Worth Richard: Securities (Local Authority Exemption) Amendment Bill — In Committee 
Worth Richard: Securities (Local Authority Exemption) Amendment Bill — In Committee 
[Volume:646;Page:15212] 
Dr RICHARD WORTH (National) 
: 
 There is nothing too difficult about this bill but it does have significant implications for local authorities. I say “nothing too difficult” because it comprises only five clauses. The two most significant points about the bill are that it is to insert a definition of “local authority” and then provide for an exemption in respect of local authority debt-raising. 
Some of us who are a little bit older will remember those days when a number of local authorities in New Zealand issued local government stock and the Auckland City Council was certainly to the fore in that. That day will come again with the passage of this change to the Securities Act—legislation that National supports. At a time when the Blue Chip group has collapsed and the fortunes of finance companies in New Zealand generally continue to tumble in quite a disastrous way for small investors local authority paper is likely to be well received by retail investors. 
Local government faces a real challenge at the moment in managing the current bulge of infrastructure development whilst maintaining local authority finances on a reasonable footing. Local government has embarked on the most significant programme of capital works undertaken since the postwar boom in the development of the roading network. If we look at local authorities’ long-term plans we see that local authorities are undertaking approximately $30.8 billion in capital works in the 10 years to June 2016. Virtually all of this expenditure is to fund either network infrastructure—roads sewage disposal water schemes—or community infrastructure which includes things like libraries sports grounds and stadia. That is actually more than double the level of capital expenditure in the period from 1995 to 2004. 
It is also significant that there is a significant degree of front-loading in the capital works programme and that about 50 percent of the funding needs will be required between now and 2009. Infrastructure assets have long lives and borrowing helps to spread the cost of this infrastructure over the life of the asset so that today’s ratepayers are not subsidising future ratepayers. 
Mark Blumsky 
: Intergenerational. 
Dr RICHARD WORTH 
: As Mr Blumsky has just this moment said to me it is about intergenerational equity. 
In 1998 changes were made to the law that made it very difficult for councils to issue debt securities and only the Auckland City Council issued debt securities to the public after that. It issued $120 million in March 1999 and $68.2 million in February 2001. The hope is that that will now change and that an opportunity has been given to investors to access quality debt. 
I will talk for a moment on the benefits of this legislation. There are really three. The first is local authority access to capital. The second is investors’ access to quality debt. The third perhaps more generally are some market-wide benefits that will flow. When the Local Government Amendment Act (No 3) was passed in 1996 there was a failure to recognise the practical implications of accessing public money. Effectively that change made it too onerous for local authorities to access public money for two reasons. 
The CHAIRPERSON (H V Ross Robertson) 
: This debate is on the title clause. 
Hon Lianne Dalziel 
: I raise a point of order Mr Chairperson. I would like to help clarify the situation. If we were having one wide-ranging debate across this very small bill of five clauses then obviously that would be the way to accommodate what the member is doing. Otherwise I take a point of order and say that the member is outside the scope of the clause 1 debate. I guess I am very much in the Committee’s hands as is the Chair but I would be happy to seek the leave of the Committee that we take a single wide-ranging debate to cover the whole of the bill and have it put as one question. 
Dr RICHARD WORTH 
: I am happy to accommodate the comments the Minister has made. 
The CHAIRPERSON (H V Ross Robertson) 
: The Committee is the master of its own destiny. The Minister has sought that we have one wide-ranging debate. Is there any objection to that course of action being taken? There is no objection. 
Dr RICHARD WORTH 
: As I was saying before the Minister made her comment there are really three issues of significance in the context of this bill and its title. I was making a comment with reference to the passage of the Local Government Act and the consequences of that legislation. The Act increased issuance costs with the requirements to produce a prospectus. But more significantly it created a really insurmountable hurdle as all the councillors were required to sign a prospectus. If there were a councillor who had been elected perhaps on the basis of reducing council borrowing he or she would find it very difficult to sign the prospectus for the raising of additional debt. That is why all local authorities opted to issue debt on the wholesale market with just one public issuance of local authority debt. 
Now the reinstatement of the exemption will provide a much more feasible business case for local authorities to access public money. That is particularly relevant with these infrastructure plans that I have already referred to. Generally the market provides a premium of around 10 to 15 basis points for retailable debt. If we apply that to the estimated borrowing of $30.8 billion it equates to a saving of approximately $30 million to $46 million to local authorities. 
The second point is that there will be investor access to quality debt by removing the particular requirements that have existed to date. That will provide retail investors with access to high-quality debt instruments. That is particularly important at the moment when finance companies have come under such critical and close scrutiny. Providing a broader range of investment-grade credit is an important initiative in improving the overall quality of products for New Zealand investors. 
The final thing I will talk about for a moment is the market-wide benefits. If local authority debt is available to retail investors it will create more accurate pricing of junk bonds and other high-yielding debt products. Having local authority debt available for the investing public continues to broaden the range of debt products available for retail investors. With more quality debt products in the market retail investors will be able to easily compare their investment options and price them accordingly. It is for those reasons—and in particular in the context of infrastructure demands that are placed on local authorities providing services to the community—that National supports this legislation.