Huo Raymond: Local Government Borrowing Bill — First Reading 
Huo Raymond: Local Government Borrowing Bill — First Reading 
[Volume:672;Page:18756] 
RAYMOND HUO (Labour) 
: 
 I rise to take a call in the first reading of the Local Government Borrowing Bill. This is an omnibus bill. At the end of the Committee of the whole House stage Parts 1 and 2 are to be divided into separate bills. Part 1 establishes the New Zealand Local Government Funding Agency Limited and Part 2 expressly recognises the unique size and nature of the Auckland Council and the size of its consolidated borrowings and future debt-funding requirements. The bill specifically allows the Auckland Council to borrow offshore in foreign currencies. 
Labour supports this bill because mobilising the savings of Kiwi investors is a good idea rather than privatisation. I must commend the Hon Rodney Hide who is the Minister responsible for this bill. It is regrettable and sad that the Minister will not be able to continue with his work thanks to Dr Don “Dear John” Brash the new leader of the ACT Party. 
The purpose of this bill is to allow for more cost-effective borrowing by local authorities. The primary method of achieving that purpose is by facilitating the operation of the New Zealand Local Government Funding Agency Ltd. Before we deliberate on the details of this bill it is necessary to look at the 2007 inquiry into the funding mechanisms available to local authorities. The inquiry recommended that local government look favourably at making more use of debt to finance long-term assets. This should include the issuance of bonds including infrastructure bonds on the capital markets not just shorter-term borrowing from commercial banks. 
Generally there are two main sources of debt financing for local authorities: they can borrow from commercial banks and they can issue bonds. Under a 1998 amendment to the Securities Act local authorities are no longer exempt from obligations on bond issuers including the publication of a prospectus that all elected members must sign. That amendment made the issuing of bonds more costly and politically difficult for local authorities. One councillor could for example prevent borrowing on the market regardless of the majority view. That is the first problem. The second problem was very obvious: although borrowing from commercial banks has been popular that source of debt was often overpriced. 
In April 2008 the Labour Government passed the Securities (Local Authority Exemption) Amendment Act. The Act addressed the Securities Act compliance issues raised by the Local Government Rates Inquiry. It allows local authorities to meet reduced disclosure requirements when offering debt securities to the public. Essentially it reinstates the exemption that was in place prior to 1998. Local authorities have to produce an investment statement with a certificate of compliance signed by two councillors rather than an investment statement and a prospectus signed off by all councillors of the local authority. The Auckland City Council was the only local authority to issue debt securities without an exemption being in place. 
The purpose of this bill is to provide more cost-effective borrowing by local authorities and reduced compliance costs. The bill is to achieve this by facilitating the operation of the Local Government Funding Agency which will issue debt securities on behalf of all participating local authorities. 
A number of commentators have reported on the projected debt levels of local authorities throughout the country over the next 5 years. The regulatory impact statement issued by Treasury reported that there are nearly 80 separate borrowing entities each with a limited number of debt providers resulting in a wide array of terms and costs between local authorities for borrowings. Under current legislation local authorities are restricted from borrowing in foreign currency and face compliance costs if they raise funds through the issuing of retail bonds. 
Another option for obtaining debt funding provided by this bill is by consolidating borrowings of local authorities through issuing generic bonds to retail and wholesale investors and on-lending funds raised to participating authorities. 
I note media reports that the proposed funding agency will probably achieve a top triple A credit rating in local currency terms. The funding agency is a win-win for local authorities and for mum and dad investors looking for new and safer ways to save. Mum and dad investors know that the investment is good for the community. It will mean Kiwis retain ownership and control of assets they have built up over decades. The use of the bonds will avoid privatisation of assets that are often monopolies. The funding agency will give communities a real stake in local authorities again. 
I also welcome Treasury’s report in the regulatory impact statement that the agency by way of selling debt securities via a central agency would generate savings in interest of between 50 and 70 basis points or around $25 million a year based on the current cost of borrowing for individual councils. This $25 million a year is a significant achievement in this regard but is a drop of water compared with the $300 million a week the National-ACT Government is borrowing. Borrowing the language of another “Dear John” the honourable John Boscawen the Government is borrowing $65 or so every day on behalf of every mum dad and kid in this country. I sincerely hope that the mandate this National-ACT Government obtained at the general election in 2008 will not be the one it believes it can use again and again to do nothing but borrow more. 
This coming Thursday is the Budget day. We are only 2 days away from the third of the three Budgets from this Government. It promised to turbocharge the economy but it has not even started its engine. No wonder a new HorizonPoll on Monday showed that 48 percent of New Zealanders believe that the economy is on the wrong track and 44 percent disapprove of the National Government’s handling of our economy. Thank you.