Westpac New Zealand Bill — In Committee 
Westpac New Zealand Bill — In Committee 
[Volume:672;Page:18801] 
Westpac New Zealand Bill 
In Committee 
Preamble 
CRAIG FOSS (National—Tukituki) 
: 
 I will take a brief call on the Westpac New Zealand Bill to thank and acknowledge members in the Chamber who will no doubt speak to the bill the Business Committee for helping with the process of this bill and of course the members of that Business Committee. It goes without saying that I am also thanking party leaders around the Chamber and acknowledging their cooperation—in and out of the Chamber I guess—various finance spokespersons people who were referenced to help with this legislation and of course members. I also acknowledge Finance and Expenditure Committee members. I was absent during the second reading but I looked at and reviewed some of the speeches there and those members captured what we did at the select committee pretty well I think. 
I will make just one quick point because I noticed that a point was raised and a question asked of me as the chair of the Finance and Expenditure Committee and the member whose name is on the bill about whether there were any issues with the bill. I can assure the Committee and the Chair that all processes and procedures were correct and that members were always aware of the bill and able to make fair representation on it. I can assure the Committee that no issues whatsoever were raised. Nor do I think there are any issues. 
The bill is relatively straightforward. Some members in the Chamber would have spoken on the previous bill upon which this bill rests which was the bill of 2006 in the name of the Hon Marian Hobbs. That bill turned into the Act of 2006. 
There has been quite a bit of consultation about the bill. There is general and very good understanding of what the bill is actually facilitating and members have been very reassured I believe by the assurances from the Reserve Bank from the Inland Revenue Department from Treasury and from the Ministry of Justice under the New Zealand Bill of Rights Act and the checks and balances that the ministry does. Those organisations have all given the bill a tick. 
I guess that members may speak to a couple of changes made to the bill at the select committee but the changes were very very minimal. The bill is now almost identical to the previous bill. I am sure that some members may want to speak to some of the minor changes and I look forward to contributions from the Committee. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 The Labour Opposition supports the Westpac New Zealand Bill. I will begin by acknowledging the member who has just spoken the chairperson of the Finance and Expenditure Committee Craig Foss. As I have said before he does a very good job of managing that committee and he has certainly brought this bill through in good shape to the Committee. 
I think it is appropriate for us to run over quickly what the bill does and why; the rules it seeks to serve which the bill sets out in the preamble we are debating at the moment and why they are there; and the bill’s implications in the broader context which is the stability and security of the New Zealand financial system. Essentially this bill provides a mechanism through an Order in Council for the vesting of assets from Westpac’s New Zealand institutional business which technically are currently owned by Westpac Banking Corporation of Australia in Westpac New Zealand. In doing so the bill seeks to comply more fully with the local incorporation policy for systemically important banks which has been set by the Reserve Bank of New Zealand in consultation with its partners across the Ditch. 
This is special legislation that has been brought to the House because on the basis of testimony from the Reserve Bank and Westpac no other legislative vehicle is available that would allow that vesting to occur. The select committee accepted that expert testimony. But why is the vesting occurring? These systemically important banks in New Zealand are required by the Reserve Bank of New Zealand to maintain a minimum threshold of assets and liabilities within the New Zealand legal domicile. That is done by agreement with Australian banking authorities to ensure that there is sufficient system stability in the New Zealand banking environment. 
The counterfactual would be that if sufficient assets were not vested within the New Zealand domicile then more of that backing would simply be as it were on loan from the parent in Australia. That would bring with it certain system risk around the marginal status of a small market relative to its larger neighbour and in times of crisis as we saw in 2008-09 the potential for risks to be higher on the smaller marginal market than they are on the parent market. 
It is a totally legitimate goal. It is agreed upon on a bipartisan basis across this House and it is one that the Labour Opposition will continue to support. Behind that goal as reflected in the preamble we are debating is the underlying concept that the Reserve Bank of New Zealand should be and will continue to be a full-service regulator that has responsibility for both price stability in monetary policy under the Reserve Bank of New Zealand Act and system stability which if you like is the combined health and well-being of the financial ecosystem that is then able to provide credit on a sustainable and efficient basis to the businesses households and corporations that make up this wonderful country. Without the oversight of a full-service Reserve Bank we would not have the same degree of stability and security for the New Zealand banking system and as a completely legitimate part of that we have a minimum threshold of assets and liabilities for each of the main banks. 
Tomorrow is Budget day so it is appropriate that this bill has come to the Committee today by order of the Government. Clearly the Government wishes us to contemplate in the context of this bill the role and status of the financial system that this bank Westpac New Zealand is part of. It is certainly the view of the Labour Opposition that one of the crucial tests for tomorrow’s Budget is whether it will help New Zealanders to save. 
Westpac New Zealand whose representatives at a senior level I have recently had the pleasure of meeting and having discussions with strongly supports the KiwiSaver scheme. It does so because it is good business for the bank and the bank in turn provides an efficient structure through which KiwiSaver accounts can be managed. That is absolutely relevant to the preamble. The preamble sets out the bill’s purpose which is to provide for the vesting of assets and liabilities of Westpac Banking Corporation in Westpac New Zealand. Those assets include KiwiSaver accounts. Those assets have been growing rather rapidly not only for Westpac but also for other members of the banking industry. They have been doing so because there have been healthy we might say incentives to encourage New Zealanders to place their savings in the KiwiSaver scheme. Members get $1000 when they join and they get up to $1024 per annum as a dollar for dollar tax write-off. That is $20 a week for every $20 saved that people can set off against their tax. 
That was until last week when the Minister of Finance and the Prime Minister indicated that those benefits to saving New Zealanders would be reduced. That has created outrage around New Zealand. The internet is full of it our phone lines are full of it and our electorate offices are full of people wishing to register complaints that this Government has broken its promise sadly and is now moving to reduce the incentives in KiwiSaver again. It reduced them in Budget 2009. 
David Bennett 
: Come back to the bill. 
Hon DAVID CUNLIFFE 
: Westpac New Zealand is inhibited from fulfilling its commercial objectives I say to “Mr Benefit”—Mr Bennett sorry; it is “Ms Benefit”. I am not talking about dairying here so that sector is irrelevant to the purpose of this bill. I will contain myself to the bill and I will not talk about the member’s work in that industry. 
What is important with KiwiSaver is that it is predictable that the public has confidence in it and that Westpac New Zealand like other banks can continue to benefit from it. The Government said last year that it would reduce the default contribution rate and this year the big idea is that the Government will put it back to where it was last year before the Government changed it last time. Kiwis are asking why. They are asking why the Government is breaking its promise not to reduce the benefits in the KiwiSaver scheme. 
David Bennett 
: That’s got nothing to do with the bill. 
Hon DAVID CUNLIFFE 
: But that is enough on KiwiSaver because we would not want members opposite to get too agitated about it. Let us consider another important backdrop to this bill which is the health and well-being of the New Zealand banking industry. It remains a fact that has shocked many New Zealanders that the four Australian banks domiciled in New Zealand make more profit and send more profit offshore each year than all the companies on the New Zealand Exchange combined. 
Hon David Parker 
: The top 50. 
Hon DAVID CUNLIFFE 
: The top 50 that is which is the NZX 50 the New Zealand Exchange I was referring to. And that is not even close. The big banks are very profitable. They have almost recovered their full pre-crash profitability and those profits go offshore. The consequences of that is that when hard-working farmers and others are exporting their products it is virtually impossible for us to make a current account surplus even when we make a trade visible surplus because the invisibles from the financial sector are always so negative that they overwhelm the poor old trade surplus. Stripping back those invisibles we find the net investment balance and the cost of running the finance industry of which this healthy bank is a part. 
New Zealand deserves to spend some time considering how in our future we might own more of our own future by progressively boosting the New Zealand component of the finance industry so that we may progressively see a somewhat lower share of that profit and turnover being repatriated offshore. That will not happen overnight. It should not disturb the normal competitive processes of the market but the Government has an opportunity to stand behind that process by supporting for example the continued gearing up of Kiwibank’s balance sheet. A Labour Government certainly would do so. 
I will refer to one other aspect that is important to Westpac New Zealand which is that its institutional bank is able to play in the market for long-term securities. 
The third part of the financial and economic context is really the increasingly important part in our financial ecosystem that is being played by the New Zealand Superannuation Fund. In the context of this year’s Budget it was very interesting to note the recently released Crown accounts which project an operating balance before adjustments gains and losses of $16 billion. After those adjustments the operating balance is only about $10 billion. That difference is overwhelmingly driven by the improvement in the value of the New Zealand Superannuation Fund’s investment portfolio. That is a good thing. It is a good thing that it has increased by 32 percent or I think by 8.3 percent since its inception taking into account not only the last year but also all the effects of the global financial crisis. It is still almost double the rate of return of the Crown’s cost of capital. In anybody’s book it is a good investment except that the current Government has refused to continue paying into the fund and has thereby prejudiced the Government’s future ability to afford superannuation at the current rate. 
It is very difficult for me to square how the Government can talk the talk about increasing savings when it has undermined KiwiSaver 2 years in a row and refused to continue paying into the New Zealand Superannuation Fund. That is important to Westpac. 
Amy Adams 
: What’s this got to do with Westpac? It’s got nothing to do with Westpac. 
Hon DAVID CUNLIFFE 
: It does have a lot to do with Westpac because Westpac’s institutional bank is a partner with the New Zealand Superannuation Fund which brings me to the next point. I am glad Ms Adams raised it. The next point is that the Reserve Bank of New Zealand which sets the threshold for the vesting being embodied in this bill is also moving to adopt Labour’s monetary policy. Labour’s monetary policy includes macro-prudential policies such as the core assets ratio which just happens to be one of the key drivers that require banks to raise increasing amounts of their capital from domestic savings right here in New Zealand. That in our book is a really healthy development because it makes us somewhat—not totally but somewhat—less vulnerable to the swings and roundabouts of bouncing exchange rates and provides an encouragement to domestic savers. We acknowledge the wisdom of that move we compliment that act by the Reserve Bank we note that Labour has been advocating that policy publicly for at least the last 18 months and we believe that there is future potential to use it for counter-cyclical purposes. 
To sum up the Westpac New Zealand Bill has bipartisan—I imagine it is multipartisan—support because it is a sensible move to allow the vesting of assets and liabilities in the New Zealand offshoot of Westpac Banking Corporation Westpac New Zealand. It does so pursuant to the requirements of the Reserve Bank which are there for good reason to ensure that local banks have enough assets and liabilities to underpin system security. We support that goal. We support the bill. 
I note again the cooperative spirit of the Finance and Expenditure Committee. There are only a couple of minor amendments. I have not bothered to go through them. I could take another 5-minute call but I do not think I would be allowed to. In any case I think the bill is largely intact as it has been received back by the Committee. I commend the bill to the Committee for its support. 
STUART NASH (Labour) 
: 
 I suppose those watching will have seen two extremes this afternoon. The Westpac New Zealand Bill is a bill that I think every party in the Committee actually agrees on. We will all be speaking in favour of it. It was brought to the House by the chair of the Finance and Expenditure Committee Mr Craig Foss and he did a very good job in chairing it through the process. 
I suppose the nub of this bill is Part 1 clause 3(b) where it states that the purpose of the bill is to provide for “the efficient conduct of Westpac New Zealand’s business.” That is the nub of the bill. I have a slight problem though with the salary of Westpac New Zealand’s chief executive officer. I think he receives over $5 million a year which means he receives about $5000 a week in tax cuts. There are some people who would have a problem with that $5000 a week as some people do not get that in 6 months—but anyway. 
We know that one of the reasons why New Zealand came through the global financial crisis in the state it did was that Dr Cullen had left the books in very good shape. I shudder to think what might have happened if Don Brash had got in in 2005 and had given tax cuts. Dr Cullen left the books in very good shape. In fact the banking sector was one of the most robust in the world. Westpac is an important part of that banking sector but I believe that it breached its covenant albeit very briefly which was the impetus to bring in this bill. 
Mr Cunliffe talked about assets and liabilities. If we look at the interpretation we see there are some interesting words in relation to the interpretation of assets. No doubt they are the right ones but people may find them slightly interesting. Under clause 4(1) “assets means property of any kind whether tangible or intangible real or personal corporeal or incorporeal and whether or not subject to rights and includes—”. We would expect some of these things in terms of assets but there are some surprises here. Assets include “(a) estates or interests in any land including rights of occupation of land or buildings:”—which is the sort of thing that banks are involved in and we would expect that—“(b) buildings vehicles plant equipment machinery fixtures and fittings and rights in them:” and that is absolutely right. Assets also include “(c) choses in action and money: (d) rights of any kind and applications objections submissions and appeals in respect of those rights:”. 
Then it is interesting. We should remember that we are moving assets to Westpac New Zealand to allow Westpac to meet the requirements of the Reserve Bank. A further category of assets is “(f) goodwill and any business undertaking”. That is what it says in clause 4(1) of the bill and I ask the member in the chair Mr Foss to feel free to stand up and say if I am wrong. But it would be interesting to know how the bank values goodwill and whether in fact goodwill is valued by the Reserve Bank in the same measure that Westpac New Zealand values it. 
Clause 4(1) states that assets means “(e) intellectual property and applications pending for intellectual property:” and “intellectual property” is defined in the same subclause as “all patents designs copyright know-how trade secrets trade marks …” etc. Trade secrets are part of an asset because they are under the guise of intellectual property. Again it would be interesting to know how a bank values trade secrets. I suspect it would be quite hard to value a trade secret. It would be interesting to know at what point the Reserve Bank accepts a fair valuation on a trade secret. I am not too sure how the Reserve Bank could account for that but it is an asset. 
The actual purpose of this bill is that it enables Westpac New Zealand to comply with the Reserve Bank’s local incorporation policy for “systemically important banks” under recital (2) of the preamble. What does “systemically important” mean? According to the Reserve Bank it means those banks that have liabilities other than those to related parties—so we are not talking about liabilities to Westpac Australia—of $15 billion. Branches of Australian-registered banks such as obviously the Westpac Banking Corporation have a condition of registration that their external liabilities will not exceed that amount. Unfortunately—or fortunately—legislation is the only means by which the vesting of these assets and liabilities in Westpac New Zealand can be effected efficiently and economically and the only way that amendments to the Westpac New Zealand Act 2006 which was the Act that incorporated Westpac New Zealand can be made. There are no other ways to do that and the amendments cannot be obtained in any other way except through legislation which is why Mr Foss has brought the bill to the House. 
The Reserve Bank’s local incorporation policy assists the regulator by providing for greater control over the assets of a bank—in the event of bank failure I suppose. So a huge part of this is about providing certainty for those who have deposits mortgages assets and all sorts of other things with Westpac New Zealand. I have defined what assets are as determined by the bill. It is very important especially in this day and age— 
Hon DAVID PARKER (Labour) 
: 
 I am pleased to take a call on the Westpac New Zealand Bill. As earlier speakers have noted it is not a Government bill; it is a private bill brought on behalf of Westpac New Zealand in order to make changes to the assets that fall within that corporate entity rather than the prior corporate entity so that they are available effectively to creditors of the New Zealand Westpac bank in the event that something goes wrong. For example if there were losses on its loan book it would have a greater pool of assets to which depositors would be able to have recourse in order to be repaid the deposits they had lent to the bank. 
Of course this has arisen in part because the Reserve Bank back in 2003 noted that New Zealand was too exposed to risk as a consequence of our major banks being in part incorporated in Australia so their business and their deposit-taking might be via a New Zealand entity but the asset holding that lay behind the bank was not open to recourse from those depositors because those assets were held by a parent company in Australia rather than by the New Zealand subsidiary. The Reserve Bank went about changing that and since that time it has caused the New Zealand branches of Australian banks to be incorporated in their own right and to have substantial assets transferred into them. This is the latest example of that in that it transfers additional assets from the Westpac parent company into the New Zealand company. These are principally assets and liabilities that arise from the institutional banking business that will now be vested in Westpac New Zealand. 
There are a number of aspects to ensuring stability of financial markets and having properly capitalised banks is one important part of that. That is what this bill addresses. Of course of similar importance to the strength of financial markets in my view is the level of savings that one has in our country. Our country would then have sufficient levels of deposits available to banks or other financial intermediaries to lend to commercial enterprises coming from New Zealand sources. 
This bill does nothing to fix that and I think it is interesting that this bill is being considered against the background of the Budget that will be read tomorrow. That Budget has already been signalled by the Government as amongst other things restoring the default rate of contributions for KiwiSaver back up to 4 percent. It is interesting because we are now over 2½ years into the term of this Government—it is nearing the end of its term—and the centrepiece of its Budget this year is reversing its reversal of KiwiSaver. I think that is quite interesting is it not? In prior years National dropped the default contribution rate into KiwiSaver from 4 percent to 2 percent and it is now a year or two later reversing that—with some hooks obviously. It is reversing that by increasing the default rate from 2 percent to 4 percent. The centrepiece of National’s Budget is the reversal of its reversal. 
Amy Adams 
: Westpac bill. 
Hon DAVID PARKER 
: Amy Adams does not want to talk about this but it impacts on the security of financial markets. It is very relevant to the security of financial markets because if we do not have sufficient home-grown deposits to banks we are more reliant on overseas lines of credit and we are more likely to agree to extending the multiples that banks like Westpac can lend to make up for the deficit in New Zealand - based deposits born of New Zealand - based savings. Amy Adams might not want to talk about the fact that the centrepiece of this year’s Budget is likely to be the reversal of National’s prior reversal but I certainly think it is relevant. 
The Westpac New Zealand Bill is good in so far as it goes. It improves the security of New Zealand depositors in their deposits in Westpac by making sure that more of Westpac’s parents’ assets are in the New Zealand - based company— 
Craig Foss 
: Westpac New Zealand. 
Hon DAVID PARKER 
: —Westpac New Zealand. That is a good thing but it does nothing for other parts of the financial markets that are important. Notably one is the strength of our savings. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I think it is important to acknowledge at the outset the importance the Labour Party attaches to the trading banks most noticeably as evidenced by this bill the Westpac New Zealand Bill. Obviously banks are necessary to the functioning of a modern economy but I still remember my old dad’s dictum about banks which I think reflects the public view sometimes of banks. He used to say that banks are entities that give out two umbrellas when it is sunny and ask for them both back when it starts raining. That wisdom I suppose has imbued a certain caution in me about banks and it is not always I feel a caution that is reflected by banks themselves. 
I sometimes wonder whether Westpac as an example remembers our very recent history. Just last night on television I saw an advertisement for I believe Westpac. It showed a couple in a small modest flat and the woman was gazing across the road as someone was moving into a big old villa. The advertisement basically said: “Why wait?” and advertised that one can buy a house with a 5 percent deposit. Then the advert showed the couple having moved into what I guess would be in Auckland terms a villa worth at least three-quarters of a million dollars or thereabouts. I think that is illusory I think it is unreal I think it is enticing and I think it is provocative. I think it is also breathtakingly short term in view because it fails to take account of what we have been through in our very very recent history. One has just to ask sometimes what the fundamentals are that the trading banks including Westpac are operating under. We have to ask what happens in a situation where somebody buys a house with a 5 percent deposit and house prices collapse as some commentators still believe will happen at some point over the next year or two. 
I have to pick up on the speech of my colleague Stuart Nash and acknowledge the issue with dairy farmers. The average debt of dairy farmers at the moment be they a Westpac New Zealand customer or a customer of any other trading bank is $2.8 million—$2.8 million of borrowing. No wonder they are able to pay only $30 a week in tax because they are struggling to maintain any semblance of principal repayment when they have debts at that level. Of course it takes two parties to dance in respect of debt. One is the farmer wanting to expand wanting to grow wanting to acquire the neighbour’s property and wanting to increase the size of the herds and then there is the bank to fund the farmer into that proposition. But if the reality is that the farmer is paying only $30 a week in tax there is something wrong with that fundamental. When a farmer with a turnover of $1 million - plus pays only $30 a week in tax there is something very seriously wrong. There is a real shortcoming there in respect of that. 
We need only to contrast it with the financial borrowings of dairy farmers across the Tasman who are also likely in many instances to be Westpac customers. There seems to be a more prudential approach being taken there because according to Rod Oram’s column last Sunday the average debt of a Victorian dairy farmer for example is under $1 million. We are talking nearly three times the borrowing by New Zealand dairy farmers under banks such as Westpac yet the equivalent debt across the Tasman is about a third of the New Zealand figure. That says to me that there will be consequences. When farmers are paying only $30 a week in tax they are able to pay perhaps only $1 out of a $7.50 return from a kilogram of milk on principal if they are lucky. That is if the prices hold up and that of course is not guaranteed. I acknowledge that this bill does not deal with those issues. We leave the prudential management to the Reserve Bank but it is still worth noting those points. 
This bill is about having regard to the Reserve Bank’s policy of local incorporation. That is a very sound policy. We want to see banks with as much of a New Zealand component as possible and this bill is transferring some of the assets held by the broader Westpac Banking Corporation through to the New Zealand arm. This will underpin the financial viability of Westpac New Zealand. 
AMY ADAMS (National—Selwyn) 
: 
 I move  
That the question be now put 
. 
Hon SHANE JONES (Labour) 
: 
 Tena koe Mr Chair. I stand now at a quarter to 5 to make a contribution on this private bill the Westpac New Zealand Bill. I go back to the year 2000 when the Reserve Bank originally announced its intention in respect of a requirement of our banks especially those that—well we do not have any serious banks other than Kiwibank—could at this stage be what we might call Kiwi indigenous banks. Of course Kiwibank faces the threat of privatisation of sale as a consequence of the current Government but that is another matter. 
When the incorporation policy was originally introduced it was designed to deal with systemically important banks. There was a sense that if banks were large enough to materially affect the operation of the financial sector as a whole they needed to be incorporated here in our country so that the people who might suffer—perish the thought—in a run on a bank and a collapse of that bank had access to the assets and that the parent company would be unable to wriggle off the hook. Not that I am suggesting that the Aussies would do that to us but who knows. Secondly it was designed to deal with the issue of those banks that take a significant level of retail deposits that come from our own contributors and to ensure that at the point of a winding up the deposits remain available for those of us who have had the privilege the good luck or the fruits of good stewardship and who enjoy savings—savings that may be soon to disappear as a consequence of foolish decisions likely to be revealed tomorrow but that is another matter. 
It was pointed out that the Australians and the Americans had this standard in their banking sector so it was not unrealistic that New Zealanders should embrace it. It is rather strange that we should be focusing on the Westpac Bank because no one fought this more doggedly than Ann Sherry the chief executive officer in the early period of time who felt that it was an overreach that it was far too intrusive and that no Aussie bank would turn its back on Kiwi depositors etc. A great debate went on during that period of time. I cast no personal aspersion on that woman who is currently running a successful cruise line company but during her period of time there was spirited defence of the position and not surprisingly it is an expensive exercise when a bank has to go through this incorporation process. 
I am talking about points that were announced in 2000. We have lived through the last 3 to 4 years and we have seen how close we came as a country with our banking sector clogging up and other countries far richer than ours suffering runs on their banks. Full marks go to the advisers and the governorship of the Reserve Bank who contemplated at a time when none of us thought that we would go through the kind of economic downturn that we are now suffering. 
This is technical legislation and we have no compunction whatsoever in standing with our colleagues on the other side of the Chamber to support it. Indeed I think I was the chair of the Finance and Expenditure Committee in 2006 when we dealt with the first dare I say it variation of this legislation. 
It is important when dealing with the preamble that we isolate one of three things so that those MA students of the future look back to the contributions that are made today. Unfortunately these contributions will be overshadowed by the negativity of tomorrow. I repeat one of three things that were said by our colleagues: it is a vesting of liabilities and assets. It is about the stability—or should I say the solidity—of the system. A number of those assets and a number of those liabilities pertain to a sector that the front page of the  
Dominion Post  
has accurately captured this morning. It is extraordinary when we are talking about the banking sector—the assets and liabilities and the concerns about the importance of incorporation—that members opposite are not making any reference to the large burden that lies on the banks’ balance sheet from the farm sector. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I have been really looking forward to the opportunity to participate in this debate because it has been such a fascinating one to follow from the outside. I do not serve on the Finance and Expenditure Committee so I was quite puzzled to see legislation on the Order Paper that looked as if it was doing exactly what had been done in 2006. To travel on this journey from a distance and see how the bill has got to this point has been quite fascinating. 
I should declare a conflict of interest. I am a customer of Westpac. I have been for many years. I signed up to the Bank of New South Wales when I was a university student at law school at Canterbury University and that was when I first became somebody. I previously had a banking account with Trust Bank Canterbury. The two banks that I had accounts with merged to form Westpac so I have been with it really for all my adult life. 
I know that my colleague has traversed the approach of the Reserve Bank to the local incorporation policy but what I found particularly interesting was that when the Reserve Bank was undertaking its discussions about bringing in the local incorporation policy a study was undertaken on whether Westpac Banking Corporation would be able to find an alternative to local incorporation. I am not sure whether members in the Chamber are aware of that. Westpac proposed in the initial stages to bolster its branch operation in ways that it felt would mitigate the risks that the Reserve Bank was seeking to address with the local incorporation policy. Unfortunately for Westpac though in those circumstances the Reserve Bank determined in late 2004 that Westpac’s proposal would not constitute an acceptable alternative to compliance with the policy. Therefore it required that Westpac operate in line with the local incorporation policy. It was out of that decision that the 2006 legislation occurred and that confused me as to why we had the second bill. 
When I was looking at the preamble I also noticed that there had in fact been previous regulation which had seen the assets and liabilities transferred from Westpac Banking Corporation to Westpac New Zealand. Then I realised that this bill is about another step which is the institutional business. The institutional business has been run by Westpac Banking Corporation which is the parent company as a branch through its New Zealand operation. But now we are transferring the liabilities and assets of the institutional banking arm to Westpac New Zealand. Have I got it? I have got the thumbs up from the chair of the Finance and Expenditure Committee and I do not think I can expect better than that. As I said I have been studying this for quite some time—all of half an hour—and it has certainly been an important journey to traverse. 
A point that is well worth making is that one of the reasons why Australia and as a result New Zealand was spared some of the excesses that were poured across the world by the financial services sector—and the banking sector in particular—in terms of the global financial crisis was Australia’s four pillars policy. Australia owes great thanks to one Paul Keating who I think will go down in Australia’s history as having provided the stability that the country needed not only with the four pillars policy but also with its superannuation policy which we jealously observe from this side of the Tasman. We look at the amount of available capital that has been amassed and the depth of its capital markets which is in part attributable to that. When we look at the local incorporation policy coupled with the strength of the Australian banking system we see that it is not an absolute protection but that it is a much better protection. It perhaps would not have been the absolute protection against the fall-out from the global financial crisis if the Australians had not required that their four banks be Australian owned totally locked down. 
If we look at what happened internationally we would assume that the behaviour of banks would be without question. But in fact the way that banks behaved internationally which brought the world the global financial crisis is a disgrace. It is a disgrace that the people who worked in those professions allowed investors and savers as investors to be exposed to the true risk and the level of risk without any compunction and without any genuine attempt to address the pillars I believe of any banking system which has to be based on absolute trust and integrity. Those institutions of the world let down the people of many many countries. New Zealand and Australia were spared the excesses of that largely because of the ownership of the four banks within Australia and because our own local incorporation policy would have acted as a backstop protection had that been required. 
I am very much in support of seeing the shoring up of the activities of Westpac. The work of its institutional banking is now being brought squarely and fairly within the frame of Westpac New Zealand bringing on board those assets and liabilities within the New Zealand - incorporated structure. I believe that will strengthen the New Zealand structure and will act as a better protection. 
I think the chipping I received from the member opposite—I cannot remember his name—related to reference to the finance company failures we experienced. That was not part of the global financial crisis but some of the issues were exactly the same. For example people did not know the level of risk to which they were exposing their hard-earned money. Although we ended up with the Crown Retail Deposit Guarantee Scheme sitting in behind the banks the first time round in actual fact if one looks at where the stability was really required one sees it was with the non-bank deposit taking sector which was I am afraid without all of the protections. If there was a revisionist opportunity then maybe I would have looked very carefully as to whether the Crown Retail Deposit Guarantee Scheme should have been so widely available to the non-bank deposit taking sector. 
What has been fascinating to me is watching what has happened with the extension to the Crown Retail Deposit Guarantee Scheme that occurred late last year and seeing who took it up. The banks did not need it. They did not go near it. Who took up the retail deposit guarantee the next time round? South Canterbury Finance and a few others. One has to think very carefully about the message we send with some of the policies that are developed. To be quite honest whether or not one agrees with the original decision about making that scheme available to the non-bank deposit taking sector the reason it was vital for the banks was— 
Amy Adams 
: How does this relate to the Westpac bill? 
Hon LIANNE DALZIEL 
: Because it covered Westpac New Zealand and that is entirely the point. The whole policy—[ 
Interruption 
] Well I will take another call as a result of that. I had almost finished but I have now been interrupted so many times that I will have to take a further call to explain why what I am saying is entirely in order for the debate on this bill. The reason is that the Reserve Bank set up the local incorporation policy for strategic banks and the reason they were strategic was the amount of the retail deposit sector they had. Therefore talking about the Crown Retail Deposit Guarantee Scheme is entirely in order in relation to this bill. 
Given that Amy Adams wishes me to contribute much much more to this debate I shall go back to the point I was making. The point I was making was that whether or not one agreed with it the banks had to have the Crown Retail Deposit Guarantee Scheme put in place. 
AARON GILMORE (National) 
: 
 I move  
That the question be now put 
. 
Hon DAVID PARKER (Labour) 
: 
 The point I want to have some more information on from the member in the chair Craig Foss on this occasion is the preamble to the Westpac New Zealand Bill we are considering. Recital (5) states: “Legislation is the only means by which these assets and liabilities of Westpac Banking Corporation can be vested in Westpac New Zealand efficiently and economically.” When I read the phrase “efficiently and economically” I wondered what was meant by it. So I looked at the report on the bill that came from the Finance and Expenditure Committee and it says no more than that; it just states that legislation “is the only means by which the vesting of these assets … in Westpac New Zealand can be effected efficiently and economically”. The preamble states that and then the explanation from the Finance and Expenditure Committee in the commentary on the bill does not say what that means in practice. Does that mean it is the only way that it can be done tax-efficiently? If that is what it is talking about I want a bit more information about that because we have had on occasions the banks of New Zealand in New Zealand avoiding their fair tax liabilities and having to be taken through the courts before they will pay the proper amount of tax on their profits despite the fact that they have made many billions of dollars of profit in New Zealand. I have no problem with them making profits in New Zealand but when they do they should pay the proper amount of taxation. 
The reason that I inquire about this is that if we are going to be transferring assets across it is relevant as to the price at which they are going to be transferring those assets. I want to make sure that what is economically efficient from a tax point of view for the bank is actually fair to the New Zealand tax system. If banks are able to sell those assets in an excess of their value and revalue them in the future or realise the loss on those assets in the future then that therefore decreases their future profitability because they have effectively transferred those assets in at an inflated value and realised the loss that they have then used to offset against their New Zealand - based income and they would be able through that means perhaps—and I am not sure about this—to deflate their future income and therefore reduce their future tax liability under the New Zealand tax system. 
If that is what is meant by “efficiently and economically” then I am not sure that I agree with it. But I am not sure whether it is so I would like the member in the chair to clarify that for me because the report back from the Finance and Expenditure Committee sheds no light on it whatever and just parrots the phrase that is in the preamble itself—that is it asserts that it is the only way that it can be done efficiently and economically but does not tell us why that is the case. If the Minister—I mean the member—could please take a call— 
Craig Foss 
: I like “Minister” better. 
Hon DAVID PARKER 
: Well unfortunately that might be a bit premature at the moment. Could the member please take a call. I would hope that the member in the chair as the sponsor of this bill can inform the Committee as to why it is the only means by which this can be done efficiently and economically. He could tell the Committee what protections are in place to make sure that those assets are not transferred at an inflated value that puts at risk future tax revenue that would be properly payable on future profitability of the banking sector. 
I will turn to another sector while I have the floor. Yes it is true that the New Zealand banking sector performed better than some other sectors but it was not perfect. It did actually require a bank guarantee and it did require the Reserve Bank of New Zealand to step in and purchase bundles of securities from the banking system because the banking system could not roll over loans to support those securities that they had out in the New Zealand markets. Although it is true that the New Zealand banks did better than certain overseas banks it is not true that they were not in need of some Government support. They did require the guarantee of the New Zealand taxpayer in respect of deposits both at wholesale and retail levels and they did require the intervention of the Reserve Bank to maintain liquidity by buying bundles of securities from banks so they could use those moneys to repay loans to their overseas lenders. 
Yes it is true that the banking system was relatively sound in New Zealand compared with some of the problems experienced in other parts of the world but it is not true that they were not in need of Government support and I would just like to put that on record given some of the things that have been said in praise of those banks. It is not a criticism of those banks; I just want to put it on record that they were not perfect either. It would have been worse had they in terms of the risk that was faced by New Zealand depositors in the event of default by the bank had the— 
COLIN KING (National—Kaikoura) 
: 
 I move  
That the question be now put 
. 
Motion agreed to. 
Preamble agreed to. 
The result corrected after originally being announced as Ayes 118 Noes 4. 
Part 1 Preliminary provisions 
Hon DAVID PARKER (Labour) 
: 
 The voting on the preamble bemuses me completely in respect of the Maori Party. Maori Party members have not taken one call in the debate and they did not participate in the select committee process to any meaningful degree. It seems that the members of the committee were unanimous in reporting back in favour of the Westpac New Zealand Bill. Rahui Katene the person who cast the vote on behalf of the Maori Party was according to the commentary I am reading on the Finance and Expenditure Committee and she did not express any concern about the bill according to the select committee report. But that is a case in point of how the Maori Party runs business in this House. On all of the big votes it props up the National Government despite the fact that National— 
The CHAIRPERSON (Lindsay Tisch) 
: Order! 
Hon DAVID PARKER 
: —is undermining the interests— 
The CHAIRPERSON (Lindsay Tisch) 
: Clauses 3 to 5. 
Hon DAVID PARKER 
: Mr Chairperson I had not finished my sentence. On all the big votes it supports the Government—on motions of confidence—and then when we get down to a tintack bill like this one and like Part 2 of this bill the Maori Party stands up and thumps its chest as if it is independent and represents the interests of Maoridom. What a farce—what a farce. 
I am looking at Part 1 which deals with the purposes of this bill and I cannot see anything from the Maori Party criticising it. So I look forward to seeing whether we have a contribution from the Maori Party as to what its principled objection is to Part 1 which causes it to vote against parts of the bill. Was it just a mistake by the member? If it was the member is free to take a call and seek the leave of the Committee for the Maori Party to re-record its vote. But I suspect it will not because it is all about posturing; it is not about principle in respect of that party. The reality that those members cannot escape is that a vote for the Maori Party is a vote for National. We will be reminding electors of that. 
The purposes of this bill include the vesting of certain assets and liabilities. The assets and liabilities include a wide range of assets which Stuart Nash has previously referred to. The question I ask in respect of the preamble which the member in the chair has not answered is whether those assets will be transferred across at an inflated price and whether that leads to the future tax revenue from the banking sector through those assets being realised at a lower price and therefore causing a loss to the bank which the bank can claim as a loss for tax purposes against future income. Was that risk considered at the select committee? 
The committee’s report as I have said is very brief and runs to only two pages. It just parrots the provisions in the bill rather than critically providing advice on that particular point. I would have thought that the member in the chair who is in charge of the bill and is asking Parliament to pass legislation that may impact on future tax revenues for the Government had information on that point to share with the Committee. I ask the member where it is in Part 1. I might have the wrong part and he might say that the issue is dealt with in another part. In any event I want the member to respond as to how we guard against these assets being transferred across at an excessive price to cause a future write-down which creates a taxable loss for the bank and therefore reduces its tax liabilities in New Zealand. 
I am also interested in whether the select committee received any submission from the Australian revenue authorities about whether these assets were being transferred across from Australia to New Zealand at higher values than they are shown at on the Australian books. That might be tax effective for Westpac but it might not be fair on the Australian Government. I just want to see what is happening in respect of tax issues. I am somewhat suspicious here because we have had a pattern of conduct of the banks minimising their tax liabilities to the tune of many hundreds of billions of dollars. They were forced to pay them only following court action in New Zealand courts which found that the banks had been improperly paying lower amounts of tax. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to speak to clauses 3 to 5 which are the preliminary provisions of Part 1 of the Westpac New Zealand Bill. The purposes of the bill as set out in clause 3 provide for the vesting of certain assets and liabilities—as we talked about during the preambular discussion—in the locally incorporated Westpac New Zealand. The genesis of this policy goes back to a review announced on 27 September 2000. My colleague Mr Shane Jones has provided me with this little romp down memory lane and it confirms what we have said before. It confirms that the genesis of this policy was around improving the security of the New Zealand banking system. It does so by requiring under the revised policy banks in the following categories to establish a locally incorporated subsidiary for their New Zealand operations: banks that are either systemically important which Westpac New Zealand certainly is; and/or banks that take a significant level of retail deposits and come from countries that give home country depositors a preferential claim on winding up which includes both the United States and Australia; and/or banks that take a significant level of retail deposits and which in their home countries fail to publish the full information that depositors would need in order to assess financial soundness. In other words this policy is a back-up to ensure that New Zealand depositors have a reasonable expectation of stability and certainty in the market place. 
The policy is intended to help the New Zealand Reserve Bank manage a crisis affecting a systemically important bank. There are both good and not-so-good things to recount about recent financial history in New Zealand. The not-so-good thing is that New Zealand was not immune from the global financial crisis which occurred very visibly in September 2008—2 months before the last general election. Lehman Brothers collapsed the Bank of America was in trouble the world’s largest insurer started breaking up and the world credit system all but froze. What we are fortunate about the good news if you like is that of the about 13 triple A rated banks in the world five of them are Australian and four of them operate in the New Zealand market. So we did not have quite the same level of system risk but let us not be under any illusions. If the world credit system had frozen and if world central banks had not responded immediately with a credit infusion VISA cards and MasterCards would not have worked. Every New Zealander would have been affected and they would go to the ATM and it would not work either. There would have been panic here as there would have been around the world. We missed that bullet by a whisker; and it could happen any day. It could still happen any day. 
I want to compliment the New Zealand Reserve Bank. It responded in an absolutely exemplary manner. I think that all New Zealanders owe the bank a debt of gratitude. I think that the system in New Zealand worked as it should and it worked both pre-crisis and during the crisis. It worked because we had what in global financial circles is known as plain vanilla banking. It sounds not that exciting but actually it means that banks make their money the old-fashioned way by taking deposits and lending and earning interest on that lending rather than coming up with fancy derivatives like collateralised debt obligations or CDOs which mixed high-risk mortgage debt which was worthless with regular debt securities with the ostensible aim of spreading the risk but with the actual effect of magnifying the risk—in the United States by a factor of over 100 times so that the total bad debt was many times the size of the United States GDP. That was the effect and it was like a financial nuclear reaction. But New Zealand missed that part of it because we had a Reserve Bank that was exercising good prudential control and oversight and we had a system of major banks for which derivative trading was a very small part of their portfolio. So that was both the bad news that we were not exempt and the good news that we were in a sounder position than we might have been compared with some other countries. 
This bill is part of the foundation stone which will be there should another event like that God forbid ever occur again. I said a couple of minutes ago that it could occur at any time and I do not want to be pessimistic and I do not want to undermine confidence in our banks which are all in excellent shape. There is no reason to doubt Westpac there is no reason for New Zealanders to doubt any of the other major banks including Kiwibank but it is also true that there is an enormous set of imbalances in the global economy which we are part of. In the Western hemisphere there are trillions and trillions of US dollars of debt and in the Asian realm particularly with China and also increasingly with India and other countries like Korea there is a build-up of significant trade and financial surpluses. So America is not exporting enough and is importing too much; China is exporting a lot helped by an artificially low— 
The CHAIRPERSON (Lindsay Tisch) 
: I would like to hear “Westpac” mentioned occasionally. 
Hon DAVID CUNLIFFE 
: It is banking with Westpac on occasion. No doubt Chinese companies are banking with Westpac but anyway I will cut a long story short. Those risks have not gone away. Those imbalances are still getting worse and unless the world works together to overcome them sadly there is a real risk that the safety mechanism which is embedded in this bill might one day be called upon. I hope that is wrong I hope we never have to do that because in the end it is our whole country our whole economy and every New Zealander who is vulnerable. We do not want that but we are glad we have the banking police on the job—that is the full-service empowered New Zealand Reserve Bank. 
It is Labour’s policy that the Reserve Bank should remain a full-service bank that it should remain independent and that it should remain tasked with system stability as well as price stability. If anything our monetary reform package is designed to ensure that the system stability objectives of which this bill is a part are elevated so that everybody knows that the Reserve Bank is not just there to control inflation; it is there to protect the system. In protecting the system it has to have regard to more than just price stability. Financial stability underpins growth and employment objectives as well. Labour has given notice that we will update the Reserve Bank of New Zealand Act and the policy targets agreement to incorporate the best of the new global thinking that is coming out of the Basel Committee on Banking Supervision. People have heard about Basel II; there is now Basel III. Things like macro-prudential policy and so forth we have discussed at length at the Finance and Expenditure Committee which is the same committee that has passed this Westpac New Zealand Bill. The Chair is getting comfort from that. That is another long story cut short. 
The Labour Opposition supports the Westpac New Zealand Bill 2010. It is called that because there was a 2006 predecessor but one that was not fit for purpose for this bill which operates under the requirements set out by the Reserve Bank since September 2000 as I outlined earlier in my remarks. This is a small but positive contribution to enhancing the system stability of the New Zealand banking system. Westpac is a reputable and well-managed bank and continues and will continue to play a meaningful role as part of the broader New Zealand economy. The Labour Opposition commends the bill to the Committee. We will be supporting clauses 3 4 and 5. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I am keen to take a call on Part 1 of the Westpac New Zealand Bill because I want to get on record what may not be apparent to people who have been listening to the debate. I know that one person came down to the House for a debate on banks thinking that it was on Banks’ announcement of his bid for the ACT Party candidacy in Epsom. They were disappointed to find out that the debate was actually about Westpac Banking Corporation so there you go. 
My understanding is that Part 1 has the definitions which help us clarify exactly who we are talking about. Westpac Banking Corporation is the corporation that is “incorporated in New South Wales Australia under the Corporations Act 2001 of the Commonwealth of Australia”. What it operates in New Zealand is a branch which calls itself the Westpac Banking Corporation New Zealand Branch. That is the branch that at the moment operates the institutional banking arm of Westpac. That branch is being transferred to the organisation known as Westpac New Zealand which is Westpac New Zealand Ltd and which is incorporated in New Zealand under our Companies Act. I think people have missed out on that distinction. I was interrupted by a member opposite while I was trying to traverse that issue earlier on but I just want to see whether I have got it right. 
I do not understand why the 2006 legislation that provided for the retail arm to be transferred from the branch to Westpac New Zealand was so narrow in its ambit that it allowed for only a one-off regulatory intervention to transfer the assets. It seems to me that if the legislation had done that for a further set of assets and liabilities then we would not be here debating this bill; we would just simply have passed a regulation and that transfer would have occurred. I do not know whether the member in the chair Craig Foss has some knowledge of the history of this issue. I am very mindful of the fact that it was the Hon Marian Hobbs whose name the 2006 legislation was in. 
Hon Member 
: Absolutely correct. 
Hon LIANNE DALZIEL 
: I think that at that time we had a general discussion as to why the legislation was required but I do not know that we ever had a debate in the context of that legislation as to whether a further transfer of assets and liabilities would require other entirely new legislation to be referred to the Finance and Expenditure Committee and go through the legislation process. 
I have the benefit even though I did not serve on the select committee of having in front of me Westpac’s submission to the select committee. Of course it has been very instructive. A number of comments were made about tax liabilities. The issues I have looked at were that Westpac as I understand it approached the Inland Revenue Department. I do not know whether the select committee looked at that and got independent advice from the Inland Revenue Department. Westpac sought to ensure tax neutrality as part of the seamless transition from one to the other. Perhaps the member in the chair might like to put that on the record because the issue of tax liability has been raised in this respect. 
The second issue that has been raised in this Chamber is on the nature of the legislative intervention that is required. Again the member in the chair could provide us with a little bit of background. If further transfers are to happen in the future does that mean that there has to be more legislation? Will this have to be the practice for all the strategic banks any time they get into a situation where branch activities that are still owned and operated by their parent companies fall within the ambit of the new local incorporation rules which have been set by the Reserve Bank? I think they are fair questions to put to the member in the chair. I think it is time he contributed to the debate on Part 1. They are two very good questions that he could respond to and generate some enthusiasm into this debate. 
STUART NASH (Labour) 
: 
 I am sorry; was the member in the chair Craig Foss going to take a call? For a minute there I saw him writing away furiously and I thought he was going to stand up and address some questions that Lianne Dalziel had asked which were all very relevant. 
I will pick up on one of David Parker’s points if I may at the beginning of my speech. I sat on the Finance and Expenditure Committee as did the member in the chair. There was not much debate on the Westpac New Zealand Bill but there was very healthy discussion on the meaning of all parts of the bill Part 1 included. There was consensus and officials explained how it would work etc. The Maori Party often did not have someone at the committee but the Maori Party voted against the preamble. I would have thought that if at some point the Maori Party had concerns— 
The CHAIRPERSON (Lindsay Tisch) 
: The member cannot make comments about the absence of a member. I bring the member back to the bill. We are on Part 1. It is a very narrow part and has only three clauses—clauses 3 to 5. I ask the member to concentrate on them. 
STUART NASH 
: We are talking about Part 1 which really is quite an important part of the bill because it sets out the purposes of the bill and the interpretation. I was very surprised when the Maori Party voted against the preamble. I thought there was consensus. I assume the member in the chair— 
Hon David Cunliffe 
: They voted for it in the select committee. 
STUART NASH 
: Yes they did. The member in the chair would have assumed consensus and I am sure he reported back to Westpac— 
Rahui Katene 
: I seek leave to amend the record to show that the Maori Party supports this bill. 
The CHAIRPERSON (Lindsay Tisch) 
: Leave is sought for the Maori Party to amend its vote on the preamble. Leave is sought for that purpose. Is there any objection? Would you like to tell us what you want to achieve? 
Rahui Katene 
: Four votes in favour. 
Hon David Cunliffe 
: I raise a point of order Mr Chairperson. 
The CHAIRPERSON (Lindsay Tisch) 
: Leave has been sought; no one has objected. It is very clear: leave has been sought for the Maori Party to amend its vote on the preamble. Leave was sought; there was no objection. The Maori Party vote will be amended accordingly. That is the end of the matter. It means that the vote on the preamble was unanimous. We do not need to put the vote again. It was unanimous and a party vote will not appear on the record. 
Hon David Cunliffe 
: I raise a point of order Mr Chairperson. This is now an interesting situation because before the leave was put I was about to clarify matters such as whether there would be an opportunity to debate the Maori Party’s seeking to amend its vote and— 
The CHAIRPERSON (Lindsay Tisch) 
: No there is not. The member will sit down please. There is no debate on the leave. The Committee can either accept it or reject it. I put the leave no one objected and that is the end of the matter and there is no further debate on it. 
Hon David Cunliffe 
: I raise a point of order Mr Chairperson. That matter having been settled Mr Chairperson the next matter relates to how the record will read given that the leave motion has been part of the proceedings— 
The CHAIRPERSON (Lindsay Tisch) 
: I have just said how it will be. It will appear in  
Hansard 
 as a unanimous vote. We do not have to put the vote again because everybody has agreed. That is what the record will show. 
Hon David Cunliffe 
: I raise a point of order Mr Chairperson. Can I therefore seek clarification as to whether these points of order or other comments in relation to the Maori Party’s position on the bill will be expunged from the record or whether they will they remain in  
Hansard 
 notwithstanding the fact that the leave has been accepted and the vote itself will be shown as unanimous. 
The CHAIRPERSON (Lindsay Tisch) 
: The record will show that no party vote took place. I refer members to Speaker’s ruling 68/4. In regard to the points of order that have been raised in relation to the seeking of leave I am seeking advice on that matter and I will come back to members. 
Hon Steve Chadwick 
: I raise a point of order Mr Chairperson. Without being difficult on this subsequent to the initial vote by the Maori Party members on our side raised concern about that vote and we do not want that in  
Hansard 
 if now the Maori Party is changing its vote. I think that is the point my colleague is making. 
The CHAIRPERSON (Lindsay Tisch) 
: I hear what the member is saying. The comments that have been made will stand. The member is bringing to my attention points that her party made during debate. Those comments will stand. They are in the record as are the other comments. 
STUART NASH 
: I thank the Chair and Ms Katene. It is good to hear that the Maori Party is supporting this bill but I think no one is more thankful than the member in the chair Mr Foss because otherwise at some point he would have to go to Westpac and to the Maori Party and try to figure out what part they did not like. But that is now sorted and that is very good. As has been mentioned I thought that this bill had gone through unanimously. It received robust debate but not a lot of debate. 
I come back to Part 1. As I mentioned previously the gist of this bill is in clause 3 and clause 3(b) talks about “the efficient conduct of Westpac’s New Zealand business.” But of course this is not about just Westpac’s business. Even though legislation is the only way that this matter can go through it is also about protecting the requirements of Westpac’s customers’ business. 
One of the most interesting things about this is the interpretation of assets. Clause 4(1) states: “assets means property of any kind whether tangible or intangible real or personal” etc. Clause 4(1)(a) refers to “estates or interests in any land including rights of occupation of land or buildings;”. The question I would like to ask—and it is a difficult one to answer—is how Westpac will account for the Crafar farms for example. My understanding is that Westpac was the major lender for the Crafar farms. I wonder how the issue will be dealt with. Will it be dealt with as an interest in the land? Is it a liability in the land? How will it be accounted for? Will the Reserve Bank look at the asset register and count the Crafar farms as an asset or will it look at its liabilities and count them as a liability? I must admit that this goes to the heart of the whole debate on farming. 
As we know the Reserve Bank has put in place new liquidity provisions in relation to increased money held by banks against loans to the agricultural sector. So the Reserve Bank has major concerns about the level of debt which I think is sitting at about $42 billion at the moment across all banks. The Reserve Bank has major concerns about the level of debt against the agricultural sector and that is why I bring up the point of what is an asset and what is termed a liability. 
The Crafar farm issue is a big deal. We are told that the value of some dairy farms has dropped by up to 30 percent and that other dairy farms have actually increased in value over this global financial crisis. At some point because it says this in the legislation when the Governor-General signs off on this—and we will talk about this in Part 2—a line will be drawn in the sand and Westpac’s assets and liabilities will have to be assessed. That will probably be a major task and I am unsure who will undertake it. Will it be Westpac will it be the parent company or will it be the Reserve Bank? If we come down to liabilities clause 4 states: “liabilities means liabilities debts charges duties and obligations of every description (whether present or future actual contingent or prospective)”. That is how we understand liabilities but again David Parker brought up a very good point. How will these liabilities be accounted for on the Westpac balance sheet? I have no doubt that in this economic climate there are a lot of liabilities out there that the bank must be very concerned about. If we look at the equity held in some dairy farms especially the dairy farms that have dropped in value by up to 30 percent which is the figure given to me by one of the banks then we have to wonder what impact it has had on Westpac’s asset register and liability register. 
I would like to question some of the other asset terms as well. Clause 4(1)(f) specifies “goodwill and any business undertaking”. I am not too sure what “any business undertaking” means but we can guess about that. But as to the valuation of goodwill there was a classic case where Rolls-Royce put a value of $1 or £1 on its brand. It did that because it knew that the brand had value. The company knew that the Rolls-Royce brand was worth something but it had absolutely no idea how much it was worth. By putting a dollar on that brand on its balance sheet it signalled to the market that it knew the brand was worth something but it could not quantify the value. That was a while ago and I know that advanced accounting practices include models to value goodwill but it is an interesting point. I wonder whether the Reserve Bank values goodwill using a different methodology or the same methodology as the Westpac Banking Corporation. It would be interesting to know what value goodwill has on the asset register of Westpac. 
Another matter relates to clause 4(1)(e) “intellectual property and applications pending for intellectual property:”. Intellectual property does have a definition in this bill and it is one of the few assets that are defined. I suspect that is because we are moving in a fast-changing world. The 21st century was completely different from the 20th century with patents and all sorts of carry-on. We have had patent legislation go through this House and it is fraught with difficulties. Clause 4 states: “intellectual property means all patents designs copyright know-how trade secrets trade marks service marks and other intellectual or industrial property rights of any kind and any rights in relation to them”. A very interesting question relates to how we value a trade secret. In fact how do we even acknowledge a trade secret? Would a bank have on its balance sheet or asset register $5 million worth of trade secrets? If the Reserve Bank came along and saw that figure I wonder how it would account for it. Would the Reserve Bank say: “We need to audit your accounts. You have $5 million worth of trade secrets on your asset register. Can you please show us.” Of course Westpac would be absolutely reluctant to lay out what its trade secrets are because no organisation or institution would ever let an independent institution understand its trade secrets. So it is a little unusual that it is in here. But the fact is that trade secrets could be on the asset register and we must remember that this is specific to Westpac New Zealand. This legislation is not about all trading banks or wider than that. It is about Westpac New Zealand. The fact that this legislation includes trade secrets in the definition of intellectual property means that there is a high probability that trade secrets are on the asset register. I could be wrong. Maybe the member in the chair can clarify this. Maybe a definition of intellectual property must be in the interpretation clause of every finance bill and this is just the standard definition that has been taken from other bills that include an intellectual property clause. But the valuing of trade secrets is very very interesting. 
There are other complications—not complications but I suppose questions—in respect of the definition of assets as “chooses in action and money:”. I am a businessman and— 
Amy Adams 
: Choses in action. For once get it right. 
STUART NASH 
: I am not too sure what that exactly means and I suspect that Amy Adams will stand to speak. 
Amy Adams 
: I did a law degree Stuart; you clearly didn’t. 
STUART NASH 
: Amy Adams shouts across the Chamber. She said that people in the Labour Party have not run a business or contributed to any productive enterprise. Well if I am right Amy Adams is a lawyer. In fact I have no doubt that Amy Adams was one of the people who set up a whole lot of structures that allowed farmers to pay about $1500 in tax. In fact if I understand correctly from the Register of Pecuniary Interests of Members of Parliament Amy Adams has about three houses and a number of farms. I am very keen for Amy Adams to stand up and take a 10-minute call before the dinner break to explain all those things. Because she is a lawyer I have no doubt that she can answer every question that has been put by the Hon Lianne Dalziel. She can answer every question that has been posed by David Parker. In fact Aaron Gilmore is now shouting across the Chamber. 
AMY ADAMS (National—Selwyn) 
: 
 I move  
That the question be now put 
. 
Motion agreed to. 
Part 1 agreed to. 
Part 2 Vesting of designated assets and liabilities in Westpac New Zealand 
CRAIG FOSS (National—Tukituki) 
: 
 Some issues were raised in the debate on the previous part that are pursuant to Part 2. As I noted earlier the start of the Westpac New Zealand Bill rests very very heavily on the earlier 2006 Act in the name of the Hon Marian Hobbs which is where the definitions that the previous speaker Stuart Nash talked about were all prescribed. That member’s party and I think the whole Parliament at the time agreed with those definitions. One other point that has been raised is why we are having this bill now and whether there will be another one. There could be another one; I do not know. The Labour members in particular of the Finance and Expenditure Committee will know and they may want to share with their colleagues that the liabilities cap was originally NZ$10 billion when Westpac was originally incorporated here. It was extended to $15 billion in 2007. Westpac is well within those caps generally but through the global financial crisis in 2009 there was an issue and the asset/liability mismatch started to throw that out of whack. Therefore the whole point of this bill is to add assets and liabilities to the security of Westpac New Zealand Ltd taking those assets and liabilities from the Westpac Banking Corporation’s New Zealand institutional bank. 
Finally a very important point and one I am sure colleagues on the Finance and Expenditure Committee would like to share with their other colleagues is that questions have been raised about tax definitions and tax issues in Part 2. I refer members to clause 21. For the record I would like to read it: “The purpose of sections 22 and 23 is to ensure that the vesting of the designated assets and liabilities in Westpac New Zealand under this Act does not give rise to tax consequences under the Inland Revenue Acts for Westpac Banking Corporation or Westpac New Zealand that would not have arisen if they were the same person.” Members will also note that we took comfort at the Finance and Expenditure Committee from letters from the Inland Revenue Department as well as the Reserve Bank etc. 
Another point to note is that the Reserve Bank is very satisfied with where this bill is at regarding these various definitions and clauses. Of course Westpac Banking Corporation is Westpac New Zealand Ltd and essentially under tax they will be treated as the same entity for the purposes of this bill. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I will get in quickly ahead of my colleague the Hon Lianne Dalziel because I want to refer to her previous speech and also to the member who has just resumed his seat Craig Foss. 
Part 2 of the Westpac New Zealand Bill is in a sense the operative part of the bill. It provides for the vesting of designated assets and liabilities into Westpac New Zealand from and on behalf of Westpac Banking Corporation. Just to reiterate the very helpful clarification that the Hon Lianne Dalziel made earlier—which was faithfully represented by the chairman of the Finance and Expenditure Committee who has just spoken—it is important to make the public aware that Westpac Banking Corporation is the parent and the institutional bank assets are part of the parent. They are under this bill able to be vested in or transferred into the ownership of Westpac New Zealand which is the New Zealand - domiciled branch. 
It would be useful if the member in the chair could get a little more background on the record for the public about the circumstances during the global financial crisis in which a cap was breached which led to in part this bill being required. I may not have been present on all of the days on which this bill was considered by the Finance and Expenditure Committee and I cannot recall in great detail that background so I think it would be helpful to the Committee to get that elucidation from the chair of the select committee. 
I compliment the Hon Lianne Dalziel. I thought her previous contribution absolutely crisply and sharply showed exactly the transfer mechanism that is portrayed in this bill and summarised very succinctly the reasons for it which we as a Committee have gone into during this debate. It is at two levels. It is at the level of the bank itself and the transfer mechanism and it is at the level of the broader context both of the banking system the regulators around it and the broader economic context within which that operates. 
In my brief contribution to debate on the previous part I noted that although the risk factors that were very acute during 2008 and 2009 have subsided they have not gone away. The macroeconomic imbalances around us and we might add the commodities boom—which dairy farmers in particular are the current happy beneficiaries of and which has been driven by the rapid industrialisation of our East Asian neighbours in particular who are hungry for the resource inputs to their economies including protein products which this country excels at producing—carry risks. If the imbalances get too great and confidence is lost in the transaction system credit could again freeze. I understand from very reliable sources that over the last couple of months there have been signs of real stress in some of those clearance markets. I think all New Zealanders need to understand that it is very very important that we manage carefully for the future. 
For that reason the Labour Opposition supports the Government’s intention to carefully manage fiscal resources and to reduce debt. It is the Labour Party’s view that we need to reduce debt very considerably over the medium term. We think net debt is a better measure than gross debt. We think we should include Crown financial assets in that measure. But we are I think relatively close on that objective. 
The difference—and it is an important one—is that for the Labour Opposition debt reduction can never be an end in itself and it cannot be divorced from the other macroeconomic changes that are necessary to support both economic stability and system stability which is where we intersect again with this bill. Those changes include building a stronger more diversified more innovative and higher-value export economy. They include strengthening our savings system and our banking system so that we own our own future. They also include making sure that there is enough disposable income—in the jargon of the subject “readies in the pocket” of ordinary Kiwis who are always extraordinary hard-working families—to ensure that the purchasing power is there to keep the country moving forward as well as to feed their families. 
That adds up to I think four interlinked objectives: building the economy owning our future helping the Kiwis concerned to get ahead and of course having the fiscal prudence that must underlie the economy. That is how we reduce risk in our domestic economy; that economic stability needs to underlie the financial system stability that is part of this bill. 
Going back to this particular part I tell members that clause 6 provides for the Governor-General to approve the proposal to vest designated assets and that subclauses (2) and (3) allow those assets to be stated either in whole or in part. That may be important because the institutional banking arm of the parent may not wish to vest the whole of a very large set of assets for some practical business reason in the New Zealand branch. 
Under clause 7 the Governor-General may approve amendments to a proposal. That is important so that this becomes a dynamic process not a static one and so that the vesting of designated assets and liabilities occurs in the way described in the proposal which is transparent. Under clause 9 the process does not undermine customers and their rights and liabilities; under clause 10 it does not unduly affect security interests; and under clauses 12 and 13 it does not upset contracts. 
Of course as the member in the chair has noted the proposal will have no tax consequences that will differ from those that would occur essentially if the enacting of the bill did not take place. The bill must be tax neutral. I think the committee examined that question and received letters of comfort. We were reassured that there was no hidden agenda in terms of the tax position of the bank. That is to be commended. We note that this bank along with the other major banks has recently had some attention paid to its tax position particularly in the area of a structured finance transaction which resulted in the bank generously refunding to the taxpayer some $2.5 billion of underpaid tax. We hope that that situation will not recur because it is important for the reputation of the sector that it does not. I know there are always two sides to the story but the courts have held that in respect of those cases that went to court—and politicians never interfere in the judicial process once it is under way—a good case was made by the Inland Revenue Department and the remaining banks entered into a settlement. That was appropriate. 
It is absolutely appropriate in light of that situation and as a matter of principle that this Committee should be satisfied and should find comfort through the work of the Finance and Expenditure Committee that there are no improper tax consequences pertaining to this bill. We are assured. We accept the assurance that there are none. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I have just another question which is in relation to the nature of the business that is being transferred or the assets and liabilities that are being transferred. The way I read it is that recital (4) of the preamble talks about the transfer of “certain additional assets and liabilities of Westpac Banking Corporation being principally assets and liabilities of Westpac Banking Corporation’s New Zealand’s institutional banking business”. The preliminary provisions that we have dealt with too in clause 3 “Purposes” talk in paragraph (a) about “principally assets and liabilities of Westpac Banking Corporation’s New Zealand’s institutional banking business”. Then we come to Part 2 the part we are dealing with now which has all of the detail of the transfer and under clause 6 the Governor-General may approve the proposal to “vest designated assets and liabilities”. In clause 4 designated liabilities are defined as those that are “to vest in Westpac New Zealand;”. 
So we still have the word “principally” in relation to the assets and liabilities of Westpac’s institutional banking business but I am just trying to find where that is actually spelt out in detail. What makes up the word “principally” in that nature? Does that then mean “narrowly”—that it cannot apply to anything else—and that we could again end up in the situation where because of something that is slightly technically outside that definition of institutional banking we will be back in the House with another piece of legislation? Or is this provision now a slightly more expansive piece of legislation than we had previously? 
I guess the question I have is in relation to this initial stage where the asset and liability class is firmly established and the Order in Council is made is that it? Can no further transfer occur from one to the other under the provisions of this bill with an additional Order in Council? Perhaps the member in the chair Craig Foss could refer me to the clause that describes the specific elements of institutional banking. I am sure it is in here; I just cannot find it. I do not know—am I missing something or is it there? I do not know whether just a simple reference to a clause chipped across the Chamber might help me find what it is that I am looking for but it does not look hopeful at this stage. That is the question. 
I suspect that the Chairperson will take a closure motion at the end of all of this but I think I am asking the question for a serious reason—that is I cannot quite work out why in 2006 we did not have a sufficiently robust framework that allowed this additional Order in Council to be passed then. Why has it required additional legislation? But if this bill then subsequently shows itself to be insufficient to meet the ongoing obligations of the Reserve Bank will indeed further legislation be required? Or does this bill allow for an additional Order in Council to be made? It does not so that is very useful. I had a shake of the head which is not something that  
Hansard 
 can record. Perhaps if the member would like to say “No” then we could get it on the  
Hansard 
 record—that in fact the shaking of the head did take place. Now my colleague is nodding his head but that is different. I think he is agreeing with me that that is what should happen. But it would be useful if the member in the chair could indeed provide that comfort for me. 
The other point I wanted to raise concerns the transfer of staff because of course that does happen. The transfer of employees comes under clause 15(1): “A transferring employee ceases to be an employee of Westpac Banking Corporation and becomes an employee of Westpac New Zealand on the appointed day.” I understand why that is required. Obviously if employees are working in one branch of the corporation and are transferred over to the new bank then one would not want those terms and conditions of employment to be diminished by the transfer. But I am wondering—and I do not know whether the member in the chair is able to provide this advice—whether that then creates some inequity in terms of those who are already working for Westpac New Zealand. I guess the question I am asking is whether there is parity between the two organisations in terms of the salaries they pay their two sets of staff. It may well be that the transfer under these circumstances may create an internal inequity within Westpac New Zealand where those who belong to the branch of Westpac Banking Corporation may in fact be on more favourable terms and conditions of employment than their counterparts in Westpac New Zealand. There might have been a bit of a transfer there. 
The other thing I wondered was whether this in any way has impacted because it is one of the issues that is not raised anywhere in the legislation— 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon LIANNE DALZIEL 
: I am thrilled to know that I have so much time left in this call because the next point I will make is quite a substantial one. 
Hon Ruth Dyson 
: What was your first one? 
Hon LIANNE DALZIEL 
: I know that I cannot mention the fact that the honourable member was not here but I can mention that she did not listen to that part of the contribution I made. I was talking about the transfer of employees under clause 15 involving employees who were employees of Westpac Banking Corporation. The member probably does not realise that we have Westpac Banking Corporation New Zealand which is a branch of the Westpac Banking Corporation and incorporated in Australia and its affected employees will become employees of Westpac New Zealand which is of course a New Zealand - incorporated company. That is what the purpose of this legislation relates to as a result of the local incorporation provisions of the Reserve Bank which were introduced in the earlier part of this century. In about 2004 I think the decision was finally made that Westpac had to incorporate in order to meet the provisions of the new requirements and in 2006 we dealt with similar legislation. The honourable member would probably be really interested to know that that legislation was in the name of Marian Hobbs. 
Hon Ruth Dyson 
: Oh. 
Hon LIANNE DALZIEL 
: Yeah and that is an interesting history we have already traversed but now that I have brought the member completely up to speed I am sure the honourable member would like to participate in this debate. I know that she will have a lot of questions for the member in the chair. 
Before the dinner break I was seriously talking about the transfer of employees from one organisation to the other and whether that would create an inequity for those who were currently employees of Westpac New Zealand potentially because Westpac Banking Corporation New Zealand—the branch of the Westpac Banking Corporation—may in fact have better wages and conditions of employment than Westpac New Zealand. I was not sure and maybe the member in the chair could advise us on that. 
The next point I was going on to was a question that may not have been dealt with as an issue by the Finance and Expenditure Committee because it may not have been an issue when the legislation went through the select committee. It concerns the status of qualifying financial entity which is a new status that has been dealt with under the financial advisers regime. We have authorised financial advisers under that new regime being registered as we speak. But—and this has been quite a surprise to me—a lot more institutions have taken up the role of qualifying financial entity under that regime than I had anticipated. I thought that the banks maybe some of the insurance companies and maybe some of the larger financial institutions would take up that role but I really did not think we would have 200 or 300 qualifying financial entities which apparently we do have thereby limiting the pool of talent taking up the qualifying financial adviser status. 
The point I wanted to make was about the situation where Westpac Banking Corporation New Zealand had registered as a qualifying financial entity and Westpac New Zealand had also taken up the status of qualifying financial entity. That relates to the thing I find absent from the bill and the reason why I would like the member in the chair to take a call on this issue. I alerted him to the issue before the dinner break so that he could undertake some in-depth research over the dinner break in order to be able to answer the question for which I know he has now been waiting for 1½ hours. The question is: if both of them have independently obtained qualifying financial entity status does that now merge when it is not mentioned in the bill? Or will they have to then reapply or will it be automatic so that those employees who cross over into the new entity will be picked up by the qualifying financial entity status? There has been quite a fundamental shift and that shift involves the transfer of assets and liabilities which is the whole purpose of this legislation. 
I personally think this is quite a fascinating question. It is one I had not thought of until I felt compelled to do so and as a result I think it is a question that really ought to be answered by the member in the chair. I hope that the little heads-up I gave him before the dinner break commenced has served as a basis for checking out that matter and I am sure he will be able to share the answer with the Committee. 
When he did take a call earlier on Mr Foss made comment about the application of provisions relating to taxes and duties. I know that he was telling us that this measure was completely neutral as far as the tax liability was concerned one way over the other and that was made absolutely clear with reference to the detailed provisions of the legislation. I thank him for that because I think a genuine concern was raised by another colleague of mine about the capacity for this sector to not always do the right thing when it comes to ensuring that their full liabilities are met in that regard. I accept the comments that he made on that issue. 
There was another element to this issue which was from a banking customer’s point of view. I know that the legislation states that there will be this seamless transition from a customer’s perspective but I just wondered how that would be handled by the bank in terms of notifying that to its customers who previously were being looked after by Westpac Banking Corporation New Zealand before transferring to Westpac New Zealand which is the registered company in New Zealand. Does the member in the chair know how Westpac plans to communicate that to those customers? Obviously there is quite a significant change to how that might be addressed. I think it would be useful to have that on the record of the House as well because I am sure that the member concerned both in his role as promoter of this bill and as the chair of the Finance and Expenditure Committee would have dealt with that issue in respect of how the customers would see it. 
It was interesting to note that as I understand it Westpac has ensured some options will be available to their customers in respect of this transfer and that Westpac New Zealand will be in a position to make some advice directly available to customers on the basis of their asking for that advice in terms of the seventh anniversary. I really would like the member in the chair to talk about the seventh anniversary and how relevant it is to the particular issues that are raised in this bill. It is a little bit unclear from the submission that I have read why the seventh anniversary is a particularly relevant date in terms of the application of the measure. I understand that Westpac wants to make sure that the changes cause no disruption or as little disruption as possible to its customers and that is important but I also think it is important from a customer perspective—and as I have already disclosed I am a customer of Westpac—that customers know that they will be advised in specific detail about what the consequences of this legislation will be. 
STUART NASH (Labour) 
: 
 Sorry Mr Chair; I was a couple of seconds late in getting to my feet because I thought the member in the chair might have taken a call to answer some of the questions that my learned colleague had asked. She had asked a number and I think they were probably reasonably important. 
As mentioned this is a bill that everyone in the Committee supports although we got off to a little bit of a false start when the Maori Party thought it did not support the bill then determined it would support it. But that was good; the party saw the light in the end and decided it would support a bill that it had supported all the way through the select committee process. 
Hon Ruth Dyson 
: There’s time yet. 
STUART NASH 
: Exactly. I will talk a little bit about what my colleague Lianne Dalziel was talking about. It may even answer a couple of questions because as a member of the select committee—unlike Ms Dalziel who chairs the Commerce Committee and incredibly well I may add—I can tell members that we made it very very clear that a customer of Westpac will probably not notice any difference whatsoever. In fact when we look at clause 9 entitled “Relationship with customers and customers’ rights and liabilities” we see it talks about “(1) The relationship between Westpac Banking Corporation”—which is of course the parent company—“and a customer in relation to the designated assets and liabilities immediately before the appointed day …” and immediately afterwards. So I do not think that customers of Westpac will notice any sort of difference whatsoever. They will not get a differently coloured card and probably will not receive a letter in the mail because there is probably no reason for that. I must admit that like Lianne Dalziel I am a customer of Westpac myself and I would like to think that it will spend money cutting my headline rate as opposed to sending out a letter to me to tell me something that will probably have no consequence whatsoever for everyday banking. 
I will spend a little bit of time talking about the lack of the impact on customers of this merger. As we have outlined in the preamble and Part 1 this bill is a pretty simple piece of legislation in the sense that customers will notice absolutely no difference whatsoever. Having said that I also say there are 20-odd pages of legalese in there and I think that customers of Westpac bank will probably be asking themselves whether this legislation will impact on them at all. In fact suppliers will probably want to know whether there will be any impact on them—whether they should be sending invoices elsewhere or making calls to some other place etc. But the legislation has been pretty clear on that; as a select committee member I seem to remember that we made sure there would be no impact on the day-to-day business of Westpac New Zealand. Customers will not notice any difference. Clause 9(2) states: “An account between Westpac Banking Corporation and a customer that is comprised within the designated assets and liabilities”—it should say “or liabilities”—“on and from the appointed day”— 
Hon Ruth Dyson 
: Say that last bit again? 
STUART NASH 
: —“on and from the appointed day becomes an account between Westpac New Zealand and that customer and is deemed for all purposes to be a single continuing account.” I suppose it comes back to my point that I do not think any customer will notice any difference whatsoever. 
It is the same if we go to clause 14 “Contracts for supply of goods or services”. The clause states: “A contract that immediately before the appointed day provided for the supply of goods or services to Westpac Banking Corporation”—which is of course the name of the parent company—“(whether or not that contract is vested in Westpac New Zealand) is to be regarded as permitting the on-supply of those goods and services between Westpac Banking Corporation and Westpac New Zealand to the same extent that that on-supply would have been permitted if Westpac Banking Corporation and Westpac New Zealand were a single legal entity.” I think that what we will see throughout this legislation is the very common theme that customers suppliers and employees will notice very little difference whatsoever. 
That brings me to clause 15—and Lianne Dalziel has talked about this to a certain extent—which is about the transfer of employees. Ms Dalziel has asked some questions on rights and obligations— 
Hon Ruth Dyson 
: But they haven’t been answered. 
STUART NASH 
: They have not been answered and I am hoping that the member in the chair Craig Foss will stand up because it is quite an important point. Ms Dalziel made some very good points especially in this day and age when we have record high unemployment and when banks are making record profits. Let us be honest about that. The chief executive of Westpac pulls down a salary of about $5.25 million— 
Darien Fenton 
: How much? 
STUART NASH 
: It is about $5.25 million a year. In fact he collects a tax cut of around $5000 a week I understand but that of course is a debate for another day—probably tomorrow. 
In this bill we have made it very clear to all classes of people who deal with Westpac or who are employed by Westpac that this transfer will be seamless. The one thing that I suppose we have to look at in clause 15 is subclause (5) which states: “The employment of a transferring employee is not new employment for the purposes of the KiwiSaver Act 2006.” Unfortunately there is a little bit of a hook there because apparently tomorrow in the Budget those employees will be worse off but I do not think it would have made any difference whether they were employees of Westpac Banking Corporation or employees of Westpac New Zealand Ltd. They will be worse off no matter whom they are employed by. The cuts to KiwiSaver do not differentiate at all; they will affect just all Kiwis I am afraid. 
I come back to clause 15(1) which states: “A transferring employee ceases to be an employee of Westpac Banking Corporation and becomes an employee of Westpac New Zealand on the appointed day.” There are protections there under clause 15(2) in the sense that “(a) his or her employment contract is to be regarded as not having been broken by any provision of this Act; and (b) the period of his or her service with Westpac Banking Corporation is to be regarded as having been a period of service with Westpac New Zealand.” 
I move to clause 15(3): “A transferring employee’s terms and conditions of employment with Westpac New Zealand on and from the appointed day are identical to the terms and conditions of his or her employment with Westpac Banking Corporation immediately before the appointed day and are capable of variation in the same manner.” I suppose we are saying there that employees will notice no difference. If they do notice a difference and if in fact Westpac New Zealand uses this as a reason to make a change to an employee’s terms of contract then we will want to know about that because the law would have been broken. I am not saying that that will happen but that certainly was not the intention— 
Darien Fenton 
: But they’re not going to have a 90-day trial. 
STUART NASH 
: They will not have a 90-day trial period because they will have been deemed to be— 
Darien Fenton 
: New ones will—new ones will. 
STUART NASH 
: People who are employed by Westpac New Zealand and who are starting any day now will have that 90-day trial period—which is outrageous to tell the truth; it really is. But we are talking here about legislation put in place to protect everyone. We know that employees are most important and that we must protect their rights. 
As the member mentioned this legislation is tax-neutral. We talked about that in the select committee because we had to make sure there was no opportunity for arbitrage. We all know that the big banks are masters of that and I think there were out-of-court settlements between some of the big banks that totalled about $2 billion. We really wanted to make sure that there was no option for arbitrage and that this was not some ruse by Westpac to come up with some way to arbitrage its losses in Australia and profits in New Zealand or vice versa. This bill is simply to increase the liquidity for Westpac. 
The legislation states in clause 23(2): “For the purposes of the Income Tax Act 2007 if Westpac New Zealand incurs an amount of expenditure or loss on or after the appointed day in respect of a designated asset or designated liability Westpac New Zealand is entitled to a deduction for the amount of that expenditure or loss if Westpac Banking Corporation would have been allowed a deduction for that amount …”. Again the common theme is that there will be no difference. Not even the taxman—or taxwoman—will notice any difference whatsoever. We have been pretty clear on that and I think Mr Foss did a reasonably good job of ensuring it. 
One interesting point is found in clause 24 entitled “Use of information and intellectual property”. I will quote the provision if members will give me that indulgence. Subclause (1) states: “Westpac Banking Corporation and Westpac New Zealand may each collect use disclose or send any information if that collection use disclosure or sending would be permitted if Westpac Banking Corporation and Westpac New Zealand were a single legal entity.” I suppose it is saying that that is completely seamless. I was trying to think of some mischief that might occur there but I do not think any could. If a New Zealand company had a branch in New Zealand and a head office in Australia or a head office in New Zealand and a branch in Australia I suppose that if they were acquiring a loan from Westpac Banking Corporation as opposed to Westpac New Zealand they would have to disclose all the financial information anyway and there would be no mischief in terms of the use of information and intellectual property. That is something we needed to be clear about because the last thing we want or anyone wants—and we talked about trade secrets before—is any sort of disadvantage to New Zealand companies. Thank you. 
TODD McCLAY (National—Rotorua) 
: 
 I move  
That the question be now put 
. 
The CHAIRPERSON (Eric Roy) 
: The question is that the question be now put. 
Hon RICK BARKER (Senior Whip—Labour) 
: 
 I raise a point of order Mr Chairperson. I know it is perfectly within your realm to make the decision about whether to put the closure motion and I will accept your decision without quibble or qualification but I make the point that this is members’ day. On members’ day it is very unusual for the Government to use its majority to foreclose on debates. I make the point that if the Government wishes to do that then that will change the nature of members’ day. I think the Government should reflect on that before it does it. We are perfectly happy for the whips to ring this side have a talk to us about matters and negotiate these things but that has not happened. I just want to make the point very clear to Government members that we need cooperation in this Committee. 
The CHAIRPERSON (Eric Roy) 
: The member has made the point very splendidly but I am going to give the Committee the opportunity to determine whether it is time to close the debate. 
Motion agreed to. 
Part 2 agreed to. 
Part 3 Inter-relationship with other Acts 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I am thankful for the opportunity to enter into the debate. I think one of the most important debates that we are having tonight on this bill is on Part 3 and the two clauses it represents. The reason I rise to speak on Part 3 is that it raises a question that has yet to be answered by the member in the chair Craig Foss.  
Clause 26 states: “Nothing in this Act exempts Westpac Banking Corporation or Westpac New Zealand from the provisions of any enactment relating to banks or banking.” That is an extremely wide clause one would assume but what about its application to the rules regarding financial advisers? Financial advisers are covered by a completely different regime that relates not only to banks.  
I wonder whether this clause is sufficient to encapsulate the requirements of an enactment that might pertain to banks in certain circumstances if they avail themselves of that particular legislation although they are not required to and the rather narrow—if one looks at it this way—terms of this clause which states: “Nothing in this Act exempts Westpac Banking Corporation or Westpac New Zealand from the provisions of any enactment relating to banks or banking.”  
Does the question that I raised in the previous part of the debate have relevance to this part? The member in the chair did not answer that question which was whether the New Zealand branch of Westpac Banking Corporation was registered in its own right as a qualifying financial entity under the financial advisers legislation or even whether under that provision it had certain members of staff who were already registered as authorised financial advisers. I think I can actually answer the second question myself. If those authorised financial advisers were independently registered then that registration will transfer over when the amalgamation is retained.  
I personally do not know whether either or both Westpac Banking Corporation and Westpac New Zealand were independently registered as qualifying financial entities. Maybe the member in the chair could assist in this debate by explaining to us whether Westpac Banking Corporation’s New Zealand branch was registered as a qualifying financial entity. In fact I do not even know whether it could register as a qualifying financial entity if it is just a branch of an overseas-owned banking corporation. That is quite an interesting point. I think it probably was able to.  
The second question is whether Westpac New Zealand was registered as a qualifying financial entity. I would assume that it was. If they were both registered does that makes a difference in terms of the transfer from one to the other and if only one was registered does that make a difference in the transfer from one to the other? It raises a really serious issue about whether this matter is catered for in a clause that specifically refers to the enactment having to relate to banks or banking. As we know financial advisers do not exist only within the banking industry. A number of financial advisers work for so-called independent financial adviser institutions others operate independently and some of them work in a tied arrangement with a broker in the insurance industry or may be tied to one particular financial institution.  
There are lots of different areas that are not specific to banks or banking where one can find qualifying financial entity status and where one can find people who would be described as authorised financial advisers. I am asking a genuine question and it would be really helpful if the member in the chair could advise whether Westpac Banking Corporation the New Zealand branch thereof was registered as a qualifying financial entity and whether Westpac New Zealand was. 
STUART NASH (Labour) 
: 
 My colleague Lianne Dalziel poses some very interesting questions. Lianne Dalziel has posed many interesting questions over the Committee stage debate on this Westpac New Zealand Bill. Unfortunately none of them have been answered. 
Hon Lianne Dalziel 
: Oh no the odd one has. 
STUART NASH 
: By us though. 
Hon Lianne Dalziel 
: No no. Occasionally the member to be fair has got up. 
STUART NASH 
: That is right he did get up; he did speak. I apologise to Mr Foss. But he has not answered this question and he has not answered questions for a while. What I might do is try to answer this question for my colleague but I could be wrong. I will give it my best shot because it is a very important question. Westpac New Zealand Ltd is an incorporated bank. It became a registered bank in 2006 and it did this in order to comply with the Reserve Bank of New Zealand’s local incorporation policy. It is a branch—there is no doubt about that—but it is also an incorporated bank in its own right. So it would surprise me if it did not come under the guise of the bill that as it says in here— 
Hon Lianne Dalziel 
: No no but we don’t know in the bill whether it’s a qualifying financial entity. 
STUART NASH 
: Yeah that is a good point. I would— 
Hon Lianne Dalziel 
: It’s a separate piece of legislation. 
STUART NASH 
: The member is right. But the incorporation policy says that systemically important banks should be incorporated in New Zealand. We talked about this before. What is a systemically important bank? It is a bank that has liabilities other than those to related parties of over $15 billion. I would assume that if an organisation of that size was not a—what do we call it again— 
Hon Lianne Dalziel 
: Qualifying financial entity. 
STUART NASH 
: —qualifying financial entity— 
Hon Lianne Dalziel 
: But that’s under the financial advisers legislation. 
STUART NASH 
: In fact the member is right. I do not know that so to say that I was going to answer that— 
Hon Lianne Dalziel 
: Do you think the member should answer that then? 
STUART NASH 
: I think that he probably should actually because it is not much to ask is it? It would not take long. We are not asking for a 10-minute call; we are asking for only a 5-minute call. 
If I could move to clause 27 we see that it talks about amendments to the Westpac New Zealand Act 2006. Clause 27(2) amends section 19(4) of the Act “by omitting ‘DB 23 of the Income Tax Act 2004’ and substituting ‘DB 31 of the Income Tax Act 2007’.” 
Hon Lianne Dalziel 
: Why? 
STUART NASH 
: Well that is the question I want to know the answer to. I would have thought that in a bill of this size—and it is not a large bill; we have to admit that compared with some of the bills that come before the Finance and Expenditure Committee this is about a third of the size of a Supplementary Order Paper that we are looking at the moment so it is not a big bill—perhaps just for clarity because people may look at this and wonder what it is about it could have been listed there. It actually means nothing. To tell the truth it means nothing. We were talking about this in the Finance and Expenditure Committee today and saying that tax legislation should be clear. It has to be easy to use. It has to be clear so that people are not running around looking for a whole lot of different Acts. 
Again if we look at clause 27(3) which amends section 19(12) of the Westpac New Zealand Act “by omitting ‘adjusted tax value’.” it would have been good if it could have just fleshed that out a little bit. I do not think there would have been any mischief there. It would have made it just a little bit easier. The legislation would have been a little clearer. Clause 27(4) states: “Subsection (2) applies with effect from 31 March 2008.” That is actually retrospective legislation in a banking bill. Again I think it would have been good to clarify that. As I said there is no mischief here at all. I am not trying to be smart and there is no attempt to deceive anyone or anything like that but I think it would be good in bills like this—which are quite important bills—if they were to set out what did come into effect from in this instance 31 March 2008. That was 2 years after the original Westpac New Zealand Act was passed and obviously it is 3 years before this bill will be passed. 
Again clause 27(5) states: “Subsection (3) applies with effect from 13 September 2006.” which was obviously just after the original Westpac New Zealand Act was passed. Again it would have been nice to put it down to clarify it and be a little bit clearer on what the legislation meant. As I said clause 27 apart from the title “Amendments to Westpac New Zealand Act 2006” means nothing. It means nothing. In fact if we really want to know what this means we have to go and grab the Income Tax Act and the original Westpac New Zealand Act 2006. That just takes time. It would not have been long at all. 
I come back to clause 26 “Banking legislation continues to apply”. That makes a lot of sense. We would hope—and it has been the case—that this Act did not change Westpac’s status with regard to any other Act governing the banking sector. That is clarified in this bill. 
Hon SHANE JONES (Labour) 
: 
 Tena tatou katoa at 8 o’clock on a Wednesday evening. I will augment in a very modest fashion that which has been offered. I might wait until the senior member Pete Hodgson moves away from the Table; the wisdom is blinding me at the moment. 
I direct our attention to clause 26 in Part 3. I want to be confident about the changes that are contemplated. I remind the current chair of the Finance and Expenditure Committee Craig Foss who is the member in the chair—I dare not say “the throne”—that when this legislation first went through he enjoyed sterling chairmanship under the leadership of a Mr Jones. Now that I have rejoined the Finance and Expenditure Committee we will look to see whether those qualities have continued. Time will tell. 
I cannot imagine that Mr Chairperson is likely to rule any of what I am about to say far of the mark but I will say that the banking sector is facing some substantial changes not the least of which is a change to the capital adequacy equation or dare I say it the framework. So when clause 26 states: “Nothing in this Act exempts Westpac Banking Corporation or Westpac New Zealand from the provisions …” I am presuming that those provisions are enabling the Governor of the Reserve Bank to introduce changes that ensure our major banks especially those of systemic importance are able and will be required to fulfil the Basel II capital requirements that have recently been in the newspaper. Basically they require that as we continue to fund the very substantial appetites of the farming sector that continue to grow the banks derive an adequate amount of capital from their own inherent sources and are not relying to such an extent on a thin level of capital so that when they continue to fund the more aggressive elements of the farming community which have been unwisely in my view stacking up too much debt and running a set of operations—unless it is arrested and they are brought to accept that there is a fair standard that all contributors to the economy ought to observe in relation to the tax system—their prodigious appetite for debt does not undermine the broader banking sector. 
Mr Foss is challenging me to demonstrate the relevance of that to the bill and I will be glad to do that over the next 20 minutes with the Chairperson’s forbearance. I am referring to clause 26 in the unlikely event that Mr Foss—unlike the Labour member who formerly brought in the 2006 bill—has not read it. I am talking about whether the banks will be captured by the provisions that enable the regulator the Reserve Bank to impose standards. I would not like to think that as a consequence of shoddy workmanship or shoddy drafting—perish the thought—they may not be required to observe the new strictures put in place by the Reserve Bank because those strictures are there for a purpose. 
Farm sales have slowed down. They have gone through a very low period. Not every single client of Westpac who is a farmer is in “Strugglers’ Gully” in terms of their debt-equity ratio but it is important that as the bank goes forward it does not worsen that situation. A sum of between $45 billion to 47 billion has been extended in the form of debt to our agricultural primary produce sector. Not all of it is with dairy farmers but the vast majority of it is. In addition to that as I have said not all dairy farmers are facing tragic economic circumstances but a significant minority are. I am sure the banks that put them in that situation will work very judiciously with them to ensure that they are not tipped over the edge. I am sure that no particular provision requires a bank to act in that fashion but banks have to accept that they are members of the community and that they have a critical role in relation to the provision of credit. That credit depends inordinately on overseas sources as a consequence of the blighted view that the current Government has about saving and unfortunately that will be worsened tomorrow. These things are in relation to clause 26. 
I will continue in this vein of farming. As the current Minister of Agriculture knows when the front page of the  
Dominion Post 
 is not about us and is about members opposite it is never wrong—never. There are odd occasions when the front page of the  
Dominion Post  
is unwisely directed on members on this side of the Chamber and that is a case of poor research of personal agendas and of its feeling beholden perhaps to some of the corporate backers of the current Government and we cannot do much about that. But we know that as a consequence of today this is connected to the status of the banking sector. I must not continue in this vein however. 
We have talked about this bank our Westpac bank which has now been fully incorporated as a consequence of changes that originated back in 2000. Ann Sherry a former chief executive officer fought that doggedly. She has since gone on to run not the 
 Love Boat 
 but some sort of ocean liner business. Under her stewardship Westpac was the last bank that was willing to embrace its obligations. 
Westpac accounts for somewhere between 18 to 20 percent of our commercial banking sector. It is not the largest—I think that belongs to ANZ in terms of its exposure to the rural sector—but it has a handsome book. Part of that book contains warts otherwise known as Crafar which will soon no doubt be sold overseas as a consequence of more dilatory approaches by members opposite but we will learn more about that closer to 26 November. Will the bank be obliged to continue along with the other banking sectors will it be obliged to observe such capital adequacy ratios as I earlier referred to and as a consequence of this legislation will it be able to do anything that might worsen the situation with our real estate - based debt? Our Aussie-backed banks are unlike the single sterling example of Labour policy Kiwibank which is regularly undermined by the current Minister of Finance in his very parsimonious approach to providing adequate amounts of capital for it to slowly grow into flourishing areas of the economy rare though they may be under the current administration. 
On the household sector debt what will happen as a consequence of this bill’s passing? Can it be affirmed that our Westpac bank will continue to play a key role not only in ongoing funding of house owners and young families wanting to purchase houses but also in the provision of credit for business lending? That is the provision of credit on the basis of the strength of the cash flow that an enterprise is showing as opposed to small to medium sized businesses having to rack up more debt against their houses and move that credit through to sustaining their businesses. We would like to see something of that nature flow from banks such as this monumental institution otherwise known as the Westpac bank so that they are providing capital to those who are willing to take a risk diversify the revenue the Government relies on and deepen our reach into overseas markets with the provision of innovative services and new goods. 
But none of that can happen without the banks being willing to move away from their very comfortable association with lending dough against houses one after the other. We want to be assured that as a consequence of this enactment—clause 26 in Part 3—they will be able to continue to adopt the attitude that grows the part of the economy that has actually withered over the last 2 or 3 years and in particular the last 2 years. That is not really a consequence of the so-called international recession but has actually come about because of the very drowsy approach taken by the current leadership towards reviving the economy training people and more important using a time of adversity and turning it into an opportunity to create new sources of wealth and innovation and to boost productivity. From a time of adversity can come inventiveness and resourcefulness—something that is spectacularly absent from the current approach shown to us by the Government. 
Part 3 agreed to. 
Clauses 1 and 2 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 In addressing clauses 1 and 2 of the Westpac New Zealand Bill which of course the Labour Opposition will support let me recount a small homily in the nature of the contribution of the previous member Mr Jones. 
Hon Lianne Dalziel 
: Oh nothing could be quite like— 
Hon DAVID CUNLIFFE 
: Well perhaps not with the same panache but the content bears upon something that Mr Jones just recounted. It was a cold wild and windy night in Wellington and I was a junior Minister in the Beehive. My phone rang and there on the other end I heard the dulcet tones of she who must be obeyed—not God but the next best thing: Prime Minister Helen Clark. “Can you come up to the ninth floor?” she said. 
Hon Lianne Dalziel 
: Oh I thought you were talking about Ann Sherry again! 
Hon DAVID CUNLIFFE 
: No no—it was worse than that. When I got in the door of the Prime Minister’s office I saw the Minister of Finance sitting ashen-faced at one end of the room and at the other a bloke whom I could not instantly recognise with a strong Australian drawl. I thought he was undertaking a very high-risk exercise as he was wagging his finger at Helen Clark and Michael Cullen and telling them what to do. I had not actually seen someone do that for a long time and live to tell the tale. I said more out of kindness than in anger “Who the hell are you and what do you think you’re doing?”. He said “I’m David Morgan and I’m the chairman of Westpac and I object to this new regulation you’re putting in around the Reserve Bank.” He was the chairman of Westpac Banking Corporation from Australia. He had come across the ditch to wag his finger at Auntie Helen and to tell her that she was not—not—to regulate the banking industry and not to tie these silly performance and asset regulations around the neck of Westpac. Well we did. All banks were treated equally and all banks complied. New Zealand today is a safer and better economy because we have more assets domiciled in this country. I am actually quite proud that the last Labour Government put those regulations through despite the wagging finger of that rather charming Aussie bloke from across the Ditch. 
Today we come full circle. Today we are discussing the Westpac New Zealand Bill which vests in Westpac New Zealand those parts of the of the Australian-owned institutional bank’s asset book that better fit within the cap instituted under that policy. So there we are and we are doing this for good reason. As we go to the title and the commencement of the bill we note that the words “Westpac” and “New Zealand” appear in the same sentence. That has to tell us something. It is a New Zealand bank it is subject to New Zealand law and it is subject to a full-service regulator the Reserve Bank of New Zealand. Lest we forget and lest we take it for granted there were those and I think more than a few on the other side—on the dark side—who suggested that we did not need our own Reserve Bank that we did not need our own prudential regulations and that we could just let Canberra do it. We could have our entire banking system regulated out of Canberra. How patriotic is that? It would not be called the Westpac New Zealand Bill then would it? It would be called the “Westpac Australia (New Zealand Bit) Bill 2010”. But it is not because the good old Labour Government stood up for New Zealand. It said “We want to own our own future—own our own future. We want a banking system we can rely on and we want decent asset-backing locked into this market because when the rainy day comes we don’t want all that capital taking flight back to Sydney and leaving us all on our own poverty-stricken lonesome.” 
Here we are today passing through the Committee stage what is universally regarded thanks to the Maori Party’s clarification—I tautoko that—as unanimous in this House. All parties including the Government have seen the merit in putting the words “New Zealand” in the title alongside the words “Westpac” and “Bill 2010”. It is a statement of our sovereignty as New Zealanders. We are proud Kiwis and we want to own our future. We want to own a bigger not a smaller slice of our own financial system. This may not be great news for Westpac but we plan to empower Kiwibank to be an even more vigorous competitor by infusing its balance sheet with a little extra capital so it can go charging into the marketplace and do battle with our friends across the Ditch like we do on the footy field. 
Shane Ardern 
: How come the member didn’t give it to Government banking last time? 
Hon DAVID CUNLIFFE 
: What was that? 
Shane Ardern 
: How come you didn’t give it to Government banking when you were in power? 
Hon DAVID CUNLIFFE 
: Well now the member has provoked me. In the nick of time the member has provoked me for one further short 5-minute drawl. What was the question again? 
Hon Lianne Dalziel 
: I think he was asking us why we set up Kiwibank. 
Hon DAVID CUNLIFFE 
: Oh that is a long story. That might require— 
The CHAIRPERSON (Eric Roy) 
: Clauses 1 and 2. 
Hon DAVID CUNLIFFE 
: But I will have to bring it back to the title and the commencement. The commencement date of this bill is a very good question because I assume it is not the same date as it is in the title—the title of course is 2010. The commencement date comes into force when the legislation receives the Royal assent and that could not possibly be 2010 because we are in 2011. 
This brings me to a very important point: when making law it should be made with a mandate. If one is making law in 2010 and 2011 the mandate should come from the 2008 election not the 2011 election. Does that sound familiar? Does it sound just a weenie bit familiar? There are other matters where the Government is saying it will seek a mandate from the public on 26 November for matters it intends to pass through the House in the next 3 days—just a mere “Rip Van Winkle” of 6 months in advance. Well that defies logic and it defies gravity and that is why it is important that this bill is called the Westpac New Zealand Bill 2010. The mandate was achieved in 2008—it happens to be bipartisan—and on this occasion the Government got it the right way round unlike KiwiSaver unlike Working for Families and unlike cutting back on student loans where National says it will go to the people in November to do something it will legislate for in May. That is not a mandate; that is a broken promise. I am glad the member opposite Shane Ardern provoked that slight peroration into the chronology of legislation—provoked as it is by the title and commencement clauses of the Westpac New Zealand Bill 2010. 
Let us sum up briefly. This bill is perhaps not the most complex bill we have seen in the House. It is certainly not the longest. This bill may not be the most important bill we have ever passed but it is very important to Westpac and it speaks to some principles that actually matter. It is called the Westpac New Zealand Bill for a reason: it is in New Zealand. It is in New Zealand because it is required to be in New Zealand by law. The assets and liabilities of the bank have to be to a substantial extent under New Zealand law subject to the regulation of the full-service Reserve Bank of New Zealand. In this House we are sovereign and that brings with it enormous responsibilities to our people and their kids because we want them to grow up with sovereignty. We want them to own their own future. That is not just a phrase; it is a matter that is dear to all our hearts. The day we lose control of our financial system is the day we will not own that future and we have come perilously close to that already. With those words of caution for the future I commend the bill to the Committee. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 Thank you Mr Chairman for the opportunity to speak on clauses 1 and 2 of this very important bill the Westpac New Zealand Bill. 
I begin by traversing the policy that lies behind the legislation we have before us tonight. The first thing I will do is remind the Committee why the Reserve Bank came to the view that it was important to have local incorporation. I think the reason for that can be brought back to the provisions of the Reserve Bank of New Zealand Act. In Part 5 of the Act the Reserve Bank is given powers to register banks and perform prudential supervision. Section 68 of the Act states that those powers must be used for the purposes of: “(a) promoting the maintenance of a sound and efficient financial system; or (b) avoiding significant damage to the financial system that could result from the failure of a registered bank.” 
We have been very lucky in this country to be honest with the system we have in place. We have not had the failure of a registered bank in the way that occurred in other jurisdictions. Of course the behaviour that was identified in the global financial crisis as undermining the integrity of our global financial system stemmed from those people who did not appreciate the sense of confidence that people had in banks in general. People were really let down by the behaviour of individuals who were running those banks. Those individuals came up with amazing derivatives collateralised debt obligations and various other ways of chopping dicing and slicing the different levels of risk within products. Those products did not make much sense to anyone who knew anything about what those individuals were supposedly able to advise people on. 
The Reserve Bank’s supervisory regime though comprises three important pillars. The first is market discipline which involves creditors and financial markets monitoring banks. The second is self-discipline which involves banks and their decision makers responding to incentives to operate prudently and efficiently. The third is regulatory discipline which is where the Reserve Bank sets the prudential rules by which banks are required to operate. When the local incorporation policy was brought into being the Reserve Bank was responsible only for the prudential supervision of banks. It was subsequent to that with the Review of Financial Products and Providers which I was the lead Minister on at the time that a decision was made to extend the jurisdiction of the Reserve Bank to cover the non-bank deposit taking sector. 
If we carve out the non-bank deposit taking sector and its behaviour within New Zealand from what happened with the banking industry within New Zealand and Australia—and in that respect we were fortunate to be tied to Australia—then we can identify that we suffered our own mini-version of the global financial crisis which was located in the non-bank deposit taking sector. So our decision to regulate in that area was entirely appropriate. Everyone says that it should have been done sooner. I ask them how much sooner that could have been done than doing it as soon as the return on the discussion documents was made available. I do not know whether that could have been done any sooner than it was. 
But leaving that aside the point that is often overlooked is what happens when we have such a large exposure to foreign-owned banks. Australian-owned banks in New Zealand still account for and did at that time about 90 percent of assets held in our banking system. That is an enormous benefit but it is an enormous exposure as well. I think that was what drove the Reserve Bank to consider the whole issue of local incorporation. Its view at the time was that foreign ownership acted as a channel through which distress from abroad could spread to New Zealand. That was the risk the Reserve Bank was trying to address. That meant that although the banks looked like New Zealand banks in name—Australia and New Zealand Banking Group Westpac Banking Corporation New Zealand branch—they had the ability and the incentive to act in ways inconsistent with promoting a robust and efficient New Zealand financial system. This was the problem: potentially an Australian bank could behave in the interests of an Australian bank and not act through its New Zealand branch in the best interests of the New Zealand banking system. That is why the Reserve Bank felt that it was really important to undertake the review of its policy in the early 2000s. 
My colleague made the point that Westpac tried to find alternative ways to address the policy intent without meeting the regulatory obligations that were being worked through by the Reserve Bank. To be fair Westpac put up a proposition that the Reserve Bank of the day did consider. The Reserve Bank declined to accept that proposition at the end of 2004 and as a result we dealt with legislation in 2006 that brought into play the Westpac New Zealand Act 2006. 
The one question that I still have not quite had answered is this: the Westpac New Zealand Act was obviously designed with a view that the transfer that had occurred at that time would be the one and only transfer required. I am not sure whether it was deliberate or just an assumption that that would be the case. I wonder whether we are debating this legislation tonight because we did not have sufficient foresight to understand that the rules would again come into play. I think I should put that on the record. The reason why we are having this debate tonight is because of a condition that was reached with the Reserve Bank in terms of its local incorporation policy. That condition requires that systemically important banks be incorporated locally in order to provide a degree of assurance that the Reserve Bank will be able to manage a failure affecting the bank. 
One of the conditions requires that branches do not have New Zealand liabilities excluding those to related parties in excess of $15 billion. That is the cut-off point where banks suddenly become systemically important. So that means that the Westpac branch that remained at the time in 2006 did not reach that threshold of “systemically important” but now it does. That says something pretty amazing about the extent of business that Westpac has managed to generate in the institutional banking sector over that period of time. I have already confessed my conflict of interest because I of course bank with Westpac so I am saying positive things about them but not for that reason. It appears that Westpac has reached that threshold in that period of time. 
The question is: does that mean that if that happens again with what remains in the branch of Westpac Banking Corporation we will need more legislation to address it or will this bill be sufficient to enable a further Order in Council to be made to transfer assets and liabilities in order to keep the liabilities’ cap in future below the level where the Reserve Bank would require this process to be undertaken? That is really the only outstanding question I have in that regard. I take it that the member in charge of the bill Craig Foss is not going to stand and advise the Committee whether Westpac is in the qualifying financial entity area. Maybe that means that it is not as relevant as it would otherwise be. 
I want to know whether this legislation has life beyond 2011 or a limited life as did the 2006 Act and whether other banking institutions that may have dual registration will be affected. I think others have that dual registration. I think Rabobank is one of them. Will we end up having a multiplicity of legislative interventions as opposed to regulatory interventions by way of Order in Council? That would make a lot more sense to me. 
STUART NASH (Labour) 
: 
 We are talking about clauses 1 and 2 the title and commencement clauses of the Westpac New Zealand Bill. Lianne Dalziel brought up a couple of good points. It is always good following Lianne—apart from the fact that she steals a lot of my arguments—because she poses questions. One of the words of the title clause “This Act is the Westpac New Zealand Act 2010.” is “Act”. Lianne Dalziel brought up an important point. I know as the member in the chair Craig Foss will also know that consideration was given to using the Westpac New Zealand Act 2006 but it was considered to be unfeasible because it was not drafted with the intention of being used for a second vesting. This is why the new bill was necessary. I wonder whether with the 2006 Act the then Parliament thought that Westpac would not get any bigger than it was and then here we are in 2011 and we are saying it will not get any bigger than it is now. Are we going to have the same sort of approach in 2016 and say it will not happen again? One just never knows. 
The bill is the Westpac New Zealand Bill 2010. It got me thinking and the other thing I would also like to ask is whether when the bill receives Royal assent it will be changed to the Westpac New Zealand Act 2011. 
Hon Lianne Dalziel 
: It will. I checked with Pete Hodgson. He knows everything. 
STUART NASH 
: He does. That is good to know. So the “2010” of the legislation at the moment will change. The Act will be the Westpac New Zealand Act 2011. 
Hon Lianne Dalziel 
: The Clerk will fix it before it goes for assent. 
STUART NASH 
: The Clerk is very good like that. 
There are a couple of things we talked about. In 2011 the bill will receive Royal assent. That has been talked about before. A couple of amendments to the Westpac New Zealand Act 2006 came into effect retrospectively on 31 March 2008. There is another amendment from September 2006 probably just after the original Westpac New Zealand Act came into force. This bill is largely based on the Westpac New Zealand Act 2006 and like that Act the bill facilities the vesting by providing an overall legal framework for the transfer of assets and liabilities from Westpac Banking Corporation to Westpac New Zealand. I suppose in a way it is good because it means that the New Zealand banking sector is growing. The facilities that are demanded by New Zealand companies need to be bigger. Perhaps the economy is expanding. 
One thing Mr Cunliffe talked about is that the bill is called the Westpac New Zealand Bill. He said that Westpac New Zealand is overseen by the Reserve Bank of New Zealand. But the sad thing is that Westpac is not a New Zealand - owned bank. All the profits that Westpac New Zealand will make will go back to its Australian shareholders. The profits will not come back to New Zealanders. 
An interesting fact is that Westpac has its 150th anniversary next year. It is a very old bank. I think it started out as a New Zealand bank but somewhere along the line it was sold. If we look at all the major banks here we see that ASB Bank which used to be called the Auckland Savings Bank was sold to Australians. All its profits go offshore. ANZ National Bank—the “National” stands for what was the National Bank of New Zealand—was sold. It is gone. “BNZ” used to stand for the Bank of New Zealand. It is gone. All the major banks of New Zealand even though they are controlled by the Reserve Bank are owned by Australian parents. All the dividends that are earned by the four major banks in New Zealand return across the Tasman to their parents not to the pockets of New Zealanders or back to the Government in terms of revenue. They go to Australia. That is a great shame. 
I suppose the one shining light is that Kiwibank is still New Zealand owned. I hope and pray that it will continue to be New Zealand owned. Mind you if I look at the agenda of the Government when it talks about selling assets I wonder whether— 
The CHAIRPERSON (Eric Roy) 
: This is the title clause and the commencement clause. Although both  
McGee 
 and Standing Orders state that members can summarise the debate the member is not summarising; he is introducing new material. He should please contain himself to what is required. 
STUART NASH 
: I will. I was talking about the title of the bill the Westpac New Zealand Bill. The reason it is called the Westpac New Zealand Bill as Mr Cunliffe put down is that it is about the Westpac New Zealand branch. The bill governs the rules around the prudential requirements of the New Zealand branch of Westpac Banking Corporation. As we know Westpac Banking Corporation is based in Australia. Westpac New Zealand is a branch of Westpac Banking Corporation but as I was saying the vast majority of the dividends—in fact all of the dividends—from Westpac go to its parent company which is a real shame. 
I was saying that the transfer will mean that Westpac New Zealand will increase in size. We know that. We talk about $42 billion worth of debt against the agricultural sector. I wonder how much of that debt is vested with Westpac Bank. 
David Shearer 
: A considerable amount I would say. 
STUART NASH 
: A considerable amount. I suppose even though Westpac is growing which is the reason for the bill we have to be a little bit careful when we look at a growing bank not to just simply assume that this is growth in the New Zealand economy. Part of it is growth in the debt profile of these banks and a large portion of that is to the agricultural sector. I am not too sure how much Westpac New Zealand has of that but maybe one of the reasons we are debating this bill is that the liabilities of Westpac New Zealand are such that it needs to increase that prudential rate above the $15 billion. Westpac is still a significant bank of that there is no doubt but I am unsure whether it is the biggest bank. This term being my first I am unsure whether we have passed similar legislation titled the “ANZ New Zealand Act” in 2000 and something or whether there has been the “BNZ New Zealand Act”. Would that not be ironic—the “Bank of New Zealand New Zealand Act” regulating a New Zealand branch of the BNZ? 
There are very good reasons for the bill. It is very sound legislation. It protects the interests of all customers all suppliers and all employees. We made that very clear as it went through the select committee process. It is good legislation which is why I commend it to the Committee. Thank you. 
Clause 1 agreed to. 
Clause 2 agreed to. 
Bill to be reported without amendment presently.