Norman Russel William: Westpac New Zealand Bill — Third Reading 
Norman Russel William: Westpac New Zealand Bill — Third Reading 
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Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Westpac New Zealand Bill a private bill first promoted by the Hon Craig Foss. The Green Party will be supporting this bill which is the final instalment of the process of forcing Australian-owned banks to be locally incorporated. Getting Westpac to move its back office to New Zealand has been a protracted process that has involved a lot of kicking and screaming but finally it seems we have managed to get Westpac to incorporate in New Zealand and actually go through the necessary hoops so that one of our major banks is incorporated in New Zealand and is able to be controlled to some degree by the Reserve Bank our regulator. 
This bill has a number of ironies about it. One of the ironies is that the bill is structured in such a way as to be tax-neutral for Westpac. The irony of this of course is that Westpac itself is a massive tax avoider and was convicted of tax avoidance in the High Court. Westpac was found by Justice Harrison to have illegally avoided $586 million of tax in a case that was settled a year or so ago. The case was finally settled in an out-of-court settlement that was released on 23 December 2009. Many of the listeners to this debate may not have noticed or heard about this particular massive tax avoidance case that Westpac was involved in because of course it was settled just before Christmas and announced at that time. This bill has special provisions in order to ensure tax-neutrality. 
The thing about Westpac and the other Australian-owned banks is that they operate in their own interests which is perfectly understandable and we should expect nothing else. For example during that period according to the judgment about the activities of Westpac in that tax-avoidance case Westpac had invested about $4.3 billion in its tax-avoidance transactions by August 2002. At the time that was 18 percent of the bank’s total assets which I think is a very interesting insight into Westpac’s approach to the New Zealand economy. The bank had 18 percent of its total assets invested in tax-avoidance activity. We know that this economy is desperately short of capital and has been for many years—capital invested into the productive sector—yet we find that one of our major banks had invested nearly one dollar in five in its tax-avoidance transactions rather than in the productive economy of New Zealand. Here we are in this Parliament passing a law that ensures that in the process of transferring these assets there will be tax-neutrality for Westpac. It will not get more tax liabilities—which is perfectly fine—in the process of incorporation in New Zealand. But Westpac itself has a history of illegal tax-avoidance and it was caught out in that regard. 
The way this works is I think an interesting insight into the way that Westpac approaches New Zealand. It is why we need to be pretty cynical about the big banks in order to regulate them very closely to make sure they work in New Zealand’s best interests. The way this particular tax-avoidance scheme worked was that the cost of loans was claimed as a tax deduction. Westpac made loans to overseas companies effectively. The cost of those loans was a tax deduction against the New Zealand tax system but the interest received on those loans was not taxable. It was a fantastic arrangement for Westpac. That is how it made a huge amount of money and avoided half a billion dollars worth of tax at the time. The bank said that the cost of making those loans was a business cost so it claimed it as a tax deduction and then it said that the interest it had received on those loans was not taxable. It did that by getting the interest through an overseas entity and then transferring it back. 
So on the one hand we are quite reasonably ensuring that this bill is tax-neutral for the certain vesting operations that we are supporting but on the other hand Westpac itself has a long history of snubbing its nose at the New Zealand taxpayer—in particular in this transaction when Westpac and the other Australian-owned banks were caught unlawfully and illegally avoiding tax. They owed $2.5 billion worth of back taxes including interest payments. In the end even though Westpac owed $961 million all up it ended up getting a cut-price deal and paying only $760 million to the taxpayer of New Zealand although with interest payments it owed us $960 million. As the judge said at the time these transactions made no commercial sense. They were purely transactions to unlawfully avoid tax. 
That tells us something about the way in which Westpac views New Zealand. It tells us something about the way in which the bigger Australian banks view New Zealand. They do not see us as a base that they want to invest in and support; they see us as a profit centre for sending money back to the Australian owners. It does not surprise me and it should not surprise anyone in our attitude towards the big Australian banks that they would behave in this particular way. 
A number of other aspects of the operation of Westpac have been a cause for concern. We have heard about some of the issues around the asset bubbles that have occurred in New Zealand over the last decade. These have primarily been in the housing sector and also in rural land. There have been asset bubbles in both those sectors and the big Australian banks have been promoting and inflating those asset bubbles in an incredibly irresponsible way. For example front-line staff were encouraged to push loans on to people who could not afford them because Westpac and other banks wanted to increase their loan book to increase their profits. So we have had this huge bubble in the housing market and elsewhere which we are still trying to get ourselves out of. In that respect Westpac was not acting in our national interests. 
Of course the $5 million pay packet for the chief executive of Westpac has become an issue as well. It is a most incredible and ridiculous pay which all Westpac customers end up paying for. Then there is the issue of the tender for the master banking contract. Westpac is the Government banker and the master banking contract has not been tendered since David Lange was Prime Minister. But thanks to pressure from the Green Party it appears that finally we will go through a tender process for the Government’s banking contract and I congratulate the Government on seeing the light in that respect. 
We need a strategy in New Zealand both to increase savings—the banks will obviously be part of that—and to find a way to move capital into the productive sectors of the economy. The banking system—in particular the system of the big Australian banks like Westpac—has been a profound failure in moving capital into the useful part of the economy. Instead it has pushed it into the not-useful part of the economy which has been the housing asset bubble. As Mr English has said many times it was a debt-fuelled asset bubble. Mr English is absolutely right to call it a debt-fuelled asset bubble. I see Mr Bennett over there shaking his head; he does not agree with Mr English. Well I agree with Mr English. He is right. It was a debt-fuelled asset bubble in which the banks were shoving capital into the non-productive sectors of the New Zealand economy. 
We need an alternative strategy. One of the strategies on the table is to invest in the existing clean-technology sector in New Zealand. We have a number of clean-technology energy companies in New Zealand that are very successful and have already started exporting. They could be the core and foundation of a clean-technology sector exporting to the world. These are of course the State-owned energy companies which the Government proposes to privatise. These State-owned energy companies already have a lot of expertise and experience in clean technology and could provide the foundation for a clean-technology export sector to the world. 
The great thing about those companies is they will not fall into overseas ownership and move overseas. They also have access to a lot of capital. They can do that through their own resources or by issuing green energy bonds. Instead of using banks like Westpac as a way to very ineffectively mobilise capital—because the banks tend to put it into the wrong sectors—we can actually mobilise capital directly by getting the energy companies to issue green energy bonds the capital of which is directed into the clean-technology sector. The sector is then a platform to export to the rest of the world and also to partner with the private sector. 
The Green Party supports keeping the companies in public ownership but they should partner with green energy entrepreneurs so that they can actually export to the rest of the world. They can mobilise capital using green energy bonds rather than having to rely on the banks which have a very conservative strategy of simply investing in what they think are safe returns: primarily land particularly the housing market but also the rural land market. Those markets and making bubbles in those markets are fine for the banks at least in the short term. However that is not in the national interest of New Zealand where we want to promote capital being moved into the productive sector. 
We will be supporting this bill. We think it is important that Westpac and the other banks be incorporated in New Zealand and be under the regulatory control of the Reserve Bank. This bill is part of that step but it is far from the solution to the challenge we have in our capital markets in New Zealand. Although it is an important step it is just the beginning of the reforms we need to make.