (NZ First) 
: 
 I rise on behalf of New Zealand First to support the Therapeutic Products and Medicines Bill going to a select committee. This bill has had a long and complex history. The idea of a joint agency to regulate pharmaceuticals medical devices and complementary medicines has been around for over 6 years. It is not new. During this entire time—and even today—it has been a topic of hot and impassioned debate but also one where the facts have often been ignored. 
We must be clear about several critical aspects of this matter. The first is that the pharmaceuticals and medical devices industries are generally supportive of this move while the complementary medicines industry is totally divided. New Zealand First has been lobbied by both sides each urging us to support or not support this bill. We have heard from manufacturers of therapeutic goods consumers and lobby groups. 
New Zealand First has held several well-publicised concerns about the establishment of a joint regulatory agency with Australia and has worked with the Minister to have these concerns resolved. The very first of our issues was the issue of sovereignty. We were very concerned about this particular issue. We were not content to see New Zealand confined to the status of an Australian state in any regulatory regime. That is the case under Food Standards Australia New Zealand—we have only one voice whereas we should make up half of the total number of the committee. This issue has now been resolved and under the proposed regime New Zealand will have equal status with Australia. A range of checks on the new agency will be held in New Zealand hands including the ability to have the agency appear before a select committee. 
This is where much of the misinformation on this proposed agency kicks in. This is not an Australian takeover; we are assured of that. It is a genuine joint agency with New Zealanders looking after New Zealand interests and Australians looking after their interests despite the information that is being heard to the contrary. The most crucial aspect of this shift is that it has fundamentally altered the way that Australia will enter its negotiating position on joint future regulatory regimes—that is no longer will New Zealand settle for anything less than equal status. We want equal status. This is a significant shift and it is one that New Zealand First has helped to secure. 
The other issues relate to the cost of the proposed agency and the impact of this on the local complementary medicines industry. Two background matters have to form part of these considerations. The very first is that the situation of an unregulated complementary goods industry would have ended one way or another. It would not have continued. If the joint agency did not proceed then a local regulatory regime was to be implemented. Both would add costs to the industry. Both would see some products removed because they did not meet the regulatory standards. From a health and safety point of view this is vital. Consumers need to know that what is written on an ingredient label is what is actually contained in the product and at the level specified. 
The costs need to be put into perspective. The total cost of the proposed new agency for complementary medicines is around $9 million. A 50 percent subsidy has been offered which brings the cost to $4.5 million. Given that 60 percent of New Zealanders use these products—we have heard in the House even today that some people do not use them and some people do—this equates to a minimum cost per person per year. A cost of around $2 per person has been estimated which is an increase yes but not the huge increase that some people are making it out to be. This will also be phased in over 5 years; there will be time to adjust. 
We must also acknowledge that the complementary medicines industry does not appear to be unified and that the claims and counterclaims of all sides are quite exaggerated. Regulation was going to come anyway and the new agency provides a high standard of regulation at a lower cost. Some parts of the industry want to join the joint agency and some want no regulation at all which is not an option. Those companies that export to Australia and Europe have to meet equivalent standards and they are generally supportive of the joint agency. For many years the complementary products industry has been caught up in smoke and mirrors and has been fighting shadows associated with this proposed agency. At last the legislation is on the table so that it can actually be discussed. It needed to happen. 
New Zealand First has ensured that those opposed to the regime have a further chance to have their say at the select committee. This bill is not being rushed through under urgency so submitters have an opportunity to have a say. Ultimately this is a case of balancing widely different views on the way forward. For New Zealand First the achievement of a 50 percent subsidy and the protection of New Zealand’s sovereignty tips the scales in favour of supporting this bill going to a select committee so that constructive debate can begin. We look forward to the public and those most affected by this bill having an opportunity to put forward their submissions. 
SUE KEDGLEY (Green) 
: 
 I have utmost respect for the last speaker Barbara Stewart and I feel very much for her because she has opposed this legislation for many years and has been rolled by her leader. She has confirmed that the Therapeutic Products and Medicines Bill was to be debated under urgency and that because of New Zealand First it will now be sent to a select committee. 
Steve Chadwick 
: You’re hearing things! 
SUE KEDGLEY 
: That is what I heard her say and that is very interesting. The grave concerns that New Zealanders have about this legislation are threefold. New Zealanders understand that despite all the spin and all the flannel by passing this legislation we will transfer power over dietary supplements medicines and medical devices to this offshore entity that is based under Australian legislation. The entity will have its headquarters in Australia and it will be staffed by Australians. The Minister for Food Safety Annette King is trying to say that this is not true but I have sat through two hearings on this issue and we have been told that this will be an offshore entity. That has been confirmed. The bill states that the agreement will be set up under Australian law—it is all there. I have another document that points out that there will be 550 staff of which 93 percent will be Australians and 7 percent will be New Zealanders. So there is all the spin and all the flannel but the truth is that if that is what New Zealand First understands by equal status having an agency— 
Steve Chadwick 
: The head office is in New Zealand! 
SUE KEDGLEY 
: Sure there might be a little office set up in Wellington but the headquarters will be in Canberra. I visited the headquarters; it is a huge bloated bureaucracy. That is where the headquarters will be. 
Basically once we hand over the jurisdiction for this agency it will be beyond the reach of our democracy—much as our food laws are. When I went to introduce legislation that there should be mandatory GE labelling in New Zealand I was told by the Clerk that our Parliament has no jurisdiction over this because we have handed it over to Food Standards Australia New Zealand. That is exactly what we are doing with this 385-page bill. It states that it will give effect to the agreement. This legislation does not actually set up the agency; that has been set up under the agreement that has been signed between Australia and New Zealand. The treaty has been signed and that is where the details are all outlined; we are giving effect to the treaty. We in the Health Committee know exactly how the treaty will operate because we examined and rejected it. We urged the Government not to proceed with the trans-Tasman agency— 
Steve Chadwick 
: No we didn’t! 
SUE KEDGLEY 
: If the member over there can contain herself I will tell her that we had a select committee inquiry into how to regulate dietary supplements and everyone agreed that yes we need better regulation. I agree wholeheartedly—we need better regulation of dietary supplements. We urged the Government not to go down the road of this trans-Tasman agency and we were unanimous in that. Of course the Government signed the treaty 2 days before a unanimous Health Committee report came out urging that it not proceed with the legislation. This is what we said in our report on the treaty: “The power given to the proposed agency and in particular its managing director is unprecedented both in law-making terms and in terms of powers of monitoring and enforcement.” By the way most of the details of how this new entity will operate are unknown; they are all in the rules and orders that are being consulted on. Passing this legislation without knowing the details is like signing a contract without having read it first. 
Basically all the powers will reside with the unelected official the managing director who will have virtually unlimited powers to make delegated legislation in the form of orders—yes orders—and rules. All the way through the bill refers to orders and rules. These will have direct effect on our Parliament and on New Zealand but they will not require the approval of Parliament. These rules have sweeping powers. We said in our report that many of the things that are left to the rules will be significant areas of policy-making; these will be delegated away from Parliament. We said that many of the matters that are proposed to be dealt with by rules and orders should be dealt with in primary legislation. Once one of these rules has been passed the only thing that we as members of the Regulations Review Committee will be able to do is move a motion of disallowance in this House. The only problem is that there never has been a motion passed in this House to disallow a rule. So that power is there but it is a complete utter nonsense. That is why if one reads the fine print one realises that we are transferring powers to this agency. 
This agency will have not just the power to regulate as the trans-Tasman food authority has but also powers to police to search and of seizure. This is unprecedented. In no other agency in the world does an offshore entity have such powers over an industry in another country—namely New Zealand. The agency will have the powers of search and seizure and the power to police so that some in the industry here may hear a knock on the door and find that an inspector from this offshore entity has turned up to close down their business. 
I make it clear that the Green Party wants to see a flourishing natural health industry in New Zealand. We want to see natural health products widely and safely used. If we thought that regulating them through this agency would help to achieve those purposes we would embrace it. We have scrutinised this legislation. I sat up last night reading this 385-page Therapeutic Products and Medicines Bill. We have come to the conclusion that it will impose a pharmaceutical-type model for low-risk dietary supplements. It will result in increasing pharmaceutical control of natural health products. Those products will become more expensive and difficult to access small New Zealand businesses will go to the wall as a result of the excessive compliance costs of this agency and there will be reduced consumer choice as some ingredients will not be available in the future. 
I will give the House an example of this. The majority of Chinese herbs are not available in Australia. A Chinese herbalist for example has about 282 herbs. If those herbs are not on the approved list—they are not on that list at the moment and are unlikely to be because of the extensive bureaucratic procedures and the fact that herbalists are required to produce a Western medicine pharmaceutical-type analysis for Chinese medicine which is not based on the Western medical paradigm—they will become illegal if this bill is passed. So we will face the prospect in about 5 years’ time of dietary supplements that have been safely used around the world for centuries becoming illegal in this country. 
This is what is causing huge unease. It is the fact that we are transferring power across to this Australian-based offshore entity. Spin it as you like it is Aussie rules. This is an Australian-dominated agency—93 percent of the staff will be Australians. Spin it as you will New Zealanders know that this is the truth. They know that those health products will become increasingly expensive once the little bribe—yes the Government has come up with a bribe—of paying some of the costs for 5 years ends. Anyway that money pays for only a tiny amount of the costs. The products will become more expensive and small businesses will go to the wall. We will basically have a pharmaceutical-type takeover of our natural health products industry. 
The Treaty is not mentioned in this entire bill. What a great way of circumventing the Treaty! If a Maori practitioner wants to sell some of his or her traditional Maori products why should he or she have to seek approval and get a licence from a managing director—an unelected official—based in Australia? It is absolutely outrageous. The Minister has confirmed that if a Maori practitioner wants to sell a product—a Maori traditional product—he or she will have to get approval from this offshore entity. That is absolutely scandalous and it breaches the Treaty of Waitangi. 
TARIANA TURIA (Co-Leader—Maori Party) 
: 
Tena koe Madam Speaker. Tenatatou katoa. Yesterday the Crown commenced its presentation of evidence on the Wai 262 flora and fauna case to the Waitangi Tribunal. That is the inquiry concerning the indigenous flora and fauna and cultural intellectual property right claim lodged by NgatiKuri Ngati Wai Te Rarawa NgatiPorou Ngati Kahungunu and NgatiKoata. Over the next fortnight all ears will be on that hearing as the Crown responds to the claim by presenting evidence on the environment conservation lands intellectual property laws health contemporary policy and legislation. Yet here we are just over the road and at the same time debating the Therapeutic Products and Medicines Bill in which there are issues central to that very claim. 
The Maori Party has been well aware that Maori have been so concerned about the proposed agency for therapeutic products and medicines that they called for an urgent application to the Waitangi Tribunal specifically around the consultation process. Concerns were expressed that the claimant groups were not consulted during the 3-year development period for this bill. Instead they had to call an urgent meeting with the Waitangi Tribunal in order to get their comments on the record. On 3 October this year the tribunal confirmed that the interest claimed by Maori under the Treaty of Waitangi was legitimate and well within the guarantee of tino rangatiratanga represented in article 2 of the Treaty. It is profoundly disappointing again that this Government has been found seriously lacking in its capacity to truly deeply and fully engage in the process of consultation. 
So the Maori Party comes to this bill with some mixed feelings. On the one hand we want to give credit where credit is due and acknowledge the impressive approach taken by the Minister Annette King and her officials throughout the long gestation period of this bill. Although it is not usual perhaps to name officials I want to commend Selwyn Katene of Ngati Toa and Ngati Tama for his excellent advice. The Minister has engaged with Maori Party members over the last year providing us with copies of the draft rules listening to our views and providing us with comprehensive briefings. Indeed it has without exception been the type of process that we would like to engage in with every bill—being able to be fully informed about the detail long before it is on the Order Paper. We have greatly appreciated those efforts that were made. Indeed I reiterate the comments made earlier by the Minister of Health Pete Hodgson in commending the Minister for Food Safety for her tireless commitment towards progressing this policy. Tena koe Annette. 
That level of involvement however has been eclipsed by the intensity of concerns expressed by tangata whenua about the probability of an Australia New Zealand Therapeutic Products Authority. As recently as yesterday over 30 rongoa practitioners affiliated to NgaRingaWhakahaere o te Iwi Maori travelled from all over Aotearoa to share their concerns from our matua tupuna about those taonga. Their concerns—concerns we have frequently expressed to the Minister—are that the specific rights that flow from article 2 demanded that there needed to be dialogue and agreement between the Treaty partners. In its findings the tribunal concluded that the Crown’s efforts so far to establish dialogue were disappointing. Indeed it described them as creating the conclusion that “the consultation process is little more than procedural damage control”; rather than the oft-quoted principles established in law for the dialogue to be genuine open-minded and aimed with a solution in sight. 
 This House needs to start talking seriously about the nature of consultation. Consultation is not about rubber-stamping at the end when all the decisions have been enforced. To be real about consultation tangata whenua must have access to all relevant documentation. There must be a willingness to meet face to face and to know that their views are respected. Indeed as I have heard it said by another political party there is nothing to fear from tangata whenua and maybe that is a message the Government may be prepared to accept. 
I sat with the rongoa practitioners yesterday and I can say that their concerns are clear. They are concerned that the Therapeutic Products Authority will be above te Tiriti o Waitangi that it will set down its own guidelines that it will be above New Zealand parliamentary authority and that it will not recognise indigenous interests. They fear it will cut at the very heart of sovereignty. They are concerned that rangatiratanga will be further compromised by decision making moving offshore. They are angry that there has been no consultation with hapu and iwi Maori and that consequently there are no mechanisms in this bill to protect the appropriation of Maori and indigenous knowledge. Their concern is that there are no Treaty of Waitangi provisions included within the agreement and that the regulation of rongoaMaori their taonga tuku iho will be made by a non-Maori body. 
Tangata whenua have spoken passionately about the threat that the bill poses in undermining the claim of kaitiakitanga made by whanau hapu and iwi claimants. I have been very clear with them as the Minister has been clear with me that non-commercialised rongoaMaori will be exempt from the proposed scheme. In saying that I am firmly of the view that all medicines and rongoa whether commercially prepared or not should be deemed to be safe. Accountability and health protection should be our paramount concern and we must never compromise on public health. However I cannot hide the truth that there are a number of crucial qualifiers around this exemption that create uncertainty. The tribunal noted that the current exemption of rongoa under the Medicines Act could not be guaranteed to continue. It described the exemption as ad hoc and certainly not discharging the Crown’s Treaty obligations to rongoa producers and practitioners. The draft medicine rules do not guarantee such exclusions to a satisfactory level and for this reason the Maori Party wanted complementary medicines including herbal medicines and other nutritional supplements traditional medicines such as rongoaMaori and traditional Chinese medicines homeopathic medicines and aromatherapy oils removed from the Trans-Tasman therapeutic goods authority. We wrote to the Minister recommending this. 
The nub of the issue for the Maori Party is the question of whether we can have faith in the Government let alone the Australian Government to adequately protect rongoaMaori when those same Governments have not been able to support the rights of indigenous people at an international level. The Crown has advised that Maori will be able to have input into the regulations that will determine the actual operation of the relationship. But the issue is really around trust. Can we be sure that the New Zealand Government will have the authority to continue to enforce the exemption on non-commercialised rongoa and to uphold this in the future? This Government’s own Maori health strategy  
He Korowai Oranga 
 explicitly acknowledges rongoa—herbal remedies—as being a valued component of Maori traditional healing. It is therefore disappointing that the policy intention has not yet benefited from the resource to enact the commitment into real tangible strategies to support their developments. 
I was interested in the comments of the New Zealand Health Trust which saw the Government being determined to ram the legislation through. We are concerned about the establishment of a regulatory entity to manage the development of medicinal and intellectual property rights for rongoaMaori. Rongoa is the manifestation of our tikanga and our kaupapa. It has been handed down by our tupuna. It has mana and tapu and that is why it demands respect. A trans-Tasman body would have limited capacity to appreciate what is meant by mana and tapu; that is not a judgment but merely a fact. Rongoa is a total way of life upholding tikanga Maori to achieve holistic health. It is a healthy mind a healthy body and a healthy spirit and it springs from an absolute belief in total well-being. The preservation and protection of rongoa and traditional medicines is of such critical importance to Maori that we cannot take the risk of supporting a bill when some fundamental questions are still uppermost in our people’s minds. It is that uncertainty that has led us to oppose the bill. Tena koe. 
JUDY TURNER (Deputy Leader—United Future) 
: 
 I rise on behalf of United Future to speak to the first reading of the Therapeutic Products and Medicines Bill. I have to say that this was the very first issue on arriving in Parliament in 2002 that hit our desks. All the letters and emails—and I mean all of them—were from consumers of complementary products. In fact we were so thoroughly lobbied by complementary medicine consumers that it took me some weeks to discover that the proposal actually included pharmaceuticals and medical devices as well. 
I am a regular user of complementary products so I was shocked at the thought that the items I use to maintain my own personal health and well-being could be ripped off the shelves or out-priced from the budget of average New Zealanders. That complementary products could be bought out by pharmaceutical companies and then shut down was the message of fear that I was fed for weeks and weeks. I was told that New Zealand would sign away all say on these matters and our very existence as a nation was under threat. 
So United Future then supported the inquiry called by National’s Dr Lynda Scott to see whether a joint regulator was the best option. We supported the findings of the select committee that New Zealand should self-regulate. However current opponents fail to remember that the recommendation from the select committee was predicated on Australia’s willingness to mutually recognise our regulator so that industry stakeholders would not have the expense of doubly registering products and ingredients. Well Australia will not mutually recognise. Why not? It is because as it pointed out to our officials it cannot recognise a regulator that does not exist and does not have a robust history that it can put its trust in. Because we cannot get mutual recognition in a deal with Australia the recommendation from the select committee is idealistic and unachievable. 
However United Future was keen to stay informed in two directions; firstly that we monitor the ongoing negotiations between the Government and Australia and I thank the Hon Annette King for allowing me to have observer status at her ministerial advisory committee meetings even though during that process I never gave her any reassurance of any future support. I would also like to thank as the Maori Party has Selwyn Katene for his work and advice during this time. I also mention at this time as someone who observed many of those meetings that those representing the complementary medicine sector regularly—certainly at every meeting I attended—advocated very strongly on behalf of small industry players within the New Zealand context. The second area we sought to stay informed on was the ongoing opinions of those within the complementary sector who were intensely suspicious and resistant to the proposal unlike those from the pharmaceutical and medical device sector. 
Until recently our position was that we would support only legislation that did not include the complementary medicine sector and in no way did away with direct-to-consumer advertising. What has changed our minds is that we have now been victims of a barrage of mixed messages from the complementary industry. It is now clear that a large sector of that industry wants this to proceed as it is now largely satisfied with what the deal is as it now stands not as was originally proposed. So United Future is committed to supporting the first reading because we see this as being the only way that the divided camp of the complementary health products industry can use the select committee process to sort out what it wants. We will then revisit our position after we have heard from submitters officials and the committee. 
I say to the consumer lobbyists however that I am singularly unimpressed with the current bully-boy tactics and threats and that they do their argument only harm as they present themselves as fringe extremists not rational contributors. One aspect of the debate on which there has been general agreement from all sides of the argument is that those therapeutic goods currently unregulated in New Zealand should be regulated. Let us remember that it is both medical devices and complementary medicines that are currently unaccountably unregulated within New Zealand. 
To move from an unregulated to a regulated environment is a very scary thing for the people involved because it will require extra costs and those will be passed on to consumers. So the question remains as to how we can appropriately regulate substances commensurate with the risks they pose in a way that is both affordable and that protects consumer access. My growing concern—and something that I am keen to have answered by the select committee process—is that there are some who appear to be taking a very blinkered approach to a New Zealand-only regulator. Also that those in the industry accept that New Zealand manufacturers will have to pay two sets of compliance costs if they want to export their products. Guess who will be picking up the tab on that? It will be the consumers. 
Unlike some of the information that is circulating at present I am heartened by the fact that as this proposal has proceeded and we have now four offices established and recommended. One office will regulate prescription medicines a second will regulate over-the-counter medicines a third will regulate medical devices and a fourth office will regulate complementary health products. Each will have its own regulatory model based on the risks that those products pose. This is not about imposing a pharmaceutical overkill model on to herbs as is currently being touted around the country. 
United Future is very keen to make sure that what we decide is based on facts not on emotional rhetoric. I mentioned this to someone who rang me yesterday. We started out with a very calm and logical discussion and I was very interested in what he had to share. But at one point he then deteriorated into what I call holocaust language which quite frankly I found emotive and unacceptable. We moved right away from the facts of the issue and into emotionalism. 
I do not want to see complementary medicines taken off the shelves of this country or see people lose access to the fine products that they now enjoy and use. I am one of those consumers and self-interest alone determines that I want to see New Zealand get this right. United Future is very happy to support the first reading of this bill so that the debate can be had and the facts can be brought to light. 
HEATHER ROY (Deputy Leader—ACT) 
: 
 I rise on behalf of the ACT party to talk on the first reading of the Therapeutic Products and Medicines Bill. This bill has a very long history as has already been pointed out in this House. Like the member who has just taken her seat Judy Turner it was the first issue that arose on our agenda as members of the Health Committee when I came to Parliament in 2002. The history should perhaps be remembered in the course of the debate because it has been very contentious and there has been huge public interest on both sides of the debate. I like everybody else who has spoken have received all the emails. I received one this afternoon which I thought summed up beautifully the issue involved from my perspective and from that of those sitting on this side of the House. It stated: “The proposed Australia - New Zealand Therapeutic Goods Act will stifle innovation of natural or complementary products and medicines in New Zealand simultaneously taxing the resources time and finances of small businesses.” That to my mind sums up the intent of what we must remember is validating legislation to a treaty that was signed on 10 December 2003. 
However the history goes back even further than that. The issue that I talked about that I was first involved with when I came to Parliament in July 2002 was an inquiry into the proposed therapeutic goods joint agency. The select committee undertook a very rigorous process during that inquiry. We called for submissions and there were a large number of interested parties. Everybody was given a very full and thorough hearing—I think there would be little disagreement by those who were on the select committee at the time about that. 
We were however hindered in our inquiry by Annette King the Minister who was in charge of the issue at that stage. When she moved from the health portfolio to become Minister for Food Safety she kept this issue as an area of interest for herself and showed what could be described only as disdain and contempt for those who did not think the same way as she did about it. The select committee inquiry was pre-empted in releasing its findings which was scheduled to happen on 12 December 2003 by the then Minister of Health Annette King jointly signing an agreement with the Australian Minister of Health on 10 December 2003 which was as she knew 2 days before our inquiry was about to be reported on. She pre-empted the impending outcomes and suggestions that we had put forward as a select committee. 
There was a great deal of grumpiness in the select committee about that by all the Opposition members at the time including members of two parties United Future and New Zealand First which are now supporting this validating legislation. We held what was widely agreed to be an unprecedented press conference. Members from all sides of the House—apart from those in the Labour Government—came forward and were united in their contempt. I might add that those Labour members were left to hold the fort on their own in the select committee and they were grumpy about that. It is a great shame that members of those two parties who were so vocal in their opposition to this agency have now changed their minds but that has happened for a variety of reasons and I will come to them too. Needless to say the ACT party remains steadfast in its opposition to this validating legislation for the treaty. 
Further down the track the treaty came to our select committee. Again it was heard in full. A large number of people wanted to submit and many of the same issues were discussed for very good reason. Again the recommendations made by the select committee were largely ignored by this Government and have been overridden. So those of us on the select committee who opposed these issues feel that we wasted a good deal of time and effort and I think those in the industry would agree with that. 
This is a huge piece of legislation with 380-something pages. It is no longer just about the pharmaceuticals the dietary supplements the complementary therapies and the medical devices. It is in fact about a wide range of topics. We have finally reached the point where after 3 years of trying the Government has managed to introduce this legislation which was supposed to come before the House 6 months after the treaty was signed. Three years down the track there has been a great deal of wheeling and dealing to get to this point where the bill can be introduced into the House. 
It includes all sorts of things that in the initial stages were never intended such as direct-to-consumer advertising. I have to say I support absolutely the direct-to-consumer advertising recommendations in this bill but I cannot support the bill overall. Xenotransplantation pharmacy ownership and designated prescribers—amongst other things—are now all rolled holus-bolus into this legislation which essentially was supposed to be about regulation for the safety of New Zealanders when it comes to complementary therapies. We have all sorts of things rolled into one here so that in the final instance this bill can be introduced into this House and pushed through. 
Many comments have been made in this House today and I would like to recognise some of those. Tim Groser spoke on behalf of the National Party Sue Kedgley spoke on behalf of the Greens and Tariana Turia spoke on behalf of the Maori Party and I agree with all of the points they raised. As I have said it is unfortunate that two of the parties who opposed the legislation until a very short while ago have changed their minds. 
I come to a few of the points that have been raised. ACT is absolutely in favour of closer economic relations. I agree with the comments made by the National Party member Tim Groser who said that this is not a debate about closer economic relations as was put forward by the Minister of Health. It is absolutely not. It is about pushing forward regulation—heavy-handed bureaucratic regulation—on the New Zealand industry. There will be many Kiwis both consumers and producers of therapies who will be severely disadvantaged by this process. 
Those supporting the bill present it as a fait accompli. They say it is going to be wonderful there will be offices everywhere and Australians will recognise what we New Zealanders want. Well let us just see what happens when the legislation gets there because I am afraid I do not share their faith in the outcome of it. 
Perhaps the biggest thing I am absolutely opposed to in this legislation on behalf of the ACT party is the suggestion of a subsidy to offset the cost of regulation. We are supposed to raise our hands and shout “Hallelujah!” 
Tariana Turia 
: A bribe. 
HEATHER ROY 
: It is absolutely a bribe. Let me say that we in New Zealand were world leaders in getting rid of subsidies. New Zealand has been there. We have done that. We rejected the concept and the world in part followed us in getting rid of subsidies. But here we are today at the very end of this parliamentary session this year saying that subsidies are a wonderful thing; let us have them back again. Well that is a retrograde step for New Zealand—a step we should not be even contemplating. 
The New Zealand First member stated that she wants equal status for New Zealand and Australia. I have already touched on this point; I share very little faith with her that equality will be reached. I think that we will see heavy burdensome bureaucratic regulation imposed on an industry that is quite prepared to look at other solutions without having that cumbersome approach put in place. The industry for all of the 3 years that we are talking about and that we have debated this issue has always shown an absolute willingness to cooperate with what it sees as reasonable regulation. It is in favour of self-regulation which many other professional bodies have and it wants to see regulation to protect its products from those put forward in a shonky way—those that are unsafe to consumers. It too because it has pride in its products and believes in them wants to ensure the safety of the New Zealand consumer. Instead of having the opportunity to have this discussion to talk about professional self-regulation and to talk about other forms of regulation that could have happened without the involvement of this heavy-handed bureaucratic joint Tasman agency the industry has been denied the opportunity to do that. 
The Minister for Food Safety Annette King also said in her initial speech that she wants to see this bill go to the constructive environment of a select committee. Well if only she meant that I would feel a little assurance. However I talked before of her disdain for the select committee process which we have already seen twice before. Firstly there was the inquiry into the complementary therapies. There was a very constructive environment in that select committee but the Minister completely ignored the findings from that inquiry. Again she treated the select committee with a great deal of contempt in relation to the signing of the treaty but she also showed contempt when we went through the thorough process of examining that treaty in detail. 
ACT New Zealand opposes vigorously this bill at its first reading. 
STEVE CHADWICK (Labour—Rotorua) 
: 
 Today I will be covering two issues of interest relating to the Therapeutic Products and Medicines Bill. I chaired the Health Committee that conducted the initial inquiry and reported back in 2003 and the subsequent examination of the agreement between Australia and New Zealand. In that capacity I will be speaking to two issues of concern. 
I mention first that the Green Party referred in the House today to a unanimous Health Committee report but failed to mention the rider to the committee’s position—that it did not become a party to an agreement between Australia and New Zealand for the establishment of a scheme unless the committee’s subsequent recommendations were met in any implementing legislation. I have heard about the disrespect for the Health Committee’s recommendations by the Minister and I refute that absolutely.  
We put forward 13 recommendations when we reviewed the treaty; 12 of those recommendations are in this report. I think that that is absolute acknowledgment that where the committee saw we could get better things through the agreement our recommendations have all been implemented in this bill today. That is not showing disregard for the efficacy of a select committee. Amongst those recommendations were issues we were concerned about—of rongoaMaori protection and of governance and accountability. I understand that only one recommendation—that is a partial disallowance of rules in each country—is not included in the bill. That is the only recommendation not implemented in this bill.  
I want to go quickly to the issue of rongoaMaori because my colleague Annette King mentioned it earlier. This authority I must stress is a new authority. The Australia New Zealand Therapeutic Products Authority is not the old Trans-Tasman therapeutic goods agency. Effectively rongoaMaori will be treated in this bill by the new authority in the same way as it is now under the Medicines Act of 1981. In respect of the arguments I heard from the Hon Tariana Turia I say that I do not think we want to confuse whatever findings will come up from the Waitangi claims; I think that they need to be considered at a later date and not get confused in the machinations of this bill.  
Products used in the practice of rongoa are currently exempt from the requirements of the Medicines Act and I think that is really important. They are not given under prescription they are not restricted and they are not pharmacy-only prescribed now so this same arrangement will remain in this same way under the scheme. We will not bother to define rongoa in this scheme because its products are exempt. So the products used in the practice of rongoa will not be regulated nor will the relationship between a rongoa practitioner and a patient. Likewise where rongoa practitioners prepare rakaurongoa they will be exempt from manufacturing licence requirements. I hope that as the select committee goes through this bill those issues will be covered and covered also by those who submit on the bill.  
The Australia New Zealand Therapeutic Products Authority will bring significant benefits to manufacturers opening up the Australian market for exports without the added regularity costs involved in the selling of products in Australia. Mutual recognition agreements between the authority and other national regulators will be likely to increase export opportunities further. So I just wanted to cover off what I had heard about rongoa in the House and members’ concerns with this bill.  
The next issue I want to cover quickly is that of accountability which is a crucial aspect in ensuring good governance and the legitimacy of public power. I have heard members across the House show concerns about that. A strong accountability regime ensures Parliament and the public that public resources are being used efficiently and effectively. The simple truth of this new arrangement and the new authority is that New Zealand could never have afforded to go it alone in order to continue to meet the needs of regulating this industry. During the select committee deliberation as others have said no one argued with the need for regulation. It would have been far too expensive for New Zealand and Medsafe alone to advance regulation of these products. We did not have that capacity alone in New Zealand so the joint agency offers that shared expertise and capacity.  
I will quickly cover off the accountabilities of the new agency. It has to provide an annual report and a statement of intent. It will be a Crown entity like any other Crown entity and its reports will be tabled in Parliament in New Zealand. Its representatives will appear before select committees for financial reviews and inquiries like any other Crown entity. It will be subject to scrutiny of its regulatory decisions by the courts through a merits review process and judicial review and it will be subject to other legislative requirements that stand in both countries. That includes the Official Information Act the Australian Freedom of Information Act the Privacy Act and the Ombudsmen Act in both countries and scrutiny by both Auditor-Generals. I find that to be very strong and robust accountability. The agency will be a Crown entity and subject to rules and orders.  
We have heard ridiculous assertions about the powers of the managing director but the accountability arrangements of that position have been set to ensure that the managing director is equally accountable to both the Australian and the New Zealand Ministers of Health which will happen through the joint ministerial council. The executive is not able unilaterally to alter the arrangements and we will cover that off in the scrutiny of the select committee process. There will be a complaints system and there will be a review tribunal. So I feel that the spurious concerns that have been tabled in the House about accountability are simply not true. 
I would like to say a lot more but in conclusion I just say that the Health Committee did agree that a risk-based regulation of medical devices and complementary medicines was needed to ensure public safety efficacy of therapeutic products and their claims and a new regulation model commensurate with risks. The model is not the Therapeutic Goods Administration or Food Standards Australia New Zealand; the model will protect sovereignty through its governance mechanisms. 
This bill is about CER. The assertion from the member of the Opposition that this has nothing to do with CER is ridiculous. He is clearly flying in the face of the Australian Prime Minister who supports this regulatory agency. I remind members that the beginning of this proposal was in National Party policy in 1999—and we have to sit here and hear a hysterical refusal to accept that the 3 years of work since we put the inquiry on the table shows we have developed a new authority altogether with very strong governance and accountability mechanisms. 
Dr JACKIE BLUE (National) 
: 
 This could have been a proud day for the New Zealand Government but it is not. The Government has wasted a golden opportunity. The Therapeutic Products and Medicines Bill which introduces legislation to establish the Australia New Zealand Therapeutic Products Authority could have been a first with true multiparty support cooperation collaboration and agreement. But that has not happened and Annette King the Minister in charge of this bill is to blame for that. Her dismissiveness and lack of consultation has shown no bounds. She has refused to consult the National Party every step of the way. The Hon Tony Ryall informed us today that Annette King considered that handing over some overheads to two National MPs was consultation. What a joke! 
I have been a member of the Health Committee over the last year and on numerous occasions we have invited Annette King to personally address us on this bill. She refused to do so on each and every occasion. Not once did she appear before the Health Committee. I have been so concerned about her indifference to this bill that in a parliamentary question I asked her whether she had been requested by the Health Committee to personally brief the committee on progress regarding the issues surrounding the proposed Australia New Zealand Therapeutic Products Authority and if she had how many times she had been invited for a briefing. I asked whether she had briefed the committee and if she had not whether she planned to do so. I also asked her why she would not want to brief the Health Committee. Three weeks later I received a nonsense reply which was that it had not been possible to obtain the information required to enable her to address that question by the due date. What a joke! The answer was really simple: she had never been to the committee and had no intention of addressing it. 
The response from Annette King goes to prove that this Minister has not taken seriously the concerns of Parliament’s own Health Committee of thousands of New Zealanders and of the hundreds of fledgling natural health-care businesses. The Minister has ratified the treaty without the mandate of this Parliament and against its wishes. This bill which had its origins under the last National Government was a good idea. But sadly there has been a lack of consultation and the Government like most things it gets hold of has made a complete hash of it. 
Our National Party is most concerned about the inclusion of natural health-care products. We consider that the Australian natural products industry is one of the most highly regulated of those industries in the world. Forcing its rules on New Zealand businesses will serve only to increase the cost of products reduce consumer choice and hurt many businesses. National believes that natural health products should be regulated but that this legislation is not the answer. The Government has been attempting to introduce this legislation for years but until recently it has not been successful. It did not have the political clout or numbers to do so but it is clear that it has now done a deal with New Zealand First. The thousands of New Zealanders who will have choice taken away and the hundreds of businesses that will be affected by compliance costs and bureaucracy can thank Winston Peters for the fact that they will have to keep on fighting against this restrictive legislation. 
It did not have to be like this. Only 6 weeks ago on radio Winston Peters reaffirmed his party’s opposition to the bill and if he had kept his word this bill would not be being debated today. In the lunch break today there was a rally against this legislation. It was a very sad sight to see Winston Peters defending his betrayal of New Zealanders to the crowd. They could see through him by a million miles. He did not convince anybody; he was booed and jeered. The fact is that the Labour Government had to offer a bribe to New Zealand First. It had to offer a 50 percent subsidy on complementary medicines in order to get the parliamentary numbers for this bill which goes to prove that this regime was far too expensive to begin with. The 50 percent subsidy is for only 5 years and then what will happen? Let us make no mistake that businesses will face escalating compliance costs after that. 
The Minister has gone against the recommendations of Parliament’s Health Committee. In December 2003 the Health Committee recommended that the Government strengthen domestic regulation as the most appropriate method of governing complementary health-care products in New Zealand and that it pursue a mutual recognition regulatory option rather than a joint agency with Australia. Yes 3 years ago the Health Committee recommended that a local solution should be sought for complementary health-care products. That is what the industry wanted. Four years ago the New Zealand health industry presented Medsafe with a low-cost economically viable full-recovery regulatory system that was acceptable to the entire industry. Sadly that was not accepted and the only aspect of mutual recognition in the whole of this bill is the one that the National Party insisted on—that is for medical devices. A number of medical device companies in New Zealand export internationally and as a result they already have to adhere strictly to rigorous international licensing regimes. It is absolutely appropriate that those internationally respected licensing bodies are recognised by the proposed trans-Tasman agency. 
In 2004 the Health Committee again reported on the treaty. The National Party provided a minority report stating: “We consider that the Government should not have gone ahead and signed the treaty when the main finding of the Health Committee inquiry into complementary healthcare products was that a proposal to regulate complementary healthcare products jointly with Australia ‘should not proceed’.” We have not changed our position; we have stayed steadfast in keeping the same position. New Zealand First also wrote a minority report stating it had three concerns. The first concern was one of sovereignty. The second was that complementary medicines should be treated separately. The third concern was about how the proposal would impact on small businesses. What a complete U-turn there has been by New Zealand First! The complementary medicine sector had every right to feel sold out and betrayed by this Government and New Zealand First. This regime will be costly restrictive and unnecessary. 
National is not prepared to jeopardise the viability of hundreds of small businesses or the choices of thousands of consumers. Annette King’s handling of this issue has destroyed any chance of cross-party support. There has been no consultation with other parties in the developmental stage and she signed the treaty against the wishes of other parties. Her handling of this issue has jeopardised a significant improvement in trans-Tasman governance. National is opposing this bill in principle. Annette King has negotiated a bad deal for New Zealand. We believe that for complementary medicine there should be a low-cost local solution. National believes that New Zealand should harmonise with Australia only when it is in New Zealand’s best interests to do so. This Government is selling out small businesses in New Zealand and taking away choice from thousands of New Zealanders. 
JO GOODHEW (National—Aoraki) 
: 
 I rise also to oppose the Therapeutic Products and Medicines Bill along with my National Party colleagues and others on this side of the House. My opposition to this bill will focus on the barriers to health-care options that this bill brings to Parliament and the people of New Zealand—those of cost and choice. The bill will impose significant costs on small and not-so-small businesses within the framework of therapeutic products. New Zealand has a 95 percent reliance on small to medium enterprises or businesses to keep the economy of this country chugging along. It is an unwise Government that does not take notice of how important those small businesses are to New Zealand. Those same businesses have been hammered repeatedly by compliance cost burdens in the last 7 years. It is no wonder the small businesses that will be affected by this bill are crying foul. 
Before the supporters of the bill can claim otherwise I want to assure the House that I am not supporting the sale of unsafe products to members of the public but as is so often the case this Government charges on blindly ignoring the risk of unintended consequences and without due care to prevent this legislation from bringing some businesses to their knees. This bill should be called the “Therapeutic Products (Anti-small-business) Bill”. 
This bill will create a barrier to health-care options by reducing choice. Choice reduction will follow the inability of small niche products to survive the processes and costs associated with this bill. National’s opposition to this regime is because of its costly and restrictive nature. National is not prepared to jeopardise the viability of hundreds of small businesses nor the choice of thousands of consumers—in fact over a million consumers. Small-business owners in my electorate have pleaded with me to oppose this bill. They know that their viability is at risk and just as important is their concern for their clients. I have had lists of people who rely on being able to access a product that works for them. I have been offered those lists but I have taken the word of the business people who have talked to me. 
It is time perhaps to ponder for a moment or two on Annette King’s performance on this issue. She truly has destroyed the opportunity for a cross-party approach to solving this issue for New Zealand. 
Dr Jackie Blue 
: There was no consultation. 
JO GOODHEW 
: We had Labour-style consultation. We could have ironed out some of the fatal flaws in this legislation but Labour did not take up that opportunity. 
Dr Jackie Blue 
: No consultation. 
Darren Hughes 
: That’s not true. 
JO GOODHEW 
: Let me tell members more of the history. The Health Committee made repeated attempts to garner more information about this bill but those attempts failed. Speaking as a member of the select committee I tell Mr Hughes that that is the truth. Such was the lack of consultation by the Minister. 
Darren Hughes 
: Did you ask a question like Jackie Blue did? 
JO GOODHEW 
: Jackie Blue has told this House that she asked the question and got a nonsense answer. What more could we expect! Annette King signed the treaty against the wishes of other parties. This bill is Annette King’s pride and joy. This is something for which Annette King has authorised the spending of millions of dollars over the past few years and she really does not want to see it fail. So she had to call in some very big favours. 
Darren Hughes 
: It’s called consultation. 
JO GOODHEW 
: From the minor parties New Zealand First and United Future I suspect that that is not proper consultation but arm-up-the-back style consultation. Annette King’s handling of this bill has been more about her philosophy of getting it through and less about meeting the needs of New Zealanders. Had the Government listened to New Zealanders it would not have ignored the interests of small business. 
But I must applaud the Government for having listened to New Zealanders in keeping the direct-to consumer advertising in the bill. But it is not enough. This anti-business Labour Government and chums—United Future and New Zealand First—have ignored the powerhouse of New Zealand those small businesses They ignored the guidance of the Health Committee not once but twice. The committee twice advised against going ahead with this joint-agency concept. 
The timing of the introduction of this bill has been described as sneaky and done under the cover of the silly season. That is a pretty fair description because it has come at this end of the year but Annette King’s tactics will not stop National members taking every call available to us to protest about this bill. 
I have already said that the New Zealand Health Trust has the numbers. It has quantified the impact of this bill and has talked about the over 1 million consumers who will be affected by lessened choice and increased costs. My colleague Tim Groser has rightly spoken about CER and we want to refute the suggestions that our stance is anti-Australian. Of course it is not. Tim Groser is eminently qualified to understand the intricacies of what this means for New Zealand. He correctly described the Australian Government’s approach as a bureaucratic mindset and a sledgehammer approach. He also correctly alluded to the changes in our health services which make complementary health-care options therapeutics the choice of thousands of New Zealanders. 
National feels very strongly that New Zealand must not subsume its own identity by handing over control to an agency that is of course—the size will determine—dominated by Australia. New Zealand should harmonise with Australia only when it is in our best interests. We do not want to sell the family silver. We do not want to be subsumed by Australia but rather work with Australia for the benefit of New Zealanders rather than to sell them out. 
Dr Jackie Blue reminded us that mutual recognition was the recommendation made in 1993 by the Health Committee. That recommendation has been ignored in favour of this bill. We were reminded of the minority report that came out of that Health Committee and I speak of the New Zealand First minority report which has been consigned to the dustbin. I do commend Barbara Stewart from New Zealand First for how well she dances on the head of a pin! After not supporting the bill in the select committee poor Barbara Stewart has had to accede to her colleagues’ wishes and do a flip-flop a U-turn. How painful that must have been. It is not enough that the New Zealand First member was rolled by her colleagues; she has also to live with the fact that her leader Winston Peters trumpeted on radio that his party had stopped this bill in its tracks. 
The “Prince of Spin” attributes of Winston Peters have resulted in an aggressive about-turn. We know the spin the New Zealand First leader has put on this. He says that it is someone else’s mistake not his. Oh no not his! But then an aggressive response to describe a flip-flop or U-turn on Mr Peters’ part is not necessarily surprising. How uncomfortable he must feel to have portrayed himself as the saviour of the users of complementary medicines and now to have to show that he was leading them astray! 
As a former nurse I am certainly not advocating or supporting that the risks that currently exist—however small—for the users of therapeutic products and medicines be ignored. I make the plea that we be given something that keeps the costs down and does not kill the businesses. 
I see this bill as a real risk to our health system. Many New Zealanders will end up at their general practitioners as some of the alternative therapies that work for them disappear from the market. This prospect is frightening many people and they have come to see me in my electorate office. Many of them are elderly people who rely on and trust these products to give them symptomatic relief. 
I also commend Tariana Turia who has exposed the lack of consultation that has been inherent in the long preparation of the bill. As a new member I have been interested in how many emails I have received strongly opposing the bill. So I join with my National Party colleagues in strongly opposing this bill. 
A party vote was called for on the question  
That the Therapeutic Products and Medicines Bill be now read a first time. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 60 
New Zealand National 48; Green Party 6; Maori Party 4; ACT New Zealand 2. 
Bill read a first time. 
Hon PETE HODGSON (Minister of Health) 
: 
 I move  
That the Therapeutic Products and Medicines Bill be considered by the Government Administration Committee 
referred to Government Administration Committee 
  
that the committee finally report back the bill to the House on or before 30 April 2007 and that the committee have authority to meet at any time while the House is sitting except during oral questions during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 192 and 195(1)(b) and (c). 
A party vote was called for on the question  
That the motion be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 59 
New Zealand National 48; Green Party 6; Maori Party 3; ACT New Zealand 2. 
Motion agreed to. 
Urgency 
Hon Dr MICHAEL CULLEN (Leader of the House) 
: 
 I move  
That urgency be accorded the passing through their remaining stages of the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill the Telecommunications Amendment Bill the Weathertight Homes Resolution Services Amendment Bill and any bills into which those bills may be divided; the third readings of the Epidemic Preparedness Bill the Health Amendment Bill the Immigration Amendment Bill (No 2) the Parole Amendment Bill the Sentencing Amendment Bill (No 2) the Social Security Amendment Bill (No 2) and the Summary Proceedings Amendment Bill (No 2); the interrupted debate on the first reading of the Copyright (New Technologies and Performers’ Rights) Amendment Bill; the first readings of the Social Security Amendment Bill and the Mental Health Commission Amendment Bill; and Government Notice of Motion No. 4.  
This motion is moved so that the Government’s legislative programme can be completed before the House rises for the summer adjournment.  
A party vote was called for on the question  
That urgency be accorded. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 59 
New Zealand National 48; Green Party 6; Maori Party 3; ACT New Zealand 2. 
Motion agreed to. 
Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill 
Second Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill be now read a second time 
. The main feature of this bill is a comprehensive reform of the taxation of income from share investments whether those investments are made through intermediaries such as managed funds or made directly by individuals. It is a long overdue reform that will put the tax treatment of different types of share investment on a similar footing. That means not only greater fairness for investors but also reducing the distortions in investment decisions so that tax is not the deciding factor in people’s decisions about how to save or invest. 
It is generally acknowledged that our tax rules on share investment operate very unevenly and create a number of biases. They overtax lower-income people who invest through managed funds they favour direct investment over investment through intermediaries and they favour investment in some countries over investment in others. To remedy this longstanding problem the bill introduces a whole new set of tax rules for managed funds now to be known as portfolio investment entities and another for offshore portfolio investment in shares. 
The first set of new rules puts investment through managed funds on a similar tax footing to that of direct investment in New Zealand and Australian companies. It is particularly important to get the tax treatment of managed funds right because they are the first investment choice for many ordinary investors whose numbers will increase from July next year when KiwiSaver begins. The proposed portfolio investment entity rules achieve parity of tax treatment of managed funds in two ways: one by not taxing them on their Australasian share gains and two by taxing income earned at investors’ personal tax rates if lower than 33 percent. 
The Finance and Expenditure Committee reports that the main concerns expressed in submissions on the proposed portfolio investment entity rules were that they were too prescriptive particularly as regards the criteria for eligibility and too complex. Taking into account those concerns the committee has recommended several changes to the draft legislation. They include streamlining the eligibility criteria and allowing portfolio investment entities greater flexibility in the way they operate. The committee has also recommended deferring the application date of the new rules to 1 October 2007 to align it with the date that KiwiSaver providers start to receive contributions. That will give funds more time to prepare for what will be a major changeover for them. 
Comprehensive changes to the tax rules on offshore share portfolios are the second limb of the reform of the taxation of income from share investments. This is the area that has overshadowed all else in the bill and the area that has elicited the greatest number of submissions. The main problem of the current offshore tax rules is that they provide incentives for New Zealanders to invest directly in companies resident in eight “grey list” countries all of which are considered to have tax systems similar to New Zealand’s. The “grey list” countries are Australia Canada Germany Japan Norway Spain the United States and the United Kingdom. The tax problem arises because under our tax law income from share investments is generally taxable only on dividends and companies in “grey list” countries do not generally pay high dividends. Therefore investment in them attracts little or no New Zealand tax. Meanwhile New Zealand investors in companies resident in other countries—for example Singapore and India to name two growing investment destinations—have a much higher tax burden. They must pay tax in New Zealand on 100 percent of the increase in the value of their shares each year. That is a major inconsistency in our tax law and it creates a disincentive to investing in many of the world’s most dynamic economies. 
The fundamental principle of the reform proposed in this bill is that New Zealanders should pay tax on their investment income regardless of where it is earned. Geography should not come into it. As introduced the bill proposed removing the “grey list” distinction and taxing up to 5 percent of the value of offshore share investments each year. Gains in excess of the 5 percent cap were to be carried forward to be taxed in later years with losses being deductible in a similar way. The many submissions on this part of the reform were critical of that proposed method which was seen as too complex and as taxing unrealised capital gains. 
In response to those concerns as well as to suggestions in a number of submissions that a deemed rate of return method would be preferable the Minister of Finance and I suggested to the committee that it consider replacing the original proposal with a fair dividend rate method—a form of deemed rate of return. That method would tax investors on 5 percent of the opening market value of shares held at the start of a year. However individuals investing directly and through family trusts would be able to pay tax on their actual returns if they were lower than 5 percent with no tax payable when returns were negative. That would deal with the concerns of some people that their offshore investments would be taxed even if they made a loss in a particular year. 
We saw the fair-dividend rate as a sensible replacement both on grounds of simplicity and of fairness because it would tax something close to a reasonable dividend yield rather than target capital gains. In a second round of consultation the committee found general agreement that the fair-dividend method was preferable to that originally proposed. Nevertheless many of those who were consulted preferred a lower fixed rate of between 3 and 4 percent on the grounds that it was more representative of average offshore dividend yields. The counter argument was that a 5 percent dividend rate would be more suitable because it would approximate the dividend yield of Australasian equities. One should remember here that many other countries have tax rules that discourage dividend payments which creates many of the inconsistencies that have made this reform necessary in the first place. 
Having listened to all sides in what was an extraordinarily technical debate the committee has recommended adoption of the 5 percent fair-dividend rate method. Consistent with the idea put forward by Ministers it would not tax individuals in family trusts in years when they made a loss. Under this approach managed funds will pay tax on a flat 5 percent of the value of offshore investments even in years when the return is less. Although some may argue that this creates a disadvantage for managed funds relative to direct investors the reality is more complex. Under the new rules managed funds have a number of tax advantages that direct investors do not enjoy including a tax rate that is capped at 33 percent and Australasian capital gains exemption. It is also very important to remember the major tax disadvantages that the managed funds currently face. At the moment they pay tax on virtually all their capital gains from onshore and offshore shares and they face a flat 33 percent tax rate even though many of their investors are on a tax rate of 19.5 percent. These reforms sweep away virtually all those disadvantages. 
The significant net improvement in the tax position of the New Zealand managed funds sector under the reforms is supported by recent analysis by the savings industry. That analysis shows that under a fair-dividend rate method most investors in New Zealand managed funds will enjoy a reduction in the tax they pay on their offshore investments. 
I think the committee has done a magnificent job of forging a consensus where there was none midway through the process. Whether the fixed rate is 5 percent or 3.5 percent is actually almost a detail. The important thing is that the committee has come up with a big picture solution that most can accept. That is a considerable achievement and I congratulate the committee members on that. The committee has also recommended a number of changes to other matters in the bill which I fully support but which I do not have the time to go into in detail here. Those are set out in far more detail in the committee’s report which members will be familiar with. 
In addition a Supplementary Order Paper that I released today extends the tax exemption from employer contributions to KiwiSaver to other registered superannuation schemes. This is a further measure to help New Zealanders save for their future. The exemption will apply to schemes and sections within schemes where the benefits paid depend on contributions made and on their returns. 
I conclude by thanking the Finance and Expenditure Committee for its hard work on this very complex bill and I commend its report and the bill to the House. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This is very important tax legislation. It has the potential to impact severely on investment in this country. The Finance and Expenditure Committee was told for example that this legislation has the potential to divert even more investment into residential property in New Zealand—an area where New Zealand does not need more investment. So it is very important legislation. 
Quite contrary to what the Minister of Revenue has just said the process the Government has gone through I would argue is not how we develop sound legislation at all. One respected submitter to the select committee said that this was legislation through media statement. I want people listening to this debate to know that most people who are interested in taxation matters in New Zealand have had no opportunity to make submissions on this legislation that we are debating tonight. Sure they had the chance to make submissions on the legislation the Government introduced but that is totally different from what we are debating tonight. The Government introduced legislation that would shrink the number of “grey list” countries and introduce and impose a capital gains tax on 85 percent of the gain on foreign portfolio investments. When I say portfolio investments I mean where New Zealanders have investments and shares offshore and the ownership of the company is less than 10 percent. 
The legislation as introduced is what the public and those interested in taxation matters were able to make submissions on. Tonight we are debating something totally different. Tonight we are debating this 5 percent fair dividend tax that the Government has now come up with halfway through the process. What makes this a bad process is that most of the 2226 submitters on the original legislation—and of course 99 percent of them were against it—never had a chance to make submissions on the subject of our debate tonight. About 12 of those 2226 submitters on the original legislation were invited by the select committee to make submissions on this totally changed legislation. That is just unfair to the so many other people who made submissions on the new capital gains tax that the Government proposed to introduce. It is so unfair to them that they never had the opportunity at all to make submissions on this 5 percent fair dividend rate tax. Those who did make submissions pointed out that there is nothing fair about this 5 percent fair dividend rate and there is nothing about just taxing dividends in this 5 percent fair dividend rate. When we look at the international weighted dividend yield a 5 percent rate clearly taxes capital gains. 
This Labour - United Future - New Zealand First Government has to decide what it intends to do with this taxation of portfolio investments offshore. Does it intend to tax capital gains or not? This legislation that we are debating tonight does still tax capital gains. I will get into that detail. 
What makes it even worse is that today a Supplementary Order Paper was introduced. The Minister did not even refer to it in his speech. 
Hon Peter Dunne 
: Yes I did. 
Dr the Hon LOCKWOOD SMITH 
: I apologise if he did. Today a Supplementary Order Paper has been introduced that makes yet another last-minute change. This is the second time we have seen that. With the KiwiSaver legislation the Government made a last-minute change that no one in the public had the chance to make a submission on and again no one in the public has a chance to make a submission on this very significant last-minute change to this legislation—a change that will extend the exemption from specified superannuation contribution withholding tax from employer contributions to superannuation schemes other than KiwiSaver schemes. Although I accept that that move is something National would support it is still a matter of principle in New Zealand that the public should have the chance to make submissions on legislation to ensure that the quality of the legislation produced is acceptable. 
I want to look at some of the detail of the measures in this bill to impose this 5 percent fair dividend rate. The select committee’s commentary on the bill sets out the Government’s objective. It states: “The objective of these changes was to tax portfolio investments in offshore companies more consistently regardless of whether the investment was made through a managed fund or made directly and regardless of where the investment was located.” This legislation we are debating does not achieve that objective at all. 
 Managed funds and individuals’ portfolio investments in companies overseas are treated totally differently. For example if we invest through a managed fund we are taxed on a 5 percent return regardless. If we invest as individuals in portfolio investments offshore we will be taxed on the actual return from those investments in any one year on up to a 5 percent maximum return. It is totally different treatment. If the objective was to make managed funds and individuals’ taxation the same when investing offshore then it would have been quite simple to change that and to make the two policies consistent. 
The provisions to enable individuals to be taxed at a return below that 5 percent flat rate for managed funds are complex. I will mention this exchange although it is probably a bit unfair to one of our advisers. At the select committee we asked a very senior adviser who knows this legislation inside out whether he would bother to have his portfolio investments offshore taxed at an actual return rate. This very experienced adviser indicated to the select committee that he probably would not. He indicated that the provisions are so complex that it would not be worth the candle to do it and that he would probably just pay the tax on the 5 percent flat return. When a senior adviser who knows the legislation inside out suggests that it is too complex to bother trying to get the benefit of being taxed on less than that 5 percent return we clearly have very very complex legislation and I suggest totally unsatisfactory legislation. 
Another big difference is a $50000 de minimis for individual investors. In other words individual investors have a $50000 zone of investment offshore on which they are not taxed. If they invest through a fund they do not have that. Funds will be consistently taxed therefore more than the investments of private individuals. That $50000 de minimis means there will be no tax to pay on a $50000 investment. If $50001 is invested the full tax rate is paid on the lot. The effective marginal tax rate on those extra few dollars above $50000 is thousands of percent. The result is that wives children and pets will all be listed as having shares offshore because no one in his right mind would pay those kinds of marginal tax rates. 
The select committee was advised that managed funds in New Zealand will migrate to Australia because with the complexity of these rules it just will not be worth being involved in New Zealand. If we invest in private companies offshore then either those will have to be revalued every year or we will have to pay tax on an assumed 5 percent gain. We were told at the select committee that this legislation will make it hard to recruit highly skilled people internationally. It was pointed out to us that if the value of the New Zealand dollar drops people will be taxed just if the currency shifts. If people get a New Zealand return then they can be taxed just on a New Zealand dollar shift. The New Zealand dollar value of offshore investments may go up if the New Zealand dollar drops and people would be taxed just on that currency shift. If the value of people’s investments drop this year they will not be taxed. If next year the value returns to the same level it started at last year then people will be taxed on that gain yet their net position will be unchanged. They will be no better off but they will be taxed on that gain just by the value returning to where it started. 
But the most serious thing as so many experienced funds managers pointed out to the select committee is that this legislation will distort investment. It will provide a serious disincentive to invest offshore in a diversified portfolio. This legislation will provide an even greater incentive for New Zealanders to bring back their money from overseas and invest in residential property here in New Zealand. People get the capital gains free and the returns are far better so why would they not? This is bad legislation because of all those complexities and distortions. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First supports the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill and we do so because it is a genuine attempt to make investment fairer across the board. Members will know that we have not had complete agreement in our caucus. I think members can take from that that we in New Zealand First have had a very very robust debate on this issue have not come to our conclusions lightly and have not given the bill just a once-over-lightly. We have gone into it in depth. 
It has always been iniquitous that what I like to call managed funds in New Zealand have been taxed at a rate of 33 percent whereas other investments have been taxed at the taxation level of the investor. Under this bill there will be a flow-through effect for those people who are on a lower tax rate and who invest largely in managed funds because they either do not have the expertise to invest for themselves or do not want to be bothered with it. I have said in earlier speeches that when the current leader of the National Party John Key was on our Finance and Expenditure Committee he seemed to come from the angle—and I do not blame him for it because this is his area of expertise—that every person who invests is an expert every person who invests comes from a background of expertise but that is way beyond the actual case in New Zealand. This bill for the first time makes an attempt to look after the mum and dad investors. We have to do that because there is a flow-through effect for KiwiSaver. The bill recognises even then that there are some small differences and at the end of the day we have had to accept a few compromises in this bill which we knew we would have to do—that was always recognised. 
It is pretty rich for Dr Lockwood Smith—who has been a valuable member of the select committee I might say—to say that there was an unprecedented number of submitters on the original bill and that not much diligence was shown in producing the modified bill as set out by the Minister of Revenue at the beginning of this debate. I would suggest most strongly that that is the proper response of a proper democratic select committee. If there is a whole bunch of submitters—and on this bill there were close to 3000—and there is significant opposition to a bill surely the right thing to do is to change that bill and to change it substantially in line with what the submitters require. That is exactly and precisely what has been done in this case yet Dr Lockwood Smith criticises that. 
We know that National members are not absolutely staunch in their criticism of this bill because they too recognise that although it is in some ways a compromise it is a huge step forward. We know that because those members have said that if they were to come to power some years hence they would not change it they would not kick this bill out and that is politics-speak for saying that they actually agree with it. 
Rather than criticise the select committee and the Government for changing the bill I applaud the select committee of which I am a proud member. I applaud the chairman of that select committee the officials and the Minister for listening to submitters. It would be a very barren Parliament I suggest that did not listen to close to 3000 people on an issue such as this one. 
Something that I certainly can take away from the select committee process is an insight into the issues that surround financial investment. I was impressed by the level of investment that people in this country make and the level of care and foresight that they put into looking after themselves in their old age looking after their families and in fact looking after their grandchildren by way of investment. It was quite touching actually to see people come to talk to the select committee not only on their own behalf—although most did that I must say—but also on behalf of others. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
R DOUG WOOLERTON 
: In the 4 minutes and 30 seconds I have remaining I would like to speak about the fair dividend rate which is something the select committee settled on to take care of the conundrum of taxing equally everybody in the investment market. Dr Lockwood Smith has criticised the fair dividend rate of 5 percent saying that it is not fair and is too high. I point out to him that in actual fact the deemed dividend rate which he and his party would have supported—and I know this because of conversations in the select committee—would have worked out at about 3.4 percent in normal circumstances. I am sure the Minister will nod at me if I am correct. So the fair dividend rate of 5 percent is not too far away from the 3 percent deemed dividend rate that National would favour. But the fair dividend rate does not tax an investor in the year of a loss whereas the National Party’s proposed 3 percent deemed dividend rate would tax the investment even in years of a loss. Dr Lockwood Smith fails to mention that National would support a regime that taxed people when they made a loss. We in New Zealand First—dare I say it we on this side of the House—would never agree to such a situation because tax not only has to be fair but also has to be seen to be fair for people to participate in a voluntary tax regime that we run in New Zealand. 
Just before I run out of time I want to endorse this time a statement made by Dr Lockwood Smith but I want to endorse it from a different perspective. We believe that most people instead of going through all of the calculations required to pay this tax on their investment will just forget about doing that. They will not bother with accountants they will not bother mucking around and they will not worry about the infinite detail; they will simply pay the 5 percent on a regular basis at the beginning of each year. What does that tell us and why do I mention it? If people really thought this fair dividend rate at 5 percent was unfair—as they are proposing tongue-in-cheek—they would not do such a thing. They would hire accountants and go to the end of the earth to do whatever calculations it took to avoid paying that amount. But they see it as fair and I suggest—and it is certainly the view of the Government members on the select committee and those of us who support the Government—that by and large it will be paid straight up by most people. They will pay the 5 percent rather than muck around working out the calculations. 
It is true to say that most submitters would have favoured no change at all. Most people who presented to the select committee were direct investors who get tax rates that are not available to what I call the ordinary Kiwi. That is what this bill sets out to redress and it is no wonder in that case that most people who submitted were opposed to the bill. Given that and given that the select committee made the changes that most people would have wished us to make it is fair to say that New Zealand First members are pretty confident in supporting this bill. 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 I think the previous speaker Doug Woolerton just showed how bereft the Government’s general approach to tax policy is becoming when he set forth for the benefit of the House the rather radical idea that this legislation is good because it is too complicated for people to get fair taxation so they will go for the simple version which means they will pay more than they should. Well that is a bad principle of tax policy. It should be the case that any taxpayer is able to understand their liability—that being a fairly calculated liability. Instead New Zealand First have decided—maybe it was intentional—to make the alternative so complicated that all direct investors will end up paying the higher rate when they could have got a lower one. This is actually a bad principle and it raises the issue of just what tax principles the Government now adheres to. 
We know this is a difficult area. I can recall giving speeches on tax measures related to exactly this problem almost 10 years ago—1986 or 1987 I think; maybe it was 1998—when the whole thing fell over partly because of the complexity that is now built into this law. In that case the member Doug Woolerton may be interested to know it was his party that pulled the plug for exactly the reason that he said that he supports this bill. Last time it pulled the plug because it was too complicated for an individual taxpayer to be taxed at the right rate. Today he said that he supports the legislation because it is too complicated for an individual taxpayer to be taxed at the right rate. Well I guess that is just politics and the passage of time. So I acknowledge that this is a difficult area and National does to. 
Actually a significant number of taxpayers will be better off. The Government has given up what looks like about $150 million of revenue by taxing people in the managed funds at the right rate—that being their own rate—and it will stop taxing capital gains. Those are good things. But the Government’s tax principles are getting harder and harder to divine. Certainly this process has been a mess just like the KiwiSaver process was. The only saving grace is that this result is better than what would have happened if Government members had not changed their minds and completely bypassed the generic tax policy process to get a result. 
Just when I thought maybe it was worth the effort today the Government announced a major change directly relevant to this regime saying it will extend exemption from the specified superannuation contributions withholding tax to superannuation funds that meet the criteria. The generic tax policy process stood the test of time and it is a real pity the Government has abandoned it—a real shame—because in the long run it will undermine the confidence of tax practitioners and taxpayers in the policy-making process. It might suit the Government in the short term—and we are seeing this fading Government take more and more short-term measures—but in the long term it will lead to greater complexity less compliance and less certainty about our tax system. Any Government needs consistent reminding by taxpayers about the impact of tax measures on them and those taxpayers need real and active opportunities to help shape the policy because that is what buys them into it. I would like to hear from the Government tonight as to whether it intends all its tax measures to now bypass the process. 
We are seeing an accumulation of multiplying complexity in our tax system. From the day the Government decided to put the top tax rate up to 39c we have seen a whole industry redevelop—one that I thought we had got rid of. It used to be the bad old days when people spent as much time working out their tax liability as they did creating wealth. Well particularly when it comes to anything to do with international taxes and anything to do with savings and superannuation people are now back into that business. There is more and more complexity for no obvious or well-specified benefit. 
I cannot help thinking Dr Cullen has fallen into the trap of his own cleverness. He has now moved away from the basic sound tax principles of broad bases low rates and no holes. He has now decided that he is the tax magician. He is sitting there in his office pulling a credit here an exemption there a deduction there a concession over there—and New Zealanders are the rats in the laboratory who are all meant to follow around according to the particular incentives and signals that Dr Cullen is trying to send. 
The abandonment of the generic tax policy process is a symptom of the fact that the Government is losing its rationale for how it is operating the tax system. It has become totally focused on ad hoc decisions driven by political forces and on trying to square up revenue when it knows it could actually afford to give it away. So that is the problem with the Government’s principles. 
To return to the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill itself is it not fascinating to see how our perception of different policy measures can change. When the McLeod Tax Review first came up with the idea of taxing deemed returns it was regarded—by probably most people—as quite radical. It is quite a logical idea but at the time that report came out back in 2001 there was really no political interest in it. Yet here we are where the same kind of measure—not exactly the same but similar—has turned out to be the one way of rescuing one of the long-running tax problems that the Government has had to deal with. I give the Finance and Expenditure Committee some credit for coming up with a better solution because if they had not this of course would have been a disaster. 
It is also clear from the select committee process that the Government vastly underestimated how many Kiwis were behaving in a rational way and directly investing savings overseas. I do not think the Government actually believed anyone was doing it; or it believed that if they did it then they were rich fat cats and deserved to get slugged. But of course the select committee was overwhelmed with several thousand submissions. Is it not ironic that Dr Cullen lectured us endlessly about not investing in housing and about the need to diversify and to get into financial investments but remained completely unaware of the fact that thousands of Kiwis were already doing it? That is a serious question. How did the Government ever conceive that its original measures would be acceptable? It could only be because Government members were either ignorant or stupid: ignorant in that they did not know the scale of direct investment by New Zealanders or stupid in that they knew and thought people were going to wear the original proposals—and of course those people did not. 
I am particularly concerned about the Supplementary Order Paper that the Government has put down that extends the exemption to employers’ superannuation schemes. Dr Cullen is now put in a position where he looks like he never thought of it. He came up with this measure did not think about the implications of it then at the last minute realised that he was going to skew investment patterns if he did not have the same exemptions for employers’ superannuation schemes as he had for KiwiSaver. Now is that not sloppy policy? One would have thought that in any regime in which the Government was looking at changing the regime on taxes on savings the connections from one bit to another would have been thoroughly examined and understood and built into the original proposals. 
Some of this legislation does represent progress. But I would have to say that the environment in which it has been pushed forward gives me real concern—both because the Government has abandoned good principles of tax policy and also because it is clear from its very significant last-minute manoeuvre to extend the exemption to employers’ superannuation schemes that it had not thought through the policy. It just had not thought about the connections which are pretty obvious. There is a whole Inland Revenue Department full of officials over there and Treasury and apparently the smartest Minister of Finance the world has ever seen yet they had never thought of it until yesterday. 
JEANETTE FITZSIMONS (Green) 
: 
 There are certain principles that a good tax system ought to try to observe. They would include having a broad-based system with a wide range of tax sources so that none of them needed to be taxed at too high a rate. They would include having a system that was fair in two senses: first that people in the same situation were treated the same and second that people were taxed according to ability to pay. A good tax system should be easy for the taxpayer to understand and comply with and it should be easy for the Government to administer. 
The present tax system does not meet those tests and neither does the tax system set out by the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill. The bill does address some anomalies but in doing so it creates others. Overall it replaces a dog’s breakfast with a different kind of dog’s breakfast. The Greens would like to vote for the annual rates and for the pass-through rules for managed funds which we strongly support. But we would like to vote against the overseas investment rules which are overall no more fair or simple than the present system. We will therefore abstain at this reading and at the third reading. 
The current system of tax has some major faults. We currently tax all those activities we want most to encourage: work and enterprise. We currently leave untaxed those activities we most wish to discourage: waste pollution use of scarce resources and speculation. However this bill does not address those issues at all—they are not on the Government’s radar despite our efforts. So I will turn to those matters that are addressed by the bill. 
The current situation does not treat taxpayers who are in like situations in a like manner so the system already breaches that principle. Overseas investors are treated differently depending on whether they are in countries on the “grey list” or in some other overseas country. Investors on a low tax rate pay more if they invest in managed funds than if they invest directly. Investors who are on a 39c tax rate pay less tax if they invest through a managed fund than if they invest directly. Investment in property is treated quite differently from investments in the sharemarket and I believe strongly biases investment towards property which has a lot of other side effects. Some investments pay no tax at all because they pay no dividend and all of the gains are paid out as capital gains which are untaxed. So looking at that particular dog’s breakfast we can see that the bill solves a few of those problems. 
The look-through rule for the portfolio investment entities is a very good move and we support it but if people’s tax rate is 19c in the dollar then that is all they should be paying regardless of whether they invest directly or through a managed fund. However the bill does not address the fact that people on a 39c tax rate are still advantaged if they invest through a managed fund. 
The bill tries to deal with those UK entities that pay no or little dividend and that provide all the benefit through a capital gain but it does not deal with them very well. In the process of trying to solve those problems the bill creates more anomalies. As the bill was introduced it removed capital gains tax on New Zealand and Australian investments and put it on investments in countries on the “grey list”—those eight countries that have previously been exempt. That created far more howls of protest and outrage than the revenue effect actually justified. The bill provided an exemption after negotiation for one company that had particularly skilled lobbyists. It also provided exemptions for people with investments of less than $50000—but many KiwiSavers will find that as their savings accumulate they will shoot through that ceiling of $50000 and become liable for tax on those investments. 
There were a huge number of submissions. The Finance and Expenditure Committee sat for weeks and weeks to hear them and they were very similar. As a result of those submissions we suddenly got a Supplementary Order Paper. After all those weeks of getting our heads around the incredible complications of the capital gains tax regime we then found overnight that the capital gains tax regime had gone— 
Dr the Hon Lockwood Smith 
: Sort of gone. 
JEANETTE FITZSIMONS 
: Sort of gone. We still have an exemption for one company which still has its very skilled lobbyists and we still have the exemption for investments up to $50000. The system still treats Australia and New Zealand differently from the rest of the world and one of the anomalies we have now is that that creates real boundary problems. What is a New Zealand company or an Australian company? Can it be defined? Submitters suggested to us that it would be very difficult to determine whether a company was a New Zealand company or Australian—what about its parentage its subsidiaries and so on? The system still treats investment in property and investment in shares on quite a different basis. So the bill has made a good attempt to address some anomalies but it has created others in the process. 
After hearing submitter after submitter say that the bill was unfair because it did not treat like investors in the same way that it was hugely complex and people would need an accountant and a tax lawyer to comply with it that taxpayers would find it hard to follow and that finance companies and managed funds would find it hard to comply with I eventually started asking questions of those submitters. I asked quite a number of questions. I asked whether it would be fairer and simpler if instead of all this dog’s breakfast we had a straightforward capital gains tax on all income from capital gains across the board with no exemptions. All the submitters to whom I put that question said that that would undoubtedly be simpler but that politicians would never go there. I wrote down the answer that John Shewan gave me. He said we would not be sitting here today if we had a comprehensive capital gains tax across all types of investment. So I am disappointed that the Government has chosen yet again not to look at that possibility. It would not be very hard to sell it to the public if it was made clear that additional tax would not be taken and that a broad-based capital gains tax would enable tax rates of other sorts to be lowered particularly income tax rates. The Greens’ preference would be to use the tax to provide a tax-free band at the bottom of the income tax scale which would mean every taxpayer got the same rebate. However the Government has not gone there. 
The absence of a capital gains tax is distortionary in other ways. It certainly is a big contributor to the overheated property market and to inflation and that has been identified by the Governor of the Reserve Bank. The absence of a capital gains tax makes things very difficult because it distorts investment behaviour into property. People’s second homes and investment properties push prices up. Young families cannot get housing and cannot get their own homes. It would be entirely possible to exempt the primary family home for every family from capital gains tax but to charge it on all other kinds of property investments. That would stabilise property prices stabilise the housing market enable young families to get into housing help with the inflation rate and help with New Zealanders’ level of indebtedness whereby they are borrowing against these ridiculously inflated house prices in the assumption that prices will go on rising whereas we know that a day will come when they will not. 
SHANE JONES (Labour) 
: 
 Kia ora anotatou. Firstly I acknowledge the efforts of my committee members on this marathon task of dealing with the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill. However I must say that when we prepared to break into a subcommittee and hear from the four winds what the various submitters had to say no one was more vocal than John Key about insisting that we spend the time and give concentration and effort to the people from Auckland particularly the submitters because they are high-quality very influential and likely to offer very coherent views that might influence the Government’s policy. It came as a great disappointment but not as a surprise to Doug Woolerton and others that the very person who never showed up to any of the hearings was John Key. 
I give full marks to the deputy chairperson of the Finance and Expenditure Committee—my fellow Northlander—who when we became bored of talking about tax compared notes about bulls. Before I talk about anyone else in the committee I pay a vote of thanks to Robin Oliver and his team. We were served up an array of problems and the committee went through a series of permutations but I must say to Mr Oliver and his team that they attended to our every need answered all of the questions and followed us from Auckland Wellington and down to Christchurch. So I pay a vote of thanks to them. Irrespective of who the Minister might be or perish the thought who the party might be we are well served by Robin Oliver and his team. 
Let us move to the lame very vacuous assertions that have been made by Mr English and others that we abandoned process. Let us get a few facts on the table. Fact number one is that no one less than Sir Roger Douglas recently commented to me when I saw him at a social occasion that this problem has bedevilled many Governments. It caused him some consternation and it defeated Ruth Richardson. Indeed we have employed and seen a host of experts come through the process and offer us their views such as my good friend Rob McLeod and Mr Stobo and it fell to this committee to craft a suitable and reasonable solution to a longstanding problem. 
In crafting this solution I remind everyone that there have been about eight policy documents over the last year or slightly longer so anyone who is suggesting to the public—who no doubt are riveted listening to these speeches at the end of the year—that due process was destroyed is not dealing with the facts. At the end of our process we provided an opportunity for nigh on 15 to 20 of New Zealand’s experts to give us their view about the fair dividend rate model. Of course there are a host of other aspects to this bill but the fair dividend rate model worked most people into a lather and it was all based on misinformation. 
I cannot say with any authority that that misinformation was fed by the Opposition but there was gross misinformation that was no doubt aided by the accountants whose capacity to add value is inversely related to the costs they charge. However absolute opportunity was created for the experts throughout the commercial community. Prior to that we heard from all members of the submitter community who wanted an opportunity to put forward their submissions or to speak to their submissions. 
It became apparent to the long-serving highly productive and industrious committee members aided by Mr Woolerton and our friends from the minority parties that this bill in the context of MMP politics aided with great advice from the officials could be improved upon. That is the essence of parliamentary democracy. One is served up legislation on a select committee and nothing is incapable of being improved upon. We heard from the submitters that the model we dubbed the 85 percent model was certainly capable of being enhanced. We had the opportunity to hear from Mr John Shewan from PricewaterhouseCoopers. He promoted the model of a deemed rate. Initially that model gained some favour. However he himself lost his enthusiasm to advocate for it presumably because some of his own clients did not like the idea—they wanted to pay zero tax. 
From out of the atmosphere that comprises parliamentary democracy we received a letter from the Minister of Finance the Minister of Revenue who invited us to study the fair dividend rate model. This particular part of the bill generated most of the submissions and we concentrated on it—some might say disproportionately but we gave it a suitable amount of effort and time—and we have delivered what I think is a reasonable compromise at this point in time. 
There have been earlier references to the importance of simplicity. The 5 percent model for the funds industry is a paragon of simplicity. To take into consideration the anxieties of the direct investors we have maintained the de minimis. We have also given them the opportunity to pay on that which they actually earn. 
Throughout the entire process Mr Woolerton myself and—indeed—Mr Copeland asked individual submitters what they were actually earning when they put their dough into international equities and why were they content to continue leaving their investments marooned at a 1.5 percent to 2 percent return. Of course we never got a satisfactory answer. In many cases we were led to believe that the full return on that investment was actually wrapped up in a capital receipt rammed back home to escape the tax net. How if we let that happen are we going to meet the cost of hospitals roads and a whole variety of other public-good investments? 
There has been some loose and very ill-informed language about this being a capital gains tax. Nothing—nothing—in this legislation suggests to me that it is a capital gains tax. It is a tax on the dividend and on that portion of the dividend that sits in the growing equity and it takes an approximation of what a reasonable person is going to earn. Who on earth is putting millions of dollars overseas for anything less than 5 percent? As no one less august than Winston Peters has said people may as well leave their money in the Kiwibank. Those are words that obviously reflect many years of wisdom as a long-term parliamentarian. 
However I would like to say in wrapping up that the select committee worked together well. We had our differences and part of the bill is supported and part is not supported by our friends from National. But we were there as legislators and agreed to park the adversarialism in the House and endeavour to do the best that we could with the hordes of submitters writing to us and wanting to speak to us. In levels of interest—some I hope as a parliamentarian never to see again—Bruce Sheppard looms very large on that list. No doubt in what passes for my career we will see a lot more of him. But we have a great deal of support out there amongst the professional advisers and the investment industry especially those coming from the funds industry because they have certainty they have simplicity and I think in time they will come to love what they have been served up. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Tenatatou katoa. Amidst all of the fanfare that came with the 2006 census figures last week there were a couple of facts that are relevant to the debate today. Fact No. 1 is that for Maori aged 15 years and over the median income is $20900. For all New Zealanders the median income is $24400. That is a tangible difference between Maori and everyone else of $3500. Fact No. 2 is that 10.2 percent of Maori have an annual income of more than $50000 compared with 18 percent of all New Zealanders. 
Some members may be familiar with a gentleman by the name of Henry Ward Beecher a Presbyterian minister who like his sister Harriet advocated for the abolition of slavery and for the right to social justice. One of his sayings was: “In this world it is not what we take up but what we give up that makes us rich.” Looking at the situation described in those census statistics and being mindful of the ever-increasing gaps between rich and poor in this land the Maori Party comes to the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill wondering what this Government will give up in order to make all New Zealanders rich. 
The Maori Party taxation policy is driven by two key forces: manaakitanga and rangatiratanga. The application of manaakitanga would be evident in acknowledging the mana of others as having importance that is equal to or greater than one’s own through the expression of aroha hospitality generosity and mutual respect. In practising rangatiratanga there is an emphasis on following through on commitments made and integrity and honesty are demonstrated. So it is that manaakitanga and rangatiratanga lead us to address the 1.9 million taxpayers in this nation who are on an income of less than $25000. Those people are paying a massive $3.5 billion in tax while at the same time the Government accumulates surpluses that in the last financial year have totalled an amount of $11 billion. So we look to those people in any initiative that is seemingly designed to enhance the economic position of New Zealanders. 
The central feature of this bill is meant to be a reform of the taxation of income from share investments—New Zealand - based managed funds or direct investment—with the clear purpose of removing inconsistencies. The Maori Party is certainly supportive of any initiative that can act in a way to enhance fairness and consistency in savings policies. We know that the current taxation rules on share investment have needed an overhaul for quite some time. The treatment of individuals and companies has been at best uneven. Direct investment by individuals appears to have been favoured over investment through managed funds. Some investors are overtaxed. So this bill was intended to place the taxation treatment of different types of share investment on an equal footing. The bill is branded as introducing greater fairness into the rules and reducing the distortions that are evident in current taxation policy. Well that is all well and good. But does it do that? 
In order to understand the reform we need to take the widest possible view. To look at only part of the picture will inevitably short-change those New Zealanders who are looking for greater fairness in the way their investment income is taxed. Despite the stated purpose of reducing the taxation distortions on investments the bill introduces an ad hoc capital gains tax regime rather than one that has consistency. The bill also attempts harmonisation between Australia and Aotearoa allowing equity between investors operating in both countries. In effect that means New Zealanders can invest in Australia instead of New Zealand without a taxation penalty. We need to ask what benefit it will be to the nation if people invest elsewhere. The bill suggests that from next year people who invest in New Zealand - based managed funds will see greater fairness in the way their investment income is taxed. The new rules will remove several taxation disadvantages for people who invest through managed funds many of whom are described as ordinary middle-income savers. 
Into that mix let us throw the humble New Zealand pie. We are not talking about the mince and cheese variety. The pie introduced in this bill is a portfolio investment entity which comprises any savings vehicle that elects to go into the regime. The bill removes the current major taxation disadvantages from New Zealand managed funds: the full tax on capital gains and overtaxation of low-rate investors. By treating those funds in a similar way to direct investment by individuals the disadvantages are removed. Investors in actively managed funds who invest offshore would be significantly better off under the fair dividend rate than under the current rules. Alongside that the Finance and Expenditure Committee reported that investors in actively managed funds who invest offshore would be significantly better off under the fair dividend rate that it has recommended than under the current tax rules. We note too that for individual investors and family trusts if the return on investment is less than 5 percent of the opening market value individual investors and family trusts will not be taxed at the fair dividend rate—5 percent—but at a lower rate or they will pay no tax. So we are in the same situation again of some people paying tax and others not. 
We are also concerned about the tax increase on superannuation contributions that faces lower-income earners who are being made to offset the risk of “salary sacrifice” by higher-income earners. It is those people who form the “not” category that we speak of today. Although we support the removal of the different taxation rates from those who invest directly and those who invest through managed funds our primary concern is about those New Zealanders who struggle to put kai on their tables let alone to contribute to a savings culture. Every dollar of a poor person is taxed including the dollars of those persons on benefits. However this bill determines that those on high incomes have the means to benefit from asset value increases which are non-taxable. We have to ask whether that is fair. 
Our other key concern around the whole concept of a savings culture is associated with our concerns around the concept of the genuine progress index. That is the argument that says we need to broaden the tax base so that taxation is also used as a valid means of demonstrating the real costs of pollution and environmental damage. In the context of the capital gains tax for example we know that investors are receiving taxation concessions even though it is not known whether any actual income is being made. If income were calculated on the full cost basis the actual capital gain might be negative but investors have no idea of how much depletion of or damage to the environment is occurring. There is a good chance that capital gains are overstated and a good possibility that there is no capital gain. Thus although a company may be able to claim a positive and growing wealth it is a false claim a false measure of wealth because it has failed to take account of all the costs involved. The notion of gain and wealth masks potential because that is not really accounted for. The market response to that argument is that the market knows and that it takes all of that into account. The genuine reply to that is to ask how the market knows because it is not being measured. 
Finally it is appropriate to refer to the recent study released last week by the World Institute for Development Economics Research. The Helsinki-based institute has estimated that the richest 2 percent of adults own more than half of global wealth while the bottom half of the population own a mere 1 percent. If 2 percent of adults have more than half of the world’s wealth including property and financial assets in their hands I ask whether that is fair. Is it just that in Aotearoa the proportion of all children who are in severe or significant hardship has increased from 18 percent to 26 percent since 2000? Is it socially desirable that the people who suffer the greatest poverty in New Zealand are our children with 38 percent of them in the hardship categories? I remind the House of the statement I made earlier: in this world it is not what we take up but what we give up that makes us rich. What are we prepared to give up in order to enhance wealth creation for all citizens of Aotearoa? 
I advise the Minister that the Maori Party is a little ambivalent with regard to this bill. Our concerns regarding poverty and the big picture lead us to vote against it at this point in time but we are prepared to consider other views further on. Kia ora tatou.  
GORDON COPELAND (United Future) 
: 
 In my maiden speech to Parliament on 29 August 2002 I stated that one of my goals in coming into Parliament was to overhaul a discriminatory tax system that skews New Zealand investment in the direction of housing while starving business of much-needed capital growth. That was something identified for us by Sir Ivor Richardson one of New Zealand’s tax experts in the 1988 Royal Commission on Social Policy. The United States for example has 34 percent of total household assets in housing and 66 percent in other investment assets such as stocks and bonds. New Zealand is diametrically the opposite with 61 percent in housing and just 39 percent in growth-orientated assets. So immediately I came into Parliament I began working on this issue. 
Prior to coming into Parliament it was obvious to me that saving through interest-yielding bonds stocks and shares etc. through superannuation funds and other managed funds were greatly disadvantaged in New Zealand when compared with the alternative of investing in the rental housing market. I was well aware of those realities because during the 1980s when hundreds of New Zealand corporates were busy winding up their staff superannuation schemes I was busy setting one up for the Catholic Archdiocese of Wellington. I well remember the disappointment of staff members over the next few years that the returns achieved through the fund which was managed by a large financial service organisation were below their expectations. 
Disadvantage of course is a relative thing but I am here referring to the high degree of overtaxation on investment through superannuation and other portfolio investment funds when compared with the alternative of investment in the residential rental housing market. I will briefly outline the three major disadvantages because when this taxation bill becomes law this week they will all have been overcome. 
The first was in relation to the taxation rate on employers’ contributions on behalf of their staff superannuation funds. Those contributions when I came into Parliament were taxed at a flat rate of 33c in the dollar which of course greatly disadvantaged the many staff saving through those funds whose marginal tax rate was just 19.5 percent. Still to this day 75 percent of all New Zealand taxpayers pay tax at 19.5 percent or less. However the top tax rates on such contributions had remained capped at 33c. Early on in the last Parliament I took that point up with Dr Michael Cullen and the tax on such contributions was adjusted to the marginal tax rate of the saver in the 2003 Budget. The first disadvantage had been removed. 
The second problem was that savers’ earnings in portfolio investment funds were also taxed at a flat rate of 33c in the dollar. Others have mentioned that Roger Douglas grappled with that problem. Various Ministers of Finance during the 1990s grappled with that problem but when I came into Parliament such funds were still taxed at a flat rate of 33c in the dollar. That of course also greatly disadvantages the vast majority of New Zealanders who have a marginal tax rate of 19.5 percent. On this issue early in 2003 I worked very constructively with both Dr Michael Cullen and Vance Arkinstall of the Investment Savings and Insurance Association. We looked at how we could practically ensure that those savers were taxed at their correct marginal tax rate—again leaving in place the 33c cap. The issue is fairly technical and previous attempts to resolve it during the 1980s and the 1990s had not managed to crack this difficult nut. 
United Future therefore advanced the matter with the Government in its Budget bids for both 2004 and 2005 and I am therefore truly delighted that the problem is resolved through the portfolio investment entity and see-through provisions contained in this bill. Henceforth savers will be taxed at their correct marginal rates. Disadvantage No. 2 has been successfully overcome after a span of 20 or so years. 
Disadvantage No. 3 was the fact that investors through superannuation funds and other portfolio investment funds were subject to capital gains tax on share investments. That reality is completely skewed and was the principal tax distortion I mentioned in my maiden speech. It has now for some two decades been tilting New Zealand investment away from company equities and towards residential rental properties. We like to think that New Zealand does not have a capital gains tax but that has not—at least for the last two decades—been true of share investments through managed funds. We have had a capital gains tax on such investments for that period of time. Craig Stobo was one of those who early on after my coming to Parliament was a passionate advocate of seeing that distortion removed. I strongly picked up on the theme and again it was included in United Future’s Budget bid for both 2004 and 2005. That anomaly is also removed in this tax bill so problem No. 3 is resolved. 
The net result of those three disadvantages being overcome is that for the first time in a couple of decades we can now say that we will have something of a level playing field between investment in stocks and shares on the one hand and investment in the residential rental housing market on the other. This is a great step forward for New Zealand and for New Zealand savers. In addition this bill pretty much irons out any differences between individual investors—that is people who invest their own funds using their own skill and expertise—and the much larger number of New Zealanders who save through portfolio investment entities. 
These measures combined with the KiwiSaver initiative which will kick in from 1 July 2007 should see New Zealand at long last begin to build a far more balanced savings portfolio. That in turn will give new momentum and strength to both the New Zealand economy and to the financial security of New Zealanders and their families. It will give financial security to people in their retirement years and to families during a person’s working life as he or she prepares for retirement as these two things come together. 
Therefore the second reading of this bill tonight is actually a moment to savour. It successfully and at last delivers on what various Governments of all shades—starting with Labour in the 1980s moving on to National in the 1990s and reverting back to Labour again in 1999—have failed to solve. At long last we have some real solutions to take New Zealand forward. 
I want to talk a little bit about residential housing investment and emphasise that a lot of myths have circulated in New Zealand over probably the last 20 years in relation to this issue. I am talking here about books that have been written encouraging Kiwis to dump their funds into residential housing investment some of which perpetuate myths about the tax system that are factually incorrect. For example there is a myth abroad that there is no capital gains tax on investment in residential housing. Well that is not true. It is true that when people invest in that area they can deduct the interest on the money they borrow for the house then deduct depreciation on it and therefore gain a timing tax advantage as compared with some other forms of investment. 
However I emphasise that in recent times action by the Inland Revenue Department with strong support from United Future and from Dr Alan Bollard of the Reserve Bank has ensured that gains made through capital growth and assessment of depreciation recovered when a house is sold are taxed when a rental property is sold in circumstances where the owner in the first instance purchased the property with the intent of resale in mind. That has actually been the law of New Zealand for many many years. Some of the myths that have been perpetrated in that regard have been singularly unhelpful in terms of the design of New Zealand’s overall macro savings situation. Undoubtedly the great driver of the great majority of rental property owners is that they do buy those houses with the intent of reselling them at an appropriate time and making what they think will be a tax-free capital gain. 
I want to encourage the Inland Revenue Department to remain vigilant in ensuring that the law is upheld in that way. Over the last 3 years the department has assessed literally millions of dollars extra in tax by looking into those arrangements in a little more depth. It is very very important that it keeps that up so New Zealand can at last approach the situation I would like to see—that is about 50 percent of assets are in housing and 50 percent are in other forms of investment shares bonds commercial property and fixed interest investments. 
RODNEY HIDE (Leader—ACT) 
: 
 First let me acknowledge Mr Robin Oliver from the Inland Revenue Department. I do not think anyone in the civil service has a tougher job than the man whose responsibility it is to keep his head right across our tax system and to keep up with those who would try to manoeuvre their way through the loopholes that inevitably exist. Mr Oliver and his team do an extraordinary job. 
I think too that we politicians should recognise the point that we are not experts obviously in the technical detail of tax policy and legislation or its impact and that the expectation of us in the process is really to set the broad principles and the philosophy within which Mr Oliver and his team can work. I feel that that is where we have been letting the tax system down. As I look back over the past few years at the changes that have been made I feel that in the main they have been of a retrograde nature. Our tax system has become more complicated and has moved away from good principles of taxation. 
I have to say that I always enjoy listening to Mr Copeland’s contributions because he is a politician who does understand the tax system. Although I was unable to make a full contribution to the Finance and Expenditure Committee this time around I can tell that Mr Shane Jones has grown in the role of handling legislation such as this and the changes it makes. 
But let me cover some of the principles. The first one—and we heard this from Jeanette Fitzsimons—is that the tax be broad-based. By that we mean it should cover the entire range of what it is we are taxing because to the extent that it does not we create an automatic loophole and to the extent that we have a loophole we create a distortion. It will also mean we have a higher tax rate to raise the same amount of revenue we would otherwise have. 
Broadly we have in New Zealand two tax systems. One is a tax on consumption that is called the goods and services tax which in a sense is a good tax—if there is such a thing—because it does not double tax investments. It taxes only consumption. On top of that we have an additional tax system that is a tax on income which automatically is a double tax on investment because when we earn a dollar we get taxed then we get taxed again if we invest it. That is why tax economists favour a consumption tax over an income tax. Then we have a variety of sin taxes for people who smoke gamble drink and do other things that we deem society not to want. 
Gordon Copeland 
: Back the horses. 
RODNEY HIDE 
: And back the horses. So we like the tax system to be broad-based. 
We also—and Jeanette Fitzsimons made this point—like the system to be fair. There is always a debate about what is fair. One person’s fairness is another person’s injustice. When I think about fairness I think that each person in the same circumstance should be taxed the same obviously and that those who earn more should pay more tax. I think that is not a bad principle. But I do not think it is fair that as one earns more money one goes into a higher and higher tax bracket. I do not see why a person who earns twice as much as his or her neighbour should pay four or five times the amount of tax. It seems to me that if we are to be fair a person who earns twice as much should pay twice as much tax. Of course if we are to do that then we are striving towards a flat tax. 
I listened carefully to Mr Flavell who said he was concerned about income distribution. That is true but I make two points. The first is that it may well be that some percentage of the world of a country or of Auckland owns a large percentage of the wealth or receives a large amount of income. But how is that achieved? 
Hon Member 
: Hard work. 
RODNEY HIDE 
: Maybe but it is not something that just fell out of the sky necessarily. When we are thinking about redistributing wealth we should understand that it is not smart to do it through the tax system actually. Tax is a very very blunt instrument with which to distribute wealth. Why? The reason is that when we tax hard the people who are on a high income or who have a lot wealth then those people tend—and I will not use a profanity—to leave the country or they tend not to invest here. Therefore the economy is flatter than it would otherwise be. So it is not smart to be taxing people hard; it is actually better to have a tax system that raises the money needed then provide for those we want to help with direct payments rather than by trying to corkscrew the tax system. By the way if we try to corkscrew the system we will not actually get very far because people do not like being punished through the tax system. When Britain had a tax rate of 98c in the dollar no rich person paid it. That was the reality. Actually the income gaps in the UK widened with high taxes. 
So I make the point that although we have a concern about helping those on a low income giving that help through the tax system is not the smartest way. Really if we want to be fair we want one tax rate so that people who earn twice as much as other people pay twice as much tax. By the way GST is a flat tax. It is a flat tax on consumption. If we spend twice as much as other people we pay twice as much GST. That again seems to me to be fair. If we have a flat tax for GST why not have a flat tax for income? 
We also want a system that is easy for the Inland Revenue Department to administer. I say to Mr Copeland that that is what I am worried about. Imagine having a tax system that relates to the “intent” of a taxpayer. That is actually pretty tough and I think we are giving a big job to Inland Revenue Department officials and to the courts because people who truly want to rip off the system will know how to get around the intent clause—by being very careful about it. How can it be that a person’s tax is determined by what he or she intended at the time and how on earth is an official to know when looking at a tax return what the intent of the taxpayer was when he or she made a purchase? People can make up a great cock-and-bull story about why they bought a house and are now selling it and why they have done it 10 times over a year. At some point one has to accept the story; at some point one does not. It actually becomes an arbitrary system whereby Inland Revenue Department officials and the courts judge what is in a taxpayer’s mind at the time. I do not believe that it is necessarily a good system. 
By the way we also want a tax system that is easy to comply with—but the system has become a whole lot harder. Why? Because we have tried to hit the rich by putting the tax rate up to 39c. We have tried to screw the playing field around to encourage this and discourage that. The tax system has become so much harder in the last few years. If the Government wanted to make it easy it would make it flat. That would make it easy and fair. 
We also want a tax system to be efficient. By that I mean that the Government has a target of how much money it needs. In the case of the Labour Government I think its target is way too high given the surplus. When a Government is designing a tax system it should be doing it so that it raises the amount of money with the least cost possible. The real costs are not in filling out the paper in having an Inland Revenue Department to run and in the court system; those are actually a small part of it. The big cost is the impact on the economy on jobs on investment and on trade. That is the cost of tax. We want a system that raises the targeted amount of revenue for the least cost. As politicians we do not think about that enough. 
I again ask Mr Flavell to think about this. If we have a costly tax system—a system that is making it hard to invest in New Zealand is discouraging investment or is discouraging business—then over time we will have an economy that is smaller than we otherwise would have. What gives us a costly tax system is for example our trying to register our wealth through it. If we try to do that trick we are not helping the poor at all. What we are doing is making the whole country poor. That is why I say that the efficiency of the tax system is a key point. We want a low flat tax rate and a strong economy. To get that the Government should set the tax rate for the amount of money it wants. It can set it at 10c 20c 40c or 50c. It will have an efficient system for the amount of money it wants to raise therefore it will have more money and therefore it will be able to help more poor people and have more Government-run hospitals. If that is what it wants it can do it. As politicians we have to ask ourselves about the principles and efficiency of the tax system. In terms of the technical side of things I suggest that in Mr Oliver we are in good capable hands. Thank you. 
TIM GROSER (National) 
: 
 First of all like Mr Hide I would also like to thank Robin Oliver for his great contribution and advice over the years. My past career has not much run into his although I have talked to him from time to time. But I have certainly been aware of his considerable influence and of the respect in which his advice is held in a number of important quarters in this country. I am not sure that I want to follow Mr Hide in congratulating Mr Jones on his chairmanship of the Finance and Expenditure Committee. That is not because I have any particular reason to doubt the judgment; I attended my first meeting of his committee only 2 working days ago. It is just that Mr Jones may have a significant role to play in the Labour Party’s political future and whether receiving high praise from the leader of the ACT party is of great benefit to him is something on which I would pass no particular judgment. 
I have been watching the political progress of this bill with a mixture of bemusement amusement and sometimes I would have to say amazement. The first question was—and I am really addressing here the question of the differing treatment of overseas investment income—whether there was a problem. Oh yes we have known for a long time there were a number of problems—a number of distortions. But the first-order question that would arise because it really is an implied quantitative question is about the extent of the problem and whether the problem was of such a dimension that attempting to fix it would not raise larger costs than those resulting from the problem in the first place. The second order in any logical sequence of thought would have been to ask about the optimal ways through to address that problem. 
The deluge of submitters against the bill has really meant that this bill—a bill of extraordinary complexity—has undergone the equivalent of genetic modification: political manipulation. It reminds one very much of that clichéd joke about the camel having been composed or designed by a committee. In some parts the bill looks as though it bears only a casual resemblance to its original life form its original structure and its original ideas. It has been pushed and pulled to assuage this or that submitter this or that party in support of the bill this or that opinion and this or that new fact that emerged in the process of examining the bill. 
That reminds me of something that is often said about ideas that run into trouble. They are said to go through five stages. The first stage is the first-mover stage. Somebody in Mr Cullen’s office—maybe Dr Cullen himself; I do not know whether it was him or an adviser in his private office—or someone from Treasury or the Inland Revenue Department would have drawn attention to this distortion and made the argument that something needed to be done about this problem. Stage two is of course growing interest in the proposal. Stage three is that the proposal is the new consensus; everyone around Dr Cullen’s office agrees that now is the time to move to reduce or remove the distortion. Everyone is on board. Technicians perhaps in the Inland Revenue Department who are aware of the vast technical complexity actually involved in implementing such a policy recommendation are very wise to stay quiet. 
I think we are now at stage four of the idea with one further stage to come. Stage four is the stage when an idea goes a little sour. Growing doubts appear about the wisdom of having embarked on the course of action in the first place. So now that the submitters have come in we see water is pouring into the ship and instructions have gone out to put out the political lifeboats and get ready to jettison some of the ballast that is not required. We have the extraordinary vision of Sir Ron Brierley who has now through the political process that I am describing gone beyond the status of being a living legend amongst New Zealand investors to become effectively at least for some years to come a de facto head of State in terms of taxation treatment. 
We have not quite got to stage five. Stage five is of course the stage where the pernicious unintended effects of legislation like this come fully home to roost. Those who were not involved are rewarded and those who were involved and were responsible for the idea are punished. Well fortunately we have a thing called the democratic process and the people responsible for that are the New Zealand electorate. I took particular note of the point that Bill English made earlier in this discussion about the Government almost certainly being unaware of the huge numbers of New Zealanders—not just a few rich folk out there—who are affected by this bill and I am sure Mr English was absolutely right. The Government had quite a shock when it found out the dimension of the problem that it had raised by stirring the swamp up on this particular issue. 
The bigger picture here frankly is the need for serious tax reform rather than fiddling with something that could well have been left alone. We now see that we are in a position in this country where we have the fatal combination of bracket creep in terms of taxation jargon and unadjusted taxation rates. This bill of course does not want to go anywhere near that issue. We understand that because we know there is a subsequent stage to come in the process of so-called taxation reform. It will come sometime before the next election when an adjustment to the brackets is made in order to take account of the fact that in the last 6 years there has been a 50 percent growth in the number of taxpayers who fall into the $38000 to $60000 a year income bracket where they move because of the discontinuity in the tax break from paying 19.5 percent of their income to paying 33 percent. So the argument will be made later on the adjustment will be made and then the New Zealand public in a rather larger political debate than even this debate will have to make up its mind as to whether in the course of a 3-term Government that amounts to a credible and continuing commitment to taxation reform. 
The second bigger picture here is the need to do something about this country’s savings position. Like others I am sure in this House I am aware of quite a complicated debate in economic circles—well at some levels people say there is not necessarily a problem and others define it in terms of the way that one measures savings flows. That often comes down to a question about whether a dollar invested in housing equity is equal to a dollar invested in a Government surplus is equal to a dollar invested in managed funds and about the complicated economic effects that arise from those different forms of savings. Although I accept that there are differences of view amongst commentators on that I do not think there is any serious question that a couple of things in that overall picture are of great importance to New Zealand. 
First of all if we look at the narrower definition of savings in financial assets we see we do not look very flash. As time goes by particularly in comparison with Australia the situation looks increasingly less attractive from our point of view. That is factor No. 1. Factor No. 2 which I do not think there is a great deal of disagreement on is the dismal picture on investment flows which are—at the present moment with our current account deficit being around 9.7 percent of GDP—the second-highest in the developed world behind Iceland’s. That is a very serious problem for this country. Part of the problem of course is the huge imbalance in investment income. That is not an argument to put controls on inward investment. No no we should be very thankful that foreigners are prepared to fund a high level of consumption with their own savings. 
But of course there is a problem here. In 2005 some $13 billion went out of the country in terms of investment outflows. That represents a return from investment in New Zealand assets. So it is a matter of some importance that we actually implement policy structures that are designed to encourage an outward flow of investment from New Zealand taxpayers which will actually start to ensure that we have some reverse flows to balance off that rather dismal picture overall. 
Does this bill address that issue? Does it provide the greater certainty required for New Zealanders to invest increasingly more of their assets in overseas investments? I think not; I think decidedly not. 
A party vote was called for on the question  
That the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill be now read a second time. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Bill read a second time. 
In Committee 
Part 1 Annual rates of income tax for 2006-07 tax year 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Part 1 of this Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill has actually been largely ignored because of the very controversial issues contained in Part 2 in particular. But Part 1 is a very important part of this bill because it confirms the current income tax rates for the 2006-07 year. There are a number of questions that I think should be rightly posed about this to the Minister in the chair the Hon Peter Dunne because when the current tax rates—including the 39 percent tax rate—were introduced by this Labour Government back in 2002 I clearly remember Dr Cullen speaking in this Parliament and telling New Zealanders that this higher tax rate of 39c in the dollar would be imposed on only 5 percent of New Zealand income earners. It would be only the highest income earners who would be paying this high tax rate. So the question I now have for the Minister in the chair is what percentage of New Zealand income earners when we confirm these same tax rates—including the 39 percent tax rate above $60000 income—will be paying that 39 percent marginal tax rate. 
I think it is a relevant issue. Dr Cullen promised that only 5 percent of New Zealanders would pay this rate. It is relevant to the Minister in the chair because we all know he is of the view and has pushed the policy quite strongly that the tax thresholds should be indexed. Now I have two questions on that matter to the Minister. The first question is when will the tax thresholds be indexed. The second question in relation to that is at what point they will be indexed. 
Let me explain what I mean. Will they be indexed at a point where only 5 percent of New Zealand income earners pay that top tax rate? In other words will the threshold be raised until only 5 percent of New Zealand income earners pay the top rate as Dr Cullen promised or will they be indexed at the status quo where—what is the figure—10 percent or 15 percent of New Zealand income earners now pay that top tax rate? So I think there are two issues there that I would be particularly interested in. The first issue is what is the percentage of New Zealand income earners paying that top tax rate. The second issue is when indexation will start and what proportion of New Zealand income earners will lock into that top tax rate. 
There is no question that by confirming these tax rates this Parliament is locking in a very high level of revenue collection—a very high level. Revenue collection by this Labour Government has gone up since it came into office in 1999 I think something like 60-odd percent—a massive increase in tax collection by this Labour Government. Clearly this Labour Government is currently carrying very large fiscal surpluses. So I think the Minister in the chair should tell us exactly when the indexation of the thresholds will start and whether it will lock in the status quo where a very much higher number of New Zealanders will be paying that top tax rate. 
 I think New Zealanders deserve to know whether this Government will seriously address the possibility of a reduction in personal income tax rates for New Zealanders. We are becoming a very highly taxed country. The proportion of our GDP being taken as tax is climbing now. It has declined for many years and it is now climbing again. We all know that that is a negative for our economy. For the percentage of our GDP taken in tax to be climbing again is a negative for economic growth. Given the overall tax policy he is pursuing as Minister of Revenue I would like to hear as well from the Minister what the prospects are not only for indexing thresholds but of us seeing these actual tax rates that Part 1 confirms are the current arrangements—15 percent up to $9500 21 percent up to $38000 33 percent from $38000 to $60000 and 39 percent from $60000 and above—being reduced. These are very specific questions to the Minister. 
Hon PETER DUNNE (Minister of Revenue) 
:  
Let me respond to the points the member has raised. The first point he asked was what is the percentage of taxpayers now in the 39 percent bracket bearing in mind the claim in 2000 that only 5 percent of taxpayers would be affected. If he cares to look at Treasury’s estimates that were produced at the time of this year’s Budget he will see that that figure has now risen to 12 percent. He will note also from the comments made to my right that that has to be taken into account alongside income growth in the period since the year 2000. [ 
Interruption 
] 
The second question that the member raised—and by way of interjection now he makes a reference to bracket creep—was to ask when indexation might occur. Let me say this in response to him. The Budget last year made provision for the start of an indexation programme along the lines that my own party had advocated for. The agreement that we have between the two parties at this stage relates to a business tax review. That work is ongoing and will be completed in time for decisions next year. We have indicated that the consequence of any shift in corporate tax rates or corporate tax arrangements will have implications for the personal tax system and they will be considered at that time. 
So in response to his question I would expect decisions on all of these matters to be made in the first half of next year—announcements around the time of next year’s Budget—and legislation to be in the House shortly thereafter to give effect to changes in time for 1 April 2008. All of that information has been available since the business tax review document was released in July. 
A party vote was called for on the question  
That Part 1 be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Part 1 agreed to. 
Part 2 Amendments to Income Tax Act 2004 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
:  
Part 2 is obviously the really significant major part of this bill. I would like to take two or three calls on it at various stages this evening because I would like to deal with two or three issues. Let me first though just revert back to an earlier comment. Do I see Mr Shane Jones anywhere in the Chamber? He talked a moment ago about how sensible this bill and the new regime in Part 2 on taxing foreign portfolio investments are. I want to contrast that with what Mr Jones said publicly when he thought his comments would not be recorded in Napier only 2 or 3 weeks ago. That was after the Finance and Expenditure Committee had done most of its work on this bill. 
What did Shane Jones the Labour chair of the Finance and Expenditure Committee have to say about this taxation regime? He said: “Why bother investing in shares when you know you’re going to get taxed potentially on gains”—so there was Shane Jones acknowledging there would be a tax on capital gains—“you’ve not even received now called the fair dividend rate …”. So he acknowledged the fair dividend rate would be a tax on capital gains that someone had not even received. He went on to say: “… when you have all the incentives possible to go out and buy another house as a rental?”. That is what Shane Jones the Labour chair of the Finance and Expenditure Committee really thought about this legislation when he thought that his audience would not report back to this Parliament what he had said. I think it is very informative that the chair of the select committee actually said that kind of thing in a public gathering in Napier and did not expect it to get back to this Parliament. 
The first issue that I want to focus on in Part 2 is the establishment of the portfolio investment entities. In principle we have no problem with that proposal. We support the concept of establishing for managed funds the principle that they should not be taxed on their capital gains here in New Zealand on investments in New Zealand. I think it was Gordon Copeland who emphasised that point; having their taxation arrangements the same as those on individuals’ investments in New Zealand makes perfectly fine sense. 
But the issue becomes more complex when we introduce the look-through procedures as Part 2 does to try to tax individuals’ investments in managed funds at their personal marginal rate. What makes it more complex is that the returns to investors are not being taxed in the investors’ hands at their marginal rate. That would be a much more simple process. The problem for Labour members was that if they approached it in that simple way that would affect the Government’s family tax credit arrangements particularly its big icon policy of Working for Families. Obviously if it were to be done in that sensible way—the investment return is received in the hands of the investor to be taxed at his or her marginal rate—of course it could make a significant difference to the amount of income that a family received through Working for Families. So what the Government decided it had to do and what this Part 2 does is to force the new portfolio investment entity established in Part 2 to calculate the tax and pay it on behalf of the individual investor so that it does not count against the individual investor’s entitlements to family tax credits and Working for Families tax credits. 
But that introduces massive complexities. I want the Minister in the chair Peter Dunne to answer quite an important question on this. The select committee heard from a group of very significant researchers at Auckland University. I thought Michael Littlewood and Susan St John made an important submission to the select committee on this issue. They made the point that it is simple to say we should tax the returns at an individual’s own rate in a managed fund investment but giving effect to that is anything other than simple. They say that if we take a modern superannuation scheme with an investment choice—one where investors have some choice—in order for a big scheme with 100000 members to become portfolio investment entity - compliant it would involve up to 15 billion extra data points. I will repeat that figure. The evidence to the select committee was that for a major fund to become portfolio investment entity - compliant calculating out the tax on the basis of an individual investor’s individual tax rate would involve up to 15 billion extra data points of information that would have to be kept by that superannuation scheme. That is a massive increase in extra data handling by a managed fund. 
That was not put to us by some person off on a wild daydream; the people who made that submission to the select committee were Michael Littlewood and Susan St John who are two very respected researchers in this area. They put it to the committee that this measure would impose a huge compliance cost and that many employer superannuation schemes simply would not be able to become portfolio investment entity - compliant because they would not be able to pass on those costs. 
Maybe the Government today with its latest Supplementary Order Paper enabling superannuation schemes to be exempt from specified superannuation contribution withholding tax without becoming portfolio investment entity - compliant will solve this compliance problem for many superannuation schemes. Maybe that last-minute move could help with this issue. But I would like the Minister in the chair Peter Dunne to respond to the very serious submission made by those researchers. I ask whether the Government has looked seriously at the issue of the massive increase in the number of data points of information required by a significantly sized superannuation scheme in order to become portfolio investment entity - compliant. Where that fund is an employer superannuation scheme obviously it cannot pass on those costs. 
So I think that there are significant issues around the design of this proposal to tax individuals’ investment in managed funds at their own marginal tax rates. It is complex because the returns from the investment are not being taxed in the individuals’ hands; the tax is being calculated by the fund—by the portfolio investment entity—which adds significant complexity. For example given that the portfolio investment entity pays the tax on behalf of the investor what happens when the investor pulls out? There are a number of overs and unders here. If the investor pulls out of the portfolio investment entity presumably that entity has to pay the tax. 
I would appreciate the Minister in the chair telling members how often the portfolio investment entity recalculates investor ownership of investment in the fund to make sure that the averaging throughout the year delivers an average tax rate because we must not forget that the tax rate that the portfolio investment entity pays is the average of the individual tax rates of all the investors in that fund. In order to get that exactly right the portfolio investment entity would have to attribute income on a daily basis. Does the Government intend that portfolio investment entities should attribute income on a daily basis a quarterly basis or a 6-monthly basis? I think that the Minister should explain that to the Committee because I am sure that many members would not have much of a grip on that issue. It does affect the fairness of the tax rate paid because depending on the balance of investors on a daily basis in a particular portfolio investment entity fund it influences the average tax rate owed on the income received by the fund on any given day. 
So I really would appreciate the Minister responding to a number of significant issues in relation to the establishment of portfolio investment entities. Later on I will come to a number of other issues relating to the investment of income in offshore portfolio investments. However with regard to the portfolio investment entity issue we support the concept of taxing people’s investments in managed funds at their own marginal rate. But because the Government does not want to affect their Working for Families income it means that portfolio investment entities have to do all the tax calculations and pay the tax on behalf of investors and that causes huge complexity. 
I would appreciate it if the Minister could respond to those specific concerns. 
GORDON COPELAND (United Future) 
: 
 I would like to take a call on the 5 percent fair dividend rate which is contained in Part 2 of this bill. I think I have earned the right to speak on this because I listened to many many hours’ worth of submissions on the fair dividend rate and I must say that some of them were a mixture of ignorance wisdom and everything in between. I think that it is very important to at last put a few facts on the table with regard to the process that has led to the 5 percent rate and if you like its “embeddedness” into the reality of what it means to invest in the stock exchange. When we buy shares in a company we become a part-proprietor of that company. We may be only one-millionth proprietor because there might be almost a million other shareholders but we nevertheless are proprietors of that company. After that company has earned an income and has paid its due tax on that income—in whatever jurisdiction in whatever country in the world it belongs to—the after-tax income belongs to the shareholders of that company. Therefore as investors we have a share of that income. 
What this bill attempts to do is to say that the Government will tax us a fair amount and a fair rate based on the fact that we have just gained an income. After all this is an income tax bill. The evidence placed before the Finance and Expenditure Committee which is very well known was that over time if we invest on the international stock exchange around the world—and we could look at various periods but if we take the period from about the 1980s through to today which is about 26 years—on average the income yield or the return yield to an investor is 9 percent. This bill says that the Government will tax investors on 5 percent out of that 9 percent. Why not the whole 9 percent? The reason is that some part of that 9 percent in addition to the income that investors receive from the company is the market’s evaluation of the future income stream of the company which we call capital gains. It is an estimate of what the ongoing earnings might be capitalised today. The whole theoretical basis underlying that is called the internal rate of return or the net present value of future income streams which comes into today’s valuation on the stock exchange of those particular shares. 
This bill does not in any shape or form tax genuine capital gains from the stock exchange. It is a tax on if you like a fair dividend yield—and I will put this fairly and squarely on the record: if a company earns an income after tax regardless of whether it distributes that income by way of dividends or retains it the investors as shareholders have still gained an income from that company. That is the essential point of the fair dividend rate method. We are saying that if people are shareholders they have earned some income and because we have an income tax system on every other form of income in New Zealand—whether the income is gained here or from overseas—those people need to pay their fair whack of tax on that income. 
I have mentioned that the average return is 9 percent and that we are taxing at a rate of 5 percent. Is there anything magic about that? The answer is no but the rate is about right. It is as right as any other rate that anybody who came before the select committee could otherwise argue for. Some people who came before the select committee—many people actually—said that investors should pay tax only on the actual dividend they receive. That is pure nonsense and anybody who has ever had any dealings at all or who has ever invested in the stock exchange knows that that is nonsense. I for one was very disappointed to sit there and hear members of my own profession come along and make that ridiculous argument. As I said before it does not matter whether one receives a dividend; one receives an income. And if a shareholder does not receive an income everybody knows that the value of that person’s shares on the stock exchange goes up. Immediately when a company declares its profit the value normally goes up. It comes down of course if the company declares a loss. 
Dr the Hon Lockwood Smith 
: That’s a capital gain. 
GORDON COPELAND 
: That is not a capital gains tax; that is a share of income earned. I have just explained the difference between the two things. I will take another call if the member does not understand the difference and I will explain it again. One gains a share of an income when one buys a share in a company. One becomes a proprietor of that company. We are attempting to put an income tax on a fair share of that income. I would say that the 5 percent is actually rather conservative when we take that reality into account. 
TIM GROSER (National) 
: 
 I will take just a brief call on Part 2. I will focus on a couple of aspects of interest to us in the National Party. 
First of all the key point I think is the one made by my colleague Dr the Hon Lockwood Smith. The changes to portfolio investment entity compliance are something that in principle we welcome but Dr Smith has asked a number of admittedly highly technical questions that are extremely important in terms of whether we can realise through the policy implementation the reasons for our moving in this direction in the first place. We look forward to the Minister of Revenue responding to Dr Smith’s invitation for him to take the call. 
The key point from our perspective is that these positive changes to portfolio investment entities could have been introduced with the Government staying away from the whole issue of the “grey list”. The Government lurched away from its initial proposal a crude but unrealised capital gains tax as submitters poured into the Finance and Expenditure Committee with their problems with this issue. Thank goodness the Government moved away from its initial proposal—we should be thankful for small mercies—but although the fix of the fair dividend rate that we have before us is certainly superior to the original proposal we can see all manner of unintended consequences that will have to be addressed in due course. 
We know what some of these consequences will be as the submitters have already drawn attention to some of the major policy issues that we will have to confront as this bill is implemented. There are issues to do with the huge portions of our workforce that are employed by multinationals and the fact they are locked into employee stock ownership options often for a number of years. These employees will not be in a position unless they want to leave the company to get out of the company and pay the tax bill. This is one of many problems that submitters have identified. 
Then there is the question about currency shift. This is at one level just a question of equity but at another level there will be some long-term effects from the way that the Government has approached this. If we are taxed on foreign investment earned obviously by definition we need to convert our earnings into New Zealand dollars to arrive at the assessable income required. This will involve an exchange rate and if the currency has fallen the assessable income will rise. Is that fair? And what are the economic implications? 
This raises—in my mind at least—some quite interesting questions about how we actually address tax policies and residency policies in the era of globalisation. This is something that we have had to look at in almost all aspects of policy making whether we are talking about trade or employment because we are operating in this country for all intents and purposes with global competition for skilled and semi-skilled labour. It is also necessary to look at the implications of this in terms of the legislation before the House tonight. 
So many of our policy models including tax models are based on the dominant model. That model is that let us say Mr John Smith and Ms Mary Smith live their lives in New Zealand earn their incomes in New Zealand travel to Fiji for their holidays—when it is not having a coup—and are New Zealanders in every sense. That is still by far the dominant policy model to which our policy structures have to accommodate. But it is being eaten away at the edges by a number of other issues that people have to have uppermost in their minds if New Zealand is going to survive and really place itself well in the forefront of small developed countries. 
Let me convert the John Smith analogy to Mr and Mrs Chen Wang. I am sure that the Minister being an aficionado of Taiwan knows that that is a common family name in Taiwan. Or I could use a Korean example Dr Che who is living amongst the I think 30000 Korean families that we talked to the Korean President about on Sunday during Mr Key’s courtesy call on him. How would those people sitting in Auckland react? Perhaps a large number of them still have very substantial assets deriving from their opportunities in Pusan or Seoul. Those assets will be converted into New Zealand dollar terms when the currency falls. Do members think that when the implications of this come home to roost those people will lift their glasses of soju and thank the Labour-led Government? I doubt it very much. 
R DOUG WOOLERTON (NZ First) 
: 
 If anybody except the dedicated financial investor is still listening I will be surprised but if they are I suggest to them that they are now understanding the complexity of the issues that this bill addresses and they are starting to see the issues that we had to deal with and the sorts of things that happen in the investment world. 
Following on from Mr Copeland I think that if people in other countries for whatever reason will pay out dividends incorporate that into capital and pay out on what they call the capital account then it is totally acceptable for us to work towards some sort of regime that will in part capture a fair amount of that. That is what is called the fair dividend rate that is what is encompassed in Part 2 and that is what we are doing. All over the world there are different tax regimes. People talk about our wonderful neighbour Australia which taxes the heck out of people who invest in overseas countries—to a far far greater degree than we do here in New Zealand—yet I hear it lauded as a wonderful bastion of free enterprise go-go business and all of the rest of it. It is absolutely acceptable that something like this is done because of the situation this bill faces as far as the investment areas are concerned. 
To have a fair dividend rate of 5 percent is absolutely fair. All of these things are a compromise and I think it is as good as we will get into the foreseeable future. Likewise with the portfolio investment entities it is no secret that some of us would have liked to have seen some newer more innovative players come into the market in this area. I know that the Minister Peter Dunne’s Supplementary Order Paper is trying to address some of that. 
But it is no surprise because of the things that Dr Lockwood Smith has mentioned that those who have become default providers in the first instance in this area are in the main some of New Zealand’s biggest investment companies. They are the ones with the computer horsepower and all of the sorts of things that enable them to look after the individual mum and dad investors who—what shall I say without being mean to them—do not have the expertise to look after their own taxation or the time I might add to go through all of the calculations that that entails. The portfolio investment entity will do it for them. It is right that that happens. There is no hidden agenda here. Most New Zealanders will be thankful that those companies actually have the computer horsepower and those sorts of things to do all of these calculations. 
People are talking about the hidden misdeeds of this Government and saying that it is heading in directions that may be secretive and that it has other agendas. The Government is simply understanding and accepting that people who invest through a managed fund will not by and large run off to the accountant to do all of these things themselves. These people are not with due respect sophisticated investors. 
Part 2 takes care of a lot of these things. I think the fair dividend rate is the proper way to go. Although it is a compromise it is something that will do the job admirably. In respect of the portfolio investment entities although we would like to have seen some more innovative companies involved it is no surprise that they have ended up being the bigger companies in New Zealand. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Having raised a few issues just a moment ago over the establishment of the portfolio investment entities I will now raise some issues around the shrinking of the “grey list” and the establishment of the 5 percent fair-dividend rate. I cannot help but note that Gordon Copeland from United Future in speaking a moment ago said it is foolish to argue that this 5 percent fair-dividend rate new tax is in any way a tax on capital gains. Of course the Ministers in writing to the Finance and Expenditure Committee when the Government did the big U-turn on the original 85 percent capital gains tax said to the select committee that this fair-dividend rate was a method “which would also not target capital gains but rather something approximating a reasonable dividend yield.” The Ministers even said they did not want it to be a capital gains tax. 
I put this example to Gordon Copeland. One has $100000 in a portfolio investment offshore—less than 10 percent shareholding in any company. If in New Zealand one has a zero dividend payout for the year and let us say the investments are mainly in America the UK Canada or whatever—they have to be in “grey list” countries—and the exchange rate between New Zealand and those countries was to decline by 10 percent then those investments in New Zealand dollar terms have gone up for the year. One has had no income from them yet under this 5 percent fair-dividend new taxation that the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill would bring in one would be taxed on those—even though one has had no income. All that has happened is that the capital value in New Zealand dollars of those investments has gone up because the New Zealand currency has declined against those foreign currencies. 
So the capital value of that investment in New Zealand dollar terms has gone up. One has had no dividend and the value of one’s investments in the currencies of investment has not gone up. But the New Zealand dollar value has gone up. That can be nothing other than an apparent capital gains tax because in New Zealand dollars one has had an apparent increase in the New Zealand dollar value of the capital of one’s investment and one is going to be taxed on it. 
I say to Gordon Copeland that this tax does tax capital gains. I would appreciate hearing the Minister’s comment on that—whether the Government has really thought through that issue and it is happy that New Zealanders will face taxation when the currency goes down. When the currency goes up of course they are not necessarily in a better position because although they may not owe tax or may owe less tax when the currency goes up they do not recover the tax they have paid when the currency goes down. 
Also I point out to Gordon Copeland the weighted international average dividend yield at the moment is 2.2 percent—the committee heard that repeatedly from experienced international fund managers. Those fund managers said the weighted average dividend yield internationally is currently 2.2 percent. That means if one is assuming a 5 percent return for managed funds here in New Zealand one is taxing way beyond the dividend yield. I do not care what fancy way Mr Copeland wants to define “income”. Income is only what one receives. Income is always defined by what one receives. That is why we refer to things as capital gains; they are gains because they are not income. They are only income when the capital is realised. If one is in a trading position then one is taxed on that realised capital here in New Zealand—as Mr Copeland pointed out. 
I come back to the point that with this 5 percent fair-dividend rate—which is supposedly fair and which National is seriously opposed to—because of a number of these issues such as currency shifts one faces a tax bill. If one’s investment goes down in value this year returns to the same value next year and no dividend is paid then one is taxed on the return to the same value as one started at. I would appreciate the Minister telling me whether I am wrong there but I believe I am right. Over a 2-year period if the value of one’s investment offshore goes down this year one is not taxed—I accept that. But if it returns to the start value next year one is in terms of wealth no better off because one is only back to where one started yet one faces a tax bill and has had no income. The investor is only back to what the investment was valued at last year—and Mr Copeland is saying that that is income. He is saying that this new tax is taxing only income. I put it to you Mr Chairman that it is not credible to make that argument. I would appreciate the Minister’s comment on that. 
So National is very opposed to this new 5 percent fair-dividend rate tax. It is a new tax that does have an element of capital gains in it and it is unfair. 
GORDON COPELAND (United Future) 
: 
 I will not get an opportunity to speak on the third reading of the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill so I will take another brief call to reinforce that the Minister the Hon Peter Dunne has actually got it right when the Government has chosen to tax income on international share investments at a rate of 5 percent. Just following on from the remarks I made earlier let us take a real-life illustration of the principle at work here. It is well known that for many many years Microsoft paid no dividends—no dividends whatever. It would be patently absurd to argue however that the shareholders in Microsoft were not getting an income because each and every year Microsoft declared massive earnings after tax. The whole reason that its price zoomed up many many percentages every year on the stock exchange was the income the company was producing. 
And that illustrates the point. Where one has zero dividend in spite of the fact that one has a huge income then quite obviously the amount of dividend distributed has actually no meaning whatever in terms of what is the right amount of income to tax. That is why the average dividend yield internationally is 2.2 percent. Some companies do not actually pay dividends. Unilever in Britain is another example of a company that does not pay dividends. The tax systems there do not encourage companies to pay dividends so they simply capitalise that income and move on. 
The other point Dr the Hon Lockwood Smith raised was in relation to foreign exchange movements. Well that is a different transaction. A profit on a foreign exchange movement is also a profit and is taxable in New Zealand dollar terms. If one has a loss on foreign exchange because of that then obviously that loss also offsets one’s tax here in New Zealand because simply speaking one pays tax in New Zealand on New Zealand dollars. But there are two elements happening. One is the income one gets from the company which will be taxed at 5 percent. The other thing is the loss or gain one makes on the currency movements that have occurred between New Zealand and whatever country one has invested in during that period of time. They are two quite separate things and we should not confuse them. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I thank firstly my colleague Gordon Copeland and also Doug Woolerton for their comments on Part 2 and the contributions they have made. I also say to Dr Smith that I am going to attempt to respond to a number of the points he raised. I go back to the first point he raised concerning the portfolio investment entity rules as they affect superannuation funds. He will be aware that the Finance and Expenditure Committee has made a number of changes in that area. For example there is now a simplified method of allocation available for entities such as superannuation funds to allow them the benefits of being a portfolio investment entity with few compliance costs. That method will require the fund to continue to pay provisional tax. The fund will be required to calculate the portfolio investment entity tax accurately on behalf of its members at the end of each year rather than on a quarterly basis and would make an annual investor interest adjustment within 3 months of the end of the tax year in order to ensure that 19.5 percent taxpayers receive an additional entitlement to reflect their lower tax rate. The fund will also be liable for the tax on the share of the current year’s income that is paid out to investors that exit the fund during the year. The select committee has recommended some other changes as well. 
I should just say to Dr Smith that the complexity issue has been substantially modified and the proposals that the bill now contains are largely supported by the industry as being a vast improvement on what was in the bill in the first instance. The claim that was made based on the St John and Littlewood evidence has been substantially addressed in the amendments recommended by the committee. 
I turn to the question that Mr Groser raised regarding share ownership schemes which has been acknowledged as a problem. Again the Finance and Expenditure Committee has made some amendments that seek to address that issue; for instance no tax will now be payable for the period when an employee is unable to sell out of the ownership scheme. So some improvements have been made there. 
I will talk on a point that both Dr Smith and Mr Groser also made about unrealised gains currency shifts and all of the impacts that they might have on the value of an individual investment. The key point to make here is what the key difference is between the respective arguments in this whole bill. The bill says that the fair dividend rate is deemed to be 5 percent or the actual value of the dividend paid in years where a profit accrues—in other words where a gain takes place. Where a loss occurs no tax is payable. The position taken by the National Party has been a 3 percent flat rate payable in years when there is a gain but also payable in years when there is a loss. So the difference is essentially between 5 percent which will actually average out at around 3.4 percent over a period of time versus a situation that says it is 3 percent regardless of whether the value of one’s investment has increased or decreased. That is the essential difference between the two broad positions on this bill. 
The members say it is complicated. Frankly I think there is an issue of fairness here. Taxpayers will feel that it is reasonable to pay a tax in years when they have something positive to show for it. They will resent the idea of being taxed in years when there is a loss and that is the nature of the debate that has taken place. 
The one other issue is the debate that has been ongoing about whether this is a capital gains tax. The whole notion of the changes that the Minister of Finance and I recommended to the select committee was around dividend yield and to get away from the notion that was implied in the original proposal—the 5 percent of the 85 percent and all of that—of that being a capital gains tax. We wanted to make it absolutely clear that that was not our intention; we were seeking to get a reasonable tax payable on an investment. That is why we called it as such—the notion of a fair dividend rate became available. I note that again the difference between the parties is not great: a deemed rate of return on the one hand versus a fair dividend rate on the other 3 percent flat on the one hand versus 5 percent—or zero in loss years—on the other. It is a very small point of difference. 
Having heard a lot of the arguments—and I am sure the member will appreciate my saying this—having received several thousand letters and countless delegations and having talked to lots of meetings up and down the country we believe that the mechanisms contained in this part of the bill are a step forward. These things will always be difficult to some degree or other but we sought to try to address the major issues and come up with a regime that is fair and equitable and that recognises a couple of key points. 
The member touched earlier on the question of the “grey list”. I thought I referred in my second reading speech to one of the anomalies which is that the emerging economies of Singapore China and India are not on the “grey list” so we immediately have a disadvantage for investment that goes into those economies as opposed to those on the “grey list”. We have been trying to create a regime where it is attractive for New Zealanders to invest offshore. We recognise that most people invest through their own efforts and most of that investment goes into Australasia. Around 70 percent of investment from New Zealand goes into Australasia around 15 percent into the “grey list” and around 15 percent into non - “grey list” countries. Part of the emphasis on Australasia was simply a recognition of what is the status quo. 
We have attempted therefore with the remaining 30 percent to draw rules that are clear and unambiguous and that are essentially fair and do not discourage people. That is the real point in essence here but I come back to the point that I began on. The essential difference between the two sides in this arguments is 5 percent for the funds and a floating rate if you like for individual investment versus a flat 3 percent win or lose. I think it is a very small point of difference. 
The question was put that the amendments set out on Supplementary Order Paper 84 in the name of the Hon Peter Dunne to Part 2 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 2 as amended be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Part 2 as amended agreed to. 
Part 3 Amendments to Tax Administration Act 1994 
A party vote was called for on the question  
That Part 3 be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Part 3 agreed to. 
Part 4 Amendments to other Acts and regulations 
The question was put that the amendments set out on Supplementary Order Paper 84 in the name of the Hon Peter Dunne to Part 4 be agreed to. 
Amendments agreed to. 
Part 4 as amended agreed to. 
Schedule 
A party vote was called for on the question  
That the schedule be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Schedule agreed to. 
Clauses 1 and 2 
A party vote was called for on the question  
That clause 1 be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Clause 1 agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 84 in the name of the Hon Peter Dunne to clause 2 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Amendments agreed to. 
A party vote was called for on the question  
That clause 2 as amended be agreed to. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Clause 2 as amended agreed to. 
The Committee divided the bill into the Taxation (Savings Investment and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2006-07) Bill  
divided into Taxation (Savings Investment and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2006-07) Bill  
pursuant to Supplementary Order Paper85. 
Taxation (Savings Investment and Miscellaneous Provisions) Bill 
Taxation (Annual Rates of Income Tax 2006-07) Bill 
Third Readings 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Savings Investment and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2006-07) Bill be now read a third time. 
 I begin by acknowledging the contribution made by the members who took part in the Committee stage debate and also that made by the members of the Finance and Expenditure Committee who have worked so hard on this legislation over the last few months. 
I also join with other members who during the earlier debates expressed their congratulations to and admiration for the work of Robin Oliver and the team at the policy advice division of the Inland Revenue Department. This year has been one of the busiest years on record in terms of tax policy and I know better than most the stresses and strains that Robin and his team have been put under. I simply want to put on record this evening my appreciation for the admirable work they have done and I am sure that most members of the House would join me in that. 
These bills complete a long process of reform that had its genesis way back in the 1980s. Reference was made earlier to Sir Roger Douglas attempting in the 1980s to do what these bills do and being unable to complete the exercise. The National Government in the 1990s attempted something similar—and I seem to recall being Minister of Revenue at that stage as well—but was unable to complete the exercise. Finally tonight we complete the exercise of getting a fairer and more comprehensive regime for the taxation of both managed funds and offshore investments by individuals. This debate has been a long and arduous one at times. The proposals we originally released caused a great deal of controversy and a huge number of submissions. The select committee managed to work its way through them and it accepted some proposed amendments and I think a pretty good regime is about to be put in place this evening. 
I want to pick up on a couple of points made at earlier stages of the debate that I did not have a chance to respond to. Reference was made earlier on to the Government’s commitment to the generic tax policy process and I want to reassure the House that the generic tax policy process remains one of the jewels in our policy formation crown. This Government and this Minister have absolutely no intention of tampering with that. In fact it is worth noting that across a range of tax policy issues—and we have not finished yet; we have more to come tomorrow—around eight discussion papers as part of that process have been released on various topics this year alone. 
It is also worth noting that the Taxation (Savings Investment and Miscellaneous Provisions) Bill which gives effect to the offshore investment regime had its genesis in some work done by Mr Craig Stobo a couple of years ago. A discussion paper was issued in 2005 and it attracted from memory around 800 submissions. Dr Cullen and I released proposals for change earlier this year. They then became the original bill which attracted several thousand submissions. We have now modified those proposals with the help of the select committee the select committee has gone through a further round of consultation and the legislation now stands on the verge of being passed into law this evening. So I say that the process of consultation has been honoured absolutely. There has been more discussion on this measure than on any other measure that I can recall in the last 20 years in this House. 
Essentially at the end of it the differences between the parties come down to some relatively minor points. The position that the bill advances is that we will have a fair dividend regime under which managed funds will be taxed at 5 percent and for individual offshore investors the tax will be 5 percent of the opening value unless they can demonstrate that their actual rate of return has been less than that. The position advanced by the Opposition—by National in its minority report and during the debate this evening—was that the 5 percent rate was too high. It wanted a flat rate of 3 percent—for I think the funds but certainly for individuals. But the difference is that whereas under the proposals in the bill no tax is payable in years that individuals incur losses under the proposal advanced by the Opposition they would pay the flat 3 percent rate regardless of whether they had losses or gains. 
 So I say that if at the end of this process we have a difference of that minimal nature what we also have is broad acceptance around the House that it is correct that the concept of a fair dividend yield be the basis on which we tax these investments that the process we have gone through to arrive at that has produced a law that in the circumstances is sufficiently robust to stand the test of time and that we have completed an exercise that successive Governments over the last 20-odd years have embarked upon but failed to complete over. I think that all round in the circumstances that is a pretty satisfactory outcome and I simply congratulate all of those who have been involved—be they submitters technical advisers members of the Finance and Expenditure Committee officials or members of the House who have taken an interest—and have had a hand in bringing the legislation to this point this evening. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I thank the Minister of Revenue for his response to the questions I posed during the Committee on this legislation. I appreciated that. But what he has just put to Parliament now I do not accept and neither does National. He has just put to Parliament that there is not a lot of difference between these positions—that the 5 percent fair dividend rate is more fair because people will not pay tax in a year they do not make a 5 percent return. That is not what the officials told us. The officials told the Finance and Expenditure Committee that this legislation is so complex that people will pay the 5 percent because the cost of working out a lower possible rate for so many people is just too great. That is what officials told us. 
If members look at the National Party’s minority view in the commentary on the legislation they will see that it is not National saying that it supports a lower rate. We point out in our minority report that most submitters argued that a lower deemed rate of return would be a more appropriate policy because it would remove any element of capital gains tax. So it is not National saying that; it is what most submitters put to us. I want to make that very clear to the Minister. Submission after submission to the select committee argued against the 5 percent fair dividend rate. 
I focus on this because it is the most controversial part of this legislation. The shrinking of the “grey list” and the Government proposing initially to impose a capital gains tax on 85 percent of gains then doing a U-turn and proposing this 5 percent fair dividend rate has been the most controversial part of this legislation. The people making the submissions—people like John Shewan—did not say that a 5 percent fair dividend rate was the best way to go at all. People like John Shewan argued for a flat lower deemed rate on everything because then one could make funds and individuals the same. 
One of the goals the Government set out to achieve with this legislation was to treat managed funds and individuals’ portfolio investments offshore the same. And we accept the Minister’s explanation of the benefits that he gave during the Committee. We accept the logic of getting the “BRICK” countries—Brazil Russia India China and South Korea—into a more sensible tax regime. But to have gone for this complicated 5 percent fair dividend rate makes no sense. I can tell the Minister that his colleagues on the select committee were at times tearing at their hair asking why on earth we were going through this. I have already read to Parliament what Shane Jones really believes when he said at a meeting in Napier: “Why bother investing in shares when you know you’re going to get taxed potentially on gains you’ve not even received”—now called the fair dividend rate—“when you have all the tax incentives possible to go out and buy another house as a rental.” That is what the chair of the Finance and Expenditure Committee Shane Jones is saying about the Government’s own legislation. 
I say to Peter Dunne the Minister of Revenue that I do not accept the argument he put forward just now. I believe having listened to the submissions carefully at the select committee—and the select committee did put a lot of work into this questioning the officials closely at the select committee—that this is a revenue issue. Many of the Labour members could see the benefit of going for the Shewan model of a lower flat deemed rate where it was simple across the board—treat funds and individuals the same no de minimis no exemptions just a flat low rate. Everyone could see the benefits of that. But the officials explained to us that it would give away more revenue—and we all know that Dr Michael Cullen the Treasurer is allergic to giving away revenue. We all know that and sadly we end up with this complex 5 percent fair dividend rate that no one likes. 
I will acknowledge that people do say that it is not as bad as the complicated 85 percent capital gains proposal that Labour initially put up. It is not as bad as that; but it is still not good tax law. Most people will find it so complex they will not comply with it and that means those taxpayers of goodwill the honest taxpayers will simply pay a 5 percent flat tax rate. As one of the senior officials—I will not say which one—said to us he would probably simply pay the 5 percent flat tax rate to avoid the costs of having to calculate what the actual rate of return on his portfolio was because it is complicated. Taxpayers would have to get a lot of information to calculate the actual rate of return on their investments offshore. So many taxpayers will pay the 5 percent rate as if it were a flat rate and others will simply ignore the tax law and not comply. 
That is unfortunate because the Government had the opportunity to get bipartisan agreement on a lower simpler flat deemed rate that treated funds and individuals exactly the same with no exemptions—a very simple system that everyone could have complied with. No one would have objected to it. I point out to the Minister of Revenue the example of Telecom shareholders this year. They will pay tax on their dividends even though if they were investing in one of these offshore countries they would not because the capital value of their Telecom shares has come down so much. Even though they get a dividend return their total value will have gone down. So under this tax proposal they would not pay a tax. But in New Zealand everyone accepts that we pay tax on our income. So if we get a dividend stream we pay tax on it. That is why more people would have accepted the fairness of a low deemed rate based essentially on the weighted average international dividend yield. 
I put to the House the fact that the reason we do not have it is that Dr Michael Cullen would not allow it. That is why Labour is proposing this legislation because it brings in this complex unworkable tax that is unfair when in fact we had the opportunity to bring in a sensible tax that reformed the taxation of offshore portfolio investment sensibly. 
Can I also add my thanks to the work of the officials. I have worked with Robin Oliver for many years as a Minister in the previous Government as well as in recent years as Opposition spokesperson on revenue. I just marvel at the workload that guy and his team can carry. I feel sorry for them that they have to come up with legislative proposals to match this Labour Government’s dopey tax proposals but they do it very well given the foolish tax constraints that this Labour Government imposes on them. Sadly the officials have done good work but I think this is Mickey Mouse legislation because of the constraints that Dr Michael Cullen imposed on them. We could have had the kind of legislation that John Shewan was arguing should have been adopted. It would have been accepted far more widely across the investment industry. It would have got rid of so many of the differences between the taxation of funds and individuals. It would have been so much simpler and so much better. 
It is sad that we have not got that and National therefore opposes the bill. I do not often agree with Jeanette Fitzsimons. She called the bill a dog’s breakfast; it is. This is one of the few times I have ever agreed with the co-leader of the Green Party. But that is why National is opposing this legislation because it is not good legislation. 
A party vote was called for on the question  
That the Taxation (Savings Investment and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2006-07) Bill be now read a third time. 
Ayes 61 
New Zealand Labour 50; New Zealand First 7; United Future 3; Progressive 1. 
Noes 53 
New Zealand National 48; Maori Party 3; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Bills read a third time. 
Sitting suspended from 10 p.m. to 9 a.m.(Wednesday)