Reserve Bank of New Zealand Amendment Bill

Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this

I move, That the Reserve Bank of New Zealand Amendment Bill be now read a first time. At the appropriate time I intend to move that this bill be referred to the Finance and Expenditure Committee for consideration, that the committee present its final report on or before 9 October 2006, and that the committee have the authority to meet at any time while the House is sitting except during oral questions, during any evening on a day in which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 192 and 195(1)(b) and (c). I should say that I do not expect that the select committee will need those powers, because I do not anticipate there being a large number of submissions on this particular bill or, indeed, a great deal of controversy surrounding this bill.

The bill is an omnibus bill that amends the Reserve Bank of New Zealand Act 1989 and the Racing Act 2003. The Business Committee has agreed to this omnibus provision. It is intended later to divide the bill into two separate bills reflecting the two parts.

Part 1 amends the Reserve Bank of New Zealand Act 1989, and the amendments are to promote trans-Tasman coordination of banking regulation. The trans-Tasman coordination of banking regulation has been an important part of the trans-Tasman single economic market agenda, as the New Zealand and Australian banking markets are amongst the most highly interdependent in the world, with around 85 percent of our banking assets owned by Australians, and New Zealand banking system assets comprising around 15 percent of the total Australian-owned banks’ assets. Effective cooperation between the two bank regulators has the potential to reduce banks’ operating costs and to assist the maintenance of financial stability in both countries. The trans-Tasman proposals will be matched by equivalent changes to counterpart Australian legislation, which will require prescribed Australian financial authorities to cooperate with the Reserve Bank of New Zealand. The trans-Tasman provisions in the bill are to come into force by Order in Council around the same time that equivalent changes are enacted in Australia.

The amendments on this side of the Tasman will require the Reserve Bank to support prescribed Australian financial authorities, such as the Australian Prudential Regulatory Authority, in the performance of their statutory authorities for financial stability and prudential regulation. They require the bank, where reasonably practicable, to cooperate with prescribed Australian financial authorities, by supporting them and by avoiding actions that are likely to have a detrimental effect on financial system stability in Australia. For the purposes of the bill, an action that is likely to have a detrimental effect on financial system stability in Australia includes, but is not limited to, an action that prevents or interferes with any outsourcing arrangement. The Reserve Bank will be required, to the extent it considers reasonably practicable in the circumstances, to consult with the prescribed Australian authorities where it believes that an action it may take is likely to have a detrimental effect on financial system stability in Australia. I repeat, the Australians will be enacting mirror legislation within Australia. The bill also imposes an obligation on a statutory manager of a registered bank appointed under Part 5 of the Reserve Bank of New Zealand Act to obtain the Reserve Bank’s consent before taking any action that is likely to have a detrimental effect on financial system stability in Australia.

The amendments to promote coordination of banking sector regulation will implement the Government’s response to the recommendations of a Joint Trans-Tasman Council on Banking Supervision. That council was set up last year, as a result of an agreement between myself and Peter Costello, in order to progress trans-Tasman issues in banking regulation. It represents a path-breaking advance in home-host supervisory cooperation. Home-host relationships allow for cross-border supervision of banks operating in more than one country, and changes should allow regulatory costs while still allowing the Reserve Bank to continue to meet its existing statutory objectives. The changes will provide significantly greater assurance of cooperation and an obligation to consult, but not unduly constrain, the actions of the Reserve Bank. The obligations on the Reserve Bank apply only to the extent that they are reasonably practicable, and the bank’s existing statutory objectives and responsibilities will continue to apply.

At the same time, a number of minor amendments are made to the principal Act. These amend the definition of “financial institution” to clarify the Reserve Bank’s ability to seek an Order in Council declaring a person to be a financial institution; to update the provisions obliging the Reserve Bank to keep a register of banks, so as to make the provisions more technologically neutral; and to include directors of the Reserve Bank within the classes of persons entitled to protection from liability and a Crown indemnity when carrying out their functions under the Act.

Part 2 of the bill amends the Racing Act 2003 and deals with what I think one could describe as a relatively minor matter. The amendments to the Racing Act will ensure that the New Zealand Racing Board can conduct racing and sports betting in compliance with the law, following the demonetisation of the 5c coin. The Racing Board offers betting under the TAB brand, and is required to round dividends down to the nearest multiple of 5c. But the 5c coin will cease to be legal tender from 1 November 2006. This, of course, will apply only when somebody makes a very small bet—

JOHN KEY (National—Helensville) Link to this

On behalf of the National Party I say that it will be supporting this omnibus legislation amending the Reserve Bank of New Zealand Act and the Racing Act. I start by saying that this legislation will be going—as Dr Cullen indicated to the House—to the Finance and Expenditure Committee. I say on behalf of my fellow colleagues on that committee that it is a very hard-working committee, indeed.

Although I cannot comment absolutely about the number of submissions we have received on the other little trick that Dr Cullen’s is trying to pull at the moment—the introduction of a capital gains tax on foreign-held shares—I can say that the number of the submissions we have before that committee is stunning. I think that if the committee were to listen fully and diligently to all of those submissions, then there is no way we could possibly make the time frame of 6 October that Dr Cullen indicated. On top of that, we also have the KiwiSaver legislation, which members of the public will know is very, very technical and, again, full of a lot of issues. Ironically enough, also sent to the Finance and Expenditure Committee has been the Telecommunications Amendment Bill and the changes to the local loop unbundling that the Government is proposing.

All I can say is that I know that Dr Cullen has great faith in the new chairman of the Finance and Expenditure Committee, Shane Jones. I know there is a lot riding on Mr Jones’ shoulders, possibly as the replacement to Dr Cullen when Dr Cullen ekes out his retirement in the next few years. It will certainly be a challenge for Mr Jones to chaperone all of these pieces of legislation through the select committee.

I also say that we support the legislation because it does what we believe is necessary, which is forging closer integration between the banking systems of New Zealand and Australia. Around 85 percent of banks in New Zealand are owned by Australian parents, and it makes a great deal of sense for the central banks on both sides of the Tasman to be working closely together so that they understand the intricacies, and so that the integrity and the heart and soul of our banking system comes to it with the best information available.

I say to the House that I suspect that this legislation is actually not what Dr Cullen wanted. He stood and put a brave face on it as he read out the speech that his Treasury officials had written for him, but, indeed, Dr Cullen actually wanted a single banking regulator. In fact, in his meetings with Peter Costello in Australia, I suspect he told Peter Costello that he would make it happen, that it was a done deal, and that a single banking regulator—that banking regulator being the Australian Prudential Regulation Authority—would, in fact, regulate the New Zealand banking community. That single banking regulator, the Australian Prudential Regulation Authority, would have regulatory powers over here, probably through something like the establishment of the “Australian Prudential Regulation Authority (New Zealand)”. In fact, the supervision capabilities that are undertaken by the Reserve Bank of New Zealand would be taken away from the Reserve Bank of New Zealand just as they have been taken away from the Reserve Bank of Australia and from the Bank of England.

I suspect that over a cosy chardonnay in the lodge in Australia with the future Prime Minister of Australia, Peter Costello, Dr Cullen nutted out an interesting deal. Sadly for Dr Cullen, though, when he came back to New Zealand he was unable to agree with his good friends at FinSec, yet another union that acts as a lapdog for the Labour Party, or with the Governor of the Reserve Bank, who he is also having some difficulty with at the moment—and I want to move on to that in a minute. Interestingly enough, they were unable to agree on that, so he backtracked. Well, that did not make the future Prime Minister of Australia, Peter Costello, a happy little chappy, at all. He was very disappointed that he had poured a glass of Grange Hermitage down the throat of the outgoing Minister of Finance for New Zealand. He said to himself what a waste of Grange Hermitage it was, as he glugged back the last of the good summer Penfold’s wine. He said to himself: “I don’t think so. Michael Cullen is not going to come over here and tell me that it’s a done deal. I was going to give him streaming of imputation credits. That is out the window.”

Then, in a rather fiery display, we had Michael Cullen saying: “I’m too busy to go to the single economic leadership market debate here in Auckland, New Zealand. I can’t fly from Napier to Auckland to go to that, because it’s a wailing wall of self-interest, and you people from the private sector who have even bothered to show up are a waste of space.” It was so bad that Helen Clark, the Prime Minister of New Zealand, had to cancel her functions and come and apologise to and grovel for the forgiveness of Alexander Downer and the other fine Australian politicians who were over here, because Michael Cullen was too busy having his hair and nails done in Napier at his normal Friday night manicure to go up there and spend a bit of time with the Australians and break bread with them. So I do not think this bill is actually what Michael Cullen wanted, but I think it is just another example of what Michael Cullen has failed to do.

All we can infer from what we have seen in the House this afternoon is that there are definitely moves afoot in terms of the finance ministry in New Zealand. I have high hopes for Shane Jones. He is a new member; I worked closely with him on the select committee. I have high hopes for Shane Jones, but I have to say to him that he should watch the tea leaves and read the messages. Trevor Mallard is not a man who is known for shopping at the finest establishments around town. I do not see him at Zegna; I do not see him at Working Style. I do not think he has bought a tie that has cost more than about $25 in his life. But, today, Trevor Mallard came down to the House, in his loving and caring fashion that he so often treats this Parliament to, dressed up like he had had Karen Walker giving him a bit of advice.

The word on the street is that Helen Clark had said: “Michael is off, Phil is waiting, waiting, waiting in his caravan, and this is your opportunity, Trevor, so if you want to step up here, get yourself a decent suit and, for once in your life, look like a Minister of Finance, then you might even have a chance.” So I say to Shane Jones that he not a bad looking sort of bloke, if we could just dress him up a wee bit. He will have to get down to Zegna and get himself a decent suit and shirt and tie and polish his shoes, because if he does not do that then he has no show of seeing off Trevor Mallard when he becomes the next Minister of Finance. The second thing I want to say in relation to the Reserve Bank Act is the interesting situation concerning the range of inflation. I looked at the policy targets agreement and it states that inflation should be between1 to 3 percent. It used to be a range of 0 to 3 percent but when Michael Cullen became Minister of Finance he decided—in his typically endearing and loving fashion—that target was wrong and he increased it to 1 to 3 percent. That was very interesting, because it came about at the time of Dr Bollard’s appointment as Governor of the Reserve Bank. Michael Cullen said to Alan Bollard, over a coffee in his office, that there can be a bit more inflation in the system; Don Brash has been a bit hard about raising interest rates, a bit hawkish on those matters. Dr Cullen said he would like Dr Bollard to allow the reins to be a little freer to allow more growth and that we could achieve it with less inflation.

Lo and behold, mortgage-holders of New Zealand will be shocked to know that not only will their mortgage not be going down any time soon, it will be going up. If they want to know why it is going up they should look no further than the present Minister of Finance, as he carries out his swansong activities. He is the man who told Alan Bollard that there was room to allow for more inflation in the system. He is the man who primed the pumps and went out there and drove up capital spending and Government spending. He is the man who has been hiring bureaucrats like there is no tomorrow, and the man who, interestingly, in the House just a few weeks ago, told New Zealanders in the private sector not to ask for a pay rise, and to accept that 4 percent inflation means they will be going backwards if they accept a pay round of about 2 percent. Yet a couple of weeks ago we heard that the Department of Corrections had settled for 14 percent as a wage round. I am not arguing about whether corrections officers deserve more, but I do know that Michael Cullen says one thing to the private sector and another thing to Government departments. He is the man who has had his foot firmly on the pedal of Government spending.

I shall move, for one moment, from the important parts of the trans-Tasman banking regulations to changes that the legislation makes to the Racing Act. As I go around the racing industry, I am constantly congratulated. It is not often that I feel like a bit of a rock star when I go places but when I go to the races, like Ellerslie, I see people like Sue Moroney's brother. He came up to me and said: “John, I want to put politics aside and shake the hand of the man who made it happen for the racing industry of New Zealand. In forcing New Zealand First to force the Government to adopt that policy, racing can offer something much better for New Zealanders.”

SHANE JONES (Labour) Link to this

I stand to address, and obviously support, the Reserve Bank of New Zealand Amendment Bill, and follow on from Mr Key’s remarks. Indeed, the select committee that will be dealing with the bill is endowed with great industriousness. I must say that our committee is well stocked with fruit. Of course, Mr Key has had more than his share, because part of what he has had to say was very fruity, but he likes the watermelon, which, no doubt, caused the media to observe that he is blessed with a watermelon smile. But also, as the watermelon seeds lie around the table, they are joined by the apple seeds, which is how we refer, privately, to those two very hard-working boys from Hawke’s Bay—the “Johnny Appleseed” boys. So we look forward to working together on the committee dealing with the bill.

There are a couple of important portions that we must never overlook in relation to the bill. Firstly, it has enabled us to achieve a level of equivalency in terms of not only the Reserve Bank of New Zealand pitching in and bearing a significant part of the burden to effect trans-Tasman harmonisation but the counterpart organisation in Australia will also bear that burden. That is quite different from how the media, unfortunately, had exaggerated the issue some time gone by, saying that New Zealand’s Reserve Bank was going to be assimilated and to disappear and become analogous to the state of Tasmania.

Secondly, we need to bear in mind that underlying the trans-Tasman strategy is the Government’s ongoing drive to reduce the costs of doing business, trade, and commerce between our two economies. I know that our friends from the Opposition will point out that they could do it better, but they have only really got two ideas at the moment, and they are enveloped by those two ideas. In fact, they are obsessed by them. The first is that we can continue to maintain services, grow the economy, and slash the tax base. They will continue to trot out that line, but unfortunately for our colleagues in the Opposition—and they will be there for many a year to come—the country did not buy that line.

The second is that they are obsessed at the moment with the leadership issue, and that, unfortunately, impedes their ability to—[Interruption] I hear the man from Hamilton, who, when he is not using a scalp-brush, is offering inanities to Winston Peters. He needs to learn that one cannot attack the kaumātua of the House without having earned one’s stripes; and one does not get the korowai until one has the experience, I tell the man from Hamilton.

There are only two things that enliven, that animate, our friends from the Opposition. The first is tax cuts, which the country did not buy because people realise that they would degrade services and undermine the viability of the State’s ability to deal with our vulnerable members in society. The second is that they are unable to articulate or portray any alternative, because they are obsessed with their own leadership issues. As a consequence of being embarrassed by that, they make gratuitous and very unwise remarks about the prospects of members on this side of the House. I look forward to dealing with the bill in the select committee, and it will be dealt with in a very professional fashion, hopefully in the spirit of consensus.

CRAIG FOSS (National—Tukituki) Link to this

I rise to speak to the Reserve Bank of New Zealand Amendment Bill. As my colleague John Key pointed out earlier, the National Party will be supporting this bill, at least to go to the select committee, because we support all good legislation that fits nicely with the future direction of New Zealand. I thank the previous speaker, the chair of our Finance and Expenditure Committee. I noted that earlier on he sat in the Prime Minister’s seat in this House, which was interesting and did not go unnoticed by members on this side.

I need to give a quick lesson in economics, perhaps, to those who may be somewhat confused about various patsy questions that arise in the House and who wonder about the wisdom of tax cuts, etc. Quite simply, an analogy is a chequebook versus a balance sheet. If the balance sheet shows a surplus of about $8.5 billion, then there is plenty of room for tax cuts to utilise those assets—to leverage off those assets, to use the assets that have already been paid for—for future generations. If we have a only few dollars left in our current account, in our chequebook, then of course there is no room for tax cuts, but, as we have previously pointed out, that balance can be whatever we choose it to be. It is just a mere timing issue.

The bill has two parts. The first part amends the Reserve Bank of New Zealand Act 1989 and the second part amends the Racing Act 2003. It might surprise some, perhaps, that I would like to speak about the amendment to the Racing Act first. As race-going members of the public and the punters know, the National Party has long been a great supporter of the racing industry in New Zealand—testimony to Lindsay Tisch’s hard work and formulation of policy in the 2005 election. There are allegations that our policy was cut and pasted off our website to one of the minor parties in the House. I am not sure whether that party is in or out of Government. But there is a key point to that, and, as the Minister alluded, it is driven by the elimination of the 5c coin. Why does the bill state that any amounts must be rounded down and not up? For example, if someone wins $1.29 on the races, why does the bill dictate essentially that he or she should receive only $1.20? Why should that be? Perhaps it is a drafting error that will be addressed at the select committee, or perhaps it is just typical of a Government that has no thought for the poor New Zealander who is struggling and who might spend a few dollars at the races. It is indicative of the Government’s approach to the few meagre dollars left in the hands of New Zealand punters and bettors at the races. The bill also incentivises account trading at the races versus cash. That is an interesting debate and perhaps is one that the wider society should have.

But most of the debate on this bill will be around the amendments to the Reserve Bank of New Zealand Act of 1989, and I will refer to that part now. Yes, as previous speakers have pointed out, this bill is a lot better than the one originally proposed. The Australian Prudential Regulation Authority model was not a goer. I was very interested to hear Mr Key’s comments as to how this current proposal came about—and goodness gracious, would it not be nice for New Zealand and Australian investors to have imputation streaming? Here we are, talking about various tax bills, etc., yet imputation credits with our nearest neighbour and greatest trading partner are not even on the agenda. Perhaps the wine served at the lodge that night was not very good.

I was interested that Dr Cullen used the word “sovereignty”, and I am glad he raised that point because there is much debate around the sovereignty of New Zealand at the moment. There is also a definite Australianisation of many things New Zealand. That is an inevitable case of the cross-pollination between our two countries and the investment between the two. That is fine, but there has not actually been public debate around the issue. I heard a very good speech recently from someone alluding to this same point—to the Kiwi meeting the kangaroo—and this is another example of that. But much of the action, be it in the area of food regulation, pharmaceutical discussions, etc., has all been done below the radar.

There has been no great public debate about those matters and I find that quite surprising, given that some recent changes proposed in New Zealand have been quite fundamental to the nature and make-up of New Zealand and New Zealand business. The structural changes that have gone through, and those that are proposed, will affect our country and our sovereignty for many, many years to come. Most of them are irreversible. I am very surprised there has not been more debate around the issue. We can imagine the outcry if the New Zealand Rugby Union were to be regulated by the Australian Rugby Union. Yet here we are, talking about the core balance sheet of New Zealand being merged and assimilated, and moving closer to Australia. I am not saying that is a bad thing; the bad thing is the lack of debate around the issue.

A previous speaker alluded to New Zealand becoming closer to Australia. Of course, being a proud MP from Tukituki in the Hawke’s Bay, I would have to bring up the issue of apples. We are becoming closer to Australia in the areas of communications legislation, health legislation, food legislation and regulation, and—here we are—Reserve Bank legislation, yet New Zealand apples still cannot get into Australia. Although I had a little fun about the earlier points—and I am sure a speaker from New Zealand First will stand up and speak about the racing industry—I also notice that part of New Zealand First’s confidence and supply agreement with the Government relates to New Zealand apples gaining access to Australia. I say “Godspeed!” to those gentlemen, because it looks as though that is moving on to the horizon. I also look at the context, as we examine this bill, and say that we cannot have it both ways. As I mentioned, New Zealand apples cannot get into Australia, yet we have just taken honey from that country—and this debate is about making our financial regulation closer to Australia’s.

Mr Key pointed out that there is already $59 billion of Australian investment in New Zealand. That is an absolutely phenomenal amount. It is about a quarter of the total foreign investment in New Zealand. About 20 percent of New Zealand’s exports go to Australia and most of our top sports teams are in various competitions jointly with Australian sports teams. Currently, and in a similar vein, there are discussions and a debate over a code-share between Air New Zealand and Qantas. The Westpac New Zealand Bill was alluded to in the House today. There are many, many similar things going on, and I stress again that we must have a greater debate on them.

In the recent Budget, money was allocated to the debate around national identity, but the debate about New Zealand becoming closer to Australia was not even touched on. This bill is a natural progression of trading and, in the Anzac spirit—or whatever we want to call it—of becoming closer to our mates. We have seen a similar model in Europe that has gone further, with countries in the European Union aligning themselves. But, goodness gracious, as New Zealand becomes closer to Australia, surely we would want our economy to be fighting fit so that we line up somewhere against New South Wales and Queensland, not stacked in behind Tasmania somewhere. But, sadly—and we all know the statistics at the moment—New Zealand’s gross average income is less than the Australian average net income. So as we become closer to Australia, be it in the back office with regulation and process, how on earth will New Zealand be able to go head to head, as we do need to do to compete and go hard against Australia?

To round up, National will be supporting this bill going to a select committee. I look forward to working on it there with our hard-working fellow members—most of them turn up all the time. But I just note in the context of this debate that we need to address exactly where we want New Zealand to go in 10, 15, or 20 years’ time, because this bill starts to set the stage for New Zealand to be much, much closer to Australia. Thank you.

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First will support the Reserve Bank of New Zealand Amendment Bill. In speaking to the bill I will mention a few relevant points and talk a little about racing, because some of the statements I have heard from National members are nothing short of astounding, I might tell people.

New Zealand First is in favour of the Reserve Bank of New Zealand Amendment Bill because we think it is appropriate that we line ourselves up with Australia on financial issues. We are not in favour of a single currency. We are not in favour of joining Australia at the hip or anything like that. But we do think it is appropriate, given the amount of money Australia has in New Zealand, and New Zealand has in Australia, and the amount of involvement there is by both countries in business in both countries, that we have a taxation system, reserve banks, and treasuries that understand each other and talk to each other all the time.

I think it is quite cute that we have a bill that asks us to take account of the Australian Treasury—I do not think they use the word “Treasury”; they use another word—and we are asked not to do damage to the Australian economy, and of course, tit for tat, they are asked not to do damage to our economy. It would have been nice to have had something like that sort of arrangement with the Cook Islands when Michael Fay and Co. were rushing around setting up tax havens in those countries, and we could not have imagined anything of a like nature happening between ourselves and our brothers and sisters in Australia. So New Zealand First supports this legislation.

When it comes to the racing business, we have heard that the 5c coin will disappear, and that the New Zealand Racing Board will become responsible for rounding up—or down—its dividends, and it will do that to the nearest 10c in the future. But it is important that it has the power to do that, because otherwise we would have to come back to this House for permission to do that, and we do not think that is appropriate.

I have to share with the House the great joy of people in the racing industry, especially in the Waikato, that the Rt Hon Winston Peters is the Minister for Racing and that he and the Labour Government have delivered long-sought equality in taxation, enabling them to put—and Sue Moroney will shake her head if I am wrong—something in excess of $30 million into the business. That will go to stake money and to shoring up an industry that had been neglected for many, many years, mostly by the National Party. It astounds me to hear that John Key, for heaven’s sake, who no doubt goes to plenty of racetracks but has hardly been involved in the racing industry, taking credit for things New Zealand First and the Labour Government have done. It is outrageous, furthermore, to talk in the same breath about Lindsay Tisch doing like things or—heaven forbid—David Bennett in Hamilton, whom I have never even heard mention the word racing, let alone seen doing anything about it. Lindsay Tisch has certainly talked a lot about racing but has never done anything. It has taken New Zealand First, in conjunction with Labour, to make the long-held dreams of the racing industry come true.

The industry will go forward now, after many years of stagnation—in fact, after regressing year after year as other gambling institutions were brought into this country. Now, at long last, it can go forward, and people in the industry are thankful for that. Unfortunately I did not bring with me an article in the Waikato Business News that sings the praises of the Government, and in particular of Winston Peters for the things he has done. I assure members that they will find no mention of Lindsay Tisch, David Bennett, or John Key in that article or in any other article on racing. Sue Moroney, who will speak on this bill, is closely associated with that industry and can confirm what I have said.

I am continually amazed by the leadership aspirations of John Key. I know that Bill English aspires to get back into the leader’s chair, but John Key is something else. I do not know whether he realises—

TARIANA TURIA (Co-Leader—Māori Party) Link to this

Every now and then I feel the call to be Aussie bound. It is not the Dreaming of Uluru, Ayers Rock, that draws me, nor even the recognition of reconciliation for Aboriginal and Torres Strait Islanders. Those are important and indeed historic symbols of cultural pride, but that is not what draws me. It is about whānau: Naani in Melbourne and Ngāhuia in Brisbane—my sisters—my brothers, Anthony and Bernard; and my nieces, nephews, cousins, and mokopuna. So I come to this bill thinking of them.

This bill will amend the Reserve Bank of New Zealand Act to implement the trans-Tasman coordination of financial sector regulation—changes that will move us further towards a single economic market sooner rather than later. The new Reserve Bank website promotes the message “Change for the better”. The change to achieve the trans-Tasman coordination of financial sector regulation may well be for the better, if we think of the many New Zealanders—indeed, the many whānau—who live across the Tasman.

It is precisely because of those large numbers that Te Puni Kōkiri is funding a study of Māori who live in Australia. Early survey results show an overwhelming response that Māori are going to Australia for better pay. Evidence shows that employment chances for Māori women, in particular, are better in Australia than here, and I for one would like to know more about why that is so. And if there was ever a time to see the contrast between the two major economic markets of Australasia, it is now. The number of people living in Australia who claim Māori ancestry jumped by a massive 233 percent in the 15 years to 2001. Māori in Australia now number well over 100,000, which is 20,000 more Māori than are in the entire South Island.

This House has to come to terms with the huge loss of tangata whenua who are leaving their homelands. Why is it happening? Why are our whānau leaving Aotearoa in such huge numbers? Fifty-four percent of these “Mozzies”—Australian Māori—were in the prime childbearing age group of 15 to 44, and a further 31 per cent were aged under 15. That is a huge drain on our cultural capital. The human cost of that demonstrates the dire consequences of economic decisions made here. The upward trend will just go on for as long as economic differences between the two countries exist. So if this bill can do anything to keep our whānau home, it will be a good thing.

The bill requires our Reserve Bank to cooperate with Australian financial authorities and to avoid actions that are likely to have a detrimental effect on their financial stability, including interfering without sourcing arrangements. Those changes are immediately relevant to the Reserve Bank of New Zealand, in light of its outsourcing policy released in January 2006. That policy defined intervention in outsourcing arrangements as being any action that is detrimental to financial stability in the other country.

The reality is that closer economic relations between Australia and Aotearoa are inevitable. We need to be open to all the possibilities that could emerge. The Māori Party has been acutely aware that although the development of a single economic market with Australia may produce a potential risk to rangatiratanga, that could be offset by increased financial stability. But we jealously guard our independence as a country. Although as a nation our rangatiratanga may diminish, as hapū we may benefit if more of our profit and wealth-seeking incorporations find it easier to do business abroad—in this case, in Australia. Lower costs for bank services and heightened financial stability could mean that whakapapa-based commercial entities like Māori land incorporations would be better able to serve their stakeholders. Indeed, a firmer financial grounding may well open up opportunities for innovation and growth that tangata whenua can invest in, to help shape our destiny. As an example, the diversification of land incorporation into land-based activity across international boundaries may produce a new combination of risk and profitability that enhances their ability to serve their beneficiaries and shareholders better.

These are, as the Reserve Bank would say, changes for the better. But these changes can be supported only if the advantages from such financial stability for indigenous peoples, including Pacific peoples, are envisaged and planned for. We must ask the question of how the goal of a single economic market will enhance the indigenous people of Australia. Will a single economic market protect the traditional lands of Aboriginal communities, their rivers, their lakes, and their mountains? Will a single economic market support their culture and value, enabling elders to pass on their knowledge, arts, rituals, and performances from one generation to another? Will a single economic market preserve their cultural property, develop their languages, and maintain their sacred and significant sites? Or will the tangata whenua in Australia be placed under duress, as we exploit commercial opportunities in their land?

The bill will set in place a regime in which all registered New Zealand banks, as well as the Reserve Bank, will be required to consult prescribed Australian authorities before taking actions that are likely to be detrimental. Although we will support this bill at its first reading, we expect subsequent iterations to provide for the explicit recognition of the tangata whenua of Australia. We also expect subsequent iterations to demonstrate how the anticipated gains might be shared with the people of the islands of the Pacific. The issue is all about whose voices are heard and whose feet are under the tables of power.

We are pleased that the obligations set in place for New Zealand banks will be matched by equivalent changes that will require Australian financial authorities to cooperate with our Reserve Bank. But we also seek to raise the point that the proposed initiatives should not be established just as a preventive measure to reduce the likelihood of any detrimental effects on financial stability in either country. If reduced operating costs and more financial stability will result, why should we not also consider the opportunity benefits that could be replicated elsewhere in the Pacific? One wonders what scope there may be for Aotearoa to encourage discussion with our close neighbours in Te Moana-nui-a-Kiwa. Indeed, perhaps tangata whenua should assume a more prominent role in shaping Aotearoa’s relationships in the Pacific. Australia and Aotearoa have the financial strength and administrative know-how to also extend an inviting hand to our whanaunga in the Pacific, and that may well be a beneficial outcome of the intervention contemplated in this bill.

This bill sets in train a relationship that has evolved over the last century—a relationship that reflects an enduring testimony to the shared Anzac spirit. The historical, economic, social, cultural, and political foundations of this relationship run deep, and it is only fitting that we respect the relationship by ensuring wide and open public debate before we presume to take this step. The Māori Party will support the bill at its first reading, both for the potential benefits to the New Zealand economy and for—and this is important—the opportunity for a wide-ranging public discussion to take place that enables all New Zealanders, both here and across the Tasman, to speak of their vision.

That vision may indeed build on the tradition established from Gallipoli, of working together as allies and partners, but there will be other visions that argue to protect the sovereignty and control of both nations. Just as the yellow and green squads identify our teams with the silver fern or the passion of “Kapa o Pango”, there will be those who hold a vision for Aotearoa that does not include the lands across the ditch. The Māori Party hopes that in the debate about the pros and cons of a single economic market objective, there is sufficient space to hear the views of New Zealanders about how best to protect national interests.

GORDON COPELAND (United Future) Link to this

I rise to take a call on behalf of United Future on the Reserve Bank of New Zealand Amendment Bill, which is an omnibus bill.

JEANETTE FITZSIMONS (Co-Leader—Green) Link to this

The real issues around our banking system go much deeper and are much more significant than the ones covered in this bill, but perhaps it is a good idea to have a look at the state our banking system is in now. Ninety-eight percent of New Zealand’s banking assets are owned overseas. That means that the profits, which are very substantial, occur to investors in other countries. Brian Gaynor has described banking as by far the most profitable business in New Zealand. The net earnings of those banks, which go straight out of the country from the pockets of all New Zealand borrowers and depositors, were $2.63 billion in the last year. It is a major reason for our current account deficit. In fact, on top of that $2.63 billion that leaves the country right away, there is the additional borrowing of Australian banks overseas. When we add the two together, the sum is in excess of $4 billion a year, which is almost 30 percent of our current account deficit. So that is a very considerable contribution to what is perceived to be causing the instability of the New Zealand economy, which is that extremely high current account deficit.

It is not only money that goes overseas, but jobs are also following, particularly with more outsourcing, and more centralising of functions in Australia at parent companies. Functions like credit assessment, internal audit, accounting, data processing, information technology management, and risk management are being outsourced. Jobs in the New Zealand banking system have decreased while profits and turnovers have increased.

It is hard to see how a country has much economic sovereignty at all if it has zero control over its own financial sector. I guess the question is whether this Reserve Bank of New Zealand Amendment Bill will make the situation better or worse. It is quite hard to tell. The history of New Zealand’s merging with Australian regulators has not always been to New Zealand’s advantage. We have often been treated as an eighth state of Australia rather than as an independent sovereign State. I think particularly of food safety regulation, where New Zealanders really have no say on what is in our food; it is all decided by a trans-Tasman agency. I think of problems we have had in the past in trying to set energy efficiency standards. If Australia did not set the same standards then, under the Trans-Tasman Mutual Recognition Arrangement, products could not be restricted in New Zealand, either. So we have to be careful in terms of joint regulation.

I appreciate that the bill does not go as far as the Australians initially proposed, with a single regulatory body, and that is good. Instead, the bill requires the Reserve Bank, where reasonably practicable, to cooperate with the prescribed Australian financial authorities and avoid action that is likely to have a detrimental effect on financial stability in Australia, just as Australian authorities are required to avoid actions that will have a detrimental effect on our financial stability, and that includes their outsourcing arrangements.

It is quite hard to tell the impact on New Zealand of tying the hands of the Reserve Bank in its prudential oversight of trading banks. Is the New Zealand economy large enough for an action our bank might want to take to be deemed as having a detrimental effect on financial stability in Australia? I do not think we know that. I do not claim to know that. But if, for example, the bank wanted to use one of the very few tools available to us to do something about New Zealanders’ extraordinary capacity to borrow and raise the total capital requirements, would it be prevented from doing that? If it wanted to get rid of the bias towards the residential housing market, where only 50 percent of housing borrowing counts towards the 8 percent capital requirement, could it be stopped from doing that? I do not know the answer to that, either, and I think we need to hear the submissions and the debate in the select committee before the Greens will have a view on how we will vote in the final stages of this bill.

On the positive side, though, there are some protections here. The moves by the Reserve Bank to set in place some systems to control the risks posed by outsourcing are necessary. In Australia, banks are outsourcing around the globe. Call centre work is going to Mumbai, for example, where there have been terrorist attacks recently. Could the wiping out of call centres have a major destabilising effect on New Zealand’s financial situation? The Reserve Bank here is responsible for securing financial stability in New Zealand; it is hard to do that if most of the functions undertaken by the banking sector are happening overseas. So we support moves by the Reserve Bank to control the risks of outsourcing, and we are pleased that outsourcing is included in this bill.

New Zealand has lost much of its economic sovereignty. We have only two New Zealand - owned banks—Kiwibank and the Taranaki savings bank. Between them they have less than 8 percent of banking assets. We must take steps to limit the impact of decisions made by other countries on our financial stability, but we have concerns about where that might end. We know that some New Zealand businesses are looking for a single banking system between New Zealand and Australia. We were warned very clearly with statements on this bill by Dr Cullen and Mr Costello, whose words are still ringing in our ears, that these measures will remove barriers on the way to a single economic market. That is not where the Greens want to go. It is actually not about our banknotes, as Gordon Copeland has suggested; it is about economic sovereignty itself. It is about self-determination. Cooperation with Australia? Yes, absolutely. A takeover? No!

CHRIS TREMAIN (National—Napier) Link to this

I congratulate the last three speakers, who managed to drag the debate back to the Reserve Bank of New Zealand Amendment Bill and away from a discussion about $25 ties. I think it is important that we bring the discussion back to trans-Tasman ties and to the impact of those on the bill.

Just before I do that, I would like to acknowledge a gentleman who has just been in the Chamber, a former MP, Grahame Thorne. I am sure all members of the House would join with me this evening in acknowledging the predicament that Grahame’s family find themselves in with their son, and we wish them Godspeed with the events that progress from here. Our thoughts are with Grahame and his family.

I come back to the Reserve Bank of New Zealand Amendment Bill. In the heat of other debates, such as the Taito Phillip Field saga, the ongoing issues around New Zealand’s butter trade and the European Commission, and the ongoing argument over whether the police continue to set quota targets for traffic enforcement, we in Parliament are often forced back to the realities of parliamentary debate around subjects that the average New Zealander probably does not know a lot about or, in the greater scheme of things, probably does not care a lot about. However, in saying that, it is important that those who are listening to the debate understand what this legislation is about. This evening I would like to talk to people about this legislation and give them an understanding, firstly, about the Reserve Bank and its functions in this country, and, secondly, about how this legislation will impact on the Reserve Bank. Thirdly, I want to look at the impact of the legislative changes.

Just to commence, I refer to the two key features of the bill, which have been quite adequately pointed out tonight. The first amendment is the implementation of the Government’s response to the recommendations of the Trans-Tasman Council on Banking Supervision. In a nutshell, the bill will oblige the Reserve Bank to cooperate with the Australian authorities by supporting them and by avoiding actions that would be likely to have a detrimental effect on the stability of the financial system in Australia. That is the first side of it. The second amendment the legislation deals with, which I will not focus on too much tonight but which New Zealand First and other speakers tonight have focused on, would let the Racing Board decide, as part of its betting rules, how dividends will be rounded—whether they will be rounded up or down. I guess most of us in the House, and anyone who is associated with the racing industry, will be hoping it will look to round those dividends up. In finishing that summary, I say that National is supporting this legislation going to the select committee.

I would now like to discuss how the Reserve Bank fits in, in terms of this country and this legislation. The Reserve Bank is similar to other central banks around the globe, and it has three core functions. The first is to operate monetary policy in order to maintain price stability. In that regard, it has a range of between 1 and 3 percent at which it is expected to maintain inflation. I will not go into detail about that, but right now our inflation rate is at 4 percent, which is significantly above that target and is causing concern in the financial sector. There are different calls out there about whether the official cash rate should be lifted again above the current 7.25 percent, which would have a detrimental effect on the nation’s businesses. We depend on having interest rates that are competitive on an international basis in order to have the best chance of competing internationally with the likes of Australia and Asia, which have interest rates significantly below where our own are just now, and this is certainly a concern.

The second area the Reserve Bank is responsible for, in addition to controlling monetary policy, is meeting the currency needs of the public. In this regard, the Reserve Bank is responsible for issuing New Zealand’s currency. It also has some other functions in that regard: acting as a banker to the banks and providing inter-bank settlement facilities and related payment services. That is its second function.

Its third function, which is largely impacted by the legislation before us, is the promotion and maintenance of a sound and efficient financial banking system. The Reserve Bank is responsible for the registration and prudential supervision of banks. We as parliamentarians often throw around the term “prudential supervision”. It is a term that many people in the general public do not actually understand. Effectively, prudential supervision is the audit of banks’ assets and liabilities—their balance sheets—so that we can understand the true financial position of those banks and make sure they are within certain financial ratios, so that, at the end of the day, the consumers who bank with the different banks are protected. The bank is also responsible for helping to promote a sound and efficient financial system. Overseas-owned banks are permitted in New Zealand, and we operate a light-handed regulatory regime for banks that relies on a combination of self-market and regulatory discipline. There is no Government guarantee for individual banks or any depositor protection in New Zealand, so that is why the prudential system is so important.

Let us move into the guts of this bill and how it will have an impact on the responsibility of the Reserve Bank. Under the Reserve Bank’s goal of promoting the maintenance of a sound and efficient financial system, it is working with the Trans-Tasman Council on Banking Supervision. As the Greens pointed out just before, the high degree of Australian ownership of New Zealand banking assets, as well as the increasing international regulatory requirements, has led to moves by the Reserve Bank to increase global banking policy cooperation. I pulled off the Reserve Bank website just recently a press release from March 2005—which is when the banks first started going down this track—in which Mr Bollard pointed out: “the Council is not based on statute and so does not derogate in any way the Reserve Bank’s responsibilities.” He said that regardless of the Trans-Tasman Council on Banking Supervision: “We continue to maintain and develop the capacity to preserve New Zealand’s systemic financial interests”. It is an important point. We are still maintaining our independence. He continued: “This includes developing crisis management capabilities, and ensuring that there exists the legal and practical ability to operate a failed bank if necessary via our local incorporation and proposed outsourcing policies.”

So let us look specifically at what the new legislation will do in respect of the trans-Tasman banking policy harmonisations. The key elements are these: firstly, there will be a general provision requiring each regulator to support the other in fulfilling its statutory objectives; secondly, there will be a specific reference in the definition of actions likely to have a detrimental effect to actions that interfere with or prevent the provision of outsource services to a related party in the other country; thirdly, there will be a requirement that, where reasonably practicable, the regulators consult with each other before exercising a power that is likely to have a detrimental effect on financial system stability in the other country; and, lastly, there will be a requirement that an administrator or a statutory manager in Australia advise the Australian Prudential Regulatory Authority if the administrator or statutory manager has reasonable cause to believe that the proposed exercise of a function or power by the administrator or statutory manager is likely to have a detrimental effect on financial stability in New Zealand—quite a mouthful!

The key impact of these legislative changes will have an immediate relevance to the Reserve Bank’s policy on outsourcing, as Jeanette Fitzsimons pointed out just before. What does outsourcing mean? In a nutshell, the banks do quite a significant amount of outsourcing in this country, particularly in terms of their computer resourcing and their computer backups, so some significant costs will be brought back on to the banks to ensure that outsourcing is brought back into this country. It is one of the key things that will have a big impact in that regard.

I have just a few closing comments. Closer integration of banking supervision with Australia is appropriate, I think, given the degree of integration that already exists between the New Zealand and Australian banking systems. Most banks here are owned by Australian parents. Firstly, as Jeanette Fitzsimons pointed out, with only 8 percent of the banks in this country being New Zealand owned, we need to be part of this legislation. Secondly, the bill strengthens the arrangements for coordinating with Australia in the event of a general crisis or a specific bank failure involving across-border banks. It will be an improvement on what we have at the moment and better than the other alternative the Government was looking at, which was having the Australian banking regulator, the Australian Prudential Regulatory Authority, being the sole regulator of Australian banks operating in New Zealand. It is a good example of our working closer together with Australia for mutual benefit. I comment that it is a pity Michael Cullen seems to have cooled on closer integration with Australia, as was evidenced by his failure to attend this year’s Australia New Zealand Leadership Forum and his calling it a wailing wall of people pushing their own barrows.

Hon NANAIA MAHUTA (Minister of Customs) Link to this

I move, That the Reserve Bank of New Zealand Amendment Bill be referred to the Finance and Expenditure Committee referred to Finance and Expenditure Committee