Parker David: Third Readings — 
Text is incorporated into the Bound Volume 
Parker David: Third Readings — 
[Sitting date: 07 April 2011. Volume:671;Page:17847. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The Labour Party supports these bills. I accept what the Minister of Commerce says which is that this suite of bills is probably the largest work programme that the Government has had running and I congratulate the Minister on that. 
It causes me to reflect though that at a time when New Zealand is in an economic malaise and when the promises on which the Government was elected—closing the wage gap with Australia causing a step change in the New Zealand economy and leading us towards a bright future—are not being met the largest work programme that the Government can show after 2½ years going on 3 years relates to the regulation of financial markets. I think it perhaps highlights the fact that the Government has lacked an overall credible plan for the development of the New Zealand economy. 
I am not denying the importance of financial markets and I am not denying the need to tidy up the regulation of financial markets particularly given the failures of finance companies. Those finance companies were effectively allowed to get away with poor practice for too long and they caused innocent investors to make unwise investment decisions in part because investors were not properly informed about the risks they were taking and in part because there was insufficient regulatory oversight of poor practice and of related party transactions for the benefit of some of the owners of those finance companies. There were a number of other misdeeds including I am sad to say those by people who had prior form in earlier incarnations. The regulators should have had an eye on them. So there is no denying that there was a need for regulatory reform but the more pressing issues that face the economy are how to grow it. 
Although I am happy with most of the detail of these particular instruments to improve the regulation of our financial market I have no confidence that they will make a material difference to the growth in the New Zealand economy. It does not make much difference to the growth in new exports that our country so desperately needs. It does not produce many more jobs. There might be the occasional extra job in the Government service but that is hardly the sort of outcome that the Government has said it wanted to be judged upon. 
I think the fact that we are considering this large suite of bills described by the Minister as being one of the largest work programmes of the Government just highlights the fact that the Government has not really had a credible plan in respect of the problems that the economy faces more generally. 
I know that the Government has had some problems as a consequence of the Christchurch earthquake and those problems are not the Government’s fault. But it is not right to say that those problems arising from the Christchurch earthquake are the underlying source of most of the problems that the Government faces. Those problems are of the Government’s own making. The fact that those problems are not getting better in the way that was promised and are not getting better relative to how other countries like the United States and the United Kingdom are performing proves the point I think that the Opposition has been making: the Government does not have a credible plan. 
While we are talking about major things the Government has done the other big thing the Government says it has done in its view is to make changes to the tax system. Those changes to the tax system stripped bare have not really done much. The change to GST from income tax for low and middle income people is still effectively a tax upon their labour. They earn their money through their wages and salaries and they have to spend it when they go to the grocery store when they pay their mortgage or rent or when they buy clothes. GST is effectively a tax upon their earnings—a tax upon their labour. 
The only people for whom this switch from income tax to GST makes a substantial difference are the very high-income people who received a big income tax cut and do not pay as much extra GST as they received in their income tax cuts. Rather than it being a tax switch across the board it has been only a change from a tax upon income to a tax upon consumption for the very highest earners in a material way. They of course received more in income tax cuts than they will incur in extra GST costs. Stripped bare the effect of the tax changes by the National Government was to increase the proportion of tax paid by low and middle income people and decrease the proportion of total tax paid by higher-income groups. 
Again this brings us back to the theme that I was developing earlier. In terms of economic plans the Government’s plan has been too narrow. It has a focus on income tax cuts rather than on a broader suite of measures that are needed to grow the economy. That is one of the things that the Labour Party says is different about our polices compared with National’s policies. We see that economic policy is broader than tax policy. 
There has been a real failure of leadership in respect of savings. I can see Sir Roger Douglas in the House. He was a leader on New Zealand’s savings policy going back to the Kirk years. He knows that New Zealand needs deeper capital markets to improve the productivity of our output. Financial markets actually touch upon that so I concede to the Minister that these instruments to the extent that they improve public confidence in capital markets make a small difference to the depth of our capital markets. But it is not nearly as big a change to the depth of capital markets as a decent savings policy would make. 
Of course the Government criticises the previous Labour Government for overseeing an increase in private debt. At a time when private debt was rising around the Western World New Zealand was not immune from that affliction. Labour when in Government pushed against that increase in three ways: we contributed to long-term public savings through what is colloquially called the Cullen fund to save for future superannuation and to make that sustainable; we ran surpluses every one of which was opposed by National now in Government which said that we should have had tax cuts but that would have further fuelled property bubbles and private debt levels; and we introduced KiwiSaver which of course National undermined as soon as it came into office. 
I find it surprising that in respect of this absence of adequate political leadership on economic matters the Government is now saying the focus of this year’s Budget will be to improve savings and investment in New Zealand when for the first 2 years the Government virtually ignored it. It belatedly set up an advisory group despite the fact that National had 9 years in Opposition to plan decent policy around savings. After 2 years in Government it found that it was being criticised for its absence of vision when it came to adequacy of capital markets in New Zealand and thin savings compared with Australia and belatedly set up an advisory group to tell it some of the things it might consider. 
The Government took a lot of the things that needed to be considered off the agenda and effectively forced the committee to work with one hand tied behind its back so it is not as fulsome or as balanced a report as it might have been. Again it shows that the Government has been bereft of an adequate vision; we see this reflected in the fact that the unemployment rate is vastly higher than what it inherited the gap with Australian wages continues to grow ever larger and the promised step change in the economy has yet to occur. In fact if we were not in a double-dip recession now we would be close to that reality particularly given that some of the more negative records were in an office in Christchurch that Statistics New Zealand could not access. 
Although these bills will be favoured by Labour we said yesterday that in respect of some of the securities changes we would have preferred to see the legislation’s third reading delayed. We think there is an argument that we need to wait on one of the other documents that the ministry is working on upon which we expect public comment. Although it was necessary to improve the regulation of finance companies and the like we are at risk of over-regulating private capital raising by small corporates that are trying to raise money for expansion. For example an innovative firm that wants to embark upon exports ought not to be prevented from effectively accessing retail equity markets for equity investments into their companies by rules and regulations that are overly prescriptive and overly expensive to comply with relating to prospectuses and the accounting rules that apply under them. 
In terms of further work that needs to be done I have a view that the financial accounting standards and reporting standards have become far too complex in New Zealand. They have become so complex that most people even if they are experienced business people cannot understand them. They need professional advice to properly read them or need an hour or two to read what ought to be digested in half an hour. That needs to be fixed. 
Hon Simon Power 
: Help is on the way. 
Hon DAVID PARKER 
: Well that is good because I am a little tired of some of the accounting fraternity saying that we must have lower compliance costs when they are the cause of a greater increase in compliance costs in respect of accounting standards and audit rules than is the case for many other sectors of compliance costs. 
I would like to see some progress made in that area because it is absolutely fundamental to the growth of those new export sectors. I am not talking so much about the expansion of existing sectors like the agricultural sector important though those are; I am worried that New Zealand has an unnecessary hindrance upon the ability of small innovative businesses to grow as they try to expand into export markets through the compliance costs and impediments put upon their capital raisings when they are trying to raise funds for their next stage of expansion. 
I think most New Zealanders would rather go back to a period where we had some rather simple descriptions of the risks that they were facing when they made those sorts of investments. The most they can lose is the amount of their investment obviously. They need a fair description of the risks that are set out for them; more often than not the financial projections of those high-risk early venture companies are effectively bereft of detail anyway because they are so high-risk that investors do not really know what they will be able to achieve. If people are willing to invest upon that basis—and I know that people are on occasions willing to support those nascent enterprises—then we should be helping that happen rather than putting too many roadblocks in the way. We cannot avoid all risk for people; as long as risk is appropriately described we ought not to overlay that with lots of mumbo-jumbo as we currently do. 
I was shown recently by a mentor of mine a prospectus for the floating of Radio Otago which eventually became a very big public company. It was effectively a 5-page document that described what was proposed and what the risks were. The financial projections were very very simple and could be understood by people. We know that the complexity of some of the rules relating to financial disclosures were both incomprehensible for people and did not protect us from the greed and the poor behaviour of the big financial institutions who were the cause of most of the problems anyway. The little person trying to raise half a million dollars to expand a small company has not been the cause of the big losses in the international arena; it has actually been complex derivative transactions that have been promulgated by the biggest banks and insurance companies in the world. 
Although these bills are supported by the Opposition in respect of some of the securities changes as we said we would have preferred them to be put on the back-burner for a little while in order to wait for this other discussion document to be commented upon. But we congratulate the Minister on a lot of hard work. I know that the members of the Commerce Committee—I was in it only at the end so I am not claiming credit for this—put in a lot of work. Submitters included the professional societies of the accountants and the Law Society. They put a lot of work into their submissions to help the country have better legislation. I think in the end we have got to a reasonable result for which everyone can take a bit of credit. Labour supports these bills.