Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6040] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I wish to indicate from the outset that Labour will be supporting this urgent legislation the Crown Retail Deposit Guarantee Scheme Bill. I will provide an outline of the reasons why and particularly in the Committee stage of the debate we will provide some of the second-tier arguments that surround this issue. 
The Minister of Finance is absolutely right in his recounting of the history of the retail and wholesale guarantee schemes. Members of the House will recall with some trepidation the dark days of September and October 2008. I have a very clear recollection of the then Minister of Finance the Hon Dr Michael Cullen negotiating with the Australian Government some of the finer points of these schemes just before taking the stage to launch Labour’s election campaign. Parliament as the current Minister of Finance has said had been prorogued and it was necessary for the Minister of Finance to use the powers available to him under the Public Finance Act to implement the schemes. Crucially when the Labour Government did so in consultation with the banking and non-bank finance sectors as well as with Treasury and the Reserve Bank the then Government made clear its expectation that for major banks to participate in the very beneficial guarantees at wholesale level they would also be expected to participate at the retail level and so they did. 
The Minister is also right in his brief summary of the options available to any Government now in considering how to wind up or scale back this protection as conditions around the world have improved. Basically there are three options. Firstly a Government can go cold turkey: end the scheme as it currently stands on its current date and leave it to the financial sector to make its own adjustment. Secondly a Government can provide an unlimited extension while regularising the legislative structure as this instrument does and providing a short period under controlled circumstances of further cover. That is the approach that both National and Labour have supported. Thirdly a Government can provide the possibility of a longstanding retail deposit guarantee which is common practice in other jurisdictions. We understand that the Government is considering further work in that area and we support that but we agree with the Government that to do so in haste in these circumstances would not be good process. 
Those are the substantive reasons why we believe this policy is appropriate. It follows therefore that the legislation that Parliament is being asked to consider today is also appropriate. This is framework legislation as the Minister of Finance has said. It provides powers for the Minister and the Government to implement the type of policy; that has been said. It does not provide the explicit detail of that policy and it does not provide the fine detail of the draft deed. We will be talking some more about those policies and the details thereof in the Committee stage. 
The bottom line is that this bill is appropriate. Through it the deposits of New Zealanders will be protected and the ongoing stability of the New Zealand financial system will be assured. This bill also aligns our scheme with similar guarantees in Australia which is sensible and should be done. We would like to see some further explicit consideration of the form of permanent deposit guarantee insurance and we are encouraged by indications that the Government is so considering. 
This bill does not outline the eligibility policy; it merely provides the Minister with the authority to determine that eligibility. We have some concerns relating to the policy that is currently being drafted as was set out in broad terms by the Minister a few weeks ago. The criteria requires that companies have at least a BB credit-rating to be eligible. However some companies might not be able to obtain a sufficient credit-rating having insufficient scale to meet the requirements of the credit-rating agencies. The transaction costs of obtaining a rating could also be disproportionately high. This could cause a further shake-out in the non-bank finance sector resulting in further finance company losses or collapses taking from mum and dad investors while the big banks move in to mop up the customer base. 
It appears from the Government’s announcement of policy that the major winners in all this will once again be the major Australian banks. Those banks are able to benefit from the wholesale guarantee scheme now without being obliged or persuaded to participate in the reformulated retail scheme. The Government’s willingness to see the major banks opt out is yet another demonstration of its willingness to placate the big end of town at the expense of ordinary mum and dad New Zealanders and small businesses. Labour made it clear when it was in office that if big banks wanted the benefits of wholesale guarantees then they also needed to participate in the retail guarantee scheme. National is letting them opt out. Meanwhile the big banks are winning twice. They will pay less in fees and they will get to grow market share at the expense of smaller institutions some of which will no doubt have to rely on this guarantee or fall over. 
We have received assurances from Treasury. I appreciate the Minister’s making his officials available to us. It has been a good exercise in bipartisan consultation and we hope it is not the last. Treasury has briefed us that the fee changes that are proposed accurately reflect the risk faced by the Crown. On that basis we are prepared to accept that the charges for non-bank finance companies are probably proportionate. 
Slightly more broadly Labour is listening to New Zealanders’ concerns about the banking system. That is why Labour together with the Greens and the Progressive party launched the Parliamentary Banking Inquiry last week. The inquiry is the one that the Beehive was so desperate to stop. It required National MPs to vote against their own proposal in the Finance and Expenditure Committee and then worked to shut down participation in it. I look forward to the Minister of Finance clarifying to the House whether he his staff or other supporters made any moves whatsoever to dissuade stakeholders from making submissions on or from appearing at the banking inquiry because that is certainly the urban legend around the traps. 
National showed once again that when the chips are down it will always side with the interests of the big end of town over the needs of hard-working Kiwi businesses and families. But National could not stop the inquiry. The inquiry received around 50 submissions and a dozen substantive oral presentations at hearings including from Kiwibank and business groups like Federated Farmers the Employers and Manufacturers Association and the Manufacturers and Exporters Association. Whoever was attempting to suppress the inquiry failed. 
The key issues that emerged were strong evidence that consumers businesses and farmers are unfortunately being overcharged interest on short-term loans. It was also reiterated that there is a possible cross-subsidy of medium and long-term mortgages which could contribute to a new boom-bust housing cycle that would be no good for New Zealand. There are huge issues around the growing national debt which is now 140 percent of GDP in gross terms resulting largely from the property loans that have been expanded through the banking system. 
To conclude the banking inquiry is doing follow-up research and is due to report in late October. A high-quality report will be produced following international peer review. Labour is listening to New Zealand’s ongoing concerns about the banking system. 
Labour will be supporting this bill. We believe that it is proper to regularise the retail deposit guarantee scheme through appropriate legislation now that Parliament is in session. We agree with the broad approach the Government’s policy has foreshadowed which is to provide a time-limited extension to the scheme to match approximately the duration of that of our partner scheme in Australia. Further it is appropriate to recalculate the premia that are paid by financial institutions to more closely proxy the risk faced by the taxpayer. Where we differ in substance is that the previous Government’s policy was to ensure that the major banks participate in the retail scheme as well as at the wholesale level. It is unfortunate that the Minister has already signalled to the banking sector that that policy no longer applies. We look forward to exploring in more detail the provisions of this bill and the scheme it supports at further stages of the debate.