English Bill: New Zealand Superannuation and Retirement Income Amendment Bill — First ReadingText is incorporated into the Bound VolumeEnglish Bill: New Zealand Superannuation and Retirement Income Amendment Bill — First Reading[Sitting date: 19 March 2014. Volume:697;Page:16811. 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 be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. I want to start by acknowledging the encouragement and support of the Attorney-General. He is clearly keen to see this bill pass through the House.This bill implements some changes to Part 2 of the New Zealand Superannuation and Retirement Income Act. These are changes related to the activities of the Guardians of New Zealand Superannuation. It is the manager and administrator of the New Zealand Superannuation Fund. I just want to remind the House about why the activities of the fund might matter. It was set up under the previous Government by Dr Michael Cullen with an elegant legislative scheme and funding formula designed to allow New Zealand to pre-fund some of the costs of national superannuation—in fact pre-funded to the extent that tax rates would hold steady while the population aged. In that sense it is a form of savings for today’s taxpayers where they will avoid tax increases in the future.The New Zealand Superannuation Fund is getting rather large. Even though the Government has not made contributions to it since we have been in Government over the last 5 years—Andrew Williams: Why not?Hon BILL ENGLISH: —because we were not willing to borrow to make contributions to the fund—it has made fairly significant returns. Even in retrospect the Government would not have changed its view about that issue. Because of the returns it has now built up to a $25 billion fund.It is part of an ongoing process of change in the taxpayers’ balance sheet. In fact if you add up all the managed funds on the taxpayers’ balance sheet the New Zealand Government balance sheet it is well north of $50 billion and before too long it will reach $60 billion. The popular perception—I have to say cultivated by the Opposition—is that taxpayers own lots of businesses that generate lots of profits. That might have been the case in the past. Just to give a sense of the relative size of these things the electricity generators all rolled up together may be worth say $10 billion. The New Zealand Superannuation Fund is 2½ times the value of all the electricity generators put together. In fact it is a pretty similar size to ACC. Over time the Superannuation Fund and ACC will continue to grow.Our balance sheet is becoming increasingly dominated by shares and bonds owned by the Crown. So it is becoming much more of a fund manager’s balance sheet and much less of a business owner’s balance sheet. In fact the proportion of it that is devoted to businesses is probably down to somewhere around 4 or 5 percent now. The proportion of it that is managed funds is growing pretty rapidly and that which is property holdings—roads hospitals schools—is pretty steady.Over time the efficiency and the governance of these Government-controlled fund managers is going to become more and more significant to the economy and certainly to the taxpayers’ balance sheet. That is why there is an ongoing programme of work looking at the efficiency and effectiveness of the management of not only the New Zealand Superannuation Fund but also the other large funds—ACC the Government Superannuation Fund the National Provident Fund and the small one in the litter the Public Trustee. So there is a focus on whether we have got the structures right there because for instance lower costs over 20 or 30 years can make a big difference to the return.The way these funds are organised to manage the much more significant risks they are taking is pretty critical to taxpayers. The flip side of these high returns of recent years in the Superannuation Fund is high risk. The reason they make big returns at the moment is that they are making fairly risky investments. There will be years where they make zero or negative returns. That is almost certain in a long-term fund.I would have to say though that in this case the previous Government set up this fund in about as sensible a way as you could for a Government-owned entity. It has got an independence that we respect that I think the whole of Parliament respects and that is particularly important around its investment policies. The biggest risk to the taxpayer around this fund is that one day politicians decide to override the legislation in order to instruct the fund how to invest.The fund follows theories of diversification. A substantial part of its investment is outside of New Zealand. In fact the majority of its investment is outside of New Zealand. Essentially it takes in cash generated by New Zealand households and businesses and it invests that in offshore equity and debt markets. It is one of the reasons I do not get too worried about the fact that New Zealand borrows money overseas because it is not that difficult particularly if it is matched by investment overseas. It also gives another aspect to the discussions about foreign investment in New Zealand. The New Zealand Government is a fast-growing foreign investor in other countries and I would expect that that investment is respected by the sovereign Governments that run those countries if we do not find ourselves as investors in Australia the US and the UK the victims of arbitrary and populist policies about being a foreign investor.So the efficiency with which the New Zealand Superannuation Fund operates is going to matter and become increasingly significant. The bill here focuses on one reasonably significant issue and then a number of other minor changes but they have all been sought by the Guardians of New Zealand Superannuation. The current legislation prevents the guardians from having control of an entity. That was a soundly conceived protective measure. A fund of this size could easily control a significant part of the New Zealand Exchange. Even now it probably owns a significant proportion of it.Clause 7 inserting new section 59A of this bill allows the Superannuation Fund to pursue the global best practice where it can control entities that are formed “for the purpose of holding facilitating or managing investments of the Fund”. It does not relax the prohibition on control of New Zealand entities but it does allow it to run the kinds of investment entities that are quite common for large fund managers. The guardians will get added flexibility and we would hope—in fact the reason we are making the change is that they believe and we have taken their advice—that it will allow them to structure and access investments more efficiently. That will lead to greater returns for given quantities of risk that the guardians take with our investment.There are a number of other smaller changes—for instance enabling the guardians to delegate the power to appoint custodians and investment managers to those who manage funds on behalf of the guardians so they do not have to do it all themselves and to grant powers of attorney in respect of the management of the fund. These things have been looked at in some real detail and it is considered that they will help the fund to act more efficiently. There are also some references here to the nature of the fund in order to clarify them and to remove ambiguity about the nature of the fund. That is the legislation explicitly states that the fund is not a separate entity of the Crown. There is potential for material gains from this and I commend the bill to the House.