Debate on Crown Entities, Public Organisations, and State Enterprises

The CHAIRPERSON (Ann Hartley) Link to this

The House is in Committee for the consideration of the performance of Crown entities, public organisations, and State enterprises. The debate on the performance of Crown entities, public organisations, and State enterprises is a series of debates on individual financial reviews of Crown entities, public organisations, and State enterprises, as reported by select committees. The debates on the individual financial reviews should be relevant to their performance in the 2004-05 financial year, and their current operations. A member may have no more than two calls on each financial review. Three hours is allowed for the debate. At the conclusion of the 3 hours the Chairperson shall report to the House. There is a list of financial reviews available for debate on the Table. I understand that members have indicated the Crown entities, public organisations, and State enterprises they wish to debate.

LINDSAY TISCH (Senior Whip—National) Link to this

I just wish to seek clarification on the two calls that a member can take. If we look at the first number of calls under Dr Cullen as Minister of Finance, are we saying that there can be two calls on, let us say, Air New Zealand, and two on the Earthquake Commission, or is it two within that whole bracket of entities?

Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this

The commitment that the Governor of the Reserve Bank, Dr Alan Bollard, makes to New Zealanders in his 2004-05 annual report is that, as New Zealand’s central bank, the Reserve Bank will do everything in its power to build national and international confidence by promoting the maintenance of a sound and efficient financial system. Yet yesterday a survey by Bloomberg News found that the New Zealand dollar has just been named the worst performer out of 16 major currencies. ANZ National Bank chief economist, Cameron Bagrie, adds further gloom to doom by stating that people were finding investment opportunities elsewhere and by forecasting the New Zealand dollar would hit below US50c in 2007.

So let us add it up: the Reserve Bank wants to promote a sound and efficient financial system; the New Zealand dollar has been named the worst performer; and, to top it all off, the UMR Insight research omnibus survey has identified that the unfavourable rating for the Reserve Bank has increased to 14 percent, and 38 percent of all who were surveyed were unsure about or had never heard of the Reserve Bank. One of the key reasons given for the unfavourable stakes was “thinking that the Reserve Bank is out of touch with the people, and a general dislike for the policies”. In plain numbers, the majority—52 percent—of those surveyed either had never heard of the bank or gave it an unfavourable rating. It is a bit like, if we do not know where we are going, any road will get us there. As the Government draws up the road map for the Reserve Bank, this is an indication that it has lost its economic way.

One of the comments that absolutely struck home from the UMR Insight survey was the following comment describing the Reserve Bank as being out of touch with the people because it is “concerned only with inflation, much too narrow, concerned with GDP, should be concerned with quality of life, should go and measure qualitative rather than quantity.” These are serious issues. They are issues of major concern to all members of this House. What is more, they are issues of absolute priority to all people of this nation. As if it could not get any worse, in the Reserve Bank’s annual report, under “Change with the times”, the Reserve Bank states it will “strive to inspire public confidence”, yet there is nothing in that report that goes anywhere near responding to the criticism described in the UMR Insight research.

We are at a critical turning point. We can choose whether to fail or to survive in measuring the economic accomplishment of the nation. The Māori Party is here to tell the nation that GDP will never be enough in making positive advancement as a nation—advancement that is comprehensive, sustainable, and inclusive. All that GDP has ever intended to do, and can do, is to report on activity, not progress. The Māori Party is committed to a new ideal, the genuine progress index, which is an innovative new way of sustaining all aspects of our wealth—human and other—through investment. If the Reserve Bank really wants to change with the times it needs to rethink development and prove that economists can be in touch with reality.

Basically, the genuine progress index tracks all flows of income that are not in the cash economy—the widest range of measures that affect the health of the economy. The genuine progress index offers us an exciting alternative to account for the whole value of human, social, and natural capital, alongside standard measures. With the conventional measurement of GDP the assumption is always that more is better. With the genuine progress index we realise the assessment is always value-based, and indeed, as in the case of pollution, ill health, crime, and clear-felled forests, it may be that less is best.

Tangata whenua have always understood that social, economic, and environmental prosperity is inextricably linked. In caring for the health of our environment, as well as caring for our physical and spiritual health, we can achieve an indicator of net advancement and progress—an indicator that expresses the values of Aotearoa, including kaupapa Māori, and an indicator that is based on the concept that if we preserve and protect our social and environmental assets, we will ensure a rich legacy is left for our descendants.

Our history and our language of communication is embellished with constant reference to sustainable development. The proverb “Toitū te marae a Tāne, toitū te marae a Tangaroa, toitū te iwi.”, [As long as the realms of Tāne and Tangaroa remain, so will the people.] emphasises the interdependence people have with natural resources to ensure well-being. Long-term prosperity is dependent on the land and all natural things, the protection of the realm of the seas and oceans, and the strengthening of the people. The Māori Party will put on record its commitment to measuring quality along with quantity, to strive for a quality of life that is good for the economy, and to measure real and genuine progress. Not to do so would be to perpetuate financial insecurity, a deteriorating environment, rising crime and sentencing rates, increasing poverty, and continuing inequalities.

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

On historical principle I have a great deal of sympathy with some of what the member was saying towards the latter part of his discussion—that is, that GDP is not a measure of everything in our society. Indeed, I think that those people who tend to talk as if GDP per capita is the only thing that is important are missing many, many points. They are missing, first of all, the point that GDP per capita in itself is not necessarily a very good measure of relative material standards of living, because it takes no account of a whole range of costs that may go into that element. For example, it is often said that when one goes to the UK £1 is worth $3, but for many things one buys one might as well regard £1 as equal to $1 in terms of what it actually buys, such as a cup of coffee or something in a restaurant. The second thing is that GDP cannot possibly measure a whole range of issues around quality of life and style of life, and it is often a poor proxy—except in very broad senses—around a range of social indicators, such as life expectancy, housing quality, etc.

However, it is also true to say that over the broad span, GDP is a measure of the standard of living, as long as the argument is not pressed too far. Our standard of living today is immensely higher than it was 100 or 200 years ago, and our GDP per capita is immensely higher than it was then. In traditional, pre-European Māori society, life expectancy was barely 30 years. That has been well demonstrated by the analysis of remaining skeletal evidence. Now, of course, life expectancy for Māori is less than it should be because it is less than the general average of the population, but it is more than twice what it was under a traditional society, and clearly, on many other social indices, similar points could be made.

Coming back to the subject of the Reserve Bank, I think it is important to recognise that that bank has, to some extent, a limited brief. First of all, it is there to manage the financial system, which is not the same as to give the value of the dollar. It is to ensure that the financial system is operating in a prudential fashion. That banks are not likely to fail, for example, is the most obvious measure of a secure financial system.

The Reserve Bank’s second role, and the one most seen in the public arena, is to try to manage monetary policy to underpin low inflation. I am sure the member does not want to go back to the days of high inflation, which erratically redistributed wealth and income, and which led to enormous uncertainty in many ways. At the moment our inflation rate is something above that target rate—which is another reason why tax cuts are a silly idea at the present time. But, more important than that, the bank at the moment is in what is called a tightening cycle. It has been raising interest rates.

Not unnaturally, people do not like increases in interest rates. It is not the job of the Reserve Bank to be popular. It is not going out there like Westpac, the BNZ, or Kiwibank to try to find out whether people like its services, because it is a regulator and it is a moderator of interest rates. Those are not two key functions that are necessarily designed to make the Reserve Bank popular. I have always said that the most important reason for giving central banks independence to raise and lower interest rates—apart from the fact that Ministers of Finance do not like doing the election years—is to ask: “Why the hell should the Minister of Finance take the blame, and leave it off for reserve banks, anyway, around the world?”, which my good friend Gordon Brown saw instantly as a very good reason for giving the Bank of England operational independence in that matter, when Labour became the Government in the UK in 1997.

The Reserve Bank’s job is also not to try to make the New Zealand dollar higher. Yes, the New Zealand dollar in one sense has been underperforming in recent times, if we mean by that that the dollar has fallen. But the dollar falling has been good news in recent times for exporters—not bad news. I do wish that our media would stop reporting the dollar as though it were some kind of representation of the male physiognomy; “up” is not good and “down” is not necessarily bad, when it comes to the level of the New Zealand dollar. But if we watch television every night, we know that it talks as though the New Zealand dollar did well on the days it went up, or did badly on the days it went down. But if one were an exporter selling manufactured goods to Australia when the dollar was worth over A90c, one was hoping the dollar would have a bad day—and one wanted a lot of bad days in a row—in order to be able to make some profit on one’s bottom line.

So it is not the job of New Zealand’s Reserve Bank to prop the exchange rate above the rate that is represented either by the market or by the equilibrium rate. In a small economy, the real problem is that the New Zealand dollar will be a volatile currency, because it has low liquidity in terms of international exposure.

Hon MURRAY McCULLY (National—East Coast Bays) Link to this

I want to take the opportunity today to speak to the House about the unusual circumstances in which Television New Zealand Ltd (TVNZ) had its annual review completed by the Finance and Expenditure Committee this year, and about the unfinished business that lies before that committee, having completed the annual review.

It is widely understood that in the past 12 months TVNZ has been beset by major eruptions. We have seen scandal after scandal, culminating in the departure of the company’s chief executive, Mr Ian Fraser, who made assertions of political interference in the work of the management of that company. That led the Finance and Expenditure Committee to take a most unusual course in relation to the financial review. The select committee decided there should be a conventional financial review by the committee but, parallel with that review and subsequent to it, a formal inquiry should take place to enable members of Parliament to ask the questions in order to give the public the answers they were due about what had happened in their State broadcaster.

It is now a matter of history that as a consequence of the two hearings before the Finance and Expenditure Committee, TVNZ ended up before the Privileges Committee of this Parliament. That was the subject of an earlier debate in this House. Suffice it to say that on this occasion, TVNZ was handed a very stiff warning by the Privileges Committee and was required to apologise to the House. The director was fined $1,000, which was the first time in 103 years that we have seen a fine levied by the Privileges Committee. The committee especially noted the very poor culture that exists in that company.

I say to the Committee today that this is unfinished business lying before the House and the Finance and Expenditure Committee as we move into the next few weeks. What the Finance and Expenditure Committee and the Privileges Committee did not know when they conducted their reviews was that inside TVNZ were some private emails from Mr Fraser to Mr Boyce, which told us two things. First, they told us that the then chairman of TVNZ, Mr Boyce, thought the members of the Finance and Expenditure Committee of this Parliament were “bastards” who were the enemy of TVNZ. We could not possibly underline more graphically the contempt and disdain that senior people in TVNZ have for the select committee process and for the whole process of accountability to this House and to the owners of TVNZ than is evident in that email.

Second, we also know from those emails that Mr Boyce was part of a process of avoiding revelations about what he called the “mid-year stuff” between “yourself and Ann”—Mr Fraser and Dame Ann Hercus—because revealing the truth about that would “be a disaster for everyone”. So in this email we have a chairman of TVNZ telling the departing chief executive that it is his firm intention to go along to a select committee of this Parliament and lie like a flatfish. If the “mid-year stuff” between Mr Fraser and Dame Ann Hercus were to come up, Mr Boyce intended to lie. He then proceeded in this email to traverse the lie that he intended to tell the Finance and Expenditure Committee.

How very, very unfortunate for Mr Boyce that those emails should see the light of day. How even more unfortunate for Mr Boyce that the inquiry is still alive before the Finance and Expenditure Committee. I say to Mr Jones, the chairman of that committee, and to my colleagues who serve on that committee that this is a test for them. This is a test for the Finance and Expenditure Committee that conducts the review of TVNZ. Are they prepared to accept being told by the chairman of TVNZ that they are bastards who are the enemy of the company? And are they prepared to now find out that the chairman intended to, and duly did, lie to that committee?

Hon STEVE MAHAREY (Minister of Broadcasting) Link to this

I will take a short call on Television New Zealand. The financial review for the year is—

Hon BRIAN DONNELLY (NZ First) Link to this

First, I note that the issue that I wanted to address today was in fact the Crown research institutes, but the Foundation for Research, Science and Technology is so closely linked with Crown research institutes that it does not really matter. In particular, I want to talk to the two reviews that were carried out during the 2003-04 financial review period. Being on the same select committee for quite a considerable period of time certainly has one advantage, particularly when it comes to the Crown research institutes, in the sense that one gets to see the whole lot of them, find out what they are doing, find out the amazing range of science that is taking place in our Crown research institutes, and see how valuable they are to our society. It is also possible to see the changes over time within their practices and what is happening with them.

I have to say that, largely, the model has been very successful, but there are some issues with it. I want to use the two reports that were done, for the New Zealand Pastoral Agriculture Research Institute and for Landcare Research, to highlight some of those issues at this particular time. If we refer to the Pastoral Agriculture Research Institute we can see the contribution it makes to our society and our economy. During this particular period of time, it employed 950 staff, including 640 scientific staff; its total revenue was $133.651 million, which compared with $129 million from the year before; and it had 13 subsidiaries operating under it.

During the period of review, a decision was made in terms of this particular Crown research institute to transform the focus from life sciences to a closer focus on the pastoral sector. The chief executive told us that although statistics show that New Zealand farming has been the most productive sector of any industry in any OECD country in the last 20 years, it is increasingly facing challenges from other countries with cheaper and better land and cheaper currency and labour. For example, South American countries already produce milk more cheaply than New Zealand does, and several other countries are not far behind. That is really a wake-up call to us that we cannot continue to take things for granted in this “backbone of the country” industry.

Significant restructuring took place during the year in review, particularly with the move towards establishing three national research centres in partnerships with other entities. These included an animal health institute in Palmerston North in partnership with Massey University, a National Centre for Biosecurity and Infectious Disease in Wallaceville with the Institute of Environmental Science and Research and Biosecurity New Zealand, and a National Centre for Reproductive Sciences and Mammalian Genomics in Dunedin in partnership with the University of Otago. So we get some sense of the complexity of the arrangements that are taking place within our society.

One of the issues in New Zealand is the level of private funding or private investment in science research. Pastoral and agriculture research certainly highlights this, because one would consider this as an area where there was a lot of private funding of research. Admittedly, our figures are skewed in the sense that we do not have a lot of funding into weapons development, as some other nations do. Nevertheless, it is a continuing and ongoing problem. AgResearch analysis shows that in 2003-04 the pastoral sector invested approximately $10 million in research and development. This is less than one-fifth of 1 percent of the New Zealand dairy industry’s $5.72 billion in export earnings. Of the $10 million, AgResearch received $1.4 million. Only $1.4 million went into the particular entity that focuses on this particular sector. AgResearch considers the lack of investment by the sector in research and development—rather than in dairy processes and proprietary in-house assets—and declining Government funding to be matters of serious concern, particularly in view of the challenges facing the sector. New Zealand First has to agree that this is a worrying trend in such an important area of investment.

It is extremely important to compare the report on AgResearch with that on Landcare Research New Zealand. One of the things I have to note with regard to the Landcare Research report is that it is a model of annual reporting. [Interruption] Just by way of explanation for the Minister in the chair, Steve Maharey, New Zealand First has rolled up its two calls into one. Only one person from New Zealand First will speak in this debate, and we want to put our comments all together in a cohesive form.

Landcare Research specialises in the sustainable management of land resources by optimising primary production, enhancing biodiversity, and increasing the resource efficiency of businesses in conserving and restoring the natural assets of our communities. I was speaking about reporting processes. Landcare Research was awarded the Institute of Chartered Accountants of New Zealand award for sustainability reporting for its 2003-04 annual report for the fourth consecutive year. It really is a worthwhile model for us to keep a close eye on. In addition, Landcare Research also undergoes a performance verification audit based on international standards for the voluntary reporting of the economic, environmental, and social impact of a company’s performance, in accordance with the Global Reporting Initiative guidelines. We were informed that Landcare Research benchmarks itself against companies such as BP and Vodafone. So we have a model of excellence in this particular case and, as I said, it is certainly worthwhile noting that model of excellence.

During our review we uncovered an interesting statistic on research output in New Zealand. In July 2004 the New Scientist reported that New Zealand scientists produced the highest number of refereed publications per million US dollars of research funding, at 6.2 papers per million. In the same period, Landcare Research claims that it produced 7.3 papers.

One of the things that comes through is that vulnerability that hangs over all the institutes when priorities change in Government funding—it was certainly expressed by Landcare Research, and, in fact, only one Crown research institute really did not come through with this sense of vulnerability. That vulnerability leaves the institutes rather exposed. We have to note—and we note positively, in fact—that the Government introduced, in, I think, last year’s Budget, a capability fund of $39 million to smooth over the troughs that occur as a result of the research grants. HortResearch was a classic example of an institute that lost a huge amount of human capacity purely and simply because it did not get research grants from the foundation for a particular year. The question that a Crown research institute has to ask itself is how it holds on to staff in the interim period while it prepares fresh proposals for research in the following year. We make mention that that $39 million is particularly interesting.

We really want to make another point, which Landcare Research highlighted. It is an issue that is invariably brought to our attention. Only one Crown research institute—the Institute of Environmental Science and Research—does not report serious concerns about human capability, about scientists, and about being able to maintain scientists. We were informed that a critical mass of scientists in New Zealand will be retiring in the next 5 to 10 years. That particular organisation does a huge amount to try to make sure that it can retain the high-quality graduates it has, including giving various benefits in addition to base salaries, profitsharing from commercial dividends, making employer contributions to a superannuation fund, and giving bonuses for exceptional performances. It also has a rather innovative scheme whereby it will pay back the student loans of its graduate scientists—scientists coming straight out from universities—up to a maximum of 6 percent per annum. That is another sort of thing it is doing in order to retain staff.

The Minister has to continue to look at the issue of how we can ensure that we retain the staff of our Crown research institutes so that we can make sure that the model continues to work. It generally is working fairly well, but it will not work if we do not have the human beings to make it work.

Finally, I mention the interest that our select committee has in the commercialisation processes of the Crown research institutes. They all do it in a different way. I guess there have been some issues around Industrial Research Ltd and whether it is prudent to be involved as an almost 100 percent investor in high-risk companies. By this particular point in time there should be enough information around regarding best practice so that the notion of best practice, when it comes to the commercialisation of intellectual property, can be passed on to Crown research institutes so that they can be pretty well informed.

Hon STEVE MAHAREY (Minister of Research, Science and Technology) Link to this

I will just take a short call on the Foundation for Research, Science and Technology, as well. First of all, I thank the member for his support of the area of science. Science is one of the things that has traditionally received bipartisan—or multipartisan these days—support in this Chamber. But I think that one of the challenges we all have in front of us is to get the message across to New Zealanders—who, in general, say in surveys that they support science and scientists—that more than support is required. We actually have to apply the knowledge we are producing in this country. If we are keen on making the kind of transformation we are interested in making, then it is not just about knowledge being around the place. It is about ensuring that in small businesses, in families, or in local councils, wherever it might be, people are making science work for them. That is what we are after these days.

As the member pointed out, one of the things the foundation has been doing this year to try to advance that goal has been to change its behaviour. It has done that in two ways, which I will just touch on. One is that we are still working hard on the area of priorities for science. We are a small country; we have 4-point-something million people. We want a wide-ranging commitment to science, but, of course, we do not produce a huge amount of science ourselves in the general scheme of things. Many other countries around the world are interested in this area, as well, and those countries are producing a great deal of science. We are a small player.

The key issue for us is whether we are world leaders on the issues that matter most to New Zealand’s development. We have obviously benefited over the years from investment in things like pastoral science. We need to identify what we want to invest in for this century. The foundation has been helping to work on that idea, along with the Ministry of Research, Science and Technology, and it has been talking with people about how it intends to do that.

That has resulted in the second point I want to raise, which is a discussion the foundation has been having with the sector about longer-term funding. It is clear to all people in the Chamber that although there may have been major benefits from Crown research institute reforms in the early 1990s, time moves on. The kinds of benefits one gets from that shake-up, therefore, tend to dissipate. As we go into this century—as the OECD warned us when it came through recently—it is time to rethink the model. We have been doing that, and one of the signs of that is we are seeking to have a longer-term funding model for a good deal of science.

That funding model takes us back to one of the questions raised by the previous speaker, Brian Donnelly, about how we will retain scientists if their science is being refunded only every 6 months or 1 year—it is very hard to do. It is very hard to persuade young scientists to travel around the world to be a scientist here, after getting a PhD somewhere, if an American company invites them to America for a 20-year contract, while we invite them to a Crown research institute in New Zealand for a 3-year contract. That does not add up for scientists in terms of their career. So the foundation has begun a discussion, on the back of new policy, about longer-term funding. The capability fund is part of that. It is currently a relatively small part, still, of Crown research institute funding—about 7 percent—but I intend that figure to carry on rising, because we need that kind of stability.

I stress to those people in the Chamber who may be concerned about this issue from the contestability end that it is not about getting rid of contestability or competition. It is appropriate to have that as part of the balance of funding, and we will make sure that there is a balance between longer-term stable funding and shorter-term competitive, contestable funding.

I will make a couple of quick points about the Crown research institutes. There are nine of them. Over the last while I think we have seen them perform well. They have come before the Education and Science Committee, which is a great idea. They have great science to talk about; in fact, I am sure the select committee almost feels as if it has to toss the members of those institutes out of the room at the end, because they are so keen to explain what they are doing with science.

Certainly, I urge people who want to know more about our science to get alongside the Crown research institutes to find out what fantastic things they are doing and planning. They have a great record, and they are doing great things, but I want them to connect more with the country. That means they need to be talking more—in platforms like the ones they have been invited to this year. The whole job of the Crown research institutes is to create value. That is what they should be doing; they need to be connected to this country and talking the language of creating value.

Brian Donnelly raised the issue of the one Crown research institute that has had some difficulties this year, Industrial Research Ltd. The case of this Crown research institute illustrates why we need to change the model, in two senses. Firstly, Industrial Research Ltd has drifted away from its original aim probably because it did not have enough stable funding to hold it in a very difficult area—that is, small industry does not make an easy customer for a Crown research institute, whereas agricultural research applies to the agricultural industry, which is a very integrated industry because of cooperatives and so on. It is not the same situation for the thousands of businesses that are out there, so Industrial Research Ltd has found, over 16 years, that that is a difficult thing to relate to. It has drifted away to where it can get that return and, as a result, it has moved towards more commercialisation. That is the second lesson we have learnt from Industrial Research Ltd: how to commercialise.

Brian Donnelly said there must be distilled wisdom. There is distilled wisdom, but there is still some more of that wisdom to go through Cabinet, in order to see the new model for commercialisation. We have said to ourselves that we need to look at how to commercialise in a way that fits New Zealand and fits the different Crown research institute models. We think we have some distilled wisdom, and we know that one of the things we should have done with Industrial Research Ltd, for example, was to ensure that it had a commercial partner earlier in the commercialisation cycle. That is a good example of a different way of doing things, and of a lesson being learnt. But we have also learnt some good lessons from Industrial Research Ltd.

Across the board I want to thank the Crown research institutes and the foundation for what has been a great year. Those people are just stunning in their commitment to what they are doing in science, and I want to see them receive the kind of backing from Parliament that will enable them to carry on driving the innovation in this country. I thank them for their work.

Hon BILL ENGLISH (National—Clutha-Southland) Link to this

I want members to know just how serious the problems are in the New Zealand Qualification Authority, which is the organisation that we are debating today. It has responsibility for running the qualifications system for young New Zealanders. That means that for 150,000 young New Zealanders every year the question of whether they get a fair go from that qualification system is dependent on the integrity of that organisation’s processes. Some of its processes have integrity; it is able to conduct external exams with a couple of million scripts, and it delivers results quite competently. But I have been very disturbed to find, in recent weeks, that the organisation has almost no intellectual integrity about how it assesses the quality of the way it examines young New Zealanders.

In the Education and Science Committee we had a discussion with Karen Sewell, whose main objective seems to have been to do a quick paint job for Minister Maharey in order to make sure there would be no controversy this year. But the New Zealand Qualifications Authority showed that it has no interest in the technical issues around the soundness of the National Certificate of Educational Achievement (NCEA) examinations. It has no interest in validity and reliability—those things are the currency of educational testing. Not only does the organisation have no interest in those areas but it has no ability to assess whether NCEA examinations are fair to our students.

I asked Karen Sewell one simple question, which was how she could assure parents like me that when a student sits an external exam and does an internal assessment on a related standard—which almost every student does—those assessments have about the same level of difficulty. Well, she could not give me that assurance. Worse than that, she made it clear that she thought it was a stupid question, and that the New Zealand Qualifications Authority has no interest, at all, in whether the standards of internal assessment are vaguely similar to the standards of external assessment.

One of the reasons the authority has no interest in this is that almost any cursory analysis tells us that NCEA is still, in many respects, unfair to our students. I asked her what people she employed who had expertise in assessment. Well, in this vast $50 million budget, she says there are two of those people. I have asked people in New Zealand universities who are assessment experts about that, and they do not recognise any of those people—they say there are none. Professor Hattie, whom the Minister is keen to quote when it suits him—and who has done so incorrectly, in a way that misled Parliament—told me that when he did the analysis on scholarship, which anyone should do in a public examination system, no one in the New Zealand Qualifications Authority knew how to carry out this analysis sufficiently so that he could talk to them about it. He told me that he had never been asked to do, and no one has done, tests of reliability and validity on NCEA levels 1 to 3.

That is a disgrace. It is a scandal that we are running a national qualification and national examination system that has high stakes for thousands of students, and we are served up waffle and pap by the chief executive, who leaned across the desk and said: “You can have confidence.” Well, I would say to Ms Sewell that I do not have confidence, and I am pleased that she is gone. I say to Minister Maharey that the answers to making NCEA work are not political spin; the answers come from hard-headed analysis of the validity and reliability of the exams, and that is not getting done.

We are running national examination systems, without expertise in assessment, and we are not using the tools that tinpot Australian states apply to their examination systems relentlessly and forever. We do not do that, because we are better! The Minister will get up and go on about School Certificate. Who cares about School Certificate? A whole generation of students and parents have passed through the system since then.

Hon STEVE MAHAREY (Minister of Education) Link to this

I thought the previous speaker might like to take another call, because the issue is an important one. I welcome the fact that the speech was one of the few times I have heard him sustain an argument, rather than just criticise, so it was good to have the chance to listen to it.

I want to go back over the year in respect of the New Zealand Qualifications Authority. As a new Minister coming into this portfolio over the last little while, I want to thank, first of all, the board, particularlyCatherine Gibson, who I think worked very hard over the summer period, and Karen Sewell, who came from the Education Review Office. I remember meeting with them and saying that the one thing I wanted for this summer was a good exam season. I think of the New Zealand Qualifications Authority as being a bit like the Reserve Bank: there is no point in having a Reserve Bank if it is not blue chip. We rely on it to set the tone for money in this country. We want the same blue-chip feel in respect of the New Zealand Qualifications Authority. It has to be an organisation that teachers, parents, and students can rely on to tell them that the qualifications our young people are getting are top-notch. That is what it has to be.

I know that in politics it is always a great thing to be able to get up and slag off public officials who, of course, cannot answer back because they are required not to. So it is pretty easy to be a bit of a bully-boy and stand up in the Chamber and consistently slag off those people, who have to be polite in return. I say to Mr English that that kind of behaviour just ain’t good. It is the kind of behaviour that should really be reserved for slagging off each other. I am happy if he has a go at me, because then I can have a go at him.

I also say to Mr English that I regard Karen Sewell as being an outstanding public servant. She took up the challenge right through the summer of not only trying to make sure we had a good exam season but also, every time there were issues, getting up and explaining them in public, taking questions, and making sure we were able to move on. Thankfully, there were few problems this summer. We had a system that worked pretty well. During that period, Mr English put out something like 13 or 14 attacks, including one on Ms Sewell’s integrity. But we came through it pretty well, and that is something members should applaud.

I know that right across the education sector people are sick and tired of the kinds of criticisms that took place over the summer, when, as Wyatt Creech said when this policy was introduced under the National Government, this is the kind of policy that deserves bipartisanship. How else do 14, 15, 16, or 17-year-old young New Zealanders apply themselves to their exams, when one of the leading politicians in the country—the previous leader of the National Party—is consistently preferring norm referencing over standards-based assessment and is slagging off the people who run the exam and undermining every aspect of it, without there being any evidence for him to do so?

I see National people in the Chamber just having a quiet wee think—thoughtful people like Maurice Williamson—

DARREN HUGHES (Junior Whip—Labour) Link to this

Having had a discussion with the senior Opposition whip, I seek leave that we debate Housing New Zealand Corporation while Mr Maharey is the Minister in the chair.

Hon DAVID CARTER (National) Link to this

I acknowledge that on this occasion I am speaking on behalf of Phil Heatley, who is ill, and I wish him well for a speedy recovery. But speaking as a former spokesperson on housing, I also take the opportunity of raising in the Committee today a few very real concerns I have about Housing New Zealand Corporation, particularly about the way the bureaucracy of this organisation appears to have become excessively politicised over recent years. I was surprised to hear the Minister of Housing, the Hon Chris Carter, say in the House only last week that Housing New Zealand Corporation, with its 60,000-odd houses, is in fact the second-biggest asset this Government has. Therefore, all New Zealanders should be worried if, as I am going to state now, the organisation has become highly politicised.

We used to have a civil service that was generally taken as being apolitical, that was prepared to roll with the Government of the day, and that initiated the programmes of those Governments without becoming politicised itself. Yet very questionable actions have occurred recently within Housing New Zealand Corporation and its staff. Concerns have been raised about the way in which contractors for maintenance on Housing New Zealand Corporation stock have been gagged from expressing their concerns to politicians.

Phil Heatley was able to say in a press release that a conspiracy of silence has engulfed Housing New Zealand Corporation—and that development should worry us. The conspiracy of silence extends from the chair of the board himself, through to the chief executive, and it has now resulted in Audit New Zealand having to examine the way in which contracts are being awarded by that organisation, and, more specifically, how an instruction came, which was known about by the chief executive of that organisation, that attempted to gag people who were concerned about the improper way in which contracts were being organised.

We know that the organisation is in a mess—it is in a complete and utter shambles—and that is because of the policies of the Government. It is largely because of the policies of the Minister who is now in the chair, Mr Maharey, about whom John Tamihere was absolutely correct. While we have people living in State houses who are earning $100,000 or more, it seems incredible to me that Mr Maharey and Chris Carter can take satisfaction from the fact that 12,000 people are waiting for those particular houses. Labour members come into the Chamber and invariably say that it is all the fault of the National Party. They have been in Government for 7 long years and it is time they accepted that their housing policy is a mess.

I will finish by mentioning one very worrying incident that absolutely proves my point about the politicisation of Housing New Zealand Corporation. During the last election an absolutely outrageously incorrect letter went from many Labour politicians direct to Housing New Zealand Corporation tenants stating that if National were elected they would be kicked out of their houses. It was absolute rubbish, but the point is how Labour members such as Ruth Dyson, Dianne Yates, and David Benson-Pope, to name but three, ever got hold of the names of Housing New Zealand Corporation tenants to be able to write to them directly. The only answer is that some mole in Housing New Zealand Corporation was prepared to supply private information to the Labour Party so that it could write those threatening, incorrect letters to tenants.

It is very worrying when Housing New Zealand Corporation has become as politicised as that. [Interruption] Darren Hughes laughs. He scoffs. He does not think it is important to have a civil service that is apolitical. He might not think that, but I can tell him that many, many New Zealanders do. I say to Darren Hughes that this issue is a very serious one for New Zealanders. Labour MPs should not use Housing New Zealand Corporation to obtain information that is private and confidential to that organisation.

Hon STEVE MAHAREY (Minister of Education) Link to this

I rise to take a call on behalf of the Minister of Housing, Mr Chris Carter, and to follow on from, I think, the former spokesperson on finance for the National Party, who is the former spokesperson on housing, but I am afraid I have no idea what he does now. I assume he does nothing these days.

The previous speaker canvassed broadly the issues of the housing policies we have, but let me say to him that in 1999 we inherited the virtual destruction of State housing by his National Government in the 1990s. And it did that intentionally. National introduced the accommodation supplement earlier in the 1990s for the express reason of allowing it to destroy the tradition of State housing in this country, and it set about it with alacrity. It was, I think, near a crime for National members to have done what they did, but let me tell members what they did. They sold 13,000 State houses, they built none, they had no stock developing around the country, but on top of that they sold the most desirable houses to people who were largely speculators, who were able to on-sell those houses. They put people who were paying above-market rents, into those houses because anybody, under that Government, could get into those houses. They did not have to be poor or needy. Mr Heatley comes into the Chamber and accuses us of all kinds of things. He forgets that the only people who ever got into a State house when they did not need it financially got there under the National Party. That is why those members are sitting over there.

The National Government’s policy left us, at the end of the 1990s, with 13,000 good houses sold. Stock that was hard to rent, and often unhealthy, was kept in stock because the Government could not sell it. Speculators owned the houses. The accommodation supplement rose towards something like $1 billion being paid out as a kind of supplementary minimum price to ensure that the landlords of the country were able to rent their houses. That is what the genius David Carter tells us was a housing policy in the 1990s and somehow that allows him to come in here and criticise a Government that has rebuilt those houses and that has had to try to find houses in places like Auckland, where National allowed for none to be built.

In Northland we were watching people burn down their houses and children die because of the policies of that man. Yet he has the cheek to come in here and tell us about housing! I think the best thing David Carter could do is leave the House and go and do whatever he used to do formerly because he is wasting his time trying to make a contribution to this debate.

I thank Housing New Zealand, which I was the Minister of for a short period of time. It has, I think, formed itself from being what was essentially a rental agency under the National Government into an organisation now that has public service as its goal; that has what is called social housing—that means that people who are needy get houses—as its goal. The Housing New Zealand people care intensely about that. They now have a housing strategy that covers the building of houses, of trying to be innovative in those houses, of trying to make sure the rents are right, and of being innovative and working with third-party organisations. They have great policy building up, and they have a real sense of dedication to the task before them.

If that is called politicisation, as the previous speaker likes to say, then I guess one could tell progressive people anywhere in the country that they are being politicised. Housing New Zealand believes in the project of housing New Zealanders, not quitting the stock to rich speculators who on-sell it so that they can make a few dollars off the back of the National Party’s policy. Housing New Zealand has a true commitment to housing people in this country, to being innovative, to doing things differently, and to making sure we have people in good, healthy houses so that they can live good, decent lives. That is a mission worth being part of.

I thank Housing New Zealand for that and all the people who have supported this kind of policy, and I thank David Carter for going back to doing whatever it is he does.

Hon MAURICE WILLIAMSON (National—Pakuranga) Link to this

I am delighted to take a call about an organisation that I now think is appallingly dysfunctional and actually now needs to be completely overhauled by the new Minister, Annette King. I am, of course, referring to Transit New Zealand. I can back up my claim because of the number of huge volumes that Transit has released, starting with this plan in my hand, which came out at the end of July last year—about 9 months ago. Transit issued this huge, thick glossy document with tables, charts, and graphs, and stuck on the front of it a 10c sticker that states: “This document does not include the funding for the State highways from the extra $500 million from the Government announced last week.”

So Transit produced a huge document like that. The Government had put out a press release just the week before that said the Government had found $500 million extra for roading. I guess everyone was quite excited about that. The money just fell from the sky. There was no rigorous process. Dr Cullen announced that day that he had found $500 million and it was all going to roading. I guess I was quite pleased, as I thought the money was going to a good cause. And then the update came in August. Members will again remember this. It was another big, thick, glossy document with, again, a lot of charts and pictures, and some new time lines for a whole lot of projects.

Members of this House will understand that Transit sets the agenda with these State highway forecasts, and communities up and down the country pore over them with great aplomb and then say: “Excellent, so that’s where we are on the 10-year programme.” I think every member of this House would expect that if a 10-year plan were to change between July and the August update, projects would be moved maybe 3 or 6 months. There might be a bit of slippage. If a bridge was due to be started next April, the date might be moved to June. Everyone could live with that.

But what did the document do? It actually did very little, because between the August one and this big thick one—this is the mother of all documents, which Transit issued in February—was a complete reversal of a whole lot of stuff that had come out in the August document. Again, I say to the Minister in the chair, the Hon Harry Duynhoven, that it is fine if a community sees a 3-month slippage in the latest February update.

But I will give some examples, because there are some doozies. When the August update came out, the Taupō eastern arterial was scheduled to start in 2007-08. By my calculation that is next year, because we are in 2006. The Mayor of Taupō, the Taupō District Council, and a whole lot of the developers who were going to plan a whole lot of property around that said that 2007-08 for the Taupō eastern arterial was great. That was August. In February the document came out, and they must have spent some time going through and through it, but they could not find the project. Oh, no. The start date of the Taupō eastern arterial had not slipped by a few months; it had gone from the 10-year plan. It is not in the years out to 2015 in the latest plan.

We then saw some lovely sophistry from Mark Burton, the member for Taupo—the headline on the front page of his local newspaper stated: “MP: Bypass delay is not acceptable”. He is a Minister in the Government. We asked Transit when it came before the select committee for the financial review whether it had alerted the Minister of Transport that this is the document it would have to put out, based on the funding shortfall it had now identified, and what the Minister had said he would do about it. Rick van Barneveld told us that Transit had alerted the Minister of Transport in November last year that there was going to be this problem. It had discussed it with the Minister—and the Minister of Finance—right through to December. Transit executives then went away on the Christmas break and got no assurances from the Government at all that the problem would be fixed.

When all hell broke loose on the day that this report was released, the Acting Minister of Finance, Trevor Mallard, within 1 hour said: “Don’t worry. All that stuff that Transit has put out is not valid any more, because we will find the $685 million shortfall that was identified.”

I say to this Committee that is an appalling way to do business. Transit is dysfunctional and admits it. I want to quote from the log of an interview with the chief executive of Transit, Mr van Barneveld, by Sean Plunket. I think it is a classic. Sean Plunket said to Mr van Barneveld: “But surely you knew that the $685 million shortfall wouldn’t be tolerated?”. Mr van Barneveld said: “Well, no. We have to go on planning it because no Minister would give us an indication that they would plug the gap.” Yet the Minister said so an hour after the release of this document. But the doozy of this interview is that Mr van Barneveld said: “Well, I look forward to working with Transit’s board and the Minister to understand the certainty of funding and then to reflect that very quickly to the community in New Zealand who are concerned about the timing of our projects, so we can get on and do this quickly.”

I think that Sean Plunket felt like I did—I do not actually know what that means. So he asked: “You don’t sound like you think the Government’s assurance of money in the bank are here?”. Mr van Barneveld said: “I don’t think it’s appropriate for me to comment on that.” Sean Plunket then interrupted and said: “I think it’s entirely appropriate because it would seem that you’re the chief executive of Transit and you are responsible for putting out the sort of projections and draft plans that have caused so much controversy here, Mr Barneveld. So I am just wondering whether or not you can tell us if you have anything more from the Government that would back up their claims this morning that they are going to make good the shortfall of $685 million that caused the problem in the first place.” Mr van Barneveld, the chief executive of Transit, said—and this is a classic—“I’ve only heard that advice this morning as you did, on the radio.” Now how can Transit run a Government entity like the State highway roading business, when its board members know there is a $685 million shortfall?

They published an appallingly hopeless document that has so many mistakes. My favourite—not the Taupō eastern arterial actually—is Kōpū Bridge, which was scheduled for 2008-09 at best, then slipped to 2010-11 and is now sitting at 2014-15 in the plan for the start of the project. Yet Rick van Barneveld said to Sean Plunket that he had only heard about it, as Sean Plunket had, on the radio that morning. Thank goodness that the chief executive of Transit was not having a shower when that news was on, because he would have carried on labouring under the impression that he had a $685 million shortfall.

I say to this Minister, and to the Minister of Finance, that in Thursday’s Budget, where everyone truly believes that the $685 million will be in there to make up the shortfall that was identified in this last round, that is not even getting us back to where we need to be. When the Government crows that it has fixed the gap and has taken the $685 million back and has plugged the hole, let me make it clear that that is not even starting to address the shortfall of those projects.

I move to Transit’s dysfunctional nature in another area, which is to do with its pseudo-economic development role. Transit says that there are two ways of dealing with roading. Either, when there is economic development and growth, we say that if that is the level of growth, we had better get on and build these roads to cope. Or we can take the Transit dog in the manger attitude—that is the level of economic growth we see happening in Warkworth, Taupō, or Queenstown and, in every case, we will race off to the court to block the project. Yes, the territorial local authority, the regional council, the community, and business want the project, and all the consents have been done for it to happen. Then the politicised body that Transit has become—with the president of the Labour Party, Mike Williams, and John Wright, a former Alliance MP—has now taken it totally under its wing to decide that it will determine where economic growth will occur.

That is not Transit’s role. I say that to Transit today. Its role is to provide the State highway network. At the select committee, Transit said that it did not want traffic flowing on to its roads. I say to Transit that they are not Transit’s roads. Those roads are owned by the people who pay petrol tax and road-user charges to fund the building of those roads. I have never seen a more dysfunctional body, which puts out document after document. Then, when we get to the doozy of them all, the Government says that it is all the National Party’s fault.

Hon HARRY DUYNHOVEN (Minister for Transport Safety) Link to this

I thank Mr Williamson for his entertainment for the last little while, but I say to members that we should get some facts in the way of a wonderfully entertaining story. Firstly, in August 2005 there was the Transit 10-year forecast revision. This was a relatively new process that had not previously occurred in the National Government’s time. For many years, when National was in Government, we actually found out each year what projects were on. So we had the amazing spectacle of roads being begun but not the connecting roads to make them work, which were added in the following year.

In August 2005 the 10-year forecast showed that there were problems. Those problems revolved around two things. The first was the rapidly increasing cost of roading construction, due to a number of factors but most instructively the cost increases in oil, etc. The second was a reduction in the expected revenue increase, which resulted, in 2005, in a 10-year programme being put out and then in February 2006 a revised programme being put out. That programme showed that there were problems, and this is where the member has an element of truth—and every good story has to have an element of truth. What was quite clear was that the reduction—not actually a reduction, but a reduced increase—meant that there was about a $35 million shortfall to begin with. The increase was not as major as we had expected in roading revenues, and at the same time a very substantial increase in the costs of construction resulted in the fact that many projects could not begin. No one is more aware of this than myself, having been battered about by the New Plymouth District Council and others over the Bell Block bypass. What we had was a number of projects around the country that could not be begun because of existing projects. Unlike the previous Government we want to continue them in their entirety and actually get them completed. So those existing projects were not only proceeding very well but because we had a very good summer construction period, which was longer than usual, a lot more money than expected was being spent on constructing those major projects, particularly in Auckland but in other parts of the country, ahead of time. It was important to do that to try to make some gains.

So I say to the previous speaker, a former transport Minister, who incidentally is the second-longest-serving transport Minister during my lifetime, that if there is a problem with roading infrastructure, perhaps he should look in the mirror and take some of the blame for those problems himself. Certainly, successive Governments, until Labour came to power in 1999, did not do a lot of roading construction work, and certainly we had a problem with infrastructure not being kept up with, not just in roading but in all areas of the economy.

Labour has moved rapidly to fix that, and in fact some of the problems are due to the fact that we stretched the construction industry. The roading construction industry regularly brought to us problems over training, problems over the licences for operators of machines. We moved to address that. The Hon Mark Gosche, when he was Minister, was, I think, the first to move to address some of those issues, and the Hon Pete Hodgson and I moved to address the remainder in terms of drivers’ licences, training schemes for those driving road-making machinery, etc. Those were issues that we addressed to try to ease the constraints that the road construction industry had. So it is a bit rich for National, who did virtually nothing for years and years when it was in Government, to then come back and say, when we are building more roads than has been done in generations, that there is a huge problem and everything is disastrous. It is not.

Further, I say to the Hon Maurice Williamson that both Dr Cullen and Mr Parker, who was by that time the Minister—in February 2005—said that, yes, there was a shortfall and that that matter would be addressed. I take them at their word on that. I have every confidence that it will be, and I am sure that members of Parliament will see that those projects that people expect to be constructed in the time frames will get back on schedule or very much approaching it. Just to take my own favourite, the Bell Block bypass, I say to members that it was originally scheduled, in the very first 10-year plan, to be built in the years 2011 to 2013. That project has begun. Unfortunately, it was one of the ones that began early and then had to be stopped, because soon after it had begun a major archaeological site was found. We will see, I hope, progress on that in the very near future.

KATHERINE RICH (National) Link to this

One of the first points I would like to make is to express disappointment that the Education and Science Committee did not look at the New Zealand Venture Investment Fund Ltd in greater detail. I am holding the committee’s report, and I am sad to say it is just a pro forma report of some four lines. I think it would have been important for the select committee to have a serious look at the fund, because since it was established in 2002 a lot of water has gone under the bridge. I think it would have been an opportunity for members to ask some questions about progress. Economists seldom agree on many things, but one of the things they do agree on is the role that innovation plays in the economic growth of any country. In fact, some of the academic literature suggests that as much as 90 percent of a country’s economic growth could be attributed to technical change, technology development, and innovation. So a subject area of this nature, I think, is one that is vitally important and one that perhaps should have been looked at in more detail.

The fund was set up in 2002, and it seeks to place about $100 million into commercial projects so that we can do a better job, as a country, of commercialising the technologies that come out of our Crown research institutes and universities, and that come as a result of the work of inventors and entrepreneurs. The aim of the fund is to leverage additional funding from the private sector, and I understand the aim is to ensure that private sector dollars match State sector dollars 2:1. So I am interested in the fact that the capital committed so far is some $60 million, yet the amount invested through the programme—the Venture Investment Fund plus the private sector funding—is $86.7 million. So that is not even close to doubling the amount put in by the fund. The Venture Investment Fund funds other venture capital funds, so the aim is to ensure that the organisation manages taxpayer funding and gives it to fund managers who will do a good job.

One of the things I am keen about, when it comes to venture capital, is that it does give us a greater opportunity to commercialise the outputs of research that is generated here. It allows Kiwis to take a greater ownership in some of the technologies that are developed here, and it means that overseas companies cannot just sail into town, pick the cherries out of the best technologies, and sail off again. So I think it gives New Zealanders a better opportunity to ensure that we attempt to commercialise our projects here, and take a greater stake in the value that, hopefully, can be accrued from some of the research that we have made into various technologies. Venture capital is a vital part of the commercialisation process, but $100 million, in my view, is very much a drop in the ocean. It is a very small amount of money. If we look at the amount put into venture capital in this country, surely we can see we have to do more to encourage the availability of venture capital, so that companies here that do have a bright idea, and that have a new innovation as a result of technical and scientific research, have the opportunity to commercialise their new products here.

I understand that there are some successes. In the long term, venture capital is a very risky business. Some projects that are funded can take 10, 20, and sometimes 30 years before they become commercial successes, but one such project I understand is Ectus, put together through the University of Waikato. A company was established around a technology and some people there, and it has just recently been sold to a Norwegian firm.

If this country is to make improvements in its economic growth, we have to get used to talking about the commercialisation of technology, supporting the technologies that are developed here, and making sure that we extract as much as we can out of the technologies that we, as taxpayers, fund through Crown research institutes, universities, and other areas.

Hon CLAYTON COSGROVE (Associate Minister of Finance) Link to this

I will take just a short call in respect of this matter. I want to touch on one of Mrs Rich’s final points, and that was the risk associated with venture capital. Of course if one has been in business—and a number of us have—one knows that any venture capital management requires prudent allocation of funds. The New Zealand Venture Investment Fund is a success story built around a Government that says we should back our universities and our Crown research institutes. It is a success story built around the fact that we believe we need to inject technology into our communities and back those institutions.

The member touched on Ectus, and she is right. It was sold to a Norwegian company, and very profitably. It is interesting to note that in the 2005-06 year New Zealand Venture Investment Fund received a $1.5 million distribution from fund managers Endeavour-icap. So there are a number of stark examples here of a successful fund. Venture capital is risky, it requires prudent commercial judgment—and with risk, of course, sometimes there can be failure or sometimes there can be delay. Most of that delay, I would argue, is based around prudential management by the board and those involved.

I thank the member for her contribution. It was one of the more enlightened contributions this afternoon. My blood pressure did not rise, unlike former speakers who have been here. That member generally makes a far better contribution than some of her colleagues. I endorse some of her comments, but I remind the Committee that this fund with which the Government is backing our universities and our Crown research institutes, and is attempting to inject technology into the market place, was set up in 2002. It was formed, of course, by the current Government.

I just note for the record that prior to that I cannot recall the party in Government pre-1999 having a policy on venture capital. If it did, it was kept so secret that that party was the only one that knew about it, because certainly universities did not, certainly our Crown research institutes did not, and certainly no one in the business community or in our communities knew it existed at all. It may have been a cracker policy but no one knew it existed—because it did not. I commend this organisation to the House. It is building on sound foundations, and long may it continue.

The CHAIRPERSON (H V Ross Robertson) Link to this

I understand that the next group of entities that members wish to debate is the State-owned enterprises. There is a considerable number of them. Is it the wish of the Committee that they be taken as one question? The reason for that is to allow a debate covering the financial reviews of all State enterprises. Is there any objection to that course of action being taken? There is not. The question therefore is that the reports on the 2004-05 financial reviews of State enterprises be noted.

DARREN HUGHES (Junior Whip—Labour) Link to this

I raise a point of order, Mr Chairperson. Thank you for your innovation. Government and Opposition whips have not had a chance to confer on what you have just proposed. When you say State enterprises, are you talking about AgriQuality New Zealand through to Transpower New Zealand?

The CHAIRPERSON (H V Ross Robertson) Link to this

Yes.

CHRIS TREMAIN (National—Napier) Link to this

I rise to speak on the review of State-owned enterprises, and particularly about the Genesis Energy review. State-owned enterprises exist to return a dividend to the Government—a dividend to the people of New Zealand—so they are a very important part of the composition of the New Zealand economy. It is very important that they operate effectively in the New Zealand economy, because they in turn add to the growth of the economy.

I was fortunate to be involved with the review of Genesis Energy this year. It was one of the first reviews I have been involved with. I compliment Brian Corban, the chairman, and Murray Jackson, the chief executive, of Genesis Energy on their honesty and on the way they presented their review to the Commerce Committee, particularly given how difficult it can be when one is before a select committee and has to be a little controversial. Both the chairman and the chief executive officer were prepared to stand up and be counted on the minzone and to criticise the Electricity Commission about where that minzone sat. It is a difficult thing to do. As it turned out they were correct; the minzone was some 15 percent under where they believed it should have been. It was a gutsy call, and it was good they were prepared to be heard.

Energy is a key component, a key input, to this economy, and is critical to the short to medium term outlook of this Government. Genesis Energy is indeed a key player in this. I just want to reflect on where real growth in GDP is. It is forecast at 2.8 percent per annum to 2010. Real growth in GDP per capita is now averaging only about 1.9 percent per annum. These rates of growth right now are well below the averages we have had since 1993. In fact, in September, as members well know, and December we have had rates of growth bordering on a recession, so we need to see some upside, some going forward. The warning signs are there, so it is critical that when we see Dr Cullen’s Budget on Thursday we see key indications about supporting the energy market and where we will go with that. Energy is a key input to our overall economy.

Just looking specifically at Genesis and its energy review, it is New Zealand’s largest retailer with 690,000 customers. It is not the largest but is one of the largest generators of electricity, with 1,640 megawatts of energy, multiple generation facilities, thermal power in Huntly, hydro power in Tongariro and Waikaremoana, and a significant ongoing investment now in wind farms in the Wairarapa and Waiuku, at Āwhitu. Genesis had an operating revenue in the 2004-05 year of $1.495 billion, with earnings before tax depreciation, and amortisation of $178 million. It is interesting that its net profit after taxation has fallen, back from $80.1 million to $70.2 million over that year.

If we look at that as a straight analysis from an accounting point of view, we see that it is a return of only 5.9 percent on average shareholders’ funds. It is a big decision on whether as a Government we take that huge investment, some $1.8 billion, into this particular company when we are not even getting the return we would get out of a bank at the moment. From a Government point of view, while they are a major investor the return on shareholders’ value is not that fantastic. In terms of the Office of the Controller and Auditor-General, it has a pretty good report—the rating is “good”.

I also want to talk about the key inputs of economic growth being energy, and two key factors. First is the surety of energy supply, and second is the surety of the spot price. As I said previously, Genesis expressed concern at the select committee over the operation of the minzone level. It was subsequently proven right, which I said earlier. It was proven that the minzone level was 15 percent under where it should be. At that point in time—and members will remember this—everyone was sitting around, praying for water to come out of the sky, because back in February-March the lake levels were as low as they have been since 1993. We were all sitting there, wondering, and waiting for the water to come down. But I guess the key point is we did not have the generation capacity to take over from hydro if hydro was not there. That is where the likes of Genesis have come in with some significant investments that it is now making in Huntly.

The key thing was where the energy spot price got to. It had a major impact on some of the industries in my own area of Hawke’s Bay. I can talk specifically about Pan Pac Forest Products, which is Hawke’s Bay’s largest consumer of energy. It consumes 35 percent of Hawke’s Bay energy.

BRIAN CONNELL (National—Rakaia) Link to this

I want to take time to talk about the financial review of Meridian Energy. I start by saying that Meridian Energy is the largest electricity generator in New Zealand, meeting something like 30 percent of New Zealand’s total electricity requirements. For the financial year under review, Meridian Energy made an after-tax profit of $218.2 million, which is an increase of $85.3 million on the previous year. I have taken the time to outline those figures because it is clear that Meridian Energy is the major player. In the financial review process, one of the key issues that was identified by the chief executive officer was this: “In terms of electricity supply, this is the tightest winter New Zealand has ever had.”

Hon CLAYTON COSGROVE (Associate Minister of Finance) Link to this

That was, for the benefit of those—

Hon Dr NICK SMITH (National—Nelson) Link to this

It is little wonder that the electricity industry and the International Energy Agency highlight New Zealand as a country where energy policy is a mess, when incompetents like Clayton Cosgrove give speeches like that in this Parliament. Let me tell members a few of the things that have been highlighted both in that report and by Keith Turner, whom Mr Cosgrove chose to quote. Let me say exactly what Mr Turner said about the state of our electricity system. He said there are lines in New Zealand that are so poorly maintained we are at risk of being in a Third World situation in respect of electricity supply. The Electricity Commission, an agency this Government set up, has had to admit it made a mistake of about 180 megawatts in the minzone, which amounts to the amount of electricity that would service 120,000 households.

Then there is the complete mess in Government policy. I wonder whether the Minister in the chair, Clayton Cosgrove, can tell us whether we are going to have a targeted carbon tax for the companies we are talking about. The silence is deafening. The Minister in the chair is not able to tell us even whether a carbon tax will be imposed on those companies. I ask the Minister in the chair how he can possibly get new investment in the electricity sector if he cannot answer even a basic question like that.

Let us recite what happened. At the Commerce Committee, when the representatives of Genesis Energy were before us, they told us they were sick of this Government relying on the Huntly power station to bail it out. Pete Hodgson told us in the House 5 years ago that this Government’s energy strategy was to ensure we had more renewable energy. Well, do members know that in the brief 6 years of this Government, we have trebled the amount of electricity produced from coal? That is what has happened under this Government.

NANDOR TANCZOS (Green) Link to this

Dr Smith has been talking about climate change, and he is quite right—it probably is the single biggest environmental threat facing humanity today. Carbon dioxide levels in the atmosphere, at 380 parts per million, are higher now than they have been in the last 650,000 years, which include five glacial and interglacial ice ages. The West Antarctic ice sheet is breaking up at an unprecedented rate. Arctic sea ice is disappearing, and the ocean exposed is absorbing heat and accelerating the process. Glaciers are in retreat around the world. The Gulf Stream, the warm current that keeps Western Europe inhabitable, has weakened by 30 percent, and we are seeing the gradual melting of the tundra in Siberia and northern Canada, and the release of thawed methane.

As Dr Smith noted this weekend, the Government’s response to climate change has been pathetic. It has abandoned the only economic mechanism it was prepared to consider in order to reduce greenhouse gas emissions—the carbon charge. It has abandoned the animal emissions levy, and it is now presiding over the destruction by Landcorp of 250 square kilometres of forest, in order to turn it into a dairy farm. That is an area 40 percent the size of Lake Taupō.

Members should remember that for every hectare converted from forest to pasture, greenhouse gas emissions are increased by about 800 tonnes of carbon dioxide equivalents. So the 25,000 hectares we are talking about will contribute 20 million tonnes over the 20 years of the conversion. Unbelievably, that is a 1.4 percent increase in our total emissions from this country every year, and in 20 years we are talking about a 27 percent increase over our current levels. That is unbelievable—an extraordinary amount.

Why on earth would a State-owned enterprise be doing that? Landcorp is already the largest farming operation in New Zealand, with 1.54 million stock units on 112 farms, which total 370,000 hectares in size. We have to ask whether this is just one more manifestation of the Government’s absolute obsession with economic growth and damn the environmental consequences. Landcorp, of course, has an agreement not to acquire any more land unless it sells an equivalent amount, but the lease arrangement that relates to that land gives the corporation effective control over a greatly increased area.

Two subsidiary companies, Landcorp Developments and Landcorp Pastoral Ltd, will convert 25,000 hectares over 20 years. That will involve intensive stocking, which is associated with very high nitrogen inputs, both as fertiliser and as urine from those animals. It would be nice to see Landcorp lead the nation by example, and institute devices to measure contamination by leachates, and to see it agree to adjust stocking rates and fertiliser applications if they exceed thresholds. But I fear we are very unlikely to see anything so progressive. On the permeable volcanic soils of the area, there is likely to be significant leaching of nitrogen and other nutrients from farms, which will perpetuate the problem of nutrient enrichment of lakes and rivers—another significant environmental problem that New Zealand faces today.

Sensibly, the water use application was denied by Environment Waikato, which said that the leachate from the Landcorp property would negate all of the work it is doing to prevent nutrients ending up in streams and lakes through its clean streams initiatives. It is absolutely bizarre that this State-owned enterprise seems to be actively hostile—not just neutral—to any prospects of this country meeting our Kyoto commitments or cleaning up our polluted waterways. It is an absolute disgrace.

Hon CLAYTON COSGROVE (Associate Minister of Finance) Link to this

I thank the member for his contribution, but I want to take a short call to rebut a couple of the points he made. First, in my view, Landcorp is one of our premier State-owned enterprises. As a member of the Primary Production Committee some time ago, I paid a number of visits to Landcorp facilities and farms, along with a couple of other members. It is a premier State-owned enterprise. For instance, in the last 2 years it has returned to the Crown a dividend of $36 million.

I want to touch on a couple of points that Mr Tanczos made in respect of deforestation and the decision on that. The decision was not Landcorp’s. I will give an example of what happened. Landcorp decided to take up a contract offered by Kiwi Forests, which was the owner of some land, to convert that land for dairy farming. If Landcorp had not taken up the contract, it would have been offered to someone else and the land would have been converted for dairy farming anyway. So the decision to deforest the land was not the State-owned enterprise’s. If deforestation would have occurred anyway, my view is that the State-owned enterprise should be in there as the superb farmer that it is, making money for the Crown.

I also say that if one looks at the performance of the Landcorp entity, one can see that it has performed outstandingly on the back of strong commodity prices. It oversaw the transition of ownership of Molesworth Station to the Department of Conservation. Landcorp continues to farm on that property now, despite the dire predictions that I recall came at the time from the Opposition. I think Mr David Carter waxed eloquently at the time, making dire predictions about the handover of that land and what it would mean in terms of reducing Landcorp’s ability to farm it. As usual, the reality was different from the predictions. Also, if one looks at the lambing percentages, one can see that they are incredible. They are 135.8 percent, which is a record high compared with the previous year’s 127.9 percent.

Landcorp is a really good, solid State-owned enterprise. It is one of our premier State-owned enterprises, run by a fine board with a fine chief executive and by a very solid management team. Landcorp also contributes to something that I think is important in the farming sector and in rural industry, which is training. It does an impressive amount of training and upskilling, which is then re-injected as people pass through that entity and back into the farming communities.

To conclude, I want to touch briefly on a bit of history. Landcorp was previously on the hit list. I recall, when Labour came into Government, going to a Landcorp dinner and being told it was fantastic that the Labour Government had come in and told Landcorp squarely that it was not for sale. I was told that because Landcorp knew it was not for sale, given those parameters it could actually get on and make some money for the taxpayer and improve the State-owned enterprise by doing some long-term planning. Prior to 1999, Landcorp was on the block. Labour defeated the National Party at the election then, and put that issue to bed. Not to be outdone, a great strategist—probably Murray McCully, I suspect—decided to revisit that proposal in 2002 and again in 2005, and to say to the country we should sell off one of our biggest landowners, probably to the foreign interests that come in, start to subdivide land, gobble everything up, and then compete with it.

We say again to Landcorp, to the people of this country, and to this Parliament that, under the stewardship of this Government, the Landcorp asset—which is a huge asset in the public mind and in the community context—is not up for grabs. I welcome the next election, because I assume the National Party will recycle for the fourth time its failed policy of going to the public and telling them that we should sell Landcorp to foreign interests, have it carved up, have somebody else come and take over, and reduce to zero the dividend that our taxpayers receive through the Crown.

GORDON COPELAND (United Future) Link to this

It is very appropriate that I follow on from the remarks just made to us by the Minister in the chair, the Hon Clayton Cosgrove, because at this point in the debate on the State-owned enterprises I want to talk about the ownership of Genesis Energy, Meridian Energy, and Mighty River Power. United Future believes that the current view of never selling any of the State-owned enterprises and retaining 100 percent State ownership is a very, very deeply flawed policy, when looked at from the point of view of determining what will maximise New Zealand’s economic growth and how to take steps to ensure that happens. If the 20th century taught the world one thing very, very eloquently, it was that Governments are not good at running businesses. Having sat through the committee of inquiry into Television New Zealand (TVNZ), I can tell members New Zealand is no exception to that, and we should not think we can do something here that has failed in every other country.

We have Labour’s view of never selling anything. National has changed its position on the State-owned enterprises, because at the last election we were told by Dr Don Brash that it would not sell anything either, except for a few small farms and a wee bit of Solid Energy. The ACT party’s view is to sell them all and just go in for straight market economics and so on. United Future has a different position, and it is one that I believe is fundamentally sound and the House should look at. United Future’s view is that the partial sale of the State-owned enterprises to mum and dad investors could completely revitalise those businesses, lift local savings and investment, increase the returns to the Government, and relieve the Government of ongoing capital demands. It could also build wealth for many thousands of mum and dad investors and ownership societies. United Future therefore proposes that about 40 percent of the State-owned enterprises should be sold.

However, I say immediately that we propose that that 40 percent be sold to New Zealand mum and dad investors in the various ways in which they invest in shares—through managed funds and superannuation schemes, etc. We would put safeguards in place to ensure that no more than, say, 20 percent—and certainly less than that in the case of TVNZ—of those shares could ever migrate overseas, into the hands of non-residents. That would give New Zealand continued majority ownership and control of the State-owned enterprises, going forward. That policy is unique to our party, and I believe the House should look at it very seriously.

I can understand that New Zealanders are nervous about selling even 40 percent of the shares in State-owned enterprises. I completely understand that and sympathise with them, following the debacle of the 100 percent sales of Air New Zealand and New Zealand Rail, which have rightly made Kiwis very nervous about asset sales. But I stress that in both cases, those enterprises were sold 100 percent and, certainly in the case of New Zealand Rail, were sold to asset strippers. We certainly do not suggest we go down that street. Australia, for example, has its four pillars policy in place, which ensures that banks, financial institutions, and the media remain under Aussie control. The United Future policy represents a Kiwi equivalent of that very wise Australian position.

We estimate that such a partial sale would release somewhere between $5 billion and $7 billion for reinvestment by the Government in other areas. The reinvestment of those funds would provide a new and an exciting range of opportunities for New Zealand. For example, some hundreds of millions of dollars could be invested long term to produce income for universities that would enable them to award scholarships for postgraduate work across a range of high-level scientific and engineering skills. That skill set, in and of itself, has the potential to significantly lift New Zealand’s economic growth, by creating a knowledge-led economy. We cannot have a knowledge-led economy without that really top-end, PhD level of scientific input and engineering skill. A similar investment could be made in the top end of medical technology by our major hospitals, so that New Zealand could establish and maintain First World status in all major surgical and diagnostic areas.

The land transport funding problems in Auckland, Tauranga, Wellington, and elsewhere could be overcome by utilising the money realised from the 40 percent sale of the State-owned enterprises, thus eliminating congestion and providing the New Zealand economy with a major productivity boost. The drag on our economy at the moment of that congestion is very, very material, indeed. If any money is left over after that, we could use it to repay Government debt, although I point out that the Government is now in a net credit rather than a debit situation. In other words, our net financial assets now comfortably exceed our net financial liabilities.

The CHAIRPERSON (H V Ross Robertson) Link to this

I understand that the next group—

Hon TONY RYALL (National—Bay of Plenty) Link to this

In March the Government required the Director-General of Health to write to eight district health boards around the country to threaten them with an upgraded level of monitoring and the removal of their early payment situation if they did not improve the level of their performance of what are called the elective services patient flow indicators. The ministry’s letter follows the revelation in Parliament that despite, apparently, billions and billions of dollars being put into the public health system in the last 6 years, fewer elective procedures are being performed. That also showed that fewer surgical procedures were being performed compared with 5 years ago. As a result, the Ministry of Health wrote to a number of district health boards to threaten them with increased monitoring by the Government, and to send a very clear message that their current performance was concerning and that they must move to compliance with those standards.

That is why we have seen thousands and thousands of New Zealanders culled from waiting lists in the last few months. We already know that about 14,000 New Zealanders—

Dr JONATHAN COLEMAN (National—Northcote) Link to this

It is a great shame that the Health Committee did not get the opportunity to hear from the Hawke’s Bay District Health Board, and that we ended up producing a pro forma report on that district health board. I can tell members that if we had known what we know now about what has been going on in elective surgery in Hawke’s Bay, we certainly would have wanted to see that district health board, because what has been uncovered there has been just appalling. I can tell members that the National Party health team has really been putting the focus on health. The more focus we put on it, the more uncomfortable truths are coming home to roost for this Government.

Back in February the Minister of Health, Pete Hodgson, said, when he was asked, that the mark for anything in health will always be 5½ out of 10. Well, if we were to ask the people in Hawke’s Bay now, I would say that the Minister would definitely not get his 5½ out of 10, because 5½ is a pass mark, and, frankly, in terms of elective surgery in Hawke’s Bay, as around the rest of the country, this Government is getting nowhere near a pass mark.

If one district health board illustrates the sorry state of elective surgery under this Government, it is the Hawke’s Bay District Health Board. We have heard that 1,800 people just waiting to see a specialist for a first specialist appointment at that district health board have been dumped off the waiting list. Those people have not even seen a specialist. What was the precipitant for that? It was a threat, as my colleague Tony Ryall has stated, from the Ministry of Health that if the district health board did not come up to scratch and start to meet its target, and if it did not comply, it would be put under intensive monitoring. That district health board, like a number of others, received a letter that stated: “I anticipate you will move immediately to tackle the issues that underlie this position. As an indication of the seriousness attached to this matter, I must regrettably formally advise you that failure to correct current non-compliance will lead to the ministry reviewing your status on the monitoring and intervention framework.”

What did that mean? That meant that the management of Hawke’s Bay District Health Board had absolutely no option but to dump 1,800 people off the waiting list to see a specialist. Then what happened? The Prime Minister blamed the managers—it was the managers’ fault! What happened next? The Minister of Health said it was an ethical matter—that the doctors, general practitioners, and surgeons of Hawke’s Bay were acting unethically in removing those people from the waiting list.

Dr JACKIE BLUE (National) Link to this

I want to talk about Pharmac and the national medicines strategy. The question I want to ask is why New Zealanders have to wait so long. Over 8 months ago, during the election campaign, Peter Dunne said he would review the role of Pharmac, to ensure not only that pharmaceuticals would be made available at the most competitive price but also that the interests of individual patients would be taken into account when funding decisions were made. Last month it was announced that the long-awaited medicines review was finally under way, but that a consultation document would not be available until the end of the year—over a year after Peter Dunne promised it. There is more. It was also announced it would be another year before a final document would be ready. I say to colleagues that it looks as though it will be election year before a final report will be ready. How convenient that is!

No mention has been made in the national medicines strategy review of a forum where members of the public—ordinary New Zealanders—can express their views face to face. That is an appalling indictment. The main focus of the strategy will be on quality access and the rational use of medicines. I point out that there is an urgent need for an operational review of Pharmac. Applications for funding take far too long to be decided on. The average application in New Zealand takes about 3½ years, which compares with 9 to 10 months in Australia. There seems to be no rhyme nor reason as to how drugs are referred from Pharmac’s advisory committee—the Pharmacology and Therapeutics Advisory Committee—to one expert subcommittee or another. Sometimes that advisory committee thinks it has the expertise to make important decisions about complex drugs and complex situations, and bypasses the expert committees completely.

I will take as an example the saga of the diabetic insulin drug Lantus—a very valuable drug, according to the medical community. Following an application for funding in July 2004, the drug was assessed as being of only low priority by the advisory committee. Lantus was then referred to the diabetic subcommittee, which was fortunate, but it took a staggering 10 months to meet. When the subcommittee finally met, the expert subcommittee gave the drug a high priority for funding, a decision that was completely at odds with the advisory committee’s position. Now, 2 years later, it is hoped that a decision about Lantus is not far away. Incredibly, that rate of progress is considered to be quick by Pharmac’s standards.

I think Pharmac sometimes thinks it is doing a fabulous job. It is proud of the fact that pharmaceutical spending has flatlined over the last few years. It is proud of the fact that it takes over 3 years to fund drugs. When Pharmac told the Minister of Health that New Zealanders have access to more medicines than Australians do, it was very proud of that fact until it was pointed out that that included things like condoms, bandages, and peak flow meters. What an embarrassing oops! The reality is that New Zealanders are being short-changed on the total number of medicines, and also short-changed by the use of special authorities and other rationing mechanisms that mean the number of people who are eligible for drugs is severely restricted.

I have been led to understand that the Pharmac model has been praised internationally, and that countries like Canada are looking at adopting the model at this very moment. I doubt whether they will do so when it is pointed out to them that severely restricting the access to innovative drugs will have a negative impact on health outcomes, and also that Pharmac’s preference for being the sole supplier, as a means of getting the price lower, is risky and eliminates consumer choice. Although that approach has saved money, it has prevented patients—consumers—from receiving the treatment they need.

Pharmac’s approach has produced a rigid, divisive, silo mentality. Its antagonistic and hostile attitude has meant that a number of pharmaceutical companies have downsized or left the country completely.

Hon TONY RYALL (National—Bay of Plenty) Link to this

I am not surprised the Minister of Health has not sought a call in this debate. What would he talk about if he did take a call? Would he talk about his vision for health? Would he talk about his action plan? I will tell members what he would talk about—us. He would talk about the National Party. When he had the opportunity to give his maiden speech as Minister of Health, he spent nine out of 10 pages talking about the agenda National has been setting in health and trying to explain why Annette King managed the portfolio so much better than he is. The Minister talks about lying awake at night worrying about the bird flu. I wonder whether he also lies awake and worries about why Annette King managed to have health under control as opposed to how it is going under him—and poll after poll shows that, under this Minister, health is turning into a disaster.

How was Annette King able to negotiate with general practitioners and get a successful roll-out of the increased subsidies, whereas this Minister is having trouble with significant parts of the general practitioner workforce in getting those through? Why, when the waiting lists were growing and growing, was Annette King able to be Minister of Health without that being too much of an issue?

Hon PETE HODGSON (Minister of Health) Link to this

I would like to thank Dr Jackie Blue for her contribution on the role of breast physicians. There are some things I would like to understand about that, and I wonder whether she and I might not share a conversation in the near future. I would like to understand some of the subtleties better.

I am so pleased we won the last election. It was fought around whether this country was to go forward with a bunch of tax cuts worth $11 billion over 4 years, or whether we were to invest in more services and better education, and give more attention to our nation’s infrastructure. It was fought around whether we were to build a nation or whether we were to have tax cuts we could not afford. Members can notice how I can listen—how we all can listen—to 25 minutes of drivel from the National Party without interrupting, and how, 25 seconds into my speech, Tony Ryall has got himself blathering like a Gatling gun. All he can do is try to talk people down. That is the sort of guy he is. Members can notice that the National Party did not speak about mental health or about older New Zealanders wanting to stay longer in their own homes. It did not acknowledge that mental health funding has doubled under this Government. Boy, are we proud of that! Boy, have we got some way to go yet! But that is really significant progress.

Members can notice the amount of money that has flowed through district health boards to help older New Zealanders stay in their own homes longer and to go to rest homes later, or temporarily, or, for the most part, not at all. That sort of money has doubled since the change of Government. Members can notice how the primary health care strategy will be rolled out one more step on 1 July this year, and will be rolled out in its entirety on 1 July next year, and how, by 1 July this year, there will be an investment of $540 million, near enough, into the primary health care strategy.