Cunliffe David: Westpac New Zealand Bill — Third Reading 
Cunliffe David: Westpac New Zealand Bill — Third Reading 
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Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to take a call in the third reading of the Westpac New Zealand Bill to confirm that the Labour Opposition will be supporting this bill because it is important to ensure that the New Zealand banking system remains strong and stable. This bill gives effect to this component of that financial security: to ensure that locally incorporated subsidiaries are of sufficient scale to provide good risk management within our system pursuant to the regulations of the New Zealand Reserve Bank. 
I will firstly draw on the submission by Westpac in taking the House through the reasons why this bill is necessary and I will then note several important contextual issues that surround it. Westpac in some form or another has operated in New Zealand for 150 years or so. Westpac New Zealand Ltd is a locally incorporated subsidiary of Westpac Banking Corporation which is headquartered in Australia. That subsidiary has operated in New Zealand only since 2006 and it did so pursuant to regulations passed by the New Zealand Reserve Bank. Westpac New Zealand Ltd conducts Westpac Banking Incorporation’s retail operations in New Zealand which includes consumer and business banking. The Westpac Banking Corporation branch which is Australian owned conducts the institutional business. 
Under the regulations that institutional business is subject to a cap of $15 billion of assets and liabilities excluding those to related parties which is known as a liabilities cap. The Reserve Bank imposes on branches of overseas banks such as Westpac Banking New Zealand a condition of registration that restricts them from having liabilities in excess of that cap in order to ensure that the foreign-owned entity does not become systemically important in the New Zealand system—that is if the foreign-owned entity is too big and the market enters another period of considerable turbulence then the risks go up for New Zealanders of too much of the asset book being held in foreign hands. That is why we have the rule and that is why a proportion of the assets and liabilities currently held by the Australian-owned parent directly are being transferred to the New Zealand incorporated subsidiary through this bill. That is a very important difference. 
So what is being transferred? The answer is some institutional customer deposits some institutional customer transactional banking some institutional customer lending some debt capital markets and some corporate advisory functions. Of course that brings to the fore the broader question of why more of Westpac Banking Corporation’s New Zealand assets and liabilities should not be transferred into the New Zealand subsidiary and why it is in the interest of the bank to maintain a dual structure. Westpac is not the only bank that does that. ANZ the Commonwealth Bank of Australia and Rabobank also maintain the dual structure between a foreign-owned entity and a New Zealand - incorporated subsidiary. It may well be that in future it is an issue that a future Government might wish to turn its mind to in consultation with the banking industry. For now the Labour Opposition is satisfied that the provisions of this bill are in keeping with the object of the Westpac New Zealand Act and in keeping with the Reserve Bank’s policy to ensure a reasonable level of financial security and stability in New Zealand. For that reason we support the bill. 
I wish to turn briefly to the economic context within which this transfer is taking place. In doing so it is important to acknowledge that the banking system is of huge importance to New Zealand. Approximately 93 percent I think of the banking system is owned by entities that are not headquartered in New Zealand—they are foreign-owned as it were. They include notably the four big Australian banks. The exceptions to that rule are Kiwibank started by the former Labour-led Government which has about 5 percent of the market other smaller entities like TSB Bank and PSIS and other locally based organisations. 
New Zealand is too indebted. That is a theme we have heard a lot about from the Government before the Budget came out with the figure of $380 million of Crown borrowing a week. It turned out that it was only $280 million a week that was needed; the other hundred million was purely discretionary timing - based. That hides the larger truth and perhaps deliberately so that most of the international investment deficit our net debt as a nation is not Crown debt is not public debt and is not debt owed by the taxpayer. It is debt owed by individuals through the banking system some 55 percent of which has been invested in house mortgages. I think it is common ground across the House that New Zealanders went on a bit of a house-buying binge over the previous decade. 
Hon David Parker 
: The whole Western World did. 
Hon DAVID CUNLIFFE 
: That is exactly right. Probably no Government in the Western World quite appreciated the size of the housing bubble while it was on. Now that bubble has come to the end of its peak and we are dealing collectively with how best to unwind it. It is clear that if 90 percent of our total debt is private and only 10 percent is public no amount of cost cutting in the public sector will solve the private debt problem. By logic if the Crown’s budget was cut by 50 percent that would save only 5 percent of the total because it is off a base of only 10 percent. That is a tremendously important idea for New Zealanders to get their heads around. 
New Zealanders are borrowing too much and they are borrowing for the wrong purposes. The breakdown of that private debt which is owned by the banking system including Westpac shows that to be true. As I said about 55 percent of private debt is in house mortgages. Some 25-odd percent of it is farm debt. That debt has plateaued not decreased despite record prices for many commodities. I think it is a 27-year record at the current time. Some 16 percent of it if I recall correctly is other business debt and other various miscellaneous components. The point is that New Zealand is over-indebted and we need to think vary carefully about how to unwind that problem. Owning our future as a country means getting the debt down by changing the economic incentives that have created the problem of property speculation and the resultant over-borrowing. There are many ways to do that. The Labour Opposition will lay out for the nation the strategy we have been working on within the next several months so that New Zealanders can get their heads around what real systemic change would look like compared with the “steady as she goes” shall we charitably say option that is offered by the current Government. 
On this legislation it is important to ensure that Westpac New Zealand has a sound and stable New Zealand operation while enjoying the benefits of linking to its trans-Tasman parent such as access to capital. I acknowledge the role of Westpac and of the other major banks in standing behind New Zealand’s needs during the financial crisis. Although the immediate crisis is over the challenges facing our economy remain. 
We look forward as a Labour Opposition and as an incoming Government to working closely with the banking system to find the win-wins to work out how we can to the profit of the financial sector as well as the real economy grow the pie for all New Zealanders to ensure healthy growth and more New Zealanders in jobs. It might mean as a result more tax revenue in the Crown’s coffers fewer people on benefits and a rising tide lifting all boats. We know that to successfully do that we need a real plan for growth. We know that rising inequality will not and should not be part of that plan. We know that simply selling the family silver is not a substitute for a real plan. We know that a real plan must incorporate progress in the real economy the export sector in particular as well as improving our savings picture and the health of our financial system. If the Government is trying to improve our savings system why is it cutting incentives to KiwiSaver? Why is it forgoing contributions to the largest single accumulator of savings which is the New Zealand Superannuation Fund? Is it not about time that we had a Government that was more committed to a strong savings policy? The Labour Opposition will release its savings package before the election. I think it is fair to say that it will be significantly bolder than that announced by the Government in the current Budget. 
The Opposition supports this bill. It is important that we have a substantial part of the assets of the banking systems locally incorporated in New Zealand. This bill effects that for Westpac New Zealand. We support its passage in this third reading.