Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6060] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise in support of the bill and in so doing I draw attention to the fact that this is one of those processes that the public often say they like to see and rarely do see and by that I mean the major parties cooperating on issues of major importance across the House. I begin my remarks by thanking the Hon Bill English who when he was doing my current job—that of Opposition spokesperson on finance—was honourable in his cooperation with the then Minister of Finance when the first scheme was set up before the election. We would like to acknowledge that and we would also like to acknowledge the courtesy the Government has extended to the Opposition in briefing us on the introduction not only of the bill but of the policy. I thank the Minister and say that that has enabled us to form a more balanced view of proceedings. If I might express a hope it is that this will not be the last time that we are able to cooperate across the House on matters of major economic importance. I think all members of the Parliament are agreed that New Zealand faces difficult times in a fragile world and of course we cannot have it both ways. It cannot be the case that this is the worst of all recessions and it therefore justifies any response and that at the same time a thousand flowers have now bloomed and it is all hunky-dory. It cannot be as easy as that and we are happy to cooperate with the Government within reason on trying to work through some longer-term solutions that get us away from some of the cycles and roller coasters that may have made this recession more severe than it might otherwise have been. 
Let me touch briefly on a couple of the issues that have been raised in recent contributions to the debate. If I might I will pick up where the Minister of Finance left off and thank him for raising the issue of the contemporary regulation of the non-bank finance sector which is something I was going to cover in any case. Three pieces of legislation were carried forward by the previous Government: the Financial Service Providers (Registration and Dispute) Act 2008 the Financial Advisers Act 2008 and the Reserve Bank Amendment Act of 2008. They had three interlinked objectives that are relevant to the situation we now find ourselves in. The first was to register financial service providers and the second was to register and provide rules of the game for financial advisers who had too often been front-door salespeople for pre-packaged products from the finance industry and not at all independent advisers acting in the interests of their clients. I say that not to besmirch any individual but to say that there were structural problems with the way the industry was set up. 
Finally the Reserve Bank Amendment Act extended for the first time the prudential supervision role of the Reserve Bank into the non-bank finance sector and as the Minister has rightly said in many ways that provides higher standards of supervision than are required in this framework legislation which specifically applies to the retail guarantee scheme. That is to say that that is all work in progress; that it has transcended the change of Government and that we all agree it is in the interests of the country is so much the better. 
Let me come on to some related issues which I believe also require bipartisan consideration. These are some of the matters that were raised by submitters in the recent banking inquiry. Leaving aside the fact that the Government did not want the inquiry to happen it has happened. There were a large number of submissions and there was a very strong consensus among submitters: firstly that the official cash rate was not working because much of it was locked into fixed-term mortgages so it was not able to respond quickly enough to catch the business cycle or the property cycle; and secondly that the official cash rate was not being fully passed through and therefore to achieve a given amount of sterilisation of economic cycles the Reserve Bank had to have greater amounts of either upward or downward movement of it allowing for the discounting process from the banking sector. 
Many submissions said that the housing bubble was big and dangerous and likely to happen again and from that arose the question of whether the official cash rate on its own is a sufficient tool to address that or whether it needs to work hand in hand with additional monetary policy instruments savings policy instruments or possibly tax instruments which potentially could operate to create a more level playing field. These are big important and difficult issues which require careful long-term thinking. Some of it may emerge from the Government’s tax review working-group. We will be watching with interest as the banking inquiry reports—to see what emerges from that—and hope there will be an opportunity for more discussion in the national interest across the House. 
I come back to the structural elements of the Crown Retail Deposit Guarantee Scheme Bill that is before the House today. It is structural skeletal legislation. It provides powers to the Minister of Finance and the Minister has outlined how he plans to use them in the short term. The Minister has made it clear that it is a stepping stone towards unwinding a scheme that was brought in quite rightly by agreement to address a specific set of problems at a specific time. We are all agreed that we need a strong financial system. We are all agreed that the scheme was a good way of maintaining that and that it makes sense to extend the scheme. It is appropriate to extend the scheme for a further year under structured conditions to match the timetable of our colleagues’ scheme across the Tasman. 
What this says however is that all the finance companies—the non-bank financial institutions—will have to meet interest costs and they will have to get themselves rated by a credit-rating agency. A previous Labour speaker Mr Stuart Nash pointed out that the process of rating can be difficult that some due to reasons of scale rather than viability may not qualify and that that could perversely contribute to their falling over to the detriment of many ordinary New Zealanders who are depositors in those schemes. We will watch with interest and care as this is implemented to ensure that there are not any side effects that are worse than the disease that it seeks to cure—the level of risk that exists in the first place. 
We have said it before and I want to repeat it that one area where we depart from the Government is in the treatment of the major banks in this scheme. Under the previous Government we made it clear to the banks that they would need to participate in both the wholesale and retail schemes if they proceeded with either; that spread the risk and it meant the Crown the taxpayer was better compensated for that risk. By signalling to the banking sector that it is all right for it to participate only at wholesale levels we believe that that is narrowing the fee base concentrating the risk in the non-bank financial sector and thereby elevating the average level of risk on the taxpayer. We ask the Government to seriously consider that matter: whether it is not worth having a further set of conversations with the banks along the lines that it would be better if they maintained a presence in both schemes if they remained in one. We have said it before and I will repeat it that in other respects it would appear that the Government is treating the non-bank finance sector with a rather sterner stick than that applied to the major banks.