Parker DavidVENTURE CAPITAL FUND BILLFirst ReadingHon DAVID PARKER (Associate Minister of Finance): I move That the Venture Capital Fund Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by Monday 2 December 2019 and that the committee have authority to meet at any time while the House is sitting except during oral questions; during any evening on a day on which there has been a sitting of the House; on a Friday in a week in which there has been a sitting of the House; and outside the Wellington area despite Standing Orders 191 193 194(1)(b) and 194(1)(c).This bill establishes the Venture Capital Fund and provides for the Guardians of New Zealand Superannuation whom I am going to refer to as the Guardians" to manage and administer the fund. At the heart of this is our drive for stronger economic growth which we think relies upon improving our productivity performance. We recognise that lifting New Zealand's productivity performance requires well-functioning capital markets that help high-potential firms to raise funds on their growth journey.A recent Productivity Commission report found that New Zealand suffers from low per capita capital investment into our productive sector. They've said that our low per capita investment in the productive sector has been made worse by high rates of immigration diverting investment capital into other things like public and private infrastructure. It's also true in the view of the Government that there has been an excessive proportion of our investment capital going into speculative asset classes which are existing land-based asset classes. The effect of these factors has been that there has been reduced per capita investment left for our productive economy and this has inhibited the diffusion of technology which is a key part of improving productivity.I believe that New Zealand's productivity issues have been well canvassed and as he's recently left the Productivity Commission I would pay particular regard to Paul Conway who I think has made a very valuable contribution on analysing why it is that New Zealand despite world-class institutions recognised by the OECD and others has lagged in productivity growth relative to some of our peers. He says and we believe that the productivity gains that are to be made from technology diffusion and innovation are significant and we think New Zealand needs to better harness these opportunities. To do this we need to shift away from an excessive focus on investment in property towards investments that create sustainable productivity gains.The world is in the midst of a very exciting and disruptive technological revolution. It's born of the confluence of affordable computing power mobile positioning systems sensors robotics big data and the Internet of Things artificial intelligence and genetics. We all know that the digitalisation of many parts of the economy creates challenges that countries like New Zealand are dealing with under the banner of "The Future of Work". McKinsey predicts that by between 2030 and 2040 60 percent of the current tasks in the New Zealand economy could be automated and 30 percent will be.The flip side of the enormity of that change is the enormous opportunity to improve the efficiency of existing methods of production and to commercialise the new products and services born of this technological revolution. I believe that it's the duty of all Governments to help the private sector chase down as many of these commercial opportunities as we can so as to harness the jobs and the value that is created.We've already done a lot in that regard. We've extended the bright-line test from two to five years and are ring-fencing losses on property portfolios to discourage over-investment in property asset classes. On the encouragement side we've got a 15 percent R & D tax credit—we campaigned on 12.5 percent but we've been able to push it up to 15 percent—a billion-dollar tax cut for businesses that innovate over four years and we've just extended that in the legislation related to the latest Budget to pre-profit companies so that pre-profit companies can get a refund. But we also believe that more needs to be done in respect of the gap that we have in our early-stage capital markets. These are widely acknowledged. These are the stages beyond seed or angel investment where companies are looking to expand. They usually require in this part of their development some $2 million to $20 million capital to grow.This lack of capital availability in the market is inhibiting the growth of our start-ups it's preventing them from achieving their potential both within New Zealand and on the world stage and it's increasing their reliance on offshore capital. We need fast-growing New Zealand firms to be operating in a healthy well-capitalised start-up ecosystem so that ownership and the benefits thereof can better remain within New Zealand.I would add that I'm not arguing that they shouldn't be sold overseas or that we should prevent them from doing so. I'm not even trying to discourage it but I am keen that they not be forced into that avenue for want of functioning capital markets and I'm keen that they have access to capital to grow and are not forced to sell or forced to sell too early by current capital constraints. I believe it's clear that many early-stage companies are continuing to struggle to access the capital they need to develop their potential which is either constraining their growth or causing them to prematurely seek foreign investment to overcome the funding gap.Again once companies really expand into these overseas markets their capital requirements are very large and it's clear from the likes of Rocket Lab who have raised $200 million in the last year alone to meet their global expansion plans. What we've got as a solution is this $300 million capital investment which has three objectives: first to raise the number of start-ups that are progressing; secondly to increase the volume of technology that's commercialised both for the business units themselves but also to help technology diffusion across the entire economy; and we also think this will have a benefit of retaining ownership of more of these start-ups for longer.The way we are doing this is we're harnessing the skills of the Guardians of New Zealand Superannuation. They are the managers of the largest fund in New Zealand and they've got an enormous capability. They don't want to be involved in the tiny individual investment decisions that are made by venture capital (VC) firms but we need to harness their expertise to both structure these management contracts and use their reputation to help bring in some other private sector into these VC funds as well. The money will go from them through the New Zealand Venture Investment Fund who will run a fund of fund models appointing VC fund managers who will bring some matching funds to match the Government's funds and those VC funds will make the investment decisions and will maximise the return on these funds. Commercially we've got a goal of generating appropriate risk-adjusted returns. The funds will then be returned to the Government and they will then be put back towards meeting the future needs of superannuation. The amount is piffling in relation to the size of the total amount of funds that are currently in the fund but we think this will make a material difference.The arrangements require the first fund manager to be the New Zealand Venture Investment Fund but at the request of the guardians—we thought this was a good point and indeed I originally intended it anyway—we do want them to be at risk for non-performance. So the super fund could terminate the contract of the New Zealand Venture Investment Fund were they not performing. I don't think that's an outcome that will happen in practice but that theoretical outcome exists.So the Venture Investment Fund will be the delivery agency via the VC funds that will be a mixture of overseas VC funds and New Zealand VC funds. There will be a policy statement that is issued by Ministers that will guide the guardians in their work. We don't want all of the funds to be going to overseas VCs but neither do we want none of the funds to be going to overseas VCs. We want to be building the ecosystem in New Zealand so that over time private sector funds take over in this as they're already starting to in the early seed or angel funds which whilst still supported by Government are not as reliant on Government funds as they were when those seed funds were initially established.We believe that the outcome of this will be that we have a better capital cycle in New Zealand that more of these businesses will be growing to their potential and that this will have productivity improvements as well as bring jobs and income growth in New Zealand."