Clark David: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeClark David: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15010. Text is incorporated into the Bound Volume.]Dr DAVID CLARK (Labour—Dunedin North): This issue is one that we debated at length in the Finance and Expenditure Committee although that was some time ago. I look across and recall Mr Bennett from the other side of the Chamber there participating in this lively discussion in the select committee. Other members here will think back and remember the interesting discussions we had.If a bank collapses covered bonds have a higher priority to banks over other lenders including ordinary mums and dads. There is no doubt that it is desirable to have some legislation in this area. It seems a good idea to have an instrument that is protected from runs on banks and from other unforeseen financial situations in order to attract a certain kind of lending at a premium. Having a covered bond is a mechanism that is used around the world to provide some financial security to banks and to other lenders. We know that $6 billion worth of bonds has been issued over 2 years without any regulatory oversight so it is clearly an area that needs to be addressed. It is good and it is timely to do so.Our question on this side of the Chamber is whether the percentage of a bank’s assets that can be placed in this position is too high. It is possible that the 10 percent limit is too high. We looked at other examples overseas and we found that in Australia it was lower—I think around the 8 percent mark from memory—and in Canada it was as low as 4 percent. So we ask whether the big end of town needed this much protection and whether in fact that level could be set lower. Those who were pushing the case seemed determined that it should be higher. On this side of the Chamber that left us a little bit uncomfortable. So we are really arguing about where the line should be drawn.We on this side of the Committee are very concerned about small-business owners about mum and dad New Zealanders who take out a mortgage to start a business and about those who are putting their shoulder to the wheel taking the risks and borrowing money. Having them further down the list of people who are able to access capital in the case of a collapse seems an injustice. So we do not believe that too much of this covered bond lending should be happening and we would have less of it.We think of the recent example—not so recent now but not so long ago—of Mainzeal Property and Construction and the way in which individual contractors and small-business folk missed out on getting their money and worse than that getting their tools back. So Labour is of course proposing solutions in that area to make sure thatsubcontractors—the lifeblood of our economy those who go to work every day—and their interests are looked after. That unfortunately does not seem to be a priority for the National Government. It is more interested in making sure that the interests of big business are protected. I could digress into Chorus the Skycity Casino deal and Rio Tinto as other examples of that but I think it would be better to focus on the particular issue of covered bonds and quite where that line should be drawn.Labour will be supporting this bill I have to say despite our reservations. That is primarily because we think there needs to be a regulatory framework. We are actually arguing as I said at the beginning about exactly and precisely where that line should be drawn. The lack of a legislative framework has we think put New Zealand issuers at a disadvantage. At least with the regulatory certainty in Australia for those who are seeking to lend there is some certainty to the people they are lending to. As we know in the world of business often regulatory certainty is more important than other factors. Businesses like to know the risks that they are dealing with take their chances and develop a strategy around those risks.I think back for a parallel example to the emissions trading scheme. I had the privilege of working on that legislation as an official many years ago. When I contacted for example the oil companies I had oil companies saying to me: “We will scream if you put this legislation through. But we will scream quietly if we know what it is and we know the detail of it. However if the rules are not clear if the legislation is too harsh if it comes too soon and if it comes too fast we will scream loudly.” They were representing their interests their clients and their profits. But they are also like any business looking to the future and saying: “We can plan if we know what the rules are. We can plan our arrangements. We can work out how we are going to structure our debt. We can plan as to which areas of industry we go into and whether we move toward renewables.” I know that BP had a brand that was about a sustainable future. That has been called into question by more recent events but BP made choices about where it was going to put its business interests and that is around regulatory certainty.Certainly in New Zealand one of the discussions that we have in this Parliament often is around regulatory certainty and the ability to attract capital to our businesses here—not just overseas capital but New Zealand capital. There are some significant New Zealand companies that want regulatory certainty here or otherwise they will invest their money offshore.That is why we will be supporting this bill. We do think that that limit is a little too high and panders to the big end of town and that it makes sure that the big institutional lenders creditors and so on are protected rather than looking out for the interests of those who are starting up and those who are literally risking the shirt off their backs. We see the pattern there in the Government’s other behaviour but we appreciate the need for a regulatory framework.There are of course other areas where we would like to see the Government provide greater regulatory certainty in the interests of the financial well-being of New Zealand long term. Here we are talking about savings and putting savings at risk. In the KiwiSaver arena we would like to see universal KiwiSaver so that there is actually a greater depth of savings in New Zealand a deeper pool from which businesses can lend. We think of the Australian scheme which came in shortly before the National Government in the early 1980s canned the scheme we had here. They now have about $1.6 trillion in their retirement savings scheme and that is available capital. So that is good for small business. In New Zealand if you want to start a small business you are handing round the hat to your family members. In Australia there is a lot of capital and a lot of it is sticky capital that stays close by that is available for good ideas that pursues good ideas and that ensures growth in that economy.These are issues of savings. They are issues of how we protect lenders—whether we can attract good credit from overseas—and they are important issues for our country. There are of course plenty of others. There is the capital gains tax that we would like to introduce which we think would send money towards the productive sector again in New Zealand. All of these things actually reduce the risks that we are trying to cut off here. When you have an economy that is prospering and when it has got a balance of trade that is under control—a rebalanced economy—there are fewer risks in it. It is more attractive for investors over time because they see its health.It was very disappointing to see our economy downgraded under this Government’s last term because essentially it did not have the vision. It was not projecting the right kinds of figures in the period to come that would give the international ratings agencies confidence. I guess that is because this Government has run deficits consistently where the last Labour Government ran 9 years of surpluses. Michael Cullen was certainly a strong hand on the tiller. Our economy was running strongly but under this Government it has lacked a certain amount of vision. It has lacked the ability to convince those ratings agencies that we have a long-term plan for our economy that it is secure and that it is a good place to invest in the same way that the previous Labour Government has. This Government has a poor record on the economy—the worst economic record of any Government in the last 50 years in New Zealand—whereas the Labour Government certainly by introducing Kiwibank KiwiSaver and other measures pushed us towards more secure savings that will benefit small businesses in our economy which is the type of issue that we are dealing with here.The legislation itself has three main elements: a requirement that the covered bonds issued in New Zealand by banks be registered subject to meeting registration requirements which is a technical expectation that enables monitoring and makes sure that this does not get out of hand; independent monitoring of covered pools by an asset monitor; and provision to amend the Companies Act.