Clark David: Non-bank Deposit Takers Bill — Second Reading 
Text is incorporated into the Bound Volume 
Clark David: Non-bank Deposit Takers Bill — Second Reading 
[Sitting date: 02 August 2012. Volume:682;Page:4265. Text is incorporated into the Bound Volume.] 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 I want to begin with some words of wisdom that were offered to us in the Finance and Expenditure Committee when we heard submissions on the Non-bank Deposit Takers Bill. We have heard some great submissions in the debate this afternoon. There have been some light-hearted contributions and we have had some fun with it but there is a point that needs to be made and this point was made in relation to this tax legislation by a senior partner at one of the large law firms in town. He said that basically this bill moves legislation from one area to another and it is a total waste of Parliament’s time. That is a direct quote—or he said words very similar to that which I wrote down immediately. 
He was concerned that we are concerning ourselves with matters that are not of significant importance that most of these matters have already been addressed and that in fact what we are really doing is shuffling paper in this Parliament. I think that this speaks to a wider point which is around the Government’s priorities and its agenda in the area of financial management tax change and so on. We have a Government that is not pushing the big ideas. Instead it is focused on changing legislation from one Act to another because it needs to be seen to be doing something. In its current form the bill is largely window dressing. 
Another point made by the same submitter was that this legislation which has capital adequacy criteria will tend because of that to be more stringent in practice than the advertised minimum capital of 8 percent and that that will push some unusual behaviours. It may well cause a perverse incentive to loan heavily in the mortgage market and to drag capital away from productive areas of the economy. If that is indeed true and if that perverse incentive plays out what we have here is something that goes in the opposite direction to pro-growth policies. Indeed that would be consistent with what the Government has done so far. This is a Government with the worst—worst—economic growth record in 50 years. In part that is because where there is real change to be made it is shying away. Instead in this bill we are dealing with matters that are largely already dealt with. 
The previous speaker David Bennett mentioned the need to strike a balance in terms of making things clear for investors about risk and also in terms of making sure that there is appropriate regulation in place. I want to agree with that member. That member sometimes has some wise ideas and this is one of them. I think that that balance does need to be struck but we do need to be wary of creating perverse incentives though and stepping too far away. 
The New Zealand Association of Credit Unions in its submission said that it felt that it was ironic that the regulation that is being introduced is going to be borne by the firms that did not collapse. The association was concerned that in its case this regulation is a bit tight. The credit unions all have skin in the game in the cooperative business model and the association felt that perhaps this legislation goes a bit far in terms of regulation rather than in terms of signalling to businesses what the risks are so that they can make the decisions for themselves about where to invest their moneys. I think it is worth taking that into account as we progress this bill. 
The Labour Party will support this bill because although it is ultimately window dressing there are one or two things that it tidies up that can and should be tidied up. So we are not going to oppose that certainly. We are concerned that there be integrity within financial markets which is ultimately the purpose of this bill. That goes to the confidence in the Government as a regulator. We know that that is something that is highly desirable—indeed necessary—for the future of our country. 
Mr Cosgrove earlier in the debate made a germane point about confidence in the Government as a regulator and about the finance sector and the Government’s handling of the Crown Retail Deposit Guarantee Scheme. That discussion is very germane to this bill because here we have people taking deposits in a scheme that did stop a roll on banks and that did stop flight of finance to Australia but it is clear from the report that we got from the Auditor-General which we asked the Minister of Finance about that a full investigation has not yet been conducted into the avoidable losses of that scheme which are really the responsibility of this Government. The avoidable losses of that scheme have been estimated at somewhere between $100 million and $500 million. That is the biggest loss of Crown funds—the biggest preventable loss of Crown funds—in the history of New Zealand. It seems to me— 
Hon Clayton Cosgrove 
: Didn’t we invite Bill English to come in and talk about it? 
Dr DAVID CLARK 
: We did invite Bill English to come and talk about it. 
Hon Clayton Cosgrove 
: What happened? 
Dr DAVID CLARK 
: He has so far resisted any suggestion that he should look into this and answer for the fact that we have potentially the biggest loss of taxpayer funds in New Zealand history—far bigger than INCIS or any other scandal—with additional losses as a result of mishandling this scheme. There were no reports for 3 or 4 months on the additional losses that were incurred. We know for example that there was an increase in South Canterbury Finance’s balance sheet in terms of the risk that it was carrying of 25 percent during the period that there was no effective Crown monitoring of the scheme. We know that there was a 10 times increase in another finance company’s loan book—all risky loans. This was all as a consequence we would argue of the mismanagement of the scheme—the failure of Treasury to intervene after it had written effectively an open cheque on behalf of the taxpayer to preserve taxpayer interests but did not monitor effectively beyond that. This is something that we feel needs to be investigated fully. This gets to the integrity of New Zealand’s position within financial markets and confidence in the Government as a regulator which is what this bill is designed to ensure and we would argue that that is a more poignant and pressing concern than the matters raised in this bill. 
Talking further about this bill we can look at some of the other things it does. One of the things it does is it develops and completes work that the Labour Government started. Although it is tinkering it is tinkering in a way that is consistent with addressing the concerns that were raised in the finance sector when we were faced with finance company collapses and the world financial crisis. New Zealand faced those challenges and the Labour Government introduced for example the Crown Retail Deposit Guarantee Scheme to ensure that Kiwis could invest with confidence. It is not the scheme itself that we find fault with; it is the handling management and monitoring which the Auditor-General has pointed to and where the Auditor-General has found clear fault. It is that handling of the scheme that has not been addressed or investigated thoroughly. And so it is very hard for New Zealanders to have confidence in the Government as a regulator if it does not address those bigger issues and seems to be focused on addressing smaller issues around the finance sector. 
 It was 3 years as well until the Government got around to the second part of this reform package which was started by the Labour Government. Since the first reading of this bill another year has passed. We have got to ask why if this legislation is so important it has taken so long to get through the House. This is a Government that seems to be out of ideas. It is not facing up to the reality that we as a country need pro-growth tax policies we need research and development policies we need proper savings policies and we need monetary policy reform to ensure that exporters are supported so we can start earning more than we are spending as a country and so we can address the real problems with our economy rather than tinkering around the edges as this bill attempts to do. 
In closing although Labour will support this bill we take seriously the words of wisdom from submitters and the legal companies that told us this is really a waste of Parliament’s time. We as the Labour Party if we were in Government would be doing more serious things to ensure confidence in the finance sector which is so important to our future as a country.