Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeReserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15009. Text is incorporated into the Bound Volume.]Tuesday 19 November 2013(continued on Thursday 21 November 2013)Reserve Bank of New Zealand (Covered Bonds) Amendment BillIn CommitteeDebate resumed.TIM MACINDOE (Junior Whip—National): I seek leave for the Committee to take all parts schedules and clauses of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill as one question.The CHAIRPERSON (Lindsay Tisch): Leave is sought for that purpose. Is there any objection? There is no objection.Parts 1 and 2 schedule and clauses 1 to 3JACINDA ARDERN (Labour): It is my pleasure to give a contribution in the Committee stage of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. Labour will be giving its support to this bill. We do have some reservations though in giving that support but we will traverse that over the course of this debate.The purpose of this bill—obviously covered bonds are debt securities issued by a financial entity. But at the moment the legislative framework for covered bonds in New Zealand is somewhat lacking. So opposing this legislation—and this is something that Labour has considered in giving its support—would not prevent the issuance of covered bonds but it would leave New Zealand without regulation and we would be concerned by that situation. That is one of the reasons why we are giving the bill support with reservations.To cover the purpose of this bill—briefly given that we are at the beginning of the Committee stage—the key feature of a covered bond is that bondholders both have an unsecured claim over the issuing entity and hold a secured interest over a specific pool of assets called the cover pool. New Zealand banks have been active in issuing covered bonds over the last 2 years and this has been carried out under contractual arrangements. However most jurisdictions—and we often look to jurisdictions like Australia when assessing whether or not we are keeping up with the play in terms of those jurisdictions that are similar to us—with banks active in the covered bonds market which includes Australia now have a legislative framework for issuance in place. The lack of a similar legislative framework in New Zealand does put New Zealand issuers at a disadvantage and that is one of the reasons why obviously this bill has been brought in.The bill establishes a legislative framework for covered bonds the purpose of which is to improve financial stability by ensuring that New Zealand banks have effective access to the covered bond market as a source of long-term relatively stable finance as an alternative source of bank funding. But the main problem that has been identified—which we are obviously trying to remedy with this bill—is a lack of certainty over the effectiveness of legal arrangements to segregate the cover pool assets from the assets of an issuing bank. So that is something that this bill is trying to address. The second problem that this bill seeks to address is ensuring that there is an adequate level of independent monitoring of information provided by issuers on cover pool assets. So the three things that we are likely to debate in this Committee stage are: first the requirement that covered bonds issued by New Zealand banks be registered subject to meeting registration requirements; second the independent monitoring of cover poolsby an asset monitor; and third provisions to amend the legislation including the Companies Act 1993 to clarify the treatment of registered cover bonds in the event of issuer insolvency.I think that anyone would agree that in this current environment and with the state of our financial markets in the past few years regulation is better than the absence of regulation. Hence Labour is lending its support to the bill because to not do that would mean a continuation of the status quo where we have an ad hoc arrangement which is contractually based as I understand it. That leaves us at a disadvantage when we are looking at comparable jurisdictions like Australia but that does not mean that simply having a regulation in its current form is going to necessarily tick off all the boxes that we would be looking for—all of the acid tests that we would have—for legislation such as this. My colleagues who have been involved in this area a little more closely than I have will I am sure traverse some of that in their contributions.One of the things though that we are also likely to cover is that the effect of covered bonds currently is to create a class of lenders to banks who have a higher level of security over banks compared with other lenders. That is unfairness in that it creates a two-tiered system. Most covered bond holders are foreign institutions. So the question is where does this leave mum and dad investors whom we have so frequently heard about—Dr DAVID CLARK (Labour—Dunedin North): This issue is one that we debated at length in the Finance and Expenditure Committee although that was some time ago. I look across and recall Mr Bennett from the other side of the Chamber there participating in this lively discussion in the select committee. Other members here will think back and remember the interesting discussions we had.If a bank collapses covered bonds have a higher priority to banks over other lenders including ordinary mums and dads. There is no doubt that it is desirable to have some legislation in this area. It seems a good idea to have an instrument that is protected from runs on banks and from other unforeseen financial situations in order to attract a certain kind of lending at a premium. Having a covered bond is a mechanism that is used around the world to provide some financial security to banks and to other lenders. We know that $6 billion worth of bonds has been issued over 2 years without any regulatory oversight so it is clearly an area that needs to be addressed. It is good and it is timely to do so.Our question on this side of the Chamber is whether the percentage of a bank’s assets that can be placed in this position is too high. It is possible that the 10 percent limit is too high. We looked at other examples overseas and we found that in Australia it was lower—I think around the 8 percent mark from memory—and in Canada it was as low as 4 percent. So we ask whether the big end of town needed this much protection and whether in fact that level could be set lower. Those who were pushing the case seemed determined that it should be higher. On this side of the Chamber that left us a little bit uncomfortable. So we are really arguing about where the line should be drawn.We on this side of the Committee are very concerned about small-business owners about mum and dad New Zealanders who take out a mortgage to start a business and about those who are putting their shoulder to the wheel taking the risks and borrowing money. Having them further down the list of people who are able to access capital in the case of a collapse seems an injustice. So we do not believe that too much of this covered bond lending should be happening and we would have less of it.We think of the recent example—not so recent now but not so long ago—of Mainzeal Property and Construction and the way in which individual contractors and small-business folk missed out on getting their money and worse than that getting their tools back. So Labour is of course proposing solutions in that area to make sure thatsubcontractors—the lifeblood of our economy those who go to work every day—and their interests are looked after. That unfortunately does not seem to be a priority for the National Government. It is more interested in making sure that the interests of big business are protected. I could digress into Chorus the Skycity Casino deal and Rio Tinto as other examples of that but I think it would be better to focus on the particular issue of covered bonds and quite where that line should be drawn.Labour will be supporting this bill I have to say despite our reservations. That is primarily because we think there needs to be a regulatory framework. We are actually arguing as I said at the beginning about exactly and precisely where that line should be drawn. The lack of a legislative framework has we think put New Zealand issuers at a disadvantage. At least with the regulatory certainty in Australia for those who are seeking to lend there is some certainty to the people they are lending to. As we know in the world of business often regulatory certainty is more important than other factors. Businesses like to know the risks that they are dealing with take their chances and develop a strategy around those risks.I think back for a parallel example to the emissions trading scheme. I had the privilege of working on that legislation as an official many years ago. When I contacted for example the oil companies I had oil companies saying to me: “We will scream if you put this legislation through. But we will scream quietly if we know what it is and we know the detail of it. However if the rules are not clear if the legislation is too harsh if it comes too soon and if it comes too fast we will scream loudly.” They were representing their interests their clients and their profits. But they are also like any business looking to the future and saying: “We can plan if we know what the rules are. We can plan our arrangements. We can work out how we are going to structure our debt. We can plan as to which areas of industry we go into and whether we move toward renewables.” I know that BP had a brand that was about a sustainable future. That has been called into question by more recent events but BP made choices about where it was going to put its business interests and that is around regulatory certainty.Certainly in New Zealand one of the discussions that we have in this Parliament often is around regulatory certainty and the ability to attract capital to our businesses here—not just overseas capital but New Zealand capital. There are some significant New Zealand companies that want regulatory certainty here or otherwise they will invest their money offshore.That is why we will be supporting this bill. We do think that that limit is a little too high and panders to the big end of town and that it makes sure that the big institutional lenders creditors and so on are protected rather than looking out for the interests of those who are starting up and those who are literally risking the shirt off their backs. We see the pattern there in the Government’s other behaviour but we appreciate the need for a regulatory framework.There are of course other areas where we would like to see the Government provide greater regulatory certainty in the interests of the financial well-being of New Zealand long term. Here we are talking about savings and putting savings at risk. In the KiwiSaver arena we would like to see universal KiwiSaver so that there is actually a greater depth of savings in New Zealand a deeper pool from which businesses can lend. We think of the Australian scheme which came in shortly before the National Government in the early 1980s canned the scheme we had here. They now have about $1.6 trillion in their retirement savings scheme and that is available capital. So that is good for small business. In New Zealand if you want to start a small business you are handing round the hat to your family members. In Australia there is a lot of capital and a lot of it is sticky capital that stays close by that is available for good ideas that pursues good ideas and that ensures growth in that economy.These are issues of savings. They are issues of how we protect lenders—whether we can attract good credit from overseas—and they are important issues for our country. There are of course plenty of others. There is the capital gains tax that we would like to introduce which we think would send money towards the productive sector again in New Zealand. All of these things actually reduce the risks that we are trying to cut off here. When you have an economy that is prospering and when it has got a balance of trade that is under control—a rebalanced economy—there are fewer risks in it. It is more attractive for investors over time because they see its health.It was very disappointing to see our economy downgraded under this Government’s last term because essentially it did not have the vision. It was not projecting the right kinds of figures in the period to come that would give the international ratings agencies confidence. I guess that is because this Government has run deficits consistently where the last Labour Government ran 9 years of surpluses. Michael Cullen was certainly a strong hand on the tiller. Our economy was running strongly but under this Government it has lacked a certain amount of vision. It has lacked the ability to convince those ratings agencies that we have a long-term plan for our economy that it is secure and that it is a good place to invest in the same way that the previous Labour Government has. This Government has a poor record on the economy—the worst economic record of any Government in the last 50 years in New Zealand—whereas the Labour Government certainly by introducing Kiwibank KiwiSaver and other measures pushed us towards more secure savings that will benefit small businesses in our economy which is the type of issue that we are dealing with here.The legislation itself has three main elements: a requirement that the covered bonds issued in New Zealand by banks be registered subject to meeting registration requirements which is a technical expectation that enables monitoring and makes sure that this does not get out of hand; independent monitoring of covered pools by an asset monitor; and provision to amend the Companies Act.Hon CLAYTON COSGROVE (Labour): Like my colleague we note that we will support the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill because in essence opposing it of course will not prevent the issuance of covered bonds. It will merely leave New Zealand without regulation and at a competitive disadvantage particularly with Australia as covered bonds already exist there. I have to say like my colleague Dr Clark and others on this side who have spoken in respect of this bill that we do have a reservation in respect of the unfairness that is created with a two-tier system whereby in the event of a collapse of course the banks get far better coverage and get to essentially secure their shirt and others do not.You could make an argument—and there is a bit of precedent for this—in respect of the big end of town being looked after. There are precedents with this Government in terms of looking after the big end of town whether it be those in the film industry or whether it be a negotiated disaster with Skycity where Skycity effectively took the negotiators and the Government to the cleaners but the big end of town tends to get looked after by this Government. The small folk those at the other end of the scale tend to have a different set of rules a different set of parameters and a different set of safeguards. As my colleague said we are mindful for instance in respect of Mainzeal Property and Construction Ltd where the big end of town was first in and those subcontractors and others even struggled to get their tools out of the construction site let alone the age-old problem of getting paid.So although we support the bill we have reservations in respect of it. I wonder like Dr Clark whether the limit of 10 percent of a bank’s asset base is indeed too high and whether that should not be brought into line with the 8 percent that exists in Australia. Why we would have a different system—why we would have a different tier? I do notthink has been adequately explained by the Minister in the chair the Minister of Internal Affairs. We would look forward to some explanation in respect of that. Why is there a difference? Why did the Government put in a different level and a 10 percent limit as opposed to other jurisdictions like—Dr David Clark: Very keen to hear what the Minister has to say about that.Hon CLAYTON COSGROVE: Indeed. Dr Clark says that he is very keen. I know the learned Minister in the chair will be all over this legislation. He would have examined it in great detail last night knowing that he was coming into the chair today but—Hon Shane Jones: Stu Nash knows the answer. Stu Nash.Hon CLAYTON COSGROVE: Stu Nash does know the answer. I look forward to Stu Nash providing us with that answer when he re-enters the fray in here in a matter of months as the incumbent has raised the white flag of surrender—“Custer’s last stand”. It is all over and various vermin are deserting various ocean-going vessels as it were. So I look forward to Mr Nash giving us a very good dissertation in respect of this. But it is a serious point.This legislation at its essence gives preference and a preferred status to banks. There are some reasonable rationales behind that. There are also some large risks and unfairnesses behind that especially when everybody else sits in the second row as it were in terms of the hierarchy if there is a collapse. So that being the case we will support this bill because covered bonds already exist. As I have said opposing it would not stop that but not having an appropriate regulatory framework and safeguards around it would put us at a disadvantage.I come back to this point. Why is it—and I would like an explanation for this so the Minister may want to consult the learned officials—a two-tiered threshold? I think people are getting quite weary of the fact that if you are a big multinational corporate—say Rio Tinto—anything is possible for you. Money rains from the sky and other places in order to help the big boys out. I think Rio Tinto made $4.3 billion last year—those poor souls who are scratching for every dollar they make. I think it was about $4.3 billion or thereabouts. Yet the Government went and gave it a big chunk of dough—$30 million of course. The Government threw money at it as if it was growing on the proverbial trees.Hon Shane Jones: Tossed it away.Hon CLAYTON COSGROVE: Tossed it away. [Interruption] Yes I am coming back to it. And the point I am illustrating is in respect of covered bonds where there is a two-tiered preference system where the big end of town stands ahead of others. Returning to my Rio Tinto point as an illustration of that what did we get for the $30 million? Maybe Mr Bennett could tell us. We were told that there would be job security for those folks.The CHAIRPERSON (Lindsay Tisch): Order!Hon CLAYTON COSGROVE: Indeed—job security for those folks never materialised because the Minister never asked. As the Chair quite rightly suggests there may well be a linkage to that in this bill. But the point is this: in the case of Rio Tinto and in the case of this bill preference is given to the big end of town. I would suggest there are probably some more palatable reasons as to why that is the case to some degree in this bill but certainly not in the case of Rio Tinto certainly not in the case of the film industry certainly not in the case of Skycity—Hon Shane Jones: Chorus.Hon CLAYTON COSGROVE: —and certainly not as my colleague points out in the case of Chorus where there is a simple solution and that solution is not a preference. That solution is an enforcement of a contract in the same way as a contract would beenforced in the private sector. It is real easy. If you negotiate a deal and the other party is not smart enough to outsmart you in negotiating the deal and you get the better deal that they cannot deliver on you enforce the contract. You do not run around with a begging bowl as happened with Rio Tinto and start throwing dough at it because the other party messed up. That is the point.So there is a body of evidence now over the last 12 months that National looks after those big corporates those mates up and down Queen Street yet when it comes to mums and dads they will be in the second row in respect of preference with this bill. We know over recent days that mums and dads have taken a bit of hammering out of this crowd because mums and dads were promised all sorts of things in respect of Mighty River Power and Meridian Energy. They were promised all sorts of things and they never eventuated. So the mums and dads will be sitting in the second row in the cheap seats—as the big boys the banks get the covered bonds and the preference—hoping that their investment positions and their financial positions are maintained.If you were an observer outside this place you could get the impression pretty quickly that National is concerned about only those in the skyscrapers and those behind the mirrored glass up Queen Street and a few other places. It is a bit like the bill we discussed last night the Financial Reporting Bill which I will not go into apart from the theme which was to practise what you preach and walk the talk. High standards outside are required of other parties but there are low standards in this place.So I say to the Government that we will support this but I think it is worth it for the record that the Minister gets on record an explanation a detailed one for the difference in the limit of the bank’s asset base which is 10 percent as opposed to the 6.75 percent limit in Australia. Why the difference? I think it is a simple question. The officials will be able to tell him if he does not know. I think for the record as we go through this legislation that that is very important. This legislation will have a benefit for some. Hopefully it will provide another mechanism for financial stability. But there will be those left wondering why that preference exists and why that difference in the limits exists in respect of Australia.I say in conclusion that we look forward to the Minister providing some detailed explanations specifically on that matter. If he chooses not to provide those explanations can I say to him that that would be quite telling in terms of his stewardship of this legislation.ANDREW WILLIAMS (NZ First): I take a call on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill on behalf of New Zealand First. New Zealand First will be supporting this legislation. Covered bonds go back to the 1700s. Denmark was the first country back in the 1700s to issue covered bonds so they are a very old form of financial security and an old financial tool. More recently of course they have been a major tool used by European banking but in more recent times the likes of the United States Department of the Treasury introduced them in 2008 and the Australian Treasury introduced them in 2010-11.New Zealand banks were the first in this part of the world to actually start using covered bonds which was back in 2010 but they did not have the legislative framework to work within which is the purpose of this bill—to actually give them that legislative framework to cover those bonds. Covered bonds are debt securities that are backed by cash flows from mortgages or public sector loans. A covered bond is a corporate bond with one important enhancement: it has recourse to a pool of assets that secures or covers the bond if the originating financial institution becomes insolvent. In this day and age in the world that we live in it is increasingly important that we do have these guarantees put in place to ensure a stable and reliable banking system. In this respect the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill does help to bringNew Zealand into line with many of our major trading partners—in particular Australia the United States and many of our trading partners in Europe and Asia.We did have some reservations as to why New Zealand was adopting the 10 percent maximum number of covered bonds as compared with Australia on 8 percent. In this House in Parliament and throughout legislation we are regularly referring to the fact that we need to harmonise as much as possible with our major trading partner Australia. When so much of our banking financial interests are trans-Tasman it is somewhat puzzling as to why we would not simply adopt the same 8 percent level as Australia and that we would have a higher level. That still has not been adequately explained. Countries such as Canada as we have heard are as low as 4 percent. It does beg the question as to why New Zealand would go to a much higher level. At the end of the day should a bank fail it means that these covered bond holders have preferential call over other investors in the bank other depositors in the bank and therefore we would not necessarily want to see the first 10 percent of any failure in New Zealand go offshore to international investors first perhaps before mum and dad investors in New Zealand. So I think this still does need to be addressed and I think it would be wise if the Minister could fully explain the reasons why that decision was made to go with the extra 2 percent.But basically this is another means of tightening up the New Zealand financial system. We saw 61 financial institutions go by the wayside in recent years through an appalling period of New Zealand’s financial history—the likes of South Canterbury Finance with $1.6 billion going down the tubes. That was picked up by the New Zealand taxpayer. That sort of thing cannot be allowed to repeat in the history of New Zealand. This bill is a mechanism to provide greater controls in this area more certainty about investment and more certainty about a major investment in this country. We are seeking greater investment in New Zealand. This is one means of encouraging more investment in New Zealand by international institutions. Therefore New Zealand First believes as it always does that if there are improvements to our financial system and improvements to our economy then it can only be a good thing. New Zealand First supports the bill.Hon SHANE JONES (Labour): Kia ora tātou. Mōrena. I stand to support my colleague here Dr David Clark. He and I were both at various points in our parliamentary history members of the Finance and Expenditure Committee and members of the Commerce Committee.I just want to focus a little on why the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill is necessary. In particular I want to remind us that it gives more confidence to the international providers of capital to New Zealand. The international capital providers want to ensure that when an adverse event takes place they have some recourse regarding their percentage of exposure and they are not completely unsecured but also having said that that their level of priority is not such that they monster everyone else or that they are left out to dry. This is important because it speaks to the notion of certainty. It speaks to the notion that when a financial entity seeks to raise capital it is then capable of taking a punt on how the regulatory framework will remain to the extent that its interests are if not protected then certainly able to enjoy a high level of priority.We are going into treacherous territory and I hope that this bill does compensate for the gross level of uncertainty that has recently crept in in respect of the speculative statements that are being made that the Commerce Act is likely to be changed. Once you start to change the regulatory framework at the whim or at the instigation of corporate welfare lobbyists such as those associated with Chorus it impacts rightthroughout the system—right throughout the system. Indeed it can have a systemic effect.That is why although we are going to support this bill it is absolutely essential that people bear in mind that when international financiers look at our economy they look at the Government. Then they look at the sense of whether or not a contract can be not only enforced but collected upon. Then they look at the institutions that a modern economy puts in place to ensure that all parties or stakeholders in a commercial equation have some level of protection. Let us just think about it. With international providers there are obvious disciplines around the financial entities—the banks. The fact that they do not pay enough tax is something that will be addressed at the end of next year when the National members sit over here and we on this side of the House sit over there. But at the moment that is another matter. The difficulty is how we continue to promote the positive story—although there is some upside with us agreeing to this bill—that regulatory frameworks will not be changed in some sort of capricious manner.What we must not do is allow the chair of a publicly listed company—now a shining example of the Government’s small business policy given that Chorus has lost 40 percent of its shareholder wealth so it probably now qualifies for a small business grant which is presumably what the Government has in mind in terms of corporate welfare. The deeper problem is that in order to rescue that particular entity we would then take the profound step of worsening uncertainty in terms of the commercial framework—the Commerce Act and the Commerce Commission. You may be thinking: “Well Mr Jones that pertains to what was formerly known as a large company. I think it is insolvent anyway according to the Prime Minister but the chair is a friend of mine.” But now that is starting to spread because when directors international lenders and international investors see that you can capriciously change the legal framework in terms of the commercial regulatory framework the cost of capital goes up.This bill is not going to overcome that problem. The cost of capital will go up. We have seen in here that the banks—and having known one or three clever roosters in the banks myself—can go and use these devices to raise capital at a lower level in the European bond markets. Let us hope they get their dollar assumptions right having had a bit of experience myself of that in the fishing industry. When the dollar does move against you it is not for the faint-hearted. The point I am making here is that these are sensible changes but unfortunately there is a larger threat. That threat pertains to the framework that is related to how commercial transactions and investors are dealt with. We will support the bill.The question was put that the amendments set out on Supplementary Order Paper 186 in the name of the Hon Bill English be agreed to.Amendments agreed to.Parts 1 and 2 schedule and clauses 1 to 3 as amended agreed to.Bill reported with amendment.Report adopted.Third ReadingHon CHRIS TREMAIN (Minister of Internal Affairs)on behalf of theMinister of Finance: I moveThat the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill be now read a third time. The bill sets out a legislative framework for the issuance of covered bonds by New Zealand - registered banks. It will provide greater clarity for both investors in covered bonds and depositors as to the treatment of the asset securing the covered bond in the unlikely event that the issuing bank defaults.The bill establishes a registration regime for covered bond programmes. An issuer commits an offence if it issues covered bonds other than under a covered bond programme registered by the Reserve Bank. In order to be registered the programme must meet certain registration requirements. These requirements aim to ensure that the cover pool assets are effectively segregated from the bank’s other assets and a cover pool monitor is appointed to the covered bond programme to provide enhanced monitoring. Following registration there are ongoing requirements on issuers of covered bonds—in particular reporting requirements. The issuer is required to keep the register of cover pool assets up to date and the cover pool monitor must be required by their contract to assess the issuer’s compliance with that requirement.The bill then clarifies the application of the law in relation to cover pool assets of a registered covered bond programme in the event that the bank that issued the covered bonds is placed into statutory management or into liquidation. The bill includes a transition period that delays the application of the bill to existing covered bond programmes to allow time for amendments to be made to the programmes to meet the registration requirements.This bill is important as it will improve the access of New Zealand banks to offshore covered bond markets. Covered bonds enable banks to obtain finance at a reasonable cost at times when it is difficult to issue other forms of debt. Further covered bonds provide New Zealand banks with a source of long-term funding which is important to reduce the vulnerability of the New Zealand economy to sudden changes in investment sentiment. This helps to promote overall financial stability and as such it does benefit all New Zealanders.Finally I would like to thank the members of the Finance and Expenditure Committee for their prompt consideration of this bill and also officials who have engaged with the industry and with other political parties. I commend this bill to the House.Hon CLAYTON COSGROVE (Labour): As we have already said—and we will not labour the point—the Labour Party will be supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill with some reservations. We note that covered bonds already exist and can be legally issued in New Zealand but they lack a regulatory framework which in itself could indeed generate instability. So opposing the legislation will not prevent the issuance of covered bonds. It will merely as I have said leave New Zealand without regulation.We note that the effect of covered bonds is to create a class of lenders to banks who have a higher level of security over banks compared with others. We have said in the previous speeches that have been made that we have some reservation about this given that there is an inherent unfairness that a two-tiered system has created.Most covered bond holders are foreign institutions. The question is where that leaves mum and dad investors. We know that in recent days as we noted in the Committee stage the preference given to foreign entities institutions brokerage houses and others over and above the mum and dad shareholders has been evidenced—contrary to stated Government policy and commitment. It has been evidenced through the recent sale of Air New Zealand where the Government went out to the big end of town and the best that mum and dad could do was wait until the shares hit the market and then make a purchase. That was not the agreement. We know that the big end of town and the foreign institutions were in like big hungry dogs hoovering up those shares—as was the case with Meridian Energy and Mighty River Power.As we said in the Committee stage there is a series of precedents where this Government has preferred the large corporates in the formation of Government policy in respect of the film industry Skycity Rio Tinto latterly Chorus Meridian Energy andothers. One would be forgiven I think for sitting outside this place and looking at this piece of legislation with some scepticism bearing in mind that we all agree that it is imperative to ensure that there is financial stability within the commercial sector. But mum and dad Kiwis might be forgiven for looking at this piece of legislation with a tad of cynicism given the Government’s penchant for looking after its mates up Queen Street. That is a fact and the difficulty with that is that even if this legislation which does make good sense in large part in terms of increasing the stability of the financial sector gets degraded—if the integrity of that legislation gets degraded by the past and present actions of this Government—the question is where that leaves mum and dad. Where are those second-tier investors left as they sit in the cheap seats while the big boys secure their base?The other point that we raised in the Committee stage was the differing limits between us and say Australia—the proposed limit being 10 percent of an asset base. We did ask the Minister in the chair for an explanation. We thought there might have been one or two who sat on the Finance and Expenditure Committee and dealt with this legislation—Mr Goldsmith Mr Bennett I think and one or two others who were hovering around the Chamber mid-morning—who might have assisted the Minister in providing an answer which he chose not to give. I think that is unfortunate because a question does hang over the legislation as to why there is a difference. The Minister could have sought advice from his officials and put on the record why that difference exists to give some commentary as we move through the final passage of this bill. Or those learned colleagues opposite who were on the select committee and part of the processing of this bill—and there was not a heck of a lot of politics in this I have to say—could have taken a call and could have provided perhaps an explanation because that is left hanging in the ether.On this side of the House no one wants to see a financial collapse. I do not think there is anybody in this Parliament who would want to see instability rendered upon our economy putting commercial entities at risk and ultimately putting investors’ money at risk particularly those folks who have squirreled a bit away in trying to make some sort of capital increase or increase in value on their investments. It is in everybody’s interest to create and reinforce an environment of financial stability avoid collapses and avoid difficulties within the commercial sector. However that has to be done in an appropriate way and although we support this bill as I say we want to make it very very clear that this bill follows a history of preference given to some over others. We think that is a concern. Even if that might be appropriate in this legislation it is undermined by the actions of this Government in other portfolio areas.Probably the biggest example is as I said in the Committee stage Rio Tinto where it appears on the face of it that money was simply just thrown at an entity. I do not know whether Bill English got down on both bended knees or just one. The last time I checked when you actually try to strike a deal you try to get a bit back for yourself. When you do a deal with someone there has got to be something in it for them. What is that wonderful phrase that Peter Dunne used? “Willing buyer willing seller.” But generally both parties come away with something. This was—Andrew Little: At least his dignity.Hon CLAYTON COSGROVE: Indeed. Well if you do not get anything at least your dignity is intact—Mr Little is right. But in this case it was a bizarre example of Rio Tinto bending the Government literally over the barrel waiting to spring the trap because it had nailed itself to a deadline. And it sprung it all right. Rio Tinto tied the noose around Mr English on his ankles and dangled him up the flagpole until he squealed enough and gave enough and it ended up with a decrease in power price half the notice period and just for good measure because I suppose we are getting nearChristmas 30 million pieces of silver—30 million bucks. Then you look at the other side and you ask what the taxpayer got—zip zero nada.Dr David Clark: The comfort of increased profit for Rio Tinto.Hon CLAYTON COSGROVE: My colleague says: “The comfort of knowing that—”Dr David Clark: They only made a few billion last year.Hon CLAYTON COSGROVE: —“that multibillion-dollar company Rio Tinto would be kept warm in its old age and maybe a more—”The ASSISTANT SPEAKER (Lindsay Tisch): Back to the bill.Hon CLAYTON COSGROVE: Indeed. Well indeed. This is also about transparency. Maybe Rio Tinto will be able to afford a nicer bottle of Scotch to whip around the board table for the brothers and sisters a few extra Chrissie presents and another room on the house thanks to Bill English. The truth is this: what did we get? Nothing. What were we told? Job security. What did we find out? He did not even ask for the jobs to be secured. What do we now know? That many of those jobs are slowly in the restructuring going—The ASSISTANT SPEAKER (Lindsay Tisch): Order!Hon CLAYTON COSGROVE: Sorry. Thank you. I was getting a tad emotional there Mr Assistant Speaker. I am glad you brought me back to the bill because when it comes to potential job losses we on this side get a tad emotional about that because we care about those folks and we do not like people being given falsehoods and false hopes especially by the Government.With that small contribution we will support the bill. We will be monitoring it closely and I think it deserves as it is implemented close monitoring not only by this Parliament but by others outside this Parliament. As I say we all in this place I think are for financial stability—Dr David Clark: What about Mainzeal?Hon CLAYTON COSGROVE: —for ensuring that people’s investments are secured given that there is no such thing as a zero-risk investment. You know every time you spend a dollar every time you invest a dollar you take risk and there is no way any Parliament can perfect a zero-risk investment. But you do see collapses as my colleague said like Mainzeal Property and Construction where again the big boys got secured. They got the security blanket and those at the bottom of the heap and those subcontractors and others just had to sort of wait in the queue with the tin cup out hoping somebody might put a dollop of soup in it in the form of some monetary compensation or actually get their money back so that they could move on to other things.We will be monitoring this. We look forward to some interesting contributions in the third reading. I hope that Mr Goldsmith might take up the challenge and actually talk about why that 10 percent limit is different from say Australia’s limit and maybe give us his thesis as to why he thinks that is appropriate given that the Minister was sadly lacking. He either was not interested in the bill or did not understand the bill. It is probably the latter. But it would be helpful perhaps if some members of the Finance and Expenditure Committee who put this bill through actually stood up and gave some sort of narrative around it.PAUL GOLDSMITH (National): It is my pleasure to speak on the third reading of this bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. Ultimately this bill is an important part of the Government’s programme to improve the resilience of the New Zealand financial system to volatility in international markets. The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill establishes a legislative framework for the issuance of covered bonds by New Zealand - registeredbanks. It will provide greater clarity for investors and depositors improving on the current legal ambiguity.So under this bill the New Zealand banks issuing covered bonds will have to register their covered bond programmes with the Reserve Bank and notify the Reserve Bank of issuance of covered bonds under the programme. Legal certainty will increase economic efficiency and financial stability because the banks will not have to pay an uncertainty premium to obtain covered bond funding and because certainty will improve banks’ access to the covered bond market.Ultimately that helps promote the sound and efficient operation of our financial system and ultimately that helps by lifting our economic performance. Through that we can create jobs boost incomes improve living standards and provide the world-class public services that Kiwi families need. This bill is only a small part of the jigsaw but it all goes to create that brighter future that New Zealanders look forward to under this National Government. On that basis I commend this bill to the House. Thank you.Dr DAVID CLARK (Labour—Dunedin North): Well after that brief contribution from the member—Moana Mackey: Less than 2 minutes.Dr DAVID CLARK: Less than 2 minutes Paul Goldsmith. We call him “less than 2 minutes Paul Goldsmith”; I hear others do too. He failed I am afraid to address the issue of why 10 percent should be the right number and why the international interest should be protected at that level when overseas jurisdictions protect at a lower level. I mean it is a little surprising. Mr Goldsmith is normally—at least technically—well versed in these things although his slightly jaundiced view of the world sees the kinds of Thatcherite policies he prefers often put forward—Hon Clayton Cosgrove: Be fair he wrote John Banks’ biography.Dr DAVID CLARK: Yes my colleague reminds me that he wrote John Banks’ biography. He is wondering whether there will be a sequel. But normally Mr Goldsmith is well versed in the actual technicalities of the issue and will put forward an argument at least in defence of a position. I guess it is a bit disappointing to the House that he is not prepared even to defend the legislation here. He is simply willing to see the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill go through.Paul Goldsmith: Well you’re supporting it aren’t you?Dr DAVID CLARK: He says that the Labour Party is supporting it which we are because we need some regulatory framework but we have already drawn attention to the inadequacy in that respect and it is a shame that the Government will not even articulate—and maybe it has lost faith in—its own view about where that line should be drawn. That is symptomatic perhaps of a Government that is out of touch—just get it done get it in place—but it is a long way down the track.We are passing the bill under urgency. We have had 2 years of unregulated bond issue. There has been no regulation covering financial bonds. In fact it may be longer now. There has been no oversight or regulation. There has been a very tardy response as you have heard and not well articulated as to why the line has been drawn where it has been drawn and why it should be higher here in protecting international interests and big-business interests over small-business interests—those who risk their shirt every day in terms of putting their own shoulder to the wheel mortgaging their own houses and so on. No argument has been put forward by Mr Goldsmith on that front.This is typical of this Government. It is 5 years since the global financial crisis and we have had 5 long years of this Government which has been very tardy to address issues in the financial sector and certainly where it protects small investors and small lenders. It seems not to be a priority for it at all. In fact on that side of the House it seems to have rather a negative view towards small-business people. National memberswould much rather protect the interests of capital the vested interests those who already have the money—the 1 percent—and the people who are their financial backers. It is a real shame that National members are not interested in the broader prosperity of New Zealanders and the opportunities that are presented for New Zealand’s future in having every New Zealander succeed having a country where all can live in dignity and make their best contribution. But that is National and New Zealanders are getting a little tired of it and I expect that will be reflected in the next election. When a Government gets out of touch when it has been here too long the voters start to turn off and they start to ask what the alternative is and we are certainly hearing that around the country.This lack of oversight of the covered bond market is indicative as I have said of a Government that has got its eye off the ball and is in no particular hurry to protect the small-business people of New Zealand. This approach is already in place in the UK Australia Canada and other jurisdictions and has been in place for a long time. Opposing this legislation if we were to do that on that detail would see only further delays and that is the point I would make to Mr Goldsmith who seems strangely silent now. He is not responding in any way. In fact he is almost invisible in this debate right now I would suggest.This lack of regulation is paralleled in other areas and it is unfortunate for New Zealand. The Crown Retail Deposit Guarantee Scheme was another scheme designed to protect a run on banks designed to make sure that those creditors did not pull out and designed so that we had secured lending for the country and it is estimated that $500 million of taxpayers’ money was lost as a result of the Crown Retail Deposit Guarantee Scheme. This Government has failed—absolutely failed—to investigate it. It failed to have an oversight of that lending scheme and the likes of South Canterbury Finance and others have collapsed because of dodgy lending. Likewise other finance companies increased their loan books with dodgy loans of up to 10 percent because it was Crown guaranteed. That is taxpayers’ money that has been handed over to those lending companies. It has been handed over willy-nilly by a Government that failed to observe what was going on when it signed a blank cheque gave it out to those companies and said: “We will guarantee all of your lending.” Of course many people invested but particularly those with interests that were not necessarily straightforward. Many ordinary New Zealanders invested their savings got caught up and got hurt and taxpayers as I say have footed the bill for all of it.This Government has steadfastly refused to investigate and that is typical of the lack of oversight that we see here in this legislation—the lack of willingness to regulate in favour of the mum and dad depositors and to look out for the interests of those who mortgaged their own houses to contribute to our economy. We saw that with the collapse of Mainzeal Property and Construction. The large firms got out OK but the subcontractors could not even get their tools off the building site. That is why I think that the proposals put forward by my colleague Clayton Cosgrove the excellent proposals he has consulted on around making sure that subcontractors get their dues when they are contributing to projects in New Zealand are well worth thinking about and well worth debating. I do not expect we will see much progress from this Government which seems very disinterested in small business and the little guy who works to get ahead or the woman or man who risks their own house in order to get ahead. There have been $6 billion worth of bonds issued over 2 years without any regulatory oversight.So it is good that this is finally being addressed by this Government albeit it is being done in a fairly tardy fashion. The point that Mr Goldsmith did not address was why these big lenders should be protected at a rate of 10 percent: why are 10 percent of a bank’s assets being run in this way as opposed to 4 percent in Canada or 8 percent inAustralia. The arguments were not strong at the Finance and Expenditure Committee in favour of having a bigger protection for the big end of town in New Zealand than in those other countries. The Finance and Expenditure Committee chair Paul Goldsmith was content to let that slide through. Mr Goldsmith—Moana Mackey: The chair?Dr DAVID CLARK: Well subsequently the chair. There was another chair at the time. Mr Goldsmith is now the chair of the committee and again is very silent on the issue. As I look across the House I see no response—not even a glimmer in his eye can I see across the House.Hon Clayton Cosgrove: No it was a glazed look.Dr DAVID CLARK: A glazed look? I cannot see it now. I cannot even make eye contact with the man. He is absorbed in other things—probably a little bit ashamed of the legislation in its current form. But there we are.The three elements of the legislation are a requirement that covered bonds issued by New Zealand banks be registered subject to meeting registration requirements. It is a sensible step. We can see what is going on. We can make sure they are not exceeding the limit even though it is rather high. The fact that there will be independent monitoring of covered pools by an asset monitor makes sense and the provisions to amend the Act to clarify the treatment of registered covered bonds in the event of issuer insolvency all make sense as measures in terms of the framework that has been set up. So we will be supporting the legislation. We have noted our concerns our reservations about the level of covered bonds in New Zealand as opposed to those overseas jurisdictions which seem more interested in growing new businesses and supporting entrepreneurs than in supporting vested capital interests but that is the National Government. It is there for the 1 percent to protect the capital interests of some of its mates. Even the big corporate interests are not safe; it is only the ones that have got the Prime Minister’s ear it seems. We saw that with the casino deal we have seen that with Bill English and Rio Tinto and no doubt we will see that with Chorus.It is only the ones that have the immediate ear of the leaders of the National Party that seem to be able to get the handouts as and when they wish for them. Not all big businesses seem to get the fair treatment; it is only some that are close to the National Party. That is something New Zealanders are growing increasingly tired of and something I hear over and over again in my electorate. New Zealanders are getting sick of a Government that does everything by deals and that is not prepared to regulate markets in good time to make sure that they are acting in the wider New Zealand interest. This is one of those examples here. We are glad that the Government has finally come round to regulating this sector albeit in a kind of slightly haphazard way that it is not prepared to defend. But it is good. This is a Government that has got a terrible record on unemployment which is much higher than when it took office. Real wages are worth less—The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member.Dr RUSSEL NORMAN (Co-Leader—Green): I rise on behalf of the Green Party to speak to the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. The Green Party will be supporting this legislation even though we have some significant concerns about it.One way to think about this legislation is that it is kind of like the equivalent of raising the private debt ceiling for New Zealand. There has been a lot of debate in the United States about raising the debt ceiling for borrowing by the US Government. I think it is something in the order of US$16 trillion at the moment. Likewise in Australia at the moment there is a very lively debate because the conservativeGovernment over there wants to increase the debt ceiling of the Australian Government to A$500 billion and the Greens have been resisting that suggesting that it should be a lower debt ceiling of A$400 billion. But in some senses what the covered bonds bill does is that it regulates a sector that enables the New Zealand private sector economy to borrow even more. It regulates that kind of borrowing and essentially facilitates more borrowing.So although this bill is a necessary step and we will be supporting it for that reason we should admit and recognise the underlying addiction to debt of the New Zealand economy that this bill is really a reflection of. Essentially it is like raising the private debt ceiling for the New Zealand economy as a whole because what it says is that New Zealand runs these huge current account deficits it has this massive external debt—somewhere in the order of $260 billion now in gross terms—and the plan looking forward is to increase the debt and to not pay our way in the world. That is this Government’s plan. The Government’s plan is to run very large current account deficits currently in the order of 4.3 percent of GDP which is the second-largest in the OECD after Turkey. So New Zealand runs these very large current account deficits.In order to finance these current account deficits we either borrow from offshore or we sell assets. New Zealand currently does a mixture of both so we are slowly selling off our productive land into overseas ownership. Most of the large corporations have already been sold into overseas ownership. We can look at the banking sector for the obvious example of that and in telecommunications it is a similar story. Then the other part of it is that we just borrow from offshore and the banks are the mechanism essentially to do that. So the banks do most of the borrowing and then channel it into the New Zealand economy. What this bill does is regulate a part of the banks’ borrowing the covered bonds section. So the banks borrow offshore using these covered bonds mechanisms in order to lend into the New Zealand economy and increase the debt of the New Zealand economy as a whole.Yes it is good that we are regulating this sector but surely alongside the regulating of this borrowing problem that the New Zealand economy has we should also have a plan to get ourselves out of constantly having to borrow from offshore in order to pay our bills. Unfortunately although this Government came into office—and Bill English said some really important things about trying to rebalance the economy where he recognised this problem. He said that international debt is the central biggest threat facing the New Zealand economy—of course it is the current account deficit that sits behind the growth of that international debt—and Bill English talked a lot about trying to get a balance put between the tradable sector and the non-tradable sector so that New Zealand could trade its way out of its debt position. But as he has failed to achieve that goal which was a very sensible goal he no longer talks about it.So when we look at the difference between the tradable sector and the non-tradable sector what we are finding is that the tradable sector is continuing to flat-line in New Zealand and that means that we cannot solve the debt problem. Because we cannot trade our way out of it we are continuing to borrow offshore in order to finance this debt problem we have. Once we say: “OK there’s no plan from the Government to get ourselves out of increasing our borrowing and increasing our foreign debt”—in fact the Government has a plan to increase the debt—“and if the Government’s plan is to increase the debt then what we need is a mechanism to regulate and facilitate this dramatic increase in debt that the New Zealand economy is loading up.” and that is what this bill does. This bill provides a way in which the banks can go to the offshore lenders and say: “We want to borrow more money to loan into New Zealand but in order to do that we will give you first bid on home mortgages in New Zealand.”So if one of these Australian-owned banks that are operating in New Zealand goes belly up it will be the foreign lenders that get the first bite of the cherry at the carcass of the Australian bank when it rolls over. It is on that basis that the foreign lenders will keep lending into the New Zealand economy. I mean that is the fundamental principle that sits behind the covered bonds bill. It means that if one of the Australian banks goes belly up and you are a depositor in that bank you will not get your money until the foreign lender gets its money because it is essentially first in the queue as a result of this bill.That has a certain logic to it because we are trying to facilitate the constant flow of foreign lending into the New Zealand economy and this bill provides a way to facilitate that and tries to decrease the cost of that lending by providing security to those overseas lenders but what it means is that depositors in New Zealand banks are now not at the front of the queue. It is the foreign lenders who are at the front of the queue when it comes to getting access to the assets if one of those banks goes belly up. You might say: “Well if we are a country that is constantly borrowing this is just what we have to do.” and there is a logic to that. I appreciate that and that is why we are voting for the bill. But surely this should make us look at our economic strategy as a country and say: “Well isn’t it funny that we are sitting here today in Parliament in order to pass a piece of legislation to make it easier for us to increase our borrowing from offshore?”. Should that not make us think: “Is this really a sustainable strategy for New Zealand as a whole to constantly run very large current account deficits”—the second-worst in the OECD—“and use all that offshore money to finance the New Zealand economy?” Is that a sustainable economic strategy for our country? We finance a current account deficit by borrowing which this bill will facilitate by enabling more borrowing and we do it by selling assets. Is that really a sustainable strategy?Of course you could keep doing it for quite a long time. We know that. New Zealand has run chronic current account deficits. So you know the Government says this when we press it about it. It says that New Zealand has run a current account deficit for a long time and that is true. You can keep doing it because we do have significant assets. We have still got a lot of land we have not sold off—probably about 90 percent of the land is still in New Zealand ownership. We still have some large corporates that have not been sold off but most of them have been. We still have some facility to borrow further. As we are seeing with this bill we can borrow more money from our offshore lenders and they will keep doing that for a while because we still have some space to borrow more. But is this really where we want to go?Do we want to say that what we are going to do is max out our ability to borrow cash from offshore using things like this bill—we are going to max the credit card out we are going to sell the house and we are going sell off as many assets as we can in order to fund our current consumption? Because that is what we are doing as our economic strategy as a country and we have now done that for a couple of decades. In order to fund current consumption we are selling off our assets and borrowing from offshore and this bill is the next logical step in that economic strategy by facilitating this offshore borrowing.I would argue that this is not a wise strategy for our country. What we need from our Government is a clear clear strategy for how it is going to get us out of this position. The Greens have put up various proposals on exactly this issue and it is the focus of our economic policy to rebalance the New Zealand economy. The Government made certain noises in that direction but so far it has failed to deal with the underlying problems. But this bill surely should be a moment when we look at ourselves and say: “Why are we standing in this House passing a bill in order to make it easier for us to borrow billions and billions more from offshore?”. Surely that should be a moment to stop and say thatour economic strategy is not working. When our economic strategy relies on offshore borrowing and selling our assets every year for year after year after year after year after year this is not going to have a happy ending. At some point our offshore creditors are going to either dramatically increase the cost of borrowing for the New Zealand economy or start actually restricting our access to credit. At that point there will be a significant adjustment.I would argue it is a much more sane strategy to start to make that adjustment ourselves now so that we can get out of the hole we are in rather than leave it up to our creditors 10 years down the track who are going to make that adjustment for us because they will do that. That is the real choice we have.What this bill does is it puts off the day when we have to make that choice because it says: “Well we’ll facilitate these creditors lending us more money by giving them first dibs on the assets of the banks”—which are the home mortgages—“and then the foreign lenders will lend us more money.” OK that is true. It does put off the day of reckoning. That is true. But to think that this solves the underlying problem is I think extremely foolish. If the Government does not realise that and it does not seem to then we have got a problem and the Government needs to change. Actually we need to deal with that underlying problem as reflected in the current account numbers and as reflected in the gross external debt numbers. This bill does not do anything to do that. It simply enables us to keep borrowing. Thank you.MAGGIE BARRY (National—North Shore): I rise to speak to the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill in its third reading. It is a bill that enjoys universal support but you would be forgiven for not thinking that if you listened to the Opposition grumbling on.We have indeed heard a lot of stuff and nonsense from the Opposition parties. In a manner of speaking they want to reinvent the wheel. When it comes to—let us just take one aspect—the Reserve Bank they want to broaden it out and remove the independence of the Reserve Bank. It has served us well for three decades. Leave it as it is.Labour members particularly seem to be under the illusion that is going to be a body that will generate a lot of income that those members would be able to change interest rates and that the Reserve Bank in a changed role would mean a changed economy. That is of course wrong and delusional like much of Labour’s policies.I guess you know that when you look at what this bill does—and it enjoys the widespread support of the House—there is not a lot more to be said. Peddling the old arguments would just be a waste of the House’s time. So without further ado I commend this bill to the House.ANDREW WILLIAMS (NZ First): It is a great pleasure to take a call following the member for the North Shore Maggie Barry and the amazing amount of information she provided to the House in that once again very short speech from the member for the North Shore.We still have not heard the answer—despite it being asked in the Committee stage and by speakers in this third reading we do not have the answer—as to why the 10 percent figure was chosen while Australia has 8 percent for the covered bonds market. In the likes of Canada it is 4 percent and other jurisdictions around the world range between that figure of 4 and 8 percent. We still have not had the answer. We have had members of the Finance and Expenditure Committee including Paul Goldsmith the current chair and other members of the committee including Maggie Barry and yet not one of them has answered the question. It is somewhat surprising that in the House of Representatives where quite clearly it is a pretty black and white situation—why has New Zealand adopted a 10 percent ceiling? The officials are sitting over there. I am surethey know the answer. I am sure they would love to give us the answer. It is probably a very sound and solid answer. It is probably a justifiable answer but we still have not been given the answer.Now we have got the Hon Gerry Brownlee in the House. Perhaps the Hon Gerry Brownlee has come along with the answer. Maybe he has been researching it all morning working out why it is 10 percent. He has probably been sitting up there on about the sixth floor of the Beehive—Hon Gerry Brownlee: Oh seventh.ANDREW WILLIAMS: Oh you are on the seventh floor Gerry? And he has been ringing through to Bill English’s office saying: “Bill why is it 10 percent?”. And Bill says: “I don’t know Gerry. I wouldn’t have a clue why is 10 percent. It is 10 percent.” And Gerry says: “Well I am going down to the House shortly and I should know why it is 10 percent because I hate going the House and not being able to answer the question.”With Gerry Brownlee being the Leader of the House I would have thought that he would have done his homework. He would have been up there on the seventh floor and he would have heard this debate. He would have been riveted to the television all morning and he would have said: “I am going to go down there and I am going to go explain all. I am going to explain all. I am going to tell New Zealand and I am going to tell the large viewing public out there in New Zealand why the Government has selected 10 percent while Australia is 8 percent. I am going to explain why when in so many other legal areas and financial areas where we try to harmonise with our big cousin over the Tasman we have selected 10 percent rather than 8 percent.” Why are we giving preference to international investors to get 10 percent—get their claws on 10 percent—of the funds of any financial institutions in New Zealand should they heaven forbid go belly up unlike in Australia where they would get their claws on only 8 percent or in Canada where it is only 4 percent?I think it would be a great shame if this bill does pass—and it is going to pass because it has unanimous support from parties in this House—and if the very learned Gerry Brownlee was not able to answer that simple question and this goes into the annals of history as being a mysterious figure that was plucked from the air and put into an Act of Parliament but it was never answered and it was never actually determined as to how the figure came to be. But like so much legislation put through by this Government it was probably done with a dartboard or you know with a flick of a coin. The Government probably tossed a coin and said: “Oh shall we make it 6 percent? Shall we make it 8 percent? Shall we make it 10 percent? Oh let’s toss a coin.” So much of the legislation that is brought before this House by this Government often does not have the facts behind it.You know the Government told us that the sale of the shares in the mixed-ownership model would mean we would end up with all these New Zealanders owning the power companies and Air New Zealand. And how many—was it 2.5 percent of New Zealanders who now own those shares whereas before it was 100 percent of all New Zealanders? Everyone in this room and every New Zealander out there had 100 percent ownership of those power companies. Now half of those power companies or 49 percent of them are owned by a miserable 2.5 percent of the elite people who can afford to go out and buy the shares in those power companies. The same has happened with Air New Zealand—David Bennett: Winston bought some.ANDREW WILLIAMS: The same has happened with Air New Zealand this week Mr Bennett. Again we all have pride in our national airline. We get on the national airline and we say: “It’s ours. It’s great.” You know we owned over three-quarters of it.It is our airline. Now you get on it and say: “Oh well we own 53 percent.” The other 47 percent could be owned by anyone—could be owned by anyone. It is a bit like the power companies now. BNY Mellon bought 8 percent of Meridian Energy. Is that not shocking? Suddenly they are in New York—probably an old mate of John Key’s who was a banker in New York I would say. He probably got a phone call and said: “Hey there’s a good deal coming up here in New Zealand.” and the banker said: “Oh thanks very much John. Here—we’ll be into 8 percent of that. That’ll be great. Thanks for the tip. Thanks mate. Next time you’re in New York I’ll buy you a bottle of ‘Bolly’.” I am sure that is probably how the conversation went.This is what happens with all these deals with the National Government. It is happening all the time because people—the favoured few the ones who get tapped on the shoulder by the National Government—benefit while the rest of good old average Kiwi New Zealand suffers. Good old Kiwi New Zealand suffers. As a fifth-generation New Zealander on both sides—on my father’s side and my mother’s side—can I just say that I am getting heartily sick and tired of seeing our country being sold down the river. Quite frankly you know my parents my grandparents and their parents going right back to the 1840s in New Zealand did not spend all their time helping to develop this country over many generations for this one generation—this one generation with Gerry Brownlee Steven Joyce John Key Bill English and their ilk—to sell off all the hard work of my parents my grandparents and their parents and parents before them. It is disgraceful and this generation will always go down as the one that sold the wealth of New Zealand down the river for the benefit of the 2 or 3 percent who could afford to be participants in it.In closing this speech New Zealand First will support the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill because New Zealand First supports any legislation that has merit to it in terms of improving our financial systems. We have been strong opponents of the loose financial arrangements that saw 61 institutions in this country go belly up in recent years which saw the likes of South Canterbury Finance taking more deposits in 6 to 12 months without the Minister of Finance or Treasury or anyone keeping an eye that it was taking more and more deposits and it could not cover them. That situation cannot be allowed to continue.So this piece of legislation is a small part of the overall framework to try to improve the financial securities in this country to ensure that we do not operate a cowboy Wild West financial system and to ensure that as a result there is more security for those investors including international investors coming to New Zealand and that we are not seen as a Third World financial place. So New Zealand First will be supporting the bill.DAVID BENNETT (National—Hamilton East): I just want to take a short call. The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill has got very strong support amongst members of the House. It is a good bill which is in the best interests of New Zealand and the economy. Unfortunately the last speaker Andrew Williams from New Zealand First and the Greens speaker Russel Norman tried to put their slant on it with their economic histories but those were inaccurate speeches. This is very good bill and we look forward to it progressing.Hon SHANE JONES (Labour): Tēnā koe. I saw the member David Bennett recently at a sporting event in the great Waikato. It was probably a place that I would not be encouraged by my colleagues to go to—it was the boxing. But we are not boxing today with the Leader of the House Mr Brownlee. I am sure that at the moment he is studying the boundaries that have come out from the Representation Commission.Anyway let me come back to the bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. We stand and support this bill. I want to actually follow up on what the co-leader of the Green Party Russel Norman had to say. The co-leader of theGreen Party was pointing out that this bill ranks international lenders’ interests above those of depositors. He also pointed out that it kind of makes it easier for us to stay on the trajectory that our small island nation State of 4.2 million people and $180 billion GDP is on—i.e. we are too reliant on international capital for our banks. It is mediated through the banks which are after all intermediaries into a housing market that is killing our dollar. That has become so expensive that we cannot get the next generation into a level of housing either that they can afford or that suits their aspirations.It is actually a compelling argument that Dr Norman puts forward but the challenge that I am always left with is OK what actual remedies is he offering? I know the remedies on this side of the House and to a certain extent they are shared by that side of the House. We are probably a lot more aggressive in saying that it is important that we engender a greater level of enthusiasm amongst households and more important provide support to those households to amass an indigenous body of capital for want of a better expression that over time lessens our reliance on international capital. But as long as the banks and dare I say it perhaps other financial entities are relied on to meet the shortfall of what we as depositors are able to contribute those international lenders are looking for not only regulatory certainty as I spoke about before but a greater degree of protection. I cannot see how we can wriggle out of that at the moment.We do have a set of policies that are designed to change the structure of the economy unlike our colleagues on the other side of the House. I suppose I have learnt over the last 5 to 6 years that there is a greater belief on that side of the House that the market will solve all of these pitfalls whereas on our side the reason that we are prepared to back the bill is not only a recognition of macroeconomic reality but an awareness that if you are getting people to take the risk and put their dough into various enterprises they should have some greater sense of recourse.We need to ensure though that we never lose sight of what Dr Norman was also saying: what are we doing as parliamentarians? What are we doing as businesses or indeed as a Government or in this case a shadow Government to engender a greater level of commitment to save and to reward that? One thing we must not allow is the ongoing slipping away the ongoing leaching the ongoing loss the ongoing spiriting away of far too much wealth out of the country without internationally owned entities—obviously the banks are at the front of the row in that regard—meeting their fair share of the tax obligation in New Zealand. If it is good enough for them to go internationally raise capital and bring it to New Zealand for people like me our families etc. who are reliant on it it is also good enough for them as they derive the profit from what passes as the New Zealand business and residential community to accept the obligation which comes with operating in a modern economy of actually paying their fair share.I certainly look forward to joining forces with Dr Norman next year and making a major issue out of that particular challenge. Whether or not we are capable in terms of how our tax collectors are currently reconfigured is another matter. But we all believe that it is necessary—and banks should be particularly knowledgable about this—that we pay our fair share.Let us just go back and touch on one or three things in respect of just reminding ourselves why we are doing this. In the end it is cheaper for an entity such as the BNZ bank to raise its capital internationally via these instruments. As I said earlier I have no doubt in my mind that BNZ has got very sophisticated computer modellers ensuring that it does not get the dollar wrong. It is one thing to bring capital back in but if you have not covered the cost it is going to impose upon you to get it out as you repay it—therein lies many a tale that currently afflicts dairy farmers and has blighted the fishing industry in the past.Are we confident that the independent monitoring is adequate? Well we have an independent monitor at the moment in the broad commercial sector called the Commerce Commission. The current Government is not confident about or respectful of that particular independent monitor. Any doubts about that would be allayed by the capricious way in which the Government announced that it was going to slash the commission’s current powers in order to reward the narrow cast of shareholders in what is now a small business formerly a big business otherwise known as Chorus. It was going to give Chorus a greater degree of protection and gouge out of you and me the consumers of the broadband services. So that is an example of how if you put into legislation or if you posit upon a particular agency the responsibility of independent monitoring by an asset monitor you must be consistent.There are a few entities that escape the grip of the institutional monitoring function that touches the broad swath of our economy not the least of which are the shipping lines. In addition there are a special set of concessions that were dreamt up in the time that the Labour Government enabled the dairy industry to create Fonterra something that it consistently disregards—at its peril I might say. That is something else that will be dealt with at the end of next year.It is important that we challenge ourselves as parliamentarians and in this case the other side of the House. When you have these entities these agencies undertaking these independent functions do not play fast and loose with them. Do not change the law and do not monster them in order to reward a narrow range of vested interests which we have seen most unfortunately over the last few weeks although I get the sense that saner minds are prevailing and that there is an awareness that you cannot run a modern economy unless you protect the role of such institutions. Those institutions also have to be accountable. They have to measure up to the fact that—as indeed the Governor of the Reserve Bank is learning to accept—you may at one level be independent but at another level you have obligations and you have a responsibility to educate inform and communicate. So I look forward to hearing that the entity that is going to be charged with the responsibility does not fall into the bog that seems to ensnarl the current Commerce Commission. That is nothing to do with us; it is more to do with the attitude of the other side of the House.To return back to the base proposition of why we are going to support this thing we realise that we are reliant on overseas lenders. We realise that it would a fantastic transformation to effect under our approach with the leadership of our current shadow Minister of Finance and our shadow Prime Minister Mr Cunliffe. If we want to reduce over time the reliance we need to husband our own domestic resources. We need to reward people for doing that. We need to ensure that the tax system does not penalise people in terms of going without now in order to enjoy something in the future so it does not represent an impossible burden in terms of future generations.I am talking here not only of the fiscal discipline needed; I am talking not only of a reliance on international capital but of our ability to care for ourselves. This is why it is very very important that we manage the transition so that we have got access to overseas funding at competitive rates but at the same time never lose sight of the fact that this generation of New Zealanders—i.e. those of us born in the 1950s and 1960s—have an obligation to ensure that when we agree to pieces of legislation like this we never lose sight of the fact that we have to pay our own way. Kia ora tātou.TIM MACINDOE (National—Hamilton West): I am in favour.Hon DAVID PARKER (Deputy Leader—Labour): The Labour Party aware of the caution that is needed around this issue does support the bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. As earlier speakers have said one of the problems in New Zealand is that covered bonds which create a class of deposits thatare lent to New Zealand banks give the people who have the benefit of that covered bond a preferential interest in the assets of the bank in the event that it goes broke. The amount that is left for people who are outside that covered bond arrangement is less and they wear a more than proportionate share of the loss in the event that there are not enough assets when the bank is wound up to cover the amount that has been deposited in the bank. The problem we have got in New Zealand at the moment is that that is allowed to happen but it is an unregulated activity and the Reserve Bank has not had a direct tool to control the level of those covered bonds. So on balance we in the Labour Party accept that it is necessary to regulate covered bonds so that there is a clear limit on the amount that can be covered ahead of other unsecured depositors in the bank.I agree with Russel Norman that it is unfortunate we have got to the point in New Zealand that we are so reliant on foreign capital that we have had to legitimise covered bonds and create this differential between the rights on wind-up of those who have the benefit of covered bonds compared with those who do not. I also agree with the Hon Shane Jones that the long-term key to overcoming this and perhaps backing out of covered bonds is having a more effective New Zealand economy. The capital part of that is reliant on increases in productivity—sorry I should not have said it in quite that way. All of the factors of achieving that better economic outcome are interlinked but an important part of achieving the increase in productivity and increasing the wealth that we need is to improve the pool of New Zealand investment capital that is going into the productive economy.The two most important ingredients of that have been completely ignored by this Government. The Government refuses to make KiwiSaver universal—a compulsory scheme like they have in Australia which has stood them in good stead. Indeed no one should forget that National railed against KiwiSaver voted against it and has tinkered with the details of it since it came into Parliament as the Government in 2008.Hon Shane Jones: And the Cullen fund.Hon DAVID PARKER: KiwiSaver needs to be made universal. National does get all these big calls wrong when it comes to the long-term wealth of our country. As Shane Jones has said National also ceased contributions to the Cullen fund at a time when borrowing rates for Governments were at historic lows and it was obvious following the clean out in the global financial crisis that returns on equities in the future from that low base would be higher than the Crown cost of funds. Despite that Bill English ceased contributions to the Cullen fund and as a consequence that fund or the New Zealand Superannuation Fund as it is more properly called is some billions of dollars smaller both in terms of contributions that were not made to it and also earnings that would have been made in addition on those contributions. So that is the second bad call.The third one that impacts upon this is not getting the tax signal right so that we encourage too many people in New Zealand to put their investment money not into a bank deposit or into a share both of which can improve the productive economy but into residential rental investment which drags money out of the productive economy—Dr David Clark: Too many vested interests.Hon DAVID PARKER: —and also at the same time increases the demand for money to come from offshore into New Zealand banks to feed that appetite for more borrowing for mortgages. As Dr Clark just intervened there one of the reasons they do that is that they are determined to protect the vested interests of those who do not want the relative value of property assets in the rental market to change relative to the value of investments in the productive economy. They are happy to continue preferring the interests of speculators over the productive economy and as a consequence we have just had another report to show that New Zealand does not get as much in terms of returnsfrom tertiary education because we do not invest enough capital in our productive enterprises.All of these problems are interlinked. This bill in so far as it goes is a bill that we are supporting but it does not cure the underlying problems that have led to its need.KANWALJIT SINGH BAKSHI (National): I support this Reserve Bank of New Zealand (Covered Bonds) Amendment Bill.Bill read a third time.