Parker David: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
Parker David: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6117] 
Hon DAVID PARKER (Labour) 
: 
 Before addressing the bill it behoves me to respond to some of the comments made by the member who has just resumed his seat the chairperson of the Finance and Expenditure Committee National’s Craig Foss. I would have thought that that revisionist view of history was beneath him. It is plain that when the last Labour Government took office Government debt was 39 percent of GDP. When we left office it was 17 percent of GDP. Net debt was virtually nil—for the first time in New Zealand’s history I understand. So far from leaving the books in a poor state we left them in a very good state. During the period of our tenure New Zealand’s growth rate was higher on average than that of Australia the United States Europe and Japan. So on the growth front we did better as well. 
During the period of the Labour Government we built up savings to fund the future bulge in superannuation. We established what is colloquially called the Cullen fund—the New Zealand Superannuation Fund—which now has over $10 billion of savings in it to go towards superannuation in the future—contributions to which of course have been suspended by the current National Government which is another example of its mismanagement of the economy. 
Mr Foss’ contribution and criticism needs to also be reflected upon in the context of the fact that the Opposition is supporting this bill. I am afraid that Mr Foss having served that up will have to take a little bit back. The reality is that we expect judgment to be shown by the Government and judgment to be shown by the Minister of Finance. When he makes those sorts of accusations against us I am afraid he will find it coming flying back because the headline of today’s paper shows that his Government is a Government without ethics—“Fresh housing woes for English”. Mr English was trying to line his own pocket and he showed terrible misjudgement in his personal dealings in respect of something that was going to privately profit him. So the member should not come here and lecture us about ethics when there is that sort of thing on the front page with the Minister in charge of this bill. 
I want to return to the topic which is the financial stability that is ensured through this retail deposit guarantee scheme. Mr Foss misrepresented my colleague the Hon David Cunliffe’s comments about this being compulsory or voluntary. We have never suggested that it ought to be compulsory. The point he was making is that if an institution is going to pick up the wholesale guarantee it should pick up the retail one as well. Otherwise we are saying that we need the guarantee for the big fellas who are lending to New Zealand from offshore hundreds of millions or billions of dollars but ma and pa investors who are only investing $1000 don’t get the benefit of the guarantee. That is the point the Hon David Cunliffe was making and it should not be misrepresented by Government members. 
Another own goal by Mr Foss was that he said the prior instrument was introduced without a select committee. Of course it was; Parliament was not sitting. Parliament had risen for the last election so it could not go to a select committee. In response to that little faux pas Craig Foss said off the cuff: “Oh well of course it could have gone to a select committee straight after the election.” He is right but National was the Government by then so how that was the Labour Party’s fault I am not quite sure. I think that is 3 nil so far to the Labour Party; they were all own goals by Craig Foss. 
I return to one of the other issues that my colleague the Hon David Cunliffe touched upon because it is a concern both he and I share. It relates to overall financial stability and the size of our financial institutions. I want to place on record as the Hon David Cunliffe did that we are fortunate to have a stable banking sector in no small part because of the strong major Australian banks. I am not criticising them as entities but their interests do not necessarily always coincide with New Zealand’s interests. I am concerned that the fee structure and the limits to the ambit of the scheme are set out in a way which again prefers the big end of town. The major banks have a lower fee structure because by virtue of their size and the scale of their businesses they are more likely to get a high credit rating than a smaller financial institution. One of New Zealand’s problems is the concentration of our finance sector in four main banking institutions. That is a long-term problem for New Zealand in terms of both the effect it has on New Zealand credit markets and the effect it has on our current account deficit through the repatriation of profits of those banks the combined profit of which is bigger—and correct me if I am wrong Mr Cunliffe—than the total profit of the rest of the New Zealand stock exchange put together. That is an enormous issue. The profits in total of the four big banks are more than the whole of the New Zealand stock exchange. Further cementing the advantages that those main banks have over smaller New Zealand competitors is not good policy because it further entrenches that advantage and will see them grow their market share further. That is one of the distortions that is extended by this guarantee scheme. 
We support the scheme because we do not see that there is presently a better option. We concede that we need a retail guarantee scheme and we think it should be compulsory for those who have bought into the wholesale scheme but otherwise it should be voluntary. But we think that the fee structure is in some ways wrong in that a large Australian institution gets a lower fee structure than a New Zealand building society despite the fact that the risk profile of a New Zealand building society is quite low. I think that that is a problem. 
I am quite attracted to some of the writings of Hyman Minsky an American economist who died about 10 years ago. He predicted some of the difficulties we have seen in financial markets around the world. There were two main parts to his theory. The first was that the longer the period of financial stability the more risk taking we see on the part of financial enterprises. That is true. They forget the last cleanout they chase a higher market share and they want to justify the huge bonuses the chief executives get so they embark upon more and more risky transactions. They try and get around existing regulations by doing transactions that are off-balance-sheet in terms of the regulator. He said that that means there would be a constant update of regulatory oversight and he was right. That is one of the problems we have seen internationally. It allowed a lot of those large financial institutions to engage in transactions that were outside the regulatory package that related to their equity requirements and therefore they were able to embark upon very risky transactions while pretending that they were low-risk institutions. 
The second part of Hyman Minsky’s theory which I think is also sound is that financial enterprises ought to be of a size that reflects the size of the actors in the economy. He said that we ought not to be reliant on one two three four or five large institutions to an undue extent; we ought to have a healthy competitive array of financial institutions and they need to be in the bank and the non-bank sector. One problem this guarantee scheme causes is that some of the non-bank scheme is hampered. One of the reasons this ought to in my view have had a little bit more scrutiny is that although the regulatory impact statement says that one of the problems has been to encourage more risk-taking investment—because it has encouraged people to think that investing in finance companies is low risk because of the presence of the Government guarantee—we have not had information as to what the deleterious effect has been on other parts of the non-bank sector. I know that many hundreds of millions of dollars—if not billions; I do not have the information and I cannot get it because there is no select committee process—worth of funds have fled from other parts of the non-bank sector that are not covered by the guarantee scheme. Rather than encouraging the spread of financial institutions and the growth of a range of financial institutions including in the non-bank sector the guarantee scheme has the effect of concentrating the size and the market advantage of our existing major participants and that is not good. 
I think that is a real issue for New Zealand for the future. It is an issue not just related to the current account deficit but also to the control of the economy economic sovereignty and the proper functioning and efficiency of credit markets. We need more smaller institutions. Having said that the Labour Party supports this legislation as being necessary.