Bayly AndrewANDREW BAYLY (National—Hunua): Thank you Mr Speaker. It's a pleasure to be talking on this 2018 Investment Statement: Investing for Well-being and what was even more pleasurable was to see the previous speaker Tracey Martin who obviously spent some time looking at this report. I know that the Hon Tracey Martin has many interests but her new-found interest in financial matters I think must be applauded and commended.Mr Speaker this is the second of these reports and of course we don't always get the opportunity to talk about these here in Parliament as you noted earlier. The first one was released in 2014 and I've got to say that New Zealand is very very unusual because most countries around the world don't actually do this. They do not actually go about in a systematic way assessing their assets and their liabilities and looking at the balance-sheet side of their business. Everyone focuses on operating expenditure and rightly so. But the balance-sheet side of Government is just as important as it is for companies operating in the market.The report has picked up this new framework which is called the Living Standards Framework and of course it has four pillars of well-being—namely capital social human and natural. I think to some extent they provide a reasonable logic in terms of how we might go about assessing the balance sheet of the Government. It's a new framework and of course we're working through a process of trying to understand it. Certainly it raised some questions in the Finance and Expenditure Committee when we heard from the officials around this document but I think that'll be something that will need to be developed over time and the logic of some of the linkages in that categorisation I think needs to be strengthened and worked into a framework that everyone is and can become comfortable with.The result is it's good news all round. In 2017 the net worth of the country in terms of the Government's share of it was $117 billion or $24000 per person made up of assets of $314 billion and liabilities of $197 billion. When you compare that figure to 2009 basically the assets increased by $97 billion from a figure of $217 billion. So you know assets have gone up by $100 billion since National came to power in 2009 till when we unfortunately lost office last year. That on the face of it is very good and if you're looking at it it means that the country has a more robust financial structure but it's something that is a theme I'm going to return to later.Looking at the asset breakdown it's interesting because most people will sort of have a view on what the Government invests its money in but 52 percent of the balance sheet is allocated to the social portfolio—land buildings and equipment used for the delivery of social services. Of course we've heard a number of the speakers talk about education social services—a whole raft of those types of operations.The next significant category—and this is the one I don't think people really appreciate—is the size of the financial assets that the Government owns. It owns them through a whole raft of entities: the New Zealand Superannuation Fund that the Minister was talking about before ACC the Reserve Bank holds a lot of assets and also debt liabilities and the New Zealand Debt Management Office. There's a number of other entities that hold a huge proportion of financial assets quite rightly in conducting their business whether it's in terms of their banking operations or principally through the investing operations of those arms—such as the New Zealand Superannuation Fund and ACC—into listed companies shares and other forms of investment.The smaller and last main category is the Government's commercial property which represents about 18 percent of all the assets. I think that Treasury note—their sort of conclusion is that the Government's balance sheet is currently strong providing resilience in the face of adverse events.I think one of the aspects that I found interesting that was covered in the report is actually how resilient is the New Zealand Government in the area of if we have further shocks and of course we always have shocks. The conclusion was that New Zealand is broadly tolerant to plausible adverse events. Treasury ran three adverse events ranging in scale and differing scenarios between rural crises earthquake risks and the impact of financial sector meltdown as we had during the Asian crisis and a number of others like those. We at the committee had quite a lot of discussion round that because the assumptions used in those scenarios weren't actually that evident and in some cases the resulting outcomes didn't seem well linked. It was a question we spent some time looking at. It's very important that we do have robust modelling but I do applaud that the stress testing was a function that had been undertaken. It's a very important one to understand—risk.The other aspect was around value for money. I think one of the areas where Government loves to spend money is in commercial property and as I've said before commercial property represents about 18 percent of total assets of the Government. I think there's always a tension between people wanting to have nice flash offices perhaps in regional areas when in fact there is no need for the Government to build very good buildings—they could rent buildings. So we have this classic of Do we invest in a building or do we rent?" I think this assessment around value for money particularly in the area of commercial property is a very important aspect and it was one that we were keen that Treasury started to turn its mind to in terms of its focus around making sure that if we are investing in assets—hard physical assets—there's a good justifiable reason for that. Procurement is also linked to that in terms of Government practices and how we go about doing it in the way we conduct procurement which is really really important and will of course have a strong bearing on the outcome.The one part of this report that I was very disappointed in—and I did say this to Treasury officials—is its lack of focus on the intangible aspects in the balance sheet. If you go out into the commercial sector now every company—of substantial size at least—will be turning its mind if it hasn't already done so to the intangible value of its business. In most cases—in many cases at least—the value of the intangibles will be far more significant than the hard physical assets. When I looked at the balance sheet breakdown in here the intangible component was only $3.5 billion and it was thought it was going to increase to just under $4 billion. I think that that view is incredibly conservative. In fact I don't think any blowtorch had been put on the value of intangibles and I think it significantly understates the value of the Government's balance sheet not only in financial terms but in terms of assessing its intellectual value that the Government holds and also some of the other brands that New Zealand has round tourism etc. I think in the end we've ended up with a very overly conservative valuation around that.But the report also raises the question about what is the optimal right size of the Government's balance sheet. I heard people from the Government side talking about increasing asset value and underspending and all that sort of stuff. Well we do need to invest in hard assets but we do also need to ask ourselves what is the best form of investment and it may not actually be investing in hard assets. I think there's much more choice around it. Part of it's driven around the ability to fund investment on a sustained basis over time.But there's consideration of other financing options such as in property—I referred to the classic rent versus the owned—but also in terms of things such as public-private partnerships and mixed-ownership models which offer other ways to hold assets without necessarily having to have 100 percent of the value sitting on your balance sheet.Of course most companies that are well managed will be looking at their balance sheet and making sure it's optimally designed. If they can take cash out of it they will and there's no difference between those companies and the Government. On that basis I think it's very important that Treasury continue to look at that factor in the next report. Thank you very much."