Norman Russel William: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Norman Russel William: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6066] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Crown Retail Deposit Guarantee Scheme Bill. As I said in my first reading speech the Green Party supports this bill. The Green Party supports the deposit scheme. The scheme was introduced because it was essential in order to maintain confidence in the banking sector in the middle of a global financial crisis. We support a time-limited extension of the deposit scheme and hopefully a phasing out of the deposit scheme over time. 
For me it has been most interesting in this debate to listen to members of the Government speak as if being part of the financial sector was something they were championing and as if they should be proud to have come out of the banking sector. Well as a matter of fact the banking sector collapsed the global economy. That is a basic reality. Members opposite are saying that somehow the banking sector is still the master of the universe even after taxpayers of the entire world had to put their hands in their pockets to bail out the banking sector. It seems to me extraordinary that people in the House say we should somehow worship at the feet of banking executives when they have demonstrably proven they do not know what they are doing. 
This bill is part of the bail-out in which the taxpayer had to get involved in order to save the financial sector from itself. Of course we have gone through periods like this before. During the Depression and the postwar period the people and the Governments of the world had to intervene to stabilise the system. Once again the people and the taxpayers of the world have had to intervene to stabilise the system and that is exactly what this legislation will do along with the wholesale guarantee scheme. It seems to me that if taxpayers have to intervene to save banks from bank executives who made such a complete mess of the banking sector then surely the quid pro quo should be that chief executive officers’ salaries should not be obscene. It is obscene that in our country the chief executive officers of banks earn millions of dollars while ordinary workers who are the foundation of our economy have very very low wages. Why do ordinary workers have to pay taxes to underwrite banks while the chief executive officers of banks who got us into the global financial crisis earn millions and millions of dollars? That is obscene and unacceptable. 
Why do banks continue to make very large profits on their interest margins? Banks lost some money because they invested in firms that turned out to be bad investments. They made poor decisions about which firms to invest in and they lost quite a lot of money so they have had to put quite a lot of money aside. Although they have put all that money aside however they still make very large amounts of profits on the interest spreads—the interest margins they charge people. Profits on interest are still up on last year in spite of what members might have heard. Why do taxpayers have to pick up the pieces through legislation like this because bank executives are so useless that they made a complete mess of it? Why do taxpayers have to pick up the pieces yet the treatment of bank staff is still appalling? We are sending jobs in the banking sector overseas. One would think that as long as the New Zealand taxpayer is underwriting and supporting the banks the banks would keep jobs in New Zealand. But they are not: they send them overseas. One would think that as long as the banks are being underwritten by the New Zealand taxpayer they would change some of the practices around pushing loans and money on to people who cannot afford them. Surely banks would pull back on the system they have set up to incentivise their employees—pushing on them the idea that they have to sell more loans to people who cannot afford them which is part of the reason why we are in the mess we are in—because the taxpayers are underwriting this system. 
The other part of this issue as I talked about a little bit in my first reading speech is that we need some solutions to deal with the fact that we have just been through a debt-fuelled consumption-led boom. We saw house asset prices double over the space of 2002-07 which was a completely irresponsible policy on the part of the Government at the time in that it did not intervene and do something about it. The current Government cannot be held responsible for the ridiculous boom in housing prices which has made housing unaffordable but the current Government is still not changing the policy settings to do anything about it. It is all very well for Bill English to say it was a debt-fuelled consumption-led boom—I agree with him—but we need to change the policy settings to do something about it. 
We know the changes we need to make. We know that investment properties and the tax incentives to speculate in housing were one of the key drivers. We know that is a simple fact. Every tax adviser across the country was telling people to invest in investment properties in order to reduce their tax. We can change those rules. Those rules are within the Government’s purview to change and I encourage the Minister of Finance to follow through and do that. 
We also know that we can change monetary policy. If we are to maintain the stability of the banking system not to mention the stability of the New Zealand economy we need to change monetary policy. Relying on the official cash rate has been a bit of a disaster. All we did when we increased the official cash rate was suck foreign capital into New Zealand which the banks then loaned on to the housing market. The safest way banks could think of to make some money was to push it into the housing market. Instead of giving it to New Zealand businesses which could have used it productively the banks were good only at passing on loans into the housing market because it is easy and simple to do. Houses continue to increase in price so the banks just loan money into the housing market. The hard thing to do is to back small to medium sized businesses in New Zealand that want to borrow money to invest in productive enterprise so they can compete with imports and so they can export. That would be a responsible and useful thing for the banking sector to do; simply borrowing billions and billions of dollars from overseas in order to push that money into the housing market asset inflation was not in the best interest of our country. 
On one hand we say that we will give banks a bit of a hand because we have no choice. We cannot afford to let the banks fail. They are too big to fail as they are fundamental to our economy. On the other side of the equation we need to regulate banks in order to make them useful to us. It is useful to us for banks to loan money into the productive sector not to put more and more money into a housing asset bubble. One of the ways we can make banks useful to us if we have the courage to do it is to intervene directly in terms of Reserve Bank ratios. This has been discussed in a number of places. It is a mechanism whereby for every dollar the banks put into any sector we identify as an asset bubble such as the housing sector the banks have to deposit a proportion with the Reserve Bank or hold it within the bank whatever percentage that is. The effect of that mechanism is that it makes it harder for the banks to shovel foreign currency through into whatever particular asset bubble one is concerned about. In particular the housing market has been the asset bubble. Using reserve ratios overseen by the Reserve Bank is one way to try to restrict the flow of foreign capital borrowed from overseas into the housing asset bubble and speculation in the housing market. These tools are available if the Government has the courage to take them on. 
If the Government has the courage to do more than say that it will cut red tape which sounds really great or that it will try to free up the productive sector then I ask what will it really do. If we really want to intervene in the sector we need to reduce the level of the New Zealand dollar. One of the key things driving up the New Zealand dollar has been the official cash rate. It has kept the New Zealand dollar high. We should reduce interest rates. Again the official cash rate has been one of the drivers of interest rates amongst other things. In order to reduce interest rates we need to target inflation in the housing market. The official cash rate is a very blunt instrument when we use it to try to suppress inflation right across the economy. It drives up the New Zealand dollar and it makes it difficult for New Zealand productive businesses to borrow money. It would be much more effective to target the housing market itself and then to make capital available for New Zealand business who actually need to borrow money to produce things. In the process we would reduce the level of the New Zealand dollar and reduce interest rates to the productive sector. All of these things would make a significant difference. 
This bill is fine as it is but we need to have a broader policy debate about monetary policy financial instruments and the stability of the New Zealand economy and the New Zealand banking sector.