Dalziel Lianne: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
Dalziel Lianne: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6128] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I want to express some concern about the quality of the debate and I do so reluctantly having listened to the contribution from Peseta Sam Lotu-Iiga the honourable member and councillor who has just resumed his seat. The reason I am a little concerned about the quality of the debate is the way that this Crown Retail Deposit Guarantee Scheme Bill is being dealt with. It is being dealt with under urgency and I believe that bills such as this one should not be dealt with as a matter of course under urgency. There is a serious issue about legislation not having the quality of scrutiny that the public would expect in the circumstances. As my colleagues have said repeatedly the Opposition is not in opposition to the bill as a matter of principle. The underlying desire to ensure financial stability at this time is obviously a desire that we support. But Treasury officials recommended that referring the bill to a select committee for 1 to 2 days would not be a problem and they said that it would enhance what they considered to be a flaw in their consultation process because they were not able to have the degree of consultation that they would expect. 
I will say why referring the bill to a select committee for 1 or 2 days would not have made any difference. One reason is that it would not have held the bill up for a time of any great moment and we still would have had the legislation in place 1 year before the expiry of the current guarantee scheme. We could have still met the timetable that the Government has set for the implementation of this legislation so it was not an argument about the amount of time the bill would have spent before a select committee. Nobody on this side of the House suggested that it should go there for the normal 6 months. 
The advantage of sending it to a select committee is that members of the committee get to test assumptions. All of the decisions that the Government is making in this respect are based on assumptions that have been proposed by officials from both the Reserve Bank and Treasury and it would be really helpful to the Opposition for us to be able to test those assumptions to push back on some of them and to have some serious debate about these serious financial issues. 
The second reason is that we can work through the analysis that lies behind the advice. How are our assumptions formed? They are based on analysis that has been undertaken. I have some issues with some of the analysis that we have been presented with in the regulatory impact statement but I will come to those in a minute. 
The third reason why select committee processes are important even if they are truncated is that we can get answers about the balance between what the regulatory impact statement itself says was a line call between the status quo and the extension of the scheme especially when the banks do not favour the extension according to the regulatory impact statement. These are serious matters and they are reasons why with a short period of reference to a select committee we could have dealt with this bill through its remaining stages next week also under urgency and there would have been less opposition from the Opposition to the process. As I say we are generally on board with the underlying principles. 
This brings me to the regulatory impact statement. I do not recall seeing such an extensive regulatory impact statement. Of course those who know me will know that I tend to bang on about the quality of regulatory impact statements. Since we have had a Minister for Regulatory Reform the quality has actually gone down but this regulatory impact statement stands out. It is the best regulatory impact statement I have ever seen but it is not written in the bill. It is not included in the bill. All they did was put the executive summary in the bill and then publish the regulatory impact statement on the Treasury website. So of course I downloaded that over the dinner break yesterday— 
Hon Simon Power 
: Of course you did! 
Hon LIANNE DALZIEL 
: Of course I did because I like doing things like reading regulatory impact statements. 
But the thing that really upsets me is that the regulatory impact statement shows all of the reasons why we should have had a select committee process to work through all of the issues that it raises and I want to go through those. I know that the Minister in whose name this bill sits the Hon Bill English is very famous for using the phrase “The devil is in the detail.” I have found by going through the regulatory impact statement that the devil is indeed in the detail some of which has not yet been determined. I wonder whether this is in fact going to be the last bill we see from the Hon Bill English before he resigns his portfolio which I suspect will be very very soon. 
The regulatory impact statement raises the following issues: first of all on page 4 we get the reason why the decision needs to be made now. The reason the decision needs to be made now is to “Provide greater certainty to investors and enable them to make sensible reinvestment decisions.” When does the application have to be lodged by? It has to be lodged by 12 October next year so the whole idea that this has suddenly got to be done a year out does not make sense when entities get a whole year to apply. It simply does not make sense. When we look further on in the report we see something very interesting: most large entities already have credit ratings so I would say that those that want to opt in are going to opt in relatively quickly. Entities in the process of getting a credit rating will not have certainty until they have received their rating since the credit rating of BB or above is a requirement to be eligible for the extended deposit guarantee scheme. Under the new prudential requirements for non-bank deposit-taking institutions credit ratings are required by 1 March 2010 for entities with liabilities greater than $20 million dollars. 
Why not link the application to the close-off date for the non-bank deposit takers’ credit rating requirements of the new prudential supervision arrangements? I do not understand why that is the case. That is why reference to a select committee would have enabled these questions to be asked and answered. So to say that the depositors will have the assurance they need is just nonsense because we know that the assurance is in relation to the finance companies. Entities in the finance company sector do not get to do this until they have got the BB rating. The ones that are in the scheme at the moment do not all have BB ratings therefore there is a period of time of uncertainty that does not link to this urgency we are seeing here today. 
The second point that the regulatory impact statement raises is the question of economic distortion. The point is raised in paragraph 26 on page 5 of the report and I think that it really does identify the line call that the officials made when they made the recommendation to the Government: “Allowing the DGS to lapse”—which is on October 2010 obviously—“avoids the additional period of economic distortion.” We have all agreed that economic distortion happens when we have a retail deposit guarantee scheme. “Moreover the DGS ceasing in October 2010 would avoid the possibility of firms using the longer DGS period to imprudently grow their retail deposit books increasing the Crown’s exposure.” Actually that is what this is about. It is about the Crown’s exposure to the risk of failure and the view that this would all collapse around the October 2010 deadline. We do get it. 
I guess that the real motive for the change is certainly spelt out on page 8: “If the DGS ceasing in October 2010 resulted in concentration of defaults in the lead up to the end of the guarantee period then that could also lead to assets being realized over a short period depressing asset prices and reducing recovery rates and so increasing the net costs to the Crown of the default event.” That is perfectly obvious in the discussion documents but we have not had this debate in the House. We have not had the opportunity to get that exchange happening that we would have had at a select committee hearing which is my point. 
The final element contained within the report is the option beyond the status quo which is essentially to extend the deposit guarantee scheme under tighter terms. That is what the Government has been trying to say but not saying very well. It is about easing the process out of the market so that we can return to a period where the entire sector is operating in a guarantee-free environment. We do get that but I think it is really important for the House to remember that when we are dealing with issues of such substance we really ought to have officials in front of the members of a committee so that there can be that exchange. 
On that note and as many of my colleagues have said I say we are supporting the passage of the bill. Other considerations could have been taken up in the way the scheme is being developed but I would like to hope that because this is framework legislation and the detail is still to be worked out the Government will extend the cooperation we have extended both ways on a lot of finance company issues to engage with us on some of the detail about how the scheme might progress into the future. I will certainly be pleased to see the bill pass its final stage.