English Bill: New Zealand Superannuation and Retirement Income Amendment Bill Taxation (New Zealand Superannuation and Retirement Income) Bill — Third ReadingsText is incorporated into the Bound VolumeEnglish Bill: New Zealand Superannuation and Retirement Income Amendment Bill Taxation (New Zealand Superannuation and Retirement Income) Bill — Third Readings[Sitting date: 20 October 2015. Volume:709;Page:7364. Text is incorporated into the Bound Volume.]Hon BILL ENGLISH (Minister of Finance): I move That the New Zealand Superannuation and Retirement Income Amendment Bill and the Taxation (New Zealand Superannuation and Retirement Income) Bill be now read a third time. This bill has taken a while actually to get to the point where we are completing the process but it is pretty important probably as much for what it does not do as for what it does do. This relates to the New Zealand Superannuation Fund and what it is allowed to do under the 2001 Act. I think as I said in the second reading of this bill the New Zealand Superannuation Fund was set up in a way that was fundamentally sound and Dr Michael Cullen deserves credit for that. It was set up in order to retain and maintain its political independence because of the basic insight that a multibillion-dollar fund—now $27 billion—could look attractive to politicians who have their own objectives in mind rather than the very long-term objectives of this fund which are to help offset the cost of national superannuation through the 2020s 2030s 2040s and into the 2050s. It was set up with that degree of independence and that is something that I think this House must pay attention to—and I will come back to why that is relevant in just a minute.One of the restrictions on the fund is that it cannot take a controlling interest in any entity. This is simply to prevent what is already a large fund from running a whole lot of businesses and my own view is that that would not be good for the economy because a Government-controlled fund cannot really go out of business. It would not have the right incentives to improve the performance of businesses that it owned by majority. There may not be much test of the management of those businesses so quite reasonably the House has had a position now for 15 years that it should not own businesses in its own right but that it can own part of pretty much any business in New Zealand and overseas. The issue here is that as it diversifies its portfolio around the globe and by far the bulk of its investment is offshore—that is we take money that was taxpayers’ money it goes through the Government into the fund and then it is invested offshore. In recent years there has not been any of that but the fund has been making healthy returns on its investments and reinvesting those returns.In the modern world of funds management investment entities are set up and in this legislation these are referred to as fund investment vehicles. So the bill has a very specific purpose which is to say that although the fund is not allowed to own any particular business in majority it can have a controlling interest over an entity set up just for the purposes of managing investments—just for the purposes of managing investments. The intent of this is to reduce some of the costs that the fund now incurs. Where we can reduce its costs we increase its returns and over the 30 40 or 50 year life of the fund that could have a big impact on the fund’s performance—a significant impact. Just in the same way as when you look at a KiwiSaver fund and look at fees of 1.5 percent when the returns are 5 or 6 percent or less a small reduction in those fees has a significant influence on the returns to the fund. The bill provides the guardians with some added flexibility around how they implement their investment strategy.There is also the companion bill the Taxation (New Zealand Superannuation and Retirement Income) Bill which provides for the taxation of fund investment vehicles in the same way as current taxation of the fund as a whole. The Greens seem to interpret this as enabling the New Zealand Superannuation Fund wholly owned by the New Zealand Government to use these new fund investment vehicles as some way of indulging in behaviour around tax havens. We want to be pretty clear that this bill does not change any of the investment universe available to the guardians or its current approach to tax; they will have to comply with tax law wherever they invest in the future—the same way as they do now—and I am satisfied that the arrangements are the right ones.On the way through the process there was really only one point of discussion and that is whether the Minister of Finance should approve the fund investment vehicles. As someone who has had a little bit of experience in that job it is certainly my strong view that the Minister of Finance should not be involved in any way in the investment decisions of the fund even if it looks like it is going to be a fairly technical intervention. In my view it is much better that all those investment decisions are completely at arm’s length from the politicians. And as it happens on the way through Parliament the House has come to the view that that is probably the best way to manage it.There is always an argument at the margin for the politician to somehow get involved in a way that might enable the officials to have a bit more oversight of this fund or to make a small adjustment at the margin but in my view any move in that direction will simply compound itself on another move in that direction and before long you could have some real problems of political interference in the operation of the fund. There are legitimate issues for the Government which we are doing a bit of work on and one is that the fund takes risk with investments. We know that because it has been making 20-plus percent returns in some years. You do that only by taking risks. But the Government has to satisfy itself that it understands what risks are being taken and that they are broadly acceptable on the Crown balance sheet and that is a matter of some ongoing consideration by Treasury. Can I thank both the House and the Finance and Expenditure Committee for dealing with a pretty pragmatic bill designed to slightly reinforce what we hope will be the long-term success of the New Zealand Superannuation Fund.