Westpac New Zealand Bill

CRAIG FOSS (National—Tukituki) Link to this

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) Link to this

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 $1,000 when they join, and they get up to $1,024 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.

STUART NASH (Labour) Link to this

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 $5,000 a week in tax cuts. There are some people who would have a problem with that $5,000 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) Link to this

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.

BRENDON BURNS (Labour—Christchurch Central) Link to this

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) Link to this

I move, That the question be now put.

Hon SHANE JONES (Labour) Link to this

Tēnā 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) Link to this

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—

AARON GILMORE (National) Link to this

I move, That the question be now put.

Hon DAVID PARKER (Labour) Link to this

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—

COLIN KING (National—Kaikōura) Link to this

I move, That the question be now put.

Hon DAVID PARKER (Labour) Link to this

The voting on the preamble bemuses me completely in respect of the Māori Party. Māori 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 Māori 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 Māori Party runs business in this House. On all of the big votes it props up the National Government, despite the fact that National—

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

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—

Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this

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.

STUART NASH (Labour) Link to this

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 Māori Party often did not have someone at the committee, but the Māori Party voted against the preamble. I would have thought that if at some point the Māori Party had concerns—

AMY ADAMS (National—Selwyn) Link to this

I move, That the question be now put.

CRAIG FOSS (National—Tukituki) Link to this

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) Link to this

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) Link to this

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—

STUART NASH (Labour) Link to this

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 Māori 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.

TODD McCLAY (National—Rotorua) Link to this

I move, That the question be now put.

Hon RICK BARKER (Senior Whip—Labour) Link to this

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) Link to this

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.

Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this

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) Link to this

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 SHANE JONES (Labour) Link to this

Tēnā tātou 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.

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

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.