Robertson GrantMOTIONSReserve Bank of New Zealand—Ratification of Funding AgreementHon GRANT ROBERTSON (Minister of Finance): I move That pursuant to section 161(2) of the Reserve Bank of New Zealand Act 1989 the House ratify the funding agreement entered into by the Minister of Finance and the Governor of the Reserve Bank of New Zealand pursuant to section 159 of that Act on 16 June 2020 and presented to the House on 24 June 2020.Under the Reserve Bank of New Zealand Act the Minister of Finance and the Governor of the Reserve Bank enter into a five-year funding agreement. This is an important instrument for maintaining the bank's operational autonomy in that it provides multi-year funding and specifies—DEPUTY SPEAKER: Order! Order! Quiet for the Minister please.Hon GRANT ROBERTSON: It's a very important matter Madam Speaker; that's right. It provides multi-year funding—[Interruption]—you're already short enough—and specifies the amount of revenue the bank may retain to fund its operations. The new funding agreement will apply from 1 July 2020 to 30 June 2025. The bank's funding proposal which underpins this agreement focuses on addressing critical risks to the bank and the financial system. The bank considers it necessary to respond to areas of past under-investment and address critical risks to its ability to deliver its mandate. Furthermore the scale of the downturn from COVID-19 means it will be more important than ever that the bank is sufficiently resourced to undertake the full range of activities required of it. The new funding agreement will see the bank's core operating expenditure profile—which excludes the cost of issuing bank notes and coins—increased from $69 million in 2019-20 to $111 million in 2021 and $118 million in the final year of 2024-25. The bulk of this increased spending will focus on expanding and enhancing the bank's core activities particularly investing in financial supervisory and enforcement capability as recommended by the International Monetary Fund's 2017 financial sector assessment programme review. Spending will also be directed towards the bank's day to day operations and investing in the upkeep of its assets. This includes modernising the technology infrastructure and keeping security architecture up to date designing a suitable vaulting and distribution system for cash and expanding the bank's reach to stakeholders in Auckland. The spending will also cover preparations for changes to the bank's governing legislation. The bank's future legislation will bring a number of changes to how it operates and significantly enhance the bank's policy frameworks and governance settings. The bank is a full-service central bank with a wide range of responsibilities such as prudential supervision monetary policy lender of last resort and liquidity and liquidity management. Whilst comparisons are not like for like benchmarking against other central banks the bank's expenses are comparatively low. Expenditure under the new funding agreement would continue to be relatively low compared to other central banks. Compared to its 2019-20 budgeted baseline of $80 million the average annual uplift of $46 million in operating expenses is split across three areas. For people $20.7 million: fulltime-equivalent (FTE) numbers are planned to increase from 296 FTE in 2018-19 to 468 FTE in 2024-25. The majority of these staff will be assigned to improving our regulatory policy settings undertaking additional research and providing more intensive supervision and enhanced enforcement capabilities of regulated entities as well as enhancing the bank's information technology capabilities. The second area is operational expenditure of $17.9 million. Investment focuses on modernising the bank's technological infrastructure and investment into banking services such as settlement systems and cash systems. And the third area is $7.4 million on assets. This is driven by depreciation of financial stability data system investments and depreciation of property and security system investments. The bank's revenues typically exceed its expenses with any excess revenue paid back to the Crown through an annual dividend after allowing for the bank's capital requirements. To maintain the effectiveness of the funding agreement framework I have agreed to the bank's proposal to remove certain operating expenses from the scope of the funding agreement which are difficult to predict or commercial in nature. Excluding these activities is not expected to materially impact the operating expense numbers above. A statement of expenditure under each of these items will be reported in the bank's annual report. It's worth noting that Treasury is supportive of the substantial uplift in the bank's resourcing and particularly of the bank's intent to increase its financial supervisory capability. In assessing the bank's proposal the advice given to me by Treasury noted that capacity constraints across the public system exist. The bank has assured me its plans are feasible that it will draw on a number of recruitment strategies to support its FTE growth and that it will take an all-of-Government approach to its IT investment strategy. The bank's actions can and do materially impact the prosperity and wellbeing of New Zealand. The Government expects the Reserve Bank to use the resources available to the best possible effect and deliver excellent outcomes when exercising its functions taking into account their statutory objectives and the Government's broader economic objectives. Ratification of this funding agreement will ensure the bank continues to remain operationally independent while also equipping the bank with the resources it needs to maintain its objectives of price stability maximum sustainable employment and financial stability. I therefore ask for the House's support in ratifying this funding agreement.