Tuesday, 21 September 2010

Tuesday, 21 September 2010

Tuesday, 21 September 2010

Mr Speaker took the Chair at 2 p.m.

Prayers.

Speaker’s Statements

David Garrett—Change of Parliamentary Membership

Mr SPEAKER: Under Standing Order 35(1)(c) I have been advised by the ACT Party that its parliamentary membership has changed, and that David Garrett is no longer a member of the ACT Party for parliamentary purposes. Accordingly, under Standing Order 34(4) David Garrett is from 17 September 2010 regarded as an Independent member for parliamentary purposes. Allocations of speaking slots and oral questions will be adjusted. Allocations of funding to the ACT Party and to David Garrett will also be adjusted.

Questions for Oral Answer

Questions to Ministers

Tax System Changes—Effect on New Zealanders

1. Hon PHIL GOFF (Leader of the Opposition) to the Prime Minister: Does he stand by his statement that “the vast majority” of people will be “better off” as a result of his tax switch on 1 October 2010?

Rt Hon JOHN KEY (Prime Minister): Yes, because that is what the facts clearly show. Raising GST will increase prices by a touch over 2 percent, but will be more than compensated for by income tax cuts and an increase in benefits, Working for Families, and superannuation. Therefore, it is plain for everyone to see that people will be better off.

Hon Phil Goff: Does he really think that the more than 400,000 Kiwis who earn $15 a week or less and who will at best get a net $5.70 a week will be better off when, in addition to GST, they are paying rents that are going up by $20 a week in Auckland, paying rates that are up, paying accident compensation charges that are up, and, for some people, paying $20 to $25 a week extra in early childhood care? I ask whether he is really saying that those people will be better off, because they do not believe it.

Rt Hon JOHN KEY: Yes, they will be better off. What is so often the case is that when the Leader of the Opposition comes into the House, he says things that are factually incorrect. In fact, his story last week about rents is wrong—

Hon Darren Hughes: I raise a point of order, Mr Speaker. All members of the House are honourable members who give their word as they see it as being correct when they are asking questions. For Mr Key to say that another member is factually incorrect, and imply that an honourable member is not being truthful—

Hon Rodney Hide: I raise a point of order, Mr Speaker. [Interruption]

Mr SPEAKER: Before I hear the honourable Rodney Hide, members may not agree with a point of order, but it must still be heard in silence. I will rule on the matter in a moment.

Hon Rodney Hide: It is certainly true that members cannot question another member’s integrity in this House. But a member can certainly say that a member is factually incorrect; that has to be allowed in this House.

Mr SPEAKER: I thank members. There will be silence. The dilemma that the member asking the question faces is when one builds supposed facts into a question—and that question contained a number of statements of alleged fact—Ministers are at liberty to dispute those facts. It does not mean that they are impugning the integrity of the questioner at all. They just have a different view of the facts. That is why the Standing Orders strictly do not allow members to load additional supposedly factual material into questions. I do not stop it, because I think we would constrain question time too much. But the risk is that the Minister answering the question—in this case, the right honourable Prime Minister—may dispute the supposed facts, and that is what has happened on this occasion. I do not believe he was saying that the Leader of the Opposition was misleading the House. He was just disagreeing with the supposed statement of fact.

Hon Phil Goff: When he says that the vast majority will be better off, does he not really mean that the top 10 percent of taxpayers, who get 41 percent of the tax cuts, will be a whole lot better off, but the bottom 20 percent of taxpayers, who get 2 percent of the tax cuts, will be a lot worse off?

Rt Hon JOHN KEY: No, I mean what I say, which is that the vast majority of New Zealanders will be better off. I point out that two-thirds of the entire tax cut package was applied to the lowest two rates. But I say to the Leader of the Opposition that if he is so convinced that he is on to a winner, he should go to the election campaign in 2011 agreeing to reverse the personal tax cuts that National has introduced.

Jo Goodhew: Has he seen any reports of people being confused about the tax switch?

Rt Hon JOHN KEY: Actually, I have. I have seen pamphlets from the Labour Party implying that GST is going from zero to 15 percent on 1 October. Not only is this completely false and an attempt to mislead the public, but one would think that Phil Goff, of all people, would know that GST is 12.5 percent, because a Labour Government introduced it, and raised it, with no compensation.

Hon Phil Goff: If people are to be a whole lot better off, why are debt collection agencies like Baycorp predicting that over the next 6 months there will be “a massive spike in the number of people who just won’t be able to pay their bills.”?

Rt Hon JOHN KEY: Because the country is coming out of a recession, which was caused by 9 years of economic mismanagement by Labour.

Hon Phil Goff: In the press statement put out today the Government has claimed a high level of extra income from after-tax incomes, and why did he neglect to say in that press statement that just under half of those tax cuts were introduced under Labour; and of the tax cuts, the other half that he introduced overwhelmingly benefit the very rich and not the average New Zealander?

Rt Hon JOHN KEY: Because they form the first tranche of National’s tax cuts. Let us be honest: the only reason Labour ever introduced tax cuts, after 9 years in office, is that it was desperate and heading for the exit door.

Jo Goodhew: Has he seen any reports of alternative tax switch policies?

Rt Hon JOHN KEY: Yes, I have. I have seen reports of policies to take GST off fresh fruit and vegetables. Such a policy would needlessly complicate the tax system and create all sorts of perverse anomalies. New Zealanders would rightfully wonder, for example, why GST was being taken off out-of-season asparagus and imported figs but not for a packet of Wattie’s frozen peas. In addition, this policy would cost somewhere near $450 million in revenue and would be paid for by more borrowing.

Hon Phil Goff: Can the Prime Minister name just one other country in the world with GST at 15 percent, or higher, that does not exempt fresh fruit and vegetables?

Rt Hon JOHN KEY: I do not have that information to hand, but, for once, I will take my guidance from Michael Cullen, who said: “I am aware of many countries that have appallingly inefficient GST systems where they exempt various articles … Thank goodness we have not followed those very bad policies.” But when one is desperate, one will do anything.

Marine and Coastal Area (Takutai Moana) Bill—Burden of Proof

2. RAHUI KATENE (Māori Party—Te Tai Tonga) to the Attorney-General: What requirements must the Crown meet in relation to the burden of proof in the Marine and Coastal Area (Takutai Moana) Bill, and how different is this to former legislation in respect of how the full burden of proof falls on hapū and iwi?

Hon CHRISTOPHER FINLAYSON (Attorney-General): Under clause 105 of the bill, if the Crown does not accept that customary title exists in an area, then the Crown has to prove customary title has been extinguished. This requirement is consistent with what the Court of Appeal said in the Ngāti Apa case. Under the current legislation, applicant groups have to prove the negative—namely, that extinguishment has not occurred. The requirement is contrary to what the Court of Appeal said in Ngāti Apa and goes against the usual rules about the burden of proof.

Rahui Katene: What did the Court of Appeal say in the Ngāti Apa case, which has led to the development of a shared burden of proof; and can he name any other precedents in which indigenous peoples have called for a shared burden of proof, and the law has responded?

Hon CHRISTOPHER FINLAYSON: The Court of Appeal said: “the onus of proving extinguishment lies on the Crown and the … purpose must be clear and plain”. I cannot immediately recall any other precedents involving indigenous peoples, but I refer the member to a general affirmative defence—for example, a limitation argument under the Limitation Act 2010. Anyone wanting to argue that a claim is time barred has the burden of proving that that is the case.

Rahui Katene: Does he agree that the tests applied in the takutai moana bill reflect New Zealand’s experience better than overseas case law by incorporating tikanga, and how will this be achieved in a practical sense?

Hon CHRISTOPHER FINLAYSON: Yes, I do. I think the tests better reflect New Zealand’s experience, because they do draw on both the common law and tikanga. In a practical sense, clause 97 of the bill will allow the High Court to refer questions of tikanga to the Māori Appellate Court or to obtain the opinion of a court expert on the question.

Local Government, Minister—Confidence

3. Hon PHIL GOFF (Leader of the Opposition) to the Prime Minister: Does he stand by his statement: “All I can say is that in the 22 months that Mr Hide has been a Minister in my Government, he’s shown very good judgment and he has my full support.”?

Rt Hon JOHN KEY (Prime Minister): Yes.

Hon Phil Goff: How was it good judgment on Mr Hide’s part to choose to cover up the theft of a dead baby’s identity by his law and order spokesperson, Mr Garrett?

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. You may recall—and I am sure that the Clerk will be able to advise you—that there are Speakers’ rulings about the relationship between the Prime Minister’s responsibility for his Ministers and the Prime Minister’s responsibility for the actions of Ministers as leaders of parties. This, of course, was canvassed very well by the Opposition in question time in 2002, when the Rt Hon Helen Clark came up with the theory that it depended on what hat—I believe that was the term used—a Minister had on at the time. That question is right outside of those Speakers’ ruling provisions and cannot stand.

Hon Darren Hughes: The Leader of the House is quite right that this issue has been canvassed by the House quite a lot. I refer you, Mr Speaker, to Hansard, Volume 648, at page 17315, where the then Leader of the Opposition, John Key, asked: “Is the Prime Minister saying that the new standard for the way she will measure her Ministers is solely on their performance in their portfolio …”. He was very critical that that would be the only measure. The Leader of the Opposition is asking about the judgment of Ministers beyond just their narrow portfolio responsibilities to the way that they conduct themselves in the execution of their warrants to be Ministers, to be members of the Executive Council. The confidence and supply agreement for this Government relies on the parliamentary ACT Party, which has signed up to a no-surprises policy in respect of advising the Prime Minister of its composition. The Leader of the Opposition’s question to the Prime Minister is about the judgment of one of those Ministers who is party to the confidence and supply agreement, with the Prime Minister’s own previous statement making the point that Prime Ministers should not have a new standard for the way in which Ministers are measured that is solely based on their performance in their portfolios.

Hon Gerry Brownlee: Mr Speaker, you need to see the whole of that Hansard, which, in fact, saw the Speaker rule—from my recollection—that that was not a reasonable position, because of Speakers’ rulings established in 2002 that dealt with the then breakdown of the Alliance and, particularly, the position of the Hon Jim Anderton, who at the time was the Deputy Prime Minister but, for a time, not the leader of the Alliance. There were numerous questions posed to the Prime Minister at that time. All of them were ruled out of order because it was ruled that although Prime Ministers have responsibility for Ministers and their actions as Ministers—in other words, the discharge of their portfolio responsibilities—they have no responsibility for their activities as leaders of a party.

Mr SPEAKER: I will hear the Hon Rodney Hide, because this is an important issue.

Hon Rodney Hide: I will go further, Mr Speaker: it was established by Prime Minister Helen Clark that she did not even have responsibility for herself when she was acting as party leader—

Hon Ruth Dyson: How is that a point of order?

Hon Rodney Hide: The point is that one could not ask a Prime Minister about her decisions as a party leader, only about her decisions as a Prime Minister. So it seems odd that one cannot ask, if you like, the Prime Minister of New Zealand about his decisions as leader of the National Party, yet somehow one can ask the Prime Minister of New Zealand about the decisions of another party.

Hon David Parker: I suggest another reason why this is relevant. The Prime Minister has responsibility for supervision of the application of the Cabinet Manual. I refer the Speaker to 11 September 2008, and a series of questions relating to the Rt Hon Winston Peters from the Hon Bill English, and from John Key around the same time. This question is one that, for example, was in order: “Can the Prime Minister confirm that one of her roles is to supervise the application of the Cabinet Manual to her Ministers, which says at all times Ministers are expected to behave in a way that upholds and is seen to uphold the highest ethical standards?”. That is a reference to paragraph 2.52 of the Cabinet Manual, which notes that “A Minister of the Crown, while holding a ministerial warrant, acts in a number of different capacities”—ministerial, political, and personal—and paragraph 2.53 states that “In all these roles and at all times, Ministers are expected to act lawfully and to behave in a way that upholds, and is seen to uphold, the highest ethical standards.” I suggest that this is a matter on which there can be questions to the Prime Minister.

Hon Gerry Brownlee: I refer you to Speaker’s ruling 146/5—the repeated rulings of Speaker Wilson in 2006 and 2008. The 2008 rulings particularly apply to the situation that the honourable member raises. It is quite clear that the Prime Minister is not responsible for answering questions that relate to activities of Ministers in their capacity as leaders of parties. In any event, in this case the question goes back to a point where the Hon Rodney Hide was not a Minister, and, clearly, there would have been no responsibility on the part of the Prime Minister, who at the time was Leader of the Opposition.

Mr SPEAKER: May I check with the honourable member as to which Speaker’s ruling he was citing?

Hon Gerry Brownlee: It was 146/5.

Hon Darren Hughes: Mr Speaker, while you have Speakers’ Rulings open, I note that Speaker’s ruling 147/1 states: “Where a question impinges on the Prime Minister’s official responsibilities as Prime Minister, it will not be ruled out of order just because there is a party connection.” Clearly, there is a party connection here; the Leader of the Opposition is asking a question about the judgment of one of the Prime Minister’s Ministers and the no-surprises policy that exists in the confidence and supply agreement, which has been tabled here in the House as part of the Government formation process, and which is underpinned by the Cabinet Manual. So there is a case not only of public interest but of ministerial responsibility in terms of the views of the Prime Minister on the judgment of one of his Ministers, and the attempt here to deflect or refuse to answer questions about that serves only to further highlight why the store the Prime Minister puts on, and his level of respect for, the judgment of one of his Ministers is a matter of public interest.

Mr SPEAKER: I thank honourable members for their contribution to this particular issue of order. It is a serious issue of order, and that is why I have taken some time to listen to members’ views on it and to check on various Speakers’ rulings—and members have quite rightly cited some important Speakers’ rulings. This is a tricky issue—I freely acknowledge that—because the Prime Minister is certainly not responsible for the conduct of another political party. Even in this House, as Prime Minister he is not responsible for the conduct of the party from which he himself comes.

The issue simply relates to whether the Prime Minister can be questioned on the judgment of a Minister. And the Prime Minister is responsible for the judgments of his Ministers—there is no question about that. What makes this particular question tricky is that the Prime Minister was questioned about the judgment of a Minister, and the example given was an example relating to a matter to do with the ACT Party. The question therefore turns on whether that rules out the question under our Standing Orders.

Let us look at the various Speakers’ rulings that guide me. One of the members mentioned Speaker’s ruling 147/1, which states that “Where a question impinges on the Prime Minister’s official responsibilities as Prime Minister, it will not be ruled out of order just because there is a party connection.” Yet there are other Speakers’ rulings, and I think the Hon Gerry Brownlee mentioned 146/5, which points out that “(1) The Prime Minister and Ministers are responsible for only those matters that fall within their responsibilities as Ministers, not as leaders of parties.” But the Prime Minister has not been questioned on this occasion in his role as leader of the National Party; the Prime Minister has been questioned on the judgment of a Minister, and the example that was given related to a matter to do with a party.

It would seem to me that the most appropriate ruling for me as Speaker—and it treads a pretty fine line, I acknowledge—is to ask the Prime Minister to answer the question in so far as it addresses the Minister’s judgment, and judgment generally, and the Prime Minister is not required to comment particularly on the detail of the matter relating to party matters. This is a most unusual question and a most unusual circumstance, and I am being very cautious here, but I believe that the Prime Minister is responsible for the judgment of his Ministers—there is no question about that. Therefore, although the example given does relate to matters to some extent within the ACT Party, it is a question principally about the judgment of a Minister, and in that regard I invite the Prime Minister to answer it but to be mindful of the fact that he is not responsible for matters within the ACT Party itself.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. I do not want to dispute the position that you have come to, but I ask you to consider it a little further. We have Speaker’s ruling 146/6, which states: “The Prime Minister is answerable for any statements made as Prime Minister. But the Prime Minister is not answerable for actions taken in a non-ministerial capacity, whether as Leader of the Opposition or as leader of a political party.” If that ruling stands, then the Prime Minister would not be responsible for anything, for any question of judgment on his part, as leader of the National Party or in the time that he was the Leader of the Opposition. But now we seem to be saying that the Prime Minister does become responsible for answering questions about matters that were undertaken, decided, or whatever by another political party leader prior to the formation of the Government. The Prime Minister, it would seem to me, under Speaker’s ruling 146/4, and even 147/1, which you quoted, is responsible for matters that relate to ministerial judgment but surely not judgment that political parties make; otherwise, we are a very short step from the Prime Minister being responsible for the political policies of parties that are party to Government or are in some sort of governance arrangement with the party that is leading the Government, and that would be very unfortunate. I think this is not a fine line. I think it is patently clear that matters that relate to Mr Hide’s relationship with Mr Garrett prior to the formation of the Government are in the past and have nothing to do with the way in which he has exercised his responsibilities as a Minister, for which the Prime Minister is directly responsible. To now require the Prime Minister to reflect back on matters that are in the past is, I think, quite unreasonable.

Hon Peter Dunne: Mr Speaker, Mr Brownlee has substantially covered the point I was going to raise, but I really wanted to raise a question that arises out of your original ruling. If the Prime Minister is to have a responsibility, is it not for the conduct and judgment of Ministers as they relate to their particular portfolios and the overall performance of the Government, rather than in just a blanket sense? There may be issues that fall outside the impact on a Minister’s portfolio or the overall activities of the Government, and, therefore, how can the line be that the Prime Minister has a responsibility in those areas as well? I think this is an extension of the point Mr Brownlee was raising, but I think it goes to the heart of what is the point at issue here.

Hon Clayton Cosgrove: If I could address the matter that Mr Brownlee raised, it seems to me that he was saying—if I am correct—that because the alleged lack of judgment had occurred initially prior to Mr Hide becoming Minister, somehow it was not the Prime Minister’s responsibility to answer in that respect. I put it to you, Mr Speaker, that the judgment question may have occurred sometime before the member held the warrant, but continued—and the question goes to it—right up to when the warrant was picked up by Mr Hide, and continued up until, shall we say, a few days ago. So it does form ministerial responsibility. The alleged cover-up continued right through when he was a Minister.

Hon David Parker: I want to develop that argument, because I think Mr Cosgrove is right. If we take an example where something is withheld from a Prime Minister, and the Prime Minister, but for that withholding, might not have made someone a Minister, because he might not trust him or her, that must be a matter that goes to the responsibility of the Prime Minister if in the future he decides to get rid of a Minister, as the Prime Minister chose to do in respect of Richard Worth. So I think there is no doubt that the Prime Minister has responsibility for the conduct of his Ministers. He can say he thinks that the conduct is perfectly acceptable to him, but he can be asked whether it is.

Hon Gerry Brownlee: The point that is being suggested by both the Hon Clayton Cosgrove and the Hon David Parker is that the Prime Minister as Prime Minister holds ultimate responsibility for everything his Ministers do and have done. Speakers’ rulings over a period of time—clearly, the incident concerning Winston Peters in 2008 comes to mind, but more poignantly, I think, the breakdown of the Alliance in 2002—clearly established that the Prime Minister does not have any responsibility for actions undertaken by leaders of political parties. We know that, for example, the Prime Minister cannot be questioned in the House about National Party dealings; the fact that he is the leader of the National Party is of no relevance to, or business of, this House. For this question to stand, there would need to be the citing of a particular failure of ministerial judgment as opposed to a perception or an allegation of a failure of judgment in relation to activities as a party leader. The issues around judgment as a party leader will, in fact, be judged by voters and by the general public. But the Prime Minister is not required to have a particular view on that. His responsibility is to ensure that he has a functioning ministry that can form a Government, and that is where it should stop. If we open this up, then I think it is, as I said before, a very short step to the Prime Minister having to answer for policy decisions and policy positions taken by other parties prior to their coming into Government arrangements.

Mr SPEAKER: I thank honourable members for their further points on this matter. I repeat what I said: this is actually a very tricky issue in relation to our Standing Orders, and an important issue, which is why I have allowed time on it. If I come back to the point raised by the Hon Peter Dunne, I have to disagree with the point made by him in so far as the Prime Minister not just is responsible for the conduct of his Ministers in pursuit of their ministerial responsibilities but has a wider role of responsibility in respect of the conduct and judgment of his Ministers. I think there is no question that the Prime Minister has wider responsibility there, as distinct from individual Ministers—the Prime Minister has wider responsibility. Of course, the Prime Minister has no responsibility for what another party or its leader might do, and that is where this issue gets quite complex in that we have a leader of a party who is also a Minister, and the Prime Minister has responsibility for the judgment of that Minister in his capacity as a Minister. Therefore, the question would normally have been a perfectly proper question, but the example given in the question related to an action of the Minister that it could be argued was in some way related to his role as party leader of the ACT Party, and I accept argument down that track.

But where I face a dilemma is that if I rule the question out totally, I am tending to shift the line somewhat in terms of the Prime Minister’s responsibilities in respect of the conduct and judgment of Ministers, and I do not want to do that, because the Prime Minister must be accountable for his Ministers. He is not accountable for statements made by any National Party person. He is not accountable in this House for his role as the leader of the National Party—not at all; there is no way it is getting confused with that, at all. Someone mentioned Speaker’s ruling 146/6. That is a totally different issue; it is not relevant to this particular issue. This issue is the very difficult point of the example given in the question, which asked the Prime Minister whether he had confidence, or whatever it was—he was being questioned about the Minister’s judgment. The example given was right on the margins. If the question had been directly to do with that issue, I would have ruled it out. But the question was not directly to do with that issue, at all. The question was about the Prime Minister’s acceptance of the judgment of a Minister acting in a certain way.

A lot of time has gone by. I believe that I cannot rule out the question. However, I stress to the Prime Minister that he is in no way required to comment on the particular detail of a matter relating to the ACT Party. So that the House can remember what the supplementary question was, I invite the honourable Leader of the Opposition to repeat the question.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. Given your ruling, I think it would be useful now if you were able to give us a steer on what Speaker’s ruling 146/1 now means. It reads: “The Prime Minister is not responsible for the decisions of another party, but she”—it was in the case of Helen Clark—“may address the question as long as she does not address the other parties’ attitude on it.” We all know, whether or not we want to dance round the words, that we are talking about the attitude of another party to a particular set of circumstances. In that event I think this ruling almost seems slightly contradictory to the advice you have just offered the House.

Hon Darren Hughes: Speaking to the point of order—

Mr SPEAKER: No, I do not need further help on this one, because we must not take further time of the House today on this. I accept fully that the Leader of the House is raising important issues, but I would argue that this is not a matter of a decision of another party; this is the judgment of one of the Prime Minister’s Ministers. Remember, I have made very clear, and the Standing Orders make it very clear, that the Prime Minister is responsible for the behaviour and conduct—and therefore the judgment—of all his Ministers, regardless of their party affiliations. They are all Ministers, and the Prime Minister is accountable for all of those Ministers, regardless of their party. So one can argue, I believe reasonably, that the Prime Minister has a responsibility in respect of the judgment of all of those Ministers. I accept that the Prime Minister in answering the question can be very careful, and need not trespass on the affairs of another party. It does make answering the question very difficult; I accept that, and I do not pretend that it is easy. But if I were to rule out that entire question, I believe that I would be contravening that fundamental responsibility of a Prime Minister. That is why I am ruling in this way, and I make it very clear that I am not seeking to shift the goalposts or the dividing lines on this, at all. The Prime Minister is not responsible for leaders of other parties; he is not responsible for political party issues, or for leaders’ issues. This is a matter, though, of the judgment of one of his Ministers, and he is responsible for that—but not for the detail of what went on in a party.

Hon Phil Goff: How was it good judgment for his Minister Mr Hide to have covered up his law and order spokesman Mr Garrett’s theft of a dead baby’s identity?

Rt Hon JOHN KEY: With regard to Mr Hide’s portfolio responsibilities, I believe he has exercised good judgment.

Hon Phil Goff: I raise a point of order, Mr Speaker. I think you recognised that the Prime Minister did not answer the question, which was about how that action showed good judgment on the part of his Minister.

Mr SPEAKER: The difficulty I have with this is that, as I have pointed out, the Prime Minister is responsible for his Ministers’ conduct beyond their portfolio responsibilities. So I would ask the Prime Minister to respond a little more broadly than that, because he is responsible for his Ministers beyond just their portfolio responsibilities. He has a wider accountability for his Ministers.

Hon Gerry Brownlee: Point of order.

Mr SPEAKER: I call the Hon Gerry Brownlee. [Interruption] I apologise to the Minister. This is a very serious issue, and the Opposition should, in my view, respect the fact that the Speaker is putting a fair bit of pressure on the Government over an issue that is important to the Opposition. If those members do not want me to close it down totally, they will respect that.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. A few moments ago you advised that the Prime Minister did not need to answer questions that related to actions or activities that were to do with any particular member’s or Minister’s role as a leader of a political party. The question from Mr Goff related specifically to the activities of a leader in accepting a position related to a member. The Prime Minister, quite rightly—

Mr SPEAKER: I think I have heard the member sufficiently.

Hon Gerry Brownlee: But you have contradicted yourself—

Mr SPEAKER: No. I have heard the member sufficiently. I have stressed on several occasions that the Prime Minister is responsible for the general conduct of his Ministers; there is no questioning that. The Prime Minister is responsible for more than their judgment and conduct in respect of their portfolio responsibilities. Although I say it is a bit tricky and a bit difficult, an answer is fairly obvious to me. With regard to avoiding the specific detail of the question, it was not totally necessary to try to confine the answer to portfolio responsibilities, because I do accept that that was dodging the question, pretty clearly. I think it is not unreasonable to ask the Prime Minister to answer the question as it was asked, and not to try to confine it just to portfolio responsibilities. The Prime Minister has responsibilities more widely than that.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. That seems to be a most unreasonable position, because the question started with “How was …”, and asked how that was an exercise of good judgment. The Prime Minister can judge his Ministers only on their performance as Ministers. So to start widening it out, and to say that the Prime Minister has some sort of jurisdiction over all sorts of other aspects of the lives of Ministers—or, for that matter, of members of their parties—I think is extremely dangerous territory to run into. I do not think that we should allow that question. I think that the Prime Minister answered very clearly: in his experience, Mr Hide has exercised good judgment in the discharge of his portfolio responsibilities. How clear can that be?

Mr SPEAKER: I do not need further assistance on this, because we are taking a great deal of time. Under our constitutional arrangements a Prime Minister who is not prepared to take responsibility for the conduct and behaviour of his Ministers is not fulfilling the role. Our requirements are that a Prime Minister is responsible not just for the conduct within the portfolio areas but for the general conduct of all his Ministers. Parties have nothing to do with this; this is the responsibility of the Prime Minister. I would not have thought it difficult for the Prime Minister to answer that he has general confidence in his Minister’s judgment. That is not constraining it to the portfolio responsibilities, and it avoids the detail to do with the ACT Party. I would not have thought it was difficult to find an answer to the question.

Hon Rodney Hide: I raise a point of order, Mr Speaker. I know we are taking up a lot of time, but you may have missed the fact that in the process of the point of order, Mr Goff changed his question. His first question was about the ACT Party’s decision to have Mr Garrett as a candidate. The second question that Mr Goff put alleged, somehow, that I covered something up. It might be true—[Interruption]

Mr SPEAKER: No. The member is starting now to debate the issue of the substance of the question asked. That leads to disorder. We will not have that. I do not believe that the Leader of the Opposition asked, as the member suggested, as the first supplementary question what the honourable member had done as leader of the ACT Party, because the Prime Minister clearly has no responsibility for that whatsoever. If I got that wrong, then I do apologise to everyone concerned, but I do not believe I got that wrong. I will check the Hansard and certainly apologise to the House if I got that wrong.

The point that I cannot allow the House to avoid is the Prime Minister’s responsibility not just for the judgment of all his Ministers in their portfolio areas but also for their conduct, behaviour, and judgment. Those are matters for which the Prime Minister is responsible. But he does not have to go into any great detail at all about this particular issue. He is responsible for the judgment of his Ministers only in general terms, not on any particular issue.

Hon Rodney Hide: I raise a point of order, Mr Speaker. I am sorry that I may not have expressed it well, but my point was this: to allege a cover-up is to suggest an action. It would suggest that a person as a Minister did something to hide it. There are plenty of things that we know about MPs that we do not tell others about, and that is not covering them up.

Mr SPEAKER: In my view, the Prime Minister is perfectly capable of answering the question. He does not need to go into any of that sort of stuff. The question does not require him to do any of that, at all. The question purely required that the Prime Minister express whether he had confidence in a particular Minister’s judgment. That is an important constitutional matter in this country. If the Prime Minister loses confidence in a Minister’s judgment, then that is a serious matter. The only extent to which the Prime Minister has to answer this question is in relation to whether he has confidence in the judgment of a Minister. But it cannot be confined just to portfolio responsibilities, because the Prime Minister has a wider responsibility than that. That is all I am asking the Prime Minister to answer, not to get into detail about whether there was any particular cover-up or what constitutes a cover-up. That is irrelevant to the Prime Minister’s role. He was questioned about whether he has confidence in a Minister’s judgment, and that is a matter for which the Prime Minister is responsible.

Hon Peter Dunne: I raise a point of order, Mr Speaker. I am sorry; I have no desire to prolong this any further. But an important issue arises out of your comments in relation particularly to Speaker’s ruling 146/5(1). You have made it very clear in the House this afternoon that the Prime Minister has a responsibility for the judgment of his Ministers as well as for their particular actions. Speaker’s ruling 146/5(1) says: “The Prime Minister and Ministers are responsible for only those matters that fall within their responsibilities as Ministers,”, which, on the face of it, would appear to be a different emphasis. I appreciate that the House is in very unusual territory. I wonder whether the way through it might be for you to give a considered ruling, not today but perhaps tomorrow, on this point, bearing in mind Speaker’s ruling 146/5(1) and the rulings you have made in the House today. This issue may well arise in the future, and I think it would be in everyone’s interest to make sure we get it absolutely right at this point. As things stand at the moment, it could be held that there is a contradiction between your ruling and the ruling that was in place previously.

Hon Darren Hughes: I appreciate that this is taking some time, but I hope you will note that it is not because the Opposition is continuing to raise points of order. It seems to us that you have stated a position on two or three occasions now, and Government Ministers and Ministers from support parties in the Government who take ministerial warrants are now trying to argue their way back from it, but the ruling you have given makes it quite clear. If Mr Goff had been asking questions about Mr Garrett as a member of Parliament, then there is no question that those questions would have been ruled out of order. He was asking the Prime Minister questions about one of his Ministers. Regardless of which party Ministers come from—it does not make it any worse or better if they come from a party that is not the National Party—the Prime Minister retains responsibility for them. Part of our system, which Mr Parker has gone through with regard to the Cabinet Manual, means that when multiple parties make up an executive, they are still accountable to Parliament in exactly the same way. You have given a ruling to us on this already, and we have been thwarted from the continuation of question time today by multiple points of order from the Government.

Mr SPEAKER: I hear all members. I would point out to the Hon Peter Dunne in relation to Speaker’s ruling 146/5(1) that had the Prime Minister been asked whether he agreed with the actions of the Hon Rodney Hide as leader of the ACT Party, it would have been totally out of order, or whether he agreed with the actions of Rodney Hide as a Minister, then as the leader of the ACT Party, that would have been totally out of order. The Prime Minister is not responsible for a Minister’s actions, as that Speaker’s ruling points out. That is not the substance of the question. The substance of the question is whether the Prime Minister has confidence in the judgment of a Minister, and that is a slightly different question. I am very conscious that this is a very important issue—this boundary between the Prime Minister’s role as Prime Minister, party responsibilities, and Ministers’ roles. I accept fully that this is a vexed area for responsibility. Rather than screw it up as Speaker, I am prepared to give a more considered ruling: to give some further thought to the matter, and take into consideration all the issues that have been raised. I make it clear for the future, though, that Prime Ministers are responsible for the conduct of their Ministers. Sometimes that is not easy, but I do not believe the Speakers’ rulings that have been referred to in any way relieve the Prime Minister of that responsibility. I am very happy to look at the matter further, in the interests of making progress. At this point, if I am going to do that, I probably should abandon this question for today. [Interruption] So that I do not cost the Opposition further on the matter, I will listen to further questions, but clearly they cannot follow exactly this track. If I am to consider the matter further, as the House appears to want me to do, then the questions cannot be exactly the same as before.

Hon David Parker: I raise a point of order, Mr Speaker. The Opposition has put up with repeated challenges of your initial ruling. The Cabinet Manual is absolutely clear. The precedents—

Mr SPEAKER: The member will resume his seat immediately. I have indicated to the House that I will give this matter serious consideration. Had that member been in the executive, he would have wanted the Speaker to do exactly the same thing. I would not mind betting that he has never seen a Speaker push an executive as hard as this before. I make it very clear to the House that I will make a very fair ruling on this. If I give it further thought, it will not be to let any Minister or Prime Minister escape from his or her responsibilities, but I will not have that sort of thing in the House today.

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. I respect you, but we have a dilemma. I accept in good grace what you are trying to do to give a definitive ruling, but I ask how the questions of Mr Goff or other members are to proceed if members have very little guidance now as to what is in order to ask and what is not in order—

Mr SPEAKER: The member is just taking further time of the House. It is very clear that if I rule on the matter, the issue has not gone away. If I give a fully considered ruling on the matter, then the honourable Leader of the Opposition will be able to pursue the matter with absolute clarity. But my concern is that this is a hugely important issue, and I want to make sure that I do not blur boundaries or muddy the waters when I make a definitive ruling on this matter. I have been sufficiently convinced that I run a risk, perhaps, of shifting the current boundary lines.

Some would argue that the Prime Minister has already answered the question today. If members want me to go down that track, I could have said “OK, the Prime Minister has already answered the question. Let it all roll.”, but I am not sure whether the questioner would have felt comfortable with that, at all. In fact, the questioner raised a point of order about the Prime Minister’s answer. So I could have just got off the hook by saying “OK, let us keep going, treat that as an answer, and ignore the point of order from the honourable member’s own leader.” But I take question time too seriously to allow that to happen.

This is a serious matter, and I have to make very clear the issue of the responsibility of the Prime Minister, so that we do not have this problem in the future.

Hon Darren Hughes: I raise a point of order, Mr Speaker. If we just go back to where we were before that last volley of points of order started, the Prime Minister had given a response to the Leader of the Opposition, and the Leader of the Opposition took a point of order to say he was not satisfied with that answer and you ruled in his favour. So we are still at the point where those points of order started, when you said the Prime Minister had the responsibility to answer his first supplementary question before we go back to that—that is the first point.

The second point is that we have sat and listened respectfully to the rulings you have made, and we have not challenged that process. We have sat and watched Government Ministers repeatedly get up and, after you had given a ruling, be able to give very long points of order in response to what was said. We want to support you in your role as Speaker and in the reforms you are making to question time, but we do feel very uncomfortable that once you have given a ruling, Government Ministers are repeatedly able to stand and speak to that ruling at length, and to give the impression that that has somehow altered the course of question time for that day. I think that would be a very bad impression to give. I know that it is not the one that has happened, but I think we have to be very mindful of the fact that when the Opposition sits back and supports your rulings, we do not want to see Ministers then abuse that by taking point of order after point of order. I think the smirk on the Leader of the House’s—

Mr SPEAKER: The member is now getting into dangerous territory. [Interruption] Members are lucky that I could not pick who was making the interjections then. If members do not want me to give a considered ruling on the matter, then that is fine, but I have indicated to the House that I will give a considered ruling on this matter because I sense it is so important. If members agree with that, I will invite the honourable Leader of the Opposition to ask further questions in so far as we are able to today, given the uncertainty about the way that the Standing Orders and Speakers’ rulings apply to this particular situation.

Hon Darren Hughes: It’s the last question.

Mr SPEAKER: The answer to the last question I have to accept as having been given at the moment. If I am to consider the Standing Orders further, then I have to accept that last answer. I call the honourable Leader of the Opposition.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker.

Mr SPEAKER: It had better be helpful.

Hon Gerry Brownlee: I do not want to prolong things, but this is far too important to allow the trivialising of it by the shadow Leader of the House to stand. Mr Speaker, I would ask also that when you consider your judgment, you look back through the Hansard of the time when Taito Phillip Field was in some difficulty. The Prime Minister was being questioned at that time, and that may give you quite a strong lead as to how much a Prime Minister has been required to be accountable for the judgment of Ministers, given that a number of Ministers were in full knowledge of some of Mr Field’s activities at that time.

Hon David Parker: Speaking to the point of order—

Mr SPEAKER: I will not hear any further on the matter. I assure the honourable member that the Leader of the House’s last contribution will not alter my judgment at all.

Hon Members: Why was he allowed?

Mr SPEAKER: I call the honourable Leader of the Opposition.

Hon Phil Goff: Mr Speaker—[Interruption]

Mr SPEAKER: I apologise to the honourable member. The Hon David Parker will get to his feet and apologise for that outburst, or he will leave the Chamber.

Hon David Parker: I withdraw and apologise.

Hon Phil Goff: Why has the Prime Minister continued to argue to the House today that Rodney Hide has good judgment, when Mr Hide himself in recent days has admitted to lacking judgment to a serious degree?

Rt Hon JOHN KEY: Because in my experience, in carrying out his portfolio responsibilities he has exercised good judgment. [Interruption]

Mr SPEAKER: I now ask Grant Robertson to rise to his feet and apologise to the Speaker for asking the Speaker to stand up for himself.

Grant Robertson: I withdraw and apologise.

Hon Phil Goff: When the Prime Minister promised that his administration would set high standards, does he believe that his Minister Mr Hide has complied in every respect with the high standards he promised to set?

Rt Hon JOHN KEY: Yes.

Hon Phil Goff: Has he, as Prime Minister, ever sacked a Minister for a reason other than lack of good judgment; if so, when, and for what reason?

Rt Hon JOHN KEY: No.

Hon Phil Goff: Did the Prime Minister force Richard Worth to resign as Prime Minister; if so, for what reason if not for the good performance of his office?

Rt Hon JOHN KEY: Richard Worth has never been Prime Minister.

Hon Phil Goff: I raise a point of order, Mr Speaker. You said this was a serious matter. I asked a serious question. Would you like me to reword it?

Mr SPEAKER: I cannot assist members if they get their supplementary questions wrong.

Hon Phil Goff: Did he force Richard Worth to resign as Minister for a reason other than good performance; if so, for what reason?

Rt Hon JOHN KEY: Because I lost confidence in him.

Hon Phil Goff: Does he accept that he is now almost alone in this country in believing that Rodney Hide has good judgment and has shown it in recent years?

Rt Hon JOHN KEY: No.

Hon Rodney Hide: Has he received my report to him that the difference between Mr Goff and me is that Mr Goff wants me to go and, like the rest of the House, I want Mr Goff to stay?

Hon Darren Hughes: I raise a point of order, Mr Speaker. That member, in particular, has gone to some lengths today to try to prevent questions from being asked, by dancing on the head of a pin in that respect. How was that question in order? It is hard for anyone to see how he has responsibility for a member of the Opposition, given that he did not want any questions to be asked about him as a Minister of the Crown.

Hon Rodney Hide: I raise a point of order, Mr Speaker. My question asked whether the Prime Minister had received my report.

Mr SPEAKER: That is the dilemma that I face, given the broad nature of the question asked and the supplementary questions relating to confidence in people. The Prime Minister has been asked whether he received that member’s report, comparing his behaviour with someone else’s, and the Prime Minister, I believe, is entitled to answer about that report.

Rt Hon JOHN KEY: Yes, I have received that report, and I can confirm that I have more confidence in Mr Goff than Mr Cunliffe has.

Hon Phil Goff: Is the only real reason he has not sacked Mr Hide that he relies on him to prop up his Government?

Rt Hon JOHN KEY: It might be lost on the Leader of the Opposition, but we have a wide variety of confidence and support arrangements. Therefore, no, he is not correct.

Tax System Changes—Benefits for New Zealanders

4. CHRIS TREMAIN (National—Napier) to the Minister of Finance: How will the tax changes on 1 October benefit New Zealanders?

Hon BILL ENGLISH (Minister of Finance): Treasury advice I have released today shows that even—

Mr SPEAKER: I will ask the Minister to resume his seat for a moment, and I apologise to him. I say to members on both front benches that this has to stop. It is simply not a good enough performance today, at all. I blame myself partly for that, and I will be sorting out this matter; members can rest assured I will be sorting it out. Interjections across the front benches will cease.

Hon BILL ENGLISH: The Treasury advice I have released today shows that when all forecast cost of living increases are taken into account, real after-tax wages are forecast to rise by 1.2 percent in the last 3 months of the year on the back of the 1 October tax cuts. This calculation uses the same data series that is used to calculate the rate of New Zealand superannuation, adjusted for tax and inflation. It captures the effect of personal tax cuts, the increase in GST, and all other forecast price increases in the period, including tobacco price, the effects of the emissions trading scheme, and accident compensation levies. Even when those cost of living increases are taken into account the vast majority of New Zealanders come out better off, after the tax changes on 1 October this year.

Chris Tremain: How does the forecast rise in real after-tax wages due to 1 October tax changes compare with previous years?

Hon BILL ENGLISH: This is a significant increase in real after-tax earnings, especially when we compare it with the 3 percent increase in the 9 years to September 2008, under Labour. It is even more remarkable when we consider that almost all of that growth under the previous Government occurred before 2004, and there was almost no growth in real after-tax earnings between 2004 and 2008. So the 1.2 percent increase in real after-tax earnings in the final quarter of this year, after the tax changes, will be just a bit less than half of the increase that New Zealand achieved in the 9 years to September 2008.

Hon David Cunliffe: I raise a point of order, Mr Speaker. I seek this point of order under Standing Order 106 on misrepresentation. It has been previously established in this House, and the Minister has not denied it, that the numbers that he quotes include Labour’s 2008 tax cuts as part of National’s purported growth rate—

Mr SPEAKER: Forgive my taking so long to respond but that is a matter for debate, not question time. The member cannot do that by way of point of order during question time.

Chris Tremain: How will the 1 October changes help hard-working New Zealand families get ahead?

Hon BILL ENGLISH: After the 1 October tax changes an average family will be about $25 a week better off. An individual on the average wage will be around $15 a week better off, while a couple living on New Zealand superannuation, with no other income, will be about $11 a week better off. That is setting off the benefit of the income tax cut against the increase in GST. All New Zealanders, including the Opposition, can go to taxguide.govt.nz to see these benefits for themselves. The benefits, of course, will grow over time as wages grow. Across-the-board personal tax cuts will give New Zealanders more incentives to save, invest, work, and export, while the increase in GST will discourage New Zealanders from spending too much and borrowing too much.

Hon David Cunliffe: In addition to the fact that the Government’s tax calculator omits the effects of inflation, can he confirm that a wide range of commentators are, effectively, contradicting his claim that Kiwis will be better off, including the New Zealand Institute of Economic Research analysis showing that at least 50 percent of households will be worse off after the tax switch; the Reserve Bank governor holding interests rates steady because “growth is losing momentum”; the New Zealand Institute of Economic Research consensus reports stating that unemployment will not improve over the next 2 years; and Baycorp forecasting a massive spike, over the next 6 months, of people unable to pay their bills?

Hon BILL ENGLISH: No. If the member uses the same numbers that are used for calculating New Zealand superannuation, which the previous Government used for its whole term in office, and applies those after the tax cuts, they show that after taking into account all inflation effects New Zealanders’ real after-tax wages will rise by 1.2 percent.

Chris Tremain: How will the 1 October tax changes help lift New Zealand’s economic growth?

Hon BILL ENGLISH: Treasury has made what one could argue is a pretty conservative estimate of the effect of the tax changes, but Treasury says the changes will increase New Zealand’s real GDP by about 1 percent over the next 7 years. This is a significant increase compared with any other policy change that the Government could have made. Getting sustainable jobs and faster growth are the only ways that New Zealanders will get higher incomes and better living standards. The tax changes are just part—but a significant part—of a wide-ranging Government programme to achieve this.

Question No. 3 to Minister

Hon DARREN HUGHES (Senior Whip—Labour): I raise a point of order, Mr Speaker. I am sorry to raise a point of order that takes us back to question No. 3 but I have been advised, during the course of that last question, that when one of my colleagues interjected during question No. 3 she was sworn at by the Hon Rodney Hide during the course of that interchange. What I have been told is a serious direction of words towards her, and if that is the case, then the member should be forced to withdraw and apologise to her for it. I am certainly not going to repeat it; I am happy to tell you privately. I think the member—

Mr SPEAKER: I can do no more than ask the member whether he uttered any words that could have been construed as swear words towards another member. If the member denies it—

Hon RODNEY HIDE (Minister of Local Government): Absolutely and categorically no.

Mr SPEAKER: There is nothing much more I can do about that.

Sue Moroney: I raise a point of order, Mr Speaker. I was the subject of that abuse and I take offence.

Mr SPEAKER: We are not going to have this sort of carry-on in the House. I have asked the honourable member whether he uttered words that could have been construed as swear words. He has said no. As Speaker, that is the end of the matter, because only that member can know what he said. Others might think they might have heard something but only that member can know what he said, and I must take the member’s word.

Sentencing and Parole Reform Act—Minister’s Statements

5. Hon CLAYTON COSGROVE (Labour—Waimakariri) to the Minister of Justice: Does he stand by his statement in relation to the Sentencing and Parole Reform Act 2010: “I am very relaxed about where it ended up. I was involved in the negotiation of the policy right up to the end.”?

Hon CHRISTOPHER FINLAYSON (Acting Minister of Justice): Yes.

Hon Clayton Cosgrove: Were the offences of common assault, perjury, and the stealing of a dead baby’s identity in order to obtain a false passport ever considered as possible strike offences during those negotiations; if not, why not?

Hon CHRISTOPHER FINLAYSON: No. The question would have been a generic question; particular offences would not have been addressed in the course of negotiations or discussions.

Hon Clayton Cosgrove: Did either the Hon Rodney Hide or David Garrett ever reveal during negotiations on the Sentencing and Parole Reform Act that Mr Garrett had previous criminal offences and charges that could call into question the credibility of this Act, which he had promoted?

Hon CHRISTOPHER FINLAYSON: To the best of my knowledge, no.

Hon Clayton Cosgrove: Does he agree with the Hon Rodney Hide’s statement that “The focus of our police and court system should be keeping law-abiding citizens safe from thugs and bullies. That means a zero tolerance approach to crime,” or does he agree with the Hon Rodney Hide’s statements in more recent days in relation to David Garrett’s crimes: “Anyone can turn their life around,” and “a person should get a second chance,”?

Hon CHRISTOPHER FINLAYSON: We are getting away from the primary question, but I am happy to say that I agree with both propositions.

Roading—Transmission Gully

6. HEKIA PARATA (National) to the Minister for the Environment: Is he aware of the importance of Transmission Gully to the people of Mana; if so, what steps is he taking to facilitate a timely process to consider this critical project?

Hon Dr NICK SMITH (Minister for the Environment): Yes, I am very aware of the strong interest in Mana and the wider—

Hon Darren Hughes: No, it’s a good road; keep Nick away from it.

Hon Dr NICK SMITH: Well, the member who is chipping in did absolutely nothing on Transmission Gully—absolutely nothing for 9 years. I am pleased with the support of Hekia Parata.

Catherine Delahunty: I raise a point of order, Mr Speaker. I cannot hear a thing.

Mr SPEAKER: Catherine Delahunty has made her point that she cannot hear a thing. I am not surprised that she cannot hear a thing. If members interject, they might get a reaction from Ministers. I am not going to rule out Ministers reacting to interjections.

Hon Dr NICK SMITH: I acknowledge the very strong advocacy by Hekia Parata for getting a timely process in place for dealing with Transmission Gully. Today I announced that there will be an application going through the national consenting process under the changes that National has made to the Resource Management Act. I also announced the members of the board of inquiry and that they are to be led by Environment Court judge Brian Dwyer.

Hekia Parata: Is the Minister aware that the Wellington City inner bypass took over a decade to get consented after multiple appeals and delays, and can he assure the people of Mana that this process will be far more timely?

Hon Dr NICK SMITH: Yes, I can. First, the process then was for a council hearing.

Hon Darren Hughes: This has been going since World War II.

Hon Dr NICK SMITH: It is just a pity that Darren Hughes did not do anything on this issue in the 9 years that he was in Government. Thank goodness that we have a National Government that has been prepared to amend the law and ensure that we have a timely process for dealing with important infrastructure projects like Transmission Gully. The three key changes are that there is a one-stage process for a decision, that they are required in 9 months, and that there are only limited appeals.

Hekia Parata: What projects other than Transmission Gully are benefiting from the new national consenting system?

Hon Dr NICK SMITH: The new Environmental Protection Authority has now over $7 billion worth of infrastructure projects before it, covering the Tauhara geothermal power project, the Waterview Connection, the wind farm near Raglan, and the Turitea wind farm. The changes that National has made to the Resource Management Act are a crucial part of our programme of ensuring that we have infrastructure in place and that it will support growth of the economy and jobs.

Gareth Hughes: Why is the Minister fast tracking this expensive motorway with a negative cost-benefit ratio when Ministry of Transport officials advise that many trucks will not use it, that it will take longer to clear in the event of an earthquake than the coastal highway, and that it will just increase traffic congestion in Wellington?

Hon Dr NICK SMITH: We need only to look at the events of the earthquake in Canterbury to realise the importance of having alternative lifelines into the capital city of this country. Although I acknowledge the Green’s consistent position to be opposed to new infrastructure all over New Zealand, this Government is committed to infrastructure that will support the growth and jobs of this country.

South Canterbury Finance Statutory Management—Potential Conflicts of Interest

7. Hon DAVID CUNLIFFE (Labour—New Lynn) to the Minister of Commerce: Did any members of the Securities Commission declare potential conflicts of interest in respect of the recommendation to place Allan and Jean Hubbard into statutory management; if so, on what date and in relation to what potential conflicts of interest?

Hon GERRY BROWNLEE (Acting Minister of Commerce): No. One commission member raised a potential conflict of interest in relation to South Canterbury Finance. The commission considered that the circumstances did not disclose any conflict of interest. Legal advice sought by the commission confirmed that view. As the member will know, South Canterbury Finance is not and never has been in statutory management.

Hon David Cunliffe: I raise a point of order, Mr Speaker. The Minister has misquoted the question in two respects. Firstly, it asked whether any members of the Securities Commission declared potential conflicts of interest. He answered no to that question and then described one. Secondly, he talked about South Canterbury Finance going into statutory management, whereas the question asked about placing Allan and Jean Hubbard into statutory management. I ask that you ask the Minister to answer the question that was asked.

Mr SPEAKER: This is a primary question; I ask the Hon Gerry Brownlee to reply.

Hon GERRY BROWNLEE: Yes, it is, and the answer is quite correct. The question asked whether anyone declared a conflict of interest. That would assume that people were sitting at a proper meeting of the Securities Commission and made a declaration there. At no formal meeting was there such a declaration. I went on to explain that one commission member raised a potential conflict of interest in relation to South Canterbury Finance, such that the commission itself sought legal advice to confirm, ultimately, that there was no conflict. I am not trying to be clever; it is a matter of form. Was there a formal meeting at which a conflict was declared? The answer is no, but it is clear, from the answer, that the issue was raised.

Hon David Cunliffe: I raise a point of order, Mr Speaker. I do not wish to detain the House. It may be a semantic point, but the question was around a potential conflict. The Minister cannot answer no to that question and then say that there was a potential conflict.

Mr SPEAKER: The Minister explained his answer and I am very grateful to him for that. He said no in relation to the specific question asked, and then added a little further information about another potential conflict of interest relating to another interest.

Hon GERRY BROWNLEE: There is no intention here to create any murk or otherwise. The question asked whether any members of the Securities Commission declared potential conflicts of interest. I assumed that meant whether anyone at a formal meeting of the commission declared a potential conflict of interest. The answer is no, but clearly the issue was raised at a subsequent point by a member. It was checked to see whether there was a conflict, and the legal advice was that there was no conflict. It is somewhat pedantic. If members would prefer me to answer as to whether someone declared a potential conflict of interest, I am in difficulty. The member, I understand, questioned whether there was one, rather than whether someone declared that there was one. I think that that is a fine and important point.

Mr SPEAKER: Normally I would not spend any time at all on this, but this is a primary question, and the Minister has had some time to prepare the answer for it. The question is fairly clear: it talks about the declaration of a potential conflict of interest in respect of the recommendation to place Allan and Jean Hubbard into statutory management. It specifically mentions those two people and asks on what date and in relation to what potential conflicts of interests. That question is clearly answerable.

Hon GERRY BROWNLEE: I am advised that the answer is no. There was no formal declaration of potential for conflict, but there was clearly—and I am not familiar with the circumstances—a discussion. Everyone knows that. The most salient point is that legal advice was sought by the commission, which confirmed that there was no conflict of interest. Was there a declaration? No, there was no declaration. A question was asked whether there was a conflict.

Mr SPEAKER: The Minister has explained that, in so far as it is possible.

Hon David Cunliffe: Can the Minister confirm that the question or declaration in relation to Mr Botherway’s brother’s business being put into receivership by Allan Hubbard and South Canterbury Finance occurred only after written parliamentary questions regarding the potential conflict of interest were raised by my colleague the Hon Ruth Dyson, and that the Chief Ombudsman is now investigating the adequacy of that conflict management?

Hon GERRY BROWNLEE: I can confirm that the Securities Commission member concerned raised the potential conflict of interest in respect of South Canterbury Finance on 24 June 2010. I can further confirm that legal advice has made it very clear that the member did not have a conflict. I can confirm that the Ombudsman is looking into this matter, although I have no responsibility as a Minister for that.

Hon David Cunliffe: I seek leave to table a letter from Beverley Wakem, the Chief Ombudsman, dated 1 September 2010, confirming that that matter is under investigation.

Mr SPEAKER: Leave is sought to table that document. Is there any objection? There is no objection.

Document, by leave, laid on the Table of the House.

Hon David Cunliffe: Has Mr Botherway declared any potential or perceived conflict of interest in relation to his former business relationships with Mr George Kerr—for example, at Spicers Portfolio Management, Brook Asset Management, Sterling Grace, or Tempus Capital—given that Mr Kerr is a director of the Torchlight Fund, the largest single beneficiary of the bail-out of South Canterbury Finance, which was repaid in full, plus interest, plus fees described by the New Zealand Herald as usurious?

Hon GERRY BROWNLEE: I am unable to confirm that, but I can say that clearly the incident that was referred to in part of the primary question has caused the commission to be mindful of these things, and has caused the commission to seek legal advice on this particular matter. I am also certain that in light of the Ombudsman’s investigation into this matter, parties concerned will be acting with all caution and prudence.

Hon David Cunliffe: Has Mr Botherway declared any potential or perceived conflicts of interest in relation to his former professional and business relationship with Mr John Key, for whom he was reportedly recruited as his deputy at Bankers Trust; if not, does the Minister think it would have been prudent for the country’s most senior regulator to make such relationships fully transparent?

Hon GERRY BROWNLEE: I am unable to confirm that, but I can tell the member that one of my best friends was the first person ever to employ Mr Key after he left university. If that disclosure is helpful I am pleased to have made it.

Superannuation—Compensation Available from 1 October

8. KATRINA SHANKS (National) to the Minister for Social Development and Employment: What compensation to superannuitants will be available from 1 October?

Hon PAULA BENNETT (Minister for Social Development and Employment): GST compensation will be made available to those receiving New Zealand superannuation and veterans pensions. Tax cuts will also see these payments increase. A typical single superannuitant living alone will receive an extra $31.26 a fortnight in GST compensation and tax cuts. Couples receiving superannuation will get an increase of about $42 a fortnight between them.

Katrina Shanks: Who else will be eligible for GST compensation?

Hon PAULA BENNETT: Benefits will be going up to compensate for the rise in GST. These benefits include the unemployment benefit, the sickness benefit, the domestic purposes benefit, the widows benefit, and the invalids benefit. We are also compensating in terms of student allowances, the disability allowance, the child disability allowance, childcare subsidies, and Working for Families payments.

Katrina Shanks: Is the Minister aware of any precedent where there has been compensation for a GST increase?

Hon PAULA BENNETT: I am aware that when GST was last raised in 1989 by the then Labour Government, from 10 percent to 12.5 percent, there was no compensation whatsoever for these groups of people.

Health System—Minister’s Assurances

9. Hon RUTH DYSON (Labour—Port Hills) to the Minister of Health: What assurances can he give the public that no one will be left unsafe in their own home due to “changes” in health policy?

Hon TONY RYALL (Minister of Health): I can pass on the assurances given to me by relevant chairs of district health boards that no one will be left unsafe in their homes as a result of any changes to the way boards allocate their home support. In any year about 75,000 people receive home support, 15,000 come on to the scheme, and 15,000 come off, as circumstances change.

Hon Ruth Dyson: Can he guarantee that not one of the thousands of older people in the Wellington region who are about to have their home help cut will be unsafe; if so, how does having a community services card make them more at risk?

Hon TONY RYALL: The member is referring to an announcement by Capital and Coast District Health Board that it will means test its home cleaning services, and this actually brings the board into line with the rest of the country and returns it to the approach it had before 2005. I can tell the member that we spent more money on home support last year and we are spending more money this year.

Hon Damien O’Connor: How does the Minister respond to this editorial comment in the Nelson Mail of 15 September with regard to the plight of the 14 residents of the Joan Whiting Rest Home, all of whom are frail and some of whom are in very poor health: “The prospect of uprooting and transplanting them to a foreign environment, because in essence the health bureaucracy can’t get its act together, is scandalous. If ever there was an unjust problem with a straightforward solution simply begging for some sensible leadership, this is it. … We look forward to Mr Ryall filling the vacuum.”; or is the problem that he is the vacuum?

Hon TONY RYALL: The local member of Parliament, Mr Auchinvole, has come to me with a solution, which is more than that member has ever come to the Government with. That solution, I am sure, will see very positive progress made in that area. The important thing that I would underline is that if members of Parliament come to me with solutions, there can be progress; if a member opposite comes to me with a complaint, there will not be.

Hon Damien O’Connor: Will he guarantee that residents of the Joan Whiting Rest Home will not be thrown out from their home without any option of care in their community; if not, what does he suggest they do?

Hon TONY RYALL: The local member of Parliament, Mr Chris Auchinvole, has come to me with a proposal that we are working through very closely, and I am certain it will result in a very positive outcome for the people affected. There has been a lot of talk in that community about a new integrated health centre. We have not had a time line on that, and I know that the Ministry of Health is working closely with the local people on it.

Students—Minister’s Statement

10. GARETH HUGHES (Green) to the Minister for Tertiary Education: Does he stand by his statement: “Today’s students are the future of our economy, and we can’t afford to get this wrong.”?

Hon STEVEN JOYCE (Minister for Tertiary Education): Absolutely.

Gareth Hughes: If students are the future of our economy, why have so many students missed out on studying because universities are limiting entrants?

Hon STEVEN JOYCE: It may be news to the member but universities have always, to some degree, limited entrants, and some of them are doing so this year. I can tell the member that we are funding more core places at both universities and polytechs this year than the country ever has before. Next year, we will be doing the same, including funding about 6,500 more places than in 2008.

Gareth Hughes: If students are the future of our economy, why has spending on tertiary education been cut in 2010?

Hon STEVEN JOYCE: On the contrary, spending on tertiary education is being maintained at current baseline levels. We are not increasing the amount of tertiary education looking forward, because tertiary education already takes a large and significant proportion of the Government’s expenditure as a percentage of economic wealth compared with other countries.

Gareth Hughes: If New Zealand is trying to catch Australia in wage terms, why has it cut the tertiary education spend, according to the Parliamentary Library, while Australia has increased its spend by A$5.3 billion over the next 6 years?

Hon STEVEN JOYCE: As I said, the Government is increasing its spend, and as a proportion of GDP we have a slightly higher spend than the Australians do. Our problem is not the way the cake is cut in this country; our problem is the size of the cake. If the member and his party would like to join with the Government in looking at ways of growing the economy faster, we would be happy to have their assistance.

Gareth Hughes: If we want a smart and prosperous economy, why do we spend $3,000 less than the rest of the OECD on our per student average?

Hon STEVEN JOYCE: Again, I will explain for the member’s benefit that as a proportion of our economy, our spend is larger on average than the spending of other countries in the OECD. Our problem is not what we spend as a proportion of what we are able to spend; our problem is that our economy is not big enough. That is why the Government is focused on ways of growing the economy so that we can increase spending on things that we want to spend money on.

Gareth Hughes: If students are the future of our economy, why has the Minister shut the door on students who want to study and cut funding, and can New Zealand afford to have a Minister for Tertiary Education who gets it so wrong?

Hon STEVEN JOYCE: I think the member is showing the limited benefit of recording his supplementary questions before he comes to the House. I have told him that we are increasing the number of full-time places at universities. Next year, there will be 117,400 places, which is 5,600 places more than in 2008, or at least when I went to school.

Gareth Hughes: I seek leave to table a document prepared by the Parliamentary Library that shows that tertiary education funding has decreased in 2010 versus 2009.

Mr SPEAKER: Leave is sought to table that document. Is there any objection? There is no objection.

Document, by leave, laid on the Table of the House.

Drink-driving, Blood-alcohol Limit—Public Support for Reduction

11. Hon DARREN HUGHES (Labour) to the Minister of Transport: Is it still his position that the Government will not lower the blood-alcohol content for adult drivers until the move is regarded as having wide public support and would specifically need “three-quarters support or more” before a change was made?

Hon STEVEN JOYCE (Minister of Transport): I have said repeatedly, including to the member many times, that before lowering the adult blood-alcohol limit the Government would want to ensure that the specific impact on the road toll of drivers with a blood-alcohol concentration of between 0.05 grams and 0.08 grams was known, and that the move had very broad support amongst the driving population of this country.

Hon Darren Hughes: If public opinion is so important to the Minister on this topic, what will he do if his 2-year study comes back recommending that the limit should be lowered, but the polls do not show 75 percent support?

Hon STEVEN JOYCE: As the member is well aware, there is a very strong lobby in both directions in this country between people who want to see the limit maintained at the current level, and people who want to see it lowered. Those who want to maintain the current level are very focused on the lack of information about specific harm in relation to drivers with a blood-alcohol level between 0.05 grams and 0.08 grams. I am confident that if we collect that data and it shows specific harm, then we will be able to build a consensus for change, provided that data does exist.

Hon Darren Hughes: I raise a point of order, Mr Speaker. That was a very interesting answer but I was trying to get from the Minister a sense of what his priorities were. He has set out two criteria for changing the blood-alcohol limit for driving: one is popularity; the other is a 2-year study. I am trying to get a sense of which of those two things would be the priority, if they are in conflict in 2 years’ time, that will lead the Minister to act. That is the point of my question.

Mr SPEAKER: I invite the member to repeat his question if there was some doubt.

Hon Darren Hughes: What will the Minister do if his 2-year study comes back and says that the alcohol limit for adults should be lowered, but the polls do not show 75 percent support for such a measure?

Hon STEVEN JOYCE: I have confidence in my fellow New Zealanders that if the data comes back and suggests that there is a significant benefit to be obtained, then achieving a consensus for change will not be difficult.

Hon Darren Hughes: Was the Cabinet paper that he signed this year correct, on page 9 at paragraph 46, where he states: “When New Zealanders are asked what the limit should be, 85 percent of people support a blood-alcohol limit of 0.05 or lower, and only 2 percent favour the current 0.08”; if so, does this not mean that his own paper shows there is already the support for this measure to lower the blood-alcohol limit for adult drivers?

Hon STEVEN JOYCE: I have signed a number of Cabinet papers this year so I cannot recall the details of that one, but I can say that the study relates to the amount of alcohol people think somebody should be able to drink; then, when it is translated into a level, it can be translated to be the numbers that the member describes. The issue is that New Zealanders do not believe that the amount proposed by the officials is the correct number for 0.05 grams to 0.08 grams. We could have had this issue solved a long time ago if the previous Government had done the research that was required, but when the current Leader of the Opposition in 2001 had the opportunity to do so he never did it.

Hon Darren Hughes: When the Minister said in the media this morning that building public support would be hard if Kiwis thought that one or two drinks would put them over the limit, had he forgotten that his own papers make it clear that such a level of consumption would be lower than the 0.05 grams limit promoted in my member’s bill?

Hon STEVEN JOYCE: The member has paraphrased what I said this morning. I said many New Zealanders are worried—

Hon Darren Hughes: No, not at all. I listened very carefully to what he said.

Hon STEVEN JOYCE: I said two things—

Hon Darren Hughes: I never miss the optics!

Hon STEVEN JOYCE: Does the member want me to answer the question or does he want to keep going? [Interruption]

Mr SPEAKER: Order!

Hon STEVEN JOYCE: As I said on the radio this morning, there are two things that concern people who oppose change. One is as to what level they would then be able drink before they contravened the new law; and, secondly, whether there was a concern that we would be punishing the majority with a law change when we were trying to impact on a minority. That is the reason for doing the research. Once again, I have to say that it is ironic that members opposite are such lambs in Government and lions in Opposition. It seems that they discovered their courage on the way to the Opposition benches.

Foreshore and Seabed Act Review—ACT Party Advice

12. Hon JOHN BOSCAWEN (Deputy Leader—ACT) on behalf of Hon RODNEY HIDE (Leader—ACT) to the Attorney-General Why didn’t he follow ACT’s advice to repeal the Foreshore and Seabed Act 2004 and use Parliament’s power to put iwi back to their pre-2004 legal position so Māori could have their day in court?

Hon CHRISTOPHER FINLAYSON (Attorney-General): Two principal reasons. The first is uncertainty about tests to determine customary title. In British Columbia, for example, certain indigenous groups have been involved in litigation for years, trying to work out the tests for customary title. The Government thought it better to prescribe tests using the principles set out in the Ngāti Apa case and in common law. The second is uncertainty about what customary title is. The Court of Appeal in the Ngāti Apa case observed that it could mean anything from use rights to exclusive ownership equivalent to fee simple. The Government has provided certainty by setting out what rights may be conferred by a customary marine title order.

Hon John Boscawen: Does the Attorney-General agree with the decision of the court in the Ngāti Apa case that “Any customary property in the areas vested seem unlikely to survive”; if so, why is it that under National’s policy, which he stated publicly, up to 10 percent or 2,000 kilometres of New Zealand’s foreshore and seabed could end up in iwi hands?

Hon CHRISTOPHER FINLAYSON: Actually, I do not think that what the court said was part of the holding, or what they call the ratio. I think it was more an obiter comment; none the less, I do agree with it.

Hon David Parker: Was the real reason he did not follow ACT’s advice because he was annoyed and embarrassed by the loss of reputation his Government has suffered as a result of Minister Hide’s lack of judgment and ACT’s double standards?

Hon CHRISTOPHER FINLAYSON: No. I was particularly interested in seeing a just result for iwi—a just and durable solution—and the answers I gave to the primary question accurately and, if I may so, admirably set out the position.

Hon John Boscawen: Supplementary question—

Mr SPEAKER: I believe that the ACT Party has exhausted its questions.

Hon John Boscawen: I raise a point of order, Mr Speaker. I understand that we have an agreement with National to have one of its supplementary questions.

Hon Members: Oh!

Mr SPEAKER: Members are lucky that everyone was out of order there. The honourable member will be aware that if parties are to trade questions, which they are at liberty to do, they must advise the Speaker. We received no advice that National had allocated any questions to ACT today. ACT had a supplementary question on question No. 3 and a supplementary question on question No. 12. That is the full ACT allocation. If the member wishes he could seek leave to—

Hon John Boscawen: I will seek leave to ask a further supplementary question, but my understanding was that agreement had been reached, and, obviously, I understood that that advice had been made clear to the Speaker.

Hon Darren Hughes: I raise a point of order, Mr Speaker. I take your advice that ACT’s questions have expired, and we have no objection to ACT having the leave.

Mr SPEAKER: Leave is sought for the ACT Party to have a further supplementary question. Is there any objection? There is none.

Hon John Boscawen: Why does he think it better that politicians like him determine the extent of iwi ownership of the foreshore and seabed, guided by politics, than the courts, guided by common law and the facts of the case?

Hon CHRISTOPHER FINLAYSON: It is not a question of preferring politicians like me to judges. A fact of litigation is that often it makes more sense for parties to reach agreement on something out of court, rather than spend time and money engaged in the court system for years. That sort of thing happens all the time. Just a couple of months ago, after a High Court decision, when it was on its way to the Court of Appeal, the Government entered into an agreement with certain trading banks over a tax issue. These sorts of things are not uncommon, and to characterise it as the member characterises it is silly.

Questions to Members

Electoral (Disqualification of Convicted Prisoners) Amendment Bill—Purpose

1. Hon CLAYTON COSGROVE (Labour—Waimakariri) to the Member in charge of the Electoral (Disqualification of Convicted Prisoners) Amendment Bill: What is the purpose of the Electoral (Disqualification of Convicted Prisoners) Amendment Bill?

PAUL QUINN (Member in charge of the Electoral (Disqualification of Convicted Prisoners) Amendment Bill): The purpose of the bill is to remove the right of persons serving time in jail to be able to vote.

Hon Clayton Cosgrove: Is he satisfied with the fact that the bill as reported back from the Law and Order Committee will give our worst and longest-serving prisoners, such as William Bell, Graeme Burton, and Clayton Weatherston, the right to vote, a right they do not have under current law?

PAUL QUINN: Notwithstanding the fact that that member was serving on the select committee that reported back on that bill, I am currently—

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. I asked a very straight question. It did not receive a straight answer. We voted against the bill, and the member knows that.

Mr SPEAKER: I believe that the member did not prevaricate long; he just happened in passing to mention that the honourable member was on the select committee. I think he was going to answer the substance of the question.

PAUL QUINN: I am advised that there is conflicting advice on the matter, and I am still awaiting official word.

Electoral (Disqualification of Convicted Prisoners) Amendment Bill—Proposed Changes

2. Hon CLAYTON COSGROVE (Labour—Waimakariri) to the Member in charge of the Electoral (Disqualification of Convicted Prisoners) Amendment Bill: Does he intend proposing any changes to the Electoral (Disqualification of Convicted Prisoners) Amendment Bill as reported back from the select committee; if so, what?

PAUL QUINN (Member in charge of the Electoral (Disqualification of Convicted Prisoners) Amendment Bill): Whether I propose any changes to the bill will depend on whether any changes are required to achieve the purpose.

Hon Clayton Cosgrove: Does the member agree that had the chair of the Law and Order Committee, Sandra Goudie, not blocked the Ministry of Justice from advising on this bill when requested to by Opposition members of the select committee, the mistakes in this reported-back bill could have been avoided?

PAUL QUINN: Not being a member of the Law and Order Committee, I am not in a position to comment on that accusation.

Urgent Debates Declined

David Garrett—Status of Relationship with National

Mr SPEAKER: I have received a letter from the Hon Phil Goff seeking to debate under Standing Order 380 the recent announcements from the Prime Minister relating to parliamentary support arrangements for his Government. Standing Order 380 requires that the matter for debate be a particular case of recent occurrence, and involve the administrative or ministerial responsibility of the Government. The application relates to a report of a statement made by the Prime Minister that National would not be looking to form any kind of relationship with David Garrett if he stays on as an Independent. The absence of action on the part of the Government is not a particular case of recent occurrence that can be raised for debate under the Standing Order. For there to be a case of recent occurrence, an event must have occurred when the application was lodged, and that event must be a new situation of importance. The application is therefore declined.

Bills

Electricity Industry Bill

In Committee

Clause 3 Act binds the Crown

CHRIS HIPKINS (Labour—Rimutaka): Thank you very much for this opportunity to speak on clause 3 of the Electricity Industry Bill. I will make some introductory comments. Labour will be opposing this bill. We opposed it at the first reading, we opposed it through the select committee process, and we will continue to oppose it now. This bill simply dusts off Max Bradford’s old policies of more market, more privatisation, and more competition in the electricity sector. I can see that Roger Douglas is getting very excited about the bill already, but it will do nothing to address the three fundamental priorities in the electricity sector: security of supply, affordability, and sustainability. It does nothing to address those things, and that is the reason why Labour will be opposing it.

New Zealanders are struggling to make ends meet at the moment. The National Government’s GST increase, which will of course apply to electricity bills, will do nothing to help them with that particular predicament. Therefore, this bill is simply another blow because it does not deal with the fundamental issues that New Zealanders are currently facing. Those fundamental issues concern the cost of living going up, which the Electricity Industry Bill does nothing to deal with, at all.

Labour members took a very active interest in hearing submissions during the select committee process. We were concerned about a number of the issues raised, and we were concerned that the analysis does not appear to have been done that would justify many of the provisions in the bill. I will be talking about more of those issues. We were particularly concerned about the asset swap involving the Waitaki water catchment system, which is something I will talk more about when we get to that part of the bill. The case has not been made for that swap. Treasury raised concerns about it, and so did the Institute of Professional Engineers New Zealand and so forth. So we will be raising a number of concerns regarding that when we get to that point in the bill.

This bill, as I mentioned in my introductory comments, does nothing to deal with National’s major election promise when it came to electricity prices. Gerry Brownlee, John Key, and Bill English went up and down the country saying that power prices were too high, and saying that Labour had let power prices continue to go up and had not done anything about that. But what do we know? Well, here is a bill. What does it do? It does not address the issue of power prices, which is what New Zealanders were all expecting the Government to deal with when it came into office, and when it introduced this bill into the House. This bill is silent on power prices. In fact, it will do nothing to control the exorbitant rise in electricity prices that people have seen. It will do nothing to address the concerns raised by the Commerce Commission in its recent report on the electricity market. In fact, it raises a whole lot of new concerns. It simply goes back to the failed experiment that Max Bradford started in 1998.

One of the criticisms that Gerry Brownlee keeps coming back to the Labour Opposition on is that he says we had 9 years to deal with that so why did we not do something? Well, it is very difficult to unscramble an egg. The Government sold Contact Energy and privatised a lot of the retailers and lines companies, to the point—

Aaron Gilmore: The Government didn’t privatise them.

CHRIS HIPKINS: Well, the local authorities did—under direction from the Government.

Aaron Gilmore: They chose.

CHRIS HIPKINS They chose to? Under direction from the Government they privatised the retailers and the lines companies, and it is very difficult to unscramble that particular egg and get back to the point where there can be any kind of coherent system. So instead the previous Labour Government established the Electricity Commission, which was designed to address some of the failures in the market. But Gerry Brownlee, with this bill, is now stripping out many of the functions of the Electricity Commission by establishing a new Electricity Authority. That authority will look at only a small part of the equation, though, and one of the biggest opportunities for us, if we are talking about more efficient use of energy, is to get people to use less energy if they do not need to. But that function is being taken away from the Electricity Commission; it will not be with the Electricity Authority, and that is just crazy. If we want the Electricity Authority to be the overarching body that looks at all of these things and that manages the electricity sector, then saying to it that it can manage the electricity sector but that we do not want it doing anything about electricity efficiency and the more efficient use of electricity—actually reducing demand on the system—is just crazy. For example, one way we avoid significant capital investment in the transmission system and in the management of that system is to get more distributed use of electricity, more localised generation, and more efficient use of electricity, which is something this bill does not address.

The CHAIRPERSON (Hon Rick Barker): Just before I take the next call, I remind members that we are in the Committee stage, or the “nuts and bolts” stage. This is the simplest clause that one could hope to see in legislation: “This Act binds the Crown.” Members should address their comments to the purpose of the clause, and not have a wide-ranging debate.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): Clause 3 is a very specific clause in the Electricity Industry Bill. When we listened to the previous speaker, my colleague Chris Hipkins, we heard him raise questions that were fundamental and germane to clause 3, “This Act binds the Crown”. The question is whether the Crown is capable of achieving what it said it would achieve. We have very serious questions about that, because if this legislation addresses the huge differential between domestic and industrial energy consumers, then the Crown will be bound by the solutions in the legislation. Will it be able to deliver on that issue? I think not. But we can explain that further on in the debate on the bill. Will this be the bill to ensure that there is oversight in terms of fairness of price setting in the electricity sector? The solutions offered in this bill all bind the Crown, so we think not. We can explain that further later on.

Will the asset swaps being promoted be the structural change that increases efficiency in the sector? We have grave concerns about the fact that assets swaps may not deliver what the Government thinks that they will, yet the Government is bound by the solutions it has promoted to the public—that this is the structural change that will increase overall efficiency and, perhaps, price benefits to consumers. However, as the point was made by Chris Hipkins, and also in the first reading debate and subsequent submissions to the Finance and Expenditure Committee, a number of concerns about asset swaps are raised of the structural change not delivering what the Government says it will.

So we have a concern that clause 3 will not be honoured. We have a concern that clause 3 will not at all be delivered on, in terms of ensuring that overall the bill delivers the gains and improvements to domestic consumers. We can debate that ad infinitum in the later stages of the bill, but it is really important to ensure that the Minister of Energy and Resources takes a call at some point to uphold some of the expectations he has created on the solutions from this type of reform, which will deliver benefits primarily to domestic consumers. We do know that there are huge differentials between the rates of increase of domestic energy prices in comparison to industry users. We know that domestic consumers are feeling the pinch and that they want the Crown to be bound by solutions that will work for them and that we do not think that this bill will deliver. So I am sure the Minister will be only too eager to take a call on that particular matter.

It is a short clause but it is the most crucial clause. If the Minister is true to his word to many New Zealanders throughout the debate that this bill will deliver the gains and that it will tackle the price increases that many households have felt, then he should be able to explain that in the Chamber today. We know that if anything is important in this bill to the people listening, it is that they just want to know that it will benefit them in the pocket, where it matters most. Far too many New Zealanders, those on fixed incomes, kaumātua, are paying far too much for their monthly power bill. They want a solution that will deliver a real benefit step change to them at home and in the pocket. I do not think asset swaps will do that, I do not think that the limited role of the Electricity Authority will achieve that, and I certainly do not think in the immediate to medium term we will see a huge drop in price through shopping around. I think there are some huge challenges in the shopping around message that the Government is promoting. It applies to electricity but not gas, if one is swapping one’s providers. I think there are some oversights in the way the Government is pushing through with this legislation.

But, as I said, clause 3 is very short. It binds the Crown. My proposition is that it will bind the Minister in terms of the expectations he has certainly created that this bill will deliver benefits to domestic consumers, and I do not think it will do that.

A party vote was called for on the question, That clause 3 be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Clause 3 agreed to.

Part 1 Preliminary provisions

CLARE CURRAN (Labour—Dunedin South): I am pleased to speak in the Committee stage of the Electricity Industry Bill. There is absolutely no evidence that introducing further competition and asset swaps will tackle the huge price variance between domestic and industrial power users. Despite this Government’s pre-election promise to lower power prices, National has seriously taken its eye off the ball. New Zealanders want to pay lower power prices, and they were led to believe that National would deliver affordability. The Government has said the legislation means there will be more competition and more stability in the electricity industry. Although there may be a bit more competition happening right now, stability or affordability is certainly not happening in the electricity industry. Essentially, the effect of this legislation is to make things worse for the vast majority of New Zealanders, such as the families who are struggling to make ends meet and our senior citizens who are living on fixed incomes, and all the while their electricity prices continue to go up.

As members have heard, Labour does not support this bill. It has not supported this bill at any stage. Thousands of New Zealanders are currently feeling the squeeze when paying their electricity bills, and they will not receive any help from the Government’s electricity market review or this bill. In fact, things will just become worse for them. After promising that the Government would take action, the Prime Minister has offered very little to help New Zealanders who are finding it difficult to pay their energy bills when their family budgets are so tight. That is about to get added to by the 2.5 percent GST rise, and by allowing companies to use the emissions trading scheme as an excuse to price gouge between 5 and 10 percent, with nothing but a meek warning. National promised it would do everything it could do to take the sharp edges off the recession and help struggling Kiwi families. But the Government’s electricity market review and the bill miss the point. Nowhere in the overview of the bill does it even mention constraining or reducing prices.

Any reforms of the electricity sector need to deliver, as members have heard, on three priorities: sustainability, security of supply, and affordability and predictability of prices. These reforms do not go any way towards addressing any of these priorities. Nor do they give us any clue as to how to balance the competing considerations at stake. Transferring assets between power companies and reshuffling the bureaucracy is just smoke and mirrors, which does not guarantee any immediate relief for Kiwi power users.

I will refer back to what the Government said it wanted to achieve with this bill, which was more competition and stability, and I will talk a little about Dunedin, which is one of the coldest places in the country during winter, so electricity bills are quite high there. I will refer to an article in the Otago Daily Times last Friday that reported that Contact Energy lost more than 2,000 Dunedin customers in the same quarter that it controversially hiked prices up by more than 9 percent. It had 47 percent of the 50,000-plus market, or more than 24,600 customers, in the May quarter. At the same time that Contact Energy increased its prices by up to 9 percent, the Prime Minister and the Minister of Energy and Resources warned companies not to use the emissions trading scheme as an excuse for price increases when they learnt of its review in June. Contact Energy said at the time there were actually two increases: a Dunedin-specific 6 percent increase to reflect the cost of generation and supply, and a nationwide 3.2 percent increase to meet the costs of the emissions trading scheme. Meanwhile, at the same time Mercury Energy increased its prices by 3.3 percent. Just over a week ago, Contact Energy announced that it would increase its prices again when GST rises on 1 October.

Hon GERRY BROWNLEE (Minister of Energy and Resources): I want to address a couple of things that came up in the previous discussion, on clause 3, and are being repeated in debate on this part of the Electricity Industry Bill. Firstly, the Labour Opposition says it has concerns around security of supply, prices, and sustainability. In looking at those three things, I say that this review of how electricity is governed and the regulations around the production and sale of electricity comes on the back of a period under the previous Government where we had several electricity crises—

Chris Hipkins: It didn’t rain.

Hon GERRY BROWNLEE: —during so-called dry years. The one thing that is really interesting to me is that we never ran out of electricity during that time. That raises the issue as to whether the way in which the governance of the sector and the views on the worth of the water and of storage were being properly considered. That is why the Government has looked at asset swaps to get a different view. That is why we have looked at virtual swaps of large tranches of electricity and that is why we are looking at having a more liquid hedge market.

On the issue of price, I make it very clear that I have never at any point said—and no one will find a quote from me saying—that we will bring electricity prices down. I have repeatedly said that we will get a more stable price path for electricity. One thing I point out is that in the May 2009 to May 2010 year, the average electricity price rise was 2.9 percent. That compares to over 8 percent for each of the previous 8 years under the previous Government. I think there is a very good trend there.

With regards to the situation in Dunedin, I simply say to Dunedin residents that if one company is jacking up its prices through the roof, they should look around and see who is not. There has never been more choice for people in that city than there is at the moment. That choice is driven directly out of the ability of Genesis Energy to ensure its own supply into that market.

On the issue of sustainability, I say that we were recently able to report once again that New Zealand is enjoying the benefits of very high levels of sustainably produced electricity—73 percent in the latest Energy Quarterly. I concede that part of that is because of the commitment to thermal generation—

Hon David Parker: Geothermal.

Hon GERRY BROWNLEE: —geothermal generation made by the previous Government; the former Minister of Energy is right to correct that. But it is also worth pointing out that at Huntly at the moment coal is being replaced as a fuel with gas, which is having a very positive effect on reducing emissions from that important piece of kit in the New Zealand electricity system.

The question was raised about this bill not dealing with prices. Well, the members who raise that question totally failed for a very long period of time to deal with outrageous prices. This bill at least creates an environment where there is pressure on retail sales, where there is the ability for others to enter a market, and where there is capacity for companies to secure a supply that means they can meet their consumers’ demands.

The Electricity Commission was set up by the previous Government and was required to do a broad range of things. The Electricity Authority, set up by this bill, has a much smaller range of things to do, and I think that is appropriate. One of the most important things it will do is make rules. One of the failures I saw in the system was that Ministers were required to sign off on rules. Quite frankly, few Ministers have the time to read those rules, let alone understand what they are about. I think having an authority that has a better focus on that will see us with a better, surer, and more secure arrangement.

I might also say that the issues raised about energy efficiency are important. I can say two things there. Firstly, the current Government has funded the Energy Spot on national television. It runs many times during the week and gives people practical tips about how they might reduce their energy bills. Further, we have committed a large tranche of funding to the home insulation programme and the Clean Heat programme, which are seeing literally tens of thousands of New Zealanders in warmer, drier homes, where energy efficiency will be much improved.

I also say that the funding flow is now to the Energy Efficiency and Conservation Authority. The authority will be required to engage in a broader programme for getting a better approach to energy efficiency. One of the things I hope it will pick up very quickly—it is a little outside the purpose of this bill—is the issue of industrial use of electricity, business use of electricity, and commercial use of electricity, where a possibility exists, I am told, for very, very substantial savings in the amount of energy this country uses. I do not discount the idea of a notional power station that indicates to people on a year-by-year basis how much efficiency we have managed to get across the country. I think it is extremely important, and taking that role away from the Electricity Authority, formerly the Electricity Commission, and putting it with the Energy Efficiency and Conservation Authority will give the public a great deal more confidence about the information that will be provided to them.

I raise the issue of the emissions trading scheme. Although some power companies may have suggested that the emissions trading scheme is the reason for their price hikes, I have repeatedly said that I think that is unreasonable. The fact is that 73 percent of electricity sold in this country in the last quarter was generated from renewable sources, and around 25 percent of that was from thermal. That indicates that there is a much lesser draw on the requirement. The Government has capped the price of carbon dioxide emissions at $25 a tonne, effectively meaning that industry pays half of the cost, which is $12.50. The average price appears to have been something between $18 and $18.50 recently, which puts it back to $9. I think the costs that some companies are applying are excessive, and we have said that we will want to have a good look at that as we go forward.

I note that we would have a long way to go to use up on electricity charges the $100 a week extra that superannuitants are now getting since this Government was elected than was the case under the previous Government. Although Ms Curran might be concerned about one company jacking up its prices by 9 percent in one part of the country, 9 percent was the average price increase for 8 years. Not only was the price going through the roof but also we had so-called electricity shortages. Although I admit that some of that shortage was due to the hydrology, it was not at the frequency that we saw over those years. That is why we are looking at the issue of asset swaps and that is why we have looked at virtual swaps among those companies, so there are balanced obligations. It finally means that what should have been in place for years between the very large hydro generator in the South Island and the very large thermal generator in the North Island is being put in place. There is plenty of evidence that those swaps will create a more secure environment.

I think it is unreasonable to suggest that the Crown may not be capable of being bound by this bill when, clearly, the previous Government had absolutely no evidence to suggest that it was bound by previous Acts. None of the predictions that were made by previous Ministers came to pass. I can at least say that since we started down this process, things have greatly improved for consumers. That is a completely unarguable position. I look forward to reasonable discussions about the way in which aspects of this bill might be applied, but I think in a general sense suggesting that everything was better the way it was before is a completely wrong position. If the Labour Party wants to argue that we should have done nothing and just carried on the way things were, then it is saying that New Zealanders were condemned to 9 percent and 10 percent price rises per annum for their electricity. We have rejected doing that and have had a bit of a go at seeing whether we can straighten things out and get a better and more reasonable arrangement for the way that electricity is marketed and sold.

There is no backing off the idea that the best form of investment should be chosen every time. At the moment we are seeing that the best form of investment appears to be in geothermal energy; we certainly encourage that. But I would not in any way want to take away the opportunity for electricity companies to look at gas where it is needed. A number of projects are on the books. I hope that they are developed, because gas has a much lesser carbon profile than coal, and it provides very fast, instant back-up to the system, particularly where we have wind energy, which may drop off very, very quickly. Having an over-reliance on that particular fuel source would be a disaster for New Zealand consumers. It has its place.

The CHAIRPERSON (Hon Rick Barker): Before I call the next speaker, I remind members that although a range of bills have gone through on wide-ranging debates, this bill is not one of them. We have had two speeches from either side and I think that is fair enough to set the scene. We have had one excellent example of how one focuses on the material and introduces other points, but we are on Part 1, which consists of technical aspects of the bill. I expect the speakers from now on to stay within the Speaker’s rulings and Standing Orders for the Committee stage of a debate.

Hon DAMIEN O’CONNOR (Labour): Absolutely, Mr Chairman. I refer to clause 4, “Purpose”, which states: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The Minister in the chair, the Minister of Energy and Resources, gave a well-meaning but useless speech in the Chamber and, I have to say, he has done it before. I recall that Minister making such a speech, or a similar one, anyway, with good intent back in the 1990s. The question I ask of him is where “Mad Max” is.

Dr Rajen Prasad: Who?

Hon DAMIEN O’CONNOR: Max Bradford started this whole thing. This is about managing Max’s mad markets, quite frankly. Max Bradford said that the markets, with very little regulation, would deliver long-term, secure, and cheaper electricity for this country. I can remember the Hon Nick Smith stating in the newspaper in Nelson that he would bet a bottle of wine with me that prices in electricity would come down. I am still waiting for the wine.

The reality is that the Government has at least acknowledged that it needs regulation to improve the situation. The previous Labour Government tried, but we failed, I have to say. We did not do what was necessary, because we were trying to put Humpty-Dumpty back together again. The integrated electricity system that we had in this country was disintegrated by Max Bradford on the basis that the market and competition would deliver more efficiency, more security, and cheaper electricity into the future. It may have been the same officials then who are here now—I am sorry; I do not want to unfairly bring the officials into it—but we have to realise that we have a disintegrated market, which has failed time and time again.

The basic problem is that if one is a generator and no further investment in generation occurs, then demand, as it continues to increase, will simply drive up what one gets for one’s existing generation. It makes good business sense. So why, then, does one invest in new generation until one reaches a point at which there seems to be a bit of market reaction? People start to get agitated, or the Government gets agitated, about the price they are paying for electricity.

We accept that electricity prices went up too much under Labour, because we were trying to tinker with a failed market model, and now the National Government is trying to do the same thing. That is why Labour does not support this bill. Labour does not support this bill for a whole lot of reasons, and we have a whole lot of speakers here who will go through those.

The purpose of the bill is to regulate the electricity market. It is a huge step forward for the National Government, from Max Bradford, and it is a huge step forward for the Hon Gerry Brownlee, who was a member of the Government that deregulated the electricity industry in this country. It has failed to deliver security of supply. That deregulation has failed to deliver efficiency gains, which we see from time to time. It has failed to deliver affordable electricity to many, many New Zealanders. There are elderly people in their homes today who refuse to turn on their heater. They are freezing in their homes because they are scared of what they have to pay for electricity. That is a failure. It is a failure of our system, which should be integrated and should have moved further down the renewables path.

We are lucky that we have a big chunk of electricity generation from renewables, but, of course, Mr Brownlee is absolutely committed to digging up more coal from the national parks, although he has backtracked on that for a moment, and to using thermal generation to drive electricity generation forward even further. Well, rather than celebrating the switch from coal to gas, I ask whether we should not be going further into renewables, such as more geothermal—which he mentioned—more wind, and more hydro. I suggest there are many, many ways that we can progress without using gas, which should be used for far more productive uses in this economy.

To go back to the bill—because, Mr Chair, I accept your guidance—the Minister referred to Dunedin. One swallow does not a summer make. Dunedin has always been held up as the fine example of what competition can deliver to consumers. Well, not many other consumers around the country have had the benefits of any true competition.

Hon Gerry Brownlee: Yes, there are.

Hon DAMIEN O’CONNOR: No, there are not, I say to Mr Brownlee, and he knows that.

Hon DAVID PARKER (Labour): I will first state my agreement with the Minister in the chair, the Minister of Energy and Resources, in respect of his comments about the effect of the emissions trading scheme on power prices. I agree with him that the emissions trading scheme has not been responsible for all of the power price increases that we have seen. We know that partly because, at least in theory, the electricity price is driven by the long-run marginal cost of new supply. The long-run cost of new supply in the electricity system has long foreseen the cost of carbon coming. Indeed, when I was the Minister some years ago, Contact Energy told me that it had already factored into its investment decisions—and, indeed, into its share price—the effect of the cost of carbon on electricity prices and investments. So again, I agree with the Minister that although the increases of late that have been blamed on the emissions trading scheme are partly a consequence of that, they are also partly not.

Of course, that begs the question that if it is not all related to the emissions trading scheme, then what is it related to? The answer to that question is perhaps that there is insufficient competition. The purpose of this legislation is set out in clause 4 as: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The reason that we need a framework for the regulation of the electricity industry compared with other goods and services that are supplied, particularly when it comes to the way in which electricity is delivered, is that the market has severe constraints and it is arguable that it is not competitive enough. That is why the Government intervenes and, therefore, regulates the market to try to enhance competition.

The question we have to ask in New Zealand is whether, after the years since we had the so-called market reforms that were pushed upon the country by Max Bradford originally, there is sufficient competition to justify competition being the control on price. If there is insufficient competition to control price, then we have to give up on having the competitive market as the appropriate way to control price, because it is a fiction, and what lies behind that fiction is excessive pricing.

We have heard from Clare Curran about the example she gave in Dunedin. Before I move to that, I say that one thing the Minister ignores in respect of the prior decade is that the major driver of the increase in electricity prices in New Zealand was the Māui gas running out. Māui gas was subject to a price control that went back to the Muldoon Government. As the gas ran out, there was the need to remove the cap on the price of gas so as to encourage more exploration, and that was actually the main driver of price in the early to mid-2000s. It does not explain increases in price since that date, and real questions remain as to whether the market is sufficiently competitive. What is driving the Government’s behaviour now is that it has a desire for dividends from State-owned enterprises.

The Government is not interested in real competition. It is not interested in real controls on an appropriate price for electricity. What the Government wants is dividends and capital distributions from the State-owned enterprises to the Government’s coffers. We know that because the Government has been open about it. The Government said that one of the things it wanted from the State-owned enterprises was improved financial performance. The only way we can get any significant change in the financial return from the major electricity State-owned enterprises is to put up the price. If the price is put up, a higher profit is made and therefore a higher dividend can be paid to the Government. Please do not pretend that it is anything other than that.

In respect of whether there is proper competition, I am just about ready to conclude that there is not. No one can explain the enormous differential between industrial and residential tariffs in New Zealand. It is higher than anywhere else in the world that I know of; there is an enormous difference. I think that is very good evidence that there is not sufficient competition at wholesale and retail level in residential markets.

I will give another example of where this is bad. Alexandra sits next to one of the biggest hydro facilities in New Zealand—the Contact Energy dam on the Clyde River. Alexandra pays one of the highest electricity costs—

Jacqui Dean: It’s the Clutha River.

Hon DAVID PARKER: What did I say?

Jacqui Dean: The Clyde River.

Hon DAVID PARKER: Sorry, it is the Clutha River; the member is quite right. I meant the Clutha River. The Clyde Dam sits on the Clutha River. Despite that, the people of Alexandra pay a far higher price for their energy than just about anywhere else in the country. I am not talking about line charges. I am talking about the energy charges. This dam is close to Alexandra, and just down the road is the Roxburgh resource, yet they pay a higher price for electricity. This legislation will not change that at all.

The question was put that the amendment set out on Supplementary Order Paper 154 in the name of the Hon Gerry Brownlee to clause 5 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendment agreed to.

A party vote was called for on the question, That Part 1 as amended be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Part 1 as amended agreed to.

Part 2 Electricity industry governance

The CHAIRPERSON (Hon Rick Barker): We are now debating clauses 9 to 72, and schedule 1.

Hon DAVID PARKER (Labour): Part 2 sets up the electricity industry governance and creates a new authority called the Electricity Authority, which effectively replaces the Electricity Commission. We should not fool ourselves that this makes a substantial difference to competition in the market. It does make a difference, in that it takes away some of the functions that one would think need to have some governance, like how clean our electricity is, a focus on renewables, and a focus on the efficiency of use. Those sorts of functions are stripped out of what used to be called the Electricity Commission and, by and large, they are not replaced in the new authority called the Electricity Authority. I cannot understand the logic for that step backwards, and I ask the Minister in the chair, the Hon Georgina te Heuheu, to explain why the Government calls that progress.

But, more particularly, I am interested in what the Electricity Authority will be doing that the Electricity Commission could not do, in respect of setting market rules that will improve competition in the market. That is what the Hon Gerry Brownlee told us from the chair, just some minutes ago. He said that these changes will reduce the pressure on prices by improving competition. I cannot understand how that can be. I cannot see anything in Part 2 that materially changes the authority’s powers from those of the existing commission. I come back to the issue that I started to address in the discussion in the first part of the debate: how can the Minister do anything but conclude that we do not have real competition in the electricity markets?

I refer again to the example that we have not had a response from the Government on yet, in respect of Alexandra power consumers. I expect this issue will have been raised by Jacqui Dean, who I see is in the Chamber.

Jacqui Dean: Because they sell to Transpower. The member knows how the market works.

Hon DAVID PARKER: That is not right. No, that is not how the market works, I say to Jacqui Dean. Transpower does not buy any power; not one kilowatt, except for the power in its head office, mainly. Maybe Transpower has a wee bit of power in its head office, but it does not trade in power. I say that Ms Dean has that completely wrong. Transpower transmits power. People buy services from Transpower, which provides the grid, and electricity companies use that grid to transmit power. I am afraid the member knows absolutely nothing about the way the electricity market works. It is no wonder her constituents come to me, instead of to her, and complain about the ridiculously high tariff that they have to pay in Alexandra.

The reality is that Alexandra sits next to the Clutha River. Nearby is one of the biggest dams in New Zealand, the Clyde Dam, and 10 kilometres in the opposite direction the Roxburgh Dam generates probably 100 times the electricity demand of Alexandra, yet Alexandra residents pay amongst the highest tariffs in the country for each kilowatt hour of power that they use. I ask Ms Dean to explain that to me. If the market works, why do Alexandra residents, who are so close to the resource that generates the electricity, pay such a high tariff for their electricity?

When I was the Minister of Energy, this issue used to vex me. I used to ask the officials to explain why the tariff per unit of electricity is higher in Alexandra than it is in other places that are further away from hydro dams. An adequate explanation was never given. I was always nervous that the reforms from Max Bradford did not produce a sufficiently competitive market to constrain electricity prices, as evidenced by the fact that residents in Alexandra, which is next to the hydro stations, pay more for their electricity. I am not talking about their lines charges; that is a different issue. They pay really high lines charges as well, partly because they are a geographically spread population. But in respect of their energy use, they pay more. What in this part will constrain that problem?

Jacqui Dean: What did Labour do about that? What did the previous Minister do about that, in his 9 years?

Hon DAVID PARKER: I say to Ms Dean that I am ready to conclude that nothing in this legislation will constrain that. In fact, what is happening here is smoke and mirrors, to cover the National Government’s demand for higher dividends from the State-owned enterprises. There is no real constraint on power prices.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): I have lodged Supplementary Order Paper 163, which has a particular emphasis on the role of the Electricity Authority. I draw the Committee’s attention to the Supplementary Order Paper and its intention. My amendment to clause 17 of the Electricity Industry Bill would insert the words “and environmental sustainability” after the words “efficient operation”. The intent of clause 17 as it stands is missing looking at how environmental sustainability can be taken into account in terms of the work and role of the authority. The authority can play an important role, and from what we have heard from the Minister of Energy and Resources, other than citing an intention to have increased investment in geothermal energy, we need to look at the whole investment landscape of non-thermal energy sources and what can be done about leadership in that area. I believe that by including that amendment the Government would be sending a positive signal of leadership in that it would be looking at the whole integrated way in which energy is generated from mainly non-renewable sources. That is certainly my intention going forward.

My amendment to clause 18(1) would add other functions to the Electricity Authority, first inserting paragraph (k): “to ensure that electricity is produced and delivered to all classes of consumers in a fair manner:”. My intention in tabling that amendment is to ensure greater fairness across the sector. There have been a number of contributions from members about price differentials between residential or domestic users vis à vis industrial users. The authority can play a strong role to ensure that there is greater fairness in price setting, and Labour believes that the Committee could give its attention to that in making amendments to the bill.

Second, paragraph (l) requires the authority “to undertake monitoring of environmental impacts of electricity generation and ensure that an environmentally sustainable approach is taken in the development of electricity generation.” That amendment refers, in part, to the point that I made earlier. When we think about how energy is generated in our country, we see that there is far too much reliance on the thermal generation landscape. Certainly, Labour believes that renewables are the way forward, that leadership must be given by the Government, and that it needs to be clearly set out in a bill like this one. It is Labour’s intention to go through, in some detail, the various debates and outline the reasons why we believe that the Government must give leadership.

I was heartened to hear the Minister say that increased investment in geothermal is a good thing, but we cannot leave it to chance. We have to be really firm that the Government should direct greater geothermal investment. In fact, we can be the leading edge in the international landscape in terms of our contribution in geothermal energy; that is what the Government should do. More important, with regard to our natural resources we can play a key role in increasing our commitment to renewable energy generation and leading-edge technology in that area. That is a bigger debate than is afforded by this bill, but it is the type of future and vision that Labour sees going forward. It is simply not correct for the Minister to say that Labour wants to go back to the position that we were in. The world has moved on; Labour has recognised that. We know that the future requires a stronger emphasis on environmental sustainability, and that energy generation has to take greater account of renewable sources of generation. That is the future. Leadership must be shown in that area; the Government cannot simply leave it to chance. The role of the Energy Authority, if it is to be as the Minister has outlined, should be to ensure environmental sustainability in the setting of the electricity generation market.

I want to speak briefly with regard to the authority, given that the previous speaker, David Parker, eloquently raised a number of issues about the role of the authority. I want to come back to a number of other Supplementary Order Papers, but for the purpose of these clauses in Part 2, I just highlight that the role and function of the authority is somewhat narrow, and I believe that including the amendments in my Supplementary Order Paper will set the authority on a landscape of looking at where New Zealand is best headed in terms of energy generation. That is the kind of future that New Zealanders want to see, and they know that it requires leadership. We cannot leave the State-owned enterprises to their own devices to go down a path without some direct guidance from the Government and the Minister in charge. The role of the authority will be paramount to that, given that the Minister has delegated to the authority a number of roles and responsibilities.

For that purpose, I am hopeful that the Committee will consider those particular amendments to clause 17 and 18 to be positive ones that will achieve that objective. Kia ora.

CHRIS HIPKINS (Labour—Rimutaka): I am happy to take a call on Part 2, “Electricity industry governance”, and, in particular, I want to talk about the establishment of the Electricity Authority and the regulatory arrangements that are in place. I start by acknowledging the comments the Minister made about what Labour would do and whether we think that everything is perfect as it is operating now. The clear answer is that it is absolutely not. Generally speaking, we agree that the electricity market has not lived up to expectations set about 12 or 14 years ago when Max Bradford first established the market through the Electricity Industry Reform Act 1998. So, definitely, it does not work. The issue therefore relates to the fact that the electricity market did not live up to expectations, and it raises the question of what we can do to make sure that it operates more effectively, given that we cannot go back. There is no way to go back to what we had before, so we must ask what we can do and where we can go from here.

The previous Labour Government decided that the establishment of the Electricity Commission to provide much more oversight to the electricity industry was the way to go, and Labour still believes that. We still believe that the electricity market needs to have a body that provides much wider oversight, and that deals not just with the pure functioning of the mechanics of the market but also with issues of affordability, sustainability, and security of supply. So the three planks that Labour put forward are security of supply, sustainability, and affordability of pricing. Does Labour think that the Electricity Authority, as constituted by this bill, will deliver on those things? The clear answer is no.

Under this bill, the Electricity Authority’s objective is to promote competition in, reliable supply by, and efficient operation of the electricity market for the long-term benefit of consumers, but I do not think the Electricity Authority will be able to do all of those things.

This bill transfers the approval of Transpower’s grid upgrade plans away from the Electricity Commission, as it is now, to the Commerce Commission. I think that is quite a significant move. One of the reasons that I am concerned about that is that we need overall coordination and an overall approach to the electricity industry. This bill continues to fragment everything in the same way that the Electricity Industry Reform Act deregulated the market in the late 1990s. I do not think that this legislation will lead to a more effective operation of the electricity market. When it comes to the grid upgrade, we have to consider the alternatives to approving a grid upgrade. We can do that effectively only if we consider all of the other elements of electricity generation, like greater efficiency in the use of electricity, and demand-side reduction, which relates not just to efficiency but to reducing demand. We need more effective distribution of electricity generation, so that we do not have to rely on transmitting electricity from the South Island to the North Island when it is raining a lot, or the other way when it is not. We need to consider all of the alternatives to a grid upgrade. The Commerce Commission will not be able to do that; it will have a much narrower focus. So I am concerned that transferring that authority from a body that has a wide overview of the electricity sector to one that is very narrowly focused will not help the Government to meet the objectives that it is setting out.

The promotion of energy efficiency is transferred to the Energy Efficiency and Conservation Authority. Once again, I come back to the idea that electricity efficiency cannot be addressed on its own without reference to other parts of the puzzle, like transmission, distribution, pricing, and effective operation of the market. We need to consider efficiency as part of a wider, overall package. One of the concerns I have is that the Energy Efficiency and Conservation Authority will become a small body on one side that deals with electricity efficiency, and the rest of the electricity sector, including the Electricity Authority, will therefore think it is not part of their purview. Actually, electricity efficiency and the efficient use of energy has to be integral all the way through the electricity system. It cannot simply be parked off to one side with the Energy Efficiency and Conservation Authority. I agree that some streamlining could be done, but this bill goes far too far by transferring all of that responsibility purely to the Energy Efficiency and Conservation Authority.

Another part of the bill that I am concerned about relates to the Minister of Energy and Resources and the Minister of Consumer Affairs being the final arbiters on all issues of fairness. That is concerning, because, ultimately, it will mean that for consumers who are concerned that the market is not operating fairly, in that power price increases are not fair, the only people they will be able to go to under this legislation are the Minister of Energy and Resources or the Minister of Consumer Affairs. That places a huge burden on the Ministers. It also means that a consumer who wants to complain is less likely to make any traction. Ministers are notoriously difficult to pin down at the best of times. They will not have the time or the resources—and the public will not have access to the Ministers—in order for the system to operate effectively.

The Electricity Authority established under this bill will not have any responsibility for environmental sustainability. The Government says that it is still committed to the target put in place by the previous Labour administration to have 90 percent renewable electricity in New Zealand. This bill states that the Electricity Authority will have no regard to that and no role in ensuring that happens. So when will it happen? It will not simply happen miraculously. It will not happen by being aspirational and talking about it. We have to put some incentives in place if we want there to be more renewable electricity, which was one of the things that the previous Labour Government was focused on. We were focused on ensuring that our electricity system was more sustainable and that there was a higher reliance on renewable electricity. The Minister of Energy and Resources acknowledged that fact in the brief contribution he made just a moment ago. He talked about the fact that there was more renewable energy generation. He talked about geothermal energy generation in particular. When the previous Labour Government was in office, there was a big investment in wind generation and geothermal energy.

In New Zealand we rely on and take for granted our hydro system. It is the backbone of our entire electricity system. We are very fortunate that over the last year or two, it has rained quite a lot, so we have not had any risk of electricity shortages. Gerry Brownlee, I am sure, like all Ministers in the previous Government, gets the hydrology summary on a daily basis and goes through the changes in lake levels overnight to see whether they are tracking up or tracking down. For all of the time that he has been the Minister of Energy and Resources, the hydro levels have been fine. He has had a dream run in that regard, whereas Pete Hodgson and David Parker had a bit of a nightmare scenario when it came to rain not making it to the right places in the country. That was a key contributor to why we had those energy savings campaigns from, I think, 2001 to 2003.

Overall, we cannot ignore the environment when it comes to our electricity system. The Electricity Authority not needing to have any regard to the environment whatsoever is a very retrograde step, because we are dependent on the environment when it comes to our electricity generation. If we want to focus much more on renewable energy, and if we want to hit that 90 percent target of renewable energy generation, which the Government talks about, then obviously we will need to continue to focus on the environment and on making sure that our electricity comes from renewable sources.

I want to talk about the issue of stability of power prices, which the Minister raised. Under this legislation, the Electricity Authority will have no responsibility for considering issues of power prices at all. Gerry Brownlee’s response to that is that if power prices are going up, people can just switch power companies. In Gerry Brownlee’s world, when it howls with rain, people go outside to look at their meters to see how much electricity they have used, and then they go back inside and look on the Internet to see which power company will give them the best price. In Gerry Brownlee’s little fantasyland, consumers are supposed to be doing that on a daily or weekly basis. In reality, I ask who is going to do that. I ask who will actually monitor their electricity price on a daily or a weekly basis. It is not realistic. In fact, it is realistic only if we move to the type of model set up by Meridian Energy’s subsidiary Powershop, where people engage in the market and buy electricity on a “pay as you go” basis. The Powershop people thought that this bill was a bad idea until they were muzzled by Gerry Brownlee and told that they were not allowed to speak about it any more. They had to take down blog posts that criticised Gerry Brownlee and this legislation. The Powershop model is actually quite innovative and provides additional choice for consumers, but we should not overlook the fact that for most consumers the idea that they will be checking their meters reading every day or every week, going on the web, finding out what the lowest power price is, and then switching power companies all the time is simply not realistic. It is a joke.

Hon SHANE JONES (Labour): I stand to add further fuel to our words of opposition to the Electricity Industry Bill. Part 2 of this bill reminds one of moving electrical deck chairs on the base of a waka that is going to sink. Despite these changes in institutional positions, deep down the underlying question that every New Zealander is bedevilled by remains unanswered. This bill will not lessen the differential between what we as garden-variety Kiwis pay for power and what manufacturers and a host of other industrial users pay for power. Neither will it lessen the cost, the burden that every New Zealander faces in relation to their power bills.

The restructuring options that Mr Brownlee has brought to the Chamber began with his musings in the Commerce Committee back between 2005 and 2008. He organised a body of work to take place to find whether there was a better way to squeeze more dough and efficiencies out of the State-owned enterprises. He focused on the energy State-owned enterprises. I suffered for a short period of time with my presence on that committee whilst he was the chair. He is a jolly fellow; however, he completely misunderstands the deep problem here. The problem is that we have reached a point in New Zealand at which these institutional changes of a filigree nature are not going to resolve the underlying problem. The underlying problem is that the notion of competition for this essential service has not worked since the time of the 1990s. I personally look forward to the day when power is surrendered back in this direction away from the bureaucrats and away from the staff who run the State-owned enterprises, who are largely beholden to no one. It is an actual fact that there is more accountability and more interest in the career of an ordinary civil servant than either responsibility or responsiveness from the people who run those companies, the chief executive officers, the staff members—I will not comment on the boards of directors, because they have recently changed as a consequence of Mr Brownlee’s purge. I might give them an opportunity, brief though I hope it is, to prove themselves. But the real force blocking the types of changes that my colleagues refer to are the people who man—or should I say people—the positions inside these institutions.

There will be no change to price. There will be no change in relation to the quality or the volume of competition, which these sets of changes are based on. Will this organisation be more efficient? Will the existence of two quangos improve upon what the earlier organisation is doing? No. Why? Because, broadly speaking, we have always had at least two options: keeping the old model, which was destroyed by Max Bradford, or going far right out, as the kaumātua of the House, the Hon Roger Douglas, whose hair has turned from grey to white over the last week or three, would say—a complete sale of those assets into private hands, and in that way achieving the sorts of efficiency outcomes we require. Naturally, we will never agree to that.

So the test is not so much about the effectiveness of each provision; it is about whether this rearrangement actually delivers a cheaper service. No, it will not. Will it make the institutions more responsive not only to the consumers but to their proxy—this House? Unfortunately for the people of the land, their interests are being mangled and mediated through the Government over there, and I hope, after recent events, that it does not last too much longer. The push that we had, which has unfortunately been marginalised in this bill, was to enhance the importance of ensuring that the supply of energy, and the pace at which it is used, is used at a level of greater efficiency, thus reducing the level of burden and impact on the sources from which we draw our energy. This is not going to change that. I repeat again that the level of interest and motivation within the bureaucracy of the various energy companies for achieving those kinds of outcomes is somewhere near zero.

Hon DAMIEN O’CONNOR (Labour): I confess to not having been on the Finance and Expenditure Committee, but I think that anyone who picks up the Electricity Industry Bill, which is quite a substantive one, has to have an interest in it. The industry and electricity itself affect each and every New Zealander, whether they be in industry, a pensioner, or someone who just wants the comfort of nice underfloor heating in their bach by the sea. Whatever it is, it is really important to get this legislation right.

Clause 9 of Part 2 lists the industry participants. Back in the good old days, people understood that we had increases in electricity prices—there was no doubt about that—but there was security of supply, and we had an integrated system. There was, basically, ECNZ, and people had a local lines company that they dealt with. They knew what they paid, and some of them had to guarantee the price because they had had a line extended to their place. We have now moved into the new era of user-pays and the market, etc., and if people read through the list of industry participants they will start to get worried. For example, industry service providers are industry participants, and the layers of people who will be in this new electricity system—this wonderful new market that National is trying to create here—are listed in clause 9(2) as being: “(a) a market operation service provider: (b) a metering equipment provider: (ba) a metering equipment owner: (c) an ancillary service agent: (d) a person that operates an approved test house: (e) a load aggregator: (f) a trader in electricity:”. The list goes on and on. I guess all of those people will take a little slice, in terms of costs or profit, and ultimately the consumer will pay. The more complex we make a system—and this is exactly what is going on here—the more costly it will be.

There is, of course, an industry code, and clause 11(1) states that industry participants must register and comply with the code. We understand the need for a code for the building industry, given that the National Government’s attempts to deregulate it back in the early 1990s led to leaky homes in this country. It did not have an adequate code because it thought that the market would deliver, and the market failed to do so. I say to National members that this is another classic example of tinkering around with a failed model.

Industry participants have to register and they have to comply with the code, unless they are exempt from the obligation to register as set out in clause 12. Clause 12(1A) states: “The Authority may grant an individual exemption to an industry participant only if the Authority is satisfied that … (b) exempting the participant will reduce overall administration and compliance costs.” What a bizarre statement that is. I hope that the Minister in the chair can answer our concerns about that, because exempting anyone from any code would reduce compliance costs. If that is a qualification for a person to seek an exemption, then will everyone be exempt? Most people would probably say the authority would have its costs reduced, which is what, I think, the intent is here. But I thought we had a user-pays regime here: if we had a code and people were obliged to commit to it, then they would keep to the costs of doing that, and in that way make sure that the costs were kept low.

This is complex legislation. It is a band-aid to try to patch up a failed structure in electricity in this country, and most New Zealanders understand that. It does not matter where we go, and it does not matter whom we speak to, because most people understand that the electricity structure in this country needs major reform. We have acknowledged that. We have to make some major changes, and tinkering, as Minister Brownlee has done here, in my view will just lead to a more complex, more costly, and more ineffective way of governing electricity supply, generation, and efficiency. The one goal that we should all focus on is making better use of energy and electricity in this country. I do not think that this bill will help in that direction at all, and it would be great to hear an explanation of the reason for that.

AARON GILMORE (National): I want to spend a little time talking about some of the interesting statements we have had across the Chamber. Mr Jones, who did not sit on the select committee when the Electricity Industry Bill was being considered, talked about the fear and loathing of this bill, and the worries about it. I think Mr Jones is a very good member of the Parliamentary Rugby Team, but that shows he knows nothing about electricity. Mr O’Connor, whom we have just heard from, was also not on the select committee and is also a wonderful member of the Parliamentary Rugby Team, but also showed that he did not know much about this bill. We heard from Mr Hipkins, who talked of worries about the environment, concerns about the new part, and issues of the authority not having a role to do with the environment. That shows that Mr Hipkins has not read the bill either, and it is beholden upon me to correct a few people on some of the misapprehensions that exist.

Clause 20 allows a power to come forward for the Minister to give requests to the authority to do anything that he or she may like, which might be environmentally related or related to pricing or another review. Another key aspect is the change in the role of the authority. I have had the misfortune of working in the energy sector both as an adviser and as a supplier to the industry in terms of cables, in particular. I worked for a major supplier to the energy industry that was one of the major players. One of the issues in the energy sector is the big confusion that we used to have with the commission. The commission grew from about 20 staff to huge numbers over a very short period of time, and the budget grew to about $50 million, as I understood it. There was $50 million for the bureaucracy. People were writing reports for the sake of writing reports to give to the person in the next department to justify quality or price. To me that was pretty much a waste of time and effort, and we saw that.

What we have now is a greater focus by an authority. We will have the Electricity Authority, which will have some aspects of environmental oversight. Indeed, there will also be more detail around the use of the Resource Management Act. But the promotion of energy, the issue that members on the other side of the Chamber seem to be worried about—those energy ads that we see on TV and such things—lo and behold will now be done by the Energy Efficiency and Conservation Authority, because that is what it was set up to do. We have taken that away from the Electricity Authority, and we have focused it more and given more control over what those roles will be. I think that is a better way to do things, because we do not have the left hand and the right hand arguing with each other; we have an entity set up to focus on what makes sense. One focuses on energy efficiency and one focuses on the governance and administration of the industry.

One of the factors that we are worried about, and we have talked about some of the roles and aspects under Part 2, is the issue of security of supply, and the fact that we have not had enough generation capacity built in the last few years. In the last 2 years there has been a bow wave of new generation build, but for many years we had a focus on not having new generation build approved, because it got stuck in those huge infrastructure bottlenecks commonly called the Resource Management Act and the Electricity Commission. What we have done is refocus the Electricity Authority to separate out what it is good at and what it is not good at. That will allow and help new generation plant to be built quickly.

It will lead to a lower price rise path over the next few years as the issues around promotion are being separated off, and instead of being one big, massive amalgam of bureaucracy, roles and tasks will be broken up into those entities that make sense. And that is an absolutely critical aspect.

Under Labour, prices went up by 72 percent.

Hon Nathan Guy: How much?

AARON GILMORE: By 72 percent in 9 years. Do members know what prices have done in the last 2 years?

Hon Nathan Guy: What?

AARON GILMORE: They have gone up by about 4 percent. That shows that some of the things we are doing are working. The intention is to sort out the bureaucracy and allow more building of generation plant, in particular geothermal plant to put thermal generation back on the curve and put in place greater incentives and money. Today we announced the investment into new marine energy arrangements, and that is a good thing. It is future technology, as we bring on the new curve of technology for the energy sector. That is an important role for the Electricity Authority to take.

All that members on the other side of Chamber tend to worry about is creating more bureaucracy. We have heard that a Supplementary Order Paper has been put forward by the Hon Nanaia Mahuta, which will mean more bureaucracy and control on the Electricity Authority, and that is the last thing we need. We know, after 9 years of Labour, that more bureaucracy did not work, prices went up, renewable energy went down, and carbon emissions went up. It did not work. All we want to see is that this bill, after a long review process, is put forward. We want a very tightly focused Electricity Authority with a very tightly focused role that separates out those things. I think that is a good thing.

CHRIS HIPKINS (Labour—Rimutaka): There was far too much material in that speech from Aaron Gilmore on the Electricity Industry Bill; I do not think I will be able to get through all of it. I was interested to hear Aaron Gilmore describe himself as a major player in the electricity industry. I think the State-owned enterprises regard themselves as major players in the electricity industry; I am not sure that anybody would ever have regarded Mr Gilmore as a major player in the electricity industry. I know, of course, that in his little world he invented electricity, and we congratulate him on that! We are most grateful to the people of Christchurch for delivering him to this House so we can all benefit from the huge knowledge he brings!

I will talk about a few of the things that Aaron Gilmore spoke about before I talk about the Electricity Authority. Mr Gilmore talked about new generation getting stuck in the Resource Management Act. I wonder whether he could give us an example of an electricity generation project that has been stopped by the Resource Management Act.

Aaron Gilmore: I can give you many.

CHRIS HIPKINS: There are none. He cannot come up with a single one. I have plenty of time. I ask the member to name one—any one will do.

Aaron Gilmore: I can give you many.

CHRIS HIPKINS: Come on, then. Name one. Aaron Gilmore says the Resource Management Act is responsible for bogging down all the electricity generation, but he cannot name a single project that was delayed by the Resource Management Act.

Let us be clear about what the Resource Management Act does when it comes to electricity generation. It means that if a generator wants to dam a river or build a wind farm in someone’s backyard, the people who will be affected get a chance to have a say. Aaron Gilmore thinks that is a bad idea; I do not. I happen to think that if there is to be a major infrastructural development that will impact on rivers, on people’s backyards, or on the environment, New Zealanders should have a chance to have a say on that. It is a disappointment that the National Government and people like Aaron Gilmore do not seem to think that is the case.

Aaron Gilmore talked about a lower price rise path. Is that not a major turn-round from National’s pre-election rhetoric about lowering power prices for New Zealanders? At meet the candidates meetings up and down the country, National candidates gave people the impression that if they elected a National Government that was ambitious for New Zealand, somehow the power prices would come down. They are not talking about that any more now that they are on the Treasury benches and are driving around in their BMWs. Nowadays they are talking about a lower power price path.

Aaron Gilmore claims, of course, that power prices have not increased as much under the National Government. There are two reasons for that—two big reasons. The first is that it has rained quite a lot. When the hydro lakes are full, the power price does not go up as much. If there is lots of water, hydroelectricity is actually quite cheap. National is claiming credit for the rain. These days Gerry Brownlee tries to claim responsibility for an awful lot of things, but I do not think he can claim credit for the rain.

The second reason is that the Māui gas issue has largely been addressed. The Māui gas price was kept artificially low by a long-term contract entered into many decades ago.

Aaron Gilmore: Before you were born.

CHRIS HIPKINS: I am almost certain it was before I was born. That artificial restriction on the price of gas has now come off. As the field diminished, the restrictions came off. New gas is coming online and that is a good thing, but the new gas is more expensive than Māui gas. That has been one of the biggest contributors to the increase in electricity prices over the past decade. That issue had largely been dealt with, and the flow-on effect had largely come in, by the time National took office. National members cannot claim credit for the fact that that issue was all dealt with under the previous Labour Government.

I come back to the Electricity Authority and to some of the mechanics of the authority. Then I will talk about the code and, in particular, some of the issues that could be addressed. The first thing I want to talk about is the make-up of the Electricity Authority. One thing I am concerned about is that the way the authority has been established and will function means that consumers, particularly domestic consumers, do not get a look-in anywhere. Nowhere in the make-up of the Electricity Authority—or in its functions, really—will the views of domestic consumers be sought. They will not have an avenue to complain or to go back to the authority when they think the electricity market is behaving unfairly. That is one thing we think is wrong.

The domestic consumers are the ones who are being done over. Let us look at the power price path. There have been massive increases for domestic consumers in the last decade or so, but the price for commercial and industrial users has not gone up by as much. Domestic consumers have been done over with power price increases, but for commercial and industrial users the price increases have been nowhere near as much. The Electricity Authority will not be able to do anything about that.

There are some ironies in this bill, as well. Gerry Brownlee came to the Chamber and told us that the bill is all about increasing competition. One of the things this bill does is entrench Transpower’s role as the system operator. Currently, Transpower is the system operator on contract with the Electricity Commission, but the Electricity Commission could change the system operator if it chose to do so. This bill effectively entrenches Transpower, as a monopoly, as the system operator. In a bill that is supposed to increase competition, the Government is entrenching the monopoly Transpower has as the system operator.

Hon David Parker: What sort of incentive is that to reduce costs?

CHRIS HIPKINS: That is a very, very good point made by my colleague David Parker. There will now be no oversight by a Government body of Transpower in its role as the system operator. There will not be the drive for efficiencies that there could have been. The Electricity Commission will not be leaning on the market operator to make sure that there are increases in efficiency. That is another problem I have with the bill.

I will talk now particularly about the industry participation code. The relevant clause that deals with the industry participation code is clause 35. It talks about what the code may contain. Clause 35(1) states: “The Code may contain any provisions that … are necessary or desirable to promote any or all of the following: (a) competition in the electricity industry: (b) the reliable supply of electricity to consumers: (c) the efficient operation of the electricity industry: (d) the performance by the Authority of its functions: (e) any other matter …”, etc.

One of the things that submitters argued was that the Electricity Authority—the Electricity Commission, as it is now; the Government, effectively—should be taking a much more proactive position when it comes to smart meters. The Government has dragged its heels on this issue. I think that everybody at home will be asking why they should have any confidence that the Government will use this code to deliver a better deal for consumers when there is a really obvious issue that it could pick up right now and deal with—

Hon David Parker: The Parliamentary Commissioner for the Environment has reported on it.

CHRIS HIPKINS: The Parliamentary Commissioner for the Environment has already given the Government the report telling it how it could be done, and the Government is ignoring it. The Government could pick up the issue of smart meters and immediately deliver something of real benefit to consumers. Instead, it is turning its back on it. Gerry Brownlee is ignoring that issue altogether.

As a result, electricity companies up and down the country are installing dumb smart meters that do not have the technology that they could have if a standard was in place. Also, they are installing smart meters that are unique to individual suppliers, and that is a major problem. At my house, which I moved into a year ago, the meter was installed by Genesis, but I have my power with Meridian Energy. Meridian Energy cannot access the technology in the smart meter that is in my house. It still sends somebody to my house once every 2 months to do a manual power reading, because the technology being installed is not universal. There is no universal standard. If Gerry Brownlee wants to promote the ability of consumers to switch power companies and reduce costs, clearly that is something he could do straight away. It would mean that if I decided that Genesis, Meridian Energy, or whoever I was with was not the best company for me, I could switch to another company. It could still tap into the smart meter technology that I had, and it would not need to send someone around to my house to read the meter manually every 2 months.

That is a bugbear as well. My electricity usage changes from month to month, as it does for many New Zealand households. The estimate reading is never anywhere close to what I have used. It is either wildly over or wildly under the electricity I have used. New Zealanders up and down the country face that problem when they have estimate readings every second month. All of that can be done away with if a smart metering system is put in place and properly regulated. But instead the Government is not doing anything about it, so the electricity companies are installing dumb smart meters where the system behind them is proprietary to the company that installed the meter, which will dampen down competition.

What faith should New Zealanders have that the electricity industry participation code that will be legislated for in this bill will be effective, when the Government has already turned its back on a major issue on which it could have delivered some real benefit to New Zealanders?

Hon Shane Jones: Copped out.

CHRIS HIPKINS: It has chosen to cop out on that and not follow up on it. Smart meters are the way of the future. The Government could do that now.

Hon DAMIEN O’CONNOR (Labour): My colleague Chris Hipkins raised some very important issues—

Hon Shane Jones: As always!

Hon DAMIEN O’CONNOR: —as always, about some of the technical issues in relation to smart meters and the tools that will be available, or not available, and used, or not used, in the future. We hope that they will be used.

I want to focus on the issue of structure. The Electricity Authority will be a key player in whatever may happen in the future. Mr Gilmore said earlier that this will mean there will be better control on prices in the future. I would like to go back and refer to a submission made to the Finance and Expenditure Committee. I was not at the committee, but Contact Energy—a major player—confirmed in its evidence that it will need to continue to raise its retail prices by up to 5 percent per annum if it is to continue to invest profitably in new generation capacity. That is what it said. Five percent per annum is scary for New Zealanders on a fixed income who face a cold winter. So where do they go?

The major players might say, if we pick up on that issue, that they could make reasonable profits and do not have to make huge profits, so maybe they do not have to go to 5 percent. But this National Government has said to each and every State-owned enterprise that it must lift the level of return on its investments. What does that mean? It means that the State-owned enterprises have been instructed to make more profit for return to the consolidated account. So any kind of vain hope that we will see moderate levels of profits is just that—a hope. Contact Energy itself said at the select committee that it would probably raise prices by up to 5 percent. I hope that does not occur.

I will move back to the authority—

Hon Shane Jones: We have to go forward; we never go back.

Hon DAMIEN O’CONNOR: My colleague says we should never go back, and that is right, but the National Government does need to look at the mistakes it made in the late 1990s and learn from those mistakes, so that it can go forward and improve matters in the future. When National was in Opposition, it railed against the Electricity Commission. National members opposed it in every speech in this Chamber on every piece of legislation. They said it was unnecessary interference, but now we have an authority. What is the key difference between the commission and the authority? I looked at the objective set out in clause 17 in Part 2, and I saw it states: “The objective of the Authority is to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.” Those fairly laudable, honourable, and useful objectives are not too different from those of the Electricity Commission.

Of course, the previous Labour Government attempted to control the market, and we did a fair job of bringing in some necessary regulation. But we did not do what we had hoped to do, and I do not think that the authority will do it here. If we go back to the independence of the members of the authority, the previous speaker, Chris Hipkins, said we would not have a guaranteed consumer advocate here. That is true. Reference was made in terms of membership to someone who might raise consumer issues, but the bill clearly states that no one on that authority will be able to act on behalf of any particular organisation or industry group. That means that New Zealanders on a fixed income, be they members of Grey Power or beneficiaries, will not be able to have a champion on the authority, because the legislation prevents that.

What we have seen in the past through the market is that the big players have been able to negotiate lower rates for electricity, so their increases have been moderate. But the little players, the average New Zealanders, the people who do not have a lot of muscle or leverage other than through fair representation in this House through the Labour Party, will not have a say. The price increases for those people, as quoted by Mr Gilmore and the Minister time and time again, have been very high. We do not want to see a repeat of that, whereby the industry players effectively ratchet up the cost to the small players, because they do not have the ability to do anything about that. This authority will not give them any better representation or ability to reduce the price increases.

Hon DAVID PARKER (Labour): In Part 2 we have clause 9, which states that we will have statements of Government policy that the authority must have regard to. What statements of Government policy have we had since the election? We had one arm of the Government apparatus—I forget whether it was Mr Whitehead at Treasury or Dr Bollard at the Reserve Bank—say that on the basis of the recession there was a need to have decreased profit expectations on the part of the big power companies. There were to be decreased profit expectations on the part of the major infrastructure companies, including—and I think they were named—the power companies. Of course, the Government owns the power companies, because they are State-owned enterprises. If the Government had wanted to achieve less pressure on power prices it could have explicitly said to those State-owned enterprises that it wanted lower dividends; that it did not want them to pay as much money into the Government coffers. Did it? No, it did not, and that shows how hollow its rhetoric is about its desire to control power prices, because that is all it needed to do. It could have said to Genesis, or Meridian, or Mighty River Power, or all of them, exactly what the Labour Government had already said to Transpower, which was that it did not want as much dividend. The Labour Government did do that in respect of Transpower, and the National Government could do that in respect of the major generators if it wants to take pressure off power prices. So all this talk about having a statement of Government policy that the authority must have regard to when undertaking its functions is not worth a tin of fish. We know that the Government had the lever. We know that the advisers to the Government at the highest level—and, from memory, I am pretty sure it was Dr Bollard at the Reserve Bank—said that the Government needed to take pressure off consumers by not ramping up prices, profits, and dividend flows to the Government.

The Government has control of two-thirds to three-quarters of the electricity market. The Government-owned State-owned enterprises—Genesis, Meridian, and Mighty River Power—produce two-thirds to three-quarters, depending on the year, of New Zealand’s electricity. They are dominant. If the Government had just given them the direction that it did not want as big a dividend, then electricity prices would not have gone up as much. I still call on the Minister in the chair, the Hon Phil Heatley, to take a call and explain how it is that this authority will control prices in a way that the existing commission does not, because that is what Gerry Brownlee says is its purpose. He says that the authority will be more effective at controlling price. Well, how? It is not apparent from the legislation. We know that the Government has ignored this opportunity to say that it does not want more dividends. In fact, it has said the opposite. The Minister for State Owned Enterprises, Simon Power, has said to these companies that the Government wants greater efficiency and higher dividends. In reality the only way we can get significantly higher dividends from the electricity State-owned enterprises is through price increases. They do not have very high variable costs in terms of their labour inputs, so a change to their salaries policy does not make much of a difference to their profitability. The only way they can increase their profitability and dividends is by increasing prices.

So I ask the Minister to explain how this new authority is going to have a different outcome in respect of market competition from what the Electricity Commission has had. If it is not going to have any difference, I cannot see how the Government can rely upon it to control prices any more than the existing commission can, and the Minister is already on record over many years as saying that the existing arrangements were not sufficiently controlling price increases. So if there was not sufficient price control through the market mechanisms that were operationalised under the Electricity Commission, and if we are moving to a new authority, what is it that is different that changes that status quo? The answer—because we will not hear a call from the Minister on this, because there is no answer—is that there is no change to the powers of the authority compared with those of the commission, in terms of market outcomes.

I ask the Minister in the chair to stand on his feet and explain how it is that different rules pertain to the authority and give them more powers than the Electricity Commission had to constrain prices. The answer, of course, is that there are no extra powers. The answer is that this legislation will not properly constrain price increases.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): The one Government member, Aaron Gilmore, who got to his feet and made a few comments needs to be challenged on a number of fronts. First of all, that member said that Labour increased the amount of bureaucracy in the system. Well, we had an Electricity Commission, and it will be replaced by an Electricity Authority, a Security and Reliability Council, and other advisory groups. If that is not more bureaucracy, I do not know what is. But that member clearly did not read the bill. In fact, what the Government has done is get rid of the Electricity Commission and replace it with an authority, a Security and Reliability Council, and other advisory groups—more bureaucracy. That member was Aaron Gilmore. Furthermore, he went on to say that the Resource Management Act stopped a number of projects. The Resource Management Act under Labour gave community groups the right to have a say on developments near them, and I certainly support that. But the Government of that member, Mr Aaron Gilmore, has, through its streamlining legislation, removed the opportunity for some community groups to have a say when they otherwise would have had that opportunity. That is what that member is actually supporting, so he needs to be challenged on those two issues, because I think he was erroneous in his presentation of those issues to the Committee.

But I have concerns about the authority as well. I have concerns in terms of its limited scope; I have said previously in the Chamber that the Supplementary Order Paper I am bringing to the Committee is to ensure that the scope of its consideration can be broadened to include environmental sustainability. I do not think that that is more bureaucracy. In fact, I think that that is more responsibility, in terms of the nature and role of what the agencies are there to do. I do not believe that the authority in its current scope is adequately equipped for looking at the whole landscape of electricity generation, or for ensuring that greater leadership is given on that front.

My colleague Chris Hipkins raised a number of very good points, especially about the smart meters initiative, which points to another amendment I have in my Supplementary Order Paper. I have had a presentation from my local lines company, WEL Energy, that talks about smart meters that not only talk to the customer but also enable better management of electricity use across the grid. In time, this is what the future will look like. I certainly endorse the report of the Parliamentary Commissioner for the Environment, and what she promoted in terms of smart meters. That is the technology that we need to look towards.

I believe that Chris Hipkins is absolutely correct in saying that the Minister should give direction on this front: we should have a smart grid, we should be promoting smart meters, and we should start now and not wait, albeit what we have now are dumb meters, and some lines companies, like WEL Energy, that I believe are taking an innovative and positive step forward in this area because they know what the future landscape will look like. I hope the amendment I have put forward will be considered in that light and will be supported, because we know that consumers want to be able to regulate the amount of electricity they use by having better information.

Some appliances are smart appliances, and we are learning from what is happening in Australia where they are already developing smart appliances. It will be only a matter of time until those appliances come here to New Zealand. So having a smart meter in the house, where consumers can look at the amount of power they are consuming and regulate themselves, I think is a good thing. I think it is really positive when that information is given back, and when the utilisation of energy across the grid can be better managed at another level. It is real-time information that is critical in order to make this a great success.

A number of other matters have been raised in the Committee that I think the Minister in the chair, the Hon Phil Heatley, needs to take a call on. He has stood only once, to respond to some very serious questions that have been raised by members of the Labour team; they deserve to be answered but, sadly, they have not been.

Hon SHANE JONES (Labour): These speeches are focused on Part 2 of the Electricity Industry Bill, unlike the earlier contribution, which was both unwise and irrelevant, from that member residing in—

Aaron Gilmore: Canterbury, my friend.

Hon SHANE JONES: Ōtautahi. I will not repeat the foolishness of what he said, in the sense that he is blaming all sorts of ills on the Resource Management Act. No, if any applicant wants to dam a river and gain further access to what is rapidly becoming a Māori resource, that of geothermal energy, then the process has been laid out. We would not know that from the Māori Party, whose members are busily lost talking about pearly shells on the seashore—the seashore that they will never ever own, despite having misled our iwi—but I will say more on that at a later time.

If any applicant wants to come forward and seek statutory consent, I say that the process has been laid out. Indeed, members on this side of the Chamber agree that there was worth in improving the ability of central government to handle consent applications that related to resources that might have cut across multiple catchments. However, that does not overcome a number of the weaknesses in this bill. I will direct our attention to what my colleague Mr Parker was talking about, which are the statements of Government policy. It seems to me that the Minister of Energy and Resources, with his booming rhetoric, left the impression with his colleagues that these changes would significantly improve the ability of industry participants to offer power in a more sustainable fashion and at a more efficient price. But this bill is inversely related to his rhetoric. In addition to that, the legislation goes on to say that the Minister may request a review. Part 20(2) states that the Minister, upon requesting a review, “must consult the Authority”. That got me thinking about who would be on that authority. Who will be the individuals deemed fit, proper, and suitably skilled—

Aaron Gilmore: Shane, are you looking for a job?

Hon SHANE JONES: I can assure the member that after the meltdown of ACT and the taint that will attach to his party, the tail-enders on his list will be looking for a shovel to dig up the offal in Christchurch and he will be in the queue. I daresay that the level of interest he shows in this bill should be improved, as he may be fortunate enough—in the unfortunate event that this bill is passed—to be looked upon by the Minister for State Owned Enterprises.

The membership of the authority says that people must have electricity industry experience, consumer issues experience, and experience in business generally. Given that the Electricity Authority will be a pivotal feature in the new infrastructure, it seems to me that this may be an important issue for the Minister. Labour would not use this process, because we would repeal this wretched legislation. We would not allow this legislation to continue. It has been brought into this House on the strength of loud rhetoric, but it changes nothing in terms of the underlying causes. Those causes are causing a great deal of discontent amongst the voting public, whether they be of a manufacturing or a residential nature.

When the Minister of Energy and Resources makes a request for a review, he or she—whoever it is; it is unlikely to be the current Minister for much longer—must consult the authority. Will the authority have staff or a governance board that will be capable of pointing out the obvious foolishness, as we have seen earlier in terms of this Minister and what he has tried to do? Will it be independent? No, the legislation sets up a seemingly independent board, but this board can be crushed on a whim—driven, no doubt, by politics or vested interests—that may have set upon the Minister. Although the Minister may consult the authority, that Minister will get his or her way. How will the authority carry out any level of independence if, indeed, the actual members who are on the authority are not independent? Therein lies the difficulty with this restructuring, because several organisations will require appointees.

We have a history where people with conflict of interests have riddled this sector. That is why, as I said earlier, I personally look forward to the day where we no longer have this failed model of competition, the constant gouging of monopoly rents, and the ongoing calls from the ACT Party, discredited though it may be. However, I must say that the member from the ACT Party who sits in the Chamber this evening, Heather Roy, is not a discredited member. She is proof that her party members should stop reading books by Frederick Forsyth and should start watching Kill Bill, because in that movie the blonde came back.

I ask how independent the authority will be and what sorts of qualities this board of governors will show. Although it will be necessary for the Minister to seek appointees, we have to reflect on a deep concern that the direction this organisation will head in will depend on the blend and mix of skill of the appointees. If there is absolutely no one on the board who is either intellectually strong enough or capable of being a good advocate for mitigating measures in relation to carbon footprints, fairness, and sustainability measures, then we will have the same tired group of people who see these energy companies as their private playground. In that sense, we will not see an improvement in either price or sustainability. As members of the Committee said earlier, that is why a great opportunity has been squandered here.

I will carry on—perish the thought that anyone should think that Labour had not studied this bill to an exhaustive degree—by referring to clause 22, which pertains not to the Security and Reliability Council but, rather, to advisory groups. I imagine that the advisory groups will include people who have a genuine and longstanding concern about the quality of the resources that we are continually drawing upon. It will also increase the importance for Māori groups—iwi, and, indeed, other Māori environmental organisations—to pay close attention. They are unlikely to be considered an advisory group. Quite frankly, if our colleagues in the Māori Party had not been surfing on the seabed and foreshore and had focused on this incredibly important area of the development of our Māori people—the utilisation of those natural resource groups, which are used for energy generation purposes—then we would have seen a specific reference regarding those hapū and those iwi whose territories are proximate either to the geothermal fields or to the rivers and lakes. Of course, I would have included the wind in that list, but it is being consumed by the current Minister of Energy and Resources.

The absence of any of those Māori groups shows not only that there was delinquency and neglect on the part of our Māori colleagues in the Māori Party—and none of that comes as a great surprise to us—but also that these advisory groups are likely to be rendered useless and marginalised. There is no guarantee for the people who treat stewardship, the environment, and the connection between tangata whenua and their historical resources as their primary raison d’être. Those people have been written out of the script. They ought to have been included explicitly here. There lay an important distinction between our approach to energy policy and the Government’s approach. We suffered no doubts and there was no cavil on our side as to whether there should be a marriage between hard economic decision-making and broad sustainability considerations. That lay at the pith of the approach that we brought to natural resource management, especially towards the end of that great reign of energy policy. It may be said that these groups, the tangata whenua etc., can fit in in a generic sense, but it is very important that it goes on record that the architects have failed.

AARON GILMORE (National): I think it is not time to talk about blondes and Kill Bill or anything like that, particularly coming from that member who has just resumed his seat, Shane Jones, but to answer some of the questions that have been raised. We are talking about Part 2 of the Electricity Industry Bill. A review was set up and it found that there were problems with the electricity governance arrangements. We found that the dual regulation of Transpower was not working. We found that there was a lack of independence, that Ministers were meddling in governance arrangements in the electricity sector, and that there was very slow progress on rule-making. So what have we got? Part 2 is about replacing the Electricity Commission with an independent authority as an independent Crown entity. It is about the establishment of a Security and Reliability Council. That is what Part 2 is all about.

I will touch on two particular things. Firstly, I will touch on the issue of smart meters, which we heard about from the Opposition, and the worrying fear that this bill should do more with smart meters. Well, I tell members that in Christchurch where I live there are 140,000 smart meters in homes as we speak, with the ability to do all the swinging, singing things that those members want them to do in the future when the technology is ready, which I think is appropriate. We have had this debate in the House before and we decided that the best thing to do was set up the governance arrangements to allow that to occur in the future, not now. The technology is not yet ready. It is an idea whose time has not yet come.

The other good things in Part 2 are some of the changes and governance arrangements on lines companies, particularly the standardisation of tariffs and the ability for less bureaucracy and how that will work. I think that is a good thing. We heard from Nanaia Mahuta the issues about bureaucracy. I understand that at its last count the Electricity Commission had about 300 staff in relation to its management. I do not think that is a good use of taxpayers’ money in terms of the spend that was occurring. That was all funded by a levy on electricity users. So electricity users were paying more money in order to set up a bureaucracy to oversee the governance of the electricity industry, but, effectively, all it did was shuffle paper back and forth from the left hand to the right hand. We do not think that was a good idea and that is one of the reasons why Part 2 has been put into place: to tidy up the governance arrangements and make the sector work a bit smarter and more efficiently.

I want to also quickly touch on another aspect that the previous speaker spoke about, which is the issue of the appointments to the authority and the skills and expertise required. One of the issues we have is that the current governance arrangements are not independent. Effectively, the Electricity Commission is not an independent Crown entity. The new Electricity Authority will be an independent Crown entity—

Chris Hipkins: Where’s your proof of that?

AARON GILMORE: It is in the bill, I say to Mr Hipkins. The bill states that it will be an independent Crown entity. Mr Hipkins should actually read the bill, and maybe get his head around what the bill says. It says that the Electricity Authority will be an independent Crown entity. It will be independent of Ministers and independent of some of the meddling that has occurred. That was one of the reasons why electricity prices went up 72 percent under 9 years of Labour. That is one of the major reasons why we have put in this thing.

Briefly, I want to touch on some of the price changes that have occurred in the marketplace to date that this bill will help enhance. Where I live in Christchurch, Genesis Power is going around actively campaigning for people to sign up with it, giving people $200 or $300 price discounts on the expectation of this bill coming into effect. The governance arrangements that are in this bill are more efficient and will allow more competition, so that the likes of Genesis in Christchurch can compete for customers. Genesis told the select committee during the select committee process when these issues came up that it could not do a competitive continuation of those price discounts if this bill did not go ahead. That is the proof in the pudding that this bill will bring in lower price path increases, and that is what this Government is all about—reducing bureaucracy, reducing the price path for consumers, and putting in place less bureaucracy and more certainty for those companies out there that want to invest in new generation, whether it be renewable, which is what we have seen in many cases in terms of geothermal and wind generation, or whether it be in terms of other thermal support situations. I think that is a good thing.

Hon DAMIEN O’CONNOR (Labour): If the previous speaker, Aaron Gilmore, insists on getting up and making a contribution on the Electricity Industry Bill, I wish he would keep it accurate. He made two assertions. One was that the Resource Management Act hindered and stopped development of electricity projects, but he could not name one example. He was wrong. He then got up and said that the previous Government’s Ministers were interfering in the electricity market, but he could not name one incident. In fact, there are many of us who wished we had interfered a hell of a lot more, because that is probably what it needed. He went on about bureaucracy, reducing compliance costs, blah-blah-blah. I tell that member to look at what is in this bill. It sets up an authority, then a code, then it says that companies can be exempt from the code if they can prove that it will cost the authority less to implement, which pretty much means anyone.

Part 2, which we are discussing here, sets up a rulings panel. What does the rulings panel do? This is from the Government that has made so much noise and such a song and dance about reducing compliance and regulation, yet it will set up an authority and a rulings panel. What does the rulings panel do? It will “assist in the enforcement of the Code by—(i) hearing and determining complaints about breaches and possible breaches of the code;”. Let us ask why we should have this. Firstly, a company can be exempt from the code. If a company is exempt from the code, is it subject to the rulings panel? Does it have access to the rulings panel to take a complaint? There is no answer. The Government does not know.

Then there is the issue of whether the Commerce Commission or the rulings panel has priority in terms of a ruling over commercial negotiations or failure in commercial negotiations. Will the Securities Commission have a part to play in this or will the rulings panel override all of that? Mr Gilmore does not know and he cannot explain that, because the Government does not know, either. It is setting up a bureaucracy, a level of compliance, and a nightmare that will just further exacerbate the failings of the market structure that National set up in the late 1990s. This is just piling bad practice after bad practice—that is, the underlying belief that the market will deliver, but we need all of these other institutions and structures, such as the authority, for a start. Never mind that National thought the commission was unnecessary; it now needs an authority, then it needs a rulings panel. I ask Mr Gilmore whether, if he gets up and explains what the rulings panel will do, he can be more accurate than his assertion that previous Labour Ministers were interfering in the market or that the Resource Management Act was stopping or hindering the development of energy projects.

The facts are that there were some energy projects that were subject to the Minister of Conservation’s approval, and that is the way it should be. I know the National Government has indicated that it wants to take the Environmental Protection Agency’s projects of national significance and just run them through, which puts at risk a whole lot of rivers in this country. Maybe that member should go to the Wild Rivers presentation at Parliament tomorrow night. We are in favour of sustainable hydro generation, but if that National Government, as indicated, will railroad straight through all the processes for any big projects, then we may see the demise of many, many wild rivers in this country. That is not what the majority of New Zealanders want. We want good, sustainable hydro generation, geothermal, wind power—renewable sources of energy.

I come back to the bill. Having set up and got some generation, we now have a belief that many generators, many players in the market, will deliver the most efficient and effective electricity for consumers, be they big or small. I say that this legislation is basically flawed. That is why we do not support it. That is why we will continue to object and point out its failings, and point out the inaccuracies when those members get up and speak on this bill.

H V ROSS ROBERTSON (Labour—Manukau East): Tēnā koe, Mr Chairman. I am thankful for the opportunity to address the Electricity Industry Bill. First of all, I would like to acknowledge the members of the Finance and Expenditure Committee for the work they did in bringing this legislation back to the House, and those select committee personnel who also did such a sterling job. Scrapping the Electricity Commission is a move by the Government to improve efficiency. That is a laudable and commendable thing to do, but I have to say that I have seen it all before in the pursuit of productivity and best practice. It happens about every 20 years. The synopsis basically is that after a certain amount of time, the officials in charge—especially if everything is based in Wellington—say: “Let’s put things out into the community, where we get more direct contact and we can actually improve the efficiency of the resource we have back in head office.” Then about 20 years later they say: “Oh, things have got out of control. We have to pull it all back to Wellington so we know what’s going on.” It goes on and on.

The commentary to this bill states: “The Electricity Industry Bill seeks to reform various areas of the electricity sector, and is intended to increase competition in the electricity market and ensure security of supply.” There is nothing wrong with that; it is commendable. It goes on: “The bill would modify governance arrangements in the industry, provide for specific regulatory changes, and alter the overall structure of the electricity sector. Specifically, the bill would disestablish the Electricity Commission and replace it with an Electricity Authority,”. That comes back to the whole issue of the fact that it is about productivity and the pursuit of excellence in all we do. That is important, but this will not be the end. I guarantee members that in a number of years, maybe another 10 or 15, we will get changes again, because that is what happens.

I want to put a number of questions to the Minister in the chair, the Hon Phil Heatley. I ask the Minister what analysis has been done on the costs or benefits of the proposed relocation of roles amongst the authority, the Commerce Commission, Transpower, the Security and Reliability Council, the Ministry of Economic Development, and the Minister. What analysis? I tell the Minister in the chair to get up on his hind legs and take a call, instead of just sitting there and ignoring the Opposition. That is what the Minister is doing. He is refusing to acknowledge the concerns of the Opposition on this side of the Chamber, who have genuine concerns and want to know why the Electricity Commission is being done the way it is. What analysis? If the Government is going to scrap the Electricity Commission and replace it with two new quangos, that in itself can be seen as being inefficient. I ask the Minister to justify that to the Committee, to the country, and to the Opposition, who want to know. What research has the Minister carried out, what cost-benefit analysis has been done, and what benefits are there to the consumer? Surely, we want to see that we govern in the best interests of our consumers, our voters, because after all, as members of Parliament, we are supposed to be here to serve the public. I want to know whether the Minister in the chair will take a call and answer any of the questions that I have asked. I am asking those questions on behalf of my voters, my people, and I would appreciate the Minister taking a call, because they are important issues for members on this side of the Chamber—very important issues.

I will just finish with this, because I think it is important that we read it in. We on this side of the Chamber believe that the Electricity Industry Bill fails to address the major issues facing the electricity sector. It will not deliver even on the priorities that the Government has set out for itself. In fact, it is likely to exacerbate the problems we have, putting pressures on supply and electricity affordability. As Opposition members looking to become a future Labour Government, we are saying that we will repeal this legislation and replace it with a legislative framework that ensures New Zealanders have a secure supply that, one, is affordable; two, is price-predictable; and, three, can be produced and used sustainably. Those are the concerns we have, and I would appreciate the Minister taking a call and answering those questions on behalf of the people whom I represent in Manukau, South Auckland.

The CHAIRPERSON (Lindsay Tisch): The question is that Part 2 stand part, but before we do that, we have a number of amendments—

H V Ross Robertson: Take a call.

The CHAIRPERSON (Lindsay Tisch): I am going for the vote. The member should know that votes are taken in silence. He is a former Assistant Speaker; he should know what the rules are.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 17 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Noes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 18 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Noes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 35 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Noes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 45 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Noes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendments set out on Supplementary Order Paper 154 in the name of the Hon Gerry Brownlee to Part 2 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendments agreed to.

A party vote was called for on the question, That Part 2 as amended be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Part 2 as amended agreed to.

Part 3 Separation of distribution from certain generation and retailing

PESETA SAM LOTU-IIGA (National—Maungakiekie): I have listened this afternoon. I have listened to some pretty sour debate and I have listened to some pretty poor arguments. The Electricity Industry Bill is about reforming the electricity industry. I will just give the Opposition a little bit of history about what we are doing here and what this bill is about. This bill is in response to a review that was conducted last year. The review was done by a number of experts in the industry. The Electricity Technical Advisory Group was chaired by Brent Layton, and there were a number of other industry experts, like Professor Evans, Miriam Dean, Toby Stevenson, and David Russell.

We have heard a lot of rhetoric from across the Chamber. We have heard from Mr Hipkins that National said on the campaign trail that it would lower prices. That is factually incorrect. When I was campaigning in Maungakiekie, I said to people that we would limit price increases, which were prevalent under the previous Labour Government. As has already been stated by my colleague Aaron Gilmore, the cost of electricity went up by 72 percent over 9 years while inflation went up by 24 percent. What does that mean? It meant that it was three times the rate of inflation.

The CHAIRPERSON (Lindsay Tisch): We are on Part 3.

PESETA SAM LOTU-IIGA: I am just responding to some of the arguments—

The CHAIRPERSON (Lindsay Tisch): No, we are on Part 3.

PESETA SAM LOTU-IIGA: I am sorry, Mr Chairperson. I will continue. This bill is about security of supply. It is about affordability and sustainability, which is what Mr Hipkins has already referred to.

Hon Members: What does Part 3 do?

PESETA SAM LOTU-IIGA: Part 3 is right here. It is about the separation of distribution from generation and retailing. But I digress. If people think it is just National that is in favour of this reform, I tell them that it is not. I quote from a Press editorial: “Changes made by Labour”—

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member, but the time has come for me to leave the Chair.

Sitting suspended from 6 p.m. to 7.30 p.m.

CHRIS HIPKINS (Labour—Rimutaka): I am very happy to take a call on Part 3, which we have just begun to debate, following a very lively and informative debate on the first two parts. Part 3 is all about the lines companies. I think this part highlights the higgledy-piggledy mess that the National Government made of the electricity system, back in the late 1990s, when it tried to create an unofficial market in a situation where effectively there is a monopoly. Let us go through the history books. Before the electricity industry bill of about 1997, which I believe had the same name as the bill before the Committee, there were the local energy boards, which were responsible for distributing electricity to consumers, and the Electricity Corporation of New Zealand generated the electricity that was supplied.

Max Bradford decided that effectively there needed to be three main components to the market: the retailers, which would sell the electricity to the consumer; the lines companies, which would supply the electricity to the consumer; and the generators, which would create the electricity in the first place. There also needed to be competition in those markets. Obviously, in the case of lines companies, it is very difficult to create a market in that area, because they are monopolies. We will never have two sets of electricity lines running past every house and every business in the country. In fact, we would not even want to have two. It would not make any commercial sense to have a competing electricity grid. In a country like New Zealand, we are only ever going to have one electricity grid. In fact, I am not aware of anywhere else in the world—someone may be able to correct me—where there is more than one electricity grid. We need to be very clear about the fact that this is a monopoly situation. The lines companies are monopolies, and the transmission grid will be a monopoly, run by Transpower in the case of the New Zealand transmission grid.

If we are to say that we will have competition in the retail market and competition in the generating market, there needs to be some separation between those two markets and the natural monopoly that is the lines company. So Max Bradford said that the energy boards had to decide whether they would be lines companies or retailers. If they were to be retailers, then they needed to divest themselves of their lines businesses, and vice versa. We therefore ended up with separate lines companies, separate retailers, and separate generators. Of course that did not result in what Max Bradford promised everybody. He promised them that it would lead to lower power prices. In fact, we all know that over the last 12 years power prices have continued to rise by a substantial amount.

We are now faced with deciding how to deal with this situation, and what improvements can be made after 12 years of the operation of the market. Labour supports moves to get increased retail competition. If that helps to lower prices, that has to be good for consumers—the ones at home who will be paying their power bills. They have seen their power bills rising, and will be asking: “How can we lower our power bills? How can we get a bit more money back in our own pockets, not give it over to the power companies?”. Increased competition in the retail market may well help with that. However, I am not convinced that allowing lines companies back into the retail market will deal with that problem, because of their monopoly status. Some of the evidence presented to the select committee was that if a lines company is allowed to enter the retail market, far from increasing the number of players in the retail market in that area, it could distract other retail competitors from entering that market because of the way the lines company could have a monopoly in that area in supplying both the product, if you like, and the delivery mechanism. I am not convinced that this will make a difference. I am not convinced this will lower the price of power.

Hon John Carter: Have faith.

CHRIS HIPKINS: That is what Max Bradford said, I say to John Carter. Max Bradford said: “Have faith. I know what I’m doing. It’s all going to be all right. We’re going to have lower power prices.” And what happened? Power prices went up exponentially because of what Max Bradford did. He divided a monopoly. He tried to create a market where there is really a monopoly. It is very difficult to do. There can be only one set of lines, and there will be only one transmission grid. Max Bradford, as John Carter just said, told us that we all had to have faith in the market, and the market would deliver lower power prices. It did not do that.

The question becomes: what do we do about lines companies at the moment? Do we allow them back into retailing? What other commercial opportunities are there for lines companies? Lines companies could be focused, first of all, on making sure their infrastructure is up to date, making sure they are replacing the power lines, and so on. A good comparison is with the rail industry. We sold off the rail network in 1993, under the then National Government, and during that time the overhead power cables that power the rail network were not maintained at all. In the Wellington region, by the time the Government bought back the rail tracks, in 2003, the power network supplying electricity to the trains was so badly run down that in the last few years it has effectively had to be completely replaced. Why do the lines companies not focus on doing that, on making sure that they are providing a network that will deliver security of supply to households in the future?

We have seen examples where things have gone wrong. It took a failed D-shackle to wipe out the power supply to a large chunk of Auckland for several days. Clearly, maintaining the lines is what the lines companies should be focused on. They should be focused on making sure that when people go home, turn on their light switch, and put a pot on the stove, the power will be there—that they will be able to do those things. Electricity is so fundamental now to what we do on a daily basis.

There are other commercial opportunities for lines companies if they want to look at expanding their businesses into other areas. There is the opportunity for lines companies, for example, to get involved in telecommunications, particularly in broadband. There must be opportunities there, if they want to get involved in broadband. I know the Government has stalled with where it is going with broadband at the moment. We are not making anywhere near the progress that is being made in Australia, when it comes to broadband, but that is because Australia has a Labor Government and we have a National Government.

There are plenty of other opportunities for lines companies, in terms of where they could diversify their businesses if they want. I am not convinced that allowing them to move into the retail market will increase competition. In fact, as I said before, allowing lines companies into the retail industry could put off other providers from entering into that market.

To recap, this bill repeals part of Max Bradford’s ideological separation of the generators, the lines companies, and the retailers. It allows the lines companies to enter into retailing under certain conditions. There will be restrictions on the amount of electricity they can supply, and so forth. Overall, however, I am not convinced that it will make much of a difference. Thank you.

Hon DAVID PARKER (Labour): The history of Part 3, as Chris Hipkins has already touched upon, is that after the Max Bradford reforms we went through a period when lines companies were left unregulated. A terrible mistake was made by the then Government, which assumed that if there was a monopoly there could also be competition that would somehow constrain price increases, and that companies would act appropriately. History, sadly, now shows that that was wrong. The lines companies did increase their prices but they did not invest in their infrastructure. This was not true of all lines companies around the country, but it was true in respect of some of the lines companies. They increased their prices to consumers, but rather than spending a fair proportion of the money they collected on investment in their lines, they distributed it to their owners, which were sometimes councils.

As a consequence, consumers have ended up paying twice. We were left with rundown lines companies, and the Commerce Commission, which was subsequently appointed as a regulator of the lines businesses, came in and regulated their returns. But the commission found that with some of those companies, the cupboard was bare. Although those companies had collected revenue over the years that should have been spent on their lines, they had not spent it on the lines, and consumers were effectively forced by what had happened to pay a second time, and to pay extra revenue to the lines companies. That second time, under regulation from the Commerce Commission, payment was required to be spent on the maintenance, replacement, and extension of the companies’ lines capacity. When I was Minister of Energy, that state of affairs was explained to me by officials and, indeed, by members of the Commerce Commission, who acknowledged that that had happened in respect of some lines companies.

There is no doubt that that was a mistake, in my view, and that Parliament under the previous Labour Government was right to introduce regulation of returns for lines companies, because they are absolute monopolies. We have only one set of lines, and the decision to allow that industry to be deregulated was always misguided. The risk in respect of a monopoly enterprise like a lines company, if we allow it to enter into other parts of the electricity market, is that it will cross-subsidise parts of its business using its monopoly rights as a lines operator. The tension that regulation of other activities by lines companies attempts to control concerns the risk that the company will use its lines revenues to cross-subsidise either its retail margins, if it is in retailing, or its generation businesses, if it moves into generation.

Those risks are different, depending on the ownership structure of the trust, and I would like to hear the Minister in the chair, the Hon David Carter, talk about what he sees as the difference between council-owned companies and cooperatives, which are effectively owned by the people who buy electricity from or through them. Those lines companies are owned by local communities. If a monopoly rent is being extracted, there might be some misallocation between users, but in a general sense the money is going back to the community if there is any excess in prices. I am less worried about those ones. But some of the companies are not owned in a cooperative sense like that; they are owned by councils. Councils use them as a source of revenue, and they try to maximise that in a way that defrays rates. At one level we can see why they would want to do that, but we can also see how that could act to the detriment of electricity consumers, who have a different interest: they want to pay a fair amount only for their electricity.

One of the concerns that I have about that is the change in the amount of electricity that will now be able to be generated by a local lines company before it has to have ownership separation of its generation business from its lines business. In the original bill that went to the select committee, the limit was proposed to be 100 megawatts, but the bill has come back with the recommendation that a lines company can have up to 250 megawatts of generation, directly connected to the national grid, before the company has to have ownership separation. That is a lot of juice; that is more than 1 year’s increase in demand for New Zealand’s electricity. We are talking about a substantial amount of electricity, so I ask the Minister to take a call and tell us whether the Government is convinced that it will be protecting competition in the market.

I think we could argue about the answer to that question. On the one hand, it would be nice to have a few more people competing in investing in generation; that makes some sense. It is going back to the old model we had before Max Bradford, where we had local council-owned companies that generated, retailed, and ran the local lines company. On the other hand, we are still maintaining the fiction that this bill will result in an effective market for the sale of electricity, at wholesale and retail levels, that will effectively constrain price. I remain unconvinced of that.

I would be interested to hear whether the Minister can tell us from the chair whether any modelling has been done about whether this extra generation capacity, which will come potentially from lines companies, will have some impact on the differential between residential, commercial, and industrial tariffs. The tariff that is paid by residential users in New Zealand has grown. The gap between that tariff and the tariffs paid by industrial users has grown very large over the last decade, and I for one find it hard to explain. I have concerns that it is a pointer to there being insufficient competition in the market, which leads to inappropriately high tariffs being paid by residential consumers.

I would also like to hear any information the Minister can give us about whether there are plans by local companies—that is, by the likes of the Alexandra example I gave earlier. I know that Pioneer Generation is situated there. Pioneer Generation is, I think, owned by a community trust, and it owns some generating assets there, yet that does not seem to have had any effect on retail tariffs for those people in Alexandra, who not only have the Clyde Dam, which I spoke about, and the Roxburgh Dam on their doorstep but who also have smaller schemes in and around the Central Otago area, run by Pioneer Generation. Despite all of those generation assets just being on the doorstep, those people are paying a higher tariff than people in most other parts of the country. So I would like to hear from the Minister what the impact of the increasing generation by that local lines company will be on tariffs for those people, and whether there has been any research or estimates done about the effect that will have on price.

My suspicion is that it will not have much effect. Actually, what would have a greater effect would be for the Government, through its State-owned enterprises, to say that it had a lower expectation about the rate of return on those assets. That would accord with what the Governor of the Reserve Bank was calling for about a year or a year and a half ago, when he said that the expectations of infrastructure companies about profitability were excessively high. That feeds into my concern that there is insufficient competition in that particular market, and that this tinkering with the market will not make a material difference to that state of affairs. As a consequence, the price paid for power, especially by residential and small commercial customers, will remain higher than is justified, which is to their detriment.

I ask the Minister in the chair to take a call and tell us what estimates have been made about the extra generation that will come from these lines companies. I also ask what reports the Minister of Energy and Resources has received about the effect that generation will have on prices at both wholesale and retail level for residential consumers and small commercial consumers.

Hon DAMIEN O’CONNOR (Labour): I rise to speak because I know that the Minister in the chair, the Hon David Carter, does not have a clue about this, and will not get up and answer the queries put by the previous speaker, the Hon David Parker. None the less, I will do my very best to offer an opinion.

Part 3 is the political part. In the late 1990s, when separation was forced upon the lines companies, a whole lot of staunch National Party supporters were deeply offended that although these good people had worked for their communities, protected, built, and nurtured these lines companies—some companies taking on board generation when necessary—“Mad Max” and his mates in the National Government in the 1990s came along and said to those companies: “You’ve got to get out of that. You’ve got to separate, because the market is going to deliver to you and you’re not allowed to be in both areas of the market.” And it was a disaster. Those people were deeply offended. Some of them voted for Labour and put us into power in 1999. I know they still feel deeply offended, and Labour moved to address some of their concerns. I acknowledge that this bill opens up the opportunity for more of those companies to have more substantive generation and some vertical integration. I think the commentary on the bill states that it not be too much, so as to allow monopolistic behaviour, on the basis that the market still has to operate and deliver all these wonderful benefits to everyone.

That aside, the bill allows sensible realignment in areas and particularly in some rural areas. I know that the West Coast in particular had Westpower, a wonderful integrated company. It was forced to sell out. I think that something like $40 million was realised by the community. The trust at the time asked what it should do with the money. It was a real dilemma for the people who had built up those assets to provide secure electricity to the community. There was very good infrastructure, and the company upgraded the lines system. Any surplus that was generated went back into the infrastructure. It was a very smart model. None the less, “Mad Max”, the Hon David Carter, and his cronies forced separation. The company then had to divest its generation capacity. I know that on the West Coast they got about $40 million. Then the trustees—and I say they were wrong—thought: “We don’t have a mandate to continue to manage this for the community. We’re a lines company, so we must distribute this to each and every consumer.”, and it did.

Some retailers did quite well out of that distribution. Some people got $1,500 or $2,000—a little bonus. The money went “poof”. It was spent. Then, lo and behold, within a period of 2 years, and when Labour was in Government, I had that same company knocking on the door, saying: “We need some capital to upgrade the line into the West Coast because there is going to be growth in industry”, and indeed there has been. It has been an amazing success story. The point is that the stupid ideology that drove the National Government in the 1990s forced that trust to divest the generation capacity and forced it, the company thought, to divest the capital. So that company is now building back up. I know it will make use of this new provision, because it already has some generation initiatives under way, and that is great. The company will be able to align the generation and the distribution network. That is sensible, but it has taken the National Government a while to learn. Its members are slow, slow learners.

Unfortunately, other provisions in the Act that still rely on the market to deliver a great outcome will be flawed and will fail. But there will be some areas where I am sure that as those lines companies are still owned by the community, they will for the most part manage that for the benefit of their community. Often in Wellington, I am afraid to say, the officials in Treasury and in the National Party do not understand that there is a huge amount of goodwill in many rural parts of the country. People do not work just for self-interest; they work for the good of their community. The people who did this through the 1970s, 1980s, and 1990s, to build up those strong and robust lines companies distributing secure supply, were deeply offended when the nerds in Treasury and the nerds run by the National Party said: “You’re going to divest this and throw yourselves out into the market.” Well, I guess this is some token acknowledgment of the mistakes made then. We are allowing—and indeed the select committee raised the threshold—some vertical integration to occur, and that is good. But, as I said, it is a sad, sad state that it has taken too long.

I read through Part 3 and I raised in the Committee debate on Part 2 the issue of the bureaucracy that we are setting up. This is the Government that decries the previous administration and all the bureaucracy and compliance costs. Under the provisions of Part 3, the High Court is now playing a part in the system. We had the authority set up, then we have the rulings panel to deal with disputes for those who may or may not be using the code, depending on whether they have been given an exemption, and now we have in clause 85: “If the High Court is satisfied, on the application of the Authority or any other person, that a person has breached a provision of this Part, the court may give directions ordering a person in breach to renegotiate any agreement …”. Now we have the High Court playing in the arena.

Then in clause 87 we see a reference to the Commerce Act 1986, which is fair enough; it pervades most of our legislation. So we have the Electricity Authority, the rulings panel, the High Court, and the Commerce Commission. What a dog’s breakfast, from a Government that says it will simplify everything and will get rid of compliance. I ask who will pay for all of this. Who? It will be the consumer. Will it be the big companies? No, no; they will always be able to negotiate a better deal. What about the small consumer? Who has been looking after their interests? Well, the National Government never looks after the interests of the small people. Look at the tax cuts. It is $1,000 a week if one is earning $1 million a year. If one is earning $30,000 a year, it is about $3 a week. That is what the National Government calls fair.

Well, unfortunately that is the philosophy driving this legislation also. We do not trust the complexity of this legislation to deliver fair deals and fair electricity prices to New Zealanders, and certainly not to people on low incomes. That is why we do not support the legislation. That is why we will continue to point that out. I am sure that not too far down the track we will be able to say “We told you so.” The same idiots who said that deregulation and market forces would reduce the cost of electricity in late 1990s have come back to us saying that they did not really mean it. It was said at that time as justification. What we are seeing here is the Minister and National members saying that this bill will improve the electricity industry and deliver better outcomes.

I do not believe that for a moment. I feel sorry for the officials, as they have to work within the constraints of flawed ideology run by the National Government in all of these areas. I ask the Minister in the chair—a slightly smarter and higher-profile Minister, Dr Jonathan Coleman, is in the chair now—whether he can explain how the Electricity Authority interfaces with the rulings panel, and how the High Court can intervene in the issues of separation and the thresholds around how much electricity is generated. Of course, that will change from year to year, I guess; I am not sure. I am not quite clear on whether the 250 megawatts is maximum capacity, or is that average capacity? Maybe that is one of the questions the Minister can answer. Of course, the Commerce Act 1986 is overriding all of this. That Act states that we have to make sure there is fair competition. Well, it has not ensured that there is fair competition. We have had rorting, we have had price gouging, and it has been identified—

CLARE CURRAN (Labour—Dunedin South): I am addressing Part 3 of the Electricity Industry Bill, which allows lines companies to retail in their local areas. I will just reference what my colleague Damien O’Connor said about the small consumer, and fair deals and electricity prices. I will also reference what my colleague David Parker said about insufficient competition in the market, monopolistic behaviours, and the effect on consumers.

Essentially, the way this industry will operate under this bill means that the residential cost of electricity will remain too high. Ultimately, this issue is one of affordability, and that is affordability in a whole range of different things. I will tell members what it is like for the people in my constituency at the moment with regard to affordability, or the lack of affordability. When we think about what the potential is for where this industry could be going and for the other things that it could be doing, which is also about affordability, we see that there is a lot of potential.

Today I will share with the Committee that I heard from a major social service agency in Dunedin, which talked to me about what it is really like for families in Dunedin right now with regard to the affordability, or the lack of affordability, of electricity prices. The social service agency administers the community electricity fund that is run through the Dunedin City Council on behalf of all the local organisations. It told me that this winter it has been inundated with inquiries and queries, and its staff have been working all day, most days, on requests from the public relating to power. It says that it is only one agency and, although it sees a lot of applications, other agencies are having their own appointments with citizens throughout the winter. Frequently they say that it is not uncommon for people to be coming in with power bills of more than $1,000 for a month. That may sound extraordinary to the Committee, but it is not; the median power price for families in Dunedin, and in other places in this country that are cold in winter, is about $400 to $500 a month. My colleagues have talked about the lack of ability of people to pay these bills and the indifference of the Government towards measures to address the problem.

It is interesting that during the election campaign, we had National members saying that we must lower the price of electricity, but now that a bill has come into the House, it will not actually address that issue at all. Many of these people are families. A number of other people are living on their own and their bills are not as high as those for families, but their bills are up around the $300-a-month mark and they are on fixed incomes. The organisation that I spoke to today gives grants of up to $200 through the community electricity fund, but it certainly cannot address many of these people’s needs.

I will quickly talk about the future of this industry and address the issue in Part 3, which relates to allowing lines companies to retail in their local areas. Although Labour supports having increased retail competition, we believe that allowing lines companies back into the retail sector will ignore the problems that arise out of their geographic monopoly status, and it may actually reduce competition rather than increase it. One of the options that I know my colleagues have talked about is whether electricity lines companies could be the bearers of other services to households, such as broadband, which is probably a more efficient use of their networks. It could be about investigating and eliminating barriers to entry into the retail sector, which would be a better way of introducing competition.

When we think about the future of this industry, which is a network industry, we know that our networks in New Zealand are critical. The newest network that we are looking at introducing is broadband. There is support pretty much across Parliament around the importance of our new broadband network, if it ever actually appears, and there is a lot of talk about how that will be delivered. Several ways have been discussed by the industry about how to do that. One of them is through our national telecommunications company, Telecom, which is a competitive monopoly, and the other way involves asking whether the electricity lines company should have a role. I will briefly address that matter, because there are some signs that the electricity lines companies have a significant role to play in this, and this could be about where their future lies in terms of how to deliver the newest network to the country. It would seem to be that instead of having fierce and, to some extent, contrived competition, which is raising the price of electricity for the ordinary citizen, we should look at how lines companies could have a better role in delivering broadband to the country.

Recently there has been an announcement by the Government that could potentially be positive relating to how the lines companies can deliver broadband to New Zealand. Three organisations that are lines companies are in discussion with the Government. One is in Northland, one is in the central North Island, and one is in Timaru. The major issue that the country, and certainly the telecommunications industry, is grappling with at the moment is whether we will be looking at electricity lines companies delivering broadband, or whether that will be done by a monopoly such as Telecom.

If we are really looking at the future of how New Zealand can move forward in this area, and not looking at having higher electricity prices for the ordinary citizens of New Zealand and increasing the pressure that is being put on families and our older citizens, then this is the area where the Government should be. It would be good to have some response from the Minister today on that issue, and on whether the Government believes that this is a viable place for it to be moving towards.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): I rise to speak to Part 3, subparts 1 and 2, which allow lines companies to retail in their local areas. If this part was considered in and of itself I can see that a number of elements would be very attractive to lines companies. In fact, I expect that many lines companies will welcome the opportunity to retail in their particular area.

I will comment briefly on what that landscape will look like. The primary motivation, obviously, for lines companies who get into this will be to deliver back a benefit to their shareholders, many of whom are electricity users. Some companies will see quite a strong motivation to get involved and ensure that the benefits not only go back to their shareholders but strengthen the infrastructure within their local areas.

My colleague Damien O’Connor spoke earlier and made the point that this part could well be a benefit to, and opportunity for, rural communities. I expect that it could be, but it will not be through increased competition in some of those areas; it will be because there is a strengthening of the role of lines companies. In Hamilton, for example, I am sure the same could be said: energy networks will relish the opportunity to retail in that area. More significant, I can see that they will invest back into infrastructure. Lines companies are critical to ensuring that local infrastructure is invested in, and is strengthened to be able to deliver electricity to households. In fact, again, they could actually be the critical part in ensuring that hospitals have improved infrastructure in their areas as well.

If this part was considered in and of itself, I can see that a lot of benefits and opportunities could be delivered to the consumers who are also shareholders of particular lines companies. However—and this goes to the substantial debate—nothing in the Electricity Industry Bill deals with the issue of fairness to consumers. We have raised that issue consistently through the debate and we believe that the Government should recognise it. Overall there is a huge differential between domestic and industrial tariffs, and there is a huge differential in terms of the increases on domestic households. We know that there is pressure already on their household prices, and the bill overall does not address that. We would like the Minister in the chair, the Hon Dr Jonathan Coleman, to simply respond in terms of showing how the bill will address these types of differentials, ensuring fairness exists in the market, and explaining in some detail how competition will deliver back a benefit to the domestic consumer. That is the nub of what this bill will be tested on—whether it will deliver those types of benefits.

As I said, overall there can be a lot to gain from increased retail competition, but we should not see it as the answer, because it exists within a wider matrix of changes that the Government is introducing. Those changes do not address the issue of environmental sustainability of electricity generation, do not address the issue of fairness to consumers in terms of pricing, and do not give any sense about whether the Government will show leadership in tackling the huge differentials between domestic users and industrial users. We think that that will become the litmus test for reform in the electricity sector.

More important going forward, the Government has not signalled, either in the draft energy strategy or the Energy Efficiency and Conservation Strategy, what it will do to continue to show leadership in investing in renewables. We put that major challenge to the Government to ensure we will have a future where we rely more on renewable energy rather than on thermal generation. Also, in the area of security of supply I think it is notable in this part of the debate that the Government has increased the effort in terms of investing in the upgrade of the grid through Transpower. I definitely applaud that investment; I think it is long overdue.

I come back to Part 3. As I said, Part 3 cannot be considered in isolation from the whole bill. Overall, the bill will be tested on the areas I described. It will afford opportunities to particular lines companies; I do not doubt that. I think those lines companies can see the advantages in playing a strengthened role in the retail sector, which will deliver some gains to their shareholders, who can also be consumers. It will also reinvest back into the lines network and infrastructure, but lines companies have been doing that.

My colleague Clare Curran raises a very important point about ensuring that lines companies are part of the broader roll-out of broadband, but that brings its own difficulties. We do not want to get to a situation where, when we are looking for an integrated, seamless roll-out of broadband, we have no strategic overview of how it will work in practical terms across different lines companies, especially when we are talking about the roll-out of rural broadband. There are resource management issues that need to be addressed, I suppose, and there will also be some more technical aspects of that particular task to consider.

Notwithstanding the issues I have raised, a number of challenges and pertinent questions have been put to the Minister by members of the Labour team. Although the Minister in the chair may not be able to respond, I hope the questions are being noted so that when the responsible Minster sees fit to respond to those questions, he is able to do so. We believe that at the end of the day the litmus test for this bill, in terms of the structural reforms and the governance solutions it is proposing, will be whether it delivers cost benefits to domestic consumers, lessens the differentials between domestic consumers and industrial consumers, and ensures predictability of pricing over the long term.

I hope, and I sincerely believe, that the Government will think about showing leadership in terms of the sustainability of electricity generation in our country, because that leadership is sadly missing. Fairness is missing in this bill, and it needs to be addressed if the Government is serious about the issues that matter to New Zealanders. What hurts people in the pocket will be the real test. Electricity prices are far too high—far too high—and it cannot continue.

STUART NASH (Labour): I stand in the Committee stage to talk about allowing lines companies to retail in their local areas. There are only two points I would like to make with regard to that, so this will not be a long call. The first point is about competition and the second is about monopolistic powers. I am all for competition, especially in an area that has the potential to drive down prices in an absolutely essential service in this time of recession, when families are really, really suffering. On 1 October power prices will increase by at least 2.5 percent, in line with GST. There are families out there, as my colleague Ms Curran highlighted before, who are facing $1,000-a-month power bills.

Hon Nanaia Mahuta: How much?

STUART NASH: $1,000 a month. That is unbelievable and totally unsustainable. Any form of competition that would reduce power bills of that level—in fact power bills of any level—is something I am all for. Let members make no bones about that. The Labour Party is all for competition in the areas that open up markets and reduce costs to ordinary, hard-working consumers. But I do have one concern about this. I wonder whether the Electricity Industry Bill will actually allow that. I note that the ministerial review concluded that lines businesses should be able to retail in their local areas, but I also note that it said there were monopolistic concerns.

Let me give an example of this concern. The first-ever political campaign I was involved in was something called the Auckland Energy Consumer Trust. This is the trust that owns Vector power lines. I stood on a ticket called Powerlynk with some very able local body politicians, and we ran a policy of 100 percent community ownership. When a lot of the power companies and lines companies had been disestablished and put into community trusts, and had been sold, the Auckland Energy Consumer Trust remained in community ownership. It was a great model, because it gave dividends to every single consumer. A cheque went out every year. It was a wonderful dividend that helped a lot of people who were really struggling to pay their power bills. But what happened? A right-wing organisation stood against us—it was part of the Citizens and Ratepayers Now ticket—and said: “We will not sell your power lines.” We said: “Hold on a second. Something is going on here. They said part-privatisation was not bad, but their campaign slogan is that it will not sell your power lines.” What did they do? They got elected on that promise, and they immediately sold 24.9 percent of Vector. I will tell members what happened when they did that. The sort of non-profit benefits that go with 100 percent community-owned organisation were really scaled down. I am talking about things like undergrounding. Undergrounding costs a lot of money. There is a non-profit motive, but it adds significant benefit to the communities. That was scaled right back, because as soon as we sell down these organisations into commercial ownership, the profit motive becomes the top priority.

That is what we do not want to see here. I have huge concerns about this. Within the Powerlynk ticket, on which I ran, we had philosophical debates about whether we should push for the lines company to enter the retail market. It was our fundamental belief, and it was Labour’s fundamental belief—we were in essence a Labour-led ticket—that a monopolistic organisation could be created and it would in fact not create benefits but take benefits away from consumers. Once we get a natural monopoly, especially in a country the size of New Zealand, in an area like electricity, where there is a small population and wide geographical area, then the barriers to entry become incredibly high. So we do not necessarily get competition; competition disappears and it is not replaced. Once that monopoly is there, it is extremely hard to control prices, because without competition the only thing we can do is legislate. So I have grave concerns about this, and they have been spoken about by my colleagues.

The Hon Nanaia Mahuta spoke about the lack of infrastructure development, as did Chris Hipkins. We have talked about—I do not know when it was—a D-shackle failure, and this was in terms of a lines company that was not putting sufficient effort into maintaining the infrastructure that carried electricity to the city of Auckland.

In the First World country we pride ourselves as being, if we do not have the electricity infrastructure running at 110 percent then there is no way in hell we will ever get overseas investment coming into this country to provide the direct foreign investment for jobs and the necessary resources to grow this country sustainably, and that is why I have concerns. Vector should concentrate—lines companies should concentrate—on providing an exceptionally good service to retailers, but if that disappears, if the lines are blurred, if they are owned by the same company or the same group of shareholders, there are monopolistic concerns, and that is not good.

In conclusion, I will sum up my two points. First, I am all for competition in a market where it has the potential to reduce prices. That is of absolute necessity to consumers, and I am absolutely for competition. My second point is that I do not think that Part 3 will provide that level of competition going forward. If this measure is implemented then in 10 years’ time we could well see a monopolistic structure that drives away competition rather than create it. When we drive away competition and end up with a monopoly we have no power whatsoever over pricing for hard-working, struggling New Zealanders who need electricity to heat their houses, to run their water cylinders, and to live. Thank you.

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of Hon Gerry Brownlee to Part 3 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 67

New Zealand National 58; Māori Party 4; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendments agreed to.

A party vote was called for on the question, That Part 3 as amended be agreed to.

Ayes 67

New Zealand National 58; Māori Party 4; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Part 3 as amended agreed to.

Part 4 Industry participants and consumers

CHRIS HIPKINS (Labour—Rimutaka): I am very happy to take a call on Part 4, which essentially deals with security of supply. I will run through some of the provisions contained in this part, but, first of all, I want to pick up on some of the comments the Minister of Energy and Resources made in his very brief remarks when we began the Committee stage. The Minister talked about security of supply and the fact that we had several years of shortage during the tenure of the last Labour Government. Of course, I contend that that was all the previous National Government’s fault, because it created the mess in the first place when Max Bradford scrambled this particular egg. What is really interesting is that Gerry Brownlee used the prospect of further supply shortages as one of the justifications for some of the changes in this bill.

Let us go back to what Gerry Brownlee’s ministerial review said about the prospect of security of supply issues. The review stated that overall it is clear that sufficient investment has taken, and is taking, place in new generation. So there is no justification to say that there will be security of supply concerns because sufficient investment is not taking place. That is the first point, and I think it is really important that we do not buy into the rhetoric that there will be huge shortages because insufficient investment in new generation has taken place.

The ministerial review also found that it is in the market’s best interests—in the interests of retailers and generators—to talk up the prospect of shortages and to run savings campaigns in order to lower spot prices. It is in their financial best interests to create the impression amongst consumers that there will be a shortage, so that they can keep spot prices lower. In fact, that is also the position of some of the larger users. They wanted to see spot prices lowered, as well. That basically means that we create a perception of a shortage in order to move the burden of lowering spot prices on to domestic consumers. I do not think that is necessarily right. We have to keep that in mind when we talk about security of supply, because it is in the market’s best interests to create an impression that there will be security of supply.

This bill removes the reserve energy scheme put in place by the last Labour Government—the Whirinaki power plant. Let us think about that for a moment. As we have mentioned time and time again on both sides of the Chamber, the weather plays a huge part in the New Zealand electricity system. Hydro lakes and wind make up the bulk of our electricity supply. Therefore, it is prudent to have some reserve capacity that can be called on when the hydro lakes are low, when the wind is not blowing, and when the pressure really comes on to have some reserve supply. The incentives for the market to supply that reserve energy simply are not there. If people want to build a 400 megawatt power plant, they will want it to be operating the whole time. They will want to get the maximum dollar they can get out of their investment. They will not invest in a 400 megawatt power plant that will sit there and be used only occasionally. There is no incentive for the market to do that. The Labour Government recognised that need and invested in the Whirinaki reserve energy power plant. This Government is doing away with that. It is giving the power plant to Meridian Energy, and that creates some other issues. Meridian has built its entire branding and its entire strategy on being 100 percent renewable, but it is being made by this National Government to take a gas-fired power plant. With the stroke of a pen, suddenly Meridian’s clean, green 100 percent renewable brand is down the toilet, because the National Government is forcing it to take a gas-fired power plant. That measure also removes the reserve energy scheme altogether. If I was the chief executive of Meridian, and the Government had made me take this power plant, I would probably sell it. Why would Meridian want to keep a gas-fired power plant if it was going to fundamentally undermine everything that the company had set out to do in establishing itself as a 100 percent renewable electricity company? It is quite conceivable that the Whirinaki power plant will end up being sold if Meridian is forced to take it over, which is exactly what this bill does. It is something we need to consider very carefully. The ministerial review recommended doing away with the reserve energy scheme. We do not agree with that, so we do not agree with Part 4.

I want to talk about the compensation regime that this bill puts in place. The Government has said that if there are going to be shortages and conservation campaigns in future years, then electricity companies should have to pay consumers some compensation. The Government has fixed that compensation at the grand sum of $10 a week per account holder. If consumers are asked to reduce their electricity consumption, they will get $10 a week in compensation. Actually, the Finance and Expenditure Committee was presented with some quite compelling analysis that showed that in the context of the huge profits that electricity companies can make when there are shortages of supply, $10 a week per consumer is trifling. Being required to pay consumers that amount of compensation will not incentivise electricity companies to invest in conservation schemes. So I ask how we can make sure that electricity companies are investing in sufficient generation capacity to ensure that there will not be supply constraints in future years. Actually, this bill goes the opposite way, and this debate forces it to go the opposite way.

TrustPower said in its submission to the select committee: “The uncertainty created by the industry shake-up”—that is, Gerry Brownlee’s industry shake-up—“was likely to have a chilling effect on private electricity generators’ willingness to invest in new electricity plant, raising the prospect of shortages again within a decade.” So the Government says that it wants to have a market, but the market is constantly being rearranged all of the time. That removes security from the system and, therefore, disincentivises generation companies from putting in place the investment that we need in further electricity supply, and that is more likely to result in security of supply pressures.

I want to move to what Ari Sargent, the chief executive of Powershop, said in a blog before Gerry Brownlee made him take the blog down. Ari Sargent was talking about the Tekapō A and B asset swap, which is dealt with in Part 5 but has direct reference to Part 4, which talks about security of supply. Ari Sargent said: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers, particularly in the South Island,”. So that is from Powershop, and I place quite a lot of store in what it is saying. It is one of the most innovative electricity retailers in New Zealand, and I think that it has established a really exciting market model. It is saying that the changes in this bill will not actually increase the security of supply in New Zealand. Of course, it is not surprising that we are having this debate, because once again we are seeing more and more evidence of Gerry Brownlee pushing ahead with something that has no analysis to prove it will work. No analysis has been put forward of whether the requirement for generators and retailers to provide compensation during conservation campaigns will actually reduce the need for those conservation campaigns in the first place. No evidence has been put forward to suggest that that would be the case, and, in fact, some submitters argued quite strongly that it would not be the case. As I have said, it may be more cost-effective for generators and retailers to compensate consumers at that trifling sum of $10 a week than to face high spot prices.

It would be more worthwhile, if we are concerned about security of supply, to make sure that we are facilitating improvements in energy efficiency. The introduction of smart meters, as I have mentioned before, is one way that we could absolutely focus on energy efficiency. Potentially, if we get smart meters in every house, and if we get them operating effectively, it could result in a whole new, very different model for the way that the electricity market currently operates. It would potentially allow consumers and retailers—and the retail model would have to change—to buy their electricity at off-peak prices when the demand was lower, and spread their electricity usage, particularly if they had smart meters that would talk to appliances, for which the technology is potentially there. It could result in much better use of electricity.

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to Part 4 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 67

New Zealand National 58; Māori Party 4; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendments agreed to.

A party vote was called for on the question, That Part 4 as amended be agreed to.

Ayes 67

New Zealand National 58; Māori Party 4; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Part 4 as amended agreed to.

Part 5

Hon DAVID PARKER (Labour): Part 5 is the most ridiculous part of this bill. It forces one electricity company, namely Meridian Energy Ltd, to give up some of its power stations on the Waitaki River and transfer them to Genesis Power Ltd. That means that we will have less efficient use of the resource.

Hon John Carter: Rubbish!

Hon DAVID PARKER: “Rubbish!”, we hear. It is absolutely clear that we will have less efficient use of the physical resource. Instead of having the coordinated use of that water, sequentially, through the different power generation facilities on the Waitaki system—from Tekapō, through the canals, through Ōhau, through Benmore, through Aviemore and through the Waitaki system—separate owners will be running separate dams on that system. There will be coordination issues when it comes to the release of water. There will be different players having control of those different assets, and they will have different views about what they should be doing with the water and when they should be doing it.

There can be no more efficient use of that water resource than having it under the control of a single player. If our market is so inept and uncompetitive that we have to cause changes that will cause resource inefficiency in order to have more market competition, then we have to conclude that the market is so fundamentally flawed that we should ditch it.

It is ridiculous that we will use the resource for the generation of power less efficiently in order to get a more competitive market outcome. It is a nonsense that we will use our physical resource—that is, the hydro resource—less efficiently in order to try to engineer some improved market outcome, and this change was panned virtually universally by the submitters who came to the Finance and Expenditure Committee. Whether they were generators, retailers, industry commentators, or experts in the operation of the electricity system, they said, virtually universally, that this was crazy. Submitters said it did not make sense to use the physical water resource less efficiently in order to have a market outcome. If that water is used less efficiently, it means that some of it will be used when it should not be. Some of it will be used when it is worth less and when it should be saved for use at the most crucial times.

If our market is so uncompetitive that we have to contrive its improvement through the forced sale of assets in a nonsensical way, from Meridian Energy to Genesis, then we will ruin the Meridian brand, which is currently 100 percent renewables in respect of its own generation. Why would the Government do that? I think the reason for that is bloody-mindedness. Gerry Brownlee is not standing up for renewables—and New Zealand has a magnificent advantage in renewable resources for our electricity generation.

Gerry “Sexy Coal” Brownlee—that is what he called himself in that video before the last election—does not believe in renewables. I doubt that he believes in his heart that climate change is a real or proven threat to the world. He would rather see more thermal generation. In fact, rather than celebrating more renewables, he is always out there digging up a bit more coal, trying to mine national parks, or trying to bring forward gasification of coal or more sources of coal, all of which produce greenhouse gas emissions—which are not produced by renewables.

I know that the board of Meridian, the chief executive of Meridian, and Meridian staff think it is absolutely abhorrent that they are being forced to take thermal generation assets that produce greenhouse gas emissions. Meridian Energy has branded itself on being 100 percent pure and clean, but Gerry Brownlee’s definition of 100 percent pure and clean is obviously similar to the view of the Minister of Tourism, and he does not mind besmirching this brand by forcing this ridiculous obligation to take thermal assets. Gerry Brownlee then modified that obligation right at the end, I think, and said it could just put the water assets on Genesis but not require it to take the thermal. Is that correct? [Interruption] I am not sure, either. Perhaps another member can clarify that for me. But the idea that Meridian should even have to consider doing that was ridiculous.

I return to the first point I was making. It is an absurd idea that this Parliament should legislate to reduce the most effective use of the Waitaki water for hydroelectric generation. It defies belief that the Government would be so stubborn as to persist with this ridiculous plan against the advice of virtually every submitter to the select committee. This measure will not reduce the tariffs for residential users. It will not narrow the overly large gap between residential and industrial tariffs in New Zealand.

This legislation will not cure the problem of the higher tariffs that are paid by places like Alexandra, which sits right next to the generating facilities on the Clyde Dam, the Roxburgh Dam, the Teviot scheme, and all the other schemes in Central Otago. It will not cause the tariffs paid by residential consumers in Alexandra to be closer to those paid by consumers who are further away from the physical generation assets but who happen to live in the biggest centres of population.

Part 5 will not fix that problem. Nothing in this part will substantially limit the price increases that consumers are facing. It will not materially improve competition, and there is absolutely no justification for using the physical resource less efficiently in order to try to engineer some improvement in the market. In fact, it is an acknowledgment by the Government that the market is seriously flawed, otherwise why would it inflict upon the system a decrease in the efficiency of the use of the physical resource? That must be its only justification. It is not a good enough justification but it must be the only justification—that there are significant market imperfections currently. We know that in the absence of a proper market, there is insufficient constraint on price increases, and residential consumers effectively bear the brunt of that through the higher tariffs they pay through this system, which is not sufficiently competitive.

It is time for us to acknowledge, in my opinion, that the Bradford reforms have not worked. They plainly did not work in terms of lines. I think we can conclude that the system is broken. We can reach that conclusion on the basis of the differential between residential and industrial tariffs, which is out of whack compared with the rest of the world, and the fact that we have such a lack of competition, at least in significant parts of the market throughout New Zealand and perhaps in the whole of the residential market. This tinkering with the market rules will not work, and this part of the bill exemplifies how ridiculous it has become.

I think it was Michael Cullen who occasionally used the example of people making more and more complex changes in order to justify their view of the world. People used to do that when they held the view that the Earth was the centre of the solar system. The different orbits of everything else in the solar system was explained so as to justify the belief that the Earth was the centre of the solar system when in the reality the sun is the centre of the solar system and everything revolves around the sun.

Well, it is a bit like that in the electricity market. We have had to bolt on regulation, and we have more regulation coming. We now have these ridiculous changes in respect of the use of the Waitaki power assets, and still the Government will not admit what is becoming more and more obvious to every residential consumer in New Zealand. We do not have real competition. We actually have the Government plundering the dividends.

RAHUI KATENE (Māori Party—Te Tai Tonga): I am very pleased to take a call on Part 5 of the Electricity Industry Bill. As the member for Te Tai Tonga, I really need to talk about Waitaki, because the waters of Waitaki from their source at Aoraki through to the coast are of paramount importance to Ngāi Tahu.

Ngāi Tahu, of course, have put in their submission on this part of the bill. When the bill proposed to transfer ownership of both Tekapō A and Tekapō B power stations to Genesis Energy from Meridian Energy, Ngāi Tahu went on to high alert. Aoraki is the sacred mountain range and Waitaki is the ancestral river, and they are both fundamental to the identity of every Ngāi Tahu person. As such, Ngāi Tahu, as tangata tiaki, have inherited responsibilities to manage the natural resources across the takiwā. Indeed, it is extremely timely to be considering this issue in advance of the report of the Land and Water Forum, which will be released tomorrow, for the mana of Aoraki and the waters of the catchment are an integral element of the tribal, economic, cultural, and spiritual values of Ngāi Tahu.

We come, then, to the issue of asset reconfigurations specifically related to the Waitaki power scheme. In the Māori Party manifesto He Aha Te Mea Nui? we make a commitment to whānau, hapū, and iwi, as tangata tiaki, to assist them to take whatever measures are necessary to ensure the well-being and future good health of the environment. In particular, we note that issues involving water, including water rights and privatisation, must include the mana whenua.

So we now come to Supplementary Order Paper 121. Te Rūnanga o Ngāi Tahu in its submission made the case very clear that shareholder Ministers should enter any processes related to existing arrangements involving Ngāi Tahu in the spirit of good-faith Treaty partnership. The submission recommended a joint approach by Meridian and Genesis to address Ngāi Tahu matters in the Waitaki catchment, and wanted to encourage the Government to recognise the importance of a proactive working relationship between both of the State-owned enterprises and Ngāi Tahu. A key recommendation put forward by Ngāi Tahu was that the relationship should provide a forum to resolve historical issues of cultural displacement in the Waitaki. I want to place on record the Māori Party’s support for both Te Rūnanga o Ngāi Tahu and the local rūnaka sitting down with the Government to work through the complexities and consequences of the asset reconfiguration provisions in respect of the Waitaki power scheme.

This is particularly important in light of new clause 124A, “Purposes of sections 124B to 124H”, in Supplementary Order Paper 121. New clause 124A(b) states that the purpose of sections 124B to 124H is “to maintain current effects on the environment and rights and obligations in respect of the Waitaki power scheme,”. This is where the key issue falls for us. From what Te Rūnanga o Ngai Tahu has reported, the so-called current effects on the environment of the Waitaki power scheme are actually detrimental to their relationship with the Waitaki River. The challenge, therefore, for this House is to seek to improve the environment within the catchment, rather than merely maintaining the status quo.

We remind the Committee of the position put forward so eloquently by Ngāi Tahu that any discussions involving mana whenua—both Te Rūnanga o Ngāi Tahu and the local rūnaka—must be entered into in the spirit of good-faith Treaty partnership. We look forward to a commitment from the Minister of Energy and Resources as to how the advice of Ngāi Tahu will be taken on board.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): I listened very carefully to the contribution from Rahui Katene and I acknowledge that local member for Te Tai Tonga for putting forward the views of Ngāi Tahu. If that were to be the case, then I am sure the Māori Party would vote for the Supplementary Order Paper I am proposing.

Supplementary Order Paper 163 delays the commencement of the asset swaps by 1 year to allow more time for a thorough cross-benefit investigation and for the types of issues that that member raised to be considered prior to the asset swaps. The Supplementary Order Paper changes clause 124(2) to ensure that that investigation can take place. I am also putting forward an amendment on the asset reconfiguration review. I propose that the Electricity Authority must undertake a review of the effect of the asset reconfiguration on retail electricity prices for consumers, for much the same reasons that I raised previously in the debate. This is a key part of the bill and a fine example of where politics got in the way of a good idea.

It seems like the Minister of Energy and Resources sat down and drew on a piece of paper that it would be nice to shift this there and that it would probably have this kind of effect. There is no real evidence to substantiate or justify that cost benefit. In fact, all the submissions that came before the Finance and Expenditure Committee said that the cost benefits are unproven. The member opposite Peseta Sam Lotu-Iiga may shrug and disagree, but he needs to read the submissions. Given that he did not finish his last contribution in this debate, I challenge him to argue this in more depth.

It is of great concern to us that the Minister is proposing an asset swap of this nature when the benefits of such a swap are unproven. Many submissions did not think it would deliver the gains that the Minister says it will. We have concerns about the Waitaki catchment, because the way in which electricity generation occurs is part of an integrated system. The submissions raised the importance of that more eloquently than I.

Peseta Sam Lotu-Iiga: Which submission?

Hon NANAIA MAHUTA: I tell the member that the Institute of Public Administration New Zealand objected to this. If that member were to read the submissions, he would see that there were a number of them that did not support the asset swap. I challenge that member to get up and explain in detail why his Government is proposing that this is such a good idea when so many submissions objected and raised concerns about its benefits. If he is shrugging and saying no, then let him stand up, take the next call, and say why his Government is proposing that this is a good thing. I would love to hear that debate.

I was heartened to hear the very genuine concerns of Rahui Katene, the good member for Te Tai Tonga. I hope that the Māori Party supports my amendment. It would be a bit of a taihoa signal—tatari, me kōrero anō tātou. It is the type of critical decision that needs further thought. That is the key point of my contribution on Part 5: it needs further thought. The evidence does not demonstrate that the asset swaps will deliver the gains that the Minister says they will. Many, many submissions supported the argument we are putting forward today. More important, my Supplementary Order Paper is a clear signal to take a breath and have another look at the information, because structural reform of this kind will not deliver the gains that the Minister says it will.

John Hayes: Yes, it will.

Hon NANAIA MAHUTA: No, it will not. I ask Peseta Sam Lotu-Iiga to take a call.

CHRIS HIPKINS (Labour—Rimutaka): We are getting to the guts of the Electricity Industry Bill now. Possibly the most significant change being made in it is the asset swap. Let us be clear on what that is all about. There is no evidential base to suggest that this bill will result in more security of supply or lower power prices. This makes State-owned enterprises more attractive for privatisation.

Hon Nanaia Mahuta: Is that the real agenda?

CHRIS HIPKINS: That is the real issue here—the bill makes the State-owned enterprises more attractive for privatisation.

We know that although John Key said the Government would not sell any State assets, that was only in the first term. We are coming towards the end of the first term of this National Government. There will be an election next year. National is quietly starting a process so that if it gets back on to the Treasury benches next time, there will be a fire sale. The energy State-owned enterprises, the biggest State-owned enterprises that there are, are the most attractive for private sale. So this bill is all about making those State-owned enterprises more attractive for private investors. That is what it is about. It is not about lower power prices, more affordable electricity, or better security of supply; it is about making the energy State-owned enterprises more attractive for privatisation.

There is no evidence. There has been no evidence and no robust analysis to show that moving Tekapō A and Tekapō B out of the Meridian Energy - controlled Waitaki water catchment system and handing them over to Genesis will improve the situation. In fact, quite a lot of advice and evidence suggests otherwise. Even Treasury did not think the case had been made. Treasury was concerned that the robust business case analysis for the asset swaps had not been done. But Gerry Brownlee is just going to blunder on ahead anyway, without any evidence to suggest that the asset swaps will work. Gerry knows best. Gerry decided that he would cut up this State-owned enterprise, cut up the Waitaki water system, and hand over Tekapō A and Tekapō B to Genesis. No matter what the evidence presented to him was, he was going to go ahead and do it, anyway.

There are other things that can be done and that are being done to help to address the security of supply issue. Meridian Energy and Genesis already concluded a winter hedge agreement earlier this year so that in dry years when Meridian Energy cannot generate from the hydro, Genesis agrees to fire up the Huntly power station to full capacity, meaning that there will be no security of supply issue. The rationale for the swap is greatly diminished by that agreement, which has already been reached. The virtual asset swap is another way of doing it, without having to go through this particular mechanism.

I want to talk about what some of the people in the know in the industry had to say about the asset swap. I come to Ari Sargent, the chief executive of Powershop, who had some quite strong views on this and some quite constructive views on where we could go with the electricity industry, before Gerry Brownlee muzzled him and told him he was not allowed to say anything. He said: “Tekapo can control the water available to generate electricity through the entire Waitaki system, made up of eight separate hydro lakes. It is illogical to reduce the co-ordination between the Waitaki catchments and completely reckless to provide commercial incentives to a single supplier who has the power to restrict water to the rest of the catchments.” That was from somebody in the industry who said that was a bad idea that was likely to result in one of the State-owned enterprises maximising its use of its water to the detriment of the other State-owned enterprise on that particular water system. When we are talking about water flow, it does not make sense to have one company controlling the top end and another company working at the bottom end, because the company at the top end can control the amount of water that the company at the bottom end will get.

Genesis will be able to control the amount of water that flows down the rest of the system into the part that will be controlled by Meridian Energy. It will not create the incentives for the most efficient use of the water in that system, and that is what experts have been telling us. Again, I come back to Ari Sargent, who stated: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers, particularly in the South Island,”. So if this bill is all about lowering power prices for consumers, here we have experts in the field telling us that that will not be the case and, in fact, that it will increase power prices for consumers, for those at home struggling to pay their power prices. There is expert advice to say that the asset swaps will increase power prices.

I ask where Gerry Brownlee’s evidence is that the asset swaps will lower power prices. I read every single submission and every document that came before the Finance and Expenditure Committee and nowhere was any compelling evidence presented that that would work. Let us be clear about this. This is Gerry Brownlee sticking his finger in the air and hoping that it will work—the “suck and see” approach. He does not actually know it will work and has not been able to produce any evidence that it will work; he has just decided to give it a go. In fact, I think he even said that. He said: “We’ll give it a go.” in the House when we were debating this bill in its earlier stages. “We’ll give it a go.” is the Government’s line on the matter. Well, I think that when we are dealing with multimillion-dollar State assets, which these energy companies are, we need a slightly more robust analysis than “We’ll give it a go.”, and Gerry Brownlee has not been able to produce that. Gerry Brownlee has not been able to produce it yet.

I will come back to the Labour Party minority report from the select committee on this bill, where we drew on the Ministry of Economic Development’s advice to the select committee. I will quote from it, too. It stated that “it is not possible to prove that the benefits of the transfer will exceed costs and risks”. Let us count them off now. We have the Ministry of Economic Development saying that it is not convinced it is a good idea. We have Treasury saying it is not a good idea. We have Powershop, one of the most innovative companies in the electricity market, saying it is not good idea.

What do the technical experts have to say? The Institution of Professional Engineers made a submission to the select committee, and, because I am on a roll, I will quote from it, as well: “IPENZ does not support the transfer of Tekapo A and B as, more than any other proposal, it may result in the electricity system’s reduced operational resilience.” That was from the Institute of Professional Engineers. It told the select committee: “Tekapo A and B are part of an integrated system. Changing that system could result in potential losses of efficiency, conflict of interest between Meridian Energy and Genesis Energy during periods of low demand, reduced security of supply and reduced flood management. The transfer will require agreement between Meridian Energy and Genesis Energy—who are required to operate as successful competitive businesses. The gain in retail competition is too small to justify the risks.” That was what the Institution of Professional Engineers told the select committee. So I will count them off again. Treasury said it was a dumb idea. The Ministry of Economic Development said it was a dumb idea—well, actually, that might not be fair; it said that the case had not been made. Both of those agencies said that the case had not been made. The Institution of Professional Engineers pretty much said that it was a dumb idea, and so did Ari Sargent from Powershop.

There is no evidence to suggest that the asset swap will work—none at all. As I have said, when we are dealing with multimillion-dollar State assets, which these power companies are, some commercial business case should be presented, and it should be more than Gerry Brownlee simply standing up and saying: “I think I will give it a go. I think this is a good idea. I do not have any evidence for it, but I think it is a good idea.” That is not good enough. That is not good enough coming from a Minister of the Crown.

Labour is very opposed to this particular provision in this bill, almost more than it is opposed to all of the others. We are opposed to most of the others as well, but we are very concerned about this one in particular. There will be a less efficient use of water. There is no guarantee that the asset swap will lower power prices. It could create all sorts of conflicts of interest on the Waitaki water catchment system. No business case has been made to suggest that it will work, and a lot of advice has been presented to the select committee suggesting that potentially it will not work.

Before I move on and finish on that point, the other thing is that the time frame is very tight, and already we are dragging our heels on this bill—we are already a month behind. This bill was supposed to have been passed months ago. I urge the Government to back off from the accelerator on the asset swaps, rethink it, and go back to the drawing board. It is not a good idea. No case has been made. The Government needs to get the facts together, build the case, and then maybe reconsider it.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 124 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 57

New Zealand Labour 42; Green Party 9; Māori Party 5; Progressive 1.

Noes 63

New Zealand National 58; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to insert new clause 124BA be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 57

New Zealand Labour 42; Green Party 9; Māori Party 5; Progressive 1.

Noes 63

New Zealand National 58; ACT New Zealand 4; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 165 in the name of the Hon Gerry Brownlee to the proposed amendment set out on Supplementary Order Paper 154 in his name to clause 126(3)(d)(ii) be agreed to.

A party vote was called for on the question, That the amendment to the amendment be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendment to the amendment agreed to.

The question was put that the amendments as amended set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to Part 5 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Amendments as amended agreed to.

A party vote was called for on the question, That Part 5 as amended be agreed to.

Ayes 68

New Zealand National 58; Māori Party 5; ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Part 5 as amended agreed to.

Schedule 1 agreed to.

Schedule 2 agreed to.

Schedule 3 agreed to.

Schedule 4

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to schedule 4 be agreed to.

Amendments agreed to.

Schedule 4 as amended agreed to.

Schedule 4A agreed to.

Schedule 5

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to schedule 5 be agreed to.

Amendments agreed to.

Schedule 5 as amended agreed to.

Clause 1 Title

CHRIS HIPKINS (Labour—Rimutaka): I am happy to take a brief call on the title of the Electricity Industry Bill in the manner of the Standing Orders, which allow, in this particular part of the debate, for a summing up of what has been quite a lively debate, and that is exactly what I intend to do. In summing up, several things can be said about this bill overall. First of all, the case has not been made for many of the provisions in the bill. Secondly, this bill does not focus on the most important issue, which is the price that New Zealand consumers pay for their electricity. This bill does not deal with that issue. It does not deal with the three pillars that Labour set forth in the New Zealand Energy Strategy, released in 2007: affordability, security of supply, and sustainability. The bill does not deal with those issues, and in many cases the Labour Opposition has put forward quite a compelling case in this debate that the bill goes the other way.

The Government has done very little to put forward any alternative arguments in this debate. We had a very brief call from the Minister of Energy and Resources at the beginning of the debate, and I think we have had three calls from National backbenchers in total for the remainder of the debate. We started this debate at about 4 o’clock this afternoon. It is now a quarter past 9 in the evening, and we have probably had about 15 minutes’ worth of contributions from Government members. They want to just ram this bill through. The reason they have not taken any more calls is that they know there is no justification for some of what they are doing. They know there is no justification for the asset swaps between Meridian Energy and Genesis Power. They have not had the commercial business case and analysis done to prove that it is worthwhile. They know that splitting up the Electricity Commission into all of the different agencies—the Electricity Authority, the Commerce Commission, the Energy Efficiency and Conservation Authority, and Transpower—splitting up all its functions and scattering them to the four winds, is not going to work. I know that John Hayes is very impatient, because that is the attitude of the National Government. Government members want to push this bill through. They do not want to hear any argument or any debate on it. They do not want to hear any facts. They do not want to let the facts get in the way of pushing a bill through the House.

This bill does not do what it sets out to do. It does not deliver on the promise of lower power prices that National made to New Zealanders before the last election. Members opposite are denying it now. They have stood up and said that they never promised lower power prices, but that is exactly what they promised. I visit people in my electorate and I ask them what they expected National to do. By their rhetoric, they expected National to take some steps towards lowering power prices. In fact, we heard in this debate that National not only will not try to lower power prices but is content to keep the increases a little lower than they otherwise would have been. So prices will keep rising under this National Government despite all of National’s pre-election rhetoric, and it will still take a dividend from those State-owned enterprises, until it sells them off.

We know that that is the Government’s real agenda. It wants to finish the job that Max Bradford did not finish, which is to sell what is left of the electricity system. The previous National Government made a mess of the electricity system in the late 1990s. It is very difficult for any Government now to deal with the challenges facing the electricity industry, because of the mess the previous National Government made of the electricity sector. Now we are stuck with what we have.

This bill does not go anywhere close to addressing the concerns of New Zealanders about the functioning of their electricity system. This is a bad bill.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato): I will take a short call on the Electricity Industry Bill—in fact, it should be called the “Electricity (Not Fair, Does Not Deal with Prices, and Does Not Address the Issue of Environmental Sustainability) Bill”. Time and time again members on this side of the Chamber have raised very serious issues in terms of the price differentials between domestic users and industry users of electricity. What did we hear from John Hayes on the other side? We heard babble. That is what he called the very important issues that members on this side of the Chamber have raised—babble. Shame on him. The issues that we are raising in the Chamber are the ones that consumers are raising with us every day. They are worried about increasing power prices. They are worried about bills becoming harder to pay. They are worried that when the increase in GST comes in, the proposals in this bill will not do anything to lessen the increased domestic power prices that they are faced with.

Time and time again members on this side of the Chamber have raised the critical issues in a broader context, but more particularly to deal with the aspects that this bill purports to affect. We are concerned about the asset swaps. There is no clear evidence that asset swaps are clever. This is more about politics, rather than substance. We believe it will affect the Waitaki catchment significantly. The Government may well have to come back and deal with the effects of a bad decision.

Although we are dealing with the title, the bill does not address in any way whatsoever the issue of fairness in terms of price setting. We are worried about that. We think that any change to the electricity sector should at least try to give some guarantee on the fairness of price setting. Chris Hipkins has very well constructed the issues that Labour is most concerned about, and that is to ensure greater affordability of electricity prices, especially in addressing the differentials between domestic and industrial users. In looking at security of supply in terms of greater renewable energy generation, there was no clear signal or leadership on that front or on greater price predictability, and we believe that consumers deserve it.

There was no response from the Minister, and not even a contribution from any Government member, to explain why there are glaring omissions like the ones that Labour has raised. The bill should be called the “Electricity (Not Fair and Not Dealing with Increased Domestic Power Price Users) Bill”. I do not agree with the bill and Labour does not support it.

Clause 1 agreed to.

Clause 2

The question was put that the amendment set out on Supplementary Order Paper 166 in the name of the Hon Gerry Brownlee be agreed to.

Clause 2 as amended agreed to.

Bill reported with amendment.

The CHAIRPERSON (Lindsay Tisch): I move, That the report be adopted.

A party vote was called for on the question, That the report be adopted.

Ayes 68

New Zealand National 58; Māori Party 5, ACT New Zealand 4; United Future 1.

Noes 52

New Zealand Labour 42; Green Party 9; Progressive 1.

Report adopted.

Bills

Financial Markets (Regulators and KiwiSaver) Bill

Auditor Regulation and External Reporting Bill

First Readings

Hon NATHAN GUY (Minister of Internal Affairs) on behalf of the Minister of Commerce: I move, That the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill be now read a first time. At the appropriate time I intend to move that the Financial Markets (Regulators and KiwiSaver) Bill be considered by the Commerce Committee, that the committee report finally to the House on or before 28 February 2011, and that the committee have authority to meet at any time while the House is sitting except during oral questions, and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c). I also intend to move that the Auditor Regulation and External Reporting Bill be referred to the Commerce Committee for consideration.

The Financial Markets (Regulators and KiwiSaver) Bill establishes a new financial sector regulator, the Financial Markets Authority, and makes important changes to the governance of KiwiSaver schemes. The Auditor Regulation and External Reporting Bill provides for the regulation of the auditing profession and consolidates the setting of accounting and auditing standards within a new body, the External Reporting Board. The House is debating the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill simultaneously because of their interconnected nature.

In recent years confidence in the financial sector has been damaged by a number of serious corporate collapses, particularly the collapse of finance companies. The Government cannot remove all the risk from investment decisions. However, if we want to develop the kinds of vibrant capital markets that are required to lift New Zealand’s economic performance, it is essential that the financial sector is subject to clear rules that investors can be confident will be enforced actively and consistently. To enhance investor confidence in financial markets it is also essential that investors have confidence in key financial market participants like auditors, trustees, and financial advisers. The collapse of finance companies has clearly highlighted the need for a more integrated approach to the regulation of the financial sector, and a much more active enforcement role for regulatory agencies. Achieving both of those objectives has been impeded by the fragmentation of responsibilities across different regulators.

The Financial Markets (Regulators and KiwiSaver) Bill establishes a new Financial Markets Authority, or FMA, which, in conjunction with the Reserve Bank, will have responsibility for the regulation of the financial sector. The authority will assume the current responsibilities of the Securities Commission, which will be disestablished. It will also take over the regulatory roles of the Government Actuary and some of the regulatory functions of the Companies Office, have an enhanced role in overseeing registered securities exchanges, and take on responsibility for the regulation of financial advisers, trustees, and auditors. The result of these changes is that the authority will have responsibility for the regulation of issuers throughout the lifespan of the securities they are offering, rather than just focusing primarily on the issuers’ disclosure at point of sale, as is currently the case.

The Financial Markets Authority will undertake an annual oversight review of the NZX and will report on how well the exchange is supervising its markets. NZX and the authority will enforce market rules and market integrity regulations through a new financial markets ruling panel, which is established by the bill. The Financial Markets (Regulators and KiwiSaver) Bill also provides for the Financial Markets Authority to exercise another person’s right of action against a financial market participant. Subject to certain procedural safeguards, it will allow the authority—amongst other things—to enforce directors’ duties owed under the Companies Act. That is a significant new power, and I will be particularly interested in submissions that the select committee receives on that specific matter. The bill also provides the power to make regulations that override certain statutory exemptions in the Securities Act 1978 to help ensure that financial instruments cannot be structured in such a way as to avoid coming within its scope. To facilitate the comparability of different offers of securities, the bill provides for the establishment of a register of securities, which will provide better public access to the relevant disclosures and information relating to offers of securities.

This bill also aims to ensure that we are effectively regulating where investor funds will be increasingly directed in the future, namely KiwiSaver. At the end of March 2010 KiwiSaver held almost $6 billion of assets. This amount will only grow in years to come as more people join the scheme. KiwiSaver schemes are currently structured so that the trustee of the scheme has ultimate responsibility for the management and administration of the assets. The trustee is also currently the insurer of interest in the scheme under the Securities Act, making the trustee responsible for, amongst other things, the correctness of disclosures made by the scheme. That arrangement does not reflect how most retail schemes operate at present, because each scheme also has a manager that creates and promotes the scheme and is responsible for day-to-day investment decisions. The Financial Markets (Regulators and KiwiSaver) Bill requires that KiwiSaver schemes have a designated manager who is also the issuer for the purposes of the Securities Act 1978. This makes the directors of the manager responsible for the scheme’s disclosures, whereas the trustee is responsible for custodianship of the assets and supervising the manager of the scheme. These changes will also enable trustees of KiwiSaver schemes to be brought within the trustee’s licensing regime established by the Security Trustees and Statutory Supervisors Bill.

The Auditor Regulation and External Reporting Bill will allocate auditor regulation powers to the Financial Market Authority and strengthen the financial reporting system. Investors need to be confident that financial reports provide unbiased, transparent, and relevant information about the economic performance and position of businesses. The bill will require professional accounting bodies to regulate members who carry out issuer audits as a specialist profession. As the Registrar of Companies stated in a report to the Commerce Committee last year, many finance company audits lack the rigour and the analytical depth one would expect for entities managing such investments. The bill also empowers the Financial Market Authority to monitor how well the professional bodies are carrying out the new auditor licensing function, including the ability to instruct them to make changes.

The Financial Market Authority will also have the front-line responsibility for carrying out quality reviews of all practices that perform issuer audits. The Financial Market Authority will be able to initiate or take over investigations of licensed auditors and auditing firms if it is in the public interest to do so, and to make administrative orders should the need arise.

Finally, the bill consolidates financial reporting and auditing and assurance standards within a reconstituted Accounting Standards Review Board, to be called the External Reporting Board. These responsibilities are currently split between the New Zealand Institute of Chartered Accountants and the Accounting Standards Review Board. Like the Accounting Standards Review Board, the new External Reporting Board will be an independent Crown entity.

In conclusion, these bill are very, very important. They are among the key elements in the Government’s reform package to strengthen investor confidence and participation in New Zealand’s financial markets.

I commend these bills to the House.

Hon LIANNE DALZIEL (Labour—Christchurch East): Labour will support these bills, the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill, being referred to a select committee, where we intend to subject them to significant scrutiny. Although we agree with the principles that lie behind the legislation of providing for a single regulator and the regulation of auditors, we are concerned that the Government has managed to get its legislative programme out of order—it actually makes no sense whatsoever. Our committee, the Commerce Committee, will soon be reporting back the Securities Trustees and Statutory Supervisors Bill from the select committee, and the Securities Act review has just completed the discussion paper process. Presumably, the Government will be considering its approach to that discussion soon. However, this legislation and both of those matters are inextricably linked to each other, so why is there a rush to get the Financial Market Authority into place ahead of the rules that it will operate under? It makes absolutely no sense to me whatsoever that one would put in place the regulatory body without having the regulatory framework that it is designed to enforce put in place first.

And why does this legislation not address a fundamental flaw in the design of the present system? I had thought this Government would be keen to address the handbrake that the Serious Fraud Office essentially applies to regulators when it is investigating alleged fraud. That is not fixed by this legislation. I want to look at that matter very carefully when the legislation comes before our select committee.

In order to answer the question about why there is a rush, I think we need to return to the time when Labour took office in 1999. I remind this House that the previous Labour Government inherited a regulatory wasteland as far as the financial sector was concerned. We had a Takeovers Panel whose annual report each year was a blank sheet of paper, because it did not have a Takeovers Code to enforce. How ridiculous was that? Year after year we paid the chair of the Takeovers Panel to sign a blank piece of paper as his annual report to the House. We did not have a securities markets regulatory framework to provide for registered exchanges when we became the Government. We did not have continuous disclosure provisions. I remember the people in this House who railed against continuous disclosure becoming the law. One of them, now a prominent member of the National Party, was formerly a member of the ACT Party.

I remember that we did not have strong enough rules to prohibit insider trading. Would the Securities Commission have got $20 million for—oh, no, it was not really this—insider trading out of Fay Richwhite, if it had not been for the changes that we put in place and the provisions against market manipulation that we put in place, as well? We did not have regulation around financial advisers, nor did we, as we learnt, have sufficient regulation around the non-bank deposit taking sector. I say “sufficient regulation” because I am sick of people saying there were no regulators in the space of the non-bank deposit taking sector. There were regulators; they were called trustee corporations, and gee they did a good job. And the auditors did a good job, which is why we have the auditors legislation in front of us today, as well.

Every year of our 9 years in Government we were regulating different aspects of the financial sector, and the reason it took as long as that was that there was so much to be done. We had earned our reputation as a country with the financial sector’s Wild West, and year by year our Government strengthened existing regimes and put in place new regulation. I do not think that anyone should ever forget the fact that we inherited a regulatory wasteland, and we inherited it from a National Government.

I do not know why I was surprised, therefore, to find this statement in the discussion document on the Securities Act review: “While capital markets, like other markets, might be expected to work efficiently without government involvement, all advanced countries have found it beneficial to introduce a regulatory regime to counter market failures that financial products are inherently prone to.” How could anyone expect capital markets to work without Government involvement post our own finance company sector meltdown, let alone the global financial crisis? Who could write that? Who could think that? And what are the market failures that this wonderful whiz-kid has come up with? If we think about what market failures are in this sector, we realise they are about people being conned or ripped off; that is what the market failures are. There was insufficient protection offered by those who were in place to protect the interests of those who invested in finance companies. That is what makes me nervous about putting a regulator in place and leaving the rules that it will enforce until later, because the regulator’s strength will come from the rules and the principles that the Securities Act will contain.

As the previous Minister of Commerce I visited the UK’s Financial Services Authority on a couple of occasions. The second time was in election year in 2008, and I met with the outgoing chair, Sir Callum McCarthy. We had a discussion about the Financial Services Authority’s oversight of the Northern Rock failure and some of the lessons that it had learnt from that. He pulled from his pocket a laminated card with a set of 11 principles that the Financial Services Authority is able to enforce. Prescriptive rules can always be circumvented, he warned, but principles, unlike rules, are not made to be broken.

The Financial Services Authority’s principles are these: “1 Integrity—A firm must conduct its business with integrity. 2 Skill, care and diligence—A firm must conduct its business with due skill, care, and diligence. 3 Management and control—A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. 4 Financial prudence—A firm must maintain adequate financial resources. 5 Market conduct—A firm must observe proper standards of market conduct. 6 Customers’ interests—A firm must pay due regard to the interests of its customers and treat them fairly. 7 Communications with clients—A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. 8 Conflicts of interest—A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. 9 Customers: relationships of trust—A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment. 10 Clients’ assets—A firm must arrange adequate protection for clients’ assets when it is responsible for them. 11 Relations with regulators—A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.”

I have spoken favourably about the Government’s decision to establish the Financial Markets Authority. It was a recommendation that came out of the Capital Market Development Taskforce, which I commissioned to provide a blueprint for the future of our capital markets. I have also welcomed the setting up of the Financial Markets Authority establishment board ahead of the legislation, and congratulated the Minister on the choices he has made. However, what I have learnt since making that statement leaves me with no choice other than to say to the Government that Simon Botherway must step aside from the position of chairing the establishment board. And that should be not simply for the period of the Ombudsman’s investigation into the management of potential and actual conflicts of interest in a case where the public does not separate South Canterbury Finance from Allan Hubbard, even though the Securities Commission apparently can.

As if that were not bad enough, Simon Botherway’s connections to the vultures that now encircle the entrails of South Canterbury Finance’s assets, with taxpayers’ cash in hand, mean that he could find himself conflicted in terms of what will be one of the most significant inquiries that this country will ever see into the collapse of such a finance company. Mark my words here and now: if this Government does not agree to a commission of inquiry into what has happened with regard to South Canterbury Finance and Allan and Jean Hubbard, then a Labour Government will commit to hold such an inquiry.

If National wants the Financial Markets Authority to have credibility—and it is tainted already—then it has to think about the primary objective of providing confidence for investors. I wrote to the Minister of Commerce on 28 June this year, and I asked him to explain to my constituents about Allan and Jean Hubbard. They pose no threat to anyone in terms of their ability to leave the country and live a disgracefully ostentatious international lifestyle, unlike others who have taken money off unsuspecting New Zealanders and spent it on themselves. Why is this couple being put into statutory management, when we see others living the high life? That is why this process has been tainted and why, if it is to get back on track, the Government has to act.

I seek leave to table the letter that I wrote to the Minister of Commerce on 28 June, the letter that I wrote on 30 June, and the two replies that I received.

Mr DEPUTY SPEAKER: Leave is sought for that purpose. Is there any objection? There is no objection.

Documents, by leave, laid on the Table of the House.

PESETA SAM LOTU-IIGA (National—Maungakiekie): I rise to support the first readings of the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill.

What we heard from the member who has just resumed her seat, Lianne Dalziel, was an angry speech. It was an angry speech from a former Minister of the Crown who is blaming the financial collapses of recent times on the Government of the 1990s. What we have heard in the House tonight is a bunch of Opposition MPs blaming the Government of 12 years ago. We heard in the debate on the Electricity Industry Bill that Max Bradford’s reforms were to blame for the previous Labour Government overseeing a 72 percent increase in the price of electricity. Apparently the National Government of the 1990s is to blame. We constantly hear the shadow Leader of the House talking about blood-alcohol levels from 1990, and saying that in Labour’s 9 years it did not do anything, but suddenly Labour is demanding action from this Government.

Let me tell members about the financial reforms that this Government is making, under the supervision of the hard-working Simon Power. The reforms are about regulating. I find it interesting that under the watch of the former Minister of Commerce we had some of the biggest collapses of financial companies in the history of this country. She gets angry, but I suggest to her that she get angry in the mirror, because it was under her watch that these companies collapsed and failed. The reforms that National has brought into this Parliament in 2 years include the Financial Service Providers (Pre-Implementation Adjustments) Bill and the Financial Advisers Amendment Bill. They have both passed—tick! A review of the Securities Act is coming in the new year—tick! We have the Securities Trustees and Statutory Supervisors Bill, which is currently being put through this House.

The fact is that we are having to clean up the mess of the last Labour Government. The Financial Markets (Regulators and KiwiSaver) Bill establishes a new financial sector regulator, the Financial Markets Authority. It makes important changes to the governance of KiwiSaver schemes. The second bill, the Auditor Regulation and External Reporting Bill, provides for the regulation of the auditing profession, and consolidates some of the accounting and auditing standards within a new body called the External Reporting Board. So National is focusing on improving the integrity of our financial system, which was torn apart by the negligence of the last Labour Government. The overriding focus in the commerce portfolio—where, I must admit, we do work together in a multipartisan way to bring legislation to this House—is about mum and dad investors having confidence in the integrity of our financial markets.

Hon David Cunliffe: That’s right.

PESETA SAM LOTU-IIGA: Mr Cunliffe agrees. He knows that our Government is focused on boosting growth and creating jobs. It is also about providing financial security for families and providing services across the board. It is clear that New Zealand needs a single financial market regulator with a culture of visibility, proactivity, and enforcement. That is where the last regulator fell down.

Hon David Cunliffe: Get tough.

PESETA SAM LOTU-IIGA: It was the enforcement part and the lack of a culture of visibility. Now Mr Cunliffe wants to get tough. Under 9 years of a Labour Government, he was soft. On too many occasions some of the finance company failures were about investors’ money falling through the gaps. I do not think the member would disagree with that. Undoubtedly, it damaged the confidence of mum and dad investors. This legislation is really about giving people confidence in the capital markets, more savings, a basic understanding of their investments, and advice that they can trust to help them make informed choices.

The Financial Markets Authority will have significant new powers, as the last two speakers have set out. It will set out the objectives and functions of the new regulator, which will consolidate a lot of the regulatory functions that were in the Securities Commission, the Ministry of Economic Development, the Government Actuary, and the New Zealand Exchange. Under the new bill—

Hon David Cunliffe: Bills!

PESETA SAM LOTU-IIGA: Under the first bill, one of the most important powers will be the ability of the Financial Markets Authority to publicly enforce the duties of issuers, directors, auditors, trustees, and other players in the markets when it is in the public interest to do so.

Hon David Cunliffe: Manage conflicts of interest?

PESETA SAM LOTU-IIGA: I will repeat that for the member: when it is in the public interest to do so.

This is a significant new provision. The new power was specifically requested by the Financial Markets Authority establishment board because it saw a gap in the authority’s ability to oversee and enforce financial markets. What became apparent when misconduct occurred was that individual investors could not, for various reasons, bring civil cases because of the costs and risks involved, or because they had limited legal standing. This bill will enable the Financial Markets Authority to have the power to exercise a person’s right to bring a civil action against any financial markets participant where it considers that action to be in the public interest.

The Government will also be able to make regulations to prevent financial products from being structured to avoid being supervised by the Financial Markets Authority. That is really important, because, as nearly always happens with legislation of this type, lawyers will come in and try to manipulate matters and work out ways to avoid this regulation and these types of financial regulations. The Financial Markets Authority will also have increased powers to require that warnings about financial products and providers be included in the offer documents, which is also particularly important, and that the names of the people involved be published in those offer documents.

I will not talk about the KiwiSaver regulations, but I do want to move to the Auditor Regulation and External Reporting Bill. This bill strengthens auditor regulation because it will require the Institute of Chartered Accountants to regulate auditors as a specialist profession rather than as just chartered accountants. Currently, any chartered accountant holding a certificate of public practice can carry out audits as long as they think they are competent to do so and no audit-related restrictions have been placed on them. The bill also provides for the proposed Financial Markets Authority to be responsible for auditor oversight in monitoring and reporting on the adequacy and effectiveness of the institute’s regulatory systems. As has already been stated, a report by the Registrar of Companies identified that audit failure was a contributing factor to the finance company collapses—

Hon David Cunliffe: Come on, be bipartisan! You know you want to.

PESETA SAM LOTU-IIGA: —it is true that some of the work that Labour did in this area was quite credible—and that shows that self-regulation alone was not working, and that we do require independent oversight in this area.

The new licensing regime will apply only to major audits such as the audits of issuers and large companies, and it will not impact on the audits of small and medium-sized businesses and non-profit entities, which I think is really important. So we will not have the unintended consequence of regulation affecting those companies. The bill also provides for consolidated accounting and auditing standards, set within the reconstituted Accounting Standards Review Board, to be called the External Reporting Board.

In summary, I commend the Minister for bringing these bills to the House. I commend the Minister for bringing a whole raft of legislation to the House in this area of the law. I commend the bills to the select committee. Thank you.

Hon DAVID CUNLIFFE (Labour—New Lynn): Occasionally in this House I feel as if I have come down in a parallel universe: a universe where National is no longer putting up “Iwi/Kiwi” billboards but is passing foreshore and seabed legislation that is half-decent, and a universe where National is telling Labour that we were too soft on white-collar crime and corporate embezzlement. I am glad that I have come down in this parallel universe, because I rather like the new, tough, anti-market National members, and it is about time they got off their backsides and passed this legislation. We will support its referral to the select committee, but we are going to have a very careful eye.

John Hayes: Are you the second or the third coming, David?

Hon DAVID CUNLIFFE: There is the brain of the Wairarapa. He must be taking stimulants rather than depressants today, because he is making a wonderful contribution to the House.

I will not repeat history; I will not go through the very many things that Labour did to tidy up the regulatory wasteland that we inherited from the previous National Government. All I will say is that it is good to see the work in which the Hon Lianne Dalziel made huge progress being continued by this Government—

John Hayes: The violin.

Hon DAVID CUNLIFFE: —and I commend the intent. I am being nice to Mr Hayes; it will not happen often. I commend the intent of this legislation.

However, it is important for us to note right at the outset that if the Government and this Parliament are to collectivise the enforcement powers of the market into a single financial markets regulator, it is essential that that regulator is beyond reproach, and is able, willing, and ready to deliver the scrutiny that this legislation demands. In light of the debacle of South Canterbury Finance and the endemic conflict of interest accusations surrounding Mr Simon Botherway, the chair of the committee of the Securities Commission, and the chair of the establishment board of the Financial Markets Authority, let me say two things on behalf of the Opposition.

Mr Botherway must immediately stand aside from the establishment board. The conflict management process has been appalling, and he is tainted by it. He is tainted by his late declaration in relation to the fact that Allan Hubbard’s South Canterbury Finance bankrupted his brother by putting his companies into receivership. That should have been put on the table at the start; it was put on the table only when my colleague Ruth Dyson put in written parliamentary questions, and that is appalling. That is why the Ombudsman is investigating, and that is why Mr Botherway must immediately stand aside.

But I am afraid that the issue goes rather deeper than that, because it is not just the process that led up to the statutory management of the Hubbards that has caused great concern around New Zealand. Mr Botherway also appears to have worked closely over many years with the primary beneficiary of the taxpayers’ bail-out of depositors in South Canterbury Finance, Mr George Kerr. In fact, I am informed tonight that they were at school together at Christ’s College from 1978 to 1984. They studied at Otago University, doing B Com degrees together at the same time, and they then worked together at Spicers Portfolio Management, where they encouraged its sale to AXA, at Brook Asset Management, then at Sterling Grace and Tempus Capital. In other words, the numero uno regulator, and the numero uno sharpie, who has made tens of millions of dollars from the taxpayer, are bosom buddies from way back.

I want the Minister of Commerce to assure the House right now that the chair designate of the establishment board of the Financial Markets Authority has severed all ties with George Kerr, and all ties with any entities associated with the heartland bank that is poised to sweep up the assets of South Canterbury Finance.

Peseta Sam Lotu-Iiga: I raise a point of order, Mr Speaker. We have heard in the last 3 minutes this gentleman, a former Minister, refer to a Simon Botherway. I just want to see the relevance of what he is saying to this bill—

Mr DEPUTY SPEAKER: No, I need no further comments. This is a first reading speech, which is a wider-ranging speech than some speeches, and the member is relating what he is saying back to the primary bill before us.

Hon DAVID CUNLIFFE: To clarify that, I say, of course, Mr Botherway is the chair of the establishment board that will set up the Financial Markets Authority, which this bill seeks to put in place, so he is likely to become the chair of that authority.

Debate interrupted.

The House adjourned at 10 p.m.