New Zealand Superannuation and Retirement Income Amendment Bill — In CommitteeText is incorporated into the Bound VolumeNew Zealand Superannuation and Retirement Income Amendment Bill — In Committee[Sitting date: 30 June 2015. Volume:706;Page:4889. Text is incorporated into the Bound Volume.]New Zealand Superannuation and Retirement Income Amendment BillIn CommitteePart 1 Amendments to principal ActGRANT ROBERTSON (Labour—Wellington Central): Thank you very much for the opportunity to take a call on Part 1 of the New Zealand Superannuation and Retirement Income Amendment Bill. This bill went through the select committee with considerable scrutiny from members across the House and I would like to have been able to say when I took this first of several calls that I would like to take during this Committee stage debate that the committee came to some broad agreement about the bill. I could have said that because that is exactly what happened inside the committee.We were debating as members who have been following this bill will know the establishment of fund investment vehicles for the New Zealand Superannuation Fund. These are a new type of investment vehicle for the Superannuation Fund to enable it to take advantage of investment opportunities for New Zealand to enable the Guardians of New Zealand Superannuation to structure their investments in such a way as to maximise the returns provide efficient returns and also get some cost savings in terms of the management of funds.The issue that I want to spend a little bit of time on in this call and perhaps another one is around what was included by the select committee during our consideration of this bill and that was effectively the changes to the new section 59A which is covered by clause 7 of Part 1 of the bill. This was the bit where the committee took advice as we do from officials about what we should do in order to ensure that a new and innovative idea such as this is well managed.On this side of the Chamber we have no difficulty with the idea that the Superannuation Fund—a very successful fund; JP Morgan’s pension fund of the year we note—should be given some latitude some opportunity and some flexibility in how it makes its investments so that is a good thing. It is a mature fund now. It has reached a point where we believe this is a reasonable exercise. But in discussing the power to create these new fund investment vehicles we got into a discussion about what would occur if it was not what is described in the bill as a passive holding entity. So if it is a passive holding entity essentially in layperson’s terms that means that the guardians of the fund have very limited involvement in how it is actually run.But the opportunity is there for there to be another type of entity one that is more active in the style of investment that it might undertake. In order for the select committee to be comfortable with that kind of vehicle we as a committee agreed unanimously to include the idea that the Minister of Finance’s approval would be required not if it was a passive vehicle but if it was any other type of fund investment vehicle. So what would have been under new section 59A(1B): “The Minister’s approval under subsection (1A)(b)—(a) may be given for any class or classes of investments or entities; and (b) may set conditions as to the governance framework for the implementation and operation of the entities and as to the application of this Act to the entities.”What this was about was providing some security that as we entered this brave new world of fund investment vehicles—Chris Bishop: Ha!GRANT ROBERTSON: —that we should actually have—thank you Mr Bishop—some more security. Well Mr Bishop might as he laughs like to answer the question why when he was in the committee he was all in favour of the Minister being involved—he was all in favour of the Minister being involved.Chris Bishop: I wasn’t in Parliament.GRANT ROBERTSON: Ah! He is now saying he was not in Parliament. We know he was manipulating the members of the committee from behind the scenes. No I do not mean that—I do not mean that. I would like Mr Bishop then to ask the National Party members of the Finance and Expenditure Committee who were on the committee last time—perhaps David Bennett might be an example of that—why they were happy and in fact proposed the introduction of this clause because that is what happened. The committee on advice from officials agreed that this was a protection that should be included in the law when we are trying out a new type of funding mechanism for the fund. But magically on the Table tonight appears Supplementary Order Paper 89 in the Minister’s name removing that section. It removes the section that the committee put in.Hon Ruth Dyson: Unanimously.GRANT ROBERTSON: That is right. We need to track this through.The committee working in a very collegial manner in a manner that is responsible said: “We want to give the Superannuation Fund the opportunity to make use of a new mechanism for its investments but if it is going to be anything more than a passive entity then”—[Bell rung] Mr Chair?The CHAIRPERSON (Hon Chester Borrows): Grant Robertson.GRANT ROBERTSON: There was such competition! “If it is going to be anything more than a passive entity there should be a mechanism by which the Minister of Finance now may have some say.” Mr Bishop when he gets up will say that compromises one of the core aspects of the fund when it was initially established so that it should not have ministerial involvement in the fund. We continue to support the fact that the Guardians of New Zealand Superannuation have done a very good job of managing the fund but it is also important to note that this type of fund investment vehicle was not envisaged when the fund was set up. The idea that actually the guardians would have any active role themselves in investment was not envisaged when the fund was set up. When the fund was set up it was all to be arm’s length and the fund has done a very good job in terms of managing that investment.But the time has come and the guardians came to us and said that they wanted this change and it was accepted by the committee. But it was accepted by the select committee on the basis of a series of checks and balances that are now proposed by the Minister of Finance to be removed. On this side of the Chamber we are very disappointed that that is the situation that we have come to now when a committee can go through a piece of legislation and as a House we can come together and say that these are the appropriate protections that would be put in here. So that is to be removed under the Minister’s Supplementary Order Paper 89.I need to indicate at the outset that the Labour Party although remaining very supportive of this bill finds it hard to go against a consensus decision of the select committee on this matter because we do believe that this is an important change and we do believe that this is one that the guardians themselves were not uncomfortable with. That is my recollection. I was on the committee only briefly when this bill was being discussed but I do recall that the guardians themselves remained comfortable with the idea that this vehicle would work well with the ministerial oversight in the way we have suggested. It is important to note that allowing the guardians to run fund investment vehicles is an exception to the general rule proposed in section 59 of the original Act. What that said was that the guardians should not be controlling any other entity. They are there to invest they are there to do their best on behalf of the taxpayer but they are not there under section 59 as it currently reads to control any other entity.The committee when we discussed this agreed that the prohibition on control does not preclude the fund from 100 percent ownership of assets and there are examples of that where they might own a forest but they do not manage the forest. So that is fine. We understood that and that the guardians wanted to work to increase the proportion of the fund invested in the New Zealand assets and that they realised that in doing that they may have to take a more active role in the way in which these fund investment vehicles were driven. That is fine but what is not fine is when the select committee comes in and says: “We believe there is a way of managing this that will give confidence to the electorate that we are maintaining the integrity of the fund that we are maintaining the independence of the guardians. We are not giving them carte blanche to run and manage investments; we are putting in place a way in which the Minister of Finance will have some say on a very very limited class of investment.”I think that members on the other side need to get on their feet and tell us why it is that they are going against what was put in as an agreement by their members at the select committee. It is pretty extraordinary actually for a Minister of Finance to come to this House with a Supplementary Order Paper that contradicts what National Party members in a committee have agreed to. It may be that time has elapsed and those committee members were not able to convince the Minister when it went back to the National caucus but I would have hoped that they would be able to do that and ensure that New Zealanders could have continuing confidence that these new fund investment vehicles will be used in such a way as to be appropriate.One of the key elements that the Minister of Finance was to be involved in was in the question of what kind of governance arrangements there would be around these fund investment vehicles. So again this is not saying that the Minister of Finance will make any specific decision on a specific investment. It is about the Minister of Finance having some say in the governance arrangements around that some say in the role that the guardians will play and some say in the role that perhaps an independent investment manager might play in an investment that is effectively 100 percent controlled by the guardians of the fund. That is a very useful and important check and balance.STUART NASH (Labour—Napier): I would like to agree with my colleague Grant Robertson. I have come to the Chamber to speak on the bill that went through a select committee process. As Grant said on the Finance and Expenditure Committee by and large—I was on it in my first term and I am on it again—we get some contentious bills but how it works is that we work very closely together to come up with consensus. Very very rarely in my experience do we disagree on anything or put a minority report in. A lot of work goes into this because we understand how important the bills are.But we also understand that the chair of the Finance and Expenditure Committee is under directions from the Minister of Finance. Of course we know this. It is the reality of the situation. So again it is a most peculiar situation that the chair of the Finance and Expenditure Committee who is no doubt in direct communication with the Minister of Finance on a regular basis in terms of the work of the committee and the bills before the committee would not have discussed this. I am not too sure where this has come from and I suspect the Minister in the chair the Minister for Primary Industries has no idea either because he is not a finance Minister at all—Chris Bishop: Not yet.STUART NASH: I was going to be rude but no I will not go there. But maybe Mr Bishop does know this because he was in the office. But let us get back to the purpose of this. He wrote a lot of this. You probably wrote this did you not Mr Bishop? You know the reason behind this. In fact I have no doubt that Mr Bishop said to Mr English: “This is how it should be done Bill.”—wink nudge—and it was done. That is how it works is it not mate? Well done.Dr David Clark: When you’ve finished ordering those hair straighteners.STUART NASH: Ha ha! Yes exactly.The thing they do not quite understand is that there will be a reason behind this. There will be a reason behind why the Minister of Finance has said that he does not want to have ministerial approval as was set out in this. I am not too sure whether it is because he thinks there may be some sort of liability or conflict as Mr Robertson has pointed out. As we all know about the Superannuation Fund one of the fundamental principles behind it was that it was politically neutral so we did not want to have any political interference and I suspect that is why it has run so well. In fact it is just a shame that the contributions have not been put back into it because its rate of return has been astounding since the global financial crisis—around about 18 percent if I am not wrong.But the reason why this piece of legislation which is reasonably technical I suppose in nature is before the House is because the Guardians of New Zealand Superannuation were in a situation where they effectively controlled an asset but they did not have control of the business entity. It has always been part of the rationale of the fund I believe that if it can invest in New Zealand assets so be it and that is a good thing. It is a way to boost our capital markets and actually control ownership of a lot of investments. In fact they have invested widely in this country. I think they invest in Z Energy and Kaingaroa Timberlands but part of the reason for this is that effectively they did not have control of the business entity itself.Where I would like to see some of this being exercised for example is this. We are selling a lot of our farmland our sensitive New Zealand assets offshore. If there is a good business model where the Superannuation Fund could actually justify the purchase of that I think that is a preferable option. In fact since 2005 when the Overseas Investment Act came into play there have been over 1000 consents for the purchase just of sensitive land that have been granted. It would be good if the Superannuation Fund was actually an investor in here as opposed to the Americans the Canadians the Chinese the Austrians and everyone else. But as has been said I am not too sure of the reason behind this Supplementary Order Paper 89 or the reason behind the changes. We really do need the Minister down here to explain these because it is a fundamental change in the way this whole thing is done and it would be good to know.But I come back to the purpose of the bill. I do not think that anyone doubts the veracity and the competence behind the guardians and the job they have done. In fact it has been fantastic and part of the reason for that is that—well I was going to say that part of the reason for that is that there has been no political interference; in fact that is not one of the reasons—they are incredibly competent and they do a magic job of doing it. But we all acknowledge that they cannot have any political interference except in very very specific circumstances which is what this bill was actually trying to put into place. But we also recognised that there were some instances where they did actually need to have a measure of control over the operating entity that they were buying into and that this was to do with the governance arrangements and in this day and age when there is a lot more focus on governance arrangements—DAVID BENNETT (National—Hamilton East): This bill is one that has been in front of Parliament for some time now and there has been a change at this level of the debate. One of the fundamental purposes of the New Zealand Superannuation Fund and one of the requirements of how it is managed is to make sure that there is a sense of independence from the Minister of Finance in the way that that fund is organised. It is a very fundamental point of policy in regard to the setting up of the New Zealand Superannuation Fund.The Finance and Expenditure Committee did in its great wisdom consider the issues around the Superannuation Fund at that time and one of the issues was in regard to land ownership. As that last speaker Stuart Nash spoke about the Superannuation Fund does—contrary to what he says—own considerable amounts of farmland. That farmland is predominantly in the South Island and those farms are effectively businesses in their own right. The issue the Superannuation Fund has is that as an owner of farmland it effectively controls that business entity.Under the rules of the Superannuation Fund it cannot have control of a New Zealand entity. So effectively the Superannuation Fund was engaging in those kinds of purchases in a roundabout way to enable it to get land purchases to give it that diversity in its book. In doing so there then comes the issue of where you take it to the next level around control and management. So it was considered by the Finance and Expenditure Committee and the select committee felt at that time that the Minister may have the ability to do an approval process for such investments. That was the original intent of what came before the House in the original bill.Subsequently that policy agenda of independence that policy driver that is fundamental to the Superannuation Fund has been decided to be the predominant policy rather than to look at how that control aspect may work. So to provide for that independence Supplementary Order Paper 89 takes away that test of having the Minister of Finance as the overall approver or disapprover of an investment so it maintains that independence.The other part of the bill which is a substantive change that was sought is in regard to investment through passive mechanisms for the Superannuation Fund. Effectively when you get to the scale of investment that they are at in the market and the rule is that they are not allowed to control the New Zealand business it becomes very difficult for them to invest to a significant level. What this bill does is it enables them through a passive investment vehicle to hold larger stakes. They will not actually be controlling those enterprises as such but they will have that passive ability to be a large-scale investor. Basically the thing we have got to look at in this bill is that giving them that ability to do so through the fund investment vehicles basically enables that passive investment by relaxing the control restriction that was section 59.Taking into account the fundamental principle that you want independence for this body as well there was no need for the Minister of Finance to have that other test on top of those investments. So that is the rationale behind why the bill is in its current state. It makes sense when you look at the fundamental principles of the legislation and why the Superannuation Fund was set up. It also enables the Superannuation Fund now to have much more flexibility in its investment portfolios and to take advantage of assets that it can actually invest considerably in for the benefit of all New Zealanders. We do have a small capital market and we do have a small number of significant players in that capital market. The Superannuation Fund is one of those significant players. We would not want to have them limited in their ability to fund the New Zealand market and to assist in the growth of the New Zealand entities by having unnecessarily controlled restrictions. The aspect of the change in this bill to enable those passive investment vehicles to make substantial holdings is for the benefit of all New Zealanders and the Superannuation Fund going forward. Thank you.Dr DAVID CLARK (Labour—Dunedin North): I want to say from the outset that fundamentally this is a good bill. It is nice to stand here on this side of the Chamber and be able to congratulate the Government on taking this step forward and approving some changes to the New Zealand Superannuation and Retirement Income Amendment Bill.Here we have some positive changes happening particularly in respect of superannuation in New Zealand which we know is a big issue that does need to be tackled. This is a Government that in the past has shied away from dealing with this problem. We know John Key has said for example that he would not tackle the superannuation age while he was Prime Minister. He has been very clear about that. He has not suggested any other ways to tackle the fact that currently we have five New Zealanders in the workforce supporting one person in retirement but in a few decades’ time we will have only two New Zealanders in the workforce to fund one person’s retirement. We have got as a country to have a mature discussion about this and come up with really sensible suggestions as to how we can tackle this particular issue.Part 1 of course is the substantive part of the bill and so it is good to see that the Government is tackling this issue in at least one respect here by making changes to the Superannuation Fund that are positive. I am sure that they will all be leaping to their feet shortly. I can see Chris Bishop penning some notes so he will certainly be a contributor who will have something to say about the good things the Government has done.But also let us not forget that at its outset Bill English called the Superannuation Fund a dog and it has proven to be an incredibly successful fund. We know that if the Government had continued with the contributions as was done previously in fact it has been estimated—and this is a 2013 estimate—that there would be $10 billion more in the fund and that is from the forgone contributions. The Government has not been particularly wise in the way it has handled the fund up until now.On the Finance and Expenditure Committee of course we did discuss the fund investment vehicles. What Grant Robertson has said about the nature of the debate is absolutely true from my experience on the select committee. There was a consensus around the kinds of changes that needed to be made in the bill in order to ensure the correct protections were in place. Because the Superannuation Fund is doing an active type of investment on all taxpayers’ behalf to give the Minister of Finance some oversight of those decisions on behalf of the taxpayer was part of the conclusion of the Finance and Expenditure Committee that was agreed across the select committee. We did debate long and hard the minutiae of the bill because this is New Zealand’s future. This is our Superannuation Fund that has got huge returns that is internationally respected and that is generating wealth for New Zealanders.We found it our duty to find out more about the nature of the proposed changes. The officials were fantastic. They supplied us with the information we needed to work through those decisions and to come up with the best recommendations back to this House. I want to put on record my thanks to the officials who served the Finance and Expenditure Committee. Some of them are sitting here in Parliament ready to advise should we need technical advice now. Thank you to those officials who helped us through that process and helped us work out what the tweaks needed to be to make sure that this Parliament’s oversight was protected to make sure that we had the right kinds of policies in place that would ensure that this new opportunity was grasped with both hands and taken into the future.It was a constructive process across the select committee as it usually is. That constructiveness is rarely seen in the media of course but I think it is worth commenting on it here. We know that it is a wise move and we have agreed that it is a wise move. The advice is that it is wise move to have these more active investment vehicles.Bill English is now proposing an amendment that would remove his oversight of this spending. Part of the reason that this oversight was suggested of course is the limits of the Official Information Act. That was part of the discussion that we had. Where was the Official Information Act in all of this? So we went back to look at the first principles. The Official Information Act gives Parliament the protection and the oversight of the spending decisions. Would these new fund investment vehicles be subject to the Official Information Act? Well actually no they would not be in their entirety. However the fund investment vehicles would be in so far as the Superannuation Fund itself is subject to the Official Information Act.The Superannuation Fund in recommending who the people were who were controlling the projects would have overall accountability and we could see that Parliament or any member of the public who had access to the Official Information Act—which is all members of the public—could ask legitimate questions about the oversight of these vehicles via the Official Information Act. Of course a good deal of material we would expect would be withheld for commercial reasons—certainly for a period of time when these investments were in place. But the principle remains that the public can request information about the governance arrangements to be sure that these new vehicles are being used in an appropriate way and in a way that benefits the taxpayers of New Zealand.So we had comfort that these new vehicles had sufficient oversight in place barring the suggestion that perhaps the Minister of Finance should also have some oversight on behalf of all taxpayers for these new investment vehicles. That seemed a perfectly reasonable point to reach on the evidence that we were given as a select committee and after the lengthy discussions that we had so that was what we settled upon and brought back to the House. So it is somewhat surprising to find that the National members on the select committee now support we are told an amendment that goes in quite the opposite direction and removes the Minister of Finance from that picture. So I think that people at home watching this debate will draw their own conclusions about what is happening here.Hon Ruth Dyson: They got rolled.Dr DAVID CLARK: They got rolled my colleague says—they got rolled. There is political expediency at play here. Perhaps the Minister of Finance did not wish to be caught in any fund investment decisions that went wrong. Maybe he was trying to remove himself one step further. We think that is abrogating a responsibility that the Finance and Expenditure Committee after seeing the evidence thought was a sensible step to take.This current Government does of course have a philosophy of allowing—it will tell us; and I am sure Mr Bishop will correct me if I am wrong—the market to have its way. So a part of that is of course having the fund at a distance at arm’s length to allow it to make wise investment decisions. We of course support that basic principle. That is why it was in fact Labour that introduced the bill that brought the Superannuation Fund to life a fund that has attracted international recognition for being a superior fund and producing superior returns. It has been set up that way.The changes that were proposed by the select committee were modest but they were there for a good reason: to preserve the oversight of that decision making; to make sure that there was accountability for this new direction that the investments are going to take. So we find it surprising of course to come to the Committee and find that the Minister has moved an amendment and that those very same people who argued on the select committee for the merit of a particular proposal now find themselves in the somewhat awkward and embarrassing position of arguing the opposite. I very much look forward to some of the logical contortions and the debates that will follow. We might have a bit of fun in the Chamber tonight as we hear some of those MPs stand up and say that black is white and that in fact white is black and that they knew that all along. I am sure Mr Bishop will have a contribution along those lines. He can be an entertaining speaker and I hope that we can all enjoy his contribution as he now explains to us why these fund investment vehicles should no longer have the oversight that the select committee agreed that they should.This is a great fund. The bill is overall one we would like to support because it is a small step towards taking the savings question seriously—a question that this Government has shied away from in so many instances in its seven cuts of the KiwiSaver scheme in its failure to put contributions into the Cullen fund and in John Key’s ruling out of tackling the issue of retirement savings costs going up without a plan to address it. In so many ways it has failed on retirement saving. This bill is actually a positive step overall in the right direction barring this one very unusual contortion which I am looking forward to members opposite explaining for our entertainment. Thank you.Hon DAVID PARKER (Labour): I rise to take a call on Part 1. The purpose of the amendment to the bill that came to the Finance and Expenditure Committee and that was recommended by that committee to insert new section 59A was not to allow the Minister of Finance to interfere in any one investment decision by the Guardians of New Zealand Superannuation but was to exercise some control over what class or classes of investments or activities ought to be allowed through a fund investment vehicle which overrides the original protection that was set out in the legislation that the guardians ought to be passive rather than active managers of investments.The reason for the insertion of that provision in the original legislation was sound. It was overseen by Dr Michael Cullen. He was concerned that the fund would come under the influence of politicians—an investment fund that would invest in the sorts of classes of investmentsthat ought not be funded by a superannuation fund but ought to be funded by a Government. The reason for that—Chris Bishop: Protecting the fund from his own party.Hon DAVID PARKER: That deserves a response actually. No that was not the intention at all. This side of the Chamber generally properly funds things that ought to be funded off the Government’s balance sheet by collecting enough taxation to fund the things that ought to be funded—things like roads things like—Eugenie Sage: Schools.Hon DAVID PARKER: —schools things like hospitals none of which would be privatised by this side of the Chamber but those are things that would be privatised by the National Party’s side of the Chamber. If the National Party privatised them in order to get its seedy little plans off the books it would actually be encouraging the superannuation fund of the day to effectively underwrite its mismanagement by paying for some of the things that the Government had not funded through the appropriate collection of taxation.Dr Michael Cullen foresaw that as a problem because he was and is a historian who has seen these things go down in the past. Where that comes unstuck at some future date is when the superannuation fund is wound up and the money is realised from their investment at a time when New Zealand will be cash-strapped in meeting the increasing costs of superannuation in the future. It is a nonsense if the Government is effectively asking for money out of the economy to put back into the economy at a time when the economy may be stretched to find a replacement investor. So the reason we had these underlying controls on what the superannuation fund could and could not do was to avoid that eventuality.Since then we have had a number of changes made by the National Government. It came to power remember promising to increase the proportion of the superannuation fund that was invested in New Zealand. How has that gone? I am surprised we did not see any reference to it in this bill because if there was a place for it to be it would be in Part 1 where the objectives are for the superannuation fund and what the restrictions arewould be restated. The Government has not actually achieved that objective. The reason it has not achieved that objective is not the inability to use fund investment vehicles but that the idea was not sound in the first place.Dr David Clark: Another broken promise.Hon DAVID PARKER: Another broken promise by the National Government. In any event we come to the change that is proposed. There are instances when controlling interests are held in New Zealand - based investments. In order for that to be done more practically it is good that the Guardians of New Zealand Superannuation will be given the ability to use fund investment vehicles. But it is none the less a departure from what was originally intended and lets us get closer and closer to the guardians becoming an active manager rather than a passive manager. That is why the control that was provided for unanimously by the select committee in new sections 59A(1A) and 59A(1B) was appropriate because it said that for the purpose of holding facilitating or managing the investments of the fund a fund investment vehicle could be used and the guardians were allowed to exercise that power in respect of passive entities and in respect of any other entities only with the approval of the Minister of Finance.So to go beyond passive investments required the approval of the Minister of Finance. The Minister of Finance could come back and say: “Having thought about it I’m going to approve this for a class of non-passive investments.” Now because the Government is stripping out this provision it is actually departing further from the original intention which was to leave the guardians as a passive investor rather than an active manager.I do not know whether many people can remember as far back to the old superannuation fund that the Muldoon Government—Grant Robertson: Crashed.Hon DAVID PARKER: —crashed after the election; the Kirk fund that was designed by Roger Douglas. The advertisements that were used to knock over that particular attempt at decent New Zealand savings were Cossacks marching across the screen in cartoons because the Government through the Superannuation Fund was going to own and control so much of the New Zealand market place that it would somehow be communism in the way that these Cossacks were marching across the screen.Now what are these guys doing? They are allowing in a general sense the Superannuation Fund to become an active manager rather than a passive manager. I am looking forward to the day when we see Steven Joyce using his control of the media as he has through his old linkages to actually bring back those advertisements to advertise the fact that in this amendment—Iain Lees-Galloway: I want to see Steven Joyce in one of those advertisements.Hon DAVID PARKER: Well actually those people did not have much hair. They had furry hats but there was not much under them.So that is why the Labour Party is opposing the Minister’s amendment and I want to hear the justification as to why we should holus-bolus be allowing active management through these fund investment vehicles without the Minister of Finance keeping an eye on it because that is what is happening here. Of course I do not trust the Minister of Finance on this because he has got it wrong from the start. He called it a dog. He stood up in this Chamber and said that this should be opposed because it was a dog. I do not trust the Government because it has under-invested in the fund and we know because the Guardians of New Zealand Superannuation measures how much wealthier we would be in New Zealand if the Government had continued the contributions to the fund. I think I will leave it there—Hon Paula Bennett: Oh!Hon DAVID PARKER: Well actually the Minister in the chair now the Associate Minister of Finance who has now taken on finance roles—I would be very pleased for her to stand and say why we should allow the Guardians of New Zealand Superannuation to have this holus-bolus right to actively manage what was meant to be passively managed.FLETCHER TABUTEAU (NZ First): This has become quite an interesting debate tonight—Hon Members: Here comes the “Professor”.FLETCHER TABUTEAU: —quite apart from the fact that I have stood up to contribute to it by the sounds of it. What has been interesting in terms of this debate—and New Zealand First for one was grateful to hear it—is that the Minister of Finance with Supplementary Order Paper 89 there amending new section 59A under clause 7 in Part 1 wrote himself out of these decision-making processes. We rejoice in that because in our interpretation of this bill at the moment what we see is new section 59A(1A) and (1B) ensuring and reinforcing that the fund investment vehicles are actually passive investment vehicles. The debate has been interesting in that it would seem that from parts of the Committee including from members on the other side of the Chamber there that was a relaxation of control in terms of allowing these fund investment vehicles as an investment fund but that is not my interpretation and that is not New Zealand First’s interpretation of this legislation.So I put it to the Minister in the chair tonight that some clarification on this issue would be incredibly important in order to get some consensus in the Committee. We understand that at this moment there is no relaxation of controls. The fund investment vehicles are an investment vehicle and we applaud them as a tool and particularly as a means of allowing the Guardians of New Zealand Superannuation to invest in New Zealand for example.It was expressly stated in the interpretation of this legislation and in the analysis of this legislation which New Zealand First wholeheartedly supports that these fund investment vehicles give the guardians an opportunity to invest in capital or actual machinery for example without—and this is the important part—taking control. That is an important distinction. The guardians to our knowledge are not taking control. So the fact that the Minister has written himself out of the decision-making process is to be very much applauded. The less the Minister—especially this Minister of Finance—has to do with the control of our New Zealand Superannuation Fund the happier New Zealand First will be.It is unfortunate that there was not some provision in the Act originally that said that the Government must contribute to the fund. As was noted previously we have forgone $11 billion in investment returns because this Government has opted out of contributing to this fund. Again Minister I would ask that in the analysis of Part 1 new section 59A in clause 7 we actually do look at that definition of control and at what the guardians are effectively now able to do. Our interpretation is such that they are not taking control of their investments which would be incredibly important because then we could easily support the Supplementary Order Paper.What we would also positively note is that the same amendment and the existing changes to the legislation will very importantly not only give them access to new investments but what is also quite significant is that it will actually lower the cost of the guardians’ participation in those investments. So not only are we now positively allowing our guardians to invest in New Zealand which we applaud but we note that with the fund investment vehicle tools we now bypass quite a convoluted process that had become and is currently quite a costly investment process for the guardians. So these tools are to be applauded certainly in that instance.Actually that is all I have got. Thank you.The CHAIRPERSON (Hon Chester Borrows): I call the much-awaited Chris Bishop.CHRIS BISHOP (National): This speech has been very hotly anticipated. I do not think I have had a speech more anticipated since I spoke to Todd Muller’s SuperBlues group in Tauranga. It is good to see that members opposite are so looking forward to this. Quite to the contrary of the assertions from Mr Robertson I was not on the select committee that considered this bill although the Finance and Expenditure Committee did do a good job of considering this bill.I want to make a couple of prefatory remarks. The first is that this is clearly a sensible bill. Despite the heat and the sort of venom from members opposite there is actually support for this bill. It is a prudent bill that will allow greater flexibility for the Guardians of New Zealand Superannuation to improve the returns of the New Zealand Superannuation Fund which it governs on behalf of all New Zealanders.The other prefatory remark I want to make is that the Superannuation Fund has done a good job. I think that you know some time ago that would have been controversial to say in National Party circles. It would have been somewhat controversial to endorse and praise the New Zealand Superannuation Fund or the Cullen fund as members opposite like to talk about but it has done a good job. That does not mean that we should have borrowed money during the global financial crisis and put it into the Superannuation Fund. That does not make much sense. The Government took the view that it was a prudent and considered use of taxpayers’ money not to do that. It does not make much sense to borrow money in order to invest it on risky sharemarket exchanges because at the end of the day you cannot beat the market in the long run and that was the view that the Government took. I know that members opposite disagree with that but I think that most New Zealanders agree that that was a sensible thing to do.The second thing I would say and this speaks to one of the issues that has come up in the Committee tonight is that the independence of the fund is vital. That is exactly why the Minister of Finance is moving as I understand it the Supplementary Order Paper in his name to remove from the bill the clause that allows ministerial approval of investment classes. Members opposite you know are saying we are tying ourselves in knots on this. I would just point to the Minister’s second reading speech on this which was when he acknowledged that this issue is a finely balanced one. It is a fine line. There is a diversity of views on this issue and I acknowledge that the Finance and Expenditure Committee which I was not a member of did consider this issue in some detail. But in the passage of time I think that the Government has come to the view that the independence of the Superannuation Fund is so paramount that we should not have Ministers involved in the approving of particular asset classes or particular investment classes. It is very important that we maintain the independence of the fund and we do not have politicians involved in that. It is a finely balanced issue. Members opposite have a decent argument on it but I also think that Government members have a good argument on this too and that is the view that the Government has come to.I just want to briefly mention the substantive change that the bill makes in this part which is to allow fund investment vehicles. As members have noted that was sought by the guardians. This is a useful change and it is the most substantive change the bill makes. It brings the Superannuation Fund into line with global best practice which allows it to fund the entities that are formed for the purpose of holding or facilitating or managing investment of the funds. As has been pointed out this will increase the efficiency and the flexibility of the fund. This will not allow the Superannuation Fund to hold a substantial controlling interest in the underlying operating entity. That is appropriate.The other change I want to point to is the change in clause 5 of the bill that prevents the guardians from being challenged legally by way of judicial review by dint of the argument that their actions are ultra vires. Again this was considered by the Finance and Expenditure Committee. This is a prudent and sensible change.I think that in the past the National Party has been somewhat critical of the New Zealand Superannuation Fund or the Cullen fund as members have called it. But I think there is now consensus and unanimity across the Chamber that it is a sensible fund that prefunds the cost of superannuation in the future. As a Parliament we have a duty to try to make sure that the fund operates in the best way possible so that it maximises returns for New Zealanders. The measures that this bill advances will do that.SUE MORONEY (Labour): It is indeed a pleasure to rise and speak. I think I am the first female speaker in the Committee stage of the bill. The reason I raise that is because actually when it comes to superannuation women disproportionately rely on superannuation payments. During the course of our lifetimes on average we earn less than men do during the course of our working lives and we live longer. So this bill is of particular importance to the women of New Zealand so on that basis I am very pleased to take a call. I am a little disappointed in this bill because I thought the New Zealand Superannuation and Retirement Income Amendment Bill may well have been the bill that saw the Government fix up its mistake of stopping contributions to the New Zealand Superannuation Fund. I had hoped that that was what this bill would do. Unfortunately it does not amend that particular big and costly mistake from the National Government. It does not reinstate the contributions.Christopher Bishop when he spoke gave an excuse for that and said it was because it would be remiss of the Government and wrong of it to have borrowed money to keep those contributions going in the midst of a recession. Well Mr Bishop why did your Government borrow for tax cuts in the midst of a recession? Actually what we know about the New Zealand Superannuation Fund is that the sorts of benefits coming from it the wise investments that were being made and the return on that investment would have been a better thing to borrow money for in the midst of a recession than to have tax cuts that simply went nowhere built no increase in our economy and did not create any jobs or do any of the things that they said it was going to do.Chris Bishop: Rubbish. You’ve got no idea what you’re talking about.SUE MORONEY: Well the member might well say “Rubbish.” but he is here debating a bill where National—I think that is the sound of National confessing that the Labour Party gets future planning better in this country that what National can. National said 15 years ago that the Labour Party was wrong to do this and that Dr Michael Cullen was wrong to implement this fund. Fifteen years later here they are saying yes it was a dog all right—it was a greyhound. It was a fast-running dog and it was one that got this country ahead of many other countries—many many other countries indeed. I think that is the sound of the National Party saying: “Sorry we are too focused on short-term gains and can’t see what the future looks like.” It is in fact the Labour Party that gets this right consistently time and time again. I am sure that is what the sound of that speech was.Part 1 of this bill sets up these fund investment vehicles and what the Guardians of New Zealand Superannuation can do to take some more control of those fund investment vehicles. I cannot stand today in this Chamber and talk about superannuation and vehicles without pointing out to the Committee that one of the reasons that New Zealanders are going to rely so heavily on the outcomes and the proceeds of the investment that this bill talks about is because superannuitants are going to be paying the highest level of vehicle registration under the changes that that Government is going to bring in tomorrow. Most superannuitants are going to be paying $158 for their car registration.The CHAIRPERSON (Hon Chester Borrows): Come back. Come back.SUE MORONEY: So that is why Part 1 of this bill is so important. I am going to disagree—as I quite frequently do actually—with David Bennett. When he spoke he said the reason why we have this and why we have the Superannuation Fund is all about Guardians of New Zealand Superannuation. Actually no Mr Bennett the reason why we have this fund is for people. It is so they can live in some level of dignity and respect when they retire and when they reach their older ages. It is something that I am very proud of and that the Labour Government put in place against vehement opposition from the then Opposition the National Party. But we did it because we knew that this was going to be something that would see New Zealanders looked after in their older age. The great pity of this bill is two things really: the National Government has not used this opportunity to reinstate the contributions to the New Zealand Superannuation Fund that us baby boomers are going to need in our older age and secondly it has demonstrated the chaos that National is still in—the day-to-day chaos when the National MPs on the committee recommended one course of action but the finance Minister has done them over.CHRIS HIPKINS (Labour—Rimutaka): I am happy to make a brief contribution on the New Zealand Superannuation and Retirement Income Amendment Bill. I want to respond to one or two of the comments that Chris Bishop made—the great hope of the National Party. I have to say that if he is the best debater in the National Party it has got some very tough times ahead given the lacklustre performance we saw from him this evening. Chris Bishop did understate somewhat the performance of the Cullen fund as it is colloquially known—the best sovereign wealth investment fund in the world.Let us actually talk about that. There has been a return of 19.6 percent per annum over the last 3 years. That is a fantastic rate of return that we all as New Zealanders should be proud of. That is a fantastic rate of return. But let us look at it from the beginning of the fund in 2003 when Michael Cullen set it up. Of course the National Party used all sorts of colourful language about how reckless it was for the Labour Government to be setting it up. But right the way through the entire period including through the global financial crisis the average return was 10.3 percent a year. That is a very very healthy level of return. It does show just how short-sighted the Government was in stopping making contributions to the New Zealand Superannuation Fund in response to the global financial crisis. In June 2013 the fund itself estimated that up to $10 billion had been forgone as a result of that decision.Why do we have this fund and why are we making these changes to the fund? The reason we have the fund is that we have a massive retirement boom coming and we need to prepare for it so that we have some savings set aside. This superannuation fund contrary to what some people might believe was never intended to cover the entire cost of the baby boomers’ retirement but it is designed and intended to be a contribution to that cost. It is not covering the entire cost; it is covering only a small portion of it. But the question remains: if we have not been contributing to this what is the alternative plan for paying that bill further down the track? The Government does not have one. It is happy to kick it for touch because it knows that the crunch point does not come for another 10 15 or 20 years further down the track.So how does that relate to the changes that this bill makes? The changes that the bill makes change the nature of the ways the fund can invest so that it can become a more active investor rather than a passive investor as was originally envisaged when Michael Cullen first established the fund. Why was it established as a passive investor? I guess basically Michael Cullen I am sure envisaged that he wanted the best return with the least risk. That would probably be a fair comment. But there are some good reasons why the fund would want to be investing in a different manner.The question that I have got for the Minister in the chair the Hon Paula Bennett asks whether the fact that the fund is now being given the power to be more active in the way that it manages its investments creates an opening for the fund to be investing in services where the Government itself is retrenching. So could we find for example that the Superannuation Fund is buying assets that the Government is otherwise selling? Public-private partnerships social housing—Sue Moroney: State houses.CHRIS HIPKINS: State houses. Buying up—or being given—the State houses that the National Government is trying to give away. Are the areas that the Government is exiting areas that the Superannuation Fund—Andrew Bayly: No.CHRIS HIPKINS: —could start investing in if it deemed those areas to be sufficiently profitable? One of the members over there says: “No.” How could they stop it? Bill English is actually removing the clause that would give the Minister of Finance the ability to direct what types of investments the fund could make. Therefore is there anything—this is a question for the Minister—that would prevent the fund from starting to invest in areas where the Government is retrenching? And if it can do that—and let us think back to the overall goal of the fund which is to increase New Zealand’s wealth the Government’s and the Crown’s wealth so that we have a provision here to deal with the baby boom coming—how does basically transferring assets from one arm of the Government to the other which could now happen help with that situation?So it is an open question. Is there anything to stop the Superannuation Fund the Cullen fund from now investing in those assets that the Government is selling? I am not getting any response from the Government so I am looking forward to the Minister’s contribution. She is reading intently. I am sure she is looking it up so that she can give a nice detailed answer to the questions I have been raising because there is no doubt that this fund is essential. It is required. I hope that the Government will take every step to make sure that we maximise the return out of it because we are going to need that money when the big retirement boom comes—and it is coming.Hon DAVID CUNLIFFE (Labour—New Lynn): Labour supports the New Zealand Superannuation and Retirement Income Amendment Bill. This is one of those little bills that make a fairly minor change. It provides for the Guardians of New Zealand Superannuation to be able to be exempted from liability as they take on the management of passive or active investment vehicles and it complements the portfolio investment approach so successfully undertaken by the fund to date.This bill does throw us back however on the why the what and the how of the New Zealand Superannuation Fund. Now it is commonly accepted by members across the House. This was an initiative of the previous Labour Government and the then finance Minister Dr Michael Cullen. It has been in anybody’s book a spectacular success—a spectacular success. Recent returns averaging around 20 percent per annum is unbelievable for a fund of that size. Average return since inception: 10.3 percent. Cost of Crown capital: around about 4 percent. This is an extraordinary win for every New Zealander because it means that we will be paying less in our taxes to support Kiwis in their retirement because of the prudent investments the spectacular investments that have been made in this fund.What did National do? National stopped contributing. National is such a party of short-sightedness that when times got at all tough it stole from the future to bail itself out in the present. And independent advice confirms that that bad decision has cost New Zealand taxpayers—wait for it—over $10 billion in lost profit; $10 billion. And I am taking the conservative numbers. The bottom end of the range is at least $10 billion. So here is the question members. Members across the Chamber: can any member tell me a single worse financial decision in the history of New Zealand Government? Can anybody tell me a decision by a Minister of Finance that has cost more—Iain Lees-Galloway: Scrapping the Kirk superannuation.Hon DAVID CUNLIFFE: OK I agree with you actually my two colleagues—you have topped this one. And it was Rob Muldoon—this is the worst decision since Rob Muldoon killed the last great superannuation scheme. Fortunately National did not quite kill this one; it just stunned it. But that stun gun cost $10 billion and here we are back now trying to get this back on its feet.Now we agree with this limited bill. It simply provides for the independent guardians of the fund to have a little more liability protection to cover a slightly broader range of passive and potentially active investment vehicles. Reasonably unexceptional provided that the structure of governance of the fund holds true and that is as designed by Michael Cullen: a double-blind system where the Government has a hands-off role in appointing the guardians who are then by law completely independent of Government policy so there is no way any Minister of Finance or any other Minister could possibly influence the investment decisions of the fund. Nobody told John Key because he campaigned on breaking the law. He campaigned on twisting the arms of the guardians so that they would put a certain amount in certain different asset classes. However in New Zealand—and of course we want to see more stuff going into New Zealand but that is not the point. The point was that really the Government needed a law change to do that and it did not bring it back to Parliament.Is that governance model still valid? Is it still worthy? Of course it is. Is the aim of the fund which is to smooth the cost of financing superannuation for our children and our grandchildren still valuable? Yes it is. Is the fund successful? Yes it is. It is incredibly successful: 19 percent return over the last few years 10.5 percent since inception more than double the average cost of the Government’s own borrowing. This is a spectacular success.I think this debate points us to a deeper truth: Labour does long-sighted change; National manages from day to day. So that is why the public of New Zealand say: “Oh yeah she’ll be right. Things are going OK can have that lot back again.” But whenever New Zealand is up against it whenever New Zealand has challenges to rise to New Zealanders vote for a Labour-led Government because they know that we have the far-sightedness and the insight to achieve major change for New Zealand. We have done it in foreign policy with the anti-apartheid movement and the antinuclear movement. We have done it by carving out an independent role in foreign affairs which has now seen us appointed to the Security Council. We have seen it—Chris Bishop: Under a National-led Government.Hon DAVID CUNLIFFE: Oh OK. Those members say it happened under a National Government; so it did with the Labour Party’s support. But we would not be there if we were not seen as an honest broker and the reason we are there is because Labour Governments from Kirk onwards have championed our independence. But back to the bill Mr Chair.The CHAIRPERSON (Hon Chester Borrows): Oh thank you.Hon DAVID CUNLIFFE: Thank you. I knew you were going to drag me back so I thought I would get in first Mr Chair.The CHAIRPERSON (Hon Chester Borrows): I was distracted by the humour.Hon DAVID CUNLIFFE: So this superannuation bill tells us something very very important about Labour-led Governments: we do change. We do major change that results in New Zealand being better off. What is the problem at the moment? Those clowns on the Government benches have been happy to follow along behind dairy prices the earthquake rebuild and a housing bubble and they think that is an economic strategy. That makes about as much sense as not paying into the New Zealand Superannuation Fund. It is policy that reinforces old advantage and does nothing to create new advantage and the smart jobs of the future.So we support this bill because this allows the fund to play a greater role in the smart jobs of the future by investing actively in New Zealand businesses. But if the Government is going to do this why will it not touch the tax system? Why will it not touch the banking rules so that we get more capital where it will do the most good creating jobs around our regions? Why is it just reinforcing traditional agriculture and giving foreign banks a free rein? Why will it not address the core problems that we all know are hamstringing the New Zealand economy? Well it does not have either the vision or the courage to get us there. And New Zealanders as they see Greece up against the wall as they see dairy prices going down the toilet as they see Christchurch starting to stutter and as they see the Auckland property bubble ready to burst are rapidly coming to the conclusion—the feedback we are getting is—that it is time for a change. The tipping point is coming—the tipping point is coming. The tipping point is coming and the same far-sighted courage that brought a 20 percent return to the New Zealand Superannuation Fund will be available to future generations of New Zealanders because the same team that brought New Zealand the Superannuation Fund can bring them the next generation of positive policies for the future.ALASTAIR SCOTT (National—Wairarapa): I would like to speak to the bill for a few minutes—just for a few minutes. It is pleasing to see thatin supporting the bill we are generally in agreement. I would also like to pick up a point that Mr Tabuteau talked about and to clarify—Hon Members: Professor.ALASTAIR SCOTT: —“Professor” Tabuteau—whether this bill does anything to change the activity or passiveness of any investment that the Guardians of New Zealand Superannuation make. The way I read this bill there is no change. This fund investment vehicle does not allow any change to the activity of investment or to the type of investment that the Guardians of New Zealand Superannuation are able to take. If you think that the power to grant a power of attorney is more activity if you think that the power to appoint an investment manager is a more active fund or if you think that the power to appoint a custodian is increasing the activity of the fund then you are wrong. This does not increase the active management that section 59 has and will continue to have to guide the Guardians of New Zealand Superannuation.I would like to discuss and clarify a couple of issues around the reasons why the Minister of Finance should not be involved and will not be involved in the interference of the management of this trust. It is interesting that Labour Opposition members particularly talk about Dr Cullen’s plan to have totally independent governance of this fund and I totally support that notion but then I am surprised that the Labour guys want interference from the Minister of Finance. As soon as you have got that foot in the door how is a Minister of Finance to react if—assuming that was he given the authority—as an example he or she is asked to approve an investment and the investment goes bad? Whose fault is it? Is it the fault of the Guardians of New Zealand Superannuation or of the Minister of Finance? If the investment goes well who takes the credit? Is it the Minister of Finance who approved this investment which was not passive or is it again the Guardians of New Zealand Superannuation who should take the credit?This fund as has been noted already is performing outstandingly. It is the top State-funded superannuation fund in the past 5 years. If we were to allow Mr Robertson or Mr Nash or Dr Parker as a potential Minister of Finance what would we have? What would we see? What investments would be approved by these people? Well for a start I can tell you that there would be a hell of a lot more going straight into their $100000 house project because these guys have talked about investing more into the New Zealand Exchange. That is not the purpose of this fund. The purpose of this fund is to have a diversified global fund across different equity markets across different countries and across different instruments without interference from any Minister of Finance and that is why this Supplementary Order Paper which removes the suggestion given by the Finance and Expenditure Committee must be ruled out. Thank you.GRANT ROBERTSON (Labour—Wellington Central): Thank you very much Mr Chair for giving me the call. I want to help out my colleague Mr Scott and I think the best way of being able to do that is to work through a little basic statutory interpretation exercise for the member. I want to refer him—Chris Bishop: Here we go. Grant the lawyer. Grant Robertson QC.GRANT ROBERTSON: Thank you very much. That sounds like a good name for a TV programme. I think I may do that—reality TV. Clause 6 of the bill talks about section 59 being amended and what is really important is what section 59 of the Act currently does.Hon David Parker: “No controlling interests”.GRANT ROBERTSON: It says that the Guardians of New Zealand Superannuation of the fund can have “no controlling interests”. That is the whole thing we have been discussing tonight: the fact that the fund when it was established allowed for this complete arms-length relationship. The Guardians of New Zealand Superannuation was there to have the overall control of the fund and what a good job it has done of that.But if we look at what clause 6 is it is a new subsection (5)(a) and it reads: “This section—(a) does not apply to a Fund investment vehicle referred to in section 59A …”. So it is changing things Mr Scott. That is the point of the law. Why would the law be proposed if we were not changing anything?Hon Member: Wasting our time.GRANT ROBERTSON: Well it could be. It would not be a big surprise if the National Party came here to waste our time on a piece of legislation but actually this one clearly says it does not.And then section 59A goes on to establish the fund investment vehicles and describe what they can do: “All or any of the investments of the Fund may be held in an entity that is formed”—for Mr Scott—“or controlled by the Guardians for the purpose of holding facilitating or managing the investments of the Fund (a Fund investment vehicle).” So something new is being created here. Something new that is different and requires us to amend the section of the law that says that the Guardians of New Zealand Superannuation have no controlling interest—Hon David Parker: So they can have it.GRANT ROBERTSON: —which means it can have controlling interests. It goes on which is why sections 59A(1A) and (1B) were added by the Finance and Expenditure Committee.I want to refer members to the words the committee used in its report. The committee considered these amendments would “provide a suitable balance between allowing the Guardians access to new vehicles to invest the Fund efficiently and effectively as it grows and complying with the Act’s intention that the Guardians not be involved in the business operations of the entities in which the Fund is invested.”The select committee “considers it desirable to reinforce the intention that FIVs be passive holding entities but we also accept that considerations of diversification and risk management might make some classes of asset a desirable investment for the Fund so the question of effective control of an operating entity might arise.”So to help reassure the member on one count subsection (1B) of section 59A which the Minister is now seeking to remove talks about the Minister’s approval being required for classes of investments or entities not the specific investments themselves not the specific entity that may be created but classes of them. It is to give a little bit of reassurance that the fund is not going off in a direction that taxpayers would be uncomfortable with but it is not about the Minister specifying a specific investment or controlling whether or not a specific investment would be made.That is exactly why those words of the committee that I have read out were unanimously endorsed by the committee because this does fundamentally change an original premise of the bill.Chris Bishop: It does not.GRANT ROBERTSON: Yes it does—of the Act. Yes it does Mr Bishop. Why would section 59 be changed? Why would it be changed if it did not do that? Why would it say: “This section does not apply to a Fund investment vehicle …”? Because the Guardians of New Zealand Superannuation came to the select committee and said: “This is now a mature fund. This is now a fund that we believe can do more to invest in New Zealand.” I think one of the things they said when they first came to us was the possibility of using these fund investment vehicles for investing entities for real property assets e.g. timber farming and investment property assets.Andrew Bayly: You are so confused.GRANT ROBERTSON: I am confused? Mr Bayly says I am confused by this law. Mr Bayly should turn round and ask Alistair Scott whether or not anything changes because he got up and assured the Committee that nothing is changing—nothing is changing here; we should be completely reassured. Well what is the point then? Mr Bayly tell us what the point is.CLAYTON MITCHELL (NZ First): I rise on behalf of New Zealand First to take a short call in support of this New Zealand Superannuation and Retirement Income Amendment Bill. To be fair it is not something that I was part of in the select committee but it has taken only 5 minutes for me to pick up on the fact that this makes common sense.David Bennett: Sit down Clayton.CLAYTON MITCHELL: To be honest Mr Bennett you remind me of the theme song from Team America: World Police—“I am so lonely!”—sitting over there so far away from all of your team mates. You are not making a lot of sense and like Alistair Scott and Mr Bayly you do not make a lot of sense either. In actual fact I am supporting your bill so what are you yelling at me for anyway? You are a very lonely and confused man I have to say.To be fair there is a serious need and some investment required to get the right people looking after the hard-earned money that we are investing for our future. Many of us put aside 4 percent to 8 percent of our money—sometimes more than that—to go into the Cullen fund which was created by Dr Michael Cullen to look after the future of New Zealanders. I have to say that this bill uses a language that in my opinion is very easy to grasp although there is an ambiguous term in clause 4—amending section 38—which says the explicit purpose is that “(2) The fund is not an entity separate from the Crown.” You have to say that over in your head a couple of times. That has to be probably the most ambiguous part of the whole bill. What it is actually trying to say is that that fund is very much part of the Crown and a very very important part of the future of New Zealand. So we support that as well.The bill talks about FIVs and other acronyms that we all love and hate back home. If anybody is watching and I am sure that many of you are an FIV is a fund investment vehicle. That is just a pretty way of looking at the way the Guardians of New Zealand Superannuation the people looking after those funds can get better returns for those hard-earned Kiwi dollars going into investments. When we heard Russel Norman speak about this initially when it was first discussed at the first reading he talked about his concerns about the Government’s interference in where those investments were going to go. To be honest the reality is that he does not want it to go into exploration or gas or mining but the reality is that we should be looking seriously at putting it where we can get the best investments for the future of New Zealanders. We are getting some fantastic returns on investment—around the 19 percent mark. That is absolutely fantastic and we hope that continues. Obviously with the Greece debacle at the moment interest rates and share prices have dropped along with our Kiwi dollar and I hope that the Kiwi dollar can come down some more yet.The purpose of the fund is a fund protection and to return as much as we can to those superannuitants. One of the things in this bill that I commend the most is the Supplementary Order Paper that takes away the Minister’s ability to interfere with that fund and to decide when or whether it is a good investment or not. In reality you need to put a firewall up to create some separation from those Guardians of New Zealand Superannuation—those investors; the people who are looking after New Zealanders’ hard-earned money and are putting it in the right location. So I commend the Minister for putting forward Supplementary Order Paper 89 deleting that subsection completely. This is a bill that we would like to see progress. We think that it sits well for the best part of all New Zealanders despite the confusing remarks we have had from over on the other side of the Chamber.Ron Mark: They don’t understand their own bill.CLAYTON MITCHELL: They do not understand their own bill and clearly they have not read it. To be fair it does make sense and those people sitting at home can rest assured that their investments are being looked after and are getting very good returns. As Porky Pig famously said one day: “That’s all folks.”PAUL FOSTER-BELL (National): I raise a point of order Mr Chairperson. I did not want to interrupt the member Clayton Mitchell while he was speaking. The member referred to viewers at home. I am still a relatively new member but I believe that that is out of order and I just wanted to bring that to your attention.The CHAIRPERSON (Lindsay Tisch): No. I have often heard members talking about drive time when listeners are driving home in traffic in places like Auckland. I have never heard that that is out of order. It is certainly not a ruling that I have made in the past and I am not going to uphold it.IAIN LEES-GALLOWAY (Labour—Palmerston North): It is a wonderful opportunity to speak to the Committee and to those at home listening on their crystal sets to the debate this evening. I think we might have got to the bottom of why the Minister of Finance overruled the Finance and Expenditure Committee and the National MPs on the select committee. I think he thinks the National MPs’ scrutiny of this bill was a bit dodgy. We have heard from Alistair Scott that the bill basically does very little. I was not on the select committee. This is not my area of expertise but after a 30-second conversation with my colleague David Parker I think I understand clause 6 and clause 7 considerably better than Alistair Scott does. It is clear to me that clause 6 does introduce a new subsection stating that section 59 which says that the fund can hold no controlling interests does not apply to the fund investment vehicles referred to in new section 59A and those are new fund investment vehicles that are created by this legislation. That appears to me as a layman in these terms as quite a significant change to the original legislation. So we have been wondering tonight why it is that after a lengthy period of scrutiny by a select committee which I assume has a majority of National MPs on it—Grant Robertson: It does.IAIN LEES-GALLOWAY: —it does I am told by my colleague—and after the committee unanimously deciding to include new section 59A(1A) and (1B) in clause 7 to give the Minister oversight in certain circumstances the Minister has come in and said not only that he does not agree with the position the National MPs took but that these bills after the select committee has considered them have to go back to the caucus. The National caucus actually said that this was OK when it scrutinised it closely. And I know it scrutinises these bills closely because it certainly looked at the Health and Safety Reform Bill very closely. In fact Mr Scott and his colleague Mr Bayly must be getting a little sick of being overruled by their caucus and their Minister with the work they do at the select committee then being overruled by their caucus colleagues because they have been looking at the Health and Safety Reform Bill as well. We know that the caucuses look at them closely and they would have looked at this bill closely. They agreed with the select committee that new sections 59A(1A) and (1B) should be included in the bill.So where was the Minister for that conversation? Surely that would have been the point at which the Minister if he had concerns should have raised those concerns with his caucus colleagues and sent the National MPs back to the select committee with a flea in their ear. But no obviously the left hand did not know what the right hand was up to which seems to be the usual state of affairs for the National Party at the moment and it was only after the bill was reported back to the House that the Minister decided to overrule his own colleagues on the select committee.We know that the National Party does not have an astonishingly good track record on these matters. Chris Bishop raised some issues around this. He said there was a time when the National Party MPs did not really agree with the Cullen fund but they have grown to love it. In the same way they did not agree with KiwiSaver but they have grown to love that as well. They did not agree with interest-free student loans and they did not agree with paid parental leave—all the ideas that were generated by the Labour Government alongside the Superannuation Fund to secure the financial future of New Zealanders. They were all things that the National Party opposed but that it now says it agree with.I think that just underlines the fact that actually the Labour Party is the party of ideas the party of the future and the party that thinks about the financial security and the future of the people and the citizens of New Zealand and the National Party is just the party of “No”. It is no to superannuation no to KiwiSaver and no to paid parental leave. It is the party that repeatedly says no to the new ideas. But that is OK because being conservatives those MPs eventually come round to the idea and about a decade later they realise that actually Labour was right all along and not just on superannuation and not just on the matters addressed in this bill. Maybe in 10 years’ time the National MPs will look back on tonight and say: “You know what? Labour was right and we were wrong.” Do not do it to yourselves National. Get on the right side of history now and vote against that Supplementary Order Paper.ANDREW BAYLY (National—Hunua): What a fascinating night. I have sat here and listened intently. I have listened to lawyers. I have listened to accountants. I have listened to political people and I am just staggered that people cannot understand a relatively simple piece of legislation. Let us just go back to first principles. This bill is obviously dealing with a good piece of what has gone on with the New Zealand Superannuation Fund set up by Dr Michael Cullen as we all know. It seeks to address superannuation for the future and to have a forward fund to be able to pay for it. We all know that it was set up in 2003 and has achieved outstanding results but what I want to remind you about are the two key underlying principles that Dr Cullen had for the Superannuation Fund. One was that the fund was going to grow to a size and we wanted to make sure that it did not have control of markets in New Zealand. To put that in context we have now got a fund worth $29 billion—Grant Robertson: Could have been more.ANDREW BAYLY: —and we know what the New Zealand Exchange is worth do we not Mr Robertson? It is worth about $100 billion. So at roughly 29 percent—if we applied it all to the New Zealand Exchange—it would mean we would dominate the New Zealand Exchange. So quite rightly we put into place some clauses to make sure that the Superannuation Fund could not control direct investments—right—other than real property.The second thing is we wanted to make sure it was free from political interference right? Part 1 of the bill deals with three key issues. Let us just deal with the first one which is about permitting fund investment vehicles as an appropriate investment vehicle. It is interesting right? I do not think that many people actually understand what they are. They are actually a very common vehicle for fund managers particularly if you use a “fund of funds” approach. I am sure many of you know what that means but for a large fund like the New Zealand Superannuation Fund you will use professional fund managers to manage certain assets.What this bill is doing after all those years since the fund was set up in 2003 is trying to modernise the situation at the behest of the Guardians of New Zealand Superannuation. These usual investment vehicles called fund investment vehicles are now going to be established right? The change permits them to be used to hold non-controlling equity stakes in direct equities or investment funds and secondly to hold stakes or to have influence over managed funds—that example I gave you before—that subsequently invest in equity or debt instruments like Treasury stock Government bonds and commercial bills.The third thing it permits is to hold investments in real property. This is where there is that little nuance I spoke about before—for instance the New Zealand Superannuation Fund does hold real property in the form of forests and stuff like that but the Act precludes it from holding directly the shares or having control over the entire equities like a company. So there is a difference between having control of the shares of a company as opposed to having control of the real property like forests land and all those other good things that the Superannuation Fund is entitled to invest in and should be investing in. So this deals with this.The other thing I heard early this evening was all about the passive fund and active fund. Well can I just correct you on that fault. This bill does not enable it to particularly become an active fund. The purpose of this bill does not address that issue. This is about putting an intermediary between the New Zealand Superannuation Fund managed by the guardians and what it has ultimately invested in right? So we are all on the same page hopefully on that aspect. Related to that at present the guardians cannot delegate or grant powers of attorney they cannot appoint an investment manager and they cannot appoint a custodian. I have got to say to you that it is absolutely unusual for funds not to be able to do this so what this bill does again is to provide normal operating rules for a fund such as a massive successful fund like the New Zealand Superannuation Fund.The second thing that Part 1 deals with is protecting the guardians against ultra vires acts that they may undertake. This means that if for instance the guardians through the fund manager enter into deeds contracts or agreements and all the normal things that you expect them to do and for some reason those acts are deemed to be ultra vires this part deals with this under new section 49A in clause 5 to permit those activities and transactions to take place and not be subject to a court challenge provided—and this is the overriding thing—that those transactions were all entered into in the normal course of events and there was nothing unusual about the extent of the activities that were undertaken.The third thing that Part 1 does is to confirm that the fund investment vehicles are not subject to the Official Information Act 1982 and the Ombudsmen Act 1975. Again we have heard a bit about this earlier on from the Opposition. Just to be clear what this bill provides for is that the fund investment vehicles are not subject to the scrutiny of both the Ombudsman and the Official Information Act but—but—the guardians still are.Again what we have got here is a comprehensive set of measures that will mean that these fund investment vehicles can be put in place like virtually any other fund in the world and that they can invest in a range of equities debt instruments and real property albeit they cannot control the equities that they hold because as I noted before they would have a huge dominant effect. Just to give you the context in that final point if you look at the range of New Zealand investments that the New Zealand Superannuation Fund is currently invested in the highest investment that it has got is Z Energy at 20 percent and Metlifecare also at 20 percent. All the rest are at about 10 percent and 8 percent of the New Zealand stock market.I think that this is a very good piece of legislation. It brings the New Zealand Superannuation Fund up into modern standards of practice and for that reason I commend it to the Committee.Hon DAVID PARKER (Labour): I just want to respond to the points that Mr Bayly made and the point that the prior speaker—I am sorry I have just got memory loss—Andrew Bayly: Mr Scott.Hon DAVID PARKER:—Mr Scott made in respect of controlling interests. I agree that the effect of clause 6 of the New Zealand Superannuation and Retirement Income Amendment Bill which adds to section 59 the new subclause (5) says that at the first level if you have got a fund investment vehicle that is wholly owned by the guardians then that in itself is allowed despite the fact that it is a controlling interest in the fund investment vehicle. But then it says—you look through that—it does not allow the guardians to have a controlling interest in respect of the underlying investment that is made by the fund investment vehicle. I know that; I understand that. But the point that we are making on this side is that through these vehicles you are getting closer to the point where you are going to turn the fund manager from a passive investor into an active investor. It might not have a controlling interest but it is getting closer in these new vehicles that are being allowed to actually moving from being a passive investor to an active investor.Across both sides of the House that was why the amendment was proposed by the Finance and Expenditure Committee—to reinforce that although we are going to allow these fund investment vehicles we were not going to encourage the guardians to move from a passive investment role to an active investment role. So we said therefore in respect of the power being exercised by the guardians ministerial approval would be given or withheld in respect of some of those classes of investment. That was the reason and so we are still waiting to have a contribution from the Minister in the chair the Minister of Education as to whether the Minister thinks that the select committee was wrong to say that this was actually moving along the continuum allowing more active investment than has been the case to date. That is a different issue from controlling interests. We still have not heard from members from the other side as to why it was wrong to actually have that greater level of control exercised in respect of investments that are not passive.The question was put that the amendments set out on Supplementary Order Paper 89 in the name of the Hon Bill English to Part 1 be agreed to.Amendments agreed to.A party vote was called for on the question That Part 1 as amended be agreed to.Ayes 75New Zealand National 59; New Zealand First 12; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 46New Zealand Labour 32; Green Party 14.Part 1 as amended agreed to.Part 2 Amendments to Income Tax Act 2007GRANT ROBERTSON (Labour—Wellington Central): There is so much competition for the call Mr Chair! Part 2 of the bill relates largely to amendments to the Income Tax Act that are consequential on the establishment of fund investment vehicles under new section 59A in clause 7. It is a relatively non-controversial part of the bill and one that the Labour Party will support.A couple of points arise when we look at section HR 4B which is being substituted by clause 13 of the bill around the way in which the activities of the New Zealand Superannuation Fund are considered within the Income Tax Act. What it really does raise when we look at that—and it is a relatively straightforward application of those rules to the way in which these funds will be created. It is important for the sake of the transparency of the fund that fund investment vehicles are now specifically noted because they have not existed before and that all activities that the superannuation fund undertakes are currently noted within the Income Tax Act. So it is a sensible and transparent way of establishing that these are here. But it does raise the issue of the question of the payment of tax by the Superannuation Fund.We have had some conversations in the Committee tonight about what size the Superannuation Fund might have been had the Government continued to invest in it and make contributions to it. Mr Bishop in one of his earlier contributions was bemoaning what stupidity it would be to borrow money in order to invest in a fund such as this. I would perhaps put the question to Mr Bishop as to what he would do if offered the prospect of I do not know a return of around 20 percent when he could borrow money at—oh I do not know—around 3 percent or 4 percent. What would he do in response to that? That would be I would have thought—from a layperson’s point of view—quite an important and useful thing to be able to do because of the ability of the Crown particularly to borrow at such low rates and because of the impressive performance of the fund thus far.The way that this relates to this part of the bill is that the Superannuation Fund is the biggest taxpayer in the country. That is right I think—is it not Mr Bishop? It is the biggest taxpayer in the country. Although we can concern ourselves with the amount of money that the fund might have earned for itself as it went through this it is also a question of the amount of tax that it might have paid had contributions been restored. There is a debate of course about whether or not the Superannuation Fund should be a payer of tax in that but certainly if we think about the levels of forgone revenue that the fund would have got we are talking about billions of dollars of tax here potentially not being paid as provided for under Part 2 of this bill. It is just another reason to contemplate the folly of this Government in not having continued to build this fund.We have already heard in this Chamber tonight that the history of National’s interaction with the Superannuation Fund is a very sorry one because it played politics with it when it first arrived in Parliament. Michael Cullen’s whole mission as the Minister of Finance was to help establish long-term supports for the core Government provisions that were needed. You know that is why he left KiwiSaver to this House as a legacy. That is why he left the Superannuation Fund to this House as a legacy because he could foresee that we needed a stronger base for an ageing population. We needed a stronger base to ensure that we had our own money which we could invest. We have heard the story many times in this Chamber of what would have happened if the then National Government had not trashed the Kirk fund. Around $285 billion worth of investment potential in our country was taken away in an election bribe many many years ago. So National’s attitude has been poor around this fund.We have now got a situation where we have seen losses. We have had a number of figures thrown around the Chamber tonight but more than $10 billion—quite a bit more than $10 billion actually—could have been added to the fund that was not added to the fund because the National Government made a political decision. It decided in its words to “borrow” money for tax cuts. It decided that was the priority rather than making an investment in a fund that will pay out in the future for superannuation and rather than making an investment—Andrew Bayly: The tax cuts were fiscally neutral.GRANT ROBERTSON: “Fiscally neutral”! Andrew Bayly says that the tax cuts were fiscally neutral. He is still working off the 2010 talking points. They were not fiscally neutral I can let Mr Bayly know. That is not what happened. They were tax cuts that overwhelmingly benefited those on the highest incomes. They were given at a time when the Government told us there was no money to do anything. It had to cut back on all kinds of measures but there was money to do that. But the point I was making to Mr Bayly wasthat actually if you apply the rhetoric of not borrowing money for the Superannuation Fund you cannot then suddenly dispense with that rhetoric for what the Government did do with the money that it had which was to give tax cuts.But the point that I am bringing back to Part 2 of the bill—which we do support—is to say that this is the part of the bill that relates to the interactions with the Income Tax Act. This fund had the National Government actually committed to making the contributions it could have made would have been paying to the Crown I would venture to suggest at least $1 billion in tax that has now been forgone. That just typifies the attitude of the National Government to this fund.CHRIS BISHOP (National): I just want to take a short call to respond to Mr Robertson’s remarks. This deals with Part 2 of the bill which of course is clauses 10 to 14 dealing primarily with the Income Tax Act 2007. I just want to rebut the idea—the proposition that Mr Robertson made—that basically if someone can borrow at 3 percent or 4 percent the Crown’s cost of capital and invest and make a 20 percent return then it is lunacy not to do so OK? On the face of it that is true. But let us take off the rose-tinted rear-vision mirror glasses and just think the other way which is that we had done that—that somebody had gone out and borrowed at 3 percent or 4 percent or maybe even higher than that and had lost 20 percent; not gained 20 percent not improved the asset value by 20 percent but actually lost. That is a conceivable scenario at the time of the global financial crisis when global equities were tanking. It is highly conceivable that the Crown would have lost money. So it is all very well 8 years on to look back and say “Well we would have made 10 percent. We would have made this. If only the dastardly National Government had not done that.”—that is all very well. I can understand why the Labour Party wants to run that line as a political attack except for the fact that it is equally plausible that the Crown and the Government would have lost 20 percent or even moreperhaps.You will remember that this was at a time when the global economy was in total turmoil. Global equities were tanking and to say that the New Zealand Government should have borrowed money at a time of great global uncertainty in order to invest in risky assets that were extremely volatile is naive. Why do we know that what we did as a Government was the right thing? Well Michael Cullen the Svengali of the left the social democratic paramount chief when he set up the New Zealand Superannuation Fund in 2002 said that it was only going to be invested in by the Crown at times of surpluses. It was his attempt to squirrel away the money so that the National Party at the time would not spend it on tax cuts. That is what he said. Right? We can argue about whether or not that was right or wrong but what he said was that it was to be usedonly at a time when we had surpluses not when the Crown was borrowing to invest in the share market. So the very man whom the Labour Party has spent the last 2 hours lauding and to whom it continues to bend the knee all the time—go down to the Auckland Fabian association to hear from him about how Labour needs to reclaim the political momentum and all of the advice that he gives—that guy the guy who set up the fund that the Labour Party has benevolently named after him at least in the vernacular he himself does not support what the Labour Party is advocating now.Actually the Labour Party has form on this because at some point the Labour Party members had a road to Princes Street conversion and they decided that what National had done with the Superannuation Fund was a good idea. It was David Shearer in 2012 who turned up at the Wellington Employers’ Chamber of Commerce—and I think Grant Robertson was deputy then; he may not have been; at least he was a senior strategist inside the leadership team—and he said: “We’ve decided that until we are back in surplus any new spending will have to be paid for out of existing Budget provisions new revenue or by reprioritising.” That was David Shearer in 2012 when he was leader of the Labour Party. I know that they have changed their position now and that they have gone back to the typical left-wing orthodoxy that was the case under Phil Goff that was the case under David Cunliffe and that presumably is the case under Andrew Little—and quite possibly will be the case under the new leader of the Labour Party Carmel Sepuloni. I know her time is coming. She is making a run from the second benches from the whip position and the sterling work that she is doing in social development railing against vouchers social development and the National Government’s investment approach of trying to get people back into work. I know that she is making a run but anyway—the Chair is asking me to shorten it up—I just want to make the point that the Labour Party members are all over the place on this issue.Actually when it comes to superannuation policy more generally they are in the middle of a review. Grant Robertson is rampaging around the country with the amusingly titled Future of Work Commission and we have got Andrew Little musing about raising the superannuation age or maybe even means-testing it. David Clark just about 1½ hours previously in the debate on a previous part of this bill—Dr DAVID CLARK (Labour—Dunedin North): Thank you Mr Chair—oh what a relief! Well the future of work—I was wondering where that member Chris Bishop was going with that. The Future of Work Commission I am happy to inform the member is proving to be a great boon to our engagement with the public. It is very popular. Everybody has a view on the future of work. I suspect that member was about to expound some more had he had the time to do it because actually everyone has a view on where work is going. Work affects everybody and of course no matter where you come from politically it is something that people want to engage on. So I thank that member for raising that—The CHAIRPERSON (Lindsay Tisch): Come back.Dr DAVID CLARK: —but the Chair rightly draws me back to the bill at hand and I am only too happy to speak to Part 2 of the New Zealand Superannuation and Retirement Income Amendment Bill if I could only jolly find the thing because I am told it contains a number of amendments to the Income Tax Act. If somebody does have a copy of the bill I had a couple of things I wanted to say but I wanted to jog my mind just to see what they were. Thank you very much colleague. I was distracted by that member opposite—and laugh well he might—but I was distracted by his comments on the future of work which of course are entirely relevant although not to this debate.Amendments to the Income Tax Act—ah yes. The amendments that could have been in here but are not are the ones that I wanted to look at. We know that there are many things as I said in my earlier contribution on Part 1 that could have been done on retirement savings that this Government has not done and right here is a paucity of vision again in Part 2 because what we have here are the minutiae of how this bill affects the Income Tax Act. There are sensible things in here—do not get me wrong. There are sensible things in here that we should be doing which we on this side agreed to. Of course we agreed to all of it in select committee as did the members opposite who are now backtracking on one or two matters. But in here we do not see for example provisions relating to the Income Tax Act in respect of resuming contributions to the fund because the Government has not done it. It has not done it. It has forgone $10 billion in revenue—$10 billion it would have got had it resumed those payments—but here we do not see any kinds of amendments in that respect. We do not see any amendments that plan for a future where we have secure retirement savings because it is not the Government’s priority and this is what we are faced with over and over again in this House.We do see the fund investment vehicles affecting the Income Tax Act and that is recorded here in subsection (3) of section HR 4B in clause 13 of Part 2—the various changes that are being made there—and they are sensible changes. Of course—Andrew Bayly: What changes are those?Dr DAVID CLARK: The member opposite asks what those changes are and I invite him to read the bill right here. They are right here in black and white. It is a very short bill and I invite the member to read it. He is welcome to make a speech if he feels passionately about these technical amendments but the broader point must be made that we are not arguing about the resumption of those payments to the Superannuation Fund which would have seen New Zealand so much better off.It would see us in so much better a position had Government members not been so short-sightedly focusing on borrowing instead for tax cuts—borrowing and borrowing. It is a Government that has borrowed more money than Muldoon opposite there. I see those members hanging their heads. They have gone quiet and well they might. They have failed to resume these payments which would have increased the savings available to future generations and that is because they are failing to have a plan for the future. On that side of the Chamber they are failing to plan for the future. We on this side would have liked to see some more dramatic changes in this part of the bill that reflected the resumption of savings to contribute to the most successful scheme in the world—we are told one of the best schemes in the world if not the best scheme in the world. The Cullen fund the one that Bill English called a dog that has been hailed from Antarctica to Zimbabwe is a superb fund and something that does the job that we would hope it to do if they would only let it.Here in this bill—as I said in my previous contribution we do support the overall intention but we note again that it lacks the broad vision. The Government members lack the plan they are not making the big steps that they ought to be making and that is why we see in this part of the bill no big changes in respect of resumption of those payments or any tax implications that might be coming from that. Thank you.ALASTAIR SCOTT (National—Wairarapa): Part 2 of this bill clarifies a few issues around the tax status of the fund investment vehicles but I would also like to comment on the comments made by the previous speaker David Clark regarding a guy—well he is talking about a guy I know indirectly. His name is Harry—“Harry Hindsight”. He is the most famous trader on the planet. He is a guy who was around when I was trading on the markets and we always thought he was such a great guy because he just got it right every time.Unfortunately “Harry Hindsight” does not exist and I ask the member: “How would you have reacted? In hindsight would you have sold the Shanghai Stock Exchange Index in the last 10 days?”. Well yes you would have because it has dropped 22 percent in the last couple of weeks. In hindsight I would not have bought that Shanghai Stock Exchange Index and this is the issue—the rose-tinted spectacles that the Opposition members see through.Borrowing and investing is what is known as leveraging your position and that increases the risk for the investor to something that could wipe you out—completely wipe you out. So imagine if you have got a 20 percent deposit on something and you buy it. You are up you have leveraged 80 percent and you have a movement that we saw in the last week on the Shanghai Stock Exchange and you are out of business. That is why—The CHAIRPERSON (Lindsay Tisch): Come back.ALASTAIR SCOTT: Thank you Mr Chair. That is why you do not borrow for investing in something that is a risky asset and that is why we have not borrowed to continue the Cullen fund through times when the funds were simply not available.STUART NASH (Labour—Napier): “Harry Hindsight” is always right. There is absolutely no doubt about that but even better than “Harry Hindsight” is people admitting when they have made mistakes. Not once has anyone on that side of the Chamber stood up and said: “Yes you’re right. We should have put money back into this because it has earned 18 percent.” Since the global financial crisis it has been one of the best performing funds in the world actually. The New Zealand Superannuation Fund does not have to consider whether it is going to sell or buy the Shanghai Stock Exchange and “Harry Hindsight” has nothing to do with reality.The reality of the situation is that this is—Alastair Scott: It absolutely does. It is absolutely invested in the Shanghai exchange.STUART NASH: Let me outline the situation we have got at the moment. First of all superannuation is going to become unaffordable. We all know this. The second point is that Michael Cullen set up a fund to mitigate the risk to the Government finances around an unaffordable superannuation burden. Thirdly it has billions of dollars in it at the moment. Fourthly this National Government—and Bill English admitted this—stopped contributions because he wanted to give tax cuts to the people of New Zealand because that is what he promised. He did not have the wherewithal to say: “I made a mistake. We need to plan for our future. We need to plan for the future.” The fifth thing is we are still in a really bad position in terms of an affordable superannuation fund. Alastair you must know this. You were a trader. You know how these markets work. You talk about leveraging. This is all about managing risk.If I ask the question: “If we look at the risk 10 12 15 years out of a massive unaffordable burden on the taxpayer or the risk of breaking an election promise and not giving money back where do you think the New Zealand public would have sat?”. I firmly believe that they would have said: “We want certainty in our future. We want certainty in the future.” The Prime Minister could have managed that risk but he did not. He chose not to take that risk at all and as a consequence of this short-term thinking we have a superannuation fund that could be worth maybe $15 billion or $20 billion more. The Kirk superannuation fund which I have heard members on this side of the Chamber talk about would be worth $240 billion now. That is just predicated on an average rate of return from an average year. It could well be worth a hell of a lot more. So this is the difference between that side of the Chamber and this side. We like to plan for the future because we know “Harry Hindsight” is always right but we do not want to second-guess “Harry Hindsight”. We want to ensure that in fact when we look back we can say that we did what was right and this is the right thing to do.I come to Part 2 of the bill which is the part we are talking about. It is quite technical. But what it does do is it amends sections of the Income Tax Act 2007 so that these investment vehicles or companies in which an interest is held by the Guardians of New Zealand Superannuation will not be subject to exemption for public authorities. There are a number of clauses in Part 2 that are actually quite technical. We have been through them to a certain extent. If we were to get really technical I think it would send everyone to sleep not just my colleagues who were yawning but even those who are unfortunate enough to have to watch this on television. But it deals with things like activities relating to the Superannuation Fund itself. It deals with amendments to the Income Tax Act which cut to the very essence of the Superannuation Fund. It talks about when the sections apply and how it is going to deal with these. It talks about the activities of the Crown relating to the fund. We have done that to death when we have talked about the rights of the Ministers and the Crown to intervene—when they should and when they should not and why they would or would not etc. We have also talked about fund investment vehicles. This is about the consolidation rules continuity provisions and other rules relating to groups of companies that apply to the Crown as owner of the funds when an investment fund vehicle is referred to etc.You have heard members on this side of the Chamber say that this is actually an important piece of legislation. You have also heard them say that we actually supported Part 2 when it went through the select committee. You had no argument from us there. Where you do have an argument from us where you do have a massive bone of contention is how we manage the fund what we do with it how far we look out and the sort of expectation we create for New Zealanders who are now looking forward and asking “What does the future look like? Where am I going to be? Am I actually going to be entitled to superannuation?” which has been the fundamental right of Kiwis ever since it was introduced by the first Labour Government.Hon DAVID PARKER (Labour): I want an assurance from the Minister in the chair the Hon Hekia Parata that Part 2 is not going to effect a change to the principle that the fund should pay tax. It should pay tax like any other investor despite the fact that it is Government-owned. That is the underlying principle that we currently have and that is the principle that should continue. From time to time we hear claims—and I have even heard people who are very close to the Superannuation Fund questioning whether it should pay tax. The reason that it should pay tax is that otherwise it will be advantaged relative to other investors in the New Zealand market and it would also be encouraged to weight its investments to investments in New Zealand where it would have a tax advantage on those investments investing in New Zealand because it would not have to pay tax on those investments compared with investing overseas. That would cause it to weight its investments more into New Zealand than overseas for the wrong reasons.I want to have an assurance from the Minister in the chair that these amendments to the Income Tax Act 2007 and the amendments to sections CW 38 and CX 55 of that Act made by Part 2 of this bill do not affect the current status quo which is that the Superannuation Fund should pay tax as other taxpayers do. For some people that is counter-intuitive because it is a Government entity paying tax which decreases the amount that is left in the Superannuation Fund for the meeting of future superannuation and means more going into the Crown coffers because it is paying tax. But none the less I think that is an important point in principle that was imposed in the original design of the principal Act. As we know the Labour Party and Michael Cullen had more foresight—Brett Hudson: Dr Cullen was preparing it for privatisation clearly.Hon DAVID PARKER: Dr Cullen was preparing the Superannuation Fund for privatisation clearly! I mean I have heard some brain-dead comments from the Government on occasions but really that takes the cake. You should be brought forward to the front bench. You would be very comfortable on the National front bench. Of course this fund was created by the Labour Party and opposed by the National Party so how that member could say that this was preparing it for privatisation—fact is stranger than fiction sometimes is it not? No that is not correct.Indeed that gives me licence I think—responding to that interjection from the Government—to recount the fact ad nauseam really which we have heard before that we should take care in respect of the Superannuation Fund that we do not actually cause it to aid the privatisation agenda of any Government. Indeed because some of New Zealand’s largest listed entities now include energy companies one of the things that has happened through the Superannuation Fund since the Government privatised those entities is that we have cause to go from the Government balance sheet through direct ownership to the Superannuation Fund investments in privatised assets if the Superannuation Fund has invested in either Genesis Mighty River Power or Meridian.That of course was one of the things that Dr Cullen was trying to guard against when he set the fund up and he gave pretty clear directions that he did not want this fund to be weighted towards investing in New Zealand because he knew that one way or another there was always a risk that National Governments would plunder the fund in order to achieve their other objectives.Chris Bishop: Oh ha ha!Hon DAVID PARKER: We hear Chris Bishop laughing about that but if there was a subscription by the Superannuation Fund in those privatised companies it will have increased demand for those shares and will therefore have had some effect on the price that was able to be achieved on the sale of those shares. It may well be that it did not invest in those shares in which case that would not have happened but if it did it must have had an effect on demand and therefore an effect on price. And as Mr Bayly has already said this fund is already the largest investor in New Zealand. It is far bigger than any KiwiSaver fund far bigger than any private superannuation fund and far bigger than any other investment fund of the Government including the ACC fund. It is the largest investor in New Zealand. Therefore it does have the ability because of that size to influence price.So I invite the member opposite who interjected Brett Hudson to hang his head in shame and resile from those rather silly comments that he made at the start—Brett Hudson: Clearly he was more our side than your side Mr Parker.Hon DAVID PARKER: Say that again? Clearly—Brett Hudson: After all Dr Cullen was the one who said: “Don’t borrow to invest money in the Super Fund.”Hon DAVID PARKER: No he did not say that.Brett Hudson: He said: “Only make contributions when you’re in surplus.” Mr Parker.Hon DAVID PARKER: No Dr Cullen did not say that. No Dr Cullen thought indeed that contributions to the Superannuation Fund should continue. Again he is a very poor student of historythis particular member. I was here after the global financial crisis hit after we lost Government; so was Dr Cullen. That member was not. And you will recall that we were critical of the Government for making that short-sighted decision. I think it is actually testament to the independence of the guardians that despite the embarrassment to the Government caused by the guardians measuring the loss that the Government has caused to the Superannuation Fund by ceasing contributions they have continued to calculate what would have been in the fund had those contributionscontinued.That brings me to an inane contribution from one of Mr Hudson’s colleagues who said it was always stupid to borrow to invest. Well that is true if you are capital constrained but the current Government has not been capital constrained because it inherited very low levels of Government debt—zero net debt—and gross debt having been reduced from 38 percent to 18 percent of GDP. The member said that you can never beat borrowing rates—it would be silly. Well of course the Government’s stock rate is generally the lowest long-term rate to invest in and you get higher rates of return if you invest in security or balanced portfolio bonds as Mr Bayly knows well. So it should be no surprise to members on the other side that if they had borrowed they would have achieved a rate of return—Alastair Scott: If if if—“Harry Hindsight”.Hon DAVID PARKER: Actually you know the trouble with these guys is that they have got no foresight. I mean it would be nice if occasionally they got one of these decisions in advance right. We are not saying that you should judge everything by hindsight but it would be good if occasionally they got one right with foresight. They called it a dog; they were wrong. They now admit that they were wrong. They stopped investments when they should not have stopped them but they cannot bring themselves to admit that even though it was always obvious that the investment rate over the medium term exceeds the Crown cost of funds. They have not been able to acknowledge that that was a stupid decision too.IAIN LEES-GALLOWAY (Labour—Palmerston North): I have found the debate this evening very interesting—quite fascinating—and a lot of it has revolved around the question of whether it would have been appropriate to continue to make contributions to the Superannuation Fund during the period when the Government was borrowing in order to carry out a range of activities actually. I love the way that the National Party tries to sort of reduce this down to borrowing in order to put money into the Superannuation Fund. The Government has borrowed to an astonishing level actually—to levels that no other Government ever has before—but in order to do a range of things.One of the things that the Government borrowed to do was to provide tax cuts. There are really good arguments why you do not provide tax cuts especially tax cuts to the wealthy. There might have been an argument for it during the period of recession and then the very slow period of growth after the global financial crisis. There may have been an argument for tax cuts if the majority of the money returned to the citizens of New Zealand had gone to those with the least because those with the least have to go out and spend that money because they are struggling to make ends meet as it is and that would actually have provided the economic stimulus that was the argument the Government made for providing tax cuts while it was borrowing heavily just in order to keep the ship afloat. But no the Government did what National Governments do. It was true to form and it gave tax cuts to the most wealthy which was wonderful for the people who were most wealthy but did very little to stimulate the economy.During that period of time it may well have been prudent—and in fact looking back it would have been incredibly prudent—to carry on contributing to the Superannuation Fund. But actually the point I want to make is this: it is that achieving surpluses is actually incredibly important for the Government because if you are in surplus you remove that debate. It is actually a really simple decision to make if you are in surplus making a contribution—what the size of the contribution is might be a question for debate but making a contribution to a superannuation fund then is an easy choice to make. I accept that it is a more difficult choice to make when you are having to borrow for a range of things but if you are in surplus it is an easy choice to make and that is why achieving surplus is important. Alistair Scott is nodding away.The Prime Minister is not so sure about whether achieving surplus is quite so important. It was important—it was a very important—The CHAIRPERSON (Lindsay Tisch): Order! [Interruption] Order!IAIN LEES-GALLOWAY: Well it is relevant to this bill because what we are talking about is actually saving for New Zealand’s future—putting contributions into the Superannuation Fund in order to ensure that universal superannuation is actually available for future generations. That is actually one of the great issues facing this nation at the moment and should be facing that Government: how do we make sure that universal superannuation remains available not just today not just in 10 years’ time but in 20 years’ time 30 years’ time 40 years’ time? How do we ensure that it is still available? In the face of an ageing population in the face of a growing number of superannuitants in comparison with the working population in the face of all those challenges what do we have to do to ensure that universal superannuation is still available? That is why the Cullen fund—Todd Barclay: Keep National.IAIN LEES-GALLOWAY: No not keep National actually; the exact opposite of keep National because if the National Party had been in Government in 2002 there would be no Cullen fund. There would be no Cullen fund because members opposite are obsessed with hindsight and they have got absolutely no foresight. That is classic National Party thinking: always thinking about the past never thinking about the future. So actually if you want to ensure that New Zealanders in the future will be able to rely on universal superannuation what we need more than ever now is a Labour-led Government a Government that can actually look into the future a Government that actually believes in sovereign wealth funds and believes in putting money aside now to save for the future. That is not what the National Party wanted to do—not what the National Party wanted to do at all. It wanted to blow it all on tax cuts for its mates here and now not worrying about the future.Members opposite have gone quiet now because they know I am right. This is an important piece of legislation because it will help make the Superannuation Fund—JOANNE HAYES (Third Whip—National): I move That the question be now put.A party vote was called for on the question that the question be now put.The CHAIRPERSON (Lindsay Tisch): Just while the Clerk is adding these up there can be no discussion no noise whatsoever when votes are being taken. I will ask you to respect that.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.The question was put that the amendments set out on Supplementary Order Paper 89 in the name of the Hon Bill English to Part 2 be agreed to.Amendments agreed to.Part 2 as amended agreed to.Clause 1 agreed to.Clause 2 agreed to.The Committee divided the bill into the New Zealand Superannuation and Retirement Income Amendment Bill and the Taxation (New Zealand Superannuation and Retirement Income) Bill pursuant to Supplementary Order Paper75.Bill to be reported with amendment presently.