Tuesday, 17 July 2012

Tuesday, 17 July 2012

Tuesday, 17 July 2012

Mr Speaker took the Chair at 2 p.m.

Prayers.

Visitors

Indonesia—Parliamentary Delegation, House of Representatives

Mr SPEAKER: I have much pleasure in informing the House that a parliamentary delegation from the House of Representatives of Indonesia led by Mrs Ledia Hanifa Amaliah, member of Parliament, is present in the gallery. I am sure members would wish that the delegation be welcomed.

Questions for Oral Answer

Questions to Ministers

Economy—Consumers Price Index and Inflation

1. Hon Dr NICK SMITH (National—Nelson) to the Minister of Finance: What reports has he received on the economy?

Hon BILL ENGLISH (Minister of Finance): Statistics New Zealand today reported that inflation rose 0.3 percent in the June quarter, annual inflation fell to 1 percent, its lowest level since 1999, and the CPI is increasing at its slowest rate in more than 12 years. At the same time floating mortgage rates, at around 5.75 percent, are at their lowest level in 45 years. This is saving a family with a $200,000 mortgage about $200 a week compared with what they were paying 4 years ago. These factors are helping New Zealand families save more, pay down debt, and get ahead.

Hon Dr Nick Smith: What other factors—[Interruption] They obviously do not care about the cost of living.

Mr SPEAKER: Order! I apologise to the member, but it is not helpful to have a raft of interjections before the question has even started.

Hon Dr Nick Smith: To the Minister of Finance—[Interruption]

Mr SPEAKER: Order!

Hon Dr Nick Smith: They obviously do not care about the cost of living. [Interruption]

Mr SPEAKER: Order! I apologise to the member. Interjections like that are bound to cause disorder. I now ask members to desist.

Hon Dr Nick Smith: What other factors are helping New Zealanders get ahead?

Hon BILL ENGLISH: Although inflation has been falling, the economy has continued growing moderately. This is reflected in real after-tax wages, which have increased by about 11 percent since September 2008. The components of this are that gross wages have increased 12 percent, after-tax gross wages have increased 20 percent, and inflation has been a bit over 8 percent, which leaves the 11 percent increase. This is a vast improvement on the situation in the 9 years to September 2008, when New Zealand’s real after-tax wages increased by only 4.4 percent in total.

Hon Dr Nick Smith: How does the current level of inflation, at a 13-year low, compare with what the Government inherited when it came into office in 2008?

Hon BILL ENGLISH: When the Government came into office in November 2008, annual inflation was running at 5.1 percent, rather than 1 percent, as it is today. That was because power prices had risen by 72 percent in 8 years, petrol prices were around 10 percent higher than they are now, and floating mortgage rates were at decade highs of almost 11 percent. The lower inflation we are now experiencing, combined with steady increases in after-tax wages, mean most Kiwi families are better off now than they were in 2008, and that is why they are able to reduce their debt and increase their savings.

Rt Hon Winston Peters: So, Minister, who was the Treasurer in charge of writing the two Budgets leading to that brilliant low inflation figure by mid-1999?

Hon BILL ENGLISH: I think it may have been Mr Winston Peters, and I know for sure he was under very close supervision by the then Minister of Finance.

Hon Dr Nick Smith: What is the Government doing in these very difficult global financial times to support jobs, to support higher incomes, and to support economic growth?

Hon BILL ENGLISH: We are focusing on assisting those New Zealanders who can make the decisions that help grow the economy. Among those are people who run, and work in, businesses. It is when they decide to invest more capital, employ more people, and pay more that we get economic growth. So in the past 3 years the Government has reduced the tax on work and on that sort of investment, and raised the taxes on property speculation. We have also improved the regulatory environment for businesses by reducing the direct government cost to business, such as a significant reduction in ACC levies this year, and have invested strongly in science and research related to business. Over the last couple of years the economy has created 60,000 new jobs.

Hon David Parker: Did today’s CPI figures show a 4.5 percent pre-winter increase in electricity prices, and what proportion does he attribute to companies preparing for privatisation?

Hon BILL ENGLISH: None.

Hon David Parker: Did Mighty River Power increase its prices to cover its increased costs, including the $400,000 per annum increase in its chief executive officer’s salary to $1.7 million per annum, in advance of privatisation?

Hon BILL ENGLISH: Mighty River Power, like other power companies, has been going through cost-cutting efforts because there is more competition in the electricity market due to the reforms made by the Government. My understanding is that most of the electricity price increase recorded here reflects Transpower passing through the cost of its extensive investment programme in upgrading the grid.

Hon David Parker: Has the Minister seen JP Morgan’s response to today’s CPI figures, which states “the breadth of the softness in today’s report bears witness to the extent of accumulated slack in the economy.”?

Hon BILL ENGLISH: I think there is quite a plausible line of argument that the relatively low inflation figure today will probably be followed by other relatively low inflation figures due to the fact that the growth outlook around the world is pretty soft. In New Zealand, however, we continue to grow moderately, in line with more recent forecasts. In a world where many countries are slipping back into recession, that is not a bad achievement.

State-owned Energy Companies and Air New Zealand, Sales—Minister of Finance’s Statements

2. DAVID SHEARER (Leader of the Opposition) to the Prime Minister: Does he agree with his Minister of Finance that “the mixed ownership programme will be good for Kiwi investors, the Government and the economy as a whole”?

Rt Hon JOHN KEY (Prime Minister): Yes. The mixed-ownership programme is good for New Zealand savers because it opens up a whole new opportunity to invest in large local companies. It is good for the Government on behalf of taxpayers because the proceeds will be invested in new assets like modern schools and hospitals. The money would otherwise have to be borrowed from overseas lenders.

David Shearer: How are New Zealanders going to be better off if the Government sells the assets when they are under threat of court action and possibly reduced in value because of uncertainty in sharemarkets that are currently unstable?

Rt Hon JOHN KEY: I would not agree with the assertions of the member on a number of those points. In terms of the latter point, well, equity markets go through various phases, but that has not stopped plenty of other companies embarking on the mixed-ownership model, including Fairfax recently with its sell-down of 49 percent of TradeMe.

David Shearer: What does he consider the dollar value reduction in the value of Mighty River Power is as a result of the uncertainty over the court action?

Rt Hon JOHN KEY: I do not think it is possible to speculate that the member is even right in making the assumption.

Rt Hon Winston Peters: If, as the Prime Minister says, “Nobody owns the water.”, then on what basis does he purport to sell it?

Rt Hon JOHN KEY: If I understand the question correctly, we are proposing to sell 49 percent of the shares in Mighty River Power. We are not proposing to sell water.

Rt Hon Winston Peters: I raise a point of order, Mr Speaker. There is no power company in this country that is doing hydro power that does not have to have the most vital ingredient—

Mr SPEAKER: Order! Is this a point of order?

Rt Hon Winston Peters: —yes, it is—which is, namely, water. [Interruption] No water, no power company.

Mr SPEAKER: Order! Members may have—I am on my feet and there will be silence. The Prime Minister gave a perfectly legitimate answer to the member’s question, and there is nothing more I can do about that. Certainly, the point of order is not a point of order. To debate whether or not selling Mighty River Power is to sell water is not a point of order at all. It is a debating point.

Rt Hon Winston Peters: I raise a point of order, Mr Speaker. Are you saying it is a debating point that a hydro-power company—

Mr SPEAKER: Order! The member will resume his seat. He is now debating further. I invite the member to reflect that that is not remotely a point of order. It is not remotely a point order. Not under the longest stretch of imagination is it a point of order.

David Shearer: When he said yesterday that it is possible that a court action could “have a cost for Mighty River Power … for every business and every household in New Zealand”, did he mean that New Zealanders may have to pay for the liability while private shareholders are able to get the profit?

Rt Hon JOHN KEY: No, I was making an assumption that if one day a court assumed that Māori owned water—and that is the assumption that was put forward by the Māori Council, if you look at the statement made by Maanu Paul the other night when he said—

Hon Trevor Mallard: Give him a hand.

Rt Hon JOHN KEY: I will tell you what you need: you need a few people to vote for you and you can become the leader, because the Labour Party has now changed the way that it elects its leader. No wonder David Cunliffe is not here; he is out with the unions.

Mr SPEAKER: Order! If members interject they may well have their interjections responded to, and it will tend to lead to disorder.

Hon Trevor Mallard: I raise a point of order, Mr Speaker.

Rt Hon JOHN KEY: Here we go.

Hon Trevor Mallard: I am waiting for you to sit down. He sometimes dips occasionally, Mr Speaker. I do not—

Mr SPEAKER: The Hon Trevor Mallard, point of order.

Hon Trevor Mallard: The point I was making is I thought that you were going to reprimand the Prime Minister for suggesting that you may be elected the leader of the Labour Party. That is most unlikely. You have not taken out your membership—yet.

Mr SPEAKER: I have heard sufficient. I know that it is the first day back after a break, but I think we have had our fun. The right honourable Prime Minister, in reply to the question.

Rt Hon JOHN KEY: In reply to the question, the point I was simply making was that some in the Māori Council—for instance, the chairman, Maanu Paul, and I will quote what he said on TV3 the other night: “Māori own the freshwater. … We need to sit down and work out how much you are going to pay us to use our water.” That is an example where if that was the case, then all businesses and consumers in New Zealand would theoretically have to pay for that right.

Rt Hon Winston Peters: Does the Prime Minister accept that Mighty River Power cannot operate without water, which he has said nobody owns; that being the case, on what basis does he purport to sell a share of it?

Rt Hon JOHN KEY: Mighty River Power does not own water. Mighty River Power has long-term water rights, and the sale would be the sale of the earning stream, effectively, of Mighty River Power.

David Shearer: Is the Government considering listing some of the State-owned enterprise’s shares on the Australian stock exchange; if so, how does that fit with his commitment to have 85 to 90 percent of the company owned by New Zealanders?

Rt Hon JOHN KEY: The Government has not made a decision on that, although it is taking advice from Treasury. I would simply point out that eight of the top 10 companies on the NZX are also listed on the ASX, including Air New Zealand, which was put on the ASX by the then—I assume—Labour Government. The reason why the advice in one instance has been that it is a good idea to do that is that the mandates of Australian funds that invest on behalf of New Zealanders often require them to be listed on the ASX. The reality is that in terms of New Zealand companies that are dual-listed on the exchange—if one looks at those—the vast, overwhelming bulk actually trade their shares in New Zealand. So Auckland Airport is 98 percent traded in New Zealand, and 2 percent on the ASX; Chorus is 88 percent traded in New Zealand, and 12 percent on the NZX; Infratil is 96 percent on the New Zealand exchange, 4 percent on the NZX; Sky TV is 90 percent and 10 percent; and it goes on. So it is possible, but it would simply be for liquidity reasons.

David Shearer: In light of his answer, can he guarantee, then, that his commitment that he gave at the election last year that 85 to 90 percent of the company will be owned by New Zealanders will stand?

Rt Hon JOHN KEY: Yes. Interestingly enough, actually—

Hon Members: How?

Rt Hon JOHN KEY: Well, because the Government controls the build book. But interestingly enough, actually, when I was in Australia the week before last I actually met with Origin, which, of course, has a substantial ownership in Contact Energy. One of the interesting things that the Origin board told me was that, in fact, the 80,000-plus retail shareholders that it has had in New Zealand have stayed consistent for a long period of time. They have not wanted to sell. In spite of all the fearmongering from the Labour Party that there would be sales to overseas people, it has not taken place.

David Shearer: Can the Prime Minister give us an undertaking that Mighty River Power will not be delayed in its sale, or will that sale have to continue next year?

Rt Hon JOHN KEY: Well, I can understand that the member is anxious to get his allocation, and in due course he will, But, in reality, it is certainly the Government’s intention that the shares are brought to the market in the third quarter of this year. It is not impossible that a court could delay the process, but we would hope that was unlikely.

Business Research and Development—Advanced Technology Institute

3. COLIN KING (National—Kaikōura) to the Minister of Science and Innovation: How will the new Advanced Technology Institute help businesses get competitive products to market?

Hon STEVEN JOYCE (Minister of Science and Innovation): Good news. Last Thursday the Prime Minister and I announced the high-level structure for the new Advanced Technology Institute. It will become a high tech HQ for innovative New Zealand businesses. It will help high tech firms become more competitive by better connecting them with innovation expertise and facilities both within the Advanced Technology Institute, around the country, and also internationally. The Advanced Technology Institute will make it easier for firms to access business assistance and our best researchers, engineers, and industrial designers, including by organising and part-funding secondments and internships. Also, those businesses can compete and succeed in the global market place.

Colin King: What industries will the Advanced Technology Institute be active in?

Hon STEVEN JOYCE: We expect the Advanced Technology Institute to focus on a range of technology-intensive industries with significant growth potential, such as food and beverage manufacturing, agritechnologies, digital technologies, health technologies, therapeutics manufacturing, and high-value wood products. This will encourage innovation, competition—

Andrew Little: This was Labour’s strategy 10 years ago! This is 10 years old.

Hon STEVEN JOYCE: —and greater commercialisation in these sectors, which in turn will help boost our exports. The manufacturing and services sector already accounts for around 29 percent of our GDP, but we have the potential to increase this in New Zealand if we have more firms carrying out research and development, and encourage those already doing so to do more. And Mr Little, it may be Labour policy from 10 years ago, but we implemented it.

Colin King: How is the Government helping the Advanced Technology Institute achieve these goals?

Hon STEVEN JOYCE: Mr Speaker—

Andrew Little: Reheat it and serve it up again.

Hon STEVEN JOYCE: I think the member is just pointing out that the Labour Party members are great talkers and not very good doers. The Advanced Technology Institute will have a range of resources at its disposal. It will absorb much of Industrial Research’s operations in Auckland, the Hutt Valley, and Christchurch, and a number of other capabilities from across government to provide a one-stop shop for technology support. The Government provided additional funding for the Advanced Technology Institute in Budget 2012 of $166 million over 4 years. We will seek to develop skills relevant to business through greater mobility of researchers, graduates, and academics between institutions and industry, and by organising co-appointments and secondments. The new Advanced Technology Institute will help ensure that innovative Kiwi firms have access to the skills, facilities, infrastructure—

Rt Hon Winston Peters: Oh, yeah, yeah, yeah!

Hon STEVEN JOYCE: —you hate it, Winston—and new technologies they need to lift their competitiveness and in turn boost New Zealand’s economic growth.

Rt Hon Winston Peters: Who wrote that rubbish?

Hon STEVEN JOYCE: That, Mr Peters, is a business growth agenda.

Economic Programme—New Zealand - owned Financial Institutions

4. Rt Hon WINSTON PETERS (Leader—NZ First) to the Minister of Finance: Does the Government’s economic strategy support the development of New Zealand-owned financial institutions?

Hon BILL ENGLISH (Minister of Finance): Yes, it does, and New Zealanders can support the development of New Zealand - owned financial institutions such as banks by switching from larger, overseas-owned banks to New Zealand - owned banks.

Rt Hon Winston Peters: Does he agree that if one outcome of the review of KiwiSaver default providers is that the number of default providers should be expanded, then Kiwibank should have preference over foreign-owned banks?

Hon BILL ENGLISH: Well, the member is a bit ahead of the review of default providers. Kiwibank has just recently bought a large KiwiSaver provider and I would expect that it will be able to build on that success. But I certainly could not prejudge the outcome of a review that has not begun yet.

Hon Trevor Mallard: In light of the Minister of Finance’s recommendation as to switching to New Zealand - owned banks, will he provide leadership by switching the Government accounts in that way?

Hon BILL ENGLISH: As the member may know, currently the Government is going through a process of looking at the 20 year - plus banking arrangement it has had with Westpac to see whether it can get further improvement in service and value for money, and I would not want to prejudge the outcome of that.

Rt Hon Winston Peters: Given his primary answer, will he therefore assure the public that Australian-owned Westpac’s intensive lobbying campaign to become a KiwiSaver default provider will not be influenced by the fact that former National Minister Simon Power holds a senior role with Westpac, and Mr English’s press secretary, Grant Fleming, is set to become Westpac’s government relations manager?

Hon BILL ENGLISH: I am not aware of any such lobbying campaign. The Government—[Interruption] Well, I am not. The Government is committed to—and, I think, required by statute to have—a review of KiwiSaver default providers by 2013, and that will be going ahead.

Drugs, Control—Regulation of Psychoactive Substances

5. MIKE SABIN (National—Northland) to the Associate Minister of Health: What recent announcements has he made regarding the regulation of psychoactive substances?

Hon PETER DUNNE (Associate Minister of Health): Yesterday I announced Cabinet’s approval to proceed with a new regime regulating the availability and distribution of psychoactive substances. This regime reverses the onus of proof, meaning that if it cannot be demonstrated that a product is safe or of minimal risk, then it is not going anywhere near the market place. New legislation will be introduced to allow the sale of only those substances that have gone through a robust testing process to be proven to be of low risk. Psychoactive substances pose a risk to consumers as they have unknown health effects, and are currently marketed without any control over their ingredients, their potency, or their quality, and without a minimum purchase age. And I note with some pleasure that the steps we announced yesterday have been recognised positively in a range of media articles today, including comments from the New Zealand Police, the National Poisons Centre, and the New Zealand Drug Foundation.

Mike Sabin: What are the implications of shifting the onus of proof regarding the safety of these substances to the manufacturer or distributor?

Hon PETER DUNNE: Let me put it this way. Last week I announced that four new substances were being banned under the current temporary drug-class notice regime. That brought the total number of substances dealt with under that regime since last August to 28—around 50 different products. But we are always catching up with products that become available on the market. Under the new regime, only those substances that have met testing requirements broadly similar to those required for new medicines will be permitted, and those products that do meet that criteria may well then be subject to further restrictions around the place of sale, the purchase age, advertising, and labelling.

Mike Sabin: When does the new regulatory regime come into effect?

Hon PETER DUNNE: It is my intention to have legislation before the House in the last part of this year. I hope that would be passed by the middle of next year. We can roll over the existing 12-month bans that have already been issued until that time. I invite the support of all parties in this House for this worthwhile legislation.

Transport Funding—Cancellation of Ōtaki to Levin Expressway

6. JULIE ANNE GENTER (Green) to the Minister of Transport: How much was spent on investigation, design, and other preparatory work for the now cancelled Otaki to Levin expressway?

Hon GERRY BROWNLEE (Minister of Transport): To date a total of $1.1 million has been spent on investigation, design, and preparatory work, which has led the New Zealand Transport Agency to a decision to improve safety on the road and delay expenditure on the four-lane expressway into the future. And I think that is money well spent.

Julie Anne Genter: Was it fiscally prudent for the National Government to commit to building the roads of so-called national significance before business cases had been undertaken, only to now start cancelling some of them after spending over $216 million on planning work alone?

Hon GERRY BROWNLEE: No roads of national significance have been cancelled. What I would say is that I have had a look at some of the expenditure that the New Zealand Transport Agency has committed to over recent times. There are a number of reports that I think do represent questionable value. They are, for example, the one on the impact of urban form on economic performance, Valuing Urban Design, and Business case for walking and cycling. I think they are jaw droppingly expensive and, quite frankly, a total waste of time.

Julie Anne Genter: Given his statement on 3 April that he would not review the prioritisation of the roads of national significance in light of officials’ repeated warnings that there is a multibillion-dollar funding gap, and his statement on 9 May that the roads of national significance will cost what they will cost, were New Zealand Transport Agency officials correct to say that cost was a reason that the Ōtaki to Levin expressway was cancelled?

Hon GERRY BROWNLEE: The Ōtaki to Levin expressway is not one of the roads of national significance.

Julie Anne Genter: Will he admit that spending most of the transport budget on building a few expensive motorways is not the best, most cost-effective way to improve safety and move more people and freight around the country, as we have seen with Ōtaki to Levin?

Hon GERRY BROWNLEE: No. Of course I will not.

Julie Anne Genter: Will further low-value roads of national significance projects be cancelled, such as the $1.7 billion Pūhoi to Wellsford project, which has lower traffic volumes and a worse benefit-cost ratio than the now cancelled Ōtaki to Levin expressway; if not, why not?

Hon GERRY BROWNLEE: No, because we think it does have the potential to carry a lot more traffic in the future—far more, in fact, than the tunnel through Auckland for the train with nobody on it.

Julie Anne Genter: I seek leave to table the traffic volumes from Ōtaki to Levin and from Warkworth to Wellsford, which show that Warkworth to Wellsford has lower traffic volumes and a significantly declining rate of traffic volumes, as does Ōtaki to Levin.

Mr SPEAKER: Leave is sought to table those documents. [Interruption] I beg your pardon. The source of the documents?

Julie Anne Genter: The New Zealand Transport Agency, but they have been compiled by the Parliamentary Library.

Mr SPEAKER: Leave is sought to table that document, compiled by the Parliamentary Library. Is there any objection? There is no objection.

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

Julie Anne Genter: I seek leave to table this data from Auckland Transport, which shows that the entire—

Mr SPEAKER: Order! The document itself is prepared by?

Julie Anne Genter: The Parliamentary Library, which had to contact Auckland Transport to get the numbers. It shows that the rail system in Auckland is carrying over 30,000 people a day, which is four times more than the number of people being carried on Pūhoi to Wellsford.

Mr SPEAKER: Leave is sought to table that document. Is there any objection? There is objection.

Rt Hon Winston Peters: I seek leave to table a list of the National Party MPs who have represented the north for the last four decades, hence explaining the very poor roads up there.

Mr SPEAKER: The source of the document?

Rt Hon Winston Peters: The E9 from the last election, for the last four decades.

Mr SPEAKER: That document is readily available to members of the House, if I heard the member correctly.

Julie Anne Genter: Will the Minister now subject the remaining roads of national significance to Treasury’s better business cases guidelines, which the city rail link has been subjected to, so that New Zealanders can be sure we are getting the best value for money from $14 billion of taxpayers’ investment?

Hon GERRY BROWNLEE: The member’s assertion about the rule being run over the proposed Auckland rail tunnel is simply wrong. What I will instruct the New Zealand Transport Agency to do is to stop paying for reports like that on the impact of urban form on economic performance, Valuing Urban Design, and Business case for walking and cycling, all compiled for the New Zealand Transport Agency by the member, at a huge cost—a jaw-dropping cost, in fact.

State-owned Energy Companies, Sales—Water Rights

7. Hon CLAYTON COSGROVE (Labour) to the Minister for State Owned Enterprises: Is he concerned about the potential loss of revenue from the float of Mighty River Power due to market uncertainty around water rights?

Hon TONY RYALL (Minister for State Owned Enterprises): Securities regulations prevent me from commenting directly on the likely proceeds from any individual float. What I can say is that the Government is neither concerned nor surprised by the discussions around water. We have always expected a claim to the Waitangi Tribunal, and have always acknowledged the likelihood of court action. The Government has prepared for, and is working through, these expected issues, step by step, and we will continue to do this as we work towards the float, which will help us control debt and allow us to keep investing in the New Zealand economy.

Hon Clayton Cosgrove: Has he received or sought any advice from Treasury on the effects of market uncertainty on potential revenue from the sale of Mighty River Power, potential costs to the taxpayer from compensation for water claims, and potential losses for the taxpayer from withholding or buying back shares for settlement; if so, what is that advice?

Hon TONY RYALL: Certainly there is a long list of things there, but, no, we have not sought any advice from Treasury in respect of the issues of what the member describes as market uncertainty. But I would have to say that if there was this issue of market uncertainty that the member talked about, then that would have impacted on the already listed energy companies. I am advised there has been no material impact on the share prices of the existing listed energy companies over the course of the Waitangi Tribunal hearing. For example, Contact Energy shares were priced at $4.70 on 7 February when the claim was lodged, and traded at $4.81 at the close of trading yesterday, and Tauranga-based TrustPower was trading at $7.05 on 7 February when the claim was lodged, and traded at the close of trading yesterday at $7.72.

Hon Clayton Cosgrove: Why did he not heed the warnings from numerous submitters during the consultative hui process in February, the hundreds of submissions during the select committee hearings, and public warnings by Treaty experts, lawyers, and economists that stated the issues around water needed to be resolved prior to the planned share offer?

Hon TONY RYALL: Those comments were to be expected, and the Government has planned for them. The fact is we are working through the issues step by step. These were to be expected, and the Government is prepared for them.

Hon Clayton Cosgrove: Given that his Government has been aware of the uncertainty around water rights for months, why did his Government book the proceeds from selling the assets before they were sold?

Hon TONY RYALL: I am sure the Government did what was appropriate for the rules at the time. I think what they certainly indicate is that this Government did receive a mandate from the people of New Zealand for this programme, which is about controlling debt and continuing to invest in our economy.

Hon Clayton Cosgrove: Why does he not delay the selling off of Mighty River Power until the water issues have been resolved, so that the value of that asset can be clarified?

Hon TONY RYALL: I think I have indicated to the House previously that the current issues before the Waitangi Tribunal are having no impact on the already existing hydroelectricity and energy companies on the New Zealand Exchange. But the member needs to be very clear that the Government has prepared for and has expected the various issues that are coming up at this time. The important thing is that the Government does want to move apace to make sure that we have those funds to help control debt and to invest in important things like schools, roads, and hospitals.

Welfare Reforms—Social Security (Youth Support and Work Focus) Amendment Bill

8. TIM MACINDOE (National—Hamilton West) to the Minister for Social Development: How will the Social Security (Youth Support and Work Focus) Amendment Bill provide greater support for young people at risk of long-term welfare dependency?

Hon PAULA BENNETT (Minister for Social Development): The bill makes changes to put in place total wraparound support for young people—those who are on benefit and those who are not on benefit—including young teen parents. Currently, we just pay these young people who are on a benefit and leave them to it, with very little follow-up and very little support around them. We are putting a youth provider alongside each young person to support them, manage their benefit, and provide parenting and budgeting assistance, as well as ensuring they are in education, training, or work-based learning.

Tim Macindoe: How will the changes ensure that young people are incentivised to make the right choices?

Hon PAULA BENNETT: When looking at the kinds of behaviours that we wanted from these young people, we looked at whether or not we incentivise or whether or not we penalise. I am pleased that we are putting in incentive payments. We will pay a young person on a benefit an extra payment—for example, if they are 6 months in education, training, or work-based learning; if they complete a budgeting programme; and if young parents complete a parenting programme, enrol their children with a primary health organisation, and have done their Well Child checks. They can actually get up to $30 extra a week.

Tim Macindoe: When will the changes under the youth package take effect?

Hon PAULA BENNETT: As a number of bills have been progressed through the House recently, this bill’s current implementation date requires amendment. We are seeking to change the current implementation date for the bill to 20 August 2012. This will give more time, following enactment, for several procedural steps, which include developing the necessary regulations or Order in Council to accompany the legislation, as well as consultation with relevant parties. Particularly, though, we were concerned about giving the right kind of notice to those young people, and wanted to give at least 2 weeks for that to happen.

Welfare Reforms—Funding and Projected Savings

9. JACINDA ARDERN (Labour) to the Minister for Social Development: Does she stand by her statements that “the billion dollars is not just about the young people. Those savings are also coming from those on other benefits … we certainly have got projections that we believe we will be making savings over the next four years”?

Hon PAULA BENNETT (Minister for Social Development): Yes.

Jacinda Ardern: How much will her first round of welfare reform cost over 4 years, as per the Budget documents?

Hon PAULA BENNETT: At this stage we are projecting $287 million in costs over 4 years for bill No. 1 on the youth and the changes to the DPB.

Jacinda Ardern: How much will her first round of welfare reforms save over 4 years, and what evidence is there to support these projected savings?

Hon PAULA BENNETT: There have been a number of forecasts that have been done. The most recent ones are from Treasury, which has taken a very conservative approach and also is not looking at behavioural changes, which are quite significant, we believe. So Treasury at the moment is projecting $135 million. I actually do not believe that is true. I think it will be a bit more than that, but Treasury is taking a very conservative approach.

Jacinda Ardern: Does she concede that her welfare reforms will cost more than they will save, based on Treasury’s projections?

Hon PAULA BENNETT: No, we have always said that bill No. 2 is the one that has the most substantial savings and the biggest changes. The member will see it coming along later this year. It is going to be a lot of work that is actually going to see the significant changes in savings coming through.

Jacinda Ardern: Does she have any capacity to fund phase two of her welfare reforms, given that Budget documents show that the Ministry for Social Development struggled to fill a $700 million budget shortfall this year, and stated that “the estimated costs of phase two are [even] more uncertain than phase one.”?

Hon PAULA BENNETT: I am delighted that the member is waking up to the fact that these are tough times. Yes, the department has struggled to find $700 million in projected costs from within the department, but we did—but we did—and that has been hard work. We will find the savings that are needed for bill No. 2, because we fundamentally believe that they will make a difference for New Zealanders and their lives and their outcomes. That is what we are working towards.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. You have been coaching members in this House to attempt to ask straight questions, and the deal has always been that the initial parts of the answer, at least, would also be straight. I ask you to reflect on what happened, when you look at this question time later on, as to whether that sort of approach from that Minister should be allowed.

Mr SPEAKER: I listened very carefully, and the first three supplementary questions were very straight and very directly answered. The fourth supplementary question implied a criticism—unless I misheard, it implied a criticism—and the Minister’s response was not totally out of order. I accept that it was on the margins. But there has to be a bit of give and take during question time. Earlier on in question time—if the member reflects back—the Opposition was making a lot of noise and making a lot of interjections that were causing disruption. I cannot be too hard on one side of the House and not hard on the other side of the House, and I believe, on balance, that that question was reasonably answered.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. My memory was that the question was essentially whether she has the capacity to fund, or how does she propose to fund, given that the document showed that her ministry struggled to find $700 million. I think that is a straight question, not one which implies a criticism of the Minister.

Mr SPEAKER: I will undertake to look at it, because that was not my recollection of the exact wording. I will undertake to look at it.

Child Abuse—Children and Young People in Child, Youth and Family Care

10. HOLLY WALKER (Green) to the Minister for Social Development: Can she confirm that in the year from 1 July 2010 to 30 June 2011, 71 children and young people were abused while in CYFS care?

Hon PAULA BENNETT (Minister for Social Development): In 2010 I asked Child, Youth and Family to review cases where children placed in Child, Youth and Family care had been further abused or neglected. It, quite frankly, horrified me that we did not know how many children and young people in our care were abused and re-abused, as it was not recorded, as the member will know from the written answer that I gave her. Subsequently, the review showed that in 2010-11 there were 71 children and young people in Child, Youth and Family care who were abused. Of these, 30 cases were by the child’s Child, Youth and Family - approved whānau or non-whānau caregiver, and 41 cases were by third parties. That is less than 1 percent of all caregivers. International comparisons are 0.5 percent to as high as 7 percent. No abuse, though, and certainly no re-abuse, is tolerable.

Holly Walker: What has she done to ensure the safety of those 71 children, 30 of whom, as she said, were abused by their Child, Youth and Family - approved caregiver, and can she assure the House that not one of them has suffered further abuse in care since?

Hon PAULA BENNETT: What happened was that it took 7 weeks for a social worker to work through all of the review of all of those cases. Since then we have seen, from memory, 13 of them be prosecuted by the police. The others were not—even though there was substantiated abuse, it was not at a level that the police could actually prosecute. I am assured by the department that all of those children are now being cared for, are safe. We have no caregivers who have substantiated cases of abuse against them still in a place of looking after children.

Holly Walker: Can she confirm that the cases of those 71 children were discovered only by a one-off, manual count of data at individual Child, Youth and Family sites, because Child, Youth and Family keeps no central records of reports of abuse of children in its care?

Hon PAULA BENNETT: Yes, the member is right. It keeps the information at a local level and supposedly goes through it. As I say, I was concerned about that, particularly when I first became Minister. I then got an experts group together. At that point we had reports that the figure was as high as 1,800 children being re-abused. They are our most vulnerable, as I always say. That is not just a statement; it is actually the reality. They really are in a position of being the most vulnerable children in this country. Once we started looking into the details of it, it was not as high as first projected—not that it was acceptable, but it was better than what it was going to be. Some of them were caught prior to the review being done, so it was not just because of that manual review that they were found; some were found well before that. What it did, though, was give a snapshot of actual numbers.

Holly Walker: Will she, then, commit to a full manual review of all Child, Youth and Family sites for the years 2001 to 2009 in order to find out how many other children and young people have been abused in Child, Youth and Family care in recent years, and put the appropriate support in place for these people?

Hon PAULA BENNETT: No, because what we are saying is that it is not that we do not know who they are or where they are; it is just that the information is not collected at a national level. So actually the regional sites do know, and are getting to those cases and are going through them. What they did not do was actually collect them for national data, and what we are now doing is seeking to do that. It was not because we did the manual review that we found them. They had already been found; they just had not been collected nationally.

Holly Walker: So can she confirm that Child, Youth and Family will now collect all of this data nationally on abuse in care, and does she agree that the abuse of these children and young people while in care raises serious questions about the vetting process for Child, Youth and Family approved caregivers and the ongoing safety of children in care?

Hon PAULA BENNETT: What we do need to do is keep it in perspective. I want to say that no abuse of children is tolerable or acceptable in this country, but it is less than 1 percent. I would like it to be 0 percent, but, unfortunately, in today’s world that is not possible. It is 0.75 percent of those caregivers. They are actually processed, but, unfortunately, we are not in every home and able to make sure that every child is cared for at the level that we would like. What I can promise the member is that, first, they are followed up, there are processes in place, they are prosecuted whenever possible, and those children are not left in unsafe circumstances.

Holly Walker: I raise a point of order, Mr Speaker. I listened carefully to the Minister’s answer. I appreciate that there were several parts to the question, but I do not believe she actually addressed the question about whether the data will now be collected nationally by Child, Youth and Family.

Mr SPEAKER: I think it was a fair supplementary question. The Minister may have overlooked that and she may be prepared to answer it.

Hon PAULA BENNETT: I am. We are collecting it the best we can, but it is going to take a complete IT change for us to collect it at a national level on a continued basis. So I am looking at ways that we can do that as we are upgrading the system.

Holly Walker: I seek leave to table the Minister’s answer to written question No. 4968—

Mr SPEAKER: Order! No, written questions are available to all—

Holly Walker: It has not yet been publicly released.

Mr SPEAKER: It will be released imminently.

Holly Walker: I was advised by the Table Office that—

Mr SPEAKER: We do not table answers to questions. There is a process for that being available to members in the House here.

Prisoners, Employment Training—Progress

11. JACQUI DEAN (National—Waitaki) to the Minister of Corrections: What progress has been made on the Government’s goal of getting more prisoners into employment and education?

Hon ANNE TOLLEY (Minister of Corrections): I am pleased to advise the House that the average number of prisoners in formal, on-the-job training and trade training activities has increased to 3,144 during June, exceeding the target numbers. This is the highest-ever level of prisoner involvement in employment activities. In addition, prisoners engaged in employment activities have achieved 140,599 New Zealand qualifications framework credits through 2011-12, exceeding all targets and significantly ahead of last year’s achievement of 108,000 credits.

Jacqui Dean: Has the Minister seen any research on what impact employment training in prisons has on reoffending rates?

Hon ANNE TOLLEY: Yes; research undertaken last year by the Department of Corrections shows that prisoner employment leads to reduced reoffending. The research found that reoffending within 12 months of a prisoner’s release reduced by 8 percentage points for those who worked in corrections inmate employment, and 16.7 percentage points for those who participated in the Release to Work programme. It also found that longer periods in employment while in prison were associated with even lower rates of reconviction. That is why this Government is committed to increasing prisoner employment and skills training significantly over the next 5 years as a key strategy to reducing offending by 25 percent by 2017.

Transport Funding—Roads of National Significance

12. PHIL TWYFORD (Labour—Te Atatū) to the Minister of Transport: How much money is budgeted for spending on investigation and design on the roads of national significance in the next three financial years, over and above the $216 million that has been spent since 2009?

Hon GERRY BROWNLEE (Minister of Transport): Based on current forecast funding, the New Zealand Transport Agency has budgeted for $138 million over the years 2012 to 2015 for the investigation and design of roads of national significance. After 2015 there remains some $90 million to complete the investigation and design of current projects in the roads of national significance programme. This expenditure to date represents less than 3 percent of project costs of around $8.7 billion.

Phil Twyford: Will spending on consultants continue to make up 90 percent of expenditure on investigation and design work for the roads of national significance?

Hon GERRY BROWNLEE: Unfortunately, I missed the figure that the member—

Mr SPEAKER: It would help if the honourable member would repeat his question.

Phil Twyford: Will spending on consultants continue to make up 90 percent of expenditure on investigation and design work for the roads of national significance?

Hon GERRY BROWNLEE: The national Land Transport Management Act was amended in 2008, and section 97 requires that the New Zealand Transport Agency farm out as much of the work that it does as possible. That amendment was supported by both the Labour and Green parties.

Phil Twyford: How much of the $16 million spent on the investigation and design of the Pūhoi to Wellsford road of national significance was spent on the Warkworth to Wellsford section, and will this project be subject to the same value-for-money analysis as the Ōtaki to Levin project?

Hon GERRY BROWNLEE: I do not have that information to hand. I am happy to provide it for the member at another occasion.

Phil Twyford: Does he agree with Ken Shirley of the Road Transport Forum when he said that some of the roads of national significance are gold-plated and appear “to be absorbing all the investment funding in the land transport fund leading to inadequate money for renewal and upgrading of other state highways and local roads.”, and is he concerned that even the staunchest defenders of the roads of national significance are now deserting him?

Hon GERRY BROWNLEE: No, and I am quite sure that most of Mr Shirley’s members would not agree with him, either.

Bills

Dairy Industry Restructuring Amendment Bill

In Committee

Part 1 Amendments to Principal Act

The CHAIRPERSON (H V Ross Robertson): We come to the Dairy Industry Restructuring Amendment Bill, and the question is that Part 1 stand part. I might say to members that debate is on clauses 5 through to 16 and the schedule. I call the Hon Damien O’Connor.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman): Thank you, Mr Chairman; I appreciate that. It is great to see this Dairy Industry Restructuring Amendment Bill back in the House. It is one of the most significant bills, from an economic perspective, that this country has seen for a few years. It is, indeed, about the restructuring and recapitalisation of our single—

The CHAIRPERSON (H V Ross Robertson): Order! Order! Can I just say to members it is a longstanding convention that members should not conduct conversations in the Chamber unless it is necessary to do so, and then only so as not to disturb the proceedings. So would members leaving the Chamber please respect and show some courtesy to the member who is trying to address the Committee; it is good conduct, and it is being considerate of others.

Hon Trevor Mallard: And courtesy is contagious.

The CHAIRPERSON (H V Ross Robertson): Courtesy is contagious. Mr Mallard, that is absolutely right.

Hon DAMIEN O’CONNOR: Thank you, Mr Chairman and Mr Mallard. Thank you very much. Can I just go back. We are talking about Part 1 of the bill—that is, the amendments to the principal Act, an Act that was passed in 2001 by the then Labour Government setting up Fonterra, our single biggest company in the country, and it has been a success by most, if not all, measures. This bill was introduced, and the select committee process was a rushed one. The National Government thought it would rush it through before the farmers had an opportunity to vote on whether they wanted this to proceed. Indeed, in fact, the vote was a last-minute consideration. When the bill was introduced, both the Minister for Primary Industries and Fonterra said a second vote was not necessary. Well, thanks to the mismanagement of the National Government, the bill was delayed, and the farmers had an opportunity to vote on whether they wanted Trading Among Farmers to proceed. The result of that vote was that 66 percent of milksolids—that is, the amount of milk produced by farmers—supported the bill in principle and what we are doing here.

However, a closer analysis—and we have not had the true figures—would indicate that about 50 percent of the farmers voted for this, and 50 percent voted against us. That does leave this House and the National Government in somewhat of a dilemma. That is, indeed, why—well, if I can go back one step—there was a second vote to tighten up the conditions around Trading Among Farmers and the restructure of Fonterra. Those conditions would have lowered the threshold of what we call a unit fund—the fund that investors can buy into—with a number of other conditions as well. Only 72 percent of milksolids voted for that, when a 75 percent mandate was required. So that leaves Parliament and, indeed, Fonterra in somewhat of a dilemma—that is, the mandate to support Trading Among Farmers is, in theory, supported, but the conditions that the company, the Fonterra Shareholders’ Council, and the farmers were expecting actually have not been passed.

That is why Labour in Opposition is putting forward an amendment to this bill that will put in place a statutory limit on the size of the investment fund that investors from outside Fonterra can buy into. The limit of that fund will be 23 percent. We initially proposed a 20 percent limit, because Fonterra has indicated that it will—and, indeed, it did at the second vote—take to the farmers a proposal to lower the threshold from a 25 percent fund to a 20 percent fund. As I say, because only 72 percent of the farmers voted for that, we are left in a bit of a dilemma. Well, if the company, if the Fonterra Shareholders’ Council, if the farmers, and, indeed, if the Government are honest in their intent, the 20 percent threshold will not be exceeded. But it is—not yet, but hopefully—only a constitutional limit. We in Labour believe that a legislated limit is required, because Fonterra itself admits, the shareholders’ council admits, that the size of the fund is critical to ensuring New Zealand owner control of our single-biggest company. We are proposing and accept the 23 percent limit on the basis of negotiation with Fonterra management that it needs some headroom above the 20 percent to enable it to manage back down the unit quantum—that is, if the number of units exceeds 20 percent of the total equity capital of Fonterra, then it has a legal obligation to manage it back down below the 20 percent. We have accepted the 23 percent reluctantly but in negotiation with Fonterra, on the basis that the Government supports this also—and the National Party has yet to indicate its support for a legislated limit.

The logic around that is that this is the single-largest company in this country. It is 100 percent owned and controlled by New Zealand farming operations. There will be some who say that there are some foreign investors who own farms and who have shareholding by way of that ownership. That is correct. But every farmer owning a farm and supplying Fonterra through the cooperative structure is an owner and gets their return through milk price and through dividend streams. That cooperative structure has served this country and the dairy industry very well for well over 100 years. We are reluctant and are concerned about the recapitalisation, the ability of Fonterra to offer out securities in its own company to outside investors. We are concerned that that may change the focus of the company and undermine that New Zealand control and ownership. So we believe that we must limit the size of that fund. We look forward to the Government’s support for that, and I hope that other coalition partners and other parties in this House will do so.

There are other components of Part 1 of the bill that I will refer to briefly. The key issue in the changes is the establishment of a fair process to establish the raw milk price for Fonterra farmers. Whether they like it or not, the farmers who have voted for Trading Among Farmers will now have downward pressure on milk price and upward pressure on dividend streams, because those who invest in the unit fund securities will be seeking returns only through dividend streams and only through an increase in the unit price and, consequently, the share price. If it sounds a little bit complex, I have to say that it is. I do not profess to understand all the intricacies of the Financial Markets Authority and the oversight bodies and all the wheeling and dealing that will go on here, but what I do understand through many, many years of studying the dairy industry is that farmers are moving into a new league under Trading Among Farmers, and they should be fully aware of the dangers.

What the Primary Production Committee has attempted to do is establish changes that ensure a fair price, that do allow competitors—independent companies that might have innovative products to develop and that want to get out and find new markets around the world—to compete with Fonterra to get milk from farmers on a fair basis, but we also are trying to support Fonterra as a cooperative to maximise the return to its farmers through the highest price it can possibly pay for milk and a dividend on their investment in the company. The reality in the dairy industry is that the vast majority of the investment occurs in the land, in the plant and equipment, and in the stock on the dairy farms. The investment through shareholding and into the cooperative is a relatively small part. Farmers, for the most part, will always focus on the return through milk price as their primary source of income, and that is the way it should be under a cooperative structure.

However, the bill is changing Fonterra radically. It is splitting the focus of management into two streams: one of dividend returns to investors, and the other of milk returns to the farmer shareholders. As long as they fully understand that, that is fine. As long as they fully understood that when they voted for Trading Among Farmers, that is fine. But I say to the Minister in the chair, the Minister for Primary Industries, and I say to the Government, that the fact that only 50 percent of farmers in number voted to support Trading Among Farmers means there is a potential split in this company. The loyalty that has helped Fonterra to grow and develop may not be there into the future, unless the management and the board of Fonterra fully understand that the returns primarily must go back to the dairy farmers through the milk price and not just through the dividend streams.

Hon DAVID CARTER (Minister for Primary Industries): To assist the debate, I want to make clear the Government’s position with regard to Supplementary Order Paper 85 in the name of the Hon Damien O’Connor. Can I first make the point with regard to this legislation, the Dairy Industry Restructuring Amendment Bill, that the Government has been aware for some time of the risk that the redemption risk posed to Fonterra’s ability to maximise growth potential for itself and for its farmers. On that basis, the Government has worked closely with Fonterra as it has developed a proposal to take to its shareholders called Trading Among Farmers. I do not accept the allegation just made by Mr O’Connor that I argued that there was never a need for a second vote amongst farmers. That was a decision entirely for Fonterra. Fonterra made the decision to have a second vote amongst its farmers, and it was supported by 66.5 percent of the farmers who voted. That is a mandate on which Fonterra has said it is proposing to proceed with Trading Among Farmers. The Government’s job, therefore, is to enable the legislation to proceed to enable Trading Among Farmers to proceed.

In the meantime, the Labour Party has got itself into a very difficult position, because the member who has just spoken, Damien O’Connor, simply does not understand the legislation. Indeed, he is not alone in that; there is a group of very vocal Fonterra shareholders who have failed to grasp exactly what this legislation is doing.

Having accepted that the vote has taken place, the Government is proceeding with the legislation to enable Fonterra to deliver Trading Among Farmers in November. It is not the Government’s position, therefore, that we accept what is probably a meaningless Supplementary Order Paper in a position to try to buy Labour’s support on this legislation. If Labour has chosen not to support the dairy farmers of New Zealand, who have voted in a very public manner, then that is a decision for the Labour Party to make, and I accept that it has got every ability. But with regards to supporting a Supplementary Order Paper that then starts to interfere with the constitutional matters of Fonterra, the Government will not support it. The Government will not support it.

It is interesting to note that Fonterra shareholders themselves had a vote on the size of the fund and they voted against it. I understand they are going to run a further vote later this year, and that is where this matter should be determined. It should be determined by Fonterra directors and its shareholders with votes at annual general meetings. It should not become part of public policy and passed here in the House in an effort to save the embarrassment of the Labour Party, which has misinterpreted where Fonterra’s shareholders would vote. My job here is to facilitate this legislation to give Fonterra and its shareholders the best opportunity to create wealth for themselves and wealth for New Zealand, and I wish them the very best of luck in doing so.

GRANT ROBERTSON (Deputy Leader—Labour): Well, was that not an interesting contribution from the Minister in the chair, the Minister for Primary Industries? It was an incredibly disappointing one too, because the Labour Party—and, in particular, the Hon Damien O’Connor—has gone to considerable lengths on this bill, the Dairy Industry Restructuring Amendment Bill, to try to find an outcome that assures New Zealanders and assures farmers and Fonterra’s shareholders that this will be a robust process by which New Zealanders and farmers will know that the value of Fonterra remains largely in the hands of New Zealanders. To have the Minister stand up and say that this is something that should be dealt with only by the Fonterra shareholders and should be dealt with only in the constitutional process ignores the fact that this whole bill is before Parliament because Parliament is making the acknowledgment that we need to look after our largest company, and that farmers fundamentally want to see the cooperative status of Fonterra retained. That is what farmers want, and the concern that is out there is that this bill is, in fact, a precursor to saying that Fonterra should be floated on the stock market. It is all very well for the Minister to say: “Well, that’s not going to happen.” Well, John Key said he thought it would be great—he said he thought it would be great if Fonterra was floated on the stock market. So farmers will not be assured by the Minister standing up today and dismissing the notion of a legislative statutory limit around what can be onsold in terms of shares within the newly established cooperative.

A constitutional limit is all well and good, and that may or may not be the outcome of a future vote among the Fonterra shareholders. What Parliament gets to do is make a law that ensures what New Zealanders and what farmers want—that the cooperative status is retained and that New Zealanders know that the interests in Fonterra will remain largely in New Zealand hands. At the moment that assurance is not here in this bill, and I think it is perfectly legitimate for members of Parliament like Damien O’Connor to propose, as he has proposed in his Supplementary Order Paper 85, a limit of interest in terms of cooperative shares. It is perfectly legitimate. It also comes from discussions with Fonterra and from discussions with farmers.

The Minister likes to make a lot of the mandate question. The problem is that what we do not know for sure today is how many actual farmers support this—not the vote in terms of interests in milksolids, but how many actual farmers. It could be as little as 50 percent. We could have half of the farmers involved in Fonterra actually not supporting this proposal. So why not, then, give some assurance to the people of New Zealand? Why not give some assurance to the farmers? Why not give some assurance to everybody who cares about protecting the cooperative status and support the Supplementary Order Paper? Why not do that? That would give the assurance that New Zealanders are looking for, but instead what it does is leave open the suspicion that this Government wants to float Fonterra. That is what John Key said. He thought it would be great. That is why it is deeply disappointing to hear from the Minister that he does not intend to support the idea of some kind of legislative cap.

We know that there are farmers out there who do think this is the thin end of the wedge in terms of demutualisation, and New Zealanders overwhelmingly—and we would have thought the Government would pick this up in recent months over the asset sales debate—are concerned about the idea that the value in our primary sector is going to go overseas, the idea that the value of what we own and what we control as New Zealanders is going to disappear, and the notion that a cooperative that has served our country incredibly well over the recent decades will now lose that ability because there is no cap, because we cannot be absolutely certain about where this will go.

Damien O’Connor has proposed in his Supplementary Order Paper a cap that is 3 percent higher than what Fonterra is looking at in terms of its own constitution. That is wise because it gives Fonterra the ability to manage what may or may not happen in terms of the movement of shares—the changes that might happen at random that would push it over the 20 percent cap. We think National can support this. We think National knows that it is a good idea. The Minister is shaking his head, but National knows this is a good idea because it provides assurance. If it does not support it and if the Minister says: “No, we are not going to do that.”, then all that does is open up the suspicion—

Hon Nathan Guy: He’s told you that—if you’re listening.

GRANT ROBERTSON: Well, Nathan Guy says the Minister has told me that. What the Minister is telling New Zealanders is that there will be no legislative guarantee about the interests of Fonterra staying in New Zealand hands. That is what the Minister has said. That is what the Minister is telling New Zealanders—that there is no guarantee and that this Government is not concerned about whether the value of Fonterra stays in New Zealanders’ hands. It is not concerned about whether half of farmers may not actually support this.

So it is deeply disappointing, from the Labour Party’s point of view, that this Supplementary Order Paper that Damien O’Connor has put forward, which actually has been worked through with Fonterra, is not being supported. This is not something that the Labour Party is doing, as the Minister might allege, because we do not understand the bill or we are trying to curry some kind of favour; it is because farmers around New Zealand are worried about this. All the Government needs to do is support a Supplementary Order Paper like this, which will bring the Committee together behind our largest company. We do want to be able to support Fonterra in what it does, and support it in retaining its cooperative status.

It is quite clear, from the Labour Party’s point of view, that the Government does not believe that it has an obligation to provide certainty for New Zealanders. It does not believe that it needs to protect those billions of dollars in assets that are in cooperative hands inside New Zealand, but rather to open this up without assurance for the future control of those profits. It is deeply disappointing, and, unfortunately, from the Labour Party’s point of view, this puts in danger our support of this bill, when a simple agreement to something that Fonterra itself wants would enable Labour to support the bill.

SHANE ARDERN (National—Taranaki - King Country): It is a privilege to rise and speak in this debate today in the Committee stage of the Dairy Industry Restructuring Amendment Bill. Before I do, though, I need to declare an interest as part of a trust that has shares in Fonterra. Can I assure Parliament and those who have just spoken that it is in the DNA of most dairy farmers—the one who is speaking to you being one—to maintain 100 percent ownership in Fonterra. It is absolutely in their DNA.

Damien O’Connor: 50 percent.

SHANE ARDERN: I heard the contribution from the other side about it being as low as 50 percent. There is nothing to back that up. In fact from my own research out there as to whether it was the big corporate farmers versus the hard-working mum and dad farmers who voted in this vote yes or no, I would suggest the split of those who were concerned was equal between the larger shareholders or milksolids providers and the ordinary mum and dad farmers. There is no evidence to say that support is as low as 50 percent. It would be interesting to know the outcome of that, but it is not relevant to this debate. So I would suggest that members concentrate on the facts: 66 percent of those who voted through milksolids voted in favour. That is a mandate by any comparison with anything that happens in this Parliament.

The fact that the vote for constitutional change required 75 percent but only achieved 72 percent is disappointing, but I am sure it will be rectified, as the Minister for Primary Industries said, when the next opportunity arises. If not, then that is the decision of the shareholders themselves. To suggest, as some have, that the 10,400 independent business people who are the shareholders of Fonterra do not have the wit, the intelligence, the ability, the knowledge, the understanding, the ability to get the right advice, and the ability to look at the facts and on balance make a call is insulting to the 10,400 shareholders who have made that call. The fact that this company and this industry over the last 8 years have seen something like a 280 percent increase in turnover—280 percent—and now represent about 25 percent of the total export earnings from this country suggests, I think, that this group of individuals do have the wit, the ability, the lifestyle, and the interest at stake to ensure that the decisions they make going forward are in the best interests of their own industry, plus the best interests of “New Zealand Inc.”

If members opposite believe that there is an entity, a structure, or a company in New Zealand that has more of “New Zealand Inc.” at heart than this company has, then suggest them, bring them forward; I have not been able to find them. Maybe my research is not wide enough, but to suggest that this company does not have at heart the best interests of New Zealand or “New Zealand Inc.” is, I think, actually insulting to the facts.

Fonterra is a priceless asset to New Zealand dairy farmers and it is a priceless asset to New Zealand. Farmers in many parts of the world are very, very envious of the structure we have. They are also very, very envious of the market structures that are being developed. But that does not get past the fact that this company was faced with a substantial redemption risk. In fact, it was built into the formation of the company, if you go back to the history of it. And, of course, that was with the compromise that must be struck between free entry and exit existing so that you can have a dynamic dairy industry in New Zealand and having capital that can flow in and out freely. This is a very, very good solution to that problem, which is to have an ability for those who, for whatever reason, wish to divest themselves of the dividend rights in the shares into a separate custodian group that will be able to trade those dividend rights, and overcome the substantial redemption risk that exists.

In the process leading up to this, there has been some interesting debate. I am reminded of Gareth Morgan, actually, saying in 2004 that the dairy industry was dicing with disaster. Gareth Morgan said in 2004 that the industry was dicing with disaster and that the industry should look upon a different structure. He was referring to the risk that existed from redemption, but he could not have been more wrong, because as I said earlier on, there has been a staggering growth rate since those comments were made. This company now is the envy of the world in terms of its ability to trade into, and compete within, 150-odd different countries in the world—some of which have industries bigger than Fonterra, and some of which have industries bigger than the New Zealand economy. Others have tried. There are plenty of examples where others have decided they can enter into the niche market, in the very sophisticated end, of the product range and achieve a dividend for it. So far the evidence of them being to do that is at best marginal, at best challengeable. But some will no doubt achieve that and I hope that they do because it is in the best interests of New Zealand and the industry at large that there are a number of players who can compete at farm-gate price.

Part of the process being debated here is about how that farm-gate price will be set, and it is interesting to note that the concerns raised by Opposition members about what may happen with the size of the tradable fund have taken precedence, when probably the most vexed issue or question in the whole debate so far has been how that farm-gate milk price may be set and what intervention the State may have in regard to that. The compromise that has been met in this bill is that the milk price manual, which is set out and publicly released by Fonterra, is now going to be enshrined in legislation. The independent panel, which feeds information into that manual, is going to be there by statute, and the Commerce Commission itself will finally have an annual ability to oversee how that process takes place.

The Commerce Commission raised some issues with the Primary Production Committee that were very interesting. The select committee did what it could to address those issues. I think that the position we have finished up in is one of compromise, without doubt, but it is certainly something that will assist the industry with the issues it raised. I think we should not forget that it was the industry itself that raised the concerns with the Government and came to the Government for amendments, and the end result of those amendments and negotiations is what we have here today. It has been a privilege to have been a part of that process, and I look forward to the passage of the bill through the House.

STEFFAN BROWNING (Green): Before I start to speak on the Dairy Industry Restructuring Amendment Bill I would like to take just a minute to pass on condolences from the Green Party caucus and staff to the family and friends of Dave Allanson. Dave Allanson was, as many of you know, a much liked member of the staff here in Parliament. He did 23 years in Parliament. I was one of the new people here, but he was an important person already, and I appreciated him a lot. So the Greens would just like to acknowledge Dave in this instance.

The Greens oppose this bill, and we have certainly stated that before. We do not believe that Fonterra or this National Government have a mandate to push it through. We have heard a little bit about the numbers, and I want to go back to those numbers again. The Greens believe that it is likely that it may even be slightly under 50 percent of actual farmers who voted for this. The Minister for Primary Industries said it was 66 percent of the farmers who voted. Where are the figures? How many farmers actually voted for Trading Among Farmers? It is not how many votes. Fifty-three percent in terms of milksolids voted for Trading Among Farmers. This does not reflect how many farmers, but how many votes the huge corporate farmers are carrying these days. My understanding is that 80 percent of that 66 percent may not have been the little family farmers. The Minister, Fonterra, and the Fonterra Shareholders’ Council need to front up with the real numbers. None of them are supplying the real numbers of how many actual farmers voted for Trading Among Farmers. This Committee needs to know how many actually supported Trading Among Farmers.

Fonterra informed its members and the community poorly about redemption risk, and we have heard it again from the Minister. This bill is not needed. The retentions that have been held by Fonterra in the past—significant retentions in sequential years—show that this redemption risk is not needed. Retentions cure that. So neither Fonterra nor the National Government has this mandate.

I would also remind all those involved in primary industries how the poultry industry votes as well—by eggs or chickens, not by the farmers. Individual farmers get affected, and individual dairy farmers get affected, and having big industry moguls dominating and pushing does not reflect what is needed for New Zealand family farmers.

This bill is very much, as we have stated before, the cousin of the asset sales legislation, which was passed with a similar push by the National Government. This Government is into selling out everything, not just our power companies, Solid Energy, Air New Zealand, and those sorts of things. Now we are selling out the actual fundamental dividend stream of one of New Zealand’s main export industries. This Government is selling everything it can to its mates and, often enough, to overseas interests. We already have a major sell-out of forestry in this country. We are having a sell-out of power companies, and we are having a sell-out of dairy. What next—we need to ask the Minister for Primary Industries—does he intend to sell out of New Zealand’s primary industry, which is the basis for the backbone of New Zealand? What else are we going to be selling off to overseas interests?

Hon MARYAN STREET (Labour): I rise to speak on the Dairy Industry Restructuring Amendment Bill. I particularly want to focus on the proposed amendment in the name of the Hon Damien O’Connor, and I will come to that in due course.

Fonterra is our largest company. It employs 15,000 people, and it is known internationally for not only the quantity of its product but the quality of it as well. In 2010-11 Fonterra’s exports were worth in excess of $10 billion. I suppose I am coming at this from having previously been involved as a shadow trade spokesperson, but it seems to me that anything that risks any of the operations of Fonterra needs the closest possible scrutiny. I am not satisfied, not having been on the Primary Production Committee but having heard from my colleagues and having read the minority reports of the Labour Party and the Green Party, that that due diligence has been undertaken in respect of this legislation. Quite a lot of the commentary around the passage of this bill has been to do with haste, to do with inadequate advice, and to do with advice that did not take all considerations into account. So I have an anxiety that our very largest company, and one that is unique and internationally renowned, could be at risk of some of its own profits going away from New Zealand.

The proposal that my colleague the Hon Damien O’Connor has put up is to limit the proportion of Fonterra shares that can be sold into the shareholder fund and bought as securities by outside investors. He has put the limit at 23 percent, slightly higher than Fonterra’s requirement, which would provide a cap and a protection on the quantity of shares that could be onsold. This is worthy of consideration. I do not think it should be dismissed out of hand, as the Minister for Primary Industries, in his contribution previously, did. I think it is worth consideration, because there is something—as the speaker before me, Steffan Browning from the Green Party, said—that rings true. He called this bill the cousin of the State asset sales legislation—the cousin. I wonder whether this Government has any method of dealing with any major money earner in New Zealand other than selling it. Is there any other possibility that this Government might consider for the treatment of those enterprises in New Zealand that earn a dividend that goes back, in the case of Fonterra, to the cooperative members? This is a wonderful model that has been in existence for a very long time, for something in the order of a century, and this cooperative model has served Fonterra, and therefore by extension New Zealand, extremely well.

The cooperative model is admired elsewhere around the world, and to carve off some of it and to make some of it open to foreign investors presents risks, in our view, that there will be something of the cooperative nature of the organisation lost in the process. That is not something we believe that a clearly demonstrable majority of farmers want. I heard the Minister refer to a 66.5 percent majority vote, but clearly there has been concern that the vote of those who were present to vote, or who did return a vote, does not represent a majority. It is not clear that that represents a majority of the actual farmers. It seems to me that we are beginning to see from this Government a redefinition of the word “majority”. The Government thinks it has a majority of support for the sell-down of 49 percent of State assets. Well, many people around the country do not believe the Government has majority support for that, and having a majority of one in the House for controversial legislation such as that does not denote a wide underpinning of broad-based support.

The same thing might be said here. There are parallels with the State asset legislation. In other countries that have looked to the cooperative model, they are coming out of a different environment. They are coming out of a business environment that relies on foreign investment and relies on foreign ownership, and therefore succumbs to the divesting of profit out of the country. I think about Uruguay in particular, where Fonterra has had interests previously. There is a farmers association in Uruguay that is looking to the cooperative model in order to retain the interests of the farmers and the profits that they produce within that country.

So it seems to me that the Trading Among Farmers option in this legislation is something that does not sufficiently guard against the disruption, the corrosion, and the final debilitation of the cooperative model, and will allow profits to go offshore, when one of the most compelling things about this cooperative model is that the farmers themselves have been able to benefit from it, by extension their immediate communities have been able to benefit from the profits going back to the farmers, and by extension the whole of New Zealand profits from that as well. Unless this cap is put on, in accordance with the Hon Damien O’Connor’s Supplementary Order Paper, we will have enormous difficulty agreeing to the passage of this legislation. Thank you.

COLIN KING (National—Kaikōura): This is the Committee of the whole House on the Dairy Industry Restructuring Amendment Bill. The bill is making good progress. It is what the majority of the milk suppliers of Fonterra wish for, and it needs to be stated quite clearly. It is a very interesting situation that the Opposition finds itself in, especially when you listen to—

The CHAIRPERSON (H V Ross Robertson): Order!

COLIN KING: —sorry, Mr Chairperson—the two debates. One is from the Greens and the other one is from Labour. It must terrify the primary industry when it thinks of that combination and the terrible damage that that would do to the very basis of the New Zealand economy. When we look at Supplementary Order Paper 85 in the cold light of the facts that present themselves, we do see that it clearly is the Labour Party trying to dig itself out of a position that it placed itself in. Setting the limit for the cap, as was spoken of by the previous speaker, the Hon Maryan Street, at 23 percent just goes to show how ineffective it would be, in the sense that the intention under the constitutional vote at the next annual general meeting is to actually limit it to well and truly under that. So it is more of a platitude to try to get back into the situation and be able to see the positives that this particular bill presents.

It is very interesting to also consider that in setting up Trading Among Farmers, and there has been a lot of talk about setting it up, there is no guarantee that it is actually going to meet the expectations and aspirations. As any good Government would do, there is also a very appropriate means by way of taking action that will ensure that the value that Fonterra represents to the New Zealand economy and to the farms that are involved in the industry is retained.

When we go to the Dairy Industry Restructuring Amendment Bill, we see that proposed new sections 109A to 109L in clause 8 set out a very prescribed process that requires communication from Fonterra to clearly identify and provide the evidence that would be necessary to tell the Minister for Primary Industries that, in actual fact, an alternative programme needs to be put in place. That would be a programme whereby a fair value share would be established. Although everybody is going on about Trading Among Farmers, there is in this bill a framework whereby if in fact it does not address the redemption risk to which Fonterra is exposed, it provides a mechanism to establish the fair value of a share. That is something that needs to be really looked at and concentrated on, because, although the organisation of Fonterra is trying to maximise returns back to farmers, there is no silver bullet for a lot of these things. The Government has tested the thinking of Fonterra, and it needs to have that rescue net beneath it in the event of Trading Among Farmers not actually attracting the interest of outside purchasers of the economic value of those shares.

This is a very good bill. It does worry me when we hear talk of caps, because a 23 percent cap sounds all very nice and wonderful, but what I have heard from the other side of the Chamber is that it wants to cap the number of dairy farmers in this country. That has been a public comment that has come out, and it just sort of starts to paint the Opposition members in their true light as dislikers and haters of the primary sector. When they look at any opportunity, they will do their utmost to actually rip revenues out of the primary sector for other use. They do not think about looking for efficiencies or providing opportunity for economic growth; they look at ways to gain money out of the primary industry to squander on other, reckless ideas.

It was an absolute pleasure to work along with the Primary Production Committee on this particular bill. I would have to say that a lot of concentration was put on just how we would arrive at the dairy milk price, because the bill itself opened us up to a whole lot of dialogue that raised questions about contestability. That draws my attention to the amendment in the name of Te Ururoa Flavell. We are quite confident that in the select committee we have set the scene at a very high but contestable level. We recognise that there will be major interest within the dairy sector of new entrants, and, thus doing, we as a committee were very conscious not to buy into some of the information used as a base study for setting the farm-gate price. When you looked at Deloitte’s research into that, it was quite aged and it had some inconsistencies around the product values put into the farm-gate milk price. I am very, very conscious that there will be significant Māori interest in the dairy industry. Māori today represent 10 percent of the primary industry. On that basis, we considered it quite fully and we took very good advice. However, we appreciate the thought of the member in putting that amendment forward.

I am very pleased to see that Part 1 of this bill addresses the fundamental framework of Trading Among Farmers, should it fly, and I wish Fonterra all the very, very best. If it does not actually work out and cover off the redemption risk, as it is hoping, then I am confident that what is considered in proposed new section 109 and right through that section will address the fair value share price. Thank you very much.

RICHARD PROSSER (NZ First): I am pleased to take a call in the Committee stage of the Dairy Industry Restructuring Amendment Bill. I think it is a great shame that the National Party, as the Minister in the chair, the Minister for Primary Industries, has indicated, is not going to support the Hon Damien O’Connor’s Supplementary Order Paper 85, which is proposing to place a 23 percent cap on the size of the shareholder fund, because I think if the Government were to do that, it would be very much a sign of good faith in so far as this process is concerned. New Zealand First does remain opposed to the passage of the bill for a number of other reasons, but we are prepared to support the Supplementary Order Paper as it stands. We believe that if a cap is placed in legislation on the size of the shareholder fund, relative to the totality of Fonterra, that will make the bill a less bad thing than it currently is.

It is contentious that Parliament is debating this bill at all. It is a bill that regulates, essentially, a private industry, but at the same time it is a private industry that has come to Parliament and to the Government in the past to ask for itself to be regulated and to be allowed to operate outside of other regulations. Obviously, Fonterra was created as a creature of statute to be allowed to be a virtual monopoly. It was recognised by the Parliament of the day that, as a virtual monopoly, Fonterra’s size and its strength would be of great benefit to “New Zealand Inc.” as a whole, and history has shown that that is very much the case. However, over the last 10 years things have changed a little, and there is a desire amongst some to evolve the path, I believe, of Fonterra. It is Fonterra’s own desire, and the desire of Fonterra’s shareholders, to evolve and to continue growing their business, and to do this they tell us they require greater capital. There is also the spectre of redemption risk, which faces any co-op, and for these reasons this amendment bill has come before Parliament.

We in New Zealand First believe that the redemption risk has been somewhat overstated. We do not believe that it is the great demon that it has been made out to be, and we believe that if there is real redemption risk, this can be dealt with in other ways than the Trading Among Farmers scheme. Trading Among Farmers, the TAF scheme, is probably the most contentious part of this bill as it stands. But, as Mr Ardern alluded to earlier, it is probably clouding the other major part of the bill, that being the milk price - setting mechanism, which is just as important and has probably slipped into the shadow a little bit because of the contentious nature of Trading Among Farmers. I think it is a shame that the monitoring regime is in place in the bill as it is, because, as the Commerce Commission found and as other investigations have found, the manner in which Fonterra sets its farm-gate milk price is reasonably fair anyway and is probably a fair reflection of what would be the case in a genuinely open market anyhow. So it probably does not need to be changed, and it certainly does not need to be mucked around with.

However, there is a potential that if there is this supposed outside oversight of the way Fonterra sets its milk price, then that milk price may be subject to influence from people who do not necessarily understand the industry, and who do not necessarily understand or appreciate the real thrust behind a cooperative, which is essentially to maximise returns to its owner-shareholders, who are its investors. We believe that the primary philosophy behind the setting up of Fonterra as a major co-op—that being to maximise the farm-gate milk price—is a good one. It should be adhered to because it maximises returns to New Zealand farmer-shareholders without allowing a major part of that profit stream to be generated from external sources such as dividends and so forth from share trading. Trading Among Farmers, of course, is the instrument that will allow that to happen.

Our concerns about Trading Among Farmers are primarily, as has been stated earlier in this debate, about Trading Among Farmers as it is now proposed and as farmers voted on. We can argue the numbers back and forth—and that is probably a pointless argument now, because farmers did vote in favour of instigating the Trading Among Farmers scheme. But we do not believe that they understood it fully. We do not believe that they were given all the information. Certainly, I do not believe that the Primary Production Committee had time to assimilate all the information, nor to assimilate all the submissions, and we believe that there is still a great deal of contention around that. However, it is certainly not the scheme that was originally offered to them, or the scheme that was guaranteed to provide 100 percent farmer ownership and control, and we do not believe that the Trading Among Farmers scheme as it is proposed can do that.

If the Trading Among Farmers scheme was simply trading among farmers and did not require outside investors, then that would be a great thing, but because of the numbers that are required in order to make the shareholder fund work, it appears that Trading Among Farmers cannot work unless it has outside investors, which to our way of thinking suggests that it is probably not the right model for Fonterra. There are other ways in which Fonterra can raise capital if it needs capital. They essentially all come down to retention in one form or another. We have had it suggested to us that 30c a kilo retained over 3 years would raise $1 billion for Fonterra, which—

Hon DAVID CARTER (Minister for Primary Industries): The member who has just spoken, Richard Prosser, suggests that we should accept the amendment proposed by the Hon Damien O’Connor as a measure of good faith. As I attempted to explain to the Committee earlier, this is about passing legislation, the Dairy Industry Restructuring Amendment Bill, and being involved in this legislation where we need to be. It is not about telling Fonterra the size of its fund. That is clearly something that Fonterra has recognised is its business. That is why it proposed a vote on it in the last referendum it had amongst its shareholders. But if I want to give the member any advice around operating with good faith, and if the member ever wants to successfully move a Supplementary Order Paper with a Government, then in engaging in good faith the member should discuss it with the Government. It would be worth noting to the Committee today that the earliest I knew of this amendment by the Hon Damien O’Connor was at approximately 10 o’clock this morning, when he emailed it through to my office. So that does not suggest to me good faith. But, regardless of that, I do not intend to involve myself in passing legislation simply to establish good faith when I know that public policy wise it is wrong.

The second comment I want to make is about the one that is coming from the Labour Party that this is the demise of the cooperative. Give the shareholders of Fonterra far more credit than that, and stop belittling them. If they thought for one minute that this was the demise of the cooperative, they would not have voted for it. They are not dumb. These people are bright business people with huge investments in their farms and in their shares in Fonterra. They have analysed this issue carefully, there has been a huge amount of press for them to be involved in to understand the issue, and the vast majority—66.45 percent—voted for it. That is an absolute clear majority. How Damien O’Connor can interpret that as 50 percent leaves me absolutely speechless.

The last point I want to comment on is a further Supplementary Order Paper 82, which I have presented for the Committee. I have presented this Supplementary Order Paper, which moves the existing text from section 150C(1)(ba) into the purpose statement for the milk price regime in section 150A. In particular, section 150C(1)(ba) stated that “any notional costs, revenues, or other assumptions taken into account in calculating the base milk price must be practically feasible for an efficient processor.” Moving this to the purpose statement directly links the requirement for assumptions to be practically feasible with the achievement of contestability. This is intended to improve clarity in relation to the existing Government policy; it does not represent a change in Government policy—it does not represent a change in Government policy.

TE URUROA FLAVELL (Māori Party—Waiariki): Kia ora, Mr Chairperson. Tēnā koe. Kia ora tātou katoa. I just want to take a brief call to make sure, on the record, that we speak to the amendment in my name, and that we put the Māori Party case in the discussion about that amendment. I do appreciate the comments from Mr Colin King in respect of the discussion at the Primary Production Committee. Unfortunately, we were unable to be there. But he would appreciate as much as, probably, most of us in the House that we have been lobbied pretty hard from left, right, and centre as a Māori party, so it is incumbent on us to put a view and, indeed, put up amendments that we believe are acting in the interests of those people who have lobbied us, as best we can. Of course we are talking about 1,700 dairy industry workers, farm owners, farmers, and farmhands who, as others have said, are Māori who are in this industry. So it is important that we put their case forward.

In the bigger picture, the Māori Party is focused on empowering communities, whānau, and hapū to develop responses to issues like these, which is great. That impacts on them; it is important that they have a say. We want to invest in business and Māori communities that incentivise Māori privately and collectively owned business growth. We want to ensure that there are opportunities for partnerships, joint ventures, and other economic development collaborations with Māori people and tangata whenua, and we also want to be committed to establishing effective strategies for engaging Māori communities and advancing Māori representation.

These are pretty huge goals, a tough ask, but they do lead us to ask one question of the Government, and it is this: why is it that the Government is insisting on imposing a competition policy test on the dairy industry that is different from, inconsistent with, and tougher than the standard that applies to every other industry in New Zealand? That is the question. For our part, we want to ensure that those 1,700 dairy industry workers, farm owners, farmers, and farmhands who are Māori, and those Māori industries such as Miraka, stand to benefit from the same opportunities as every other industry.

I said earlier that we have been lobbied, and we have also gone the opposite way and canvassed widely, including various Māori trusts and incorporations. Many of these trusts supply Fonterra directly—some do not. We have also spoken to independent milk processors who act in competition with Fonterra. Generally, we accept that the interests of Māori farmers lie with the fortunes of Fonterra, since most of their farms are basically with it. It is for that reason that we intend to support, with amendment, the Dairy Industry Restructuring Amendment Bill. But I did want to point out that we have been concerned with the lack of the definition around the term “contestability”. We have broached it with a number of the other parties, and I suppose the proof will be in the pudding shortly, when it comes to the vote.

We wish to ensure that whilst supporting Fonterra to be as successful as it possibly can, we are clear that we do not want to stifle the whole notion of potential competition in Aotearoa. We have therefore suggested two amendments that provide some clarity around competition in this particular sector. We are particularly proud of the efforts of Miraka and its achievements to date, as we are also proud of Fonterra as it has gone about its work. And although our farms still supply to Fonterra, we need to ensure that they are able to become independent milk processors also, if that is indeed their journey.

We believe these amendments will assist in that journey. The amendment in my name comprises two amendments. If I could mention them briefly: firstly, an amendment to clause 5 that is a definition of the term “contestability”, which is a critical term in both sections 4(f)—in other words, the purpose of the bill—and section 150A, the purpose of subpart 5A. The amendment reads as follows: that contestability, in relation to the New Zealand market for raw milk, means a market for the purchase of raw milk from farmers “in which a competitor to new co-op that is at least as efficient as new co-op could expect to earn a reasonable return on its efficient investment, and contestability has a corresponding meaning.” The intent of this change is to restore a level playing field in the dairy industry by removing Fonterra’s ability to set an artificially high or stretched milk price.

The second amendment, which is to new section 150A in clause 13, is to replace the word “while” with the word “by”. It is pretty insignificant in some senses, but quite important in the bigger picture. It is intended to clarify the relationship between the two heads contained in this section—that is, an efficient Fonterra and contestable markets—by stating that you get an efficient Fonterra via contestable markets rather than an officially high milk price. These are our two amendments, which I suspect may not necessarily get overwhelming support, but they are certainly our response to lobbying and to the information given to us by both sides. As I say, we are prepared to support the bill, but we hope that consideration is given to this issue of contestability in particular, as it is a crucial issue that has been expressed to us by a number of people. We have placed it in front of the Parliament, and I suppose we leave it for Parliament to make a decision accordingly. Kia ora tātou.

Hon PHIL GOFF (Labour—Mt Roskill): Mr Chairman might find that the price of his hay goes up! I want to speak to the amendment to the Dairy Industry Restructuring Act 2001. I was a member of the Cabinet of the Labour Government that put through the original Dairy Industry Restructuring Act. It is probably one of the most important pieces of legislation affecting the rural community and our dairy farmers. I say to the Minister in the chair, the Minister for Primary Industries, that what I remember about the passage of that bill was that we were very careful in how we passed that legislation through. We consulted fully, we took our time, we got it right, and actually we won the support of every political party in this House. I want to suggest to the Minister, in good faith, that you do consider the Supplementary Order Paper in the name of Damien O’Connor. Well, I do not want you to shake your head; I want you to listen to my argument, because I have listened to the Minister’s arguments against that. I understand that the Minister may be a little upset that he did not have greater notice of this amendment, but I understand that the reason for that is that the member in whose name the amendment appears has spent time working with Fonterra to ensure that it fully supports this amendment, and my understanding is that it does fully support this amendment.

Hon David Carter: No, they don’t.

Hon PHIL GOFF: Well, the Minister can take another call, and I would invite my colleague Damien O’Connor to, because that is my clear understanding—that this amendment is supported by Fonterra.

I remember that the biggest controversy about Fonterra was actually its name. We had solved the problems, we had got a consensus in the House—and that was a good thing—but people were not sure that they liked the name. The real concern of the public about the Dairy Industry Restructuring Act was that the cooperative nature of farm ownership be protected. That was the first thing. The second concern was that the shareholding of New Zealand’s largest company, in its most important area of the economy, was a New Zealand - owned company and that its shareholding and its profits did not pass out of this country and overseas. That concern remains today. This bill, the Dairy Industry Restructuring Amendment Bill, in my view, does not provide that assurance. There is no limit on the amount of investment bonds that can be bought, and therefore on the share of the profit of our largest company that can go overseas. There is no limit legislatively on that.

The Minister raised the curious argument that this would be interfering with Fonterra. Well, I have to say to the Minister that Fonterra is a creation of the very piece of legislation that we are amending. It is a creation of this House, and because it involves 15,000 workers, because it exports $10 billion to $11 billion worth of produce out of this country each year, because it is our biggest company in the most important sector of the economy, then there is every reason why this House should make sure that the interests of farmers and of New Zealanders be protected. I want to see the interests of New Zealanders protected so that we do not start at the top of a slippery slope and see the ownership of this industry and this company go out of New Zealand, and the profits flow out of this country. I know that does not matter to this Government. It is keen to sell our State assets—our electricity companies—it is keen to sell the land, and Colin King says that the Opposition wants to put a cap on the number of dairy farmers. For heaven’s sake, Mr King! Mr King will know that the number of dairy farmers in this country has declined in the last few years from 14,500 to 10,400. I think that was Shane Ardern’s number. The number is going down, and if we keep on selling the farms, as we have the Crafar farms, more and more of those farms will be owned overseas, and we will lose control and profits by a different avenue. But I want to ensure that in passing this legislation we protect the money that is made from our most important rural industry—our biggest export sector. I want to make sure that that money stays inside New Zealand. I see Supplementary Order Paper 85 in the name of Damien O’Connor as an effective way of ensuring that, and a way that Fonterra itself is comfortable with. It may be that 23 percent is a little higher than what it has set or would set—

Hon DAVID CARTER (Minister for Primary Industries): The member Phil Goff has asked whether I could comment on Fonterra’s support for Supplementary Order Paper 85 in the name of Mr Damien O’Connor. The first thing is that I can assure you the Government has not taken a position on the basis of the lack of consultation from the Labour Party with the Government—the fact that it has operated in bad faith rather than good faith. I would expect nothing else from Damien O’Connor, frankly.

With regard to Fonterra’s support, I have spoken to Fonterra. It does not support this amendment. It is prepared to accept it. It intends to operate the fund at probably around 10 percent of the total shareholding. It moved, itself, a constitutional motion in the last vote to limit it to 20 percent, and it intends to do that again. So Fonterra’s attitude is that, if Mr O’Connor strikes it at 23 percent, it will be so far above the threshold of any intention of Fonterra to operate the size of the fund that, frankly, it is meaningless. On that basis I have said it will not do any harm. So it is quite incorrect for Labour members to stand in this Chamber, on the basis of the conversations I have had with members of Fonterra’s directors and management, and claim that Fonterra supports this amendment. It is prepared to put up with it.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman): I take the opportunity to counter what the Minister in the chair, the Minister for Primary Industries, has said. We have been negotiating in good faith with Fonterra for the last 2 months on this issue. In fact, the proposal was that Fonterra wanted our support for the Dairy Industry Restructuring Amendment Bill prior to the vote taking place, and on the basis that it agreed to a legislative cap on the fund’s size. This was at a time when there were proposals put to farmers that were yet to have any endorsement.

Well, we are, I guess, lucky to have the clear view of the farmers, regardless of the debate over how many farmers support it or otherwise, and we have continued to discuss in good faith with Fonterra whether there is value in having a legislated cap. The fact is that the second vote did not reduce the proposed cap from 25 percent, as agreed in principle 2 years ago, down to 20 percent, which is what Fonterra took to the farmers prior to the vote, saying that it would reduce to 20 percent. We went back and in good faith negotiated with Fonterra around the technical issues, taking advice from Fonterra on how best to structure the amendment. We had discussion as to why we should not legislate for 20 percent, which was my preferred option.

But the Minister stands up in the Chamber and says: “Oh, well, Fonterra is going to manage it at about 10 percent, so the headroom between that and 20 percent is huge.” Well, I agree with that, Minister. But Fonterra itself came back and said it wanted it at 23 percent, because the trigger point is 18 percent, at which time it will start to take action—and I am happy to, and will later in the debate, table this for the Minister’s edification—and we were happy to accept Fonterra’s argument that from 18 to 23 percent was a 5 percent headroom space that allowed it to reduce the fund’s size without any potential for legal penalty. We worked through that process, knowing full well that Fonterra was at the same time negotiating with the Government, because Fonterra and the Government—rightfully—have been in close association negotiating through this the whole way, and that is as we would expect.

The Minister stood up in the Chamber and, firstly, claimed that my amendment was late notice. I think he has admitted that perhaps that is not the issue he first said it was, because he knew full well what was going on here. In fact, I had indicative notice that the Government, although not comfortable, had not made up a call. I understood that. I was hoping that the Minister might have seen wisdom to do this in the Committee today. He has chosen not to, and the question I ask is why. I come back to the point: in good faith we accepted Fonterra’s advice to move from the 20 percent cap that we proposed to a 23 percent cap. Now the Minister is coming back and saying: “Oh well, it should be at 20 percent because Fonterra is going to manage it at 10 percent.” I tell the Committee that what this does is question the whole agenda in the passage of this legislation.

I go back to a proposal put to the Labour Cabinet, and that was to float shares in Fonterra. We rejected that—the Labour Cabinet did—and said to Fonterra “Go back and revamp that.” It took the revamped proposal to farmers, and the farmers rejected that, because they too saw that there was an agenda to get Fonterra shares on the stock market. Trading Among Farmers is a new evolution of that, and one might say we are a bit paranoid. The draft Trading Among Farmers legislation, as brought to the House by Minister Carter, had in the first page of the explanatory note that it was to strengthen the capital markets of New Zealand. That is what the explanatory note said; that this bill was about strengthening the capital markets of New Zealand. Well, we accept that there will be a unit fund.

I suggest that the intentions of the Government and of Fonterra may have been more far-reaching than the Primary Production Committee thought wise, more far-reaching than the Opposition thinks wise, and—

RICHARD PROSSER (NZ First): I want to reassure the Minister in the chair, David Carter, that my earlier comments were not an attack upon his integrity. I found out about the Supplementary Order Paper at around about the same hour this morning as he did, but I was immediately struck by the simple brilliance of it as an elegant solution to possibly ameliorating some of the worst effects of what is still, in essence, a bad bill. We do not support Supplementary Order Paper 81 proposed by the member from the Māori Party Te Ururoa Flavell, for different reasons.

Continuing on with the theme from earlier, the most important feature of the Fonterra cooperative is its size and its strength, and its virtual monopoly position. Because of that virtual monopoly, the size and strength that Fonterra has grown to has been of enormous benefit to the New Zealand dairy industry and to New Zealand as a whole, and we very much want, as a party, to see that continue. New Zealand First would very much like to see Parliament recognise that and to not pass this bill, the Dairy Industry Restructuring Amendment Bill, because of that. All that we can see coming from the Trading Among Farmers scheme as it currently sits and from the milk price setting regulation scheme—as is also proposed in this bill—is the potential demutualisation of Fonterra, and, at the very least, the siphoning-off of a proportion of the dividend stream from Fonterra to overseas interests.

Where we also see a cap on the size of the fund being a benefit is that it will limit the tradability of shares. We see that there is another danger inherent in the trading of unit securities, particularly in the dry shares, because the value of those unit securities will directly affect the value of all other shares in the cooperative, and that will have a direct flow-on effect on the ability of farmers to enter and exit the co-op. Whether they have the right to enter and exit freely or not is not really the issue; it is the cost of entering that will be the issue. If the focus of a unit trading scheme—which it can only be—is to push up the price of the units and to maximise the price of the dividends, then, because Fonterra’s sole source of income is milk, the only place that that additional income can come from is if the farm-gate milk price goes down. If this happens in conjunction with what is ostensibly going to be an independent milk price panel, then the perfect storm will be that dividend prices rise, along with share values, and that the milk price comes down. That will mean that, immediately, a redemption risk will be created where one does not exist at the moment. Share values will rise, some farmers will see those increased values and take the opportunity to realise a gain and quit the cooperative, and new farmers coming in will see that the share price is unattainably high and they will choose to take their milk to alternative processors.

Where we see the danger in that is that the alternative processors are for the most part not cooperative. They are private companies that have no restrictions on foreign shareholding. If the Trading Among Farmers scheme goes ahead as it is proposed—we do not believe, as I reiterated, that it is fully understood by farmers who voted in favour of it—the immediate repercussion will be that the share price increases. Indeed, in order for Trading Among Farmers to attract outside investors in the way that it must in order to meet its 8 percent minimum, the only thing that can happen is that share values rise, because outside investors will offer more for those shares than what they are currently worth. If they were not going to offer more, farmers would not have any incentive to sell them.

I do not intend to keep the Committee very much longer, other than to reiterate that we believe that Supplementary Order Paper 85, as proposed by the Hon Damien O’Connor, is a good one. It will give some indication of the mood of the Parliament to the farmers of New Zealand: that Parliament does have a concern that without a cap on the trading scheme, there is a real risk—a very real risk—that Fonterra will be demutualised, that that dividend stream will flow offshore, and that New Zealand will lose its 100 percent control and ownership of its dairy industry.

We remain opposed to the bill. We still support the Supplementary Order Paper by the Hon Damien O’Connor. In closing, I would just like to add that if Fonterra is allowed to be demutualised by this or any other means, it will be to the great detriment of New Zealand as a whole.

EUGENIE SAGE (Green): The Green Party continues to oppose this bill, the Dairy Industry Restructuring Amendment Bill, partly because of the speed with which it has been pushed through the Primary Production Committee. The fact that one in three farmers voted against Trading Among Farmers shows the very knotty issues that the committee should have had more time to deal with. The Minister in the chair, the Minister for Primary Industries, was saying that those opposing the bill are assuming that dairy farmers are stupid. The fact, again, that one in three farmers did not vote for Trading Among Farmers shows that there are a lot of intelligent people who have major issues with the bill. We also oppose it because it potentially undermines the successful operation of Fonterra as New Zealand’s most financially successful cooperative through the whole issue of the shareholders being able to sell their shares into this fund and then getting outside investors in.

I would like to correct something that the member for Kaikōura, Colin King, said. He did not correctly represent our position in opposing this bill. He claimed that we wanted to cap the number of dairy farms in New Zealand. That is not true. We want to cap the number of dairy farms in particular catchments—in our lowland streams, lowland lakes—where intensification of land use is having major effects on water quality. Last month David Bruce of the Otago Daily Times reported that Southdown Holdings and Williamson Holdings, the two companies that were behind the very controversial cubicle cow proposals to milk 11,000 cows in the Mackenzie Basin, had folded and gone into voluntary liquidation. Richard Peacocke, the Mount Maunganui businessman who was behind Southdown Holdings, was reported as saying that the shareholders living in Australia made “a commercial decision” that it was too hard, and that they would do something else. Well, that was a very good decision for the spring-fed streams and wetlands of the Mackenzie Basin, and for Lake Benmore.

But the fact that thousands of people had to get involved in the Resource Management Act process, and had to point out the environmental inappropriateness of dairying in the drought-prone Mackenzie Basin, highlights a major defect in this bill—

The CHAIRPERSON (Eric Roy): Order! Order! Can the member just address Part 1 of the bill.

EUGENIE SAGE: Yes; I am. That defect is that it fails to amend the substantive Act to allow Fonterra to be strategic about the expansion of its supplier base, so that it does not have to collect milk from areas such as the Mackenzie, where dairying in a dry, drought-prone region will affect our waterways and biodiversity, and will be very difficult. By allowing non-shareholders to buy units in the Trading Among Farmers fund, their focus will be on maximising the dividend return. The focus, then, of the directors, and their fiduciary duty, is to provide a return to those shareholders. The bill, by not allowing Fonterra to be strategic about where it collects milk, will mean there is potentially more pressure on the company to continue to grow its milk supply regardless of the impact that that has on waterways and water quality. That is another of the reasons that the Green Party opposes the bill. My colleague Steffan Browning will deal with the Supplementary Order Papers, and the concerns we have about those.

MARK MITCHELL (National—Rodney): I move, That the question be now put.

Hon PHIL GOFF (Labour—Mt Roskill): I want to come back to the concern that I have that the Minister in the chair, David Carter, is not looking to get a stronger base of support for what is a very important piece of legislation, the Dairy Industry Restructuring Amendment Bill. In the earlier, primary legislation, we managed to get support across the board in the House. The Minister has said in argument that, first of all, he does not want to interfere with Fonterra. But the very fact of this legislation under which Fonterra exists indicates that there is an interest by this Parliament and by this country in what the future of that industry would be. We do not want to see demutualisation. We do not want to see the investor fund get so large that foreign interests will ensure a greater degree of influence over the way in which the company goes, and send money out of this country. But I see no provision in this legislation that provides adequate safeguards against that.

I would like the Minister to clarify what his understanding of Fonterra’s position is on the cap of 23 percent, because, first of all, Minister, you said that Fonterra was opposed to it, and then you said that it would accept it. My understanding, from looking at the email traffic, is that it is comfortable with that—that that is a safeguard. That is what we are asking you to consider. Hopefully, it would not get anywhere near that cap, but having the cap is at least a safeguard in terms of limiting the amount of dividends that would flow from our most successful enterprises out of this country.

I received from the Parliamentary Library, just on Friday, its concern about the trend in the current account deficit. It is now $2.8 billion for the March 2012 quarter. That is the biggest level of current account deficit in over a year. It has increased by $624 million. We know from Treasury projections that our current account deficit is going to get worse, year after year after year. So my question to the Minister is how will having an uncapped level of dividends coming out of this country—because there is no cap on the level of people who can invest in the bonds—help our current account deficit? How does that help grow New Zealand? How does that help us control and own our own future?

We are putting in good faith to you, Minister, a proposal that would provide some assurance. And it is not just this side of the Chamber—and I think all three parties on this side of the Chamber have expressed concern—but, as the Minister will know, it is also many of the farmers. I get all the farmer magazines; I live in a rural area. Week after week I have seen that debate raging in the farming community. It is not good enough to say that 66 percent of farmers have voted in favour. Sir Henry van der Heyden expressed his disappointment that that figure was not what he wanted it to be. We know that it is 66 percent of milkfat solids; it is not 66 percent of individual farmers. So the level of farmer opposition to this legislation could be considerably higher. Whatever it is—and it is at least a third; it may be as high as a half—that concern is expressed passionately, and farmers in this country, and the people of this country, want to know that we have got some assurance over the future ownership, control, and flow of dividends from this company.

I want to know whether this bill and the failure of the Government to accept a cap are because this is the top of a slippery slope. I want the Minister to explain what John Key meant when he said to the former chief executive officer of the New Zealand Exchange that it would be great to have Fonterra as a listed company. That is set out in the New Zealand Farmers Weekly on 22 August of last year. Is it actually the agenda of this Government that it is prepared to see Fonterra publicly listed, it is prepared to see shares sold, and it is prepared to see ownership and control go out of the hands of cooperative farmers and New Zealanders and into the hands of big foreign investors? We are asking as a measure of good faith that the Government support Supplementary Order Paper 85, which would at least put a cap on the amount of the bond fund. That is not asking too much.

The response to accepting that Supplementary Order Paper would be the support of the largest Opposition party for the legislation, and providing some certainty about the future of the industry. It would also be an expression of good faith by the Government that it did not intend to go down that slippery slope of listing Fonterra as a public company and allowing the shares to be sold off. Minister, I am not aware of whether you agree with what the Prime Minister has said. Certainly that is not the proposed agenda that you are putting forward, but the risk is there, and you can settle it.

MICHAEL WOODHOUSE (Senior Whip—National): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Motion agreed to.

The question was put that the amendment set out on Supplementary Order Paper 85 in the name of the Hon Damien O’Connor to clause 8 be agreed to.

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

Ayes 42

New Zealand Labour 34; New Zealand First 8.

Noes 79

New Zealand National 59; Green Party 14; Māori Party 3; Mana 1; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

The question was put that the following amendments in the name of Te Ururoa Flavell to Part 1 be agreed to:

in clause 5, after the definition of “commodity”, insert:

contestable, in relation to a market, means a market in which a competitor to new co-op that is at least as efficient as new co-op could expect to earn a reasonable return on its efficient investment, and contestability has a corresponding meaning; and

in new section 150A in clause 13, replace “while” with “by”.

Amendments not agreed to.

The question was put that the amendments set out on Supplementary Order Papers 72, 73, and 82 in the name of the Hon David Carter to Part 1 be agreed to.

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

Ayes 61

New Zealand National 59; ACT New Zealand 1; United Future 1.

Noes 60

New Zealand Labour 34; Green Party 14; New Zealand First 8; Māori Party 3; Mana 1.

Amendments agreed to.

The result corrected after originally being announced as Ayes 65, Noes 56.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Part 1 as amended agreed to.

STEFFAN BROWNING (Green): I raise a point of order, Mr Chairperson. I need to make a correction for Mana. Mana did support the Māori Party’s amendment, and I incorrectly voted for it.

The CHAIRPERSON (Eric Roy): The vote was not called.

STEFFAN BROWNING: Right, and that was—

The CHAIRPERSON (Eric Roy): No, the vote was not called, so there is nothing to correct. It was carried on the Ayes. OK.

Part 2 Miscellaneous

IAN McKELVIE (National—Rangitīkei): I have found this process fascinating; it is the first time I have had an opportunity since becoming a member of this House to follow a bill through its entire process. The Dairy Industry Restructuring Amendment Bill is a very important piece of legislation. It is a very complex piece of legislation, and it takes a considerable amount of understanding, and some comment has been made in the Committee today on the fact that a number of people in the dairy industry took some considerable time to understand it. I think the dairy industry took a lot of time to understand it, and I think in the end it understood it pretty well.

It is actually an exciting piece of legislation for the dairy industry, if there is such a thing, and it will continue to develop Fonterra as a new-generation cooperative. I think it is very important that we note the fact that it is a new-generation cooperative, and if we do not create these new-generation cooperatives, so to speak, cooperatives always run their course. So it is very important that Fonterra has the opportunity through this legislation to reinvent itself.

I am disappointed with what, I guess, can be described only as the scaremongering of the member for Wellington Central. Wellington Central, I reinforce, is a place where a lot of dairy farmers are residing, obviously!

Colin King: They’ve got their lattes.

IAN McKELVIE: I guess they do need the latte there. His view was that the Government wants to float Fonterra. I find that extremely disappointing, because this is clearly not the aim, at all. Had he attended the Primary Production Committee, he would have understood that his own members and, indeed, the members of the Government on that select committee questioned this topic at length. I think we were all comfortable that we got to the right position with regard to Fonterra and how it might go forward.

Fonterra has a very large parliament. Dairy farmers have spent years discussing the redemption issue. After at least the last 3 years, they have come to the conclusion that it is satisfactory for the industry and satisfactory for the company. This cooperative and its predecessors have been attacked by experts in an effort to gain a piece of the action. I for one am pleased to see the co-op and the Government, via the Dairy Industry Restructuring Amendment Bill and its amendments, making the running here. Through their initiative they have pre-empted what may have been otherwise manipulated by others.

We have heard the Greens on this topic throughout this debate. They do not support this, and that is no surprise. They have yet to get their heads around progress, and now they want to send the industry back to where it was pre-2001. This would be good for the sheep industry. We would get a little of our own back as we witness a swap-back to the sheep industry. My own intelligence tells me that, contrary to the Greens’ allegation, many of my small dairy farming families support the Trading Among Farmers scheme and support the amendments to the Act. The reason they had difficulty with the Act is that if you go back to 2001, it was legislation put through Parliament in order to establish a modern dairy industry. Many of our farmers had difficulty with that, because it changed the structure and the nature of their cooperative. If we do not change the nature of this cooperative, the cooperative will certainly, in my view, be derailed in the future. So it is most important. The other reason that small farmers look forward to the opportunity to support the bill, and I am sure will vote resoundingly for it at the next opportunity, is that it provides an opportunity for intergenerational transfer and for continuance of strong family-owned farming businesses.

One of the factors that I find really important in the course of this is that we are taking the opportunity to change the legislation slightly to ensure that companies taking a piece of the 5 percent of the milk available to other companies have to do it in a structure and a form that is understood. In other words, they cannot set up subsidiary companies to take a share of that milk. This provision will be well supported by the dairy industry. I am sure that it will give great security to the dairy farmers who currently supply Fonterra.

I will be brief. The last thing I want to say on this topic is that this industry was restructured in order to give Fonterra and the dairy industry an opportunity to grow and to diversify. It is designed to create efficiency around the activities of Fonterra. It is designed to create efficiencies around the activities of any other companies participating in the industry.

The CHAIRPERSON (Eric Roy): I just want to acquaint the Committee with the contents of Part 2. We have had some general comment. This is quite a technical section that deals with repeals, and it is coupled with the schedule, which members might also want to look at. I do not intend to allow the debate to be an extension of the debate on Part 1. Having said that, is any member seeking the call?

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman): I raise a point of order, Mr Chairperson. Can I just say that the buzzer is pathetic and it is actually a little confusing at times. I am a little deaf, and I did just about miss that.

The CHAIRPERSON (Eric Roy): We will probably now have to wait until the dinner adjournment, when the technicians will come running and fix it. I do hope that the member was not implying that I was pathetic when he talked about the buzzer. Rest assured, if I press the buzzer and the member does not notice, I will let them know.

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman): Thank you, Mr Chairman. I do not think for a moment that you do not have the ability to push it hard; it is just what comes out at the end that I am worried about. I will refer to Part 2 of the Dairy Industry Restructuring Amendment Bill, which contains transitional provisions that refer back to new section 109A and other provisions of the bill. The provisions are actually quite far-reaching. I will refer to just one particular point, in new section 109D, which relates to the Order in Council and what the trigger points are for the introduction of Trading Among Farmers or, indeed, if the fund was to be dissolved or cease to operate.

One of the requirements put in there is the fund size: $500 million. I would like to take the opportunity to put on record here how that figure was arrived at. Firstly, 2 years ago, when farmers voted on Trading Among Farmers, it was trading among farmers of their own shares, and they supported that in principle because they believed that that was what was going to happen. There were issues of liquidity raised by some of the officials over here, who know competition law, that if all farmers wanted to trade their shares at once, no doubt the price of those would drop. So they came up with a cunning plan, which was to have a unit fund, which was to provide equivalence and fungibility. Fungibility is a word that I had not really made myself familiar with prior to this bill, but I understand it now. The issue of why $500 million was chosen, which equates to about 8 percent of Fonterra’s equity at this point in time, is that it was just a figure plucked out of the sky. It is one that officials estimate will provide enough liquidity to ensure a fair fungibility and, hopefully, some stability in the share price and the unit price. I think they have got it wrong, because the unit owners are just going to want one thing, and that is the price to go up and the dividend streams to flow.

Aside from that, can I go back to the key point of why $500 million was chosen, because some farmers are asking why we do not just go back to the concept of Trading Among Farmers—that is, we trade shares among ourselves as we see fit and need to, and if there is a liquidity issue, then we start off with a smaller fund size. Indeed, the proposition put to me was that farmers themselves could fund a fund; they could buy the units of maybe $100 million or $200 million. In the dairy industry that is not a lot of money. But the insistence of Government officials—the Minister and his officials—was that it should go to a minimum of $500 million, and, indeed, without my amendments, there would be no maximum in legislation. So we have in legislation a minimum fund size of $500 million, regardless of whether it is necessary to have Trading Among Farmers of their shares. So we have forced upon Fonterra, or forced upon the farmers, a fund that is open to outside investors, on the basis that we have to do this to have liquidity. Well, if you buy into that, why not at $200 million? They will always put up the argument in a drought year or in the exception year, etc.

Well, can I put on the record that in one of those exceptional years there is redemption risk still for Fonterra. It has admitted that, and the chairman, Sir Henry van der Heyden, stood up time and time again and said that this was about removing redemption risk once and for all. That was a lie. That was a lie, and he knows that, because it leaves in place redemption risk for Fonterra. Let us be clear about that. It reduces it from a maximum of an estimated $800 million back down to $200 million, but the redemption risk remains in the exceptional event that officials have negotiated and, I guess, calculated for. In that exceptional circumstance, $500 million, $1 billion—who knows—might be required. But the question put to me is why we should be legislating for a minimum fund size when we are not legislating for a maximum.

Well, that supported my Supplementary Order Paper into the House. That is why I brought to this House my Supplementary Order Paper 85 to ensure a maximum fund size, which to some extent counters and balances the argument that officials put up to the Minister for Primary Industries—and he swallowed—that we needed a minimum $500 million unit fund size. These are the transitional provisions in Part 2 and there are many questions flowing on from that that the Fonterra Shareholders’ Council should now start to ask. We will not support this bill, because the Minister and the Government have blocked our ability to have a maximum fund size. Many of the farmers who voted for Trading Among Farmers believed there was going to be one.

There is talk of a vote in November that might reduce the cap from 25 percent to 20 percent. I do not trust the process, quite frankly. I do not trust the process, I do not trust Fonterra, and I do not trust this Government. This Government has embarked upon a process of State-owned enterprise sell-offs and of “strengthening the capital markets of New Zealand”, which was in the explanatory note of this bill. It is determined to get a chunk of Fonterra—as big a chunk as it possibly can—on to the New Zealand Exchange because the chairman of Fonterra, the ex-chief executive of the NZX, and the Prime Minister are good mates. In fact, the chairman of the NZX now has been, and is, involved in investment companies with the chairman of Fonterra.

These things are not widely known by farmers, but they should be. They need to know where this might head. This is our single biggest, most successful, and wholly New Zealand - owned company—Fonterra, a cooperative—and the transitional provisions in Part 2 that we are referring to here may lead to the loss of control and ownership of that, and farmers need to be aware of that. The Fonterra Shareholders’ Council has yet to sign off on Trading Among Farmers. It should be fully aware of what is hidden in this legislation, and ask the question why the Government blocked my Supplementary Order Paper, which would have capped at a reasonable 23 percent of the share value of Fonterra the fund that will trade units that will be able to be purchased by outside investors, because I do not know that it fully understands that.

It may be because the Prime Minister said that he thinks that Fonterra on the stock exchange would be a great idea. It may be that the original intent, as stated in the bill, to strengthen the capital markets of this country, is the objective of the Minister and his Government, not indeed to grow Fonterra, because actually this does not in itself provide Fonterra with any more capital. It does not, in itself, provide any more incentives to innovate or create more value-added products, and the chair of the Primary Production Committee knows that. What this does is open the door to outside investment in the naive belief that analysts of the New Zealand Exchange will provide the discipline to drive better management of Fonterra. Well, if you have a look around the country at the failed companies and at those that have been sold offshore or that are failing at this moment, and have a look at what analysts have said over the last 10 years of NZX companies, I think you would fire the whole lot of them.

Part 2 of this bill here contains transitional provisions. It enforces and relates to Orders in Council and the ability for the fund to be wound up if these conditions are not met. I think that if we did not reach the $500 million fund, it would be a great outcome. It would actually mean that the farmers of Fonterra had the opportunity to go back and work on a different way of addressing redemption risk, because they are not eliminating it through the passage of this legislation and the setting up of Trading Among Farmers; they are reducing it. There are other options to reduce redemption risk, which we accept are there. The options are there and the redemption risk is there. The simple fact is there has not been enough debate, and robust debate, on those options.

The previous speaker, Mr McKelvie—

The CHAIRPERSON (Eric Roy): Before the member Shane Ardern starts, I say that I did give a caution that this is largely technical. It is about transition matters, and the member who was just speaking did get well outside of that. If members do not want to talk on Part 2, you are inviting the Chair to take an early closure motion. That is how it works.

SHANE ARDERN (National—Taranaki - King Country): Mr Chairman, I intend to speak entirely on Part 2, but can I reference, first of all, the comments made by the previous speaker, the Hon Damien O’Connor—the scaremongering, I guess you could say, that is going on around the potential loss of ownership of Fonterra. As I said in Part 1, it is in dairy farmers’ DNA to maintain 100 percent ownership of this industry, and can I just say it is not just a philosophical position—and it is entirely enshrined in Part 2, under “Miscellaneous”—it is a commercially driven position. It is a commercially driven position that is absolutely in the best interests of “New Zealand Inc.”, so let us just talk about how that will be achieved, particularly in regard to the new sections 109A and 109B in Part 2. That is the size and the protection and the ability of the fund, if you like, the fungibility—a new word that we learnt in the Primary Production Committee that most of us had not heard of until we started down this track—in regard to maintaining Trading Among Farmers and the dividend fund.

Can I just say that if the worst fears that were expressed by the previous speaker were to be realised, then the shareholders themselves, through the process of election of directors and chairman of the company, would address that. There is a track record of that over many, many years in this industry—in fact, over 100 years. It is lost, I think, in this debate that in Taranaki alone there were over 100 processing sites and now there is one for the whole of the lower North Island. So decisions will be made—decisions that protect the best interests of the industry.

So let us look at what is in Part 2: transitional provisions for the application under section 73 or 74 of the principal Act. Those provisions and many others that are related and tied in to section 109—well, I am reading it from the bill here, Mr Chairman; I am not sure whether you have got the same one, but I am certainly reading directly from the bill that is tabled in the House today—are themselves a form of protection against some of the assertions that have been made by the Opposition in the previous contribution.

Can we look at the transitional provisions for notice of withdrawal under section 97 of the principal Act, which are also covered in Part 2 before we end up in the schedules, and that is also a built-in protection for some of the issues that have been debated by the previous speaker. Section 77, of course, and new section 77A, is the area where the share price of Fonterra will be set by the Government if Trading Among Farmers does not succeed. That in itself was of great concern to the Primary Production Committee when it was first brought to the select committee, and an enormous amount of work and advice not only from fund managers and valuers but also advisers to the committee, and one of those was independent, thrashed that round and round and round. When I look now at where we have finished up in terms of support in the House, I wonder why, as chair, I let it go round as often as I did, with the, I guess, naive hope at that stage being that we might reach a compromise position where we could achieve bipartisan support for this legislation.

So new section 77A—section 77 is mentioned in Part 2 of the bill—was amended in the select committee.

With those words, I look forward to the passage of this bill through the House. It has been a contentious debate. It has been a thoroughly considered position that the select committee ended up in, and there was sufficient time for all of those who wished to ask questions, and all of those who sought further advice, to have that advice delivered and furnished. I think we finished up in a position where we have a fair compromise.

The CHAIRPERSON (Eric Roy): I look forward to the Hon Shane Jones, who knows that the debate on clauses 1 and 2 is the time for the summary of the debate, and this is about the miscellaneous and transitional provisions.

Hon SHANE JONES (Labour): From the far north to the deep south, I greet you, sir. Having returned from Waitangi and other such far-flung places and never having enjoyed the opportunity during the Committee stage to visit a modest level of oratory on the Committee, I will take on board what you had to say.

I would like to start off, however, by saying that in order for that Shane Ardern’s words to come to pass, there has to be a bit of compromise on both sides. But I want to direct our attention back and follow on from Damien O’Connor, taking on board the admonition of the Chair. It is not unreasonable in this stage for us to challenge the efficacy or the adequacy not so much of the transitional provisions etc. but of the safeguards for what is proposed—beyond all the parliamentary brouhaha, because that will have come and gone. This will be well down the track, this will be back into the innards of Fonterra, this will be back not even necessarily at the table of the Minister for Primary Industries; it will be with the stable of bureaucratic advisers. During the course of the select committee process they had a task that they needed to acquit themselves of, and, in fairness, what they are paid to do they, by and large, delivered for their Minister. But the point remains at a deeper level that it is not unreasonable for members on this side of the Chamber to continue to raise the concerns and to question whether, for example, if the trading scheme does not come to pass, with the alternative process we can be confident that the key stakeholders in the farming community will be listened to, or will it be that those who enjoy the corporate leadership of Fonterra will be the ones whose voices are amplified—whose voices carry the day?

As parliamentarians during the select committee process, time and time we were warned that once the large rhetorical battle is over, it then moves into almost a regulatory phase, and a subsidiary level of legislation, and we have got every right to put it on the record here and have it entered into the Journals of the House of Representatives that we fought this until the final point. Why? Because it is not unreasonable for us to remind you, it is not unreasonable for us to remind ourselves, that once this fund is set up without a legislative cap or without a legislative safeguard, we do depend on the constitutional processes within Fonterra. At one level, as has been said, it is its business. But Fonterra itself is a creation of this House, so that makes it the business of legislators, and for those reasons, at every opportunity, this side of the Chamber will continue to remind our friends on the Primary Production Committee, and indeed key stakeholders within the farming community, because once it leaves here another dynamic takes over.

I do not want to inquire as to whether it is dumb capital that will fill the $500 million order book, or whether a smaller amount will actually step up to the plate. But we need to be absolutely sure that these transitional provisions, the regulatory-making power, actually allows for a threshold of safety and reassurance, because as day follows night, if it does not work out, this is where they will come back to. First, to the advisers after the litigation, which will be driven—rather humorously, I might observe—by both sides that comprise my DNA, the Dalmatian and the Māori, rest assured they will definitely litigate going forward and we will see an example of what Telecom put us through.

Hon Damien O’Connor: Too much money.

Hon SHANE JONES: Yes, well, I am sure the Dalmatians have got too much money; for fear of losing what slender Māori votes I still attract, I will not say that about my own people, Mr O’Connor. But I would remind the Minister in the chair, the Minister for Primary Industries, that, of course, on this side of the Chamber we are champions for the industry, but in the absence of compromise, Minister, you know as well as I do what they told us recently in that great talkfest to do with cooperatives. The great cooperatives of Manitoba and that part of Canada have all disappeared as a consequence of people being asleep at the wheel and allowing privatisation to sneak in and ruin the core foundations of their cooperatives. We remind you that you must not, under your watch, allow such a thing to—

TIM MACINDOE (National—Hamilton West): I move, That the question be now put.

Motion agreed to.

The question was put that the amendment set out on Supplementary Order Paper 72 in the name of the Hon David Carter to add new clause 20 be agreed to.

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

STEFFAN BROWNING (Green): I raise a point of order, Mr Chairperson.

The CHAIRPERSON (Eric Roy): I think I understand. The member has a point of order relating to a previous vote. We will deal with that immediately after this vote.

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

Ayes 61

New Zealand National 59; ACT New Zealand 1; United Future 1.

Noes 60

New Zealand Labour 34; Green Party 14; New Zealand First 8; Māori Party 3; Mana 1.

Amendment agreed to.

The result corrected after originally being announced as Ayes 64, Noes 57.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Part 2 as amended agreed to.

STEFFAN BROWNING (Green): I raise a point of order, Mr Chairperson. I seek leave to amend the vote for Mana for the Minister’s Supplementary Order Paper on Part 1. Mana voted 1 opposed and I inadvertently voted in favour for Mana.

The CHAIRPERSON (Eric Roy): So that is to the Minister’s amendments that were set out on Supplementary Order Papers 72, 73, and 82. The member is seeking leave to change from Mana’s No vote to an Aye vote.

STEFFAN BROWNING: The other way round.

The CHAIRPERSON (Eric Roy): The other way round. Leave is sought for that purpose. Is there anyone opposed to that course of action? There appears not. Leave is granted. The record will be amended. It is corrected by leave.

Schedule agreed to.

Clauses 1 to 3

Hon DAMIEN O’CONNOR (Labour—West Coast - Tasman): This is clauses 1 to 3, “Title”, “Commencement”, and, of course, “Principal Act”. We are familiar with the principal Act; it was one that we engineered and negotiated through in 2001, and we were quite proud of the fact that as a Labour Government we were once again passing a significant piece of legislation for the dairy industry. In fact, if you go back to the 1930s under Labour, the 1950s under Labour, and, of course, the 1980s, where we removed subsidies for all sectors, Labour has played a big part in dairy industry legislation. And, of course, in 2001 the Dairy Industry Restructuring Act, the principal Act, was passed to set the company up.

We cannot support this legislation, the Dairy Industry Restructuring Amendment Bill, and it is with sadness, I guess, that we find ourselves in that situation. If the Minister for Primary Industries had seen his way clear and the Government had perhaps backed what it says rather than covering its real agenda, then it would have supported the Supplementary Order Paper to limit the fund size. But the Minister and his colleagues clearly have other agendas.

The title of this legislation will be the Dairy Industry Restructuring Amendment Act 2012. I am tempted to put forward an amendment that would change the title to the “Dairy Industry Destruction Act”, because I have no doubt that this bill will lead to a build-up of internal tension within Fonterra as the focus of the board and the focus of management shifts from one of maximising the return to dairy farming shareholders through milk price and through dividend streams—less focus on dividend—and regardless of that division the farmers ended up with all of that return. That will change.

The commencement date, which is laid out here, says “comes into force on the date specified in an Order in Council”. Perhaps it will not come in. Perhaps the fund size will not reach $500 million, and within the 2-year provisional period it is possible, if dairy farmers are concerned enough and express their concerns through the Fonterra Shareholders’ Council, that this may not go ahead. Fonterra has been talking to another group, and it has been talking out of both sides of its mouth, I would have to say. On the one hand it has been talking to the farmers, reassuring them about milk price, and, on the other hand, it has been talking to potential investors, assuring them about the dividend streams. Actually, if one of those two groups spoke to the other they would find that the messages are somewhat conflicted at times. Mr Chairman, this relates to the commencement date in the bill here; I do not want to stray in any way from these three clauses. The commencement date does depend on the Order in Council or the conditions of Trading Among Farmers being met, and, as I say, they may not be met, and this “Dairy Industry Destructuring Act” may not come into being.

Mark my words: this legislation will see the destruction of the cooperative of Fonterra, and I say that with sadness. The Minister in the chair, the Minister for Primary Industries, laughs. This is the same Minister, of course, who is insisting that local councils sell down their assets, the same Cabinet Minister who is insisting that we sell 49 percent of our State-owned enterprises on to the stock market. It is little wonder, then, that he makes a joke of what will be building internal tension within Fonterra that will lead, regardless of any constitutional limit, to changes that, over time, will see the loss of our biggest company.

Shane Ardern, the chairman of the Primary Production Committee, who has done a very good job—as good as he possibly could inside a National Government—to bring about a fair piece of legislation, knows full well too that without the legislative cap the fund size will blow out, and the influence of those investors will overtake the interests of the farmers. In fact, if you look around the world, farmers are either peasants or highly protected. In this country they are in a unique situation, and the structure that has been Fonterra has enabled them to grow and succeed like no other company in this country.

I do fear that the title of this bill is misleading, that the commencement date will be a sad day when we see this opening of Fonterra to outside investors, and for the principal Act, which we were quite proud of—and it was not perfect. It was not perfect. The fair-value share has created tension that needed to be addressed, and there were ways of doing that. I acknowledge that. But the way that we are talking about doing it here, the introduction of Trading Among Farmers and the opening up to the market of the share value of a cooperative, is quite unique internationally—quite unique. It is a model that has not been tried anywhere else. In fact, putting the share value of a cooperative out into an open market for investors is not done anywhere else. This will be unique, because the fungibility—that funny word that we have all had to learn about—is designed to ensure that whatever unit investors decide is a fair price will be the price for the shares of Fonterra. And if, as some of the submitters say, that share price rises on the back of increasing dividends, then there is a potential for us to see the wash-out of many Fonterra farmers and the undermining of their milk supply base. And the member over there who chairs the select committee knows full well what that means for a company.

There are many, many dangers that the open-market trading of units has created for Fonterra the cooperative, and the sooner that is acknowledged and understood, the sooner the farmers will realise what they are getting into. They have a chance. The Fonterra Shareholders’ Council has yet to endorse it. It could stop the commencement date of this legislation—that is, clause 2—by not endorsing Trading Among Farmers. It is up to the shareholders’ council now. The Minister laughs, but actually there is a legal requirement for the Fonterra Shareholders’ Council to sign off on this. It has not done so yet. It may be, if it is listening and thinking, that it might start to realise what it is actually signing off on.

We do not support the bill. We do not support these three clauses, because we think that they are actually misleading the farmers as to what, indeed, they are getting themselves into.

COLIN KING (National—Kaikōura): I have just got to address one or two fundamental issues that have been raised on the Dairy Industry Restructuring Amendment Bill. This part of the Committee of the whole House gives us a good opportunity. We need to remember as a Parliament, as the Committee of the whole House, that 95 percent of a farmer’s income is the farm-gate milk price. That then leaves that economic return from the fair value share, of 5 percent. What Fonterra is talking about is a pool of 12 percent of that 5 percent. So we need to keep things in perspective.

I thought that one of the most compelling conversations that we had while we were listening to submissions came from the chief executive officer of Fonterra. He was talking about the interest they were forced to pay on the spot market to cover various activities because of the conservative business setting they had to run, because of the redemption risk that they were exposed to. They at times had to pay 14 percent interest, which is well and truly above what the market rate was, or 11 percent interest. In actual fact the market rate was 4.5. I just put it to the Opposition on the other side of the Chamber that inactivity in the present climate will actually deny Fonterra realising its full potential to New Zealand.

We hear the Opposition members talking about the cooperative model. I put it to the Opposition that from day one of the dairy industry it was a no-brainer but to cooperate, because the product itself would not last any more than a few hours. So cooperation is not the invention of this House or of any particular party; it was the invention of those people who entered into that sector, and those people today, on average, would have investments, or exposure to the capital markets themselves in which they have borrowed, of $3 million and beyond. There are banks that have taken risks with these people, and consider them a good risk.

Here we are, being hung up on a piece of legislation that is very good, well-thought-through, well-balanced, enabling legislation. It is legislation that has been brought to Parliament by virtue of the insistence of Fonterra itself. It was voted on originally in 2010, and got a vast majority. It had another vote in June, and again it received 66 percent support. I believe that the Opposition, when you look at the minority reports, took a very inflexible position early on, and that has been manifest in the very debates that we have heard during the Committee stage. Fonterra itself, within its constitution, will have a vote at the annual general meeting. It must trigger 75 percent agreement, as to the size of this pool. It is very descriptive. They have put their cards on the table, and the farmers, I believe, at that annual general meeting will support that motion.

So what is left to say, but that we wish this bill all the very best. I just want to say how proud I was to be on the Primary Production Committee, which looked towards the future of this wonderful cooperative. I am 100 percent sure that 100 percent farmer ownership is not the issue, because when you look at the structure of it, that will happen only if the pool of the fund is allowed to become too large, and, effectively, that pool is going to be limited. I would encourage members, rather than being like Damien O’Connor, the Labour member who speaks what Labour really thinks about farmers, and who is in opposition to it, to broaden out and get some other members on the select committee who can be futuristic and contribute—

STEFFAN BROWNING (Green): The Green Party has, as we say, a major concern about this bill, the Dairy Industry Restructuring Amendment Bill. What we have been led to believe, through very good advice, is that there is an actual risk of technical insolvency because of the way that this bill has been drafted. We have issues around the fair value share. We sought, as a select committee, independent and expert advice and then it appears that that was principally ignored. The Primary Production Committee worked very, very hard on all parts of this bill to try to make some serious sense of it and to see how we could look after both “New Zealand Inc.” and the individual farmer families that were going to be affected by it.

We get stuff from some of the Government members of Parliament, and from the Minister for Primary Industries at times as well, suggesting that we are opposed to farmers in New Zealand, that we are opposed to the growth of a particular sector in New Zealand. We are far, far from that. We want more people on the land, and these provisions in here look to be reducing that.

We heard some statistics before showing how many fewer dairy farmers there are. Fewer dairy cows—absolutely not. It is the intensification and farming management that has gone to—basically, I was going to say to hell in a handcart—not where we are going with the growth in the number of farmers. We need more people on the land, and we want to make that possible through intergenerational farming and through looking after a co-op that is going to give them the best deal. But unfortunately the co-op has gone for a walk, and these provisions show that. They are not about supporting individual farming families. They are about supporting the big, big companies that clearly Cabinet and others seem to be supporting, over and above the traditional supporters of even the National Party.

It was noted as well that these provisions would help contestability and theoretical open competition. Well, that is a philosophical, neo-liberal approach. It is not necessarily about helping New Zealand farmers. That went right through to what was going to be part of the milk price and the need to support independent processes. We note that in fact when the Dairy Industry Restructuring Act first started, when Fonterra first got under way, two smaller co-ops were basically dealing with 4 percent of the raw milk processed in New Zealand. That is now 11 percent. This bill is not needed to help independent processors, at all. And why should it be? We need to be looking after the co-op, the single-desk model that has worked so well for certain sectors of the primary industry in New Zealand.

The Greens obviously will continue to oppose this bill. We look forward to, hopefully, a change of Government in 2014, when we can get in and address that and stop this sell-out of primary industry and family farmers by a party that we would have expected to support them to the nth degree.

Hon SHANE JONES (Labour): I stand to support my colleague in focusing our attention on the title of this bill, the Dairy Industry Restructuring Amendment Bill. Prior to your arrival, Mr Chairperson, I was censured—I would not say unfairly, but disproportionately—for fear of wandering beyond what are the proper boundaries of a contribution at this point in the magisterial process known as the legislative process, etc. But when we look at the word “restructuring” there are three things I want to say, in all seriousness.

I do not think that we were ignorant of the fact that there are challenges in relation to access to capital, managing capital, and, in the year of the perfect storm, a lot of what we were told. We had to trust in the integrity of what the officials reassured us was accurate, and quite frankly, what a lot of the senior members of the industry were telling us.

We then delved into whether or not there were other alternatives to overcome the capital challenge that one no less august than Sir Henry van der Heyden told us of, and may he do well for the iwi of Tainui. He has certainly done well for himself, but that is another matter. So we are not ignorant of the fact. I say to the Minister for Primary Industries that we are not ignorant, but we remain and will always remain either suspicious of, or deeply troubled by, the tension that exists between, in this restructuring, producer capital and investor capital.

Even at this late stage of the debate it is a worthwhile and a legitimate concern to continue airing. The Minister for Primary Industries has all the power and the authority, and he represents a party that enjoys enough support in the House, I would think, to usher this bill through. But without a doubt we are going to see as we go forward, in the event that enough investors actually jump into what potentially could be dumb capital—I doubt it, though. I think canny long-term investors will see this fund as the first step or an initial brick in the wall. That is the first rather significant area of concern that we have amplified at all key stages in this debate.

The second concern is whether we have actually, through this restructuring, strengthened the dairy industry or served the interests of the executive within the institution empowered to drive performance for the industry. Unfortunately, only time will tell. I accept that the farmers will vote, because I sure as hang know they do not vote in the north for us. But that is another matter. They will vote, and they will fail or flourish, depending on the outcome of that vote and the stewardship that they themselves or the executives bring to bear on the question as to when the new derivatives trust—which is broad nomenclature—which is what I have been using to describe it, and also Trading Among Farmers strike a price as to what is the value of the share.

At one level it seems almost contradictory that we extol the virtues of a cooperative but we borrow the language and we garb the essentials of the cooperative in the context of Fonterra with a language more akin to a debate about a Wall Street company. But that is the fusion of having a powerful international trader and marketer such as Fonterra and also wanting to uphold. That is the second thing.

We accept, I accept, that at the end of the day it is the farmers. But, as I have said during this debate about restructuring, Fonterra came into existence by dint of what we did in this House, so it is not unreasonable for us as legislators to either challenge the farmers or challenge ourselves, and not accept uncritically the notion that “You can’t talk about our business because it is farmers’ business.”

Farmers’ business in so far as it requires legislative amendments is legislators’ business. Any farmer who thinks that that is not accurate or who seeks to deprecate us as legislators playing our rightful role I hope I meet in a future guise, when I am a Minister with some level of influence over their affairs. The third thing, at the end of the day, is the price of milk and whether or not the minnows—Miraka, Open Country Dairy, and others—will be able to afford to buy the milk from Fonterra. The Minister has had an opportunity to allow Te Ururoa Flavell’s amendment, but he swiped it aside, just as he swiped aside my senior colleague Damien O’Connor.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Clause 1 agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Clause 2 agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Clause 3 agreed to.

Bill to be reported with amendment presently.

Bills

Social Security (Youth Support and Work Focus) Amendment Bill

In Committee

Part 1 Substantive provisions taking effect on 30 July 2012 or immediately

The CHAIRPERSON (Lindsay Tisch): This is debate on clauses 4 to 21 and schedule 1.

JACINDA ARDERN (Labour): It is my privilege to rise and begin the discussion at the Committee stage around Part 1 of the Social Security (Youth Support and Work Focus) Amendment Bill. I want to begin at the very beginning of Part 1, which, of course, sets out that the substantive provisions in this part of the bill will take effect on 30 July. I understand that the Minister for Social Development has tabled a Supplementary Order Paper that would move the enactment date for these provisions to later in August. I would ask the Minister her reasons, if she were willing—she referenced in question time the reasons for shifting the enactment date for these provisions, but I would be interested in hearing in greater detail the reasons why the enactment of these provisions has been shifted. I have, of course, heard anecdotally the reasons. I understand there are contract negotiations still under way, that there are issues with information sharing that still have not been resolved, and that not all of those who will be affected by these changes have yet been contacted. My understanding is that there are considerable issues, not least the fact that some services are, of course, in a state of limbo while this piece of legislation is still before Parliament. So I would be interested in the Minister commenting on the state of play, as it were, for those youth services and the preparation she is doing for what are substantive changes to the way these services are offered to our young people. I do want to spend a bit of time over the course of this debate breaking down some of those changes and debating them further.

I think it is important, though, before we start to at least have some frame and some understanding—and I would be happy to share it—of where the Labour Party has come from in analysing the changes put before it by the Government. The Government has framed these welfare reforms as being the most substantive in decades. Our contention has been that for young people these are significant changes—their interface with Work and Income will change dramatically—but only for a very particular group of young people. We will come back to the question of the breadth of these reforms, but for the majority of people who are on some form of Government support, this bill primarily introduces for them work testing, and beyond that there are very few additional provisions in this bill that will assist them into work. So what we have been calling for throughout this debate is a look at, first, the availability of work—we know that the number of those on the unemployment benefit has moved since 2008 from roughly 18,000 to just under 50,000—second, the availability of affordable, quality child care; and, third, of course, questions of training and education. That is the lens with which Labour has looked at these reforms.

Coming specifically to the provisions of Part 1, the youth services that are being introduced here are proposed to replace the status quo—the status quo being, of course, a series of Youth Transition Services. We acknowledge that they were ad hoc in terms of their provision across the country. They cost, basically, $12 million a year to run. That money has been picked up and dropped into the pot for the new youth services. Those Youth Transition Services dealt with a range of ages—anything from a school leaver, who could be as young as 15 if they had an exemption, right up to the age of 20. In fact, many Youth Transition Services have told Labour members that up to 60 percent of the young people they deal with are outside the ages of 16 and 17. The referrals they got, we acknowledge, were ad hoc. Youth Transition Services were not always getting information from schools about school leavers. We acknowledge that that was something that needed to be addressed. They did sometimes, in some cases, have ad hoc arrangements with schools that worked well, but otherwise they were taking referrals and walk-ins. So, again, there was certainly room for improvement there, and that we acknowledge.

But our question is whether we have thrown the baby out with the bathwater with the replacement youth services that this Part 1 will bring in. I think the question we want to ask in Part 1, which is the substantive part that addresses the new youth services framework, is, first, the question of whether we have narrowed down too far the scope of young people we are working with. The youth services make no apologies for the fact that they are targeting what the Minister has flagged as being roughly 14,000 sixteen and seventeen-year-olds. We are not denying that they are very much in a pool of young people who do need targeted interventions and services, but they are a subset of a much wider pool. Our concern, given the experience of the service providers in this area, who have told us that in some cases a school leaver may move into work straight after school or may move into some kind of training, but may find that after a year or even 6 months that plan has not worked out, and suddenly they do not have the support of schools and they do not have the support of other services around them, is where do they go? If they tip past their 17th birthday now, the youth services are not going to be there specifically for their needs. So our concern, first off, is whether the eligibility criteria have been narrowed too far for the purposes of this bill.

Our second concern with the youth services is essentially the way that they are structured. The funding regime for youth services under this model, under Part 1, has changed dramatically. No longer do we have a contracted service that is picking up all the young people in a region. We now, literally, have a price on the head of particular young people who are identified centrally as being vulnerable and then dispatched down to a regional level for the local—it sometimes might not be too local—youth service to pick up. The price on the head of that young person essentially increases depending on their vulnerability, and also depending on what pathway the youth services try to nudge them down. If they try to get them heading towards National Certificate of Educational Achievement (NCEA) level 2, they will get a bigger bonus payment than they might for some other option for that young person.

I guess our concerns there are quite specific ones. We have heard from Youth Transition Services that often they are dealing with some young people who have not even achieved NCEA level 1, and that, in fact, it may end up with us having a situation where they have a disincentive to work with that most vulnerable young person, because the likelihood of them achieving NCEA level 2, of that service receiving their bonus payment, and all of that happening before that young person hits their 17th birthday is considerably reduced. Therefore, are we creating a rod for our own back here, where the most vulnerable young people simply become too expensive a gamble for those youth services to take? That is not, I am sure, a scenario that the Minister would wish to encourage.

Another issue that we have had is we have seen that small services have essentially been priced out. A good example of this has been the much-heralded Ōtorohanga example. I understand that it continues with funding at the discretion of the Ministry for Social Development, rather than under this contract model, because it has literally been so successful that those young people who might be flagged as attracting payments for this service just do not exist to the scale required to maintain a service in that area. Yet it has been such a successful service. In our minds that points to a model that is not necessarily fit for purpose for smaller communities, larger communities, and everything in between.

We are also concerned that we are not necessarily, via this model and the incentive-based payments system, taking into account the individual and best needs and interests of that young person and the circumstances in which they find themselves when they walk through the door of the youth services. That was discretion that Youth Transition Services previously held and, I think, managed very, very responsibly.

We have a Supplementary Order Paper on the Table that essentially says let us not throw out the baby with the bathwater by opting for a very expensive alternative regime, when we had the bones of a successful, much more universal system that we could have tweaked and improved upon. The way we would have improved it was, firstly, by extending it and making sure it was nationwide; secondly, by making sure the information sharing between schools and those Youth Transition Services was mandated; and, thirdly, by really building on the good work that the Mayors Taskforce for Jobs had already done on trying to improve the Youth Transition Services model, acknowledging where there were some gaps in that service provision. I have to say that all of that came at a cost much cheaper than what we are seeing from this particular set of provisions, acknowledging, of course, that the Minister has overlaid incentive payments for young people. Putting that aside, I still believe the alternative, an extension of a Youth Transition Service model, was a much more fiscally prudent option than the one that we see before us today. So I ask the Minister, if she can, in her call to respond to the question around the timing. Perhaps she could explain to us her position on why she opted not to—

Hon PAULA BENNETT (Minister for Social Development): There are no two ways about it, change is on the way, and this is certainly going to be a completely different way in which we work with young people. Certainly, this first bill of our welfare reforms, the Social Security (Youth Support and Work Focus) Amendment Bill, is going to show us putting an attention on those whom we see at times as being most vulnerable that they have never had before.

There was absolutely no doubt about it when we looked at who was going on to benefit. It had not really been done before. When we looked at the pipeline of who was going on and how long they were likely to stay there, it will not be rocket science to know that the evidence said that the younger you go on, the more likely you are to stay on welfare for long periods of time. If you go on as a teen parent, then you are more likely to have subsequent children while on benefit and to be there for very long periods of time. I would not say it is easy, but it is one thing to turn round and ask how you are working with those who are on welfare, where you are setting the age of when you work test, and when you are making sure that you are putting the right work tests around people; it is quite a different scenario to ask how we are going to work with them before they even get there.

That was a big call. It was a big call for the Government to look at it quite differently, because in some respects—from Work and Income’s perspective, if you like, and from a welfare perspective—if you wanted to be pure, they were not our problem. They kind of were not our problem until they came on at 18. But, of course, that is not the Ministry for Social Development’s approach to this, and that is certainly not this Government’s approach to this, because in some respects working with them earlier was going to make a difference.

Often when I talk about this stuff I think that we could go back really early, because the reality for most of these young people at 16 and 17 years old is that for many of them they have had a poor upbringing, for many of them school has not worked—if it had, they would still be there—and for many of them they are the lost and ignored and forgotten. It just seemed wrong to me that they might get picked up ad hoc, if we were lucky. But the information was not flowing between the Ministry of Education and the Ministry of Social Development. I would say that we have taken the components of what we know works and then expanded it.

I make no apologies for my concentration on 16 and 17-year-olds, although there will be some room in this for providers to work with 15-year-olds, as well. No matter which way you look at it, it is expensive, but this is where you ask whether it is expensive that they spend 10 years on welfare and on benefit. Is it expensive that we actually try to work with them when they are 21 or 22, or when they are 30? It is expensive to work with them when they are 16 and 17-year-olds when you add it all together, but in effect the opportunity that we have to change their lives is an investment that we want to make.

So, as we say, there are about 3,000 young people aged 16 and 17 and young parents—teen parents aged 18 as well. There are about 3,000 of them. Add to that, if you like, about 11,000 what we term “neets”—not in education, employment, or training—and all together you have got about 14,000, I count, who are “neets” as such. And, yes, we are going to give a different amount depending on their risk, because otherwise you see providers just working with those who are easier to put in. So we make it outcome-based. We say to the organisations that are working with them: “These are the outcomes we want.”

The Opposition member picked up on National Certificate of Educational Achievement (NCEA) level 2. I make no apologies, because every bit of evidence—international, local, upside down, sideways—tells you that those young people gaining that kind of educational achievement is the best chance that they have of having a successful life. The best chance they have of staying off welfare and of actually getting a job that is meaningful, that will actually take the ups and downs of lives and economies and everything else, is if they have that education behind them. I can say to you now that not every kid is going to get NCEA level 2, but, quite frankly, to think that they deserve for us to strive for something less than that for them is appalling. We will strive for NCEA level 2 for them with everything that we have, and we will incentivise and reward those providers that get them through to NCEA level 2. Some will take longer. For some it will take a long period of time for those young people to get there. What we are asking is for them to head towards it.

Jacinda Ardern: They can’t. They stop being funded at 17. You’re not giving them time.

Hon PAULA BENNETT: They are getting time, actually. The member is yelling out that they are not getting time. Actually, we are going to work with them for years. Actually, we are going to work with them for years. That is the reality. When you look at the funding that is coming from the Youth Guarantee, on which we have over 10,000 places now, these are the very young people who are going into them. Then you add to that the substantial thousands of dollars that are going into the support that comes alongside of them, whether that is making sure they are picked up in the morning and taken to that course or training, or making sure that it is actually engaging, because their brains work quite differently and in some respects need to be turned on in a different way, if you like, so that they can get that buzz of learning and education that leads to those sorts of qualifications. We see fantastic examples of it. Whether it is via trades training and is more hands-on, whether it has got work-based experience in it, whether it is in a different environment that actually gets their brains thinking, we have tried to make it valuable. I make no bones about that. What we have also done, as I said, is pay more for those whom we consider high risk.

This is different. How many times and in which ways? There are payment cards, and the benefits for those 3,000 are going to go on to a payment card. That provider is going to work alongside the young people. I have been out in the last few weeks really talking to them about what this means and how it looks for them. Some of the young people themselves—as much as I do not like to admit it to some of those fantastic workers—think it is quite exciting they are not going to have to go to Work and Income as much. They kind of like that they get to have a real relationship with a provider that they know—that is basic. I mean, I know what that means in the context of it all, but for them they sort of see that as a more welcoming environment, and they have someone advocating on their behalf. So they get that kind of connection there, and they are pleased about that.

There is assistance with the budgeting programmes. Look at how new this is. We have never had social obligations like this attached to a benefit before, and these are. There are going to be obligations on teen parents, for example, to be doing a parenting course, to have their children engaged with a primary health organisation, and to do their Well Child checks. Never before has that been so directly linked to the benefit system. It will be in this case, and that makes major changes that we have not seen before.

I come to the commencement date. I mean, here we are in the Committee stage now. We want to give people, once we go through the process and everything we need to do, at least 2 weeks to be getting all of the notice they need for the change that is coming up. Actually, the providers are ready, we hear, when we speak to them, but the extra training that will go in so that they can pick it up will be well needed from them, they tell me. Their contracts will start on 1 August, so they are not going to miss out on any payments. They see that time as really getting ready for when it turns over on 20 August, and having the opportunity to do that. I think that that is the right way for us to go.

It is one thing for us to say there was this fantastic programme that was running before, and, yes, we are funding parts of it through Work and Income in different ways, but when did they last work with kids who had severe disabilities and needed help that was quite different? When were they working with young people who have convictions or have drug and alcohol dependency problems? They are high risk and they need far more intervention, and they are expensive. With all respect to some of the programmes that we saw, they were not working with those really difficult kids whom we see, particularly in the bigger cities, in high numbers. So they are going to take a different approach. How do we get a more cultural element to it that is going to actually engage those Māori, Pacific, and Asian kids, who need it quite differently, actually, than what we see otherwise?

The change in the law for information sharing is a vital, vital part of the change that we are making, and is something we have not seen before. What we had, in some respects, was a relationship with schools where they did pass on information, but none of the schools felt particularly comfortable about it. They were not sure they had permission, how it looked, and whether they should be. And it never happened in real time. So you could literally have a young person dropping out of school at 15, 16, or 17 and there being, if you are lucky, months in between a provider actually then knowing, and in many cases they did not know at all. With this change, it will be happening in real time. Information will be passed on to that provider, via the Ministry of Social Development, and via Work and Income, that provides good information and good knowledge on what is happening. The sooner we pick them up, the bigger difference we can make.

Is this going to be perfect? Of course it is not. We are going to have to work our way through, and it is not just a partnership, because that always sounds like two people. It is going to take that whole community approach to see it, and we are going to need to keep that relationship—we are going to need to keep tweaking as we go. One of the things we have done is we have said we will have Work and Income in with the actual youth provider for the first few weeks so that we do not mess up their benefits at all and we make sure there is sufficient—

JAN LOGIE (Green): I am pleased to rise to join this conversation as well, around the detail of this Social Security (Youth Support and Work Focus) Amendment Bill, which, as we have stated before, the Green Party is not supporting. It is quite difficult to speak to Part 1 of the bill, because there are so many, many points to make in relation to it, all of which feel very important and quite substantive. So I am going to try to limit myself, which is going to be difficult. I would just like to pick up on some of the comments that the Minister in the chair, the Minister for Social Development, has made, and speak a little bit to the idea of the wraparound service. It sounds fantastic. It sounds like a really good thing, to get alongside young people and connect, and help them build on their strengths to be able to achieve their potential, which is that model of youth development that we have learnt over time is effective.

The problem is that this bill is based on a deficit model. It is identifying young people who are on varying degrees of the scale of being at risk, whereas with the strengths-based model that this whole sector has spent years developing, it is recognised that when we focus on the risk, we actually develop the risk. When we focus on the strengths, we build the strengths. We need to be working with each young person where they are at, and be building trust and relationships, and giving young people things to do that they can do. They are the things that make a difference in youth development.

This bill, by setting the point of NCEA level 2, by requiring those community providers to report on the young people—potentially resulting in sanctions—undermines trust and relationship. This bill, by defining young people on degrees of risks, undermines the analysis of strength-based development.

I will speak a little bit more to the NCEA level 2 challenge, and particularly I would like to challenge the concept that all of the evidence tells us that NCEA level 2 is the point that makes the difference. When I was trying to get the evidence to show me that, because I do believe in checking things out and making sure my assumptions are not wrong, I tried to find the evidence around that and whether it was school-based NCEA level 2 or NCEA level 2 outside of school. It seems to me that the evidence is based on school, because when you step outside of that school system it becomes a hotchpotch of unit standards that do not even guarantee that basic literacy and numeracy have been achieved. It could be a completely random collection of educational points that do not create a comprehensive pattern of learning. The comprehensive pattern of learning and development is what makes the difference.

I have seen some of the educational providers, and some of the outcomes for young people who are working in that system, and it is not rigorous. So for those young people who are up to it, that is not actually going to be aspirational for them, at all. I do not believe that for every young person it is for us to strive for them, when I hear from young people who have been refugees and who had never been to school before they came to New Zealand at, say, the age of 13, who do not even have reading or writing in their own first language. Their response to the idea of NCEA level 2 and their being helped to strive to achieve that was just no, because that is actually overwhelming and demotivating, whereas good teaching is based on a student-centred approach. We develop the strengths and the aspirations for those young people from where they are at. That is not about making assumptions. That is not about characterising them and not expecting enough for them in the world. That is just good practice. This bill undermines that good practice.

I also have concerns around—oh, so many things—the human rights. I will just touch on this briefly. This bill undermines and breaches human rights in terms of age, in terms of marital status, and in terms of several other points around gender and employment status. There have been conflicting views around this. Some people have said that it is justified, because the end goal of getting people into work justifies that breach of human rights. The Minister for Social Development, when there was a criticism by the UN Committee on Economic, Social and Cultural Rights, said that if the committee had seen the detail of the bill, it would not have had that criticism. The problem was that the committee had seen the detail of the bill in the draft form. So to stand up and say that there are not breaches of human rights in this is actually saying that this Government’s perspective holds primacy over the UN committee’s perspectives, it holds primacy over the Human Rights Commission’s perspective, and it holds primacy over the Children’s Commissioner’s perspective. It holds primacy over so many organisations whose daily bread is human rights. That, to me, seems arrogant.

I believe that human rights are important. I do not believe that this Committee should be undermining people’s human rights blithely, without exceptionally good reason. I do not believe that this bill has anything behind it that comes anywhere near exceptionally good reason.

I would also like to just speak briefly to our Supplementary Order Paper 78, which is to extend the training incentive allowance and bring that back, because, currently, level 4 study and above are not eligible for the training incentive allowance. When the Government talks about the answer to child poverty being getting parents off the DPB and getting them into work, that sounds reasonable. But when the evidence shows us that one of the best ways of keeping people off the benefit—particularly women—is that level 4 and above study, and the Government is not willing to actually fund that and include that in the bill, then we really have to question the integrity of this approach. We are asking the Government to reconsider that, and to extend it back up to degree-level courses, because we know those higher-paid jobs actually give women that flexibility in terms of their employment that makes it so much easier for them to stay in employment and look after their kids. We know that higher-paid jobs are more likely to have those support mechanisms around them.

I will end my speech there. We just encourage the Government to consider the underlying principles; reconsider the underlying principles of this bill, and get back to the things that will make a difference.

TIM MACINDOE (National—Hamilton West): I am pleased to take a call on this part of the debate, because I care so passionately about those underlying principles of this bill, the Social Security (Youth Support and Work Focus) Amendment Bill. In fact, I care passionately about this issue, and I feel so strongly that it is the right thing to do. I want to look just at a few of the comments that we have heard already from Miss Ardern. We had concern expressed that somehow imposing work testing on young people, who are the focus of this bill, is inappropriate or unreasonable. I want to suggest to her—

Jacinda Ardern: I didn’t say that.

TIM MACINDOE: That was the focus of your initial comments, Miss Ardern. I struggle to understand why the Labour Party—the modern Labour Party—would in any way oppose such an arrangement as work testing. At least Miss Ardern did not use that word “punitive”, which has been thrown at us in previous stages of this debate, over and over again. Miss Ardern gave us a deeply theoretical approach, and I listened to it with some interest. But she was largely imagining problems that might occur at some future date, rather than focusing on the overwhelming problems that confront us right now, which this bill is all about. This bill is much more than simply about “tweaking systems”—I think that is a phrase that she also used. It is about confronting major challenges, setting out clear expectations, and providing substantial, determined, and wide-ranging support to those who are currently caught in the trap of long-term welfare dependency and especially, as the Minister for Social Development emphasised, those who are at the beginning—standing right on the cliff; about, perhaps, to lurch down that path.

Those young people need our support. This bill is all about providing that support. It is one of the reasons why I care so much about it. The Minister, when she spoke, told us about the reality of life for those young people who have been the primary focus of much of what is in this part of the bill. She acknowledged that, yes, it is very expensive confronting those challenges. In the Budget, a substantial sum of money has been committed to dealing with it. But the cost of not doing so is almost beyond calculation. It is measured just as much—if not more—in human terms as it is financially. That is why we must not shy away from what needs to be done. The Minister’s approach is determined, it is realistic, and it is compassionate, because she is not being soft or naive. It is because she wants so much better for these young people.

When I read Part 1 of this bill, I see provisions that are practical and contemporary. They are measures to confront life as it is for far too many people in my electorate, and in our communities right around the country. They assert—as this Government does, and as I am proud to do—that we can and must do so much better if we are to guide our vulnerable youth into further education and training, positive parenting, effective budgeting, and so much more. I believe that that determination is understood and supported in our communities. When I am out and about, talking in my electorate, meeting with people in low-decile areas, with social services providers, and with various agencies, they are not telling me: “Turn back, you’ve got this wrong.” By and large, those at the coalface are saying: “Yes, this needs to be done; thank you for finally confronting a challenge that has been overlooked for far too long.”

They are not flooding our offices with emails and phone calls saying that this is wrong. In fact, it is quite intriguing to note how little opposition there has been to date. We thought this was going to be controversial. Of course, we encountered at the Social Services Committee some objections, but, by and large, it is not controversial out there. It is not controversial out in our communities, because the public know this needs to happen. The objections have been few and far between, and, as I say, those who work with vulnerable youth at the coalface know that we need to support their efforts and the young people they work alongside. But I did listen to Miss Logie. None of the concerns that Jan Logie spoke of in respect of education or refugees’ experiences and so on negate the value of the measures in this bill. I did listen carefully, but I simply cannot comprehend how she could conclude that this bill undermines the human rights of those it is designed to assist.

TRACEY MARTIN (NZ First): Kia ora. I rise to speak to section 123F in clause 18, particularly, in Part 1 of the Social Security (Youth Support and Work Focus) Amendment Bill. I rise to speak as New Zealand First spokesperson on youth; as a mother of a 17-year-old, who is about to be affected by this bill as he leaves school at the end of this year; as a woman working with the Mayors Taskforce for Jobs; as somebody who spent some time with Dale Williams down in Ōtorohanga—

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

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

The CHAIRPERSON (Eric Roy): The House in Committee is resumed on the Social Security (Youth Support and Work Focus) Amendment Bill. Members, when we were last considering the bill we were debating Part 1, and Tracey Martin had the call; she has about 4½ minutes left. But just before the member takes the call, I should inform the Committee about a Supplementary Order Paper in the name of Jan Logie—an amendment that is set out on Supplementary Order Paper 78. I have received a certification where the Government is exercising a financial veto, which rules that particular amendment out of order.

Chris Hipkins: I raise a point of order, Mr Chairperson. Just to seek clarification, does the ruling out of order of that amendment thereby mean that reference to it in the debate is also out of order?

The CHAIRPERSON (Eric Roy): Technically, yes. So I call Tracey Martin. Yes—the answer is yes.

Chris Hipkins: I was going to say!

The CHAIRPERSON (Eric Roy): Look, OK. Sorry. Just for clarification, it is my hope that when I say: “Speak to the bill.” or “It is out of order.”, the Committee actually acknowledges that. I was being a little subtle, and I apologise to the Committee. The answer is yes.

TRACEY MARTIN: Kia ora. As I was saying before the break, I rise to speak as New Zealand First’s youth spokesperson, I rise as a mother of a 17-year-old, I rise as the chairman of the board of Mahurangi College, I rise as a person working on the Mayors Taskforce for Jobs, and I rise as the holder of the youth portfolio for the Rodney local board of the Auckland Council. So this is an area I have a great deal of passion about. I am dealing particularly with section 123F in clause 18; there is a lot in this bill but I am going to focus on just 123F. The regulatory impact statement refers to 3,307 sixteen and seventeen-year-olds whom this youth package will affect. The Minister, and Mr Macindoe in his second reading speech, referred to the 14,000 young people not in employment, education, or training, which is “neet”. And the suggestion through those references is that those are the young people whom this bill will affect. Those are the young people—that is the extent of the young people whom this bill will affect.

In reality, there are 188,470 sixteen to eighteen-year-olds in New Zealand who when this bill passes will be tracked by their National Student Number through the Ministry of Social Development, and the country does not know that. The country does not know that every single one of those 16 and 17-year-olds, when they leave school, no matter where they leave school to go to—whether that be a job, whether that be into tertiary education or into a tech or on to a benefit—will have their data handed over to the Ministry of Social Development, and then a risk analysis will be done on them. A risk analysis will be done on them and their families, and that risk analysis is to figure out what sort of risk they are to us as a nation of ever going on a benefit. Then they will be categorised through that risk analysis—188,470 citizens will have a risk analysis done on them by the Ministry of Social Development when this bill passes. However, the Ministry of Social Development does not have the workforce to do it, so the Ministry of Social Development is going to have to contract out that analysis to private providers.

I pick up on this point now about providers. I am a person who also spent some time with Dale Williams down in Ōtorohanga looking at that model, and I can understand that the Minister has attempted to take what is a highly successful model. The Ōtorohanga model is built on a community that gives a damn and actually has wrapped around their young people and come up with solutions for their town, but you cannot take a community-based model and stretch it across the country, Minister. I am sorry, you cannot.

I appreciate also that those contracts have recently gone out, and again I point to the fact that I work in the Rodney local board area of Auckland City, which is 46 percent of the land mass of Auckland. Four contracts were given out around for the provisions inside this bill to work with youth in this area and to cover the Auckland region: two of them in South Auckland, one of them in central Auckland, and one of them that reaches as far as Takapuna. There are no provisions inside the Rodney local board area—covering 46 percent of the land mass of Auckland City—inside the current contracts that have been handed out, and actually provision has been removed. Springboard, and the men’s centre in Helensville and the others working in Wellsford—two areas, particularly, that have social deprivation scores of 8 and some severe youth issues—are now going to have to seek other funding. They are going to have to fight for other funding, Minister. I think that is a shame, and we are frightened. We are actually frightened that this model, which is being stretched across the country, which is being delivered in this way, is going to leave us out in the cold. And we want to participate. Our communities want to duplicate, replicate, and work with the Ōtorohanga model. We care for our young. We want to participate and we feel shut out in the way that the model in this bill currently puts that provision into our space. So I speak out of all those things.

MICHAEL WOODHOUSE (Senior Whip—National): I seek leave to amend a vote cast by me on behalf of the Māori Party to the Minister’s amendments on Parts 1 and 2 of the Dairy Industry Restructuring Amendment Bill.

The CHAIRPERSON (Eric Roy): That is a reversal of the vote, is it?

MICHAEL WOODHOUSE: It will be, yes.

The CHAIRPERSON (Eric Roy): I have had a look at the vote—at the outcome—and it will not change the result, but it changes the numbers. So I can assure the Committee of that. Leave is sought for that purpose. Is there anyone opposed to that course of action? There appears not. The record will be amended.

CHRIS HIPKINS (Senior Whip—Labour): I raise a point of order, Mr Chairperson. I just want to get a clarification from you regarding the ruling that we just heard before. You took me somewhat off guard there. I have now had the chance to look at the Standing Orders, and I refer particularly to Standing Order 322(4), which says that “Any certificate may be debated on the House’s next consideration of the bill, amendment, motion, or Vote.” I want to just check with you that, although the amendment has been ruled out of order, it is still legitimate for the Green Party to speak to their amendment and debate the certificate on their amendment. I think the amendment has been put forward in good faith in accordance with the provisions that require the party to put it forward within a certain period of time, and it would seem to be contrary to that to then say that it could not speak to it.

The CHAIRPERSON (Eric Roy): I have had time to reflect on my ruling as well, and it would appear to me that it is probably in order, in the context of the debate, to speak not only to the amendment but to the certificate as well. The sign of a good operator is someone who can change their mind.

Su’a WILLIAM SIO (Labour—Māngere): I wanted to respond to some comments the Minister in the chair, the Minister for Social Development, made earlier in this debate, because I got the impression that the Minister’s thinking was that somehow Māori and Pacific children grow up wanting to live on the benefit—wanting to be on welfare. I want to say to the Minister that that thinking is absolutely wrong. It is flawed, and I think if that is your thinking, it is actually an affront to the intelligence of New Zealand communities. I also think that it is the Minister’s thinking that somehow, because the Opposition opposes this bill, it is our desire for the wider New Zealand community to have a lesser quality of life. With the greatest respect to this Minister, I am saying that she is absolutely and totally wrong if that is her thinking. In fact, I would dare say that it is almost as if she is totally out of touch with the reality that many families and many young people are experiencing today.

I suspect many of us who visit schools will take the opportunity to visit and ask the children of those schools what it is that they want to become when they grow up. I know, whether it be in my electorate or somebody else’s electorate, that every time you ask young people what it is that they want to become when they grow up, no one—no child—ever says: “I want to be on the benefit.” No child ever says: “This is my goal: I’m going to be a bludger for the rest of my life.” Every child that I have ever come across talks about becoming an All Black, playing for the Warriors, becoming lawyers, becoming doctors. I even had one young man out of Robertson Road School in Māngere who wants to be the Prime Minister of New Zealand. The dream—

Grant Robertson: Probably do better than John Key.

Su’a WILLIAM SIO: Could be. They dream, these young people, of going to the Olympic Games. They dream of being policemen in their local community, nurses, and doctors. They dream of being professors. So I find the earlier comments by the Minister just absolutely wrong. I think the Minister will be familiar with a group of young people who work with Strive Community Trust in Māngere. In the times that I spend with those young people, they have big dreams of their future and of what they want to become. No one ever mentions that someday they want to be on welfare. They have big dreams. The last meeting I met with them, they talked about what this Government can do for them in terms of part-time jobs or school holiday jobs while they are going to school. How can they earn income to support the projects they are involved with, and also to support their families? They talked about opportunities that, in so far as they are concerned, just do not seem to be there, particularly when they listen and hear that things will be tougher for their families or that they will not get the support they want to believe they could get if they wanted to go to university or tertiary education.

I just want to say to the Minister that if the thinking in her earlier comments was that somehow Māori and Pacific children are working-class children—that somehow their purpose in life is to aim to be on the benefit or aim to be on the welfare system—then I say to her that she is absolutely, absolutely, totally wrong. Even with regard to the parents I work with or the parents who come to my office—those who have complaints with regards to Government departments—I say to the Minister that parents who are on the benefit are often embarrassed because that is not the kind of living that they dreamed about. They cannot support themselves or give their children a high-quality standard of living on the benefit that is provided. I have met numerous parents who are simply gutted that on the benefit they cannot provide for their families, and, therefore, it is their hope—

Hon PAULA BENNETT (Minister for Social Development): I think it is appropriate to just answer a few things that are going around at the moment, just so that we are setting it straight. Let us get a few things straight. One, I think that member, Su’a William Sio, should read Hansard, perhaps. His kind of sympathy 5 minutes that he has taken up—quite frankly, certainly not being factual about what was said by me or my interpretation of young people who are out there and actually doing the best they can, instead trying to make it sound like we are sort of patronising them and putting them into some sort of box—is simply untrue. We want to stand up and wrap more support around them, and actually we recognise that in some cases school has not worked. For all the best intentions of community and family, and where they are living and what they are doing, they actually need a bit more support. They need for us to actually stand up as a Government and say that we do not think that government is the solution, but what we can do is offer the right kind of resource and the right kind of funding to community organisations that are on the ground and that actually know these people, and that actually know these youth and can wrap around them. The member himself mentioned Strive Community Trust. Well, that trust will be a vital part of the equation of making sure that these young people get the support that they need.

Is this going to be an easy process? This is complex. These are individuals, and instead of a programme—what I have purposefully not developed is a programme where we wrap around and step A leads to step B, which leads to step C—what we have done instead is say that these are the outcomes. We are quite uncompromising about them. Let that be up for debate and let that be criticised or encouraged or supported, as it is, but these are the outcomes we are going to do.

What we are not going to do is tell the community and those organisations how to do it. We try to set up the tools. We try to put the resources where we think we need them most, but we actually give a degree of flexibility to organisations on the ground that know these young people so much better. Jan Logie, in her speech earlier, raised those youth workers who are on the ground and who know these young people. They actually have the practice behind them and recognise, as she said, a strengths-based approach. I am putting enough faith in these organisations, which have been through a rigorous process to get into actually being one of the chosen organisations, that they have got that degree of flexibility and that they do work from a strengths-based model. That is why we ain’t got government doing it, to be quite blunt. It needs people on the ground who see these kids as individuals and not as a number.

Yes, we have absolute outcomes that we want from them, but how they do it is up to them. Let them actually think bigger and think wider than what we can as a Government, where we get quite restricted in bureaucracy and rules and the steps that we must take. Let them pay extra for the bus for the kids. Let them feed them every day, because actually food is a motivator for young people to turn up and get there. Let them think outside the box and have the kind of innovation that, quite frankly, only community can have. That is the kind of backing that we are trying to give them.

We hear criticisms of how expensive this is. It is expensive because once you start adding it up and recognising the costs that go into paying those workers appropriately, like they should be, so that they are actually rewarded for being the professionals that they are, for the qualifications they have, and for what they have done, then, yes, that means actually putting a bit of money behind them and actually making sure that they can do it.

As I have said, I am not going to apologise for National Certificate of Educational Achievement level 2 being our goal. Will everyone get there? No, but it is a goal of ours that we are working them towards education—

Jacinda Ardern: They’ll pick the kids that will get there.

Hon PAULA BENNETT: Not if you are paying appropriately; they will not pick the kids who will get there easily. They will actually get paid much more for the ones who need it.

Can I just pick up also on what Ms Martin said, which was that you cannot take a community-based model and roll it out nationally. At some level I agree; we could not pick up the Ōtorohanga model and replicate that in South Auckland. You just cannot. You cannot take the actual model and the components. What we have done, though, is taken the key components and the evidence base behind it, and we are actually rolling that out with a stronger model that goes along beside it that recognises the value and the costs that go into getting that stuff right. We have got the best of what we know and the best of what is proven will work, and we are going to put the model behind it. We are going to put a lot of trust and responsibility in those community organisations that work on the ground, while working alongside them and making sure that we fund and support them appropriately.

Peseta SAM LOTU-IIGA (National—Maungakiekie): I rise to first commend the Minister for Social Development for taking the courage to bring this piece of legislation, the Social Security (Youth Support and Work Focus) Amendment Bill, to the House, with the support of the Prime Minister and the support of the National Government. We actually care about the kids who are being discussed tonight. We care about the 330,000 people who receive benefits every year. We care about the 170,000 who have spent the majority of the last 10 years receiving a benefit. It is all about the facts. Rather than throwing the mud—about what the Minister said or what this party stands for—we are putting an investment approach into place that will see these children and these young people, and the people who receive benefits, put on a road to aspiration and a road to working. That is what this Government stands for.

Jacinda Ardern: How? How?

Peseta SAM LOTU-IIGA: The list member Miss Ardern actually asks how. She is asking me how, after listening to submission after submission of how this Government will help these young people, and how it is about parenting courses, how it is about budgeting courses, how it is about mentoring these young people by allowing them to be helped up rather than handed out. For too long this system has all been about just giving people money and leaving them to their own devices. We have said that it has got to stop. It is broken, and it has got to stop. So what are we going to do about it? We have said that it is about an obligation. We have got to meet halfway. In order for the State and the taxpayer to support people on the benefit, they have got to come halfway and meet those obligations. Welfare, if they remember correctly—the Labour Party—Michael Joseph Savage and how he saw the social obligation around welfare was that it was only a temporary measure to allow people to go on and work and contribute to society. It is about—as the Minister for Social Development has pointed out—modelling those things that actually work. We have seen the evidence around budgeting—

Jacinda Ardern: What are you actually doing for the majority of people on welfare?

Peseta SAM LOTU-IIGA: I see it every day, Miss Ardern. If you want to see how people struggle, and the role budgeting services play, come to Maungakiekie. Come to my electorate office and I will show you what these types of services can do. They can actually help people in need, and that is what this piece of legislation does. Despite the protestations of the members opposite, this is about investing in people and investing in services. I am going—

Jacinda Ardern: How? Sam, all I’m asking is what is your investment?

Peseta SAM LOTU-IIGA: She keeps asking how, and we keep saying $287 million over 4 years. We keep saying early childhood education, and quality early childhood education at that. We keep saying it is about supporting and mentoring and nurturing those people who need help. But it is also being values-based. It is about the value of our people. It is about saying it is not just throwing the money and leaving them to, you know, whatever devices they have. Mr Sio talked about the aspirational goals of kids who want to be Prime Minister—kids who want to actually contribute to society. Well, that is what this legislation does. Mr Sio, if you would like to look up and actually listen to what this legislation does—I know you slept during the select committee process, but you can at least listen in the Chamber during this debate. It is about providing those kids with the sorts of tools and the sort of assistance that they deserve. They deserve that assistance, so that is why this National Government supports this legislation. That is why I will continue to support this hard-working Minister. Thank you.

HOLLY WALKER (Green): I am pleased to take a call on Part 1 of the Social Security (Youth Support and Work Focus) Amendment Bill. In my call I would like to address in particular the impact of the sanctions regime outlined in the part on the dependent children of the young parents whom the bill talks about. We know that the changes to the work-test obligations and the sanctions regime that this bill introduces have not been evaluated in terms of their impact on children, and that seems like a particularly big oversight and vitally important when one of the justifications that is often given for the Government’s welfare reform agenda—

Hon Paula Bennett: I raise a point of order, Mr Chairperson. I am reluctant to interrupt the member and I kind of apologise, but that is not in this part at all. It is actually in Part 3. Part 1 is about youth providers, but it is not about subsequent children or the effects on children.

HOLLY WALKER: Speaking to the point of order, I offer my apologies if as a new member I have misread things, but I am looking here at Part 1, clause 20, on page 36, which talks about “Sanctions for failure by young person receiving young parent payment to comply with obligations under section 170”.

The CHAIRPERSON (Eric Roy): I am not going to uphold the point of order. The member Holly Walker has the floor.

HOLLY WALKER: Thank you, Mr Chair. The section I am referring to outlines the sanctions that apply to young parents if they fail to comply with their obligations under section 170. We are talking here about young parents with dependent children and the impact that those sanctions will have on the children. As I was saying, I am concerned that no child impact assessment or analysis of these sanctions has been done to determine the impact on children, because we often hear that the justification required for these reforms, or for this particular part of the reforms, is to improve the outcomes for children of benefit-reliant households and children who have parents who are young and sole parents. That is a noble goal and one that we share, but I think it is very important that we make sure that the sanctions that this bill introduces are not going to have unintended consequences on the very children whom they are designed to support and to help. It highlights why we should be routinely doing these kinds of assessments, because I think that if we did, the bill would look very different.

How will the provisions in Part 1 make things worse for children? Well, I am talking here about the sanctions regime that it outlines for the failure of young people on the young parent payment to meet the obligations that the bill sets out. Actually, it is useful that the Minister for Social Development made a contribution just now, and I would like to invite her to take a call perhaps to clarify that for me. In my reading of what is new section 174 in the bill that is in front of the Committee, it is my understanding that in recognition of the impact on children of applying sanctions to their parents’ benefit, that sanction would never be more than 50 percent of the benefit. I am looking here at new section 174, which deletes the provision that would have restricted the sanction to only 50 percent of the benefit and inserts a provision that says that on a third failure a young person’s young parent payment can be cancelled altogether, and a new provision on the next page that says that they can be stood down from receiving that for 13 weeks from the date of the cancellation. I would like to ask the Minister to explain why it looks like this. It may not be as sinister as it appears, but to me that is very concerning because that could have huge implications for children whose parents are young parents who are receiving the young parent payment, because that could result in them losing their income altogether. They would certainly be unable to supply food, pay rent, pay for the power bill, and supply the basics of life for their children, which is so important.

And it is ironic, because the obligations that they are being tested against and that they may fail to comply with are things that are supposedly there for the benefit of their children, like enrolling them in a primary health organisation or making sure they are in early childhood education. So if we are going to sanction the parents for not doing that, by cutting off their income, it means they cannot provide any of the basics of life for their children, and it seems like one of those particularly perverse unintended consequences that we would like to avoid.

Even if my reading of the clauses I have just outlined is incorrect and it is only a 50 percent sanction, I still have some very serious concerns about the impact that this will have on children. As we know, it is not a dream lifestyle living on a benefit. It is not a huge amount of money for young parents on the DPB or the new young parent payment, and cutting that by 50 percent will make it extremely difficult for them to meet the needs of their children or to supply the essentials that we know are so crucial for children’s outcomes—you know, the basics of a warm healthy home, enough to eat, and shoes to wear when they go to school. If their parents’ benefit has been sanctioned by even 50 percent, I have extreme concerns about what that will mean for the ability of their children to have their basic needs met. It is ironic that we are trying to protect the best interests of children—supposedly—in this legislation, yet we are introducing sanctions that will drastically reduce their parents’ income potentially by up to 50 percent, or perhaps by removing the benefit altogether, and leaving the children in a very unfortunate situation.

I want to address briefly my colleague Jan Logie’s Supplementary Order Paper, which has been ruled out of order. The Government has chosen to use its financial veto on it, which is interesting, actually, because we heard Mr Sam Lotu-Iiga talk about the investment approach in his contribution just now, and this seems to me like the prime example of taking an investment approach by reinstating the training incentive allowance for sole parents and other beneficiaries who are studying for degree-level courses, because we know that people who receive the training incentive allowance and study degree-level courses move off the benefit up to 6 months earlier than those who do not. We know that when they do that, they earn more and are better able to provide for their children. We know that a mother’s education is the single best indicator of child outcomes in terms of health, education, and other economic and social indicators through that child’s life. As the daughter of someone who used the training incentive allowance to train as a kindergarten teacher when I was a small child, it is something that I know particularly well and it is particularly close to my heart. It seems to me to be the very embodiment of an investment approach where the ability of the mother and the family is invested in for the better outcomes of that family long term. So if the Government wanted an opportunity to take its investment approach, then this Supplementary Order Paper from my colleague Jan Logie here was the prime opportunity for it to do so, and it is very interesting and disappointing to see that it has chosen to use that financial veto to rule it out of order. I suggest that perhaps it must have been nervous that it might actually pass.

So I will end my contribution there and I invite the Minister, please, if she could, to clarify that situation. But I reiterate that whether it is a 100 percent sanction or a 50 percent sanction, the impact on children is what is not being analysed in this debate and what is not being analysed in relation to this bill, and it is what should, by rights, be the primacy of our consideration of this legislation.

JACINDA ARDERN (Labour): It is my absolute pleasure to be able to clarify some of the friendly banter that has been happening between this side of the Chamber and, in particular, my colleagues from the select committee process. I want to point out that some of the frustration on this side of the Chamber comes from the assumption that I have heard made by members that somehow this Social Security (Youth Support and Work Focus) Amendment Bill embodies the investment approach that the Minister in the chair, the Minister for Social Development, espouses when it comes to welfare reform. The simple point that we wish to raise is that if you are on Government support and are older than the age of 19, the only thing this bill does for you is introduce more work testing. Let us be clear. We have not ignored that this bill does change youth services, that it puts in additional child support for teen parents, and that it has got incentive payments attached for those on a youth payment card and a teen parent card. But those are all measures that will affect only those who are under the age of 19 years. So for the 112,000 on the DPB, over 90,000 of whom are sole parents, for the almost 50,000 on an unemployment benefit, and for the tens of thousands on invalid or sickness benefit, this bill either does absolutely nothing or it introduces increased work testing.

Let us be clear. We are not talking about rhetoric, on this side of the Chamber; we are debating the bill that the Government has put in front of us. I think it is absolutely legitimate to question the rhetoric around an investment approach when this bill affects the roughly 3,000 young people who are currently drawing down Government support. I accept that there are another 11 that you will put services in for, but that is whom you are targeting. I also do not question that it has purposely been done by the Government because of the statistics around trying to discourage young people from staying on a benefit in the longer term. There, we just dispute whether or not this is the most effective way to do it, and that is a legitimate argument to have. But please do not test this side of the Chamber with rhetoric around investment for the majority of people on a benefit when that is not what this bill does.

Now that we have clarified that point, I am happy to come back to Part 1 of this bill and continue with this discussion. I want first, though, to come back to what the Minister raised around her goal of ensuring that young people are in education. Again, we do not dispute the importance of education as a foundation for our young people in securing their future. Our concern is that by narrowing the incentive around a goal that may be quite a distance from where a young person’s starting point is, we may create a disincentive for a youth provider to work with that young person. Our argument has been that the existing Youth Transition Service framework gave more discretion to youth providers than this framework does. If the Minister can prove to me that that is not the case, that the way that the contracts were structured before did not constrain in the way that you are purporting they were constrained, I would be very interested to hear that, because that is not what youth providers are telling members in this House. We heard a very different story from what the Minister is purporting.

We are not saying let us not have these services; we are trying to aim for some of the same goals that the Government is. But we believe that the Government is spending more, working with fewer young people, and potentially getting a worse result, and I think that is a very legitimate point to make.

I want to come back to the youth support payment—we have not discussed that yet—in particular, the fundamental change around the way that young people who are currently on an independent youth benefit, or who are currently on a domestic purposes benefit, will now, if they are under 19, transition to a teen parent payment system. We heard from Government members that their purpose in moving to this youth support payment, which would be underpinned by a card system and would affect roughly 1,000 independent youth benefit kids—roughly 1,500 teen parents—was to try to encourage greater financial management by these young people. The way the Government wanted to do that was move them on to a card system. This essentially means that they automatically have some of their bills paid out and then they get a small discretionary amount on a card.

Dr RAJEN PRASAD (Labour): Thank you, Mr Chair.

Hon Member: Finally!

Dr RAJEN PRASAD: Finally, indeed, Mr Chair recognises me.

The CHAIRPERSON (Eric Roy): Oh no, that’s unfair.

Dr RAJEN PRASAD: I do apologise for that. I know I am a bit hard to recognise on this side of the Chamber. I would always support—and I say this to the Minister in the chair, the Minister for Social Development, as well—well-thought-out social policy; social policy that has gone through a good process and actually does make sense, and is supported by a whole lot of evidence that is brought to the House. In the two terms I have been in this House, whenever the Government has brought bills like that in the social development area around children, this side has always supported those bills. But on this occasion we are not. I simply ask the Minister, and indeed the speakers opposite, to consider why would it be that this side of the Chamber would be so hostile to provisions like this. It is not because we are silly; it is because these proposals are silly, and because these proposals are not well-thought-out. They are driven by something else; they are driven by a particular ideology, and I want to come back to that as well. Clearly, the officials have been given particular policy outcomes—and I acknowledge the officials here, they worked very hard with us in the Social Services Committee—and that is what is driving this. But that is not the logic of what we ought to be doing in New Zealand, if this is an issue. The Social Security (Youth Support and Work Focus) Amendment Bill is driven simply by a set of ideological statements, which really are about welfare dependency.

So what has been the Government’s approach, as shown in the provisions in Part 1? Clearly, it has been to think through a whole series of difficulties, set up a Welfare Working Group, get it to identify and create—welfare dependency is its own creation—and then begin to drive the particular ideology that the Government started with, in the provisions particularly in Part 1 and Part 3 of this bill. That has been the Government’s approach in this particular bill. The Government also has an intellectually dishonest approach to what it has been saying. Certainly, the chairman of the select committee, Sam Lotu-Iiga, indeed used that a little while ago. First, you start with a large number, 339,000, of people who are either on welfare or are children who live in welfare-dependent homes. That is where you start. So you create in the country this notion that here we have this huge problem and then you drive this kind of process through. But how many people do the proposals that are in this bill affect? I have taken the officials’ own figures and it comes to about 31, 948. So it is not exactly something that is going to alter the development pathway for a whole bunch of people. But somehow what the Government wants to do is to create this notion that here we are addressing welfare dependency.

The next place where we saw that is the way the whole bill has been handled. It has been one of the most rushed processes one can imagine, and this is not a bill that was well-thought-of in the select committee. Our submitters did not support the provisions of Part 1 of this bill. They did not. And yet it was rushed through. The Minister would not allow the select committee to have a decent period. What was the Government’s argument? The argument was that when the Welfare Working Group reported, the country had had its say and that therefore it did not now need to have its say. That was also intellectually dishonest. It is taking our people for a ride, and that is because the Government wants to drive this particular ideology through in a way that the Minister believes is the right way of doing things. So the rhetoric that the Minister uses here is that change is on the way. Bravado and rhetoric of that type is simply just that, but in the end does not achieve fundamental change. The belief that, as the Minister says, this will achieve fundamental change—it will not. It really will not. It will give the impression that a lot is being done, that welfare dependency will be throttled and everything else will be OK. Well, it would not be. In the provisions of Part 1 that actually look at the—[Bell rung] Mr Chairman!

The CHAIRPERSON (Eric Roy): Dr Rajen Prasad.

Dr RAJEN PRASAD: Thank you, Mr Chairman. Things are looking up already! Thank you. I knew I needed to speak at this time. Thank you, Mr Chairman, you are so wonderful. [Interruption] This is called banking; you have got to bank for your future!

When we look at the attitude to young people that Part 1 reflects, we see that it is actually a negative, punitive attitude, and it is now being shaped by the Minister herself. This is this new thing—let the agencies out there that know more about this than everybody else work with these young people, and it will be all hunky-dory at the end. Well, it will not be, because this is a rather curious way of shifting resources into the private sector, as well, and letting them provide.

Many of these young people who are in this 16-17 year age category have actually come out of Child, Youth and Family Services; they were in care. They are quite vulnerable people. The State, in a sense, has not done very well by some of these kids. What would we do? We are applying in the provisions of Part 1 this punitive approach a little bit further. So the presumption is that these young people cannot manage themselves. That is the starting point of this Government and this bill, in the provisions of Part 1. The attitude to these young people is “Let’s not give them a chance to show us what they can do, but let us start with a presumption that they will waste their money, and that they will not care for themselves.” Part 1 does this—it builds these quite Draconian provisions, and I personally object to them, because the young people I know actually do have the ability, when trusted and guided, to do very, very well. But this bill does it the other way round. Young people have to earn the respect of some NGO out there, or some social worker, or some service provider, and show that they are good enough to manage their own resources and have the little bit of money they are entitled to get.

I think that is a curious approach. It is an anti - young people approach, and I want to know from the Minister where the science is that says that this is the way young people operate. Which is the theory? What is the research that says that this will work? The Minister talks a lot about being evidence-based. Well, this is not evidence-based. This is ideology-based, and this is based on a punitive approach: “We will show somebody else out there that we are taking a tough approach.” And that is what bothers Labour members about this particular way that the Government is doing things. The Minister for Social Development shakes her head. The Minister can couch it any way she likes, and you can criticise us and say: “You don’t care, you don’t know. The Minister is the only one who does.”, but in fact the science is not there, Minister. All of the theory I know, all of the research I know, and much of the experience I know says that you work with young people, you take them along, and you do not start by saying: “No, you are not going to get any control. Only when you are good will we give you some control.” That approach comes from a crazy reverse psychology that does not make sense at all, and I think that is a fundamental flaw in this area.

We know that this side of the Chamber has the experience of reducing the number of people on benefits through triaging, through the same Work and Income that is there today. Triaging very early on, it got people into work, and had the lowest unemployment rate in the world. So the science is in that particular ministry right now. Given the space to do it, it knows how to do it. But if given a policy direction that says “You have got to apply this approach based on welfare dependency.”, then I think we have created a problem, and now we are trying to fix it. And what are the chances of that working? Very, very little.

Let me just come back to ask the Minister to have a bit more thought around the young people who have been in Child, Youth and Family care themselves, are now, or have been, on the independent youth benefit, and now will be caught by this particular programme. I mean, these are people who need to be trusted, who need to be taken very carefully by the hand and enabled to make something of themselves. Starting from the rhetoric of welfare dependency will not get us there.

Le’aufa’amulia ASENATI LOLE-TAYLOR (NZ First): I rise on behalf of the party that takes pride in its good judgment on genuine practical policies that help address the social security issues of this country, New Zealand. That party is New Zealand First—of course. Allow me to say that when people try to tell me how bad things are right now, I have to say “Tell that to the National Government; tell that to the Minister for Social Development, Paula Bennett; and, of course, tell that especially to Peseta Lotu-Iiga, who chairs the Social Services Committee.”, because those are the people who have ignored 99 percent of the submitters, who opposed the bill. This bill, the Social Security (Youth Support and Work Focus) Amendment Bill, is being sold to the people of New Zealand using the phrase “transforming the benefit system into one that is modern, active and work-focused for adults and education-focused for young people.” I want to acknowledge the Minister for her efforts in acknowledging that this is an issue in our country of Aotearoa; I want to acknowledge her for that. One thing I know for sure is that the intention behind this bill is a good idea. However, any good idea must have good strategies for a successful delivery, in order to achieve the best outcomes.

Part 1 of this bill focuses on substantive provisions taking effect on 30 July, now 20 August—in other words, as soon as possible. It also means that time management and organisational skills are probably not high on the Minister’s agenda, I must say. National intends to rush this legislation through without informing the public, especially those individuals who would be affected by the changes in the bill.

We know, of course, that the aim of the bill is “to provide services to encourage and help young persons to move to education, training, and employment rather than to receiving financial support under this Act. The interpretation of “contracted service provider”—mentioned in section 125A(1) and in section 123E, which are both inserted in Part 1—is extremely broad. It is extremely broad and allows for any party that can be seen to assist in the aim of this bill to be contracted. So we do have a concern in this area. If we are to allow these third parties to be contracted to provide services, surely we also need to put in place ways to assess and test these service providers’ work and performance. Sufficient audits and safeguards need to be put in place to ensure that these service providers are actually assisting young people into employment and training—proper training, that is.

It is admirable that we spend money and that young people spend time with these providers, but at the end of the day if there are no jobs, this whole operation fails. There is an apprehension as to whether these service providers are even competent enough. That is the question we need to ask. Are they competent enough in providing helpful services? And what will make these services any different from someone sitting, today, at a desk at Work and Income and telling a young person to go on to the website seek.co.nz for a job, while knowing full well that there are thousands of others in the same position? What is the difference?

The aim “to encourage and help young persons to move to education, training, and employment” is a very broad definition. What defines “encourage” and “help”? That is another question. The aim, “to move to education, training, employment”, is reiterated in the section dealing with contracted service providers. I am just wondering. Are we looking at not training young people, not educating young people, or not employing young people, but, rather, at encouraging and helping?

GRANT ROBERTSON (Deputy Leader—Labour): I want to refer back to the youth services model that is established in Part 1 of this bill, the Social Security (Youth Support and Work Focus) Amendment Bill, and in particular to talk about the concept of wraparound services. On this side of the Chamber that is a concept that we support. Once upon a time members on the other side of the Chamber would have called that nanny State and said that it should not be done, but they have come around to the idea that wraparound services are the way to deliver best to the difficult needs of many of the people who are being dealt with within this bill. That is something we should all welcome. These are what some of the officials sitting here tonight would call messy problems—problems that do not have single situations.

Jacinda Ardern: Wicked.

GRANT ROBERTSON: They are wicked problems that have to be dealt with by a number of different interventions, a number of different programmes. That is a good thing. But the model that is actually developed and proposed here absolutely scraps what has been the delivery of that kind of wraparound service model, through Youth Transition Services and through, as has already been talked about today, the fantastic work that Dale Williams has done in Ōtorohanga, but also in other parts of the country. I met with the Mayor of Clutha District earlier this year when I was down there—a man named Bryan Cadogan. I do not know what Bryan’s politics are, but I have a suspicion, given where he is from and one or two other things, what they might be. He is gutted by this bill. He is gutted by this legislation.

Hon Member: How do you know?

GRANT ROBERTSON: Because he told me. He told me; that is how I know. It is because he told me that he is gutted by what the Government is doing to the Youth Transition Services, which has meant that in his district he has gone from having numerous young people out of work, with no hope, wandering the streets, down to, as he says, one person. There was one person they could not find work for, one person they could not get into a training course, using Youth Transition Services, which are being scrapped as part of this bill. That is what I just do not understand about this.

Hon Paula Bennett: That’s not true.

GRANT ROBERTSON: Well, it is true, Minister. Youth Transition Services, which have delivered in these communities, are now being told: “Yes, you can still have funding. In fact, you can have more funding, but you can deliver it only to these 16 and 17-year-olds. You can deliver it only so that we the Government can tick it off and say that, yes, we’ve achieved that, we’ve got that target, and we’ve got that goal.” Never mind those who miss out. Never mind the hundreds of people whom the Gisborne branch of Youth Transition Services has said it no longer will be able to deliver services to because of the model that is in Part 1 of this bill.

The examples we were given time and time again, as I have travelled around the country and talked to these providers, showed that young people do not live linear lives. I have a member of my family who left school at age 17 to go into an apprenticeship. That was the deal for leaving school. He had to have something to go to, and he went into an apprenticeship. But that apprenticeship fell over after a period of time, and he drifted out of the worksite system. He drifted out of the sight of people. We were able to find him support. Under this bill, at 18 he is outside of the system, and the people who work in Youth Transition Services say to us that that is a pattern they see. If we are going to wrap services around people, let us wrap services around people in need. Let us not set up artificial distinctions that can make the Government look good if it fulfils them. Let us actually work with the young people to make sure that we deliver to them the things that will change and transform their lives. So I support a wraparound service model. I welcome that the Government now sees that this is how services can and should be delivered. But let us deliver them in a way that builds on what we have got, which is having Youth Transition Services around the country. Sure, we could do more and better with them, but let us build on what we have got and actually make sure that we use the communities that have bought into those services and make sure that we use their skills and their expertise.

But instead, what we see here is fitting people into a box. The Minister said she wanted to give the power to the people who can think outside the box. These are the people who are thinking outside the box, and they are the ones who are telling us to not do this and to not take away the ability for us to deliver to the full range of young people in our communities who need this support. But instead, no, it gets narrowed down. It gets narrowed down to this goal of National Certificate of Educational Achievement (NCEA) level 2. NCEA level 2 may be totally unattainable for some of these young people. It may be something that is completely outside their orbit, yet we set that up as the goal and we set them up for failure. Students who have struggled at school, and for whom NCEA has been part of the issue for them, are the ones who are now being told that NCEA level 2 is where they should go. What is worse is that it is the providers who are now being given all the incentives to go for the kids who will get NCEA level 2. That is where the incentives now are. So it is a little bit like the whole national standards and national testing—teach to the test. Go for the thing that will deliver the extra funding, the extra bonuses, and the ongoing contracts for the providers. Do not deliver so much to the community. Do not deliver so much to the need. Deliver to the prescription of the contract.

The problem here is that we have got a proposal, however well intentioned it might be, that is ignoring the good models of work that are already on the ground, and that is putting in place provider provisions that will force those providers who want to do this work, who are well motivated, and have good records in most cases, into an even narrower set of measures. That is not what we need. It is not about ticking boxes; it is actually about making sure we deliver to those communities. So it makes me very sad to see a situation where we do not build on what is good. Just because Youth Transition Services is something Labour came up with, the National Government is not inclined to build on that, build on the success of those services, and actually bring young people through, whether they are 16, 17, or 18.

Part 1 of this bill, unfortunately, is predicated on the view that it is about blame and it is about dependence, and it is not actually about getting alongside the young people. But worse than that, it does not add up either. We heard that in the Chamber today. The Minister has had to admit that Treasury advice said that it was $285 million spent and $100 million saved. It does not stack up economically. It does not stack up socially, alongside what we know about our communities and what we know works. So I think Part 1 of this bill is wrong. It is flawed. We could be having a debate here tonight around how we build on the strength of initiatives in the community that are currently working. Instead, what we are doing is debating how National can fulfil some goals and targets it has set for itself, tick some boxes, and say that it has done well for the young people of New Zealand, instead of actually delivering the services, the training, and the community development that we need. More than that, the Government will not deliver the hope for that.

I just want to finish with a reference to the amendment in the name of Megan Woods, to amend in new section 157, inserted in clause 20, the definition of “approved training”. What this speaks to is whether we are concerned about ticking the box of NCEA level 2, or about what people can actually do and contribute. Megan Woods’ amendment adds in, on approved training: “or trades training course through the Skills for Canterbury package.” It is a simple amendment that says that we should actually enable people to work on the Canterbury recovery, as part of doing approved training under this programme. It is a simple amendment, but it speaks to the idea that we actually should be doing what works, what is there to be done, and what supports young people to develop their skills, not fit them into the box that National wants to fit them into. We could be having the debate tonight about how to meet the skills needs of these young people, and how to make sure we have got the people who can work in Canterbury. Instead, what we are doing is debating an ideological solution in search of a problem, and that is the wrong approach to take when it comes to getting our young people back into work.

ALFRED NGARO (National): I am honoured to take a call on the Social Security (Youth Support and Work Focus) Amendment Bill. I want to highlight a few points of the member Grant Robertson, who was speaking previously. What concerns me is that he used the word “hope”. He talked about the fact that there is concern about the benchmark of National Certificate of Educational Achievement (NCEA) level 2. As a father of four children and as a member of a board of trustees for over 20 years, I am concerned that I have seen what happens when you do not set an aspiration and a benchmark of achievement for young people. That is what concerns me about that member of Parliament. What he is actually saying to mums and dads in New Zealand is: “Don’t set your sights too high.” These are disengaged youth in what you would call the “too hard to deal with” basket. This is what they say: “Let us make it really simple. Let us not make it too hard.”

Let me tell the honourable member over there—maybe because he has not actually worked with disengaged youth—a little story about how I worked with some disengaged youth, a disengaged youth who did not have NCEA level 1, NCEA level 2, or NCEA level 3. He was on track for going into crime and into incarceration. His parents had given up on him and his community had given up on him. This is what we did with this young man: we set a benchmark of what he could achieve. I am happy to say that that young man, through the support we have given him, is now qualified as a carpenter. He is now working as a lecturer in carpentry, and his department has said that in 2 years he could be head of department. Why? Because we did not dumb his expectations down. That is what this bill is about. [Interruption] This is not about theory, Mr Prasad; this is about reality. This is the reality that we are talking about.

On 25 June this year I was at Robertson Road School, and it was Leadership Week. At Robertson Road School I met with young people in years 7 and 8. The young man who met me at the school office was called Apec—that is right. He and I laughed a little bit. I asked whether his parents named him after Asia Pacific Economic Cooperation, and he said yes, they did, and he laughed. I said to him: “Young Apec, what’s your dream?”. He said: “Mr Ngaro, my dream is that one day I could become an accountant.” I went in to year 7 and year 8 and we talked about daring to dream and aspirations. You see, Mr Robertson, that is what this bill is about: aspirations with reality.

It is also about this: it is about being responsible. This package of reforms balances obligations of support with new initiatives and a focus.

Grant Robertson: From the heart, not from the paper.

ALFRED NGARO: Mr Robertson, what this is also about is transformation. The word “transformation” means dramatic change. This is the thing: what this Government is committed to is dramatic change. Why? It is because the things that were always done have not always supported and helped our people. This is what we are doing: we have a youth package to help disengaged young people. It is about education, training, and employment.

Grant Robertson: Just a few of them, not all of them.

ALFRED NGARO: We have talked about wraparound services. Well, Mr Robertson, obviously, you have not been involved in wraparound services, so let me give you just a few instances of wraparound services. It is not just a big hug like a Pink Batts ad; it is a reality of tough love and actual support services. That is what this is about. Again, who are we talking about? We are talking about disengaged youth, who need support, who need help. This is what we are saying to them: “No, we’re not going to leave you alone. We are going to help you with support on budgeting, we are going to help you with support on parenting, and we are going to help you with support on childcare.” That is what we are doing. That is what you call wraparound services. You see, we have learnt from the eighties, when the Labour Government tried it, and it fell over. You need only ask the organisations of South Auckland about the eighties. It all fell over. Why? Because it was all cotton wool; it was all fluffy. This is what we have done. We have taken the learnings from that, and we have made sure that we have got the support to have wraparound services that focus on that.

What about a stronger work focus? That is what we are doing. This bill aims to change work availability and preparation requirements. This bill is also about saying to young people that it is not just about saying that, yes, we have heard the cries and the gnashing of teeth about these poor young women who were on the DPB, and that what we were doing was oppressing them in terms of their ability to have young families—absolutely not. What we are saying to them is this. This is about a stronger work focus. That is what this bill aims to do. It is about changing attitudes. The honourable member over there, Mr Sio, talked about how he thought he heard—and he was wrong; it is in Hansard—the Minister for Social Development say that Māori and Pacific young people had this impression and this perception that they would be on the benefit. Absolutely not, and we know that that is not the intent of the heart of the Minister or the intent of this party and this Government. In fact, what it is, Mr Sio, is about saying this: “Lift your aspirations. Look for opportunities.”

Let us give you another example, because we are not talking about theory. Let us talk about Manaiakalani at Pt England Primary School over in Glen Innes. With regards to e-learning, the young people there turned around and said: “We want to contribute. We want a focus that we too can contribute to, just like our parents are.” An amount of $3.85 a week is what their parents contribute to help pay for their notebooks. These young people said that they could do the same too. So what did they do? They designed a programme about how they could be employed by the school in order to contribute. What did they do? They saw that there were a lot of visitors coming to the school and looking at the e-learning programmes, so they said: “What if we made coffee and tea?”. They bought a coffee machine. They got trained as baristas. This is the wonderful thing: children as young as 7 and 8 are also changing the attitude. Why? Because it is about an attitude of work focus. It is an attitude of opportunity. Work is the means to an end that our young people are looking for. This is what we are talking about. These are the opportunities that we are offering as well. It is about addressing the concerns raised.

What about the Privacy Act and the sharing of information? This is absolutely important. This is not about breaching privacy; this is actually about ensuring that the right information follows through with the young person so that they can be supported.

This is a great bill. I stand here proudly as one who has worked in the social services, worked in NGOs, and worked in community-led development. This is a community-led development approach. Why? Because it puts the resources and the opportunities in the hands of the community, for them to innovate a new response and to be able to develop programmes and initiatives—yes, like the Ōtorohanga youth policy. You see, the issue is this: it is not about redeveloping that programme or about Youth Transition Services, and good practitioners know that; it is about the use of the practitioner and the skills that they have to truly make the difference. This is a great bill. It is making a difference in the lives of many of our young people and our families. I support this bill. Thank you.

CATHERINE DELAHUNTY (Green): Tēnā koutou e te Whare nui. I am going to take a very brief call. I have got just a couple of strands that I want to think about. One is the Welfare Working Group, and the other is my own practical experience as a youth worker in the town of Thames and also as a beneficiary advocate in the town of Gisborne. In fact, if you think about reality and experience, we have all got different experiences to bring to this debate, but one of my experiences was of working with young people who had been expelled from school because the school was culturally inappropriate for them. There were no jobs in the town for them. What is more, the more beneficiary bashing there was in the town, the less likely they were to get employed. So it is kind of interesting to think about the Social Security (Youth Support and Work Focus) Amendment Bill not just as a narrow set of clauses but in the context in which it operates. It is so hard for our young people to get respect when there is so much stigma associated with needing to be on a benefit at any time.

The myth of welfare dependency needs to be put alongside the issue of wealth dependency. It is much harder to change people’s dependency on wealth than their dependency on welfare. Try to clean up the mess of the bankers on this planet who are actually dependent on having so much more money than everyone else, try to get them away from their money, and try to help them with their addiction to wealth—that indeed would be a wonderful challenge. The reality is that for many young people in this country where there are no jobs, they need our support. So the debate becomes about how we give them support. Wraparound can be either a boa constrictor or a liberating experience. I do not think any of us are disputing that we need to be supporting our rangatahi, because that is what is important, but, actually, wraparound is just another slogan. The reality is that this is about relationships. The previous speaker, Alfred Ngaro, talked about a community development approach. As somebody who has worked in community development, too—and I do not claim to know it all—what I do know is that if there is private profit driving it, then it may distort the outcome for the most vulnerable people in it.

What the Welfare Working Group did was adopt an English model around private training providers, and it did not present the evidence to those of us who went to its presentations. There was one that I tried to go to, but the group would not let me in, because its members did not want to consult with people who disagreed with them. But what has happened in England with these private service providers is that they get paid bonuses for meeting targets. They have benefited, and guess what? The statistics around youth unemployment have not changed. So if anyone is interested in evidence, have a look at the private service provider model. Who benefits? Someone definitely does—those private contractors benefit. It is a model about the privatisation of welfare.

You can use all these fabulous descriptions of wraparounds and responsiveness and all the other jargon, but as somebody who has worked with rangatahi I know that they do not want our jargon, and they do not want to be put on a card. They want to see us role model respect and human dignity for them and their human rights, and provide them with real work. That does not come from controlling them, nor does it come from creating a welfare dependency industry, which those private contract providers will benefit from. Of course they love it, because they are going to see the big NGO, the big opportunity, and the big money. But the genuine community development models are about quality relationships that have nothing to do with making a profit.

What I fear for in taking some of the power away from the State is the accountability when things go wrong. Because how do you go back to a private contractor and demand a hearing? You cannot. A young person cannot go back to a private training provider, as they currently can to Work and Income, and say “Hey, I need a review of decision.” How are they going to get a review of decision? These are people who do not have a lot of power. Talking about the independent youth benefit, it has always been like getting through the eye of a needle to even get that benefit. Now we are talking about making it even more prescriptive. Well, who is going to benefit? I can see who is going to benefit; it is the private training providers. But I do not see a benefit to young people in that approach.

We need to look at what works, and if you are going to talk about Ōtorohanga, it is not about transporting models. It is about recognising that that community bought into the responsibility for the relationships with young people on a personal level. They did not privatise it. They did not say that welfare is a commodity that can be privatised so that people can meet targets and make money out of it. They said it is about our young people at the heart of our community. They made it real. Every community, whether it is South Auckland or others—

Dr DAVID CLARK (Labour—Dunedin North): I am very happy to speak to this bill, the Social Security (Youth Support and Work Focus) Amendment Bill. It is good to follow a speaker, Catherine Delahunty, who was raising some important points about the Ōtorohanga model, and the way in which that has worked by drawing on local communities. Indeed, Mr Robertson referred earlier to the example in Balclutha, which applies a similar principle and has been very successful.

We have certainly heard a lot of vacuous nonsense from the other side of the Chamber this evening. Most recently, Mr Ngaro used some examples of young folk with ambition whom, he said, he was able to inspire to be successful, all the while failing to note that that was during the period when the youth transition scheme implemented by the Labour Government was in place. He implied that this proposal will have more funding and bring more funding with it, when that is not true. It does not put the supports in place that are necessary for our young people to get ahead. We heard Paula Bennett talking excitedly about using food as a motivator. She may as well have said: “Let them eat cake.”

This really does not work as a concept, because what it fails to do is address the real barriers to work—it fails to address the real barriers to work. The availability of work is not addressed by this bill. The availability of childcare is not addressed by this bill. And the skills and education training required for the young people to find work is not addressed by this bill. This is important context, and these barriers to work must be addressed if we wish to make a difference in this area. Work testing alone will not achieve anything.

The long-term welfare dependency concept was created by the Welfare Working Group, and it is perhaps something of a dog whistle. We know that it takes, for example, a university graduate between 6 months and a year to find work, so defining long-term as more than a year is something of a stretch.

What is most shocking, perhaps, about these reforms is that they are in their own way quite unambitious. There will be more people, we are told, on a benefit in 2017 if these reforms are successful than when the Government took office. That is shameful. That is embarrassing if that is ambition. It is probably realistic, given that this bill does fail to address those fundamental barriers to work: the availability of work, childcare accessibility, and skills training. Those welfare targets, too, are, notably, two elections away.

There is similarity there with other plans and targets that the Government has brought to bear: the emissions targets and rebalancing the economy—when, in fact, we see the balance of trade getting worse over the projected period that the Government accounts look at. We see the record getting worse in terms of so-called welfare dependency. The number of people on the DPB rose by 13.2 percent between January 2009 and January 2012, but the number of people on the unemployment benefit rose by 82 percent. So we might ask ourselves why in that context we are targeting DPB mums. Perhaps it is, indeed, simply a distraction away from the real issue of creating jobs, the real issue that the Government has not addressed during its 4 years in Government. We know it has the worst economic record of any Government in the last 50 years. There are 50,000 people a year leaving for Australia, and unemployment has risen by over 50 percent—nearly 50,000 people—since John Key took office. These are the real problems, and these are the things that are not being addressed through this legislation.

To get proper work and decent paying jobs, parents require correct training and education. They require the correct care and education opportunities for their children, for childcare, and they require, more than anything, jobs to go to. There is no solution as good as a decent job for people who are seeking one. Nothing in this bill will provide those facing these barriers with the tools to overcome them. Indeed, in this context we see that—

Hon PAULA BENNETT (Minister for Social Development): I thought it was opportune to answer a few of the questions that have come up over the last few calls on this bill, the Social Security (Youth Support and Work Focus) Amendment Bill. First of all, the Greens had, quite rightly, I think, some concerns about sanctions and whether they would effect a complete sanction for those particular children. The answer is that we are inserting into the principal Act new section 177, which says that there can be only a 50 percent sanction for those who have children. I actually introduced it through Future Focus in 2010 for that very reason, when we had some concerns.

There are also some other concerns around sanctions. They are not something that one does lightly and without taking into consideration the actual consequences of them, because I do agree that no one is sitting there thinking that this is a life of luxury, particularly living on the DPB and trying to make ends meet. So to actually look at how you incentivise and how make sure you have got the right kind of obligations can, I tell you, lead to a lot of debate in my office with very good officials and amongst my Cabinet colleagues, as well, as to how you try to get that balance right.

I would say, in relation to the incentives that we are putting in this bill for those who are going into education and those who are doing the budgeting, that that was an interesting discussion. Instead of sanctioning the behaviours and not getting the kind of behaviours you would want, we wanted to look at rewarding the kind of things that could happen by giving a bit more money in people’s pockets. There is a really good chance that people could get $30 more.

We sanction now, and I think that is important to know. And, actually, we sanction quite a lot. For example, in the month of May there were about 3,500 sanctions. Of them, about 3,000 were to those on the unemployment benefit. These may be part-sanctions by the way, so they are not all 100 percent. Some of them are for 50 percent and some are more. It is quite high. I obviously keep a close eye on the numbers, and I am quite surprised at times about how high they are. About 3,000 are from the unemployment benefit—and I really am going from memory on this—but about 312 are from the sickness benefit and others, and then we have about 170, from memory, who are on the DPB.

Then—and this was actually a big call, particularly from Dr Pita Sharples—when we were doing Future Focus, he wanted to make sure that we were following up on those who had been sanctioned, particularly those with children, so that they were not staying a long time on 50 percent. There was a risk, particularly from the Māori Party’s perspective, that those who are isolated and living in very rural areas would just be sanctioned at 50 percent because they did not turn up to appointments, which, perhaps, they had not turned up to for a very good reason—it might have been beyond their means—and then they would be sitting for months, potentially, on 50 percent.

So we have put checks and balances in place to make sure that we are following up with them immediately, and so that actually recomplying is relatively easy, and you can literally do it within a day. I know it sounds as if sanctions, by their very means, are there to punish, but they are not. They are actually there to make sure that people are fulfilling their obligations, and we want to make sure that recompliance is actually relatively easy and that people can. In most cases they do.

I also want to jump to some of the cost things that we have been talking about, and we certainly have had some discussions on the forecasts of Treasury and the forecasts of the Ministry of Social Development. Let me give you an example of a forecast that—bless Treasury’s cotton socks, whose officials are not here, so I can say it—was just fundamentally wrong. So with Future Focus, the savings that were projected out of that, which were relatively minor changes, were perceived to be $13.3 million in the first year. Actually, the savings were $29.9 million. So we more than doubled them.

Our officials in Treasury are by their very nature conservative and very narrow as to what they will look at as far as the changes that are happening, and with good reason. It is their job to be, but they will not look at behavioural changes that come from these. So I am very confident about what can happen when you take the example of previous changes under Future Focus.

I suppose I will spend my last minute saying that we are targeting, and that is a fundamental difference from what you see in many of the programmes that are out there now. I can accept that there are members in this Chamber and there are members out there in the public who do not agree with targeting. I do. At the moment we scatter across about 188,000 people, and we hope we get to the ones who need it most. We lightly touch, instead of going into the intensive support and wraparound that some need.

The reality is that most of our kids are going to be fine. They have got us. They have got us, with all of our intellectual—or not—grunt that we bring with it, our love and care, our attention over our extended whānau, and everything else that comes with it. It is the other kids out there who have not had a great start in life, who have struggled all the way through, often through circumstances not of their own doing, whom we need to wrap the support around.

I pick up on one thing that Mr Prasad said. He said—and I have written this down as best I can—that when guided and trusted, these young people will succeed and move ahead. I could not agree more. The independent youth benefit by its very nature means these kids have not got someone to guide them. They are on the independent youth benefit because there is no one there to look out for them, care for them, and support them. They actually have to prove that to get on it. It is not easy.

So what we are trying to do is give them a person connected to them in their community who will guide them, who will trust them, and have a mutual responsibility with them. I agree you cannot actually replace a parent or a whānau member, but the sad reality of some of these young people’s cases is that we kind of have to try to. You cannot actually replace a family member or where that love comes from, but the reality is that, unfortunately, for some of the kids you see in Child, Youth and Family and for some of these young people, we are going to actually have to try to replace that by putting it into a community person. That is what we are trying to do.

The member also said they need to be taken carefully by the hand, and I could not agree with him more. They do need to be taken carefully by the hand, and it is by us actually taking them—[Interruption] Well, it is kind of the words you used, and I found it quite interesting that by their very definition these are the young people who need us most. So we are going to target them. We could lightly scatter across and hope that we get those who need it most or we can do these risk assessments that mean we are narrowing in on, supporting, and, yes, wrapping around all of those who really do need it.

I want to also mention teen parents, who are being discussed tonight not very much, to be quite fair. In 2010 there were about 4,600 teen births. We saw that go down by about 600 last year actually, which was a fantastic thing, but let us see how we go from there. You have around 5,000 teens at any one time in that 16, 17, and 18-year-old range who need our help. What we do at the moment is give them anywhere between $300 and $600 a week into their bank accounts, and then off they go, and we hope that they are all right. That is wrong. It is fundamentally wrong.

You can ask why we are targeting, why we are wrapping around so much support, and why we are doing this differently. We are doing it because they are young, and actually they do need our support and they do need more guidance. We will work with them towards independence. Some will take only 6 months, some will take 2 years. Whatever it takes, we will work with them.

We looked at those who are 17 and turning 18 very quickly. For those teen parents we extended it; they could go to 6 months. We looked at those teen parents who were in a relationship and so are not receiving a benefit but could still be open to getting that kind of support from within their community and from organisations. We opened that up to them so that they can have access to that level of childcare, that level of support that they need so desperately.

Some are calling this punitive. I have already heard someone tonight say it is beneficiary bashing. It is anything but, you know. Every time a National woman stands up and mentions that she wants to work with these people and actually wrap more support around them and see a different future, she is knocked down and told that we must have some sinister ulterior motive. Well, that is simply not true. But will we cajole, will we push, will be obligate, will we incentive, will we put it all right? Yes, we will. That is the premise behind this and as right as we can get it. We will trust in those organisations, put our responsibility in them to make sure—as we check all the way through—that these young people are given every shot to get ahead and make a real difference and make their contribution as well.

Su’a WILLIAM SIO (Labour—Māngere): I wanted to say, just in response to Mr Alfred Ngaro earlier, that I thought maybe he had been listening to Peseta Sam Lotu-Iiga for too long, but the more he spoke the more I recognised that the arrogance oozes naturally from him. I would just remind him of the old Māori saying that a kūmara does not tell the vegetable patch how sweet he is, because eventually the kūmara dies and stinks.

The reality is that I think it is good that the Minister in the chair, the Minister for Social Development, is attempting now to articulate some of the concerns that we have raised, but there are more questions that need to be answered. I thought that the Minister was taking this bill, the Social Security (Youth Support and Work Focus) Amendment Bill, quite seriously, but the members on the backbenches on the other side do not seem to be, when you consider the bullying tactics and the personal attacks that they have heaped on us.

If you consider clause 4, on the purpose of this legislation, it is “to provide services to encourage and help young persons to move to education, training, and employment rather than to receiving financial support”. Let us consider that. Let us consider exactly how the Government intends to do that and ask the Minister how many of the young people whom she has identified are going to end up with a qualification at 17 years of age. How many of the young people she is targeting will at age 18 end up in a job? I asked the officials as to what happens when these young people reach the age of 18. The expectation of the officials was that they all get into jobs. At 18 years of age these young people will get into jobs. Well, if you look at the purpose, and if you were—

The CHAIRPERSON (Lindsay Tisch): Order!

Su’a WILLIAM SIO: —if I were to take the word “encourage” as a code for “coerce and bully people into jobs”—my colleague Jacinda Ardern was kinder. She said this is work testing, but with a specific focus on 16 and 17-year-olds, and the second focus being on sole parents. Sole parents are going to be tested. Young people of 16 and 17 are supposedly going to get jobs. But this bill fails to consider what jobs are available. It fails to consider the childcare costs that sole parents have to consider, and it fails to consider whether a person has the skills necessary for the jobs that might be available. That is what this bill fails to address. So much for the work focus! All this bill will do, as articulated by the Minister and the members there, is to—in my words—bully and coerce people into jobs, and sanction them if they do not do what the Government department is going to coerce them into.

I want to remind the members on the other side of the Chamber who sat through the select committee that the Salvation Army, which does work throughout this country and is probably the most experienced in dealing with social issues throughout the country—it has 45 units—has said that if this bill is an amendment to the Social Security Act 1964, the aim of the bill is inconsistent with the main Social Security Act 1964. Let me read for the benefit of the members on the other side what the Social Security Act’s purpose is: “(a) to enable the provision of financial and other support as appropriate—(i) to help people to support themselves and their dependants while not in paid employment; and (ii) to help people to find or retain paid employment; and (iii) to help people for whom work may not currently be appropriate because of sickness, injury, disability, or caring responsibilities, to support themselves and their dependants: (b) to enable in certain circumstances the provision of financial support to people to help alleviate hardship: (c) to ensure that the financial support referred to in paragraphs (a) and (b) is provided to people taking into account—(i) that where appropriate they should use the resources available to them before seeking financial support under this Act; and (ii) any financial support that they are eligible for or already receive, otherwise than under this Act, from publicly funded sources:”. The Salvation Army submitted that this bill here is so far away and detached from the original purpose of the Social Security Act that it does not deliver what the main Social Security Act was set up to do or, as I have reiterated, the main purposes. None of that is in this amendment bill set up by this particular Government.

I want to reiterate some figures for the other side. My colleague David Clark has already said them, but I think they are important. Let us ask the Minister to table now the exact numbers of people whom she intends to be able to support as a result of this bill. Between January 2009 and January 2012 the number of people on the DPB rose by 13.2 percent, but between January 2009 and January of this year the number of people on the unemployment benefit rose by 82 percent. The Government seems to be clamping down on people on the domestic purposes benefit—mums in particular. One cannot help but consider that this Government is just trying to show us that it is acting, when in actual fact it is not acting on the real issue, which is job provision: the creation of jobs, ensuring that there are jobs that young people can go into, and ensuring that the opportunities of quality education are provided—as the bill originally states.

I want to say that in 2009 a paper from the Inland Revenue Department found that among sole parents 67 percent of those available for work had problems getting work that paid enough, 66 percent could not find work for enough hours for it to be worthwhile, and 64 percent did not have the skills employers wanted. What is this Government going to do about that? What does this bill indicate it will deliver for those sole parents in terms of skill development and in terms of the jobs that these sole mums are looking for? No sole mum wants to be on the benefit. Every single sole mum that I have come across wants to be able to provide a high-quality standard of living for their children and for their family. Childcare arrangements are getting harder, with the high cost of private care and long waiting times. All of that has happened under this particular Government.

Despite the Minister’s adamant assertions that her Future Focus reforms have been working, there are more people on the DPB now than there were prior to the reforms. It is expected that by 2017 we will have a significantly increased number of people on the unemployment benefit and on the series of benefits that this Minister and this Government seem to want to reduce. It is a fact that when jobs and opportunities for work are available, it reduces the dependence on our welfare system. We saw that when Labour was in Government between 1999 and 2008. There was a significant reduction in the number of people on welfare benefits across the board. Why? Because there were jobs, and people had incomes where they could earn a living and be able to hold their work up.

But, as I said, so much for the aspiration that this Government has talked about. The only thing that I know is that the people on the ground who are struggling to make ends meet, who aspire to opportunities, and who aspire to better living standards for their family are leaving our shores because of the lack of activity from this Government to address the real issues. The point I have made is that despite the focus on work, all that this bill does is work test, coerce, and bully people into jobs that do not yet exist for the kinds of skills that many young people are seeking. If the Government was serious about this, it would address firstly the job availability. It would address childcare needs that sole parents have—

JAN LOGIE (Green): I would like to take this call now to speak a little bit more to my Supplementary Order Paper 78, and to address a few other comments that I did not get to last time. To start with, I would like to just talk a bit more about community development, and some of my concerns around the contracting out of these services. I absolutely support the Minister for Social Development’s vision of this, of providing a mediator for young people, between young people and Work and Income, because of the stories that we hear of a lot of people in Work and Income: of refugees talking about coming out with their heads burning, feeling as if they are right back in the trauma that they have left in other countries, and of women leaving violent relationships describing their experiences in Work and Income as quite similar to the abuse they have experienced in their relationship. That is not an environment we want our young people to be trying to negotiate. However, the alternative of having community organisations provide this service is undermining the essential role of NGOs and community organisations, which is to look at what the community need is, and to develop responses to help from that community base. Community organisations are not there, and community development does not work, when those community organisations are used as arms of the State. That fundamentally changes our democratic system, and our ways of working. This system undermines what we know works, and that is a real concern. Also, I absolutely acknowledge the Minister’s intent and that sense of helping and being alongside young people. I do find that—

Mike Sabin: Group hug.

JAN LOGIE: It has felt like that sometimes. But I do think it is quite strange when the Minister has said that she finds that promotion of job creation is kind of a form of beneficiary bashing—in response to the leader of the Mana Party’s media—and, in her words, is belittling for people who are trying to do their best. To me that is a really strange world, when job creation is seen as belittling, but taking over control of somebody’s finances is not. That is a pretty strange world to me, and I am sure the young people in Ōtorohanga would not agree with the Minister.

So now to talk a little bit more to my Supplementary Order Paper about the training incentive allowance. Again I am disappointed, to be honest. The Minister knows the benefit of university education—alongside our co-leader Metiria Turei and many other women—and knows that real benefit of getting a university education to get off the DPB and look after your kids. So I am really sad that the concept of an investment approach to welfare does not extend to the investment that they got.

Mike Sabin: Well, it’s investment, not lifestyle.

JAN LOGIE: It is wanting the best for their children. And in response to that member’s comment about it being a lifestyle, I would just like to bring back into the Chamber the story of a woman whom I worked with earlier this year—a young mother with two beautiful children who discovered that the only way she could cover the costs of higher study was by doing escort work. This young woman left school with School Certificate and had been working pretty much all the way since then on stud farms, but when she got pregnant and went back to work, she found that she was $60 a week worse off after travel and childcare costs were factored in. So, being highly motivated to build a better life for herself, she found a course—a higher-level course—that would enable her to get a better-paid job in the long term so that she would not have to keep going on and off benefit, which the Government has acknowledged is a real pattern. But, sadly, that course was a level 6 course, and—

TIM MACINDOE (National—Hamilton West): I move, That the question be now put.

JACINDA ARDERN (Labour): I am pleased to be able to take another call, because I did want to get into some substantive remarks and the amendments—in particular, around the payment card, which is set out in Part 1 of this bill. I do want to acknowledge that the Minister in the chair, the Minister for Social Development, talked for some period about the nature of those young people who are currently receiving the independent youth benefit, and I do thank her for portraying what is, I think, the reality of the situation for a lot of our young people who are on the independent youth benefit, who do have very little support, be it from caregivers or parents, and who find themselves often in heartbreaking situations that lead to their requiring that level of support at such a young age.

I think the position that Labour came to on the use of a payment card system was not to deny that intensive services were appropriate for these young people—in fact, that is something that we have always strongly supported. Our issue was with the fact, as Rajen Prasad has pointed out, that the payment card made a presumption about all young people, transferring all of them on to a payment card system, rather than using the payment card system as a backstop measure.

So we have an amendment, which is on the Table currently, that suggests reversing the onus. If a young person demonstrates that they are struggling financially or they have moved into debt, for instance, a youth service could have the discretion to move the young person on to a youth payment card system if that were appropriate, rather than putting everyone on it and then saying: “Well, if you earn your right, you can come off.”, which actually was a position that was reached only after the Social Services Committee debated this provision. In fact, it was previously that everyone stayed on for the length of the couple of years until they hit 18 and could move off. So what we are putting to the Committee is the proposition that, yes, if there is evidence that that additional support was required, then use the youth payment card system, but let us not make a presumption about all young people.

The second provision that I want to speak to briefly is clause 8 in Part 1, where it talks about domestic purposes benefit recipients being up to the age of 19. That was something that I was interested in having the Minister’s comment on about the difference there—the length of the period that, for instance, a young woman might stay on a payment card system versus, say, a young man on an unemployment benefit. I have had that raised with me; it is an interesting question. I would be interested in hearing her thoughts on why we have those two distinct systems based on the age there.

I want to come back, though, to a part that has not been talked to that is currently within the bill. If we flick through to section 125A(1)(a) in clause 18A, it talks about the chief executive having the ability to contract with service providers for what is listed as services that are “(i) services of the kind referred to in section 123E(a); or (ii) services in relation to Part 5;”. If we flick through to what Part 5 refers to, it talks about financial support for young people. I do not believe that there has been enough public discussion about the fact that this bill substantively transfers powers previously only ever administered by Work and Income to private, sometimes community-based, NGOs and youth service providers. It was something canvassed at the select committee, but it has not been canvassed widely enough in the public domain, I believe. Catherine Delahunty has spoken to it; I believe Jan Logie may have, as well. The fact is that now decisions and discretionary decisions—quite substantive powers held by Work and Income over things as significant as the financial well-being of that young person, and things as personal as emergency food grants; specific needs like that—are being transferred to a youth service provider. That is a significant step away from what we have previously had in New Zealand.

I know that the Minister has justified this move previously. My concern is that this is one massive pilot project for the wider—the wider—privatisation of the welfare State. The member Peseta Sam Lotu-Iiga on the other side of the Chamber shakes his head, and I would welcome his taking a call and giving—

ALFRED NGARO (National): I move, That the question be now put.

Jacinda Ardern: Mr Chair—

The CHAIRPERSON (Lindsay Tisch): I am sorry, you have had all your calls. I am going to hear from Kris Faafoi.

KRIS FAAFOI (Labour—Mana): For as long as I have been a member of Parliament in this House, I have sat and watched the Minister for Social Development say to those young Kiwis out there who are looking for work that “We back you. We are right behind you.” But in this bill, the Social Security (Youth Support and Work Focus) Amendment Bill, there are measures that say: “We back you and we are behind you, but we don’t trust you. We don’t trust you enough, so we are going to give you a payment card to make sure you can make all these payments. We don’t trust you enough, so we are going to bring in these measures.”

I think the amendment that has been put forward by my colleague Jacinda Ardern to slightly amend the way in which those payment cards are used is a sensible and wise amendment, in the fact that it gives those young people on those benefits the opportunity to at least prove that they are trustworthy when they are getting their benefit. They might be able to get some assistance in terms of budgeting too, and if they do get themselves into trouble after 8 weeks, then the authorities can look to the payment card system for them as a possible option. But we do not believe, as Jacinda Ardern told the Committee a couple of minutes ago, that this payment card system should be applied to all of those young people, which it currently does in the bill as it stands now.

This bill is another case from the National Government—and there have been many since it took office—of wanting to make the rhetoric meet the reality. This is the kind of bill that you introduce when you have not done enough to create jobs in the 4 years that you have been in power. If it was serious about tackling unemployment, we would have seen some measures in the economic growth department, but as we have seen for the last 4 years, it has done pretty much zero. That is why unemployment has increased and stayed around the relative level that it has now for some time. We can see the growing level of frustration around the country as Kiwis find it harder and harder to find work. This is what they are being given in terms of the great white hope from this Government, in terms of trying to find ways to encourage young New Zealanders into work.

This bill does not address the real issues that are stopping job seekers from finding work. It does not address the real issues. It does not address, as I have said, the availability of work, and we have seen the many, many instances where supermarkets have advertised the likes of 300 jobs, and three and a half thousand people, many of them well qualified for much better jobs, have lined up wanting a job at their local supermarket. In that instance, this Government has failed to address the unemployment problem, and this is what it brings in to try to address it. This is what it tries to bring in to address it.

The Government also has not addressed whether the people who are looking for work have the appropriate skills for the work that might be available, and we have also heard of a Supplementary Order Paper from the Green MP Jan Logie around the training incentive allowance. We think, along with the Greens, that the Government should maybe take a rethink around that and reintroduce it, given what it has achieved for many other people who have had the experience of having had the training incentive allowance available to them.

I must go back to the inability of this Government to take any real action in terms of trying to create real jobs in our economy, and to the fact that our unemployment rate has stayed static. I think this is a bit of a lazy effort to try to make it look like the Government is taking action to address the unemployment issue. It is sad in the way that it has addressed this issue for our youth.

I also understand that youth receiving a benefit under these circumstances will have to meet certain obligations, such as undertaking full-time education or budgeting programmes for parents. We believe that this is simply a bribe. You know, if youth are going to get $10 more a week, this is simply a $10 bribe for those young people to stay in training. It is not the sustainable response that is needed to help the 80,000-plus New Zealanders who are out in our communities—and certainly the many young people out there in my community of Mana—and honestly trying to find work. They are finding it difficult given the conditions. It is not just young people, I must add. There are a lot of older Kiwis out there, especially. I have met a couple—

MIKE SABIN (National—Northland): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Papers 75 and 83 in the name of the Hon Paula Bennett to Part 1 be agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Amendments agreed to.

The CHAIRPERSON (Lindsay Tisch): The next amendment in the name of Jan Logie, as set out on Supplementary Order Paper 78, has been ruled out of order as the Government has exercised its financial veto.

The question was put that the following amendments in the name of Jacinda Ardern to Part 1 be agreed to:

to delete clause 18; and

to delete clause 19.

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

Ayes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Noes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Amendments not agreed to.

The question was put that the following amendment in the name of Dr Megan Woods to clause 20 be agreed to:

in new section 157, after “approved training means an employment-related training course approved by the chief executive”, insert “or trades training course through the Skills for Canterbury package”.

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

Ayes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Noes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

The question was put that the following amendment in the name of Jacinda Ardern to clause 20 be agreed to:

replace new section 174 with:

174 Sanctions for failure by young person receiving young parent payment to comply with obligations under section 170

If satisfied that a young person receiving a young parent payment has, without good and sufficient reason, failed to comply with an obligation placed on him or her by section 170, the chief executive must, for a failure, suspend the in-hand allowance and any incentive payments until the young person satisfies the obligation (or, if he or she has failed to comply with 2 or more obligations, until he or she satisfies all of them).

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

Ayes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Noes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

The question was put that the following amendment in the name of Jacinda Ardern to clause 20 be agreed to:

replace new section 179(5) with:

(5) A payment card, voucher, or device, that enables a young person to obtain goods or services from a particular supplier and enables the supplier to obtain payment from the department for the goods or services will only be provided replacing payment to the youth personally where the youth has demonstrated an inability to manage their finances as determined by the chief executive or has incurred debt over a period of 8 weeks or more.

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

Ayes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Noes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Part 1 as amended agreed to.

Part 2 Consequential amendments, and transitional and savings provisions, taking effect on 30 July 2012

The CHAIRPERSON (Lindsay Tisch): This is debate on clauses 22 to 27 and schedule 2.

GRANT ROBERTSON (Deputy Leader—Labour): This is going to be just a brief call, and it is actually in the nature of a question for the Minister in the chair, hopefully. This is partly because I was not on the Social Services Committee. I know it is much to Mr Lotu-Iiga’s regret that I was not there. But I was not quite able, when I was looking through this bill, the Social Security (Youth Support and Work Focus) Amendment Bill, to understand the impact of clause 27, “Transitional arrangements for financially disadvantaged people”. Essentially, what clause 27 does in various parts is allow for regulations authorising the provision of financial assistance to any people who are financially disadvantaged as a result of the net effects of the amendments made by Part 1 or Part 2. This is able to be done in two parts of this clause by the Chief Executive of the Ministry of Social Development and also by the Governor-General by Order in Council.

It seems a curious clause, because other parts of the transitional provisions entitle some rollovers of the youth payment or young parent payment and some issues around the domestic purposes benefit, but this clause seems to be placed here for a reason of some description. Firstly, it pre-supposes that there are people who are going to be financially disadvantaged by Part 1 and Part 2 of this bill. It is quite clear when we look at Part 1 of the bill that we do, in fact, see that there are a number of changes, obviously, around eligibility, particularly for the youth payments and the young parent payments, and also—as was earlier raised by Holly Walker—questions around the sanction regime on those payments.

What I am looking for clarification on here from the Minister in the chair is exactly who is intended to be covered by clause 27 of Part 2 around transitional arrangements for financially disadvantaged people. Although some transitional arrangements are being made for those on the youth payment, there must be somebody in mind with this particular clause, and I would like some clarification from the Minister. Are we talking about everybody who is financially disadvantaged? Is it the Government’s intention that nobody will be financially disadvantaged out of this bill? That would be an interesting position for the Government to take, particularly in light of the sanction regimes that are outlined in Part 1 of this bill.

We on this side of the Chamber are obviously concerned about the impact of these changes on young people. The Government has a particular agenda that it is pursuing within Part 1 of this bill, and now in Part 2 it is saying that if you are worse off, there is the possibility of transitional arrangements. So the questions I have for the Minister in the chair are who is designed to be covered by that, and are we talking about people who are in receipt of the young parent payment? Some transitional provisions exist for them in clause 25. I do not know whether that is everybody who has been getting it up to now who now will not be getting it. Or is it for others who are perhaps in receipt of the youth payment and are not covered here, who will no longer be in receipt of that payment?

The Government, I presume, has done some work to understand the impact of the changes that it is making—who will not now be in receipt of these payments—and to have a transition clause like this one indicates that the Government obviously has something in mind in terms of helping those who are financially disadvantaged. So the questions we have for the Minister in the chair are whether this is everybody, who it is, and who the Government intends to apply it to.

It seems to me, having made a decision to have a clause like this in the bill, that clearly there are people who will be financially disadvantaged, but I also want to know how this interacts with the sanction regimes that are mentioned here. Clearly, some people will end up being worse off as a result of this bill, and obviously on this side of the Chamber we find it hard to understand that the Government, in an environment where so many young people are out of work and where there are so many young people who would like to be in training and in work, could be so focused on the punitive side of the regime. The Government is not focused on ensuring that we have people who are being given assistance, but in these transitional clauses it gives some hint of the fact that perhaps there is some consideration being given to those people who are doing that.

So really what I am looking for, as someone who was not on the select committee, is some clarification from the Minister as to who it is envisaged will be covered by the transitional arrangements in clause 27. I would ask the Minister to take a call and let us know.

Dr RAJEN PRASAD (Labour): This is, again, a very brief call, on clauses 22 and 23 in Part 2 of the Social Security (Youth Support and Work Focus) Amendment Bill. We have already articulated the views of this side of the Chamber that here is a major change, and we are a little bit suspicious because we think some of the provisions are the ticking-the-box type of approach that Grant Robertson talked about earlier.

I wonder about the reference here to income-tested benefits. What has happened is that we have changed the terminology from “benefit” to “payment”. That is then used consistently in clauses 22 and 23, and elsewhere as well. I wonder whether the Minister in the chair, the Associate Minister for Social Development, could explain why there was that change, what it is that the Minister is trying to convey through this particular change, and whether those payments will still be counted as benefits down the track when we begin to count to see whether benefit numbers have gone up or down. We know that the independent youth benefit, which is the one that is replaced here by a youth payment, was one that was specifically designed some years ago, and we know that those who are on that benefit, generally, have somehow fallen on bad times in their relationship with their family and their parents, and they got that particular benefit. Now it is going to be a payment—a youth payment. So if the Minister could just explain to us why there is this change, what the implications are of this change, and whether the payments will still be counted as benefits down the track when we count the number of people on benefits, or whether they will be taken out of the benefit count as well. It looks like a technical amendment, but I want to know what was behind it. If the Minister could give us some explanations of that, it would be very helpful. Thank you.

The question was put that the amendment set out on Supplementary Order Paper 83 in the name of the Hon Paula Bennett to Part 2 be agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Amendment agreed to.

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

Ayes 64

New Zealand National 59; Māori Party 3; ACT New Zealand 1; United Future 1.

Noes 57

New Zealand Labour 34; Green Party 14; New Zealand First 8; Mana 1.

Part 2 as amended agreed to.

Part 3 Substantive provisions taking effect on 15 October 2012

JACINDA ARDERN (Labour): It is my pleasure to stand up and take the first call on Part 3 of the Social Security (Youth Support and Work Focus) Amendment Bill. I point out that, of course, this part does have a different commencement date from the other parts we have previously discussed. It is taking effect on 15 October of this year. Obviously, the substantive changes are, as previously raised, to do with new work-testing arrangements, so these are clauses that will affect a significantly larger number of people, certainly, than those we have discussed up until now.

I would like to focus in on some of the amendments that have been put forward by Labour members around some of these clauses. Rather than going into the substantive changes made by the Social Services Committee, I want to hone in on where there continues to be ongoing debate and where we would still like to see some change. I want to start with clause 29(3), in which there is some discussion around the definition of “suitable employment”. That is a critically important definition to have entrenched in this bill, because if you are putting in work-testing arrangements that then have a flow-on in terms of sanctions that can be applied, it is obviously very important to set out the criteria under which Work and Income is able to use its discretion to determine whether or not something that has been put forward to a Work and Income client is considered suitable employment. As set out in subclause (3), “suitable employment in relation to a person, means employment that the chief executive is satisfied is suitable for the person to undertake for a number of hours a week determined by the chief executive having regard to the employment required to satisfy the work test for that person.”

What we wanted to see was as much consideration as was given to the definition of “suitable employment” given to the definition of “suitable childcare arrangements”. The reason for that is because obviously it is the prerogative and up to the discretion of a Work and Income case manager to determine whether or not all of the needs of that client have been met, and if the client is then turning down work, they have the ability to sanction them. That means, as set out in section 60GAD in clause 34: “The purpose of sections 60GAE and 60GAF is to improve the financial and social outcomes for families that include people to whom those sections apply by providing earlier access to employment services and expectations, while recognising the care and development needs of children.” In order to recognise the care and development needs of children, we felt it was important to set out a specific clause that set out what were considered suitable childcare arrangements.

There was some discussion at the select committee as to whether or not defining this ended up placing a prescription on the job seeker that might mean that we would be setting a bar that they would have to reach. So, for instance, if a job seeker came up with their own childcare arrangements, such as a grandparent whom they thought was suitable, would setting in the legislation a definition that had a higher bar mean that their arrangements were not considered suitable and therefore they would not transition into the job?

We would dispute that that is what setting a definition would do. We wanted to set a definition that is not necessarily around determining, if someone has found their own childcare arrangements, whether or not those arrangements are suitable. If they are suitable for the individual, and they have determined that for themselves, that should be their prerogative. But if a Work and Income case manager says: “We have a job that we believe is right for you.”, and that person then disputes that and says: “But I do not have suitable childcare arrangements.”, we thought there needed to be a definition if a dispute then ensued and a Work and Income case manager said: “Well, we believe there is a babysitter network on the corner of your street that is suitable.” In that circumstance we believed it was appropriate to have a definition for the sake of clarity, but also for the sake of ensuring that we are not putting children in vulnerable situations because, at the discretion of a case worker, Work and Income deemed those childcare arrangements, from their bar, to be suitable.

So what we have proposed is a new subsection under section 60Q where we wanted to make clear that “ ‘Quality child care’ is defined as one that provides healthy environment that meets standards prescribed by regulation,” so those standards we set ourselves, including “the availability of registered professionals, and the appropriate ratio of care-givers to children prescribed.”

We wanted to go on as well and pick up on one of the recommendations that, from my recollection, I believe was raised by the Office of the Children’s Commissioner, which reflected on this as well, around whether or not we should be taking into account the availability of suitable early childhood education where the child is aged 3 or over. We know, based on the substantive work that the Office of the Children’s Commissioner has already done, that the availability of suitable childcare in some parts of our community is poor. So if we are going to oblige those on a domestic purposes benefit to transition into work at a particular point, and it is on the assumption that early childhood education is available with 20 hours free, surely we should be testing that that assumption is correct, because it is not in all cases. This is why our amendment adds subsection (6), which says “Where the child is 3 or over, the parent (beneficiary and their spouses and/or partners) must have access to registered early childhood education requiring services to be widely available in the area of residence prior to the obligations …” being applied—and those are those work-testing obligations. That is an amendment in the name of Sue Moroney, as our early childhood education spokesperson. I think it is sensible. It is not saying that if someone finds their own childcare arrangements that meet their needs, the arrangements are not sufficient. But it is saying that if it is mandated by a Work and Income case manager we should have some standards in place, and I think that that is only fair.

I want to come to a couple of additional amendments. It was interesting that the Minister for Social Development raised in one of her earlier interventions from the chair the issue that this is a bill that does not make assumptions about those on Government support. Yet one of the clauses we have in this part of the bill places earlier work-testing requirements on those on Government support who may for whatever reason have an additional child whilst on Government support. That is making an assumption, I would wager, about those who are having additional children whilst on Government support. If I am wrong, and if the Government is not making assumptions about those on Government support in the circumstance of having additional children, then I would be very happy to hear the Minister clarify what the purpose of this bill is. I have heard it very plainly stated that there is a perception that people have additional children to stay on Government support, and yet I did not see the evidence of that in the select committee. So if the Minister has evidence of that, I would welcome seeing it. Until that evidence is provided, we believe that work testing when a child is 12 months old, when that would require care arrangements, would, therefore, be imposing that provision on that family, and our preference is to remove that clause because of developmental reasons of the child. If the Minister has some counter-evidence to counter that amendment, we would welcome seeing it.

The next amendment I want to speak to is around clause 37. We had a discussion around the exemption from obligations. In particular, a very good case was brought by CCS Disability Action, from my recollection, around parents who are looking after disabled children in particular, children with behavioural issues, or, for instance, children who have been expelled from school. We believe that it is important to set out that there should be the ability to have an exemption from work-testing obligations where a parent has a very high-needs child. In high-needs we include potentially a disability that prevents the parent from being able to step away from their full-time care arrangements or if there are significant behavioural issues that require that parent’s full attention and care. Although we were given assurance at the select committee that that ability existed, we thought there was no harm in that being explicitly stated in the bill, and that is why we have an amendment to clause 37 suggesting that in section 105(1), after the words “from complying with section 60HA”, we insert “or where the beneficiary has a dependent child who has a disability, has been deemed to have significant behavioural issues and/or has been excluded from school.” That does not stop a parent exercising their choice to transition into work if that is appropriate for their arrangements. But it does allow a bit more flexibility for individual circumstances. I think, given the discussion had at select committee—

Hon PAULA BENNETT (Minister for Social Development): I just want to take a call on Part 3. The previous speaker, Jacinda Ardern, has identified some of the clauses to this part. Ultimately, what we are doing is lowering the age of the youngest dependent child from 6 years to 5 years for DPB sole parent recipients and partners of beneficiaries, so that they are available and can be looking for part-time work at least. Lowering the age of the youngest dependent child from 18 years to 14 years for the commencement of full-time work availability is quite new.

Obviously we have had a part-time work test for those whose youngest child is 6 years, and we are moving that to 5 years, which, quite frankly, still puts us at the lower end of the OECD as far as work testing for DPB mums. But the full-time work test for those whose youngest child is 14 years is very new. It has been 18 years for ever, which has meant that before National was in Government last time there was actually no work test at all for DPB mums until their youngest child was 18 years old. We have now moved that part-time work test to when their youngest child is 5 years, but a full-time work test at 14 years.

What we occasionally hear from others and from the Opposition on this particular policy is that it is unfair, that parents cannot do it, there is no possibility of finding work, and what will happen to their children. When looking at some of the facts it is quite interesting that for those whose youngest child is 14 years - plus, actually 68 percent of sole mothers currently work—68 percent—and 83 percent are partnered. The proof is kind of there that they can do it. It does not mean that there is always the right job available, hence that kind of suitability around work. But to say that it is not possible to find work is simply not true.

What we have done is made sure we have put some clauses in the Social Security (Youth Support and Work Focus) Amendment Bill that accept that those who are coming on benefit, in particular because of domestic violence incidents, or because of a death, or because of something that has been quite traumatic, are given due time to work their way through some of that. It is not an instant work test, even if their youngest child is over 5 years, for part-time work or their youngest child is 14 years - plus. We have taken some advice on that. There is a level of discretion around it, in particular. The other reality around it, when we really looked at it, is that there are just so many individual circumstances. What Work and Income case managers in particular want more than anything is something that is very clear and very plain and very straightforward. We are giving them that, but we are also giving a degree of discretion and flexibility around it, recognising people’s different circumstances.

To the member’s call around the insertion of a Supplementary Order Paper that covers quality childcare, to say at the least that I find it kind of sanctimonious and ridiculous would be an understatement. The reality is that the early education and childcare legislation actually already has defined what quality childcare is. We have regulations around that, and we subsidise only to that. For parents not to have an actual say in what is childcare and what is suitable for their own children because we feel it needs over-regulation, which is what we saw for so long, is actually what is half the problem with the cost blowout in the sector itself. The reality is that parents are very good at making informal and formal arrangements themselves. In fact, I challenge a mum or a dad in this House who has not actually had an arrangement of some description with their friends or parents where they said “I’ll pick up yours”—

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable Minister. The time has come for me to report progress.

House resumed.

The Chairperson reported the Dairy Industry Restructuring Amendment Bill with amendment, and progress on the Social Security (Youth Support and Work Focus) Amendment Bill.

Report adopted.

The House adjourned at 9.56 p.m.