Tuesday, 22 September 2015

TUESDAY, 22 SEPTEMBER 2015

TUESDAY, 22 SEPTEMBER 2015

Mr Speaker took the Chair at 2 p.m.

Prayers.

Visitors

Australia—President, Senate

Mr SPEAKER: I am sure that members would wish to welcome and accord a seat to the left of the Chair to the Hon Stephen Parry, President of the Senate of the Parliament of the Commonwealth of Australia.

The Hon Stephen Parry entered the Chamber and took a seat on the left of the Chair.

China—Delegation, National People’s Congress

Mr SPEAKER: I am also sure that members would wish to welcome a delegation representing the National People’s Congress of the People’s Republic of China, led by Madam Fu Ying, Chairperson of the Foreign Affairs Committee, who are present in the gallery.

Oral Questions

Questions to Ministers

Economy—Employment

1. ANDREW LITTLE (Leader of the Opposition) to the Prime Minister: Does he stand by all his statements after almost seven years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes. I particularly stand by the statement I made when that member became the leader of the Labour Party, when I said: “Gosh, if they keep changing Labour leaders at this rate—”

Mr SPEAKER: Order! [Interruption] Order! I can sense by looking at the questions that this question time is going to be quite different from others. I will still do my best to maintain a level of decorum from all members, and if that requires me to ask members to leave the Chamber, I will not hesitate to do so.

Andrew Little: When he said we are on “the cusp of something special”, was that something special 50,000 more Kiwis unemployed today than when he came in to office?

Rt Hon JOHN KEY: The cusp of something special was, amongst other things, 199,000 jobs created since 2011, a lift in the average wage of more than $10,000 a year, a turning round of the Government’s books, the 11 straight quarters of growth, and the 18 quarters of economic growth. [Interruption]

Mr SPEAKER: Order! [Interruption] Order! I just warn members that there is quite a large barrage coming particularly from my left.

Hon Bill English: Can the Prime Minister confirm that in 7 years of being Prime Minister he has never really been asked a hard question and it is unlikely to start today?

Rt Hon JOHN KEY: No, I cannot confirm that, but that is the best question I have had in the 7 years I have been Prime Minister.

Andrew Little: Why, after 7 years in power, does he keep promising lower unemployment is over the horizon but keep delivering increasing unemployment instead?

Rt Hon JOHN KEY: Because this is a Government that has seen 18 straight quarters of economic growth. It is a Government that has got a record number of people into apprenticeships. It is a Government that has seen the books put back in order. And, interestingly enough, this is now the fifth straight month in a row—

Andrew Little: I raise a point of order, Mr Speaker. The question was very well focused and totally straight on the question of unemployment. We have had a lot of other statistics and information given by the Prime Minister, but he has not addressed the question.

Mr SPEAKER: Order! No—[Interruption] Order! No, I am on my feet. The question was clearly around unemployment, and the Prime Minister started his answer by talking about 18 quarters of economic growth. That does, in effect, address an issue of unemployment—[Interruption] Order! But the answer was certainly going on longer than it needed to, and in future answers should be more concise and address the question. [Interruption] Order!

Andrew Little: Given that economic growth this year has been less than half of what was forecast in the Budget and that First NZ Capital has said that there is a 30 percent chance of a recession, what steps is he taking to prepare New Zealand for recession?

Rt Hon JOHN KEY: I am glad the member asked that question, because, having inherited a mess of a set of accounts from Labour, over the last 7 years we have turned the books around, and I am pretty confident that we will be getting pretty close to surplus.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. There was so much barracking coming from the other side of the House that despite sitting next to the Prime Minister, I was unable to hear his answer. I think that he should be able to give it again.

Mr SPEAKER: Order! No, no—there was a huge level of interjection, I accept that, but I managed to hear the answer. That is the important thing.

Andrew Little: After 7 years, why is he in denial of the obvious facts that unemployment is rising and the economy is stalling? Is it because he did not see it coming, or has he got nothing to do or say about it?

Rt Hon JOHN KEY: The economy has grown for 18 quarters in a row. There are more people in employment in New Zealand than ever before. When it comes to not seeing things coming, I suggest that the member be careful, because Jacinda Ardern is coming for his job—

Mr SPEAKER: Order! [Interruption] Order!

Andrew Little: Why is he devoting so much effort and taxpayer money to failing flag referendums and to chasing fluffy pandas when he should be putting that effort into our stalling economy and creating more jobs?

Rt Hon JOHN KEY: We have put more money into health and education than ever in the history of this country, and what a remarkable set of results we have achieved by doing that. Just to give you an example, in 2008, 68 percent of people got National Certificate of Educational Achievement level 2; today, it is 81.2 percent. Māori achievement is up from 44.5 percent to nearly 68 percent—

Mr SPEAKER: Order! The Prime Minister said that he would give one example; I accepted one example.

Prime Minister—Immigration and Flag Referendums

2. RON MARK (Deputy Leader—NZ First) to the Prime Minister: Does he stand by all his statements?

Rt Hon JOHN KEY (Prime Minister): Yes, especially the statement when I said I am amazed New Zealand First did not get the memo that Labour and the Greens got.

Ron Mark: Does he stand by his statement that his Government “is delivering on its commitment to help all New Zealanders get ahead”; if so, why?

Rt Hon JOHN KEY: Yes.

Ron Mark: How is he helping New Zealanders get ahead when he is bringing in 60,000 new migrants a year, at a rate of 1,200 a week, half of whom will settle in Auckland and all of whom will need a place to live?

Rt Hon JOHN KEY: Well, firstly, there are a great many Kiwis returning home from overseas. But, interestingly enough, we have free migration between New Zealand and Australia. The difference is that under a previous Labour Government 35,000 people a year left for Australia; under a National Government in the last 5 months in a row more Australians have come to New Zealand. I count that as success.

Ron Mark: How committed is he when an extra 26,800 foreign students arrived in the past year, at a rate of 500 a week, many of whom move into work while over 27,000 young Māori do not have a job?

Rt Hon JOHN KEY: A great many students do come from overseas to study in New Zealand. It is worth billions of dollars. Actually, if you go around the schools and universities and polytechs of New Zealand, they are actually very grateful to have the opportunity to earn what they do collectively: well over $2 billion from export education.

Ron Mark: Supplementary question—and ignoring the fact—

Mr SPEAKER: Order! Just ask the supplementary question.

Ron Mark: How committed is he when more and more job seeker migrants arrive yet he has not created enough jobs in 7 years for New Zealanders—for example, Northland’s unemployment rate has doubled, to 8.6 percent, in that same time? How committed is he?

Rt Hon JOHN KEY: Well, for a start off, there are more New Zealanders in work than there ever have been before. There were 68,000 more jobs created in the last year alone. But one way to create more employment in Northland would be for the member for Northland to have an office up there so they can employ some people.

Mr SPEAKER: Order! That is unnecessary to the answer.

Ron Mark: For the Prime Minister’s benefit, could I table the address of our electorate office in Auckland for him so he can find it. [Interruption]

Mr SPEAKER: Order! The member needs to start using the points of order procedure properly.

Ron Mark: Given his statements on the flag referendum, is he aware of the concerns of many of his own party regarding the terrible poll numbers for changing the flag, and has Judith Collins thanked him personally for making her job of rolling him a lot easier?

Rt Hon JOHN KEY: There is always a lot of interest in polls and there are always a lot of questions that get asked. But, given the National Party is polling a touch above 47 percent in every poll that is out there, when it comes to rolling the only thing that is happening on this side of the fence is rolling in the clover.

Ron Mark: Given his statements on the flag referendum, when will he accept that his vanity project is as dead as a dodo, that beggar-all Kiwis want any of his tea towel designs that his silly panel has come up with, and that he has essentially flushed $26 million down the dunny?

Rt Hon JOHN KEY: It is fair to say I reject the proposition in the question.

Government Financial Position—Return to Surplus

3. JOANNE HAYES (National) to the Minister of Finance: What progress is the Government making towards its target of returning to fiscal surplus this year and in achieving its other fiscal priorities?

Hon BILL ENGLISH (Minister of Finance): Making progress on our fiscal priorities is important because it underpins the security of income for around a million New Zealanders who are dependent on the Government for their income and also the continuity of the programmes that support so many social and environmental aspirations of New Zealanders. Four years ago the Government had an $18 billion deficit. It was halved in 2012, halved again to $4.4 billion in 2013, and reduced to around $3 billion in June 2014. Returning to surplus in 2014-15, and maintaining surpluses, remains one of the Government’s targets. We will know whether we have achieved that in a few weeks’ time when the Government’s final accounts for the 2014-15 year are published.

Joanne Hayes: What progress has the Government made on those fiscal priorities?

Hon BILL ENGLISH: We have outlined detailed fiscal priorities including, for instance, reductions in ACC levies, and in the last Budget we signalled a $500 million reduction in ACC levies. The latest Budget forecast shows that net debt will reach just under 20 percent by 2021, which is in line with the Government’s target of getting debt down. Any further fiscal headroom from positive revenue surprises will be used to get debt down sooner, but in a low inflation world it is unlikely that we will have positive revenue surprises. Over the next couple of years we have set aside extra money to allow for the possibility of modest tax cuts, should fiscal and economic conditions allow.

Joanne Hayes: Since the election a year ago, how has the Government’s management of its finances allowed it to help more New Zealanders get ahead?

Hon BILL ENGLISH: The Government has found that by managing Government expenditure carefully, certainly more carefully than the previous Government, we are able to support New Zealand families. For example, free doctors visits and prescriptions have been extended to children under the age of 13, paid parental leave is being extended, ACC levies—in particular, motor vehicle registration—are being reduced, and we have been able to increase benefit payments for the first time in 43 years. It shows that if we focus on value for money for the dollars that we have, we can share the benefits with the New Zealanders who most need support.

Joanne Hayes: What steps has the Government taken to achieve an improvement in its operating balance?

Hon BILL ENGLISH: There are a number of steps that have been involved in improving the Government’s books. One has been a tax reform package back in 2010, which helped to increase labour market participation, supported higher household savings, and it has further broadened the base of our tax system so we collect more revenue at lower rates. Alongside that, we have also focused on understanding what drives Government spending, in particular those parts of our population for whom there is a lot of Government support not very well delivered.

Housing New Zealand—Dividend and Condition of Properties

4. ANDREW LITTLE (Leader of the Opposition) to the Prime Minister: Does he stand by all his statements after almost seven years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes, especially that one when I said: “Man, he really does sound like a broken record.”

Andrew Little: After 7 years is he proud, as the Prime Minister who called himself the son of a State house family, that there are now nearly 2,500 fewer State houses for families who need them and that many of the ones that are left are mouldy, rotting, and cold?

Rt Hon JOHN KEY: I am very proud of the fact that we have been tidying up and fixing up the State housing mess that was left by Labour, and I am very proud of the fact we are the first Government in 43 years to have raised benefits.

Andrew Little: After 7 years in power is it acceptable that according to the warrant of fitness trial 6,600 State houses have severe mould, which means they cannot be fixed just by the tenant?

Hon Dr Nick Smith: We’ve insulated 35,000 of them.

Rt Hon JOHN KEY: As the Minister for Building and Housing just pointed out, we have insulated 35,000 State houses, spending nearly $400 million a year tidying up the absolute mess we inherited from Labour. It was a disgrace, and that is why so many Housing New Zealand tenants are actually grateful for the actions the Government is taking.

Andrew Little: Is it acceptable that after 7 years in power he still has 3,000 State houses with leaking roofs, 7,300 State houses with dangerous electrical wiring, and 12,600 State houses with rotting or broken walls?

Rt Hon JOHN KEY: Firstly, I would be very suspect about the member’s numbers. But what I would say to the member is there were 9 long years of Labour and it let down those State housing tenants. It is a disgrace. Thank goodness we fixed up those State houses.

Andrew Little: After 7 years what sort of moral compass is he guided by when he can pull almost $1 billion out of Housing New Zealand and back into the Government’s coffers, when there are still mouldy, leaky, and cold State homes, and when will he take some responsibility?

Rt Hon JOHN KEY: Firstly, the member is wrong. Secondly, he does not understand the way that the payments actually worked. Thirdly, I understand my responsibilities. The member has just asked me four questions and only one of them has actually started with a question. Maybe he could start with a basic bit like that.

Mr SPEAKER: Order! I will decide what questions are in order, not the Prime Minister.

Andrew Little: See if he can make a silk purse out of this sow’s ear. Does he realise—

Mr SPEAKER: Order! We will just have the supplementary question.

Andrew Little: Does he realise that the $26 million cost of the flag referendum is nearly enough to pay to fix all State houses to pass the warrant of fitness, and why is a failing flag project more important to him than healthy Kiwi kids?

Rt Hon JOHN KEY: Firstly, this is a Government that has raised benefits for the first time in 43 years. Secondly, this is a Government that is spending more money fixing up those State houses than Labour ever did. Thirdly, excuse me for actually carrying out what we campaigned on—clearly when the Labour Party has a policy it does not mean anything.

Schools—Food Programmes

5. JAMES SHAW (Co-Leader—Green) to the Prime Minister: Does he stand by all his statements after almost 7 years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes, especially the statement I made where I said that at least he read it out better than Andrew Little.

James Shaw: Does he still stand by his statement that “only the odd one or two kids turn up to school without lunch”, given that a Principals’ Federation survey found that 73 percent of low-decile schools use their core educational funding to feed their students every day?

Rt Hon JOHN KEY: I stand by the full quote that was made at the time, in the context in which it was given. But I would make the point that this is a Government that has delivered over 5 million breakfasts since it has been in office. [Interruption]

Mr SPEAKER: Order! [Interruption] Order! The level of interjection and noise is too high. [Interruption] Order!

James Shaw: Is he saying that breakfast is enough for kids, and that they do not need lunch also?

Rt Hon JOHN KEY: For a start off, this is a Government that has worked hard to create more jobs and has more Kiwis in history in jobs than ever before. This is a Government that has actually raised benefits for the first time in 43 years. This is a Government that has ensured that now children under 13 can go to the doctor for free. This is a Government that has seen hundreds of thousands of State houses—

James Shaw: I raise a point of order, Mr Speaker. My question was in relation to students eating breakfast and lunch, not in relation to unemployment benefits.

Mr SPEAKER: The question may have been in relation to that, but it was not. It asked whether the Prime Minister is, effectively, saying that breakfast is enough and they do not need lunch and dinner. That is the sort of question that gives a fairly wide ambit for the answer.

James Shaw: What advice has he received from his education Minister in response to the Principals’ Federation survey, which shows that several schools are spending $2,000 a term of their own funds to feed hungry children?

Rt Hon JOHN KEY: What I can say is that, firstly, this is a Government that is spending around about $10.8 billion in education in total. That is the first point. Secondly, this is a Government that has worked with Fonterra and Sanitarium and KidsCan to ensure that every decile 1, 2, and 3 school—or, in fact, any school—that wants a breakfast in school will be provided with that.

Hon Paula Bennett: Fruit in Schools.

Rt Hon JOHN KEY: This is a Government that has also continued and expanded Fruit in Schools, and, you know, we are working very hard with those schools to ensure they can provide the support for youngsters, who deserve it.

James Shaw: I seek leave to table an Official Information Act request from the education Minister dated 11 August showing that she has not sought or received any advice from officials in the wake of the principals—

Mr SPEAKER: Leave is sought to table that particular Official Information Act request. Is there any objection? [Interruption] Order! No, I need to put the leave. Any member can either agree to it or decline. So leave is sought to table it. Is there any objection? There is objection.

James Shaw: Should schools use their core education funding for food rather than books or computers; if not, what funds should they use, or should they let those children go hungry?

Rt Hon JOHN KEY: I have outlined the extensive programmes that the Government has partnered up with others on. Over 5 million breakfasts have been provided under this Government—the record speaks for itself.

James Shaw: So given that 75 percent of schools are saying that they have to use their core operational funding to feed their own students, would he say that all of the initiatives that he has just outlined are failing to actually solve the problem?

Rt Hon JOHN KEY: It is a straight outright inaccurate statement to say that 75 percent of schools are using their funding to feed children.

Rules Reduction Taskforce—The loopy rules report

6. JACQUI DEAN (National—Waitaki) to the Minister of Local Government: What progress has been made by the Government’s Rules Reduction Taskforce to get rid of “loopy” rules?

Hon PAULA BENNETT (Minister of Local Government): Today I released findings of the Government’s Rules Reduction Taskforce, The loopy rules report: New Zealanders tell their stories. First of all, I want to thank the member Jacqui Dean for the excellent job that she did in both chairing this and pulling the report together. This is New Zealanders’ views on what central and local government are doing to serve their needs and what is holding them back. I think their voices are heard quite powerfully from this, and we are looking at making changes both within central and within local government.

Jacqui Dean: What kind of loopy rules did the report identify?

Hon PAULA BENNETT: Across a number of Acts and, in fact, with 11 Ministers and ministries involved, many of them within building and the Resource Management Act—and the Hon Nick Smith has certainly taken up that mantle to make changes. I hope the House listens to the voices of New Zealanders when they say that they need changes within the Resource Management Act and see that as seriously as it needs to be taken. What was also really important with this was identifying those myths that are out there that actually hold people back from doing good things and that cost them a lot of money. One may be, for example, a three-rung ladder that people think they cannot stand on without a harness, which is simply not true.

Jacqui Dean: What steps will the Government take to get rid of some of the loopy rules?

Hon PAULA BENNETT: I think, first of all, that New Zealanders have stepped up in this, so we want to show them transparency. So there is a website where we will be regularly posting some of those facts that are simply not facts and are not true, so that we can cut our way through it. Equally, as I have said, we have got 11 different portfolios that are involved. I am going to pool Ministers together to be going up against that. They will then be putting it through the Business Growth Agenda to ensure that we are making progress to cut some of those loopy rules out.

Health System—Funding

7. Hon ANNETTE KING (Deputy Leader—Labour) to the Prime Minister: Does he stand by all his statements after almost seven years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes, especially the statement I made that if I were Annette King, I would be ashamed of the fact that I did not fund Herceptin when I was Minister of Health. [Interruption] I raise a point of order, Mr Speaker.

Mr SPEAKER: I hope it is a point of order.

Rt Hon JOHN KEY: I seek leave to table when Annette King was Minister of Health, from 2000 to 2005.

Mr SPEAKER: Order! I do not think that information—[Interruption] Order! That information is available to members if they so want it. Supplementary question—the Hon Annette King.

Hon Paula Bennett: Seven more years of John Key—that’s what we need.

Hon Annette King: Yes, a supplementary question, Paula. Why does he stand by all his statements on health when Ian Sutherland, a heart patient with chest pains, was discharged from hospital in his pyjamas, told to catch a bus to Palmerston North, and told that if he wanted to replace his pyjamas, he should go to the op shop?

Rt Hon JOHN KEY: Because under a National-led Government we are now doing 50,000 more elective operations than in 2008. Under a National-led Government we have increased the number of first specialist appointments from 430,000 to 542,000. Under a National-led Government there are 5,500 more doctors and nurses in our district health boards. Under a National-led Government children under 13 can go to the doctor for free. That is why I stand behind Jonathan Coleman and National in terms of health.

Hon Annette King: In light of that answer, why should he stand by all his statements on health, including the one he has just given us, when Ken Smith, like thousands of others cannot get surgery for his bone-on-bone knee condition but his surgeon said: “If I could do your knee tomorrow, I would, but there’s just no money.”?

Rt Hon JOHN KEY: I think it is a bit rich coming from Annette King because when she was the Minister of Health the number of first specialist assessments went down. When Annette King was the Minister of Health people used to go to Australia to get treatment. I remember when people used to be held out in bays outside of hospitals. The reason she was no longer the Minister of Health was that Helen Clark dumped her—that is why. [Interruption]

Mr SPEAKER: Order! I require less interjection from both sides, particularly the front bench.

Hon Annette King: Did he know that Bill English has said that health needs $600 million to $700 million a year to meet demand; if so, why did the health budget receive half that amount in an increase this year, resulting in children waiting for months on end with rotten and abscessed teeth because there is not enough funding?

Rt Hon JOHN KEY: For a start, just to get the facts on the table around health spending, it was $11.8 billion in 2008-09 under a Labour Government and it is $15.9 billion today, up 33 percent. But just to prove that spending money does not necessarily fix your problems, between 2000 and 2008 761 cancer patients were flown to Australia. I quote the Dominion Post, which said about the Labour Government then: “It is inconceivable that the Government could spend so much money but make the system worse.” Those are the words of the Dominion Post.

Hon Annette King: Is he aware that the Ministry of Health warned the Minister that after $1.7 billion of spending cuts in 2010 “Easy wins are exhausted and major cuts are needed.”, which has led to thousands of New Zealanders being turned away from even seeing a specialist?

Rt Hon JOHN KEY: Let us go through a simple maths examination: $11.8 billion was the starting point of health spending. If we take off the $1.7 billion of cuts that Annette King has told the country about, we would be at $10.1 billion, but the answer is that we are actually spending $15.9 billion. I rest my case.

Hon Annette King: You can’t even do your maths.

Mr SPEAKER: It was actually quite a strong a subject of mine, but be that as it may.

Hon Annette King: Is Grey Power out of touch—or, as he likes to say, just rent a crowd—when it protests at the current state of health care of older New Zealanders, which sees frail old New Zealanders dumped off surgery lists and their home care cut by half?

Rt Hon JOHN KEY: I accept that I have not seen the president of Grey Power for a wee while, because he has not made an appointment to come and see me. But the last time he came to see me, he came to my office and said: “Let’s have a cup of tea. Things are going so well I’ve got nothing to talk about.” That is exactly what he said.

Child Health Services—Free GP Visits and Prescriptions

8. SCOTT SIMPSON (National—Coromandel) to the Minister of Health: Can he confirm this Government has expanded the number of children who are benefiting from free GP visits and prescriptions from 400,000 children to over 750,000?

Hon Dr JONATHAN COLEMAN (Minister of Health): Yes, I can. In the 12 months since National’s re-election, this Government has worked hard to expand free GP coverage and prescriptions for all under-13s. We are spending $90 million to ensure that parents can take their young children to see their GP and have access to the prescription medicines they need. This policy means that over 750,000 children are now getting the health care they need before their condition deteriorates, and it helps to keep them out of our busy emergency departments.

Scott Simpson: How is National’s careful economic management contributing to improved health services for children?

Hon Dr JONATHAN COLEMAN: The National-led Government’s ability to successfully manage the economy provides us with opportunities to invest in improving health services where they are needed most. Providing free under-13 GP visits and prescription medicines gives families a helping hand to manage their household finances, as well as improving health outcomes for New Zealand children. Free GP visits come on top of the other child health work that we are doing to increase immunisation rates, decrease rheumatic fever rates, and increase before-school checks.

Climate Change Policy—Emission Reduction Targets

9. Dr KENNEDY GRAHAM (Green) to the Prime Minister: Does he stand by all his statements after almost 7 years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes, especially the one I just made, which was that it is nice to hear the question read out in a baritone.

Dr Kennedy Graham: Does the Prime Minister stand by his statement that “We’re seen as a country that is doing its fair share” on climate change, when our net emissions have risen by 13 percent since he took office?

Rt Hon JOHN KEY: Yes, and we disagree with the fact that the member tried to present this to the House, as it is incorrect.

Hon Tim Groser: Can the Prime Minister confirm that New Zealand has met all of its international obligations, is on track to continue this until the end of the second commitment period, and is the only Government in the world to have established an entire new science organisation devoted to the study of climate change and—

Mr SPEAKER: Order! Supplementary questions, particularly, are meant to be concise.

Rt Hon JOHN KEY: Yes, and I thank the Minister for pointing that out.

Dr Kennedy Graham: I seek leave of the House to table the latest United Nations Framework Convention on Climate Change document, which demonstrates the accuracy of the figure of 13 percent.

Mr SPEAKER: Order! I presume that is freely available on the internet?

Dr Kennedy Graham: I think it is beyond the—

Mr SPEAKER: Order! No, I did not ask that. I am not putting the leave.

Dr Kennedy Graham: Are we doing our fair share when the 11 percent target we are taking to Paris, if emulated by all nations, will leave homeless some 179,000 people in Kiribati, the Marshall Islands, Nauru, and Tuvalu?

Rt Hon JOHN KEY: The target we are taking to Paris is 30 percent below our 2005 level by 2030.

Dr Kennedy Graham: Are we doing our fair share when Climate Action Tracker describes New Zealand’s commitment as “not in line with any interpretations of a ‘fair’ approach to reach a 2°C pathway: if most other countries were to follow New Zealand’s approach, global warming would exceed 3-4°C”?

Rt Hon JOHN KEY: If one looks at the target that New Zealand is taking to Paris, it is a more aggressive target than that being presented, for instance, by Australia, by Canada, and by the United States, and, I would strongly suggest, by some of the very, very large emitters in the world, like India.

Dr Kennedy Graham: After 7 years in office, does the Prime Minister agree with climate scientist Professor Kornelis Blok, who says that New Zealand has “taken little or no action on climate change since 2008—except for watering down its ETS, and we can find no evidence of any policies that would change this.”?

Rt Hon JOHN KEY: No, for a start off, this is a Government that actually brought this emissions trading scheme in. Emissions are lower now than they were in 2007 under Labour.

Andrew Little: In light of his statements that he intends to have certain conversations with people in New York when he is there as part of the United Nations 70th celebrations, what conversations will he have with United Nations personnel or during an awaited pull-aside with President Barack Obama on New Zealand’s contributions to the sustainable development goals to assist in combatting climate change?

Rt Hon JOHN KEY: Many and varied.

Child Protection—Children’s Action Plan and Other Government Initiatives

10. JONO NAYLOR (National) to the Minister for Social Development: What progress has the Government made on implementing the Children’s Action Plan?

Hon ANNE TOLLEY (Minister for Social Development): This Government has made significant progress on implementing the Children’s Action Plan a year into its third term. Recently, I launched the Hamilton children’s team, which is expected to work with approximately 650 vulnerable children and their families at any one time, once it achieves full scale. Four children’s teams are already established in Rotorua, Whangarei, Horowhenua, Ōtaki, and Blenheim, and they are already making a difference in the lives of 450 children and their families. A further five teams are being rolled out in the coming months. This is in addition to other work that we have been doing such as introducing child protection guidelines and new screening and vetting regulations for the children’s workforce.

Jono Naylor: What other initiatives have been announced to support vulnerable children?

Hon ANNE TOLLEY: In Budget 2015 we announced a $790 million child hardship package, which will mean, firstly, more childcare support for low-income families; secondly, a $25 a week increase in benefit rates for families with children—the first increase above inflation in 43 years—and, thirdly, an increase in Working for Families payments to low-income families not on a benefit. This is balanced with new obligations to support and encourage people into work. We are ensuring that there are more resources for children in hardship and families who are struggling, while continuing the Government’s emphasis on paid work as the best route out of poverty.

Darroch Ball: With the child sex offender register being part of the programme led by the Vulnerable Children’s Board set up by the Children’s Action Plan, how much of the $150 million is her Government providing in new funding to make it work effectively?

Hon ANNE TOLLEY: The member has asked several written questions of me around that budget and will be aware that the budgets are done for 4 years, so there is sufficient funding out for the next 4 years, and subsequent funding will be negotiated in the following budgets.

Darroch Ball: Why is her Government prepared to let the register fail by funding less than half of the $150 million needed, and then expecting the New Zealand Police, the Department of Corrections, and the Ministry of Justice to try to make it work by making “efficiency gains … [by] more effective utilisation of existing staff”, also known as cutting other services?

Hon ANNE TOLLEY: There are several parts of that question that I absolutely refute. Making better use of resources is not about cutting. Secondly, I would say that it is a 10-year cost that has been identified as the policy was developed, and we have 4-year budgets. So I say to the member that our expenditure for the following 6 years will appear in the following 6 years’ budgets.

Flag Referendums—Support

11. JACINDA ARDERN (Labour) to the Prime Minister: Does he stand by all his statements after almost seven years as Prime Minister?

Rt Hon JOHN KEY (Prime Minister): Yes, especially the statement I made that when Jacinda Ardern becomes the leader, the cool thing is that I will have faced more Labour leaders than Australian Prime Ministers.

Jacinda Ardern: Does he stand by his statement that “A small majority of New Zealanders will say that they will change the flag.”, when the latest poll shows that after seeing his options, almost 70 percent have rejected change?

Rt Hon JOHN KEY: Yes, and what is rapidly emerging after 7 years of being Prime Minister is not only do I have to run the policies that the Government has, I now have to try to implement the policies that the Opposition has as well.

Jacinda Ardern: Is his claim that the polls are not granular enough the reason he has started his own poll by asking every audience at every speech he gives whether they want the flag to change, including at a cancer fund-raiser; if so, is this granular, scientific, or—most important—is it appropriate?

Rt Hon JOHN KEY: All of the above.

Mr SPEAKER: The answer was not heard. Could the Prime Minister—

Rt Hon JOHN KEY: All of the above.

Jacinda Ardern: Are the rumours true that his chief of staff is trying to get him to stop doing straw polls on the flag in every single speech, because his audiences are angry at having to waste their time on his pet project?

Rt Hon JOHN KEY: Far from that being correct, I think record numbers of people are turning up.

Mr SPEAKER: Order! Both front benches, again, are interjecting and carrying on a conversation. If they wish to do so, I invite them to go out to the lobbies.

Jacinda Ardern: When he claimed on Radio New Zealand National that “I haven’t had an audience yet where more than 50 percent wanted to keep the flag.”, was that a reference to a straw poll of his National caucus?

Mr SPEAKER: The right honourable Prime Minister, in as far as there is ministerial responsibility.

Rt Hon JOHN KEY: No, but I will tell you what I have not done, and that is come to Parliament and claim I am opposed to changing the flag but go down on to the forecourt waving Red Peak. This is a Labour Opposition that has a policy that it wants to change the flag. Now, all of a sudden, those members do not want to do it. The only single question is: how long will it be before they change the leader?

Hon Gerry Brownlee: Has he made any statements about the helpfulness, or otherwise, of the coordinated approach to question time from the Labour Party and the Green Party today?

Mr SPEAKER: Order! No, there is no ministerial responsibility.

Aquaculture Industry—Sustainability

12. STUART SMITH (National—Kaikōura) to the Minister for Primary Industries: How is the Government supporting sustainability in aquaculture?

Hon NATHAN GUY (Minister for Primary Industries): Last week I attended Aquaculture New Zealand’s conference in Nelson, where it launched the A+ Environmental Sustainability Management Framework. This programme will deliver a set of strong, measurable, progressive standards, which will be independently audited, verified, and widely recognised. The Government has contributed $256,000 towards the A+ programme through the Sustainable Farming Fund—

Mr SPEAKER: Order! Sorry to interrupt the Minister, but the level of noise to my left now means that I cannot hear the answer.

Hon NATHAN GUY: —with co-funding and in kind contributions of $189,000 from Aquaculture New Zealand. This is a great example of industry and Government working in partnership to further enhance the value of already high-quality, premium New Zealand products.

Stuart Smith: How will this programme support the aquaculture industry’s aspiration of growing to more than a billion dollars by 2025?

Hon NATHAN GUY: As a nation, we are never going to be the biggest producer of seafood in the world, but we can, indeed, be the best. This new standard will help inform consumers, who are increasingly interested in the integrity and environmental footprint of premium products. Proving our high standards in overall environmental sustainability will help our products such as salmon, mussels, and oysters to stand out in the global market. The latest Situation and Outlook for Primary Industries shows that aquaculture export revenue is expected to grow by 19 percent by 2019, lifting its total share of seafood export earnings to 28 percent. This is fantastic.

Bills

Accident Compensation (Financial Responsibility and Transparency) Amendment Bill

In Committee

Part 1 Amendments relating to principles of financial responsibility and funding policy statement

SUE MORONEY (Labour): It is a pleasure to rise and speak to Part 1 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill. The Labour Party will be exploring Part 1 in fine detail because this is the part of the bill that we have the most reservations about, actually. It is the part that is supposed to give the financial responsibility and transparency—the main title of this bill—its oomph and its content, but we have become quite concerned about what happened to this bill, in Part 1 in particular, as it went to the Transport and Industrial Relations Committee.

Again, just like what the Government did with the workplace health and safety legislation, the bill was in one form when it went into select committee, and when it came out there have been some amendments made that have caused us concern. The amendments that have come out the other end of the select committee process have caused us so much concern that I proposed an amendment during the course of this debate, Supplementary Order Paper 123, to make the financial responsibilities and transparency of this amendment bill clear, which I hope will be supported by all parties.

Part 1 of the bill introduces a new process for ACC levy setting. In setting that new pathway, I guess one of the most fundamentally new parts is that whereas currently ACC starts this process and does the consultation with stakeholder parties and has some guiding principles that guide it in terms of the recommendations it makes to the Government, what this bill brings in is a political overview of that before ACC even gets to consider it. So what the bill does in Part 1 is that it says that the Minister actually gets to set up the parameters. The Minister will set out a funding statement that will guide ACC. That sounds like quite a good idea. However, when you take into account that the history of this particular Government is that it has in the past, by its own admission, been overcharging ACC levies—to the tune of about $350 million a year—in order to, as the previous Minister for ACC, Judith Collins, put it, get to surplus, then this is giving a lot of political discretion to the Government to give direction to ACC.

There are some good amendments that the select committee made to try to make sure that this would not become a political lever that can be used even more overtly than the current Government did to prop up its failed attempt to get to surplus. The select committee made some recommendations that before sending that funding policy out, the Minister has to go to the stakeholders and consult over that funding policy to start off with. I think that will give those of us who are concerned about the Government’s agenda some comfort that there will be wider scrutiny of this, and I think that that is a good amendment. That is not the select committee amendment that we are concerned about.

However, the funding principles that ACC has stuck to relentlessly throughout the years when it sets ACC levies—the funding principle of ensuring that there is levy stability, the guiding principle that it has used since 1999 of ensuring that the purpose of setting ACC levies is to fully fund the lifetime costs of injuries and accidents, and the other principle that it has used to ensure that there is sustainability in the ACC scheme going forward—all of those things are now transferred into this legislation. The legislation went into the select committee in a shape where it said that those funding principles “must” be adhered to—that they “must” be adhered to—by the Minister when considering the levy setting. However, when it came out of the select committee, there had been some small but important changes. No longer “must” the Minister consider all of those three important principles; it had been watered down to a “should consider”.

That alone would not be quite so concerning were it not for the Government’s contention that it has carte blanche to do whatever it wants in ACC levy setting because there is part of the Accident Compensation Act that says that the Minister can consider or take into account the public’s interest in setting ACC levies. That is the bit of the Accident Compensation Act that the current Government has used to excuse itself for setting ACC levies artificially high in order to do something that is nothing to do with ACC—in order to try to make its books look as if they are getting into surplus, by its own admission. That is what we resile against.

Not only is it the Labour Party that resiles against this but also it is indeed Business New Zealand, the New Zealand Council of Trade Unions, and a number of other submitters who said—and Business New Zealand was very clear about this—that it should not be allowable for the Government to set ACC levies with a view to propping up a fiscal surplus. The Labour Party agrees with that view, and that is the reason why I have brought forward a Supplementary Order Paper that deals with their concerns.

We had a discussion about this in the select committee, and it was the view of the National Government members that the use of the Minister’s regard to the public interest, with regard to setting ACC levies, is to do with the public interest about ACC only. It is not broader than that; it is about ACC. So I am calling on those Government MPs who gave us that assurance in the select committee to vote for my amendment, because, in fact, that is exactly what my amendment clarifies. It clarifies that when the Accident Compensation Act talks about the public interest, it is talking about the public interest with regard to reducing accidents and injuries in the workplace, on the sports field, in the home, or wherever they may occur.

This amendment is important because it gives this Parliament some comfort that when the Government has moved to water down those three guiding principles for how ACC levies are to be set, that that is not a signal that it intends to keep on using ACC levies to prop up its failed attempt to get to surplus, because that is not what is intended by this Act.

I take the members at their word—that it is not what the National Government members on the select committee believe it to mean—and I am now calling them to account for that by seeking their commitment on voting for my amendment, which does, in fact, exactly that. It would make it absolutely clear that the public interest when it comes to talking about setting ACC levies is about reducing injuries and accidents, and is not about things so far removed from the responsibility of ACC as ensuring that the Government can try to get its surplus.

This is the surplus, by the way, that it has failed to get to so far. We will wait and see whether the Government’s promised surplus is ever going to happen but it has failed to do that, despite the fact that it has been using inflated ACC levies to prop that up. Those are not—well, those are my words, but it was not me who made that assessment; it was Judith Collins, the former Minister for ACC. She said very clearly when setting the levies in 2013 that one of the things—one of the factors—that she took into account and that has continued through to the current Minister is getting to surplus and the broader fiscal situation that the Government finds itself in through its own sloppy fiscal management.

So I want to urge all of the parties to consider voting for Supplementary Order Paper 123. I hope that the Government MPs will find themselves in a position where they can, because if they cannot then I think that is a very clear signal to the rest of New Zealand that this Government intends, in our view, to misuse ACC levies—to set them artificially high to ensure that they can actually prop up things like its failure to get to surplus. That is not what the New Zealand public requires from the ACC system, and that is not what the public would see as in its interests when it comes to funding ACC levies. What they want them to be used for is to reduce injuries and accidents at work, and that is what my Supplementary Order Paper makes absolutely clear. Today the Minister made a statement, which we will come to when we debate Part 2.

Hon NIKKI KAYE (Minister for ACC): I am very, very pleased to speak on this Committee stage of the bill, particularly focusing on Part 1—the principles of financial responsibility—but also dealing with the funding policy statement, and I want to talk about that as well in the context of announcements that I made today.

But first, I want to correct a few things that the Opposition has already said. The first thing I want to say is that when we are talking about the principles of financial responsibility, it is the members on this side of the Chamber who can talk about the principles of financial responsibility because we have taken a scheme that was in a $4.8 billion hole from $10 million of assets to $31 billion of assets. We have got all three accounts in solvency and members on this side of the Chamber need to be very proud of that.

The second point that I want to make, when we are looking at the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill and the changes that were made in the bill—Sue Moroney has just said that maybe some of these changes around the principles could mean some kind of conspiracy theory. If you look at the law and what we have passed, what we have acknowledged is that if you look at those principles of solvency and stability there will be unusual situations, whether it is the global financial crisis or, in fact, the Canterbury earthquakes. The Canterbury earthquakes were a clear example where we had several hundred million dollars of claims made. They were adverse events, and it is just acknowledging that although we want stability of levies, there may be situations whereby it is not possible because we have got to deal with those adverse events. So the second point I want to make is that there is no conspiracy theory; these are logical principles of financial responsibility, solvency, and stability for New Zealand businesses.

The next point I want to make is actually about the funding policy. The big thing about this bill, which is highlighted in Part 1, is that we are in this luxurious positon where we have got the books in order, the scheme has matured, and we are able to balance a funding policy that enables us to deal with the inherent volatility but ensures that we are not over-collecting. I am very proud to say that—and today, if you read my press release, you would have seen it—the Government will be consulting as part of the ACC levy consultations on a funding policy of 100 to 110 percent over a 10-year period. What that says to New Zealand is, actually, that we will ensure that we have got stability in levies, and we will also ensure that we can adequately deal with this volatility without over-collecting. We have done it, so no more of the Opposition members standing up and giving speeches about how somehow we are over-collecting. It is not true, you cannot prove it, you do not have any of the numbers, and you are going to have to stop running that argument.

The next point that I want to make is actually around this whole point of ensuring that we do have good principles of financial responsibility in this legislation and transparency of that. I do want to acknowledge the Transport and Industrial Relations Committee and their work on this particular part of the bill. Again we heard the Opposition member say: “Oh, well, maybe what this means is that the Government will go over there in a little corner by itself and not have transparency around what is actually happening in terms of the accounts.” Again, what I would say to the member—and what I have tried to explain to her before—is that you cannot look at this bill in isolation in terms of particular clauses.

What we are dealing with now is a framework that will enable not only a funding policy but publication of documents around how particular aspects affect the accounts, whether that is entitlement provisions in the future or whether that is where you set the funding policy. That will be made public, but I and members in this committee have gone even further and we have added another clause just to make sure there are no conspiracy theories here, but, actually, there will be targeted consultation and I have confirmed in my press release today that there will be consultation as part of the ACC levy consultation next week on the funding policy.

So, again, the Opposition says that we are over-collecting. That has been proven wrong. We have got a clear funding policy that shows that we are not. The second thing that is out there is that we are not going to consult on the funding policy. Well, I have said that we are. We have got another clause in this bill and we will be doing it next week. Then, finally, there are so many businesses in New Zealand that have had to deal with what I think is volatility and the lack of stability. They are small businesses, some of them, and they do not have the ability to wear those costs. We are changing that with this framework. I think we are going to have much clearer, transparent, stable levy-setting.

I am going to talk about the residual levy in a later aspect of the bill, and I am sure that all members in this Chamber will be supporting the Government’s announcement today, because they know better than anyone that this is one of the single best things that we can do to send the right signals around having the fairest possible levies.

IAIN LEES-GALLOWAY (Labour—Palmerston North): I would like to—since this is the Committee stage—have a close look at Part 1 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill, starting at clause 4. Actually, this bill is before Parliament partly because we are coming to the end of the transition phase, from the old pay-as-you-go system to the full funding system. I have heard a lot of politics from the Minister for ACC in her previous contribution, but actually if we get down to it, the reason we have this legislation is that we now have to address some of the matters that arise because we had a transition period where technically, if you want to say it, for close to 15 years—actually, more than 15 years—ACC has been technically insolvent. But we are now coming to the end of that transition period where full funding is now just going to be the norm from here on in.

So what clause 4 actually does is repeal the definition of “fully funded” in the interpretation section of the Accident Compensation Act. Actually, a lot of the words that were in the interpretation section are now in new section 166A(1), inserted by clause 5: “The cost of all claims under the levied Accounts are to be fully funded by meeting the outstanding claims liability in respect of the claims by offsetting an adequate level of assets to fund the cost of those claims.” Rather than being a new concept or something that we have been aiming towards, which we have been for 15 or 16 years, this is now going to be the norm. Putting aside all the politics that I heard in the Minister’s contribution, that is actually one of the reasons why we need this legislation, and I acknowledge that.

One of the other reasons we need this legislation is that for the last few years we have had an issue with the overcharging of levies. I heard the Minister say, I think—and I am pleased that the Minister said it—that the Government is aiming for each account to be funded between 100 and 110 percent. That sounds good. Actually, if anything, I might have been prepared to be a little bit more flexible than that—maybe up to 120 percent. If we are going to make sure we have got stability over time, actually 100 to 110 percent is a little tight and perhaps the consultation will come back and say that maybe we need room up to 120 percent.

So I am comfortable with that, but some of the accounts are funded over 140 percent. So the Minister says that the idea that—[Interruption] It is not wrong, Minister. It is in the ACC’s annual report. So go and have a look at the annual report. If you have not read it, Minister, go and read the annual report and the Minister will find that some of the accounts are funded 140 percent. If the Minister needs evidence that the charges have been too high over the last few years, there it is. The Minister herself says that the range should be 100 to 110 percent. I am prepared to be a little bit more flexible than that and say that maybe we should go to 120 percent, but what it—[Interruption] The Minister is now advising members opposite, so that the select committee chair has a response to this—that is interesting. Actually, the evidence is there that there has been overcharging.

We agree that we need, under new section 166B(2)(a) in clause 5, a target level or band for funding of each account. Absolutely we do, because that has been far too loose over the last few years. The upshot of that being too loose is that it has been too easy for the Government to set the levies much, much higher than what they needed to be. That is where Sue Moroney’s proposed amendment on Supplementary Order Paper 123 comes in. What Sue Moroney is trying to achieve here, we think, is what the original intention of the legislation was. It is simply about making it absolutely clear that when considering the public good when setting the levies, the public good means the public interest with regard to reducing injury and accidents.

For the last couple of years anyway, we have heard the argument made—Judith Collins made this argument in a Cabinet paper that is publicly available—that the public good includes getting the Government’s books into surplus. That is exactly the argument that has been made up until now. Although we appreciate that the mechanism under new section 166B(2)(a) will allow more transparency and it will require the Government and the corporation to focus on setting levies that are appropriate for the band that is set, we think that if you put that hand in hand with the definition of “public good” that Sue Moroney sets out on her Supplementary Order Paper 123, it makes it absolutely clear. People and businesses can have absolute faith that the legislation that the Government and the corporation is working under is designed to ensure that nobody is paying, importantly, too much in their levies, or, for that matter, that we are setting levies too low.

We agree. We have to have a long-term approach to this. There is nothing about Sue Moroney’s Supplementary Order Paper that detracts from having a longer view or a mid-term view about what the financial performance of ACC might be. Yes, absolutely, it can be volatile. In fact, the volatility and the fact that the global financial crisis affected ACC’s investments just as much as it affected everybody else’s investments helped create that supposed gap in the funding that the National Government played up so much. Yes, there is volatility, although the ACC is one of the best-performing investment operations in the country. It proves that the public sector can actually be very good financial managers—you know, alongside the Superannuation Fund, two of the best-performing funds in the country. But we agree with the Government on that.

What we are saying is just make it a little bit stronger. Make it a little bit stronger so that we cannot possibly get into the situation—so that the Government cannot even be accused. If the Government thinks we are wrong, remove the opportunity for anyone to accuse it of using the ACC to get the Government books back into surplus by including the definition of “public good” and the definition of “public interest” that would be added under a new clause 6D amending section 330 under Sue Moroney’s Supplementary Order Paper 123. So what we are actually trying to do is work with the Government here, to make sure this legislation not only does what it is supposed to do but it is also seen to be doing what it is supposed to do, and gives businesses and other levy payers confidence in the accident compensation system.

What people expect is that they will pay a fair levy, and in return they will get fair compensation and fair treatment. At the moment, people feel like they are paying an unfair levy, that they are paying far too much, that they are being denied compensation, and that they are being denied treatment as well. This is about ensuring that people have confidence and faith in ACC. I would have thought that would be something that both sides of the House would want to support.

So I absolutely commend Sue Moroney’s Supplementary Order Paper to the Committee, and I encourage members to support it. If members have any concerns about it, I encourage them to raise them with us so that we can have that conversation through this Committee stage, and actually alleviate any fears that Government members might have. We just want to make sure this bill does what it is supposed to do, and that is give people confidence in the accident compensation scheme.

POTO WILLIAMS (Labour—Christchurch East): I too want to go over some history and some old ground, just to remind the Minister for ACC that, yes, we are transitioning from one accounting model, one reporting model, to another model. Clause 4 really talks about moving to the new fully funded operation. I also want to remind the Minister that we are talking about a system that has been more than fully funded. We are really well aware that many of the ACC accounts have been oversubscribed. We, too, are looking to ensure that the bill does live up to its transparency title and will provide some assurance and some confidence to the public of New Zealand that ACC will be providing what they need to, plus some buffer, into the ACC accounts and will not be supporting what is clearly not a transparent action of supporting this Government to get into surplus.

I want to turn to three important parts in Part 1: the principles of financial responsibility, the funding policy statement, and the consultation process and any amendments to the funding policy statement. The principles, of course—new section 166A(1), in clause 5, states: “The cost of all claims under the levied Accounts are to be fully funded by meeting the outstanding claims liability in respect of the claims by offsetting an adequate level of assets to fund the cost of those claims.” That is very sensible, ensuring that there are sufficient funds to pay for ACC costs as they occur to those people who may have accidents and need to have their medical costs and ongoing costs covered. Members—in particular, electorate members—have constituents who come and see them on a regular basis to talk about ACC claims and the like. Often I wonder whether sometimes we do not take full cognisance of future ACC liabilities, in that our populations do get older and sometimes their ACC concerns, their health concerns, and their accident concerns actually end up costing more than we have potentially set aside.

New section 166A(2), in clause 5, states: “When making recommendations in respect of regulations made under section 329 setting levies, the Minister must have regard to the following principles:”. That phrase “must have regard” of course is an important one because originally, I understand, the bill said “must be set in accordance with the following principles:”. We are talking about two different levels of requirement. We are concerned about the watering down of this particular part of the bill. The words “must have regard” of course do take those things into account, but they do not have the same level of weight as “must be set in accordance with the following principles:”. So we are concerned about that.

New section 166B talks about the funding policy statement. It is clear that the funding policy statement must be set based on the principles of financial responsibility. But the funding policy statement must also specify “a target level or band for the funding of each Account;”. In that process, we are looking at the consultation process that the Minister must undergo to ensure that the Minister has sufficient information to be able to be comfortable with the target levels, the band, for each funding account. As such, the Minister is able to consult persons and organisations. But the Minister must also have the ability to determine the amount within the band for each funding account in terms of ensuring that there are no huge changes in levies that could be set.

One of the issues that many businesses have talked to us about is that there is a potential for levies to vary hugely over time. It makes it very difficult for businesses to set their budgets and be able to determine their costs, particularly their costs of employment, out for any significant period of time. So we would want to support ensuring that there are very limited variances in those levies, and the ability to do that would mean that the Minister may take advice from ACC and may need to take regard of those ongoing concerns.

Also within the funding policy statement, we are very cognisant of the fact that we would not want there to be an oversubscription to those particular accounts. My colleague Iain Lees-Galloway did talk about potentially some accounts being oversubscribed to about 140 percent, which clearly demonstrates that those basic principles of financial responsibility have not necessarily been applied and the consultation process has not been applied adequately. So we are really confident that, used correctly, the principles in the consultation and the funding policy will actually take care of ensuring that we do not oversubscribe by more than 120 percent.

Just finally, I do want to talk about what is a really important aspect of this, which is determining what is “public good” and in the “public interest”. With public interest, Supplementary Order Paper 123, which has been put up by Ms Moroney—we want to ensure that public interest takes into full regard the purpose of reducing accidents and injuries and, in particular, having regard for the interests of taxpayers, levy payers, claimants, and potential claimants. It seems inordinately sensible to have that feature as part of this bill, and I am hopeful that we can get some support for this Supplementary Order Paper to ensure that that happens. It states: “ ‘Public good’ means the public interest with regard to reducing injury and accidents.”, and, at the end of the day, that is what accident compensation should be about. It should be about the prevention of accidents. It should not be about our wanting to build up funds—it is more about prevention. It should be about prevention rather than about setting aside money for accidents when really it is absolutely far better in the country’s interest to reduce that cost to us. Thank you.

CLAYTON MITCHELL (NZ First): I rise on behalf of New Zealand First to take a call and—just to start things off—to really give assurances to those people back home that New Zealand First has got some good news today, which is that we will not be supporting this bill the way it sits in the Committee. Some more good news: we do, actually, support the Supplementary Order Paper by Sue Moroney, and I would like to talk to that in a few minutes. And we have some bad news for the Government, which I think has missed quite a big opportunity here in this bill, particularly—the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill.

The first thing that jumps to mind when I read that out is the absurdity of having a bill that actually tries to encapsulate financial responsibility and transparency as if they were some kinds of new things that the Government should be doing. In actual fact, it should have been doing this all along—having an open and transparent Government and making sure it is doing the right thing with New Zealand money and putting it in the right places, as opposed to trying to balance the books and to get things straight, which, of course, it has miserably failed to do over the last 7 years. I am sure it is going to continue to fail in that vein as well. There is $350 million - odd a year that has been over collected by ACC payers, and I myself, as a business owner and operator, have been one of those business owners who have been charged. Nowhere in this bill—not in the first, second, or any of the parts in this bill—is there an apology by the Government to acknowledge that this has actually taken place, or redress to actually compensate those businesses and those people who have paid excessive amounts of money, and to give that money back to those businesses. I am sure that there would be a lot of business out there right now that would be a lot better off if this bill actually addressed those particular points that we raise—and we do have some serious concerns.

I move on to Part 1 and clause 5, which inserts new section 166A “Principles of financial responsibility in relation to Accounts”. I have to say that the word “must”—albeit a very simple word; it is one syllable and four letters long—is a very powerful word. It does jump out at me from the page quite strongly, and I will read out a couple of points from new section 166A(2). It says here: “When making recommendations in respect of regulations made under section 329 setting levies, the Minister must have regard to the following principles:”. It goes down to new section 166B “Funding policy statement” where subsection (1) says: “Within 12 months after the commencement of this section, the Minister must issue a funding policy statement.”—so far, so good. It goes down to new section 166B(3), which says: “The funding policy statement must be consistent with, and explain how it is consistent with, the financial responsibility principles in section 166A.”—another “must”. Then it goes down to new section 166C “Consultation, publication, and amendment of funding policy statement”, where subsection (2) says: “The Minister must consult such persons or organisations as the Minister considers appropriate before issuing the funding policy statement.” So those are all positive things in this part of the bill.

However, the bill has had some amendments and changes made in the Transport and Industrial Relations Committee that have created some grave concerns for the public and for New Zealand First, and we would like to bring those to your attention now. In new section 166A(2)(b) it has got here that “if an Account has a deficit of funds to meet the costs described in subsection (1), or has accumulated surplus funds, that deficit or surplus should”—it has changed the word from “must”—“be corrected by the setting of levies at an appropriate rate for a subsequent year …”. The word “should” is a fairly watered down statement after all the “musts” that the Ministers have been doing, because that is where the rubber meets the road, where the real changes can be made. Having a “should” as opposed to a “must” changes this piece of legislation considerably. We go down to new section 166A(2)(c), which says: “large changes in levies should”—changed from “must” to “should”—“be avoided.” This “should” is another watering-down of some legislation where we expect, as New Zealand taxpayers and ACC levy payers, to have openness and transparency and for the funding principles to be far more clearly outlined than they have been in the past, which this current bill does not adequately do.

We go through the whole proposed levy-setting framework, and it goes down through some fairly strong steps as we are going through the procedure to determine what those funding costs are going to be. It gets to that final step in the levy-setting framework and it goes to Cabinet, which may follow ACC’s recommendations. Again, this is another watering-down piece of legislation that does not really give the people back home the support that they need to know that we are not going to go down the alley that they have once gone down with the overcharging of ACC levies in the past. The second part to that is that Cabinet may choose to set alternative rates, having regard to broader public interest—Cabinet may choose. There are some serious issues in those very minor changes in this piece of legislation. New Zealand First understands those minor—but major—differences and the implications that they have, and we cannot support this bill.

We do, however, support the attempt by Labour to try to straighten up the ship, if you like, with Supplementary Order Paper 123, particularly around clauses 4 and 5, in this part, and this is around the meaning of “public good”. It is simply rectifying that by stating: “Public good means the public interest with regard to reducing injury and accidents.” I think that is a very simple but a clear directional change to make sure that that is actually what the bill intends. We support the amendment to insert subsection (d) after new section 166A(2)(c), set out in clause 5, which says: “the state of the Government’s fiscal position is not to be a consideration when setting ACC levies:”. We do not want to see what has been happening in the past—this Government being able to use ACC levies to balance its books—so we do support, with pride, Sue Moroney’s Supplementary Order Paper with those amendments.

JONATHAN YOUNG (National—New Plymouth): After hearing a number of contributions, I thought I must stand and talk about why words such as “should” are there.

Iain Lees-Galloway: Is it in the public interest?

JONATHAN YOUNG: Indeed, it is in the public interest, I am sure. As I come to just make some comments on the principles of financial responsibility—particularly the third principle, which provides that large changes in levies are to be avoided. This is intended as a safeguard to produce some certainty for levy payers.

It is no surprise—and I hope the members on the other side know this—that when a bill goes to a select committee, it often comes out changed. You understand that. It is not dire conspiracy; it is actually listening to stakeholders, and people in our community. We consider their view, we look at what the legislation proposes, and we ask ourselves whether what went into the committee is actually fit for purpose after hearing submissions.

This is what the Insurance Council of New Zealand said: “Clause 166A(c) states that ‘large changes to the levy must be avoided’. While it is desirable to avoid volatility of levies, there will inevitably be occasions during the life of the scheme when extreme events occur.”—and, of course, this sector, the insurance sector, understands this better than anybody—“In the general insurance sector, the period 2010-2012 saw some of the most expensive insured claims globally as a result of the massive flooding in South East Asia, the Canterbury earthquake series, the Tohuku tsunami and Hurricane Sandy to name a few catastrophes. The result was a sharp rise in reinsurance costs globally which saw a significant increase in premiums to consumers in New Zealand. It is quite conceivable that another global financial crisis would have a major impact on the ACC’s investments. ACC should be able to respond to such extreme circumstances.”

That is one of the reasons why “must” was changed to “should”, at the recommendation of a number of substantial submitters through the select committee process—one or two, but substantial submitters. The Insurance Council of New Zealand, you would have to say, is a substantial submitter. It was not the only one. So what it does is it enables a degree of flexibility.

We also know that retaining section 300 is consistent with this approach, and it means that in making decisions on levies, the Minister will also have regard to the public interest—in particular, the interests of taxpayers, levy payers, claimants, and potential claimants in the future. We want an accident compensation scheme that is here for decades and decades and decades to come, so sustainability, solvency, and predictability around this are incredibly important. So this serves as a safety valve—for example, in circumstances where there are concerns about the impact on levy payers of raising levies.

During the global financial crisis ACC recommended far more levy increases than Cabinet signed off on—and here we are, fully funded. We also know, as do members on the other side, that the fully funded figure as ACC reported to us at the beginning of this year was higher than the 100 to 110 percent, but we also know that it reported to us that in January of this year a $4 billion loss happened to the asset base of ACC, which in February was recovered by $2 billion. So there is a degree of volatility. So that percentage, in terms of the solvency of that account, drastically changed.

What this bill is essentially about is smoothing out the peaks and the troughs, as best as we possibly can, in a very volatile environment, where we do not know, year by year, how many claims we will receive. We know, for example, as the Insurance Council has said, that globally there can be very high claims in the insurance sector, certainly in the ACC sector, when accidents occur—and let us hope they do not happen at an accelerated or larger proportion than what is estimated—and they become higher-level claims. So having the strength of a resource base, an asset base, that can be evened out to take those highs and lows, is very important. Having a process of transparency around that, instead of making adjustments at the very end, in terms of levy setting, and having a policy statement at the beginning that brings guidance through this whole process is very, very important.

I do hope that those few comments I have made around that word “should” actually brings some context and some understanding of what that word is about. Thank you.

JENNY SALESA (Labour—Manukau East): Thank you for the opportunity to speak on the Accident Compensation (Financial Accountability and Transparency) Amendment Bill. Labour supports this bill but with amendments to Part 1. I find it quite ironic that the Government is putting through a bill with the word “transparency” in the title, given Murray McCully’s bribe of a Saudi businessman, with no transparency whatsoever.

My colleague Sue Moroney has Supplementary Order Paper 123 on Part 1. Firstly, it clarifies the interpretation of “public good” as meaning “the public interest with regard to reducing injury and accidents” in section 300 of the Accident Compensation Act 2001. Secondly, the Labour Supplementary Order Paper ensures that the Government sets levies for the purposes outlined in section 3 of the Act and not for the purpose of achieving other objectives unrelated to ACC levies, such as a Government surplus.

Part 1 of this bill has the intention of consolidating and clarifying the framework for funding ACC’s levied accounts to make it more transparent, to give it a longer-term focus, and to address the previously inconsistent approach to setting levies, with marked fluctuations in levy rates and prior confusion about factors driving final decisions on levies.

Clause 5, which inserts new sections 166A to 166C into the principal Act, deals with the principles of financial responsibility in relation to accounts. New section 166A(1) does indeed lay out that the cost of all claims under the levied accounts is to be fully funded by meeting the outstanding claims liability in respect of the claims by offsetting an adequate level of assets to fund the cost of those claims. However, under the version of the proposed subsection (2) now before us, the principles under which levies must be set, where the Minister is obliged to have regard, are now changed. It is no longer mandated that the levies derived for each account must meet the lifetime cost of claims in relation to injuries that occur in a particular year, but merely that they should. It is no longer mandated that, should an account have a deficit of funds to meet the costs described in new section 166A(1)(a), or have accumulated surplus funds, that deficit or surplus must be corrected by the setting of levies at an appropriate rate for a subsequent year or years, but merely that they should.

So I agree with Clayton Mitchell from New Zealand First, when he was talking about the use of “must” or the term “should”. It is no longer mandated that large changes in levies must be avoided, but merely that they should. There was considerable consultation and debate when these things were discussed over at the Transport and Industrial Relations Committee, in terms of the widely swinging levies amongst ACC issues.

The Minister for ACC announced in May that “The legislation … [should] bring the levy-setting process into line with the accountability and transparency requirements that already apply to the operation of the government’s core Budget under the Public Finance Act.” The Minister also announced at the time that “New binding principles … [should] be introduced to ensure the scheme is adequately funded to withstand economic volatilities, while ensuring levies are kept as low as possible and stable over time.” But how is this proposed amendment enshrining in law the solution to the issues raised in advance from officials and from businesses and industry groups? The obligations on the Minister, which are to ensure that the levies are in fact more stable, have been muted, for no apparent good reason. This is like the Health and Safety Reform Bill all over again. The wording of some of the clauses has been changed, with a resulting weakening of the legislative framework. These changes to the parameters of the Minister’s decisions and obligations seem to have been sprung unheralded on the public. It is my understanding that the focus of the submissions to the select committee did not actually focus on this.

Labour is supporting this bill, but I must note that the weakening of the framework in relation to transparency and stability of the levies is regrettable. Thank you.

PHIL TWYFORD (Labour—Te Atatū): As my colleague Jenny Salesa said, Labour is supporting this bill. There are a number of important principles that are reflected in the policy intent of the bill, and let me just touch on them. The bill will improve the process for levy setting by requiring the Government to set out a funding policy in line with the principles in the bill, which will inform ACC’s public consultation on the levy rates. It is a good thing. Setting a funding policy will also improve the transparency of the levy-setting process, so that the public is better informed—so far, so good. Perhaps most important, the bill would have improved the framework for funding ACC’s accounts through levies by replacing the current provisions with a more comprehensive set of principles.

The big concern that we have with Part 1 is that the very principles enshrined in the title of the bill—financial responsibility and transparency—have been watered down. As Jenny Salesa said, there is more than a little echo of what we saw with the Health and Safety Reform Bill. It is a bill that is brought to the House and sets out to fix a political problem for the Government with great fanfare, goes to select committee, and then the usual vested interests rock up to the committee and exert a bit of influence. Then the result is a 10-minute apology from Jonathan Young in his most recent contribution—a 10-minute apology for the replacement of a lot of “musts” with a lot of “shoulds”.

Iain Lees-Galloway: Coulda, shoulda, woulda.

PHIL TWYFORD: Yes, that is right—coulda, shoulda, woulda. Thank you, Iain Lees-Galloway. So, really, the good intent of the bill—Labour supported it; we still support the intent of it—and the basic principles have been significantly undermined by this kind of weak-kneed backsliding in the Transport and Industrial Relations Committee, which, unfortunately, has made this bill a lot less effective than it otherwise would have been.

The principal example of that watering down is to be found in Part 1, clause 5 inserting new section 166A(2). Instead of saying levies “must be set in accordance with the following principles”, it has been replaced with “When making recommendations in respect of regulations … the Minister must have regard to the following principles:”, a much weaker and more inferior set of words. It is sad that a Government that so transparently cooked up a funding crisis when it came to office—a manufactured funding crisis in relation to ACC—and then hiked up the levies, now seeks to repair some of that political damage with this bill, but bottled out when it got to select committee, with just the slightest bit of influence from the vested interests. What could have been a good bill has—

Iain Lees-Galloway: Could have been a good bill.

PHIL TWYFORD: Could, should, would—it “must” be a good bill, but it will not be under the dilution of its core principles at select committee. That is a shame.

I want to really just add my voice to the support for Sue Moroney’s Supplementary Order Paper 123, which I think would pretty much repair the damage that was done at select committee. It sets out, for example, in amending clause 4, to make it very clear that “public good” in this case “means the public interest with regard to reducing injury and accidents”. The public good should not be some kind of mask for the Government to milk ACC to support its ever-diminishing aspiration for getting its books back into surplus, because—let us be really clear about it—that is what has happened. That is the story of this Government’s ACC policy over the last few years. Sue Moroney’s Supplementary Order Paper makes it very clear, in amending clause 5, that the state of the Government fiscal position is not to be a consideration when setting ACC levies. If the Government was true to the principles, if it was true to the policy intent, if it was true to its rhetoric, then it would support Sue Moroney’s Supplementary Order Paper. Why not? Why should the ACC be used as a cash cow to try to fund the Government’s surplus target?

SUE MORONEY (Labour): I want to use my further contribution on Part 1 to clarify what Labour’s voting position is going to be, and to also respond to some of the issues that have been raised by the Minister in the chair, the Minister for ACC, when she spoke and also the chair of the Transport and Industrial Relations Committee, Jonathan Young, when he spoke. The first thing that I want to clarify is that during the Committee stage of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill, the Labour Party would love to support Part 1, and would love to vote for Part 1, but that will be dependent on the Government’s response to the amendment that I have proposed. The reason for that is, I think, hearing all of the contributions—well, the members seem to have kinds of—I do not know whether to describe them as smirks, or frowns. Maybe they are “smowns”, or “frirks”—I am not sure which one it is—on their faces. But it is simply this: if what both the Minister in the chair and the chairperson of the select committee have said in their contributions is correct, then they should easily be able to support my amendment, because what my amendment simply does is give certainty to the New Zealand public—to the businesses, to the workers, to the motorcar operators of the country—that they will not be overcharged ACC levies for a purpose that is not related to ACC. That is simply what it does.

I think that should be an easy amendment for the Government members opposite to support, but I have not heard them make any response on the amendment yet. I would like to hear a response on it, because I want to hear a commitment today, via the vote on my amendment—or, if the Minister chooses, via simply getting up and saying it in the Chamber. I want to know that the Minister believes that the bill in its current form would stop any Government from using ACC levies and the levy-setting process for any other purpose but reducing injuries and accidents. I want that commitment, because if the Government cannot give that commitment in this debate, then it is not being financially responsible and transparent when it comes to ACC matters. One thing that I can say about Judith Collins—and I do not agree with her a lot of the time—is that in a funny way, when she was the Minister for ACC, she was absolutely transparent about this. She got up in the House when she set the levies in 2013 and specifically said—and her press statement said—that one of the factors she took into account in rejecting ACC’s recommended levies was to get to surplus. She was very transparent about it. What I want to know from the Government today is whether it believes that this bill would still allow it to do that. If the answer is yes, then that is not financial responsibility when it comes to ACC and it is not transparency when it comes to ACC.

I want to clarify for the members opposite that the objection from the Labour Party is not necessarily that “must” has been changed to “should”, because we see the need for that level of flexibility. Sitting here today and discussing ACC levies, we see the need in that we might not be able to foresee everything that is going to happen. That is not our objection. We agree with those sets of amendments around the guiding principles, but only if there is the backstop to make sure the flexibility is not so large that it allows the Government to mislead the levy-setting process and use it for something that it was not designed for—to artificially hike up ACC levies for purposes that are not to do with accident compensation and for purposes that are not to do with reducing the incidence of injuries and accidents in our workplaces. I want that commitment from the Government today because its past performance tells us that it believes it should be used for that.

However, there is one rider that I will put on it. When I asked the Minister whether she had sought Crown Law advice on whether it was lawful under the current Act to use the ACC levies to get to surplus, she said that she had not even asked Crown Law for advice. There is only one reason why, in my view, a Minister would assert that she had the legal right to do that but would not ask for Crown Law advice, and that is because she probably knows that what has already happened is unlawful. If that is the case, then I am kind of comfortable with the bill as it is. If we know that what the Government has already done was unlawful, then there is no need for my amendment, because the law as it stands is perfectly good. But if the Government does believe that it has got the lawful right to do what it has done since 2013—and that is, by its own admission, use the levy-setting process, reject the recommendations made by ACC, and have higher levies in place in order to get to surplus—then my amendment is absolutely needed.

My amendment is needed because of what Business New Zealand said when it came to the select committee. I am going to read directly from its submission because people might not believe it. I mean, it is hard sometimes to believe that the Labour Party and Business New Zealand are singing from the same song sheet, but absolutely, in this instance, we are, and the Government is on the wrong side of the equation. Business New Zealand said: “The state of the Government’s fiscal position (as expressed in the Government’s accounts) should not be a consideration when setting ACC levies.” I asked Business New Zealand, when it came to the select committee, whether it would support an amendment such as the one that I am proposing in Supplementary Order Paper 123 to ensure that the Government could not do that, and it said that it would. It wanted to see a legislative fix to this, to stop it from happening again, and the Labour Party is offering exactly that legislative fix. So I want to hear from the Minister an assurance about that and her view as to whether in the new funding policy statement she can actually set out getting to surplus as a reason for ACC levy setting—that it could be one of the things that she asks for in that funding policy statement. I want to know from the Minister whether, in fact, it is her view that that is allowable or not under the law as it would exist without my amendment, because that is going to be important for our vote going forward.

I want to speak to new section 166C, “Consultation, publication, and amendment of funding policy statement”, set out in clause 5 in Part 1 of the bill that we are debating. This is because there will be a consultation on that, and that is good for transparency. I accept that there are many parts of this bill that will add to transparency. But I want to know that when that consultation happens, the people who are giving the information—the stakeholders who are consulted with—will be listened to. We had the shambolic situation, probably early this year, when the Minister for ACC went out for consultation on ACC levies. A number of people have told me that during that consultation process they told her that she was about to make a big mess of the ACC motor vehicle levy process. They told her of exactly the models that were in the wrong categories and they told her of exactly the problems that she was about to bring on by changing the model, and she ignored all of that advice. She ignored all of that advice, and look what happened next: I think 24 models—about 115,000 motor vehicles—had to have their ACC motor vehicle levy reclassified and changed and reduced because that Minister did not listen when the stakeholders told her and warned her of the mess she was about to make of that new model coming in for the motor vehicle levy. That should have been a good news story for the Government; it has turned into a complete and utter shambles.

With new section 166C and its consultation process being put forward, again, I want to seek an assurance from the Minister that when she puts out her funding policy statement, first and foremost she accepts that one of the funding policy statements that she cannot require of ACC is for it to make a provision to help the Government out with getting its books in surplus. I want that assurance from the Minister. I equally want an assurance from the Minister that in consulting with the stakeholders over the funding policy direction she will listen to what people are telling her, because she certainly did not when it came to the levy-setting process earlier this year. She was given specific information—and I have seen, Minister, the specific information that you were given—by stakeholders during that process that was utterly and completely ignored, and that is the reason why you have got yourself in the mess that you are in now.

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

IAIN LEES-GALLOWAY (Labour—Palmerston North): I also want to try to clarify some of the discussion points on Part 1 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill. We have had the Minister for ACC’s contribution and we have had the contribution from Mr Young, but I feel as though we are sort of talking past each other a little bit here. First of all, I want to make it clear that we are not proposing that we go back from “should” to “must”. We understand the argument for why the word “should” in new section 166A(2)(b)(c) has been used rather than the word “must”, because this is about ensuring that the Minister and the Government have some flexibility. I think Jonathan Young used the example of the global financial crisis coming along, or a significant disaster like the Canterbury earthquakes or the Pike River mine, which have had a significant impact on ACC, and so we need the flexibility to be in there. That is fine. We understand that.

Jonathan Young: So it got through.

IAIN LEES-GALLOWAY: What we are saying, though—if you will listen for a second, Jonathan Young—is that it does open up an issue that can be solved with Sue Moroney’s Supplementary Order Paper 123. The issue that gets opened up is that if you go from saying, for instance, that the levies derived for each account “must” meet the lifetime cost of claims, and change that to “should”, or that if an account has a deficit of funds to meet the cost prescribed or has not accumulated surplus funds the deficit or surplus “should” be corrected rather than “must” be corrected, then you open up the opportunity for the manipulation of the levies that has occurred in the past. So, on the one hand, we totally understand the change being made, and we appreciate there are good reasons for making that change, but it opens up a problem, which, actually, this bill intends to solve. What we are saying is to make the change and support it with the changes to the definition of “public good” and “public interest” that Sue Moroney has offered. That way we would get the flexibility that the Government is looking for and we would get the assurance that the public is looking for that levies will be used strictly to ensure that ACC is appropriately funded to provide the compensation and treatment that people expect from it, and I have yet to hear an argument against that.

I do not at this stage know which way the Government is going to vote on Sue Moroney’s Supplementary Order Paper. I suspect I know what it is, but I have not heard either from the Minister or from the Transport and Industrial Relations Committee chair, Jonathan Young. We have got numerous members of the select committee sitting opposite. They have taken time out of their day to come down to the Chamber. I would be quite keen to see one of them, at least, get up and actually tell us what their view is—whether they are for or against Sue Moroney’s Supplementary Order Paper—because I cannot imagine why you would be opposed to it, unless the Government wants to leave open the possibility that the levies can be manipulated. Everything the Government has said is that that is not what it wants and that the purpose of this legislation was to close down that loophole. So is the Government going to support Sue Moroney’s Supplementary Order Paper? If it is, that is fantastic—we would welcome that. If it is not, we would like to hear some constructive reasons why it thinks it is not necessary, or why it thinks it might be detrimental to the legislation. At the moment, as I say, what I have heard is the two sides of the Committee kind of speaking past each other, and what I would like is some clarification around what people’s views are on this.

I just want to address one other thing very quickly in this contribution, and it is that Jonathan Young said that there is volatility in the various accounts and that at the beginning of the year we saw a massive drop in some of the accounts. Well, actually, what happened was, for instance, the work account, which is the one that was 140 percent funded as at 31 December, at 31 January had plummeted to being 135 percent funded, and then, by 28 February, it was back up to being 141 percent funded. So, yes, it can move around. We appreciate that it can move around, and that is why we agree that there should be a funding band, but it is still absolutely clear that the work account and, arguably, the earners account as well are both thoroughly overfunded because the levies that have been taken are too much.

ANDREW BAYLY (National—Hunua): I move, That the question be now put.

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

Ayes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Motion agreed to.

The question was put that the amendment set out on Supplementary Order Paper 123 in the name of Sue Moroney to clause 4 be agreed to.

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

Ayes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Noes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

The question was put that the amendment set out on Supplementary Order Paper 123 in the name of Sue Moroney to clause 5 be agreed to.

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

Ayes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Noes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

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

Ayes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Part 1 agreed to.

Part 2 Repeal of provisions relating to residual levies

SUE MORONEY (Labour): I rise now to debate Part 2 of the bill. You have just heard the Labour Party vote against Part 1. It is against our instincts to do so, but we just cannot back up that part without that amendment being put in place. It is sad to see that there are a few parties that think it is all OK to use ACC levies for whatever purpose they see fit, but that is not the view of the Labour Party. We will be supporting Part 2 wholeheartedly, and that is because it actually exposes the way that the New Zealand public was misled by the National Government when it came into office and claimed that there was a funding crisis in ACC. That is what it claimed just 7 years ago, and yet in Part 2 of this bill we are allowing flexibility for the residual levy to be taken off prematurely because things have gone so well, Dr Smith.

It was Nick Smith who tried to convince the country otherwise. He tried to claim that there was a funding crisis when this Government took over, but here is the truth, and this Part 2 exposes it. In 1999 what happened was that the Government of the day decided to move to a pay-as-you-go model—that is, it was actually paying for the levies—[Interruption] Mr Chair, this is about the residual levy and the history of how it was put in place—

The CHAIRPERSON (Hon Trevor Mallard): Yes, and—

SUE MORONEY: The residual levy.

The CHAIRPERSON (Hon Trevor Mallard): Right. The member did see me indicating that she should come to Part 2 of the bill. There is nothing historical in this. We have had our second reading debate. This is a narrow, technical area to do with residual levies. There are matters that can be debated, but this is about 2019, or some other date in the future, and we cannot rehearse the history of ACC over the past decade.

SUE MORONEY: Thank you, Mr Chair. It is therefore going to be a bit difficult for the public to follow what the residual levy was put in place for, but it was designed for a full-funding model, and that is why when the National Government came in, it tried to claim that there was a funding crisis. In fact, it was going to take us—and we knew this—until 2019 to get to full funding, and that is the purpose of the residual levy.

So the fact that this part says that, actually, things have gone so well within ACC that it looks likely—and the Minister announced today that it looks very likely—that the residual levy will come off early just goes to show how misleading that whole debacle was. Nick Smith is agreeing now. He is agreeing now that about 7 years ago he misled the New Zealand public. We agree that if there is no need to keep the residual levy in place, there should be flexibility to cease the operation of that levy prior to 2019. The Minister has indicated that that is going to be next year, and we look forward to seeing that.

However, one of the consequences of this, which it is important for the public listening to this debate to understand, is that overall this is not actually going to mean a reduction in the ACC levies that are being paid in order to keep all of our accounts in good health—the work account, the earners account, the motor vehicle account. What it does is it simply readjusts what was a temporary situation that was created in 1999 based on the injuries and accidents that needed to be fully funded at that time and brings it forward into the modern day. So the impact of that will be that some companies and businesses will pay higher ACC levies than they are paying now, particularly if they are in an industry or a sector that has had a lot more injuries and accidents in recent years than it did prior to 1999. Those companies and those businesses will, in fact, get an increase in their ACC levies. The ones that will get a reduction are the ones that have improved their safety record since 1999. They are the ones that are set to reap the benefits of this legislation, because the residual levy will be removed.

So my very strong hope for this is that if Part 2 is voted through, and I anticipate that it will be, when we make that adjustment and we decide which companies—

Hon Dr NICK SMITH (Minister for the Environment): Part 2 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill is about Parliament bringing forward the date on which the residual levy, which is paid by thousands of businesses around New Zealand, can be brought to an end such that ACC levy payers are then having to pay only for the costs of the accidents that occur in a particular year. That is something that this Parliament should celebrate: after over 30 years of the ACC scheme, in this year and the next—this financial year—for the first time ACC will be fully solvent and fully funded. That is something we members of the National team are very, very proud of.

I must respond to claims around where this residual levy has come from.

The CHAIRPERSON (Hon Trevor Mallard): Order!

Hon Dr NICK SMITH: Oh, look, Mr Chairman!

The CHAIRPERSON (Hon Trevor Mallard): The member will stand and apologise.

Hon Dr NICK SMITH: For saying what? I apologise for saying “Mr Chairman”.

The CHAIRPERSON (Hon Trevor Mallard): The member will now stand, withdraw, and apologise without reservation, or he will leave the Chamber.

Hon Dr NICK SMITH: I unreservedly apologise.

The CHAIRPERSON (Hon Trevor Mallard): Dr Nick Smith will leave the Chamber. [Interruption]

Hon Dr Nick Smith withdrew from the Chamber.

The CHAIRPERSON (Hon Trevor Mallard): Order! Dr Nick Smith will take a seat now. I am sorry. Minister Foss cannot take the seat, because he cannot take it while Dr Nick Smith is here. The Serjeant-at-Arms will find Dr Nick Smith and ask him to return to the Chamber, please. What I am going to do is I am going to ask Mr Foss to take the chair until such time as Dr Smith can be found. I make it clear to those in the Government whips’ chair that if he is not found within the next half an hour, I will proceed with the measures that I am minded to do in any case.

CLAYTON MITCHELL (NZ First): I rise to take a very short call on Part 2 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill. It really is around clause 7, “Repeal of and amendments to provisions relating to residual levies”, which inserts new section 336A part 1(a) and (b) around the effective date of the residual levies coming to an end. It is a finish to those residual levies that, I am sure, will please many New Zealanders.

I have to say that 1 April 2019 is April Fool’s Day, and to that end we have some concerns that if the later time takes effect—I am talking about running those residual levies through to that date in 2019—in that time this Government will have over-collected $852 million from the work account, $155 million from the earners account, and $468 million from the motor vehicle account. We take that very, very seriously.

I think anything that could be done to prevent that from happening would certainly give a fair amount of relief to those ACC levy payers back home, who are out there slogging it out and finding it very, very tough in their businesses. We would like to see done whatever can be done. That is a total of $1.475 billion over the next 4½ years until 1 April 2019.

I have to say that the consultative process that this has gone through has been a very, very quick one, and I think there has been some oversight from the Government in respect of this. We would urge that this be looked at more clearly. Thank you.

SUE MORONEY (Labour): I want to return to the clause of the bill, clause 7, that I was referring to when the Minister for ACC took a call before. What I was talking about was the fact that industries will end up with ACC levies being set on their differentiated rate, rather than a residual levy, once Part 2 comes into effect. What I hope is that when this happens we will not see a repeat of some of the problems that this Government has exhibited when it has tried to get out of a situation by deciding which workplaces are safer than others—which industries are safer than others and which carry less risk. I really hope that we do not see that shambles reoccur as a result of the residual levy being removed.

Under new section 336A, inserted by clause 7, what it specifically allows for is that the effective date of the removal of the residual levy for the work account can, in fact, mean the earlier of either “(a) 1 April 2019; and (b) a date appointed by the Minister by notice.” It seems today that the Minister for ACC indicated that it is going to be subsection (b) of that section 336A that she is going to invoke and that she is going to propose, after a consultation process, on a date next year that is yet to be determined—that is when the residual levy will be removed. So the impact of that sounds like it is going to be that everyone is going to get a reduction in their levy, but that is not the case.

Under the work account scenario it does track back to 1999, when the residual levy was set at that point. It was set in order to make sure that the injuries and accidents that had been incurred as of that date would be fully funded. The way that this Parliament chose to do it then was to put a residual levy on. The residual levy was placed on those industries based on what their accident and injury record was at the time. What we know is that for a whole lot of those businesses, particularly the ones in the Accredited Employers Programme, that has had a measure of success, and part of the measure of that success has been that the historic injury and accident rate has reduced. That is good news, but, unfortunately, because the residual levy has been in place for those companies, they have not necessarily seen the full impact of the reduction in injuries and accidents in their workplaces, because the residual levy has kept it, I guess, at that 1999 level until we got to full funding.

So it is a measure of success, but I put it to this Committee that it is a measure of success—and I think Nick Smith actually backed this up when he was speaking before—over a 30-year period, not a 7-year period, and not even a 10-year period. It is a measure of success over a 30-year period that this ACC system is so successful—that the model is such a fantastic model. And, yes, it is a Kiwi-owned and operated model, owned by the State. It belongs to the people. It is doing so well that the residual levy can be reduced earlier, and that is not because of what one Government has done; it is because we have set up a fully sustainable model over a period of time.

And that is why I started my earlier contribution by saying that Part 2 exposes how badly that Government, and Nick Smith in particular, tried to mislead the New Zealand public when he was Minister for ACC over what was going on with the solvency of ACC. Clearly, Part 2 shows that that was all a sham.

PHIL TWYFORD (Labour—Te Atatū): It is now clear, I think, that although we have expressed significant reservations, principally about Part 1 of this bill, we support the content of Part 2 of the bill. I just want to build on Sue Moroney’s comments, really, that the upshot of Part 2 of this bill supports the argument that we have been making for a long time now that the manufactured crisis in ACC funding that we saw under Nick Smith’s tenure as Minister was a sham. It was a political construct, and, as a result, since the first term of the National Government, New Zealanders have been overcharged to a gross extent. We made it very clear—[Interruption]

The CHAIRPERSON (Hon Trevor Mallard): Order! I will just ask the member to resume his seat while we deal with this matter.

Hon Dr Nick Smith: I raise a point of order, Mr Chairperson. I understand that you seek my apology, and you have it.

The CHAIRPERSON (Hon Trevor Mallard): What I would like you to do now is to withdraw and apologise for the comment that you made as you left the Chamber, indicating bias on the part of the Chairperson. The member will do it properly. He knows how to do it.

Hon Dr Nick Smith: I withdraw and apologise.

The CHAIRPERSON (Hon Trevor Mallard): The member will now leave the Chamber.

PHIL TWYFORD: In December 2014 the solvency position of the earners’ account was 129 percent. The solvency position of the work account was 140 percent. But it is important to note that the position with regard to the work account excludes this extraordinary acronym “WRGPDI”—that is, work-related gradual process disease and infection claims. As quoted in response to question No. 9 of the annual review of ACC this year, the corporation said that the reported measures overstate the solvency position, as assets include those work-related gradual process disease and infection claims but the liabilities exclude them, and that a better measure of the true solvency position is to include these claims in the liabilities. So for the work account, in fact, the better figure is 116 percent.

Since December 2014 the discount rates fell considerably during January and partially recovered through January. The figures that are available show just how volatile the solvency positions are with regard to discount rates. This bill shows very clearly that the manufactured crisis in ACC funding was a sham—

The CHAIRPERSON (Hon Trevor Mallard): Order! I have warned two members previously about sticking to this particular part, with one spectacular failure, but I am going to warn this member that the second reading has accepted the principle involved here, and all that we are discussing now is what is in Part 2. It is very, very narrow.

PHIL TWYFORD: Just speaking about residual levies, what Part 2 does is, basically, repeal the provisions in relation to residual levies. Prior to 1999 the levies covered only the current costs of a claim, and residual levies are required to meet the ongoing costs of earlier injuries. Currently, the legislation provides that ACC must continue to collect those residual levies through to 2019, and what Part 2 does is abolish that provision. It means that residual levies can cease to be collected, I think, 2 years earlier than the original legislation allowed. That is very significant, and what it shows, as Sue Moroney pointed out, is that we have a truly sustainable ACC, and the transition from pay as you go to fully funded is in place. It has been successful, and the provisions in Part 2 repealing the provisions for residual levies make that very clear.

This bill provides for those levies to be discontinued by Order in Council, reflecting the fact that residual liabilities will continue to fluctuate as they do, and the decision to discontinue will be taken at a time closer to the time when that judgment can be made with much more certainty. The second objective is to ensure that the payment of those levies continues only as long as there are outstanding liabilities to be offset. I think that is pretty much all there is to say about Part 2. The repeal of provisions relating to residual levies is uncontroversial, in our view, but it is something that it is worth taking satisfaction from as it shows that the process of transition has been successful and that we have a sustainable funding system for ACC.

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

The CHAIRPERSON (Hon Trevor Mallard): I think it is fair to say that we have had debate on all of the debatable points and the House is now in a position where it can make a decision.

Motion agreed to.

The question was put that the amendment set out on Supplementary Order Paper 123 in the name of Sue Moroney to Part 2 be agreed to.

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

Ayes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Noes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Amendment not agreed to.

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

Ayes 95

New Zealand National 59; New Zealand Labour 32; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 26

Green Party 14; New Zealand First 12.

Part 2 agreed to.

Clauses 1 to 3

SUE MORONEY (Labour): At this point in the debate, I want to focus my contribution on clause 1, the title of the bill, which is, as we have mentioned before in the debate, the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill 2015. I think we have alluded a number of times already to the fact that the Labour Party absolutely agrees with the title of the bill. We wanted a bill that would do exactly that. But, unfortunately, the course of this debate and some of the votes that have been taken, particularly in Part 1, show that the Government is not really prepared to be transparent, and we would say that the opportunity to get true financial responsibility into this bill was lost when the Government voted against the amendment that would have delivered exactly that.

How can the Government argue that it is financially responsible to allow a situation in which ACC levies can be collected for purposes other than accidents and injuries? If Government members believed that to be the case, they would have voted for my amendment. My amendment did simply that. It made sure that in the ACC levy-setting process only matters to do with accident compensation could be regarded and considered. Yet the Government has failed to support that initiative. That tells me that the financial responsibility and transparency that is set out in the title of this bill has not truly been there as this bill has passed through the Committee stage.

I want to ask the members opposite to tell us how they believe it was financially responsible for the Government to use the current provision for the public interest to be taken into regard when setting ACC levies—how it was financially responsible to use that provision in the legislation—to allow more than $350 million to be collected in ACC levies that was not needed? It was demonstrably not needed in 2013, when the then Minister for ACC, Judith Collins, ignored the recommendation of ACC and set levies at a higher level because, in her words, the Government wanted to get to surplus. That was transparency. Judith Collins was proclaiming loud and clear—and was probably proclaiming quite proudly—that she, as the former Minister for ACC, was using the ACC levy-setting process for purposes other than accidents and injuries, other than treating accidents and injuries, other than preventing them, because those are the right purposes.

The CHAIRPERSON (Hon Trevor Mallard): Order! I am going to do again what I have done previously. This is a very narrow bill. It is prospective, not retrospective. The history has been well covered in the first and second readings, and, as a result of that, this is very narrow now and the member, in getting historical, is outside the requirements.

SUE MORONEY: Thank you, Mr Chair for that direction. The point that I will come back to is that the Government and the Minister have missed an opportunity to truly make good on the title of this bill—the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill—because if they had really wanted to stay true to the title of the bill, then they would have supported that amendment. After all, what it did was seek to clarify ACC levies when they are being set through the new provisions that this bill brings in—that is, the Minister setting out a funding policy direction before ACC even gets to think about it. This is the process that ACC needs to go through in its consultation process with regard to setting levies. This is the way that the Government gets to determine what the levies are at the end of that process, and it would have been financially responsible to make sure that levies could be used only for the intended purpose.

I think that the members opposite—the ones on the Transport and Industrial Relations Committee, actually—expressed to us that that is what they believed the use of the public interest process was for. It was for making sure that if there were a disaster—and we have had them: the earthquakes and the Pike River mine disaster—there would be the ability for that to be covered.

PHIL TWYFORD (Labour—Te Atatū): I know that it is a bit trite and a bit of a cliché, in this stage of the Committee of the whole House, when we are getting on to the title clause, to litigate the precise words in the title clause and to suggest what the bill should more properly have been called. In this particular case, it does tempt the speaker—in the case of a bill where the very title of the bill is a provocation to any sense of integrity about the process of naming bills.

The very use of the words “financial responsibility and transparency” in the bill title is such a blatant attempt to repair, by bringing in a bill that purports to introduce a set of principles and processes for the good management of ACC and to introduce more financial responsibility and transparency, the political damage that has been done by the Government’s handling of the Accident Compensation Corporation. As we have rehearsed in this debate, no sooner had the bill gone to the Transport and Industrial Relations Committee and, as Jonathan Young so candidly explained, no sooner had the Insurance Council shown up at the select committee and expressed some reservations about this, did we see some pretty rapid back-pedalling from the very principles that underpin the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill.

There was back-pedalling and dilution of the principles of financial responsibility and transparency, so they are no longer required of the Government. This is the difference between treating a stop sign or a red light as a rule or as a mere suggestion, and, in this case, the changes that have been made in the select committee—the last minute watering down that is coming to be a bit of a behaviour pattern with this Government—basically suggest that those core principles that are enshrined in the title of the bill are a suggestion or a guideline rather than a requirement. So it would be much better if the bill were called the “Accident Compensation (Financial Responsibility and Transparency If You Feel Like It) Amendment Bill”, because that is basically the guts of what this bill does. It sets down some useful principles. It delivers transparency that is long overdue—and that is why we are supporting the bill—but, unfortunately, the Government has significantly weakened the provisions of the bill, and, as a result, it is delivering a lot less than it could have.

Hon DAVID CUNLIFFE (Labour—New Lynn): I believe that this bill should be named the “Accident Compensation (High Time They Paid Back) Amendment Bill”, because in the Budget debates of both 2014 and 2015, it was clear, from Treasury advice, that there has been a surplus on the ACC accounts, and Treasury has recommended to the Government that that be returned to taxpayers in a transparent and equitable way. This bill finally goes some way towards achieving that aim, but it is worth noting in passing that at Budget day, the Government’s accounts for both of the last two Budgets would have been seriously worse off—seriously deeper in deficit—had these surpluses not been held on the Crown account to try to achieve surplus. Even then, of course, history has shown that that was a vain hope—a forlorn hope—and surplus was not achieved.

Let us reflect, in the title and commencement part of this Committee stage debate, on a specific point that goes to the solvency position in Part 2, which we have previously traversed. When changes are made to the cost structure of payments under ACC, to payment rates, or to the way that claims are managed, and when that impacts on the operating balance of the fund, that balance is then magnified, through the actuarial process, into the valuation of the fund. In turn, it is that actuarial valuation that, as you know, shows up changes in gains and losses on the Crown’s operating account, and those can be big numbers. It is not without cause that a Government of the day might wait—when those numbers are bouncing around between positive and negative—for a period of time to allow the trend to be clear. What has happened in this case, however, is that the waiting has gone on for at least 2 years longer than officials recommended was necessary. So we welcome this part of the bill—Part 2, essentially—because the earners account as of December 2014 was at close to 130 percent of fully paid; 130 percent. In January 2015 it was 121 percent. In February 2015 it was 128 percent. The work account was up to 140 percent, trending to 141 percent, and those numbers are just too high.

The other name that is tempting for this bill is the “ACC Financial Return Off The Backs Of Suffering Kiwis Bill”, because I have had—and I am sure, Mr Chairperson, that you and others have also had—cases of people who have been the subject of ACC reviews coming in. I can still picture one woman who came into my electorate office and could barely walk. She could barely walk, and she had been thrown off ACC after a period of time because the injuries to her legs were deemed, retrospectively, to be a pre-existing condition.

I will come back to the bill. The reason for this example is that the individual case decisions affect the cash flows, which affect the operating balance, which is then magnified into the actuarial surplus—

The CHAIRPERSON (Hon Trevor Mallard): This is a lovely long bow, but I think the member had better come back to the bill.

Hon DAVID CUNLIFFE: In the end, those are human circumstances. Those are New Zealanders—they could be the family of anybody in this House or out there—who, through no fault of their own, have come across an accident or hard times, and there is the debate about how that is interpreted and how onerous or punitive the review system should be.

I think most Kiwis are fair people. They want a review system that does not allow rorting—

The CHAIRPERSON (Hon Trevor Mallard): OK, the member will resume his seat. He has again taken—I think I indicated it—quite a long bow to this. This is not about the review system. This is quite a narrow debate on these clauses. This speech would have been a wonderful speech at the second reading or the introduction, and it is probably relevant on the third reading, but not in the technical stage now.

Hon DAVID CUNLIFFE: Thank you, Mr Chairperson, for your guidance, and I will reflect upon that. I had thought that one was allowed, in the title and commencement clauses, to summarise some of the arguments that the previous clause-by-clause parts of the Committee stage had touched upon.

The CHAIRPERSON (Hon Trevor Mallard): If they had done it relevantly, yes.

Hon DAVID CUNLIFFE: I would have done, had I been lucky enough to get a call on the previous part—thus, the summary has occurred under the title and commencement clauses. Be that as it may, I take your guidance.

We support the passage of this bill in the Committee stage. We do it with reluctance in respect of Part 1 because the transparency has been watered down. We do support Part 2. We think that the legislation is overdue. It has been several years now that this payment has been due to New Zealanders. Thank goodness it is finally happening.

CLAYTON MITCHELL (NZ First): Thank you, Mr Chair—it is the quick or the dead before we stop for some dinner very shortly. I will be doing my utmost to stay standing throughout these proceedings and to make sure that I stay on cue. I think that the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill would have to be far more aptly renamed the “Accident Compensation (Financial Compensation For Those Overcharged And Sincerely Sorry) Amendment Bill” for New Zealand First to be able to support it as it stands here today. Nothing of what we have seen in here redresses the issues that have been going on for a number of years—the overcharging of ACC levies to those small and medium sized businesses, and, in fact, to all businesses and people involved around the country. That is one of the biggest issues that we have some severe issues with.

I think the other apt name that we could actually come up with, in light of how quickly this has been turned round through the select committee and been rushed through Parliament, is the “Whiz, Boing, Bang, Bounce Amendment Bill”, which, of course, was a game that we used to play in the surf lifesaving movement when we were young kids and which is a very fast paced game. That would certainly summarise the speed at which this bill has been brought through all stages to be here in front of us today. Without any further ado, Mr Chair, I bid you a farewell and a thankyou.

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

Ayes 109

New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 12

New Zealand First 12.

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 agreed to.

SUE MORONEY (Labour): I move, That the Committee divide the bill into the Accident Compensation (Financial Responsibility) Amendment Bill and the Accident Compensation (Residual Levies) Amendment Bill, pursuant to Supplementary Order Paper 124.

The CHAIRPERSON (Hon Trevor Mallard): The question is that the motion be agreed to. Those who are of that opinion will say Aye—

Sue Moroney: Is it a debatable motion?

The CHAIRPERSON (Hon Trevor Mallard): Yes.

Sue Moroney: I am seeking the call, Mr Chair.

The CHAIRPERSON (Hon Trevor Mallard): Well, the member did sit down. Have I put the question? I think I have. Yes, I have.

Sue Moroney: I think you were halfway through.

The CHAIRPERSON (Hon Trevor Mallard): I am going to ask for just a little bit of tolerance on the part of the Committee because I might have done this a little bit quickly. I am going to seek the leave of the Committee for Sue Moroney to take a call on her motion, which she is entitled to do because it is debatable, and I may have cut her off. Is there any objection to that? There is no objection.

SUE MORONEY (Labour): I do want to take just a short amount of the Committee’s time to explain why I have put Supplementary Order Paper 124 forward in my name. It is a little unusual. It is normally the Minister in charge of the bill who seeks to divide the bill but on behalf of the Labour Party, I am seeking to divide the bill for this purpose.

Increasingly, it has become a tactic of the Government to put forward bills of which the Opposition will support one part but not another. This is the situation that the Labour Party finds itself in with regard to this bill. We are strongly of the view that Part 2 should proceed, and we have voted in favour of Part 2. So we are seeking for Part 2 to be divided off as its own separate bill—as its own entity—so that we can bring forward our full support for that bill at the third reading. However, we do have some strong objections to Part 1. That is the reason why I sought to amend Part 1. The Government may have felt that it was some sort of political trickery that the Opposition was up to, but, in fact, what we were trying to do was to actually strengthen Part 1 and to make it the sort of bill that we could truly support. We attempted to do that by putting forward an amendment that would make it absolutely clear that ACC levies, in this financially responsible and transparent way, could not be used for any purpose other than to treat injuries and accidents or to prevent injuries and accidents. After all, that is the purpose of the Accident Compensation Act, which this bill amends, and we were simply wanting to clarify that.

The Government has blocked that clarification. It probably has its own reasons for doing that, but it certainly has not explained them to this Committee. This leaves the Labour Party in the situation where we are not in support of Part 1—we have voted against it—but we are in support of Part 2. That is the reason why I have sought, on the Labour Party’s behalf, to divide the bill so that the parties across this Parliament can express what they firmly believe in with regard to the two quite distinctly different parts of this bill. It is a tactic that we find the Government is using more and more frequently. It puts some measures into a bill—sometimes it calls them an omnibus bill—that it knows the Opposition does not want to support, alongside ones that the Government knows the Opposition will want to support. I want to make that very clear by dividing this bill into two distinct parts, as two distinct bills, so that the Labour Party can express its votes appropriately when it comes to the third reading.

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

Ayes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Noes 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Motion not agreed to.

Bill to be reported without amendment presently.

Bills

Passports Amendment Bill (No 2)

In Committee

JOANNE HAYES (Third Whip—National): I seek leave for all parts of the Passports Amendment Bill (No 2) to be debated as one question, with each part to be voted on separately.

The CHAIRPERSON (Hon Trevor Mallard): Is there any objection to that process? There appears to be none. We will go that way.

Parts 1 and 2, schedule, and clauses 1 and 2

ADRIAN RURAWHE (Labour—Te Tai Hauāuru): You would be hard-pressed to find anyone who disagrees with extending the validity of passports from 5 years to 10 years. We did, in the Government Administration Committee, receive some contributions and submissions that asked that the extension be extended by a further 9 months, and that was because some countries that New Zealanders visit obviously have a minimum amount of time that they expect to be on the passports. I think most countries have 6 months. To get the full benefit of a 10-year passport, people have asked for that. I commend the Minister of Internal Affairs for bringing the bill to the House. The 5-year period for passports has been very unpopular, and extending it to 10 years is most popular. Extending it before Christmas to 10 years is even more popular. I think it is important to acknowledge that.

But it is not just about the extension of passports; there are other measures within this bill that has been brought to the House. It increases the validity period of refugee travel documents from 2 years to 5 years to bring it into line with the qualification period for refugees to be granted citizenship. So the bill amends that. There are a number of other things within the bill as well. I would describe this bill overall as being about bringing the Passports Act 1992 into the 21st century.

I want to touch on the electronic recording of information on the passports database. This is a really important thing to bring us into the 21st century and to align us with other countries. It allows both the Department of Internal Affairs and passport control to be more effective in executing what is already in place. To cancel a passport, the department has to make all the necessary efforts to advise the passport holder or the travel document holder that their document has been cancelled, but flagging it on the passport database system means that if the department is not able to contact that particular person, it will still be flagged. That is an important thing if someone is avoiding being contacted.

This bill also removes a number of outdated sections within the Act. They were up to date in 1992, but today they are out of date and no longer applicable. Those sections are now being removed under this bill.

I want to speak a little bit about the fees—particularly the forecast for the fees from 2021. We have clauses in the bill that make the setting of the fees—and I am speaking to section 40, “Regulations”, replaced by clause 34. Section 40 specifies that fees can be set by Order in Council. The original expectation, the original decision, by Cabinet was that the fee would be set at $225. I do not know—I might have got that wrong. It was suggested that $225 be the fee, and then Cabinet, I understand, has approved that the fee be set at $180. The current fee for a 5-year passport is $135, and the actual cost of processing the passport application is $404, so it does not take a great mathematician to work out that this is not going to be sustainable without future Governments making the decision that the applications for passports are such an important thing for New Zealanders.

I mentioned in my second reading speech that this was something we would need to look forward to for New Zealanders, Kiwis, who apply for passports that are not only for travel. I talked about passports being used for identification. More and more people and organisations or Government agencies do ask their clients for identification. You cannot get a better ID than a passport, I would suggest—in particular, a New Zealand passport. If the forecasts are correct, then when we get to 2021 there will be a need for a huge injection of funds into the future processing of passports. There are a number of other improvements that this bill also carries out.

As I said, in terms of the electronic flagging, these systems are acknowledged within the bill so that these processes that we have in the 21st century are able to be processed effectively. Particularly, not only for those who have their passports or travel documents cancelled or suspended, there is a higher ability to track all of those by doing this electronically. That is all I have to say on this part. Thank you.

Hon DAVID CUNLIFFE (Labour—New Lynn): It is a pleasure to take a short call in this Committee stage of the Passports Amendment Bill (No 2). In so doing, I want to acknowledge both the Minister of Internal Affairs, the Hon Peter Dunne, for bringing this bill to the floor of the House, and also two distinguished colleagues, the Hon Phil Goff, with whom I recall having a discussion about whether we would support the 10-year extension a year or two ago, and the Hon Trevor Mallard, who, as our internal affairs spokesperson, has championed the cause of the 10-year passport.

With that, may I turn our attention to the substance of the bill. This is the Part 1 debate—Part 1 of the bill.

Iain Lees-Galloway: Go through the whole thing.

Hon DAVID CUNLIFFE: Go through the whole thing? Well, my point to my learned colleague was actually virtually the same point, which is that 95 percent of the bill is contained in Part 1, so we would expect this part debate to be tantamount to the whole thing and to be relatively broad ranging.

So let us firstly go to the principles that underlie this extension. It is essentially that the technology, and the security thereof, has advanced to the point where there is no greater risk to the travelling public or to the Crown from issuing a 10-year passport as opposed to a 5-year passport. Therefore, it is, logically, in the interests of the public to have the convenience of not having to renew their passport every 5 years when a 10-year passport is possible. I do not think there would be too many people in the listening public who would disagree with that principle being applied, and that is why the Committee is unanimous, or near unanimous, in support of this bill.

However, the complexity arises at the level of detail—not so much the drafting detail, I think—and although there are a few technical subclauses here, the intent of the bill is clear and it has been worked through the select committee process. But the main debate turned on the issue of costing. The argument is at several levels. The costing provisions, of course, are within this. The Government is holding the cost lower—and we support it—than the original Treasury modelling would have predicted. I turn to the regulatory impact statement on page 12, titled “Part Two, Cost implications of ten-year validity passports”. In paragraph 65 it says “Using current modelling, passports would cost either $199 for a five-year passport, or $274 for a ten-year passport.” Treasury further advised that the fiscal cost of holding the price down to $200 for a 10-year passport may be in the order of $200 million over time, which is a big number, and I will come back to that issue in a second.

But let us just take a moment to reflect upon the difference between the $199 and the $274. The marginal cost of production of a 10-year passport one would assume to be small or negligible, relative to the cost of production of a 5-year passport. They are essentially the same type of document with the same type of technology embedded. If the Government can explain the difference—I see the Minister of Immigration shaking his head. We look forward to him taking a call, or perhaps Minister Dunne may take a call and explain the difference. What I suspect has gone on is that officials have taken the fixed-cost component of running the Department of Internal Affairs’ overheads and defrayed that over a smaller number of transactions because members of the public are having to take out fewer passports because they last longer. So it is a fixed-cost spread—a management accounting fiction, if you like—that has led to this result. That is why I actually support Cabinet’s decision to keep this cost down.

One of the roles it is currently my privilege to play in this place is as the chair of the Regulations Review Committee. We have a couple of matters live before the select committee that we are addressing ourselves and, in one case, with the help—which is public knowledge—of the Auditor-General’s office, looking at the question of whether departmental overheads have been correctly charged in respect of fees for service, or whether, by loading fixed overhead departmental costs into them, they are, in fact, a disguised tax.

What I would call on the Minister to do now, for the purposes of clarity—and this is not because we disagree; we actually agree with the Government’s stand here to keep the cost down—is to explain exactly why an almost identical passport document that has a 10-year life costs $74 more, on this calculation, than the same document with a 5-year life. Is it because it has got five more pages or seven more pages and the pages cost $10 each? Is it because it has got a stronger binding that is designed to last in your bag for another 5 years?

Meka Whaitiri: Tougher glue.

Hon DAVID CUNLIFFE: Tougher glue? Is there a better-quality insignia or some flash, hidden electronic innovation embedded deep within the fibres of this high-tech passport that has bumped the cost up to this extent?

Or is this another example of officials building in departmental overheads to the point where business as usual in the department carries on untrammelled even though there is lower demand for the product? If that is the case, then I would commend Cabinet—I do not say this very often—for making a decision to intervene and keep the cost down. That is what the Labour Party supports—New Zealanders being able to travel with the convenience and security of a 10-year passport at a reasonable cost—and we are not convinced by the cost methodology that is contained in the regulatory impact statement.

If I may come to the broader point, embedded as it is, in Part 1 of this bill—and recognising that this is a Committee stage—to reflect upon Treasury’s estimate, which I assume is an estimate over multiple years, of a $200 million additional cost to keep the price down to $200 a passport, against an earlier estimate of $400. Those are obviously round numbers, but it does bring us back to the issue of whether this Government is being prudent with taxpayers’ money. There are some examples that are not unrelated that have caused New Zealanders to question that. The first is the $26 million on the flag—

The CHAIRPERSON (Lindsay Tisch): Order! That has got nothing to do with this bill.

Hon DAVID CUNLIFFE: Well, the flag is embedded in the passport.

The CHAIRPERSON (Lindsay Tisch): No.

Hon DAVID CUNLIFFE: All right. That is why I said “not unrelated”. So I will not mention the $140,000—

The CHAIRPERSON (Lindsay Tisch): No.

Hon DAVID CUNLIFFE: And I will not mention the $11 million—

The CHAIRPERSON (Lindsay Tisch): Order! The member is testing my patience on this—[Interruption] Order! I made it very clear, as the previous presiding officer did, that we would come and just focus on the bill. So just focus on that.

Hon DAVID CUNLIFFE: Thank you, Mr Chairperson, and I will take your guidance on that matter.

If we look at the departmental disclosure statement, it has gone through the normal round of questionnaires—yes/noes—and it has provided the further information that we would expect. It is embedded in the regulatory impact statement, and we have been discussing part two of that—page 12 onwards—and we have addressed ourselves to the cost. I see that on page 14 of that document the costings that we have referred to for the required Crown revenue requirements for reducing fees for 10-year passports are set out: $13 million for June 2017, rising to $32 million for June 2023, $43 million for June 2024, $46 million for June 2025, and $41 million in 2026.

That is a substantial amount of revenue, but at the end of the day it comes back to my earlier point. It is only accurate if the departmental overhead costing, the management accounting of this exercise, is accurate. If those estimates are overblown, then this revenue position is overblown. Far be it from us to come to the Government’s aid, but putting these provisions aside for future cash flow will, of course, not help the Government reach its ascribed target of reaching surplus because it will be carrying an additional deficit of $20 million to $40 million a year from this revenue projection, which may not be fully necessary, depending on the validity of the overhead allocation methodology in that cost accounting. I would ask the Minister to take a call and describe to the Committee the degree to which Cabinet turned its mind to that issue in deciding to keep the fees down. Was it that Cabinet was prepared to inject that $200 million, or did it not actually believe the department’s estimates? I do think these things can be a little, shall we say, elastic.

May I conclude by just summing up where I began. Labour strongly supports this change to a 10-year passport. I commend the Minister. I also commend my colleagues Phil Goff and Trevor Mallard for bringing this to the House.

Hon PETER DUNNE (Minister of Internal Affairs): Can I take just a very brief call in response to the matters raised. I am not going to traverse the ground of who supports the bill and who does not support the bill, because there appears to be universal support for it.

The issue that the member who preceded me, the Hon David Cunliffe, raised related to how the financial arrangements for the new structure have been arrived at. I think there are two broad points that I would make. Firstly, Cabinet in its consideration of this measure did ask some very serious questions of the department about the structure of its accounts, and, as a consequence of that discussion, the price tag of $180 for the new passport, the 10-year passport, was struck. The member is correct—that does not run in line with the advice from Treasury—but I think it is fair to say that the Government was of the view that some challenge could be put to the department about the way in which its finances were structured moving forward.

The second point that I would make is a historical one. Passports are one of those areas that are funded out of a rather quaint device within the Government called memorandum accounts. It is fair to say that the passport memorandum account had been operating at a historical deficit. So in terms of reaching a new arrangement, account had to be taken of how that historical deficit would be eliminated, what a reasonable price was moving forward, and what sorts of measures might need to be implemented to manage that situation as we go through. So they were the drivers of the decision.

We arrived, at the end, at a point where although this is a consequence of the bill and, I concede, not part of it, if you took the annual cost of a 5-year passport compared with the annual cost of the 10-year passport, the advantage is considerably on the consumer’s side with regard to that passport. It is true that these will be reviewed from time to time. All Government charges are to be reviewed from time to time. My personal view arising from this experience, and one or two others I have been associated with in a similar vein, is that the mistake we make is not to review those charges frequently enough, and consequently we get to the point where big increases are needed to bridge gaps, rather than small, more moderate ones. But, be that as it may, that is another debate.

The point I simply wanted to respond to was that raised by the previous speaker as to how this is structured, what the Government’s ongoing view is of the figures that have been presented to us, and what response we are seeking from officials. I think it is fair to say, as with all forecasts of Government expenditure—the member used the term “elastic”, and I think that is broadly correct. They need to be challenged constantly, and will be as we move through this process over the next few years. But I am satisfied that the methodology adopted this time was correct. I am satisfied that the decisions we have reached are the correct ones, and I am satisfied, as I think the member conceded in his final remarks, that we have arrived at a position that the vast majority of New Zealanders will support.

My only—not so much frustration, but the only point I am encountering anxiety on at the moment is that having brought the date of implementation forward to 30 November, there are a number of people who are saying: “So I can apply for my new passport now to get it on 30 November.” Actually, it does not work that way. You draw a line in the sand which says 30 November—and you can apply for your passport, and I make two points as I close. If you apply for your passport in the good old-fashioned manual way, it will take about 10 working days to get you your passport, so you will certainly have it for Christmas. But applications online are dealt with in a much shorter period—2 to 3 days. Roughly about half of all passport renewal applications are online at the moment. We would encourage people to take the online process, and if they are going away quickly for the Christmas holidays, that may be the way to take advantage of the new system.

POTO WILLIAMS (Labour—Christchurch East): I rise to take a call on the Passports Amendment Bill (No 2). Mr Chairman, I just call upon your ability to give us a bit of latitude in that given we are speaking to all parts, this debate might be quite wide ranging and we might be traversing through several parts of the bill. I hope that will be appropriate in this regard.

I want to speak specifically about some clauses in Part 1. I will start with clause 8, which amends section 5 of the principal Act, and deals with the life of the passport. Of course, we are moving the expiry of our passports from 5 years to 10 years. A little bit of the history behind that—the passport life, the termination or the expiry date, was moved to 5 years in the first place due to public pressure around perceived security threats, particularly after 9/11. Although those threats are still evident, I think that in terms of our ability to deal with them we have much better technology and knowledge, and a lot of those perceived threats are now no longer apparent, so the need to have the faster turn-round of passports is now diminished.

We are now in a situation where it is appropriate to have 10-year passports. I know that there is inconvenience in having to renew passports sooner, but 10 years does pose some problems at the other end when we are talking about advances in technology. We know how quickly technology moves, and we know that the introduction of the electronic passport, the e-passport, for example, has had a relatively quick take-up. So it has some significant advantages, and one of them, which one of our previous speakers raised, is around cost savings from not having to renew quite so quickly.

But we have also been considering the actual cost of the document itself and the level of subsidy that might be required to keep it within a level that is appropriate for many people to access. A passport is an important document to have. It is certainly a foundation document for anyone to use as identification, not only overseas but also in New Zealand. So we would be really encouraging the accessibility of passports for all New Zealanders.

Clauses 10, 11, and 12 deal with the cancellation of passports and the matter of how that might be recorded, whether it is done electronically, whether the passport is required to be returned in a physical form, or whether the passport can be cancelled without the actual physical document being seen. This is a vastly improved situation, and it will add, I guess, to security issues in that one knows that the passport has been cancelled. It is noted electronically. This requires a high level of trust in our databases, but it is possible to do so. So that just provides some added security that passports have been cancelled correctly.

I also want to talk about new section 11A, in clause 14, which deals with the warnings on the New Zealand travel document database. The Minister can actually record on the database when there is an indication that a warning is required. That may be when a travel document is to be recalled under the previous clauses that I mentioned earlier, or when it is to be cancelled due to a court order. If this is with regard to a court order, that could cancel the document.

I also just want to make mention of the fact that in clause 24 we talk about the refugee travel documents, which can be cancelled by the Minister if the refugee is making the appropriate declaration. I also want to make a point about the United Nations High Commissioner for Refugees and the requests that are made to the UN high commissioner around appropriate identification documents. I know the difficulty for some citizens, particularly those from places like Somalia, who have issues with gaining appropriate identification documents. This bill does not necessarily deal with that, but, in principle, it is an opportunity for us to discuss the importance of identification documents and the difficulty we have. Mr Chairman, I do not want to take too much more of your time. Thank you very much.

CLAYTON MITCHELL (NZ First): I had to race back down here to make a call on New Zealand First’s behalf on the Passports Amendment Bill (No 2) to get it through the final Committee stage before it goes to its third reading. I understand that we are under some sort of urgency. In fact, in the second reading New Zealand First made it very clear that we would have loved to see this piece of legislation put through the fast-track system and almost done retrospectively, like we have seen earlier on in the year with some of the other legislation that the Government has put through. However, we acknowledge that the Minister of Internal Affairs has brought that date forward now to 30 November, and I think that that can absolutely be heralded as a good thing for New Zealanders. I certainly am one of those intrepid travellers who enjoy having the use of a passport. Like many New Zealanders who have got one, mine will be running out shortly and I will be replacing it with a 10-year passport.

I think the bill would be more aptly named as the “Passports Extension Amendment Bill”, simply because the title Passports Amendment Bill (No 2) does not really give the idea of what it is all about. Although you can never judge a book by its cover, it certainly is quite nice to get a book that you can get from its title some sort of direction. So, to that end, I think it is quite important to get that name right.

We do support this bill wholeheartedly. Back in the early 2000s, when, of course, we had the terror attacks on 9/11, New Zealand First was one of the parties—in fact, the only party—that was in opposition to shortening the time frame. In fact, a lot of the countries around the OECD did not reduce their passports’ time frame from 10 years down to 5 years. Of course, by the time you have put in the 6 months’ travel document time, it actually was only a 4½-year travel document. So to have it put up to 10 years is a very, very good thing to do.

I have already acknowledged the Hon Peter Dunne for the pricing of this passport. We understand that it was going to be considerably a lot more when it went to Cabinet. To get it down to $180 is a reasonable step forward. We do have some concerns about the subsidised amount of $200 million. We are hoping that that is not going to be levied on to the passports in the future, which could see these passport documents rising to $400 by 2020 or thereabouts. That would give some serious concern. I think that what we need to be looking at are ways to offset those costs. It could be as simple as reducing the number of pages. Certainly, as far as a user-pays system goes, it is the right way, but that is going to cause some serious concerns about making travel affordable for the average, everyday Kiwi, who enjoys it so much. The biosecurity measures that have been put in place are another great step forward to bringing New Zealand into the 21st century with regard to its passports.

I do not think there is a lot that can be added to everything everybody else has said today and in previous discussions. We certainly would like to see this legislation sped through the final reading so that we can actually start getting those applications ready for New Zealanders to apply for a 10-year passport from 30 November. Thank you.

IAIN LEES-GALLOWAY (Labour—Palmerston North): It is a pleasure to be able to speak in this Committee stage of the Passports Amendment Bill (No 2), for which I appreciate the intervention of the Government whip in making this an all-questions, all-parts debate.

Looking through the legislation, the first thing that is kind of remarkable, in a way, and worth commenting on, I think, is that it has come back from the Government Administration Committee with just one change. That in itself is reasonably remarkable. It was, certainly, a shortened select committee process, and I think that all of us in Parliament were reasonably comfortable with that. This is a change that the public was very keen to see Parliament make in a reasonably timely fashion, and I understand that the committee’s deliberations on the bill were reasonably brief.

So the fact that there is just one change is remarkable in and of itself, but the fact that it is a change to the commencement date, to bring the commencement forward—I do not know that I have seen that before, actually—demonstrates the height of efficiency on the part of the Parliament. I think it is something to be applauded and I congratulate the select committee on bringing the commencement date forward. I know that there will be a lot of people—and the Minister mentioned this—who are travelling over the summer period who will appreciate the commencement date coming forward slightly.

I had a quick look at some of the submissions. Since there were no changes made to the bill, I was interested to see whether any of the submissions requested changes to be made to the bill. One thing that did appear to come up was around this issue where for a lot of countries, when you apply for a visa or if you are entering a country, your passport needs to be valid for a period of time. Often it is 6 months, sometimes longer. That, in effect, shortens the length of the life of a passport. If you are coming towards the end of even your 10-year passport—say, there are 4 months left to run on it—you, effectively, need to apply for a new passport to be able to travel to a number of jurisdictions because of that issue.

I noticed that this came up in some of the submissions, especially around the question of—if you do apply for your passport in advance of expiry, your next passport will then last for 10 years from the point at which you apply for that next passport, not 10 years from when your current passport expired. That again, effectively, shortens the life of the next passport. I wonder whether that was something that the select committee gave consideration to and, if it sought advice, what advice was given about, obviously, why that was not a desirable change to make, because by my reading of it, as a member who was not on the select committee, that kind of change was not made at the select committee although it is a valid point.

It is less important with a 10-year passport. If you are looking at it in percentage terms, it is less important with a 10-year passport than it has been with a 5-year passport. A 5-year passport, effectively, is being reduced to a 4½-year passport. That is quite a significant reduction in the life of them. But still, nevertheless, it was a valid concern that I know was raised by people who submitted to the select committee, and yet the bill came back with just the one amendment around the commencement date.

The most important part of the bill, the bit that everybody is going to focus on, is the lengthening of the life of a passport from 5 years to 10 years. But it also makes a number of changes that, essentially, I suppose, bring the legislation around passports into the 21st century, into the digital age, and that acknowledge that a lot of the data that is associated with passports is maintained in electronic records. The fact is that it is actually possible to cancel a passport through electronic means. You do not have to actually have your hands physically on the passport to be able to cancel it. That is simply a recognition of modern-day reality. These are functions that are available to the Department of Internal Affairs and to the Minister of Internal Affairs that are useful, especially given that you may want to cancel a passport that is in the hands of someone who is overseas. I note that there are also some changes around the ability to extend powers to the overseas issuing officers in London and Sydney, for instance.

So, overall, this is a good piece of legislation that the Opposition has been happy to support. There are some question marks around the fees, but ultimately we appreciate and accept the explanation that was made by the Minister around that. We appreciate that for a while there, there was a suggestion that the fees would have potentially been significantly higher. The Government, I think rightly, saw fit to step in to ensure that we did not see—I saw numbers along the lines of $400 being charged for a passport. That would have been prohibitive to people, and we do not want to see passports being something that is a luxury for people. This is not just a travel document but an important identification document that should be accessible to everybody, so that was the right decision on the Government’s part to step in there and ensure that New Zealand passports would be accessible to most people.

I am very happy to endorse this legislation and I encourage members to vote in favour of it—I suspect that everybody is.

Part 1 agreed to.

The question was put that the amendments set out on Supplementary Order Paper 115 in the name of the Hon Peter Dunne to Part 2 be agreed to.

Amendments agreed to.

Part 2 as amended agreed to.

Schedule agreed to.

Clause 1 agreed to.

Clause 2 agreed to.

Bill to be reported with amendment presently.

Bills

Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill

In Committee

Clause 1 Title

The CHAIRPERSON (Lindsay Tisch): We now turn to the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. The question is that clause 1 stand part. I will just remind members that this is a clause by clause debate, and the clauses are very narrow.

Hon PHIL GOFF (Labour—Mt Roskill): The Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill is a short and straightforward bill, and the clauses are actually interdependent. There are two main things that it does: it amends the Tariff Act and it amends the notes to the Tariff Act. First of all, what it does is enable preferential tariff rates to be applied to the Republic of Korea, and this is in order to implement the free-trade agreement that was negotiated earlier this year in Seoul. It also allows for transitional safeguard measures to be applied if there is a surge in imports and there is a danger to New Zealand producers.

It is important to say that the tariffs that apply to the Republic of Korea are currently low, and they are few. If I were to find a couple of examples, we would be looking at things like washing machines and car tyres, which have a tariff of 5 percent. What we know about a tariff of 5 percent is that it is not much protective help at all to New Zealand industry. It is easily traded over, and the removal of that tariff is not going to have much impact on any New Zealand enterprise—most particularly, because the free-trade agreements that we already enjoy with countries like China have taken away those tariffs, and if the industries were at risk, then they would be at risk from much larger trading entities than Korea. The transitional safeguard mechanisms are there in case there is a surge in imports that would devastate a New Zealand production line. Although we have put these in all of our free-trade agreements for as long as I can remember, I do not think that we have ever evoked those safeguard mechanisms, so they are not going to be of great importance either. In essence, the argument with the clauses that are under consideration is that they will do no harm to New Zealand manufacturing, but, by contrast, the removal of many tariff lines imposed on New Zealand exports to the Republic of Korea is quite valuable to our exporters, as well as to Republic of Korea consumers.

Let us just take a look at some of the examples of what the trade-off is for giving preferential access to Korean goods. For example, wine is a growing export to Korea and it currently has a tariff of 15 percent, and that will be gone on entry. Obviously, if we get this bill through the House as quickly as possible, we will have the removal of tariffs immediately and then we will have the removal of tariffs at the beginning of the next calendar year, so there is some importance in passing this legislation without delaying it unduly. Then you have lines of New Zealand exports that face much higher tariff levels than that—for example, the kiwifruit industry, which faces tariffs of 45 percent. Our main competitor in the Korean market is Chile, and its tariffs have been phased out altogether. So you can see the competitive disadvantage that New Zealand kiwifruit exporters are under. This agreement will be of real benefit to them. Butter has a tariff level of 89 percent; it will be phased out over a 10-year period. Cheese has a tariff level of 36 percent; it will be phased out over a 12-year period. Wood has a tariff level of 10 percent, which will be phased out over 10 years. And salmon has a 20 percent tariff level, which will be phased out over 4 years.

The estimates that the select committee got on the value of the removal of tariffs was, I think, from memory, about $68 million in savings to New Zealand exporters in the first year. Ultimately, the savings would amount to around $229 million per annum. The essence of these changes is that this is a deal that is worth having. That is not because it will give us competitive advantage. Unlike the New Zealand - China free-trade agreement, we do not have first-mover advantage. This is actually about catching up. It is about catching up with the other major exporters into Korea, which are competing with New Zealand exporters and have already got a free-trade agreement and the benefits that we have negotiated in this deal. These are major countries like the United States, Australia, Canada, China, the European Union, the ASEAN countries, and Chile. These are countries that will be able to defeat our ability to get major exports into Korea if we do not get this agreement through.

Having given that praise to the agreement, I have got to say that in my mind it does not meet the definition of being high quality and comprehensive, which the free-trade agreements with China and then Taiwan did. I regret that. This is not just a personal opinion; I think it is the opinion of Russell McVeagh, which is an expert in this area and has said that those expecting this agreement to achieve results similar to those with the free-trade agreement with China will be disappointed. I think we are bound to say that as well as the winners that I have just elaborated on, there are losers in this. The losers include milk powder, where there is a tariff level of, I think, 176 percent, which continues for those exports that are out of the quota. The quota will go up, but there will be milk powder exports that are paying a phenomenally high tariff level.

There is frozen deer velvet—75 percent of our exports of deer velvet to Korea are frozen, and Korea is our biggest single market. It still has a 15 percent tariff, and there is no move to take that away in the changes that come out of the free-trade agreement. Fresh abalone and frozen squid face 22 percent tariff lines, and, again, they appear to remain in perpetuity in terms of our exporters of those goods to Korea.

So those things will be disappointing, and I am not saying that the Minister in the chair, Tim Groser, has not done his best. I have absolute confidence that he has done his best on that deal, but it is a step down from the agreements that we got with China and with Taiwan. Having said that, I think it is important to take what is on the table. Korea is the fifth-largest market for our exported goods to other countries. It is a trade that over the past 5 years or so has been growing at around 10 percent per annum. It is a large market—51 million people. It is an increasingly affluent market. It is also the world’s 13th-largest economy and eighth-largest trading country. So as well as the advantages of some of the primary commodities that I have mentioned, there are advantages in terms of our export of manufactured goods. I would instance aviation, medical devices, precision engineering, and marine manufacturing. There are advantages in the service sector, and to education, legal, and other professional services.

When you weigh up the pros and cons of the deal, you come to the conclusion that if we do not take this deal, we will become increasingly uncompetitive in the Korean market. We would be foolish not to take the deal on the table. I think that any party that is considering opposing this deal has got to get up and explain why we should walk away from something that is of real net advantage to New Zealand. The Labour Party will be supporting this measure. I think that some of the opposition, certainly in submissions, came as a result of this deal being a surrogate for the Trans-Pacific Partnership agreement and in opposition to investor-State dispute settlement provisions. Actually, we do not need these with Korea. You need investor-State dispute settlement provisions when you are investing in a country that does not have the rule of law—where our investors cannot enforce their contracts through the court and judicial systems of the country under which they are operating. Nobody has ever made that suggestion of Korea. Korea does have the rule of law. We actually do not need investor-State dispute settlement provisions in this agreement and the only reason that they are in there—when we quizzed officials on this, they said that they are there at the insistence of the Republic of Korea.

The investor-State dispute settlement provisions follow closely those that we put into the ASEAN and China deals. Over the years—and it has been 7 years since we negotiated that deal and I signed it in Beijing—we have not had any problems. Those provisions are carefully drafted so as to leave room for the New Zealand Government to legislate in the public good in areas like the environment and health. Provided that we do not discriminate between our trading partners, we are unlikely to get into trouble.

Labour supports this deal. We have got a proud track record of negotiating free-trade agreements, but we oppose one aspect of the bill, and that is—

The CHAIRPERSON (Lindsay Tisch): Order! I am going to take a point of order in a moment, but before I do, when we are in a clause by clause debate, we have to follow the clauses as per the bill. [Interruption] Order! Although it is good background material that you have given us, clause 1 is actually the title, and in a clause by clause debate, we actually have to speak to the clause. I know what is going to come—[Interruption] All right, I did not want to interrupt your 10-minute speech because it was very informative, and it certainly set the scene.

TIM MACINDOE (Senior Whip—National): This will come as the surprise of the century. I seek leave for all clauses of the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill to be debated as one question, with the votes on each clause to be taken separately.

The CHAIRPERSON (Lindsay Tisch): The question is that all provisions of the bill be taken as one question for the purposes of the debate and that separate questions be put at the end. Leave is sought for that purpose. Is there any objection?

Hon Phil Goff: Can we apply it retrospectively?

The CHAIRPERSON (Lindsay Tisch): No. All right, there is no objection.

Clauses 1 to 8

Hon DAVID CUNLIFFE (Labour—New Lynn): It is a great pleasure to take a call in the Committee stage of this Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill and to convey, again, Labour’s strong but somewhat qualified support for the bill. Mr Chair, in the time that you allow me I intend to, firstly, recap on several of the principles that my colleague the Hon Phil Goff has attested to, to note the substance of the deal, firstly, in terms of the tariff reductions on goods trade, and then to touch briefly upon services and investment issues. I want to dig into the investment matter both in its own right and in comparison with the China free-trade agreement, and, finally, I want to look at the investor-State dispute settlement provisions as they relate both to this bill and to the sequence of events in the relationship between the China agreement/disagreement and the current Trans-Pacific Partnership agreement negotiations, so far as we are able to be aware of them.

In terms of the principles, let me restate what my colleague the Hon Phil Goff has just said. Very clearly, Labour is an internationalist party. We have a strong and proud tradition of supporting free and fair trade. It was Labour that initiated and negotiated the China free-trade agreement, for example, and we have, throughout, supported the Government’s work in this negotiation and in other free-trade agreement negotiations. I think that that is a very important and national interest - driven position, as well as a principle-driven position, for us to underline, particularly when we get to a later debate about the Trans-Pacific Partnership agreement, because we attest that that is not just a free-trade agreement but a behind-the-border economic and governance agreement as well, and for that reason a broader debate is necessary.

Let us turn briefly to the advantages of the bill to New Zealand. In doing so, can I acknowledge the work of the officials and the quality of the national interest analysis that has been provided, which, although not long, is nice and specific and quantitative—and not all national interest analyses are—and this one is useful. For example, the reduction of goods tariff shows that tariffs on 48 percent—or $793 million—of New Zealand’s current exports to Korea will eventually be eliminated. There is a time-scale where over the first 5 years, 67.4 percent will become duty-free; over 10 years, it is 79-odd percent; and at the end of 15 years, 97.8 percent of current exports to Korea will be duty-free. That is clearly of value to New Zealand. It is of real, bankable value to our exporters, not only in agricultural goods such as dairy, meat, and fruit and horticulture but across a wide range of products.

There are reservations; there are hold outs. It is not perfect—no deal ever is—but it is our contention that this is a deal worth having, and we commend the work that the Government and its officials have done in that regard. Of course, there are obligations on New Zealand, and they are not exactly symmetric. We start from a different position. We had lower tariffs from the get-go, so we, therefore, have less to reduce. Therefore, it is not illogical that the time frame for that reduction is shorter, with a maximum of 7 years.

There are various protocols and cooperation agreements that have been negotiated to provide some assurance to our Korean friends that the process of liberalisation will be measured, will be methodical, will be accountable, and will not be unduly disruptive. We do not think that those provisions are irresponsible. So, overall, turning to the trade and services provisions, we think that, although not complete, they are worth having, and the investment measures are where we have some qualifications.

Can I note, though, that there is a cost-cutting issue in respect of the measurement of services and investment flows that the Labour Opposition has repeatedly highlighted to the Government, which is that our department of statistics does not capture these in sufficient granularity. An example that is relevant is the Singapore closer economic partnership agreement, where it was postulated that New Zealand would benefit greatly from the services and investment flow gains, but may, in fact, in the short term at least, lose in terms of the goods trade balance, with the difficulty being that it was difficult to tell because our services and investment data—Mr Chairman, I am anticipating your finger poised on that—[Bell rung]—and right I was. Thank you for the opportunity to complete this speech.

The importance is that if we want to know net-net whether the New Zealand economy and the New Zealand taxpayer are benefiting, it is important that we modernise our statistics and capture the newer sectors, the high-tech sectors, the services sectors, and the spin-offs of the investment flows, including their externalities, as well as the relatively easy to measure flow of goods trade, which is volume times value minus the change in tariff level.

Let me turn now to the investment issues. In its minority report, the New Zealand Labour Party drew attention to a potential weakness here that we were not sufficiently assured by officials on. Although it is clear that the existing restrictions that we have to be able to limit, for example, the sale of New Zealand farmland or sensitive land can remain under the agreement, what is not clear is whether it would be possible to introduce new restrictions, for example, on the sale to non-resident foreign investors from the Republic of Korea of residential real estate—either a ban or a stamp duty, both of which occur in Australia.

There is mixed opinion about this. It is our strong hope that the Government will be able to do some form of clarifying instrument, such as a side letter. I ask the Minister, if he would, please, to perhaps take a brief call on that matter and provide some indication, firstly, of the Government’s understanding of the position—because this is important in relation to other potential trade agreements—and, secondly, whether it has in mind to undertake any form of clarification, to the extent that the Government agrees that there is some lack of clarity. It is important for our sovereignty, particularly where we have something like a tremendously overheated Auckland property market—

The CHAIRPERSON (Lindsay Tisch): Order!

Hon DAVID CUNLIFFE: —and high levels of actual inbound migration, that we are able to manage the investment flows such as could be liberalised under this agreement. We need to preserve the opportunity for future regulation.

That brings me to the third major area of debate. It is not sufficient to cause us to withdraw our support from this agreement, which overall, although not perfect, is one worth having. I repeat that, and we repeat our commitment to free and fair trade. But, as my colleague Phil Goff said, we are concerned about the use of investor-State dispute resolution mechanisms. That, in common language, is where a corporation can sue the New Zealand Government in some form of tribunal that is not a Government forum and that is outside the normal rule of law in the partner countries. It is Labour’s contention that those investor-State dispute settlement—ISDS, as they are called—provisions can have some value where we are trading with, for example, a developing country that does not have a well-developed system and where New Zealand companies are not assured of the rule of law. So we are not saying we are opposed to investor-State dispute settlement in all cases. However, we do not believe that it was necessary here because, frankly, the Republic of Korea does have a well-developed legal system, and the risk of extralegal appropriation of New Zealand property rights we would deem to be pretty low.

Why that matters is that there is a sequence of negotiations that started with the China free-trade agreement, where we had a much cleaner and more robust investment provision and where there may have been more cause for investor-State dispute settlement, and we are now embarked on the Trans-Pacific Partnership agreement negotiations. I know that you are counselling me to stay within the confines of this bill, Mr Chairman, albeit all parts are being taken as one, but I do believe that it is a highly relevant matter to Labour’s support of this bill that we have considered whether we could still support it because of concerns that both the investment chapter and the investor-State dispute settlement provisions could be read in such a way as to tilt the Trans-Pacific Partnership agreement outcome to a point where we could not support it. That, in such an important call, would be important.

I do want to just set down the balance that we have struck between support for this agreement and our very important set of five bottom lines around the Trans-Pacific Partnership agreement: that Pharmac must be protected—

The CHAIRPERSON (Lindsay Tisch): Order! The Trans-Pacific Partnership agreement is not part of this debate.

Hon DAVID CUNLIFFE: I take your guidance, Mr Chairman, and I will narrow the scope, but in doing so let me repeat that we had to consider—

Hon TIM GROSER (Minister of Trade): I want to take a brief call, really, of a political nature while there are senior Labour Party members in the room to record my personal appreciation of the really constructive approach that they have taken. As they would know from many private conversations I have had with the senior members of the Labour Party and the Labour Opposition and also from a series of public comments, I have been assiduous in recognising the huge contribution previous Labour Governments have made to the promotion of New Zealand’s getting a fair deal in the world, and I will not change that position.

At the same time I recognise—because we have a very, very tough Chairman here I will not refer to the elephant in the room—that we are looking through this debate to a much bigger debate that we will have. Out of respect for the Opposition, I am taking nothing for granted. I do appreciate that in some corners of the constituencies that you represent there are reservations of quite a serious nature on aspects that are being debated—in my opinion, often with wild exaggeration—but it is part of the political process.

So I am not making any assumptions here, but I do want to record the Government’s appreciation for the very constructive position Labour has taken on this. I will not go over the little argument we are having over whether or not any measure that, not this Government, but a future Government may take in respect of residential property would or would not be ruled out. I think there is some ambiguity here between our readings of the agreement that is unlikely to be clarified any time soon.

That aside, I do want to acknowledge that this is not a perfect agreement. I do not imagine New Zealand will ever negotiate a perfect agreement. It is a complete paradox to me that somehow New Zealand has been able to get higher-quality agreements negotiating by itself than it has when it has had the ostensible support of much, much more powerful countries. It is simply not explicable by any rational political logic that I have ever understood, but it is a fact.

When you look at the high-quality agreement the previous Labour Government achieved in China, although it is not perfect—there are still quotas on wool, and there is a safeguard mechanism that, had the negotiators and the Ministers of the day, Mr Jim Sutton and Mr Goff, been able to see with perfect clarity, maybe we would have got a slightly different deal, but nevertheless, the China deal is an excellent-quality deal. In a very unique set of circumstances, the comparable arrangement that our representatives—I am choosing my words with great diplomatic care—were able to negotiate with Taiwan is, again, an extraordinarily high-quality agreement, and yet in both cases we have tiny New Zealand doing it by itself, up front, ahead of the pack.

It is a very interesting political thing to reflect on: why we have got what is still a good agreement—there is no doubt in my mind that this is a good agreement—but it is not of the same pristine quality that the China and the Taiwan deals were. The reason is that we were following in the political wake of very large countries that, for a set of reasons it is probably not sensible to speculate on in public, seem to have a somewhat different and less rigorous approach to these negotiations. So there we are.

I think this agreement will hold us in very good stead, but I do want to emphasise one aspect of agreements, of which this is one. When, finally, we got this over the line, after 5 years of literally tortured negotiations at every level—prime ministerial level with the Presidents, two or three of them; ministerial; and our senior officials, who are absolutely world-class negotiators—I was always conscious that the happiest people in New Zealand were the kiwifruit producers. I think it deserves—as I reach the 6 o’clock deadline—just a second of reflection on why, because it does have a broader application, Mr Chairman, and I will be very careful to watch your admonitions.

It is not only a question of new opportunities, which this country will need for the generations that will succeed us, but it is also about protecting existing trades. There is no doubt that had we not finally managed to break this impasse and get this agreement through on kiwifruit—I forget exactly how important a market Korea is, but it is a very important market for New Zealand kiwifruit—those trades would have been thrown out of that market. They were under massive pressure. So the one thing I would ask members of the Committee to recall when they sit down and look at this agreement or future agreements is this: you have to consider the costs of staying outside. Thank you.

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

FLETCHER TABUTEAU (NZ First): Thank you for the opportunity to speak on the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. I just want to take this initial opportunity to speak to a suggestion from Mr Goff that New Zealand First members, amongst others, must explain themselves on their stance on opposing this legislation. I say to Mr Goff that the first and foremost reason for opposing this legislation is consistency. New Zealand First has been consistent on the position of investor-State dispute settlement from the start. This is a piece of legislation that would enable the enactment and the agreement of the free-trade agreement between New Zealand and Korea, and in that trade agreement there is the investor-State dispute settlement provision. For some reason the Labour Party has decided for this one it is OK but for the Trans-Pacific Partnership agreement it is not. I say that New Zealand First has been consistent.

The Minister of Trade himself spoke about this trade agreement having need for the arising of this legislation, and spoke about the lack—or not so much a lack, but the fact that this was not the finest work of the negotiation team. He acknowledged it, but he said it was the best that they could do. But in the discussion highlighting some of the issues that Mr Goff raised, the Minister spoke about the ambiguity of the readings of the parts and the interpretation of the schedule of exclusion and the appendices. So I just want to raise that point because just between the National Government and Labour there is ambiguity about the interpretation of the trade agreement. If you have it here, imagine if you have international corporates looking for ambiguity in this legislation and trying to use it to create a rort for their own benefit. They will find confusion.

We know, and we have consistently said—and we have not done so in isolation—that this is an issue for much of the trading world. The investor-State dispute settlement is a mechanism outside justice, outside New Zealand’s legal system, outside the World Trade Organization system, for example, and outside the jurisdiction of the international corporate’s home jurisdiction. What I am saying there is the tribunal arising from investor-State dispute settlement exists outside mainstream legal systems. That is why it is called a tribunal. The process of passing this legislation tonight enables these international corporates to use investor-State dispute settlement, an undemocratic principle outside legislation. It enables the rorting of democracy.

I just go back to what the Minister said about it not being a quality agreement. I just want to raise the point that this is a catch-up trade deal. We did not go in with the first-mover advantage. This National Government has been in catch-up mode with trade in South Korea for its entire term. It does not seem to have wanted to do anything about it until now. There have been a few years of negotiation, I acknowledge, and now we are at this point. But what we seem to have created in this process, in terms of a languishing process, is that for some reason it has now become appropriate to accept lesser terms of trade, and I point to the trade of milksolids as the prime example. I am talking about our primary industries, where you are talking 65 percent or 64 percent of the New Zealand economy. You are talking about a significant portion of our exports overseas, and milksolids being a significant portion of that.

We are told by this National Government that this trade agreement is a good one and that, therefore, we need this legislation to enact it, but the reality is that it applies after approximately 20,000 tonnes of trade. I acknowledge that that will be adjusted over time, but after that current figure, which is a small figure—it is a small amount of milksolids being traded to South Korea. It was spoken of before as one of the reasons why it was not a high-quality agreement. You are talking about a 176 percent tariff being introduced on a fundamental component of our exports with the rest of the world, and especially South Korea. So it is very, very hard for anyone to stand up tonight and say that this is a good trade deal.

Another part of this agreement was around seafood. The reality is you are talking about 33 percent of our seafood industry being tariffed at approximately 15 percent, essentially in perpetuity, as with the milksolids. New Zealand First has said from the start that just because we are in catch-up mode, just because we were not a first mover and this Government has languished in terms of discussions around trade deals, that does not mean that we should have given those trade parts away for our core industry. It is not really acceptable.

The other part of this trade agreement is that in agreeing to this, Labour—I have said it before—and this Government are allowing investor-State dispute settlement to become part of another trade agreement around the world with New Zealand in our trade with member countries. It is a rort. Europe is now investigating this as an issue. The Minister himself has spoken about wanting to now begin discussions with the EU, and I highly commend him for that. What the first part of the discussion should be is—because I would suggest to the Minister that we should be part of the first discussion around removing the investor-State dispute settlement provision from those multilateral or bilateral trade agreements, whatever the case may be, in that particular instance. We know, in that instance, that that trading partner, which we would love to trade with, is absolutely dead keen itself to remove the investor-State dispute settlement provision from its trade agreements also.

The Minister spoke about investor-State dispute settlement being necessary, as did Labour in this case. We have had reports out from the business community of late speaking about how they are not an attack on the sovereignty of our nation. They spoke about Third World nations and the need for protection when we trade, but they failed to respect the fact that Germany is hardly a Third World nation and Canada is hardly a Third World nation, and right now they are being sued under investor-State dispute settlement provisions with their trade partners that would presume to tell them that they cannot remove nuclear power from their countries or presume to tell them through legislation and legal suit that they cannot protect their environment. So the analysis is flawed. It does not acknowledge very real issues with investor-State dispute settlement, and the members on both sides of the Chamber need to acknowledge the very real threat that is investor-State dispute settlement. Thank you.

Dr SHANE RETI (National—Whangarei): It is a pleasure to speak to this amendment bill. I would like to speak briefly to a few points that have been raised by the Opposition—a few points that were mentioned by Mr Tabuteau here just a moment ago. He commented on the apparent loss of sovereignty, with Germany being unable to address its sovereign desire to change its nuclear position. I think that needs some clarity. Germany is in a dispute with Vattenfall, which is a Swedish company. Vattenfall is a party in the Energy Charter Treaty. Germany is also a member of the Energy Charter Treaty; we are not. That is a multinational arrangement to manage energy and power, predominantly for Europeans.

As I said, New Zealand is not a party to the Energy Charter Treaty, but the United Nations Conference on Trade and Development, in its February 2015 issue, speaks about investor-State dispute settlement tribunals and the fact that the greatest number of complaints or disputes now is against the Energy Charter Treaty. It used to be the North America Free Trade Agreement, but now it is the Energy Charter Treaty.

I think we also need to remember that the German Government is being sued, and being sued does not mean that the company is going to win. In fact, if we look at 356 cases that had been concluded through investor-State dispute settlements, there is only a 25 percent success rate. I would also comment that the Energy Charter Treaty, which Mr Tabuteau is alluding to, has a specific sovereignty clause in it. It is part IV, “Miscellaneous provisions”, article 18: “Sovereignty over Energy Resources”, and that clause states: “The Contracting Parties recognize state sovereignty and sovereign rights over energy resources.”

The second point I would like to talk to is the discussion around investor-State dispute settlements. It is about fairness—fairness that we expect to be able to demonstrate to people who work in our business environment, but, certainly, fairness that we want in return. For our people who are working in overseas foreign environments, we want fairness too. It is about fair and equitable treatment. “Fair and equitable treatment” through case law, through the tribunals, has several characteristics that have been defined. It must be consistent with international law, non-discriminatory, and non-arbitrary. That is what fair and equitable treatment talks about.

Some of the rulings have hinged on being “grossly unfair, unjust or idiosyncratic,”. That is not us. That is not the sort of environment we work in. This is from another case study: “Conduct that is arbitrarily grossly unfair, discriminatory, and exposes the claimant to sectional or racial prejudice.” That is not our business environment. New Zealand’s view on this is that the treatment should amount to “an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of Government action that is so far short of international standards that every reasonable and impartial person would readily recognise its insufficiency”. It is solely a fairness issue, and we include it in this agreement because we are fair to the Koreans and we expect them to be fair to us as well. I have no issues with it. Thank you.

DAVID SHEARER (Labour—Mt Albert): I am pleased to take a call on the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. Remember that this is not the treaty itself; this is the legislation we need to put through in order for this free-trade agreement to come into force.

I want to just pick up on a couple of points that have been made earlier. I want to start, rather unusually, with where Tim Groser left off when he was speaking before, which was to look at what we miss out on if we do not enter into these free-trade agreements. It is one thing to say that we should not be part of a free-trade agreement with Korea because it is not the perfect free-trade agreement—and it is not the perfect free-trade agreement; it is a very good one, but it is certainly not the perfect one—but the point is, what do you miss out on?

Let us take a good look at some of those things that we would miss out on. The 45 percent tariff would not come off kiwifruit over a period of 6 years. If I was an MP residing in Tauranga or around the Bay of Plenty, for example, I would have thought that was a pretty important sort of thing to get through for the farmers in Tauranga. Or, if I happened to be the MP for Northland, where a lot of kiwifruit are grown up there as well, I would have thought that that was a pretty important tariff to have removed so that those kiwifruit farmers are able to sell their kiwifruit into Korea without having to pay a 45 percent tariff. That means that the price does not have to be discounted at the expense of the farmer, but, over a period of 6 years, effectively, profit would increase. There is a second important point, because without that tariff going down it would mean that we would not be able to compete with Chile. Chile has had an agreement with Korea for a long time and it is able to sell its kiwifruit—an inferior product—into Korea and undercut New Zealand producers.

So if we do not have this free-trade agreement, those farmers in those areas will miss out on that funding. I would suggest, Mr Tabuteau, that that is particularly important if you happen to be living in the Bay of Plenty area or you happen to be the MP for Northland, which your leader is. So that is the first thing I would say.

The second thing relates to butter. The tariff goes off that—89 percent of the tariff goes off that over 10 years. That is an immediate benefit to dairy farmers throughout New Zealand. Thirty-six percent comes off cheese, 10 percent comes off wood products, 20 percent comes off salmon, and we could go on and on. If you have the industry representatives who came in and met before our Foreign Affairs, Defence and Trade Committee, you would hear from them that this has meant millions of dollars to those producers that will flow through their industry and will benefit thousands of workers—or, in many cases, a hundred thousand workers—directly from that. It is not the perfect agreement, but it is certainly a very good one.

There are some problems and they have been referred to—milk powder, for example. On some dairy products such as cheese and butter, the tariff rate will fall, but on milk products it is not as good as we would like. Likewise, with frozen deer velvet and with some seafood products. Why is that? This is a pretty difficult free-trade agreement to negotiate—and I want to acknowledge some of those negotiators who are here in the Chamber with us tonight—but when you add up the benefits to New Zealand, let us see why it is so difficult. Let me give you sort of an indication. What does Korea get out of this free-trade agreement? Well, we are the 41st - most important trading partner of Korea—the 41st - most important. You know, that is not exactly what you would call being in the top 10. For us, Korea is the fifth - most important trading partner—more important than the United Kingdom now, for example. Korea is a fast-developing country. It is just below us in the GDP rankings, but it looks set to overtake us in the coming years.

So what does Korea get out of this? Well, it gets a tariff reduction on Korean goods coming into New Zealand of $4.5 million—$4.5 million it gets in savings. How much does New Zealand get? Well, New Zealand gets $229 million. You are looking at that and you think: “Who’s getting the better deal here?”. Well, there is no doubt as to who is getting the better deal. New Zealand is getting the better deal, and that might perhaps hint at why this free-trade agreement was a little more complicated to get through and a little more difficult, quite apart from the fact that the Koreans are particularly—I do not want to use the word “obstinate”, but they are certainly difficult to deal with when you are conducting these negotiations. So the balance of benefits is firmly on the side of New Zealand, and I think it is partly because we are a leader in free-trade agreements and we are such a strong proponent of free trade that we were able to hold some of the moral high ground when it came to negotiating this particular agreement.

This agreement is very important to New Zealand. It is very important to us. There are some issues that have been mentioned, and I want to touch on those that I think are issues as well, and one of those refers to property rights. This was raised by Professor Kāwharu from Auckland University, who is one of New Zealand’s experts in free-trade agreements. She pointed out that under this free-trade agreement it will be very difficult for us to be able to, basically, stop foreigners coming in and buying residential land up, if we chose to regulate that. I think that is an issue that we need to be very cognisant about, and it opens it up, under the most favoured nations status, to other countries that we might have deals with, as well.

Lastly, I want to mention the investor-State dispute settlement provisions, because I think we have to put this in perspective. We have never been taken to a tribunal. We have never been brought in front of the World Trade Organization. The bar for this is incredibly high, as was just pointed out by Dr Reti. This is an aspect of the free-trade agreement with Korea that is highly unlikely to come into play because Korea has very good judicial institutions, and so does New Zealand. It would be likely that if there was any disagreement, it would be played out within the respective courts of either New Zealand or Korea. It is highly unlikely that it would end up in an investor-State dispute settlement tribunal, and even if it did, the chances of us losing that case are very, very low—84 percent of all cases taken against an OECD country have found in favour of the nation, rather than the private corporation.

I just want to say, in conclusion, that there are some issues around free-trade agreements and, certainly, as we look at the possibility of the Trans-Pacific Partnership agreement being signed, we must try to keep these in perspective in terms of the risks and the benefits—and the foregone risks, if we do not enter these free-trade agreements—to those producers and the manufacturers in New Zealand who will not gain access to markets and, as a result, will not add to the prosperity of New Zealand. I do think there needs to be a much better and more informed debate in New Zealand about free-trade agreements. I do believe that it is largely the fault of the Government for not exciting and, certainly, promoting that debate. I wish it could do more because we definitely need it when we hear the rather ill-informed comments and debate that we are hearing now, albeit with the greatest intent, and certainly the wish that they do the best for New Zealand. But I do think we need to have some balance in that debate.

With that, I would like to conclude my speech this evening by just saying that this free-trade agreement will go through tonight. As a result of that, there will be, effectively, a double whammy of 2 years added together and, as a result of that, a lot of producers around New Zealand will be a lot better off, as will a lot of New Zealanders.

TRACEY MARTIN (NZ First): Kia ora, Mr Chair. I want to just take a short call. I happened to sit in on the Foreign Affairs, Defence and Trade Committee when the negotiators came to brief the select committee on the workings of the Korean free-trade agreement, which the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill will enact—will enable. I want to stand and support Fletcher Tabuteau’s contribution with regard to New Zealand First’s position. I acknowledge the contribution by Mr Shearer. It is a trade agreement and it comes down to what you are prepared to trade off to gain access to a market.

What was most interesting to me, when the negotiators were there giving us a briefing at that select committee—I asked them a very direct question. I asked them what Korea had asked for, because, as Mr Shearer just pointed out, there are an awful lot of bits and pieces that New Zealand will see go into the South Korean markets but, as Mr Shearer—he put a figure of $4.-something million as compared with $200-something million for New Zealand. I asked the negotiators what it was that Korea had asked for, seeing as they got virtually nothing out of it. They got nothing compared with what New Zealand had been able to gain. The single thing they asked for was an investor-State dispute settlement clause. You have to ask yourself why would a nation, when we are 41st in their list of trading partners—we are not important to them necessarily, no matter how important they might be to us—ask for one single thing? They asked for an investor-State dispute settlement clause and then they gave us all these other little bits and pieces.

How can other members of this Parliament stand up and say that this bill, which enacts that agreement, has no effect—that trade agreement would have no effect—when Korea obviously sees the investor-State dispute settlement clause as vitally important? It is the single thing they asked for. I understand completely why Labour members stand up to support this agreement, because they could not argue not to. They placed an investor-State dispute settlement clause inside the China free-trade agreement and that agreement will be updated upon the application of this one. Upon the passing of the bill and the application of the Korean free-trade agreement, the China free-trade agreement will then be updated. Although we have had no problems at this stage with the investor-State dispute settlement clause inside the China free-trade agreement, now this one updates it. It updates the China agreement under the most favoured nation status.

So those things are important. Those are the reasons why this is what New Zealand First is standing for. Dr Reti may say that 356 cases have been taken to international courts under the investor-State dispute settlement clause and only—we are not sure where they get their numbers from—25 percent were won by the people taking those cases, but how much money was spent defending them? How much money was spent by nations defending themselves and their own laws and their ability to make their own laws in their own nations, let alone whether they win or not? How much did it cost? Because that is the point—that is the point. That is why New Zealand First will not support this bill. We will not support a bill that enacts a trade agreement that has an investor-State dispute settlement clause.

The fact that Labour members stand and support such a bill while at the same time carrying placards up and down streets against the Trans-Pacific Partnership agreement boggles the mind. How is that possible? How can the Labour Party stand and say that they are against one thing because of an investor-State dispute settlement provision and, at the same time, support this bill, which will enact the Korean free-trade agreement and will update the China free-trade agreement? So I hope that in this contribution I have made it very clear why New Zealand First—

Jami-Lee Ross: They’re not irresponsible like New Zealand First.

TRACEY MARTIN: —will stand against this bill, because what you trade off is just as important as what you trade for, Mr Jami-Lee Ross. It is a basic premise of accounting. It is the basic premise of accounting: what are you giving away for what you gain? From our perspective, this Government, supported by the Labour Party, is actually giving away more than New Zealand can afford in the future for a few crumbs from Korea and from China. Kia ora.

CLARE CURRAN (Labour—Dunedin South): Speaking in the Committee stage of this bill, I certainly agree with my colleague David Shearer that we need to keep this discussion in perspective. The three main comments that I would like to frame my first contribution around in the Committee stage on this bill are, first of all, to acknowledge that there were concerns—and they were the concerns of the submitters—and that there were genuinely held concerns. I also acknowledge the concerns being expressed by other Opposition parties in the Committee tonight. Concerns from submitters included those of the New Zealand Medical Association, the Council of Trade Unions, and academics. Those concerns did focus on the loss of sovereignty, especially in relation to investment rules and the investor-State dispute settlement clause in this agreement.

The one point that I would make on that, although there are other issues that I want to canvass tonight, is that this is a bilateral agreement, but the Trans-Pacific Partnership agreement is a multilateral agreement with a lot of other players, where those issues become much, much more important. That is an important point to make. I think that during my previous contribution on this bill I made the point that Labour will not blindly support free-trade agreements, as this Government seems to do, but we also will not blindly oppose them. What this party has previously done in Government is negotiate good free-trade agreements and point out the flaws, if necessary, where we oppose them.

I want to reference an article in the Australian Financial Review of last Thursday, which was the day after the new Australian Prime Minister appeared on the scene. Our Prime Minister John Key was interviewed by the Australian Financial Review. It was in reference to the Chinese free-trade agreement that has been negotiated over there. Mr Key waxed lyrical on this and said that although he thought that Australia should sign an agreement, it would be in New Zealand’s competitive interests if it faltered. He said that the benefits of the New Zealand trade deal with China were greatly understated before it was signed in 2008. He said: “I am a massive proponent of free trade, and the benefits of our free-trade agreement have been 11 times greater than the most optimistic estimates.” He went on and on. I would just like to point out that that agreement was negotiated by Labour and by Labour’s then Minister of Trade, Phil Goff. That is an important to point to make—that it was a Labour Government that negotiated the Chinese free-trade agreement and that Labour is sensible about free-trade agreements and in its approach to free-trade agreements.

There are problems with this bill. We do believe that there has been a botch-up around future Governments being able to introduce, for example, legislation relating to stamp duty on the purchase of land by foreign buyers. We, however, do say to the Greens that they are not right in saying, in their argument, that this free-trade agreement prevents us from banning in the future the sale of land through the Chinese free-trade agreement.

One of the other points I want to make is around the lack of engagement with civil society. Something that this Government needs to learn is that if you do not engage with civil society effectively and properly during these processes, then you are buying a fight and you are buying into a set of circumstances that is unnecessary. It creates consternation throughout the land. It can be dealt with in a much more trustworthy way that involves transparency and honesty and bringing along with you groups that can understand what it is that is being negotiated and why, rather than having them feeling as if they are being cut out of the process.

That is why Labour has clearly set down those five bottom lines, which we consider to be the most important when negotiating free-trade agreements, and that our support for the Trans-Pacific Partnership agreement is contingent on. Those are that Pharmac must be protected, corporations cannot successfully sue the Government for regulating in the public interest, New Zealand maintains the right to restrict sales of farmland and housing to non-resident foreign buyers, the Treaty of Waitangi must be upheld, and meaningful gains are made for our farmers in tariff reductions and market access.

I also want to turn to a provision in the Korean free-trade agreement that is before us tonight. It is around audiovisual co-productions. That seems like a sensible and interesting and good thing for New Zealand, around the ability for there to be more uniformity internationally among film and television co-production agreements. New Zealand already has a number of co-production agreements or arrangements with other countries. We have got them with Australia, Canada, Denmark, France, the United Kingdom, Germany, Singapore, Italy, Spain, Ireland, India, South Africa, and China—for feature films only—and Chinese Taipei. Since 1988 there have been 60 official co-production projects under these agreements. So there is potential for there to be greater arrangements with Korea around co-productions for audiovisual productions.

What I want to say is that we have got to be able to look after our own export industries and we have to be encouraging them in order for there to be trade happening. One of the concerns that I have got is around the lack of care and knowledge and investment in parts of our information and communications technology industry, and particularly around the video-gaming industry. This is one of the fastest-growing parts of our economy, with $78.7 million in revenue. Last year 83 percent of that was digital exports, which is incredibly high. There are high-value jobs, but there is very little investment inside New Zealand into that industry.

My question to the Minister in the chair during the Committee stage is whether, with this audiovisual co-production part of the bill before us tonight, the video-gaming industry is considered to be part of that. If so, should it then be eligible for the 20 percent rebate on visual effects productions completed in New Zealand under the Postproduction, Digital and Visual Effects scheme, which is the scheme that our movie industry is entitled to seek rebates on? The creative industries, of which video gaming is one, are one of the fastest-growing parts of our economy. Are they considered to be part of this part of the free-trade agreement? Are we considering that as being an important part of our economy that we should be encouraging co-productions on? If not, why are we not encouraging more growth behind our own borders? Why are we not giving that part of our economy access to a rebate? I would like to hear from the Minister on that.

JENNY SALESA (Labour—Manukau East): Thank you for the call to speak on the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. As the Committee has heard, Labour supports this legislation because it will substantially reduce the tariffs faced by New Zealand exporters to South Korea. Korea is our fifth-largest export market, so it is an important trading partner for New Zealand. The bill may be short, but its effects are wide and it sits upon some analysis—85 pages, in fact, of national interest analysis.

Labour is pro-trade. We recognise that free trade is vital to the growth and success of a small economy such as ours—one that suffers under the so-called tyranny of distance. In a globalising market place, we must fight for every advantage we can for our exporters and for our country’s future. Labour acknowledges the opportunities, and that there are some risks that free-trade agreements like this can bring. We are very proud, as the Labour Party, of the free-trade agreements that we previously negotiated—for example, the one with China.

Korea is a significant trading partner for us, and we have been on the back foot as exporters to Korea. However, the agreement under this bill will substantially reduce the tariffs currently faced by our exporters to South Korea, and it will put New Zealand on a more level playing field when competing with sellers to South Korea from other countries that have been paying substantially lower tariffs than us because their earlier trade agreements have already reduced their tariffs.

My electorate of Manukau East in South Auckland is a city at the epicentre of a housing crisis of monumental proportions right now. Thousands of young New Zealanders, particularly, and low to middle income groups of all ages, increasingly are tenants in our own country. Māori and Pacific people are the worst affected, but Kiwis of all ethnicities are indeed struggling to get into homes. Families are living in garages and cars because of escalating rents, and are descending into a spiral of poverty. Non-resident foreign buyers, especially in Auckland, are fuelling housing demand, which is pushing up prices to levels most New Zealanders cannot afford. It is essential that the housing situation and the dangers of the bubble we are in is acknowledged and that the heat is taken out of the Auckland housing market as effectively and as efficiently as possible.

However, I have some concerns about the effect that this free-trade agreement with the Republic of Korea may have on the ability of future New Zealand Governments to establish controls on the purchase of New Zealand residential land by overseas buyers, and on its ability to bring in a stamp duty on purchases of land by overseas buyers, for example. The Government has not done well by New Zealanders over this part of the agreement. The Government is potentially ruling out a way of dealing with the crisis. It has accepted terms that are out of step with free-trade agreements in place between Korea and Australia, for example.

A side letter should be considered for the free-trade agreement, to clarify the effects of certain provisions of the free-trade agreement with Korea. In our minority view, Labour noted that significant groups making submissions on this bill expressed very real concerns about the loss of New Zealand sovereignty, especially in relation to investment rules. There has been limited engagement with the wider public about the concerns raised in some of the submissions on this bill, which is quite disappointing. New Zealand must not trade away its sovereignty when signing up for free-trade agreements, and the public needs confidence that these deals are, indeed, in our country’s best interests. Thank you.

GRANT ROBERTSON (Labour—Wellington Central): Thank you very much for the opportunity to take a call on this Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. I want to start by picking up a point that the Minister of Trade, Tim Groser, made when he was in the chair earlier on in the debate. He was, I guess, raising the concern that Phil Goff raised in his earlier contribution as well, which is that although this is an agreement that the Labour Party supports and it is an agreement that undoubtedly has benefits for New Zealand, it does not, in the language Phil Goff used, meet the test for a high-quality and comprehensive trade agreement. The Minister was—although supporting the agreement—also reflecting that in his contribution when he bemoaned the fact that when we look at the agreements like the one that New Zealand has with China and also the one with Taiwan, we see agreements that, although not perfect, are closer to that ideal of a high-quality and comprehensive agreement.

The Minister posed the question as to why it was that an agreement such as this one with the Republic of Korea had not reached those heights. He was suggesting that it was because we were following on from larger countries in our negotiations with the Republic of Korea. He did not name them—he was actually quite careful not to name them—but it is in the national interest analysis, so I am not going to be creating a diplomatic incident by noting that it was Australia and the United States and others we were following on from. Mr Groser said it was a paradox of trade negotiations. I would suggest that this is a major issue for us as we look ahead to what happens for New Zealand in the negotiation of trade agreements. We were certainly fortunate at getting in first, as it were, with China. It meant that we were able to put the imprint of New Zealand trade negotiations on that agreement. I see in the agreement that we are dealing with today that we see elements of that New Zealand style. So the fact that there are side agreements on labour and the environment—very good side agreements on labour and the environment, which are part of this deal—is a sign of the New Zealand way of saying that it is about market access and it is about access for our providers of services but it is also about the issues that sit around the outside of that: how we treat workers in our workplace, what role we give to environmental standards in the way that we go about the businesses and industries that become the exporters that sell into these markets.

So I think New Zealand has a way of doing those sorts of negotiations that I think helps create good quality agreements, but it is a major issue for us—and I know the Chair will not want me to talk at any length about the Trans-Pacific Partnership—as we enter into these larger multilateral or plurilateral agreements that we ensure that their quality remains high. I think, from a New Zealand point of view—particularly, for instance, if we look at an agreement with the European Union, which is certainly one that we want to see happen—that we take into those negotiations the spirit of the way New Zealand does these agreements, rather than allowing ourselves to follow on from where there are different kinds of interests at play. Ultimately, let us be honest, when the United States enters into a free-trade agreement discussion, there are all kinds of interests at play in the background, which is different from the, I guess, “New Zealand Inc.” approach that New Zealand takes to these things. So I do not have an answer for the paradox that Mr Groser has posed, but what I know is that for New Zealand, if we behave in a New Zealand way, take a “New Zealand Inc.” approach, and have that broader set of issues built around our agreements, that helps to build higher-quality agreements.

Ultimately, we know that for New Zealand a large-scale global multilateral agreement is what would be the best thing, but we are miles away from that. So then we go looking for regional agreements, because that is the next step down. We are seeing, with the Trans-Pacific Partnership agreement, how difficult that is. So bilateral agreements—high-quality, comprehensive ones—are going to be significant and important for New Zealand, and we should continue to support those. Mr Chair, I want to pick up two or three things, and if you are gracious enough to give me another call after this one, I will get through them all. But one of the things I want to do is pick up the question of land sales and note the Labour Party’s concern, which was driven by advice that the Foreign Affairs, Defence and Trade Committee got about whether or not new categories of land could be added to the existing restrictions on the sale of farms and other sensitive land. This is not just about the fact that the Labour Party happens to believe that we should be, as my colleague Jenny Salesa just talked about—

JAMI-LEE ROSS (Junior Whip—National): I move, That the question be now put.

GRANT ROBERTSON (Labour—Wellington Central): A wise choice, Mr Chair. Picking up Jenny Salesa’s point about sensitive land, it is not just that the Labour Party does believe that we do need to apply tighter restrictions to non-resident foreign buyers—and we do, because we believe that that is a major factor in the house price inflation that is pushing New Zealanders out of being able to buy their house—but it is more, in this agreement, the principle that the Foreign Affairs, Defence and Trade Committee could not be sure, in its deliberation, that a new Government could introduce those restrictions, or, indeed, as Jenny Salesa said, a stamp duty.

We as a Parliament need to be very careful about passing through, in this case, a free-trade agreement that would limit a future Government from being able to do that. This is a legitimate area of public policy where there is a particular problem and a particular solution being proposed. We are very disappointed that the National Government did not heed the calls of the Labour Party members of the select committee and others that we take more note of giving the ability for a future Government to be able to make that kind of law and pass that kind of restriction.

On this side of the Chamber, we want to make it clear that it is our view that the Government should be able to do that. It is important, in terms of building public confidence in free-trade - type legislation, that we do not allow it to be portrayed as restricting a future Government from doing something that many, many New Zealanders today would want the Government to be able to do.

I want to say something about the whole way in which this agreement has been created in terms of relationships with civil society. On this side of the Chamber, you have heard from all of the speakers that the Labour Party remains committed to free and fair trade and that we understand the place of New Zealand as a trading nation. I think one of the ways in which this Government has completely dropped the ball is that it has failed to build any constituency in the public for that. It has let that go. Part of the reason for this is that Mr Groser is a very active trade Minister, to put it in a nice way, in that he travels the world, so he does not have a lot of time to spend in New Zealand talking to people about trade. But, actually, it runs much deeper than that. It runs much deeper than that.

The National Government has finally managed to get a free-trade agreement to the House. Woo hoo! Good on it. It finally got there with South Korea. The Minister of Trade mentioned that it was a torturous negotiation. Well, I am sorry that it was a torturous negotiation, but that is the extent of the achievement now—we have got this one agreement. But, in the meantime, public understanding, public confidence, and public trust in what we are trying to do with trade has dissipated.

The Trans-Pacific Partnership agreement is a whole different matter. When you read through the national interest analysis in this agreement, the Korea agreement, it is about market access. It is about services and the access of our services that is provided. It is core trade activity. The Trans-Pacific Partnership agreement is much bigger, much larger, than that. But the failure of the Government to engage properly with civil society on this really is very disappointing. We will not as a country go forward with a national consensus around trade in the absence of that engagement. We know from the Trans-Pacific Partnership agreement that there are strong concerns from groups like the Council of Trade Unions, which previously has been quite involved in the way in which we have gone about our trade negotiations, that they simply are not being talked to and the matter is not being discussed. We need a much better model for engagement with civil society so that we build confidence in trade.

Trade matters to New Zealand, yet the Government does not seem to want to spend any time engaging with the public about how those agreements work, what things should be in, and what things should be out. It is disappointing to note in the minority view put forward by the Labour Party that the advice from officials was that there was very limited engagement with civil society. That is simply not good enough in terms of what is such an important issue for New Zealand.

So the Labour Party will support this legislation. On balance, it is good. It does reduce significant tariffs. There are industries that will be able to flourish—kiwifruit being one of those in particular—out of this. It is not perfect. We are following on and getting not as good a deal as some of those other countries we are following on from in some areas—like services, for instance—and we need to look again at the way we go about that negotiation. But, fundamentally, this kind of trade agreement is one that is easier to support because it is clear about those benefits. The Government needs to take a good, hard look at itself and the way it has mucked up the Trans-Pacific Partnership agreement.

JAMI-LEE ROSS (Junior Whip—National): I move, That the question be now put.

STEFFAN BROWNING (Green): I rise to take a call on the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. The Greens are not supporting this bill. We would like to see fair trade rather than free trade. We have got a number of concerns with the free-trade agreement. There is no opportunity for Parliament to vote on the free-trade agreement itself. This bill is only the legislation around it. It deals with legislative changes such as the tariffs and there are a number of questions around those tariffs.

What really motivates me to get up is that every free-trade agreement that we seem to be involved with deals out some New Zealand producers, some New Zealand businesses, and some New Zealand wage earners because it is not even. If it was fair, it would be fine. It is good to see that there are labour and environmental provisions in this agreement, but they do not go far enough. It is still not an even playing field for New Zealand producers of those products that we may bring in from Korea, and that has been the case time after time after time. It is good that there are benefits—and I acknowledge that—for my friends in the kiwifruit industry, my beef farmer friends, and some in the dairy industry. But some of those—kiwifruit I think is one of the better ones—get the full benefit, I think, in about 5 years. Beef and dairy are light years away before they get the real benefits of this.

I notice that in 5 years’ time 67.4 percent of the things we are exporting are benefited by the agreement, in 10 years it is 79.3 percent, and in 15 years it is 97.8 percent. We are nearly there in 15 years. For Korea it is the other way round, and she is all over, Rover—a lot of it is already—in just 7 years. Then we have a number of product-specific rules, and I note that for rice and processed grains we had to accept more restrictive provisions for certain whole foods and products made from them. There are people in New Zealand who want those products. Why are we not getting the same deal as the US and Australia? I think we have sold out rather too easily, and I am concerned that our producers of products that we will allow in from Korea do not have to meet the same environmental or labour standards. Why should they not have to match that? Why are we not putting up our tariffs and things to make sure that our producers of the very same goods have an absolutely equitable playing field?

I was very concerned to hear that this bill updates the China investor-State dispute settlement provisions. Just wait and see as those provisions do bite us in the butt in time. We may not have a record of being sued just yet, but we all share the neighbours—like Australia, our friends in Europe and elsewhere, and South America and other countries—that have been subject to those provisions by the various corporates. Yes, this does not seem to be maybe quite as bad as what we can expect under the Trans-Pacific Partnership agreement, but it is still heading down that same track.

I note that there is quite a delay before beef gets the full benefit from any tariff reductions, and I wonder whether that is because we have got a bit of a bad track record selling beef over there. We had a shipment sent back when they found endosulfan residues in beef, and we nearly lost another one, and we then decided to get rid of endosulfan off the shelf. Would it not be good if the environmental provisions meant that we were actually producing the best product possible—organic-type products without any risk of residues in them? We would not need to be going out and selling ourselves into a weak outcome because we would have product that was absolutely top class and in demand as being the best in the world, the most favoured stuff, which is genuinely clean, green, and 100 percent pure. We would be getting good deals, and not because we have a track record of some rubbish that has been contaminated because we are a pesticide-focused country. This Government is doing nothing in this agreement here about making sure that we do not get residues back the other way either, but we are not doing anything else to make sure that we have got the best possible product and are getting the best, most favourable deals because we are absolutely at the top of the play in our primary production.

The Greens will be opposing this bill, but we really look forward to getting some fair trade in the future, rather than these free-trade agreements that are not actually fair. Thank you.

Hon DAVID CUNLIFFE (Labour—New Lynn): It is a pleasure to take a further call or, if you will permit me, Mr Chairman, two calls to try to round off some of the arguments on this very important piece of legislation. I wish to touch on the arguments that have been raised by the Green Party and several arguments that have been raised by the New Zealand First Party, and to revisit a couple of points that I made in my earlier intervention in respect of investment and investor-State dispute settlement issues.

Firstly, the argument from Steffan Browning, the member who has just resumed his seat, seems to be that a deal that is not perfect is by definition neither fair nor free. It is, I guess, axiomatic or inevitable that in any trade negotiation neither side can get 100 percent of what it wants. There must always be some concession to the other side because both sides have got things they want from the other, so there must be some process of trading.

I was privileged some years ago to visit Korea three times, and I have always enjoyed the sense of enterprise in that country. It has been very clear that the Korean Government made a decision that Korea was going to become a technology power and it was going to move its economy upmarket, with higher levels of knowledge and technology. So we have Hyundai, Samsung, Kia, and many other leading global brands that are either sophisticated industrials or technology leaders. Having made that decision, it became clear, I believe, to the Korean Government that it was to its advantage to lower the costs of some of its input materials, including soft commodities from New Zealand, and our government—with a small “g”—across successive parties in power has encouraged the Republic of Korea in that direction. From that understanding, this trade negotiation was born.

Did we get 100 percent? No, but we went into this negotiation with fewer tariffs up there to start with, and so, given that Korea is reducing its tariffs by more, it is not unexpected that it may take a little longer. So I disagree with our Green colleagues. I do not necessarily think that that means it is a bad deal. It is a deal worth having, and, I said earlier, the national interest analysis is specific enough to make that clear on the facts and on the numbers.

I would further like to say that it is easy for us politicians to call into question a negotiation of which we have not personally been part. Whoever is in power, I think there is a degree to which we have to rely on our professional negotiators to do the job that they are expert in. Several colleagues in this Chamber—Kennedy Graham, Grant Robertson, and myself—have all had direct experience in those roles. I do want to acknowledge officials who are here. It is probably not appropriate to mention them by name, but I am severely tempted. I will, I think, note the presence of Mr Martin Harvey, who I think played a key role in these negotiations and, in my experience, is a very able official indeed.

I am not prepared to say that this agreement was not a good deal. I think it was a very reasonable deal to have struck. However—and it is a big “however”—it does raise two important issues of principle and precedent that as I mentioned earlier, are germane to us as we conclude a broader and more complex negotiation around the Trans-Pacific Partnership agreement.

Let me turn firstly to the investment issue. It is common ground that the Australian Government probably has a more robust position in respect of preventing or restricting non-resident foreign purchases from Korea of domestic real estate. Australia has both a stamp duty and restrictions as to quantum and process. We do not have that, and there is—I think it is common ground—at best, ambiguity around how this agreement deals with that problem.

I would like to acknowledge Minister Groser, who spoke earlier, for turning his mind and his comments to that matter. It is possible, based on his take on it, that having reached the position that we are in, the Government believes that it is in a position to impose restrictions, at least in theory, and a more mechanical solution would not be in our interests in respect of other trade agreements. We hear that argument, but we do believe, and I think my colleague Jenny Salesa has expressed it very eloquently, that there are substantial—

KANWALJIT SINGH BAKSHI (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 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Motion agreed to.

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 agreed to.

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 agreed to.

Clause 7 agreed to.

Clause 8 agreed to.

Bill to be reported without amendment presently.

Bills

Construction Contracts Amendment Bill

In Committee

Debate resumed from 12 March.

Part 1 Amendments to preliminary provisions (continued)

CLARE CURRAN (Labour—Dunedin South): Thank you for the opportunity to take a call on what seems to be the long-running debate on the Construction Contracts Amendment Bill, which I think—I am just trying to refresh my memory as to when this bill first actually came before Parliament—has been through three different Ministers and a number of different iterations. Tonight we are faced with yet more amendments to the bill, which will need some elaboration by the Minister. I am hoping that he will take an early call on this bill, just to bring the Committee up to date with where he is up to as the Minister, particularly on the part of the bill that deals with retentions—or, as otherwise known to people listening to the debate tonight, the part that is really around the Mainzeal collapse clause of the bill and how the industry and subcontractors within the industry can be protected, and can be protected within legislation.

Can I say that Labour is supporting this bill. It appears as if, even though it has taken quite a long time to get to this place, we are moving to a place where, as we argued right from the very beginning, there will be strong provisions put within this particular piece of legislation to protect subcontractors if there were collapses in the construction industry, collapses of companies—that the subbies that flowed on from them who were owed money would actually be able to receive some protection. It appears, finally, that that advice has been listened to and this does appear to be in the bill. As to the questions that we do have around this, they will be around to what extent and how sensible the provisions are. That is what I am hoping to hear from the Minister as we go through the debate tonight.

But, ultimately, to recap, because it has been some time since we debated this bill—I think it was last in March, and that is when we started off the Committee stage of this bill—Labour supports the measures in this bill that speed up the resolution or the resolving of disputes in construction contract cases. We have worked pretty closely with the industry to try to come up with sensible measures that would be taken seriously by officials and by the select committee to make sure that subcontractors do not miss out on the money that they are owed when things go wrong. My colleague Clayton Cosgrove was responsible for the original Supplementary Order Paper, Supplementary Order Paper 439, which is still sitting on the Table tonight and which actually ensured that that happened, and it appears as if the Government has moved to make sure that that happens.

I note that I have been doing just a little bit of reading around this bill tonight and around some of the debates in the select committee that led to getting where we are. It was described by a law firm, actually, as “the long road to fairly minor reform”, which I think is quite apt, although the part to do with subcontractors and protecting them certainly is not minor. It has taken a long time to get the bill to this place and it is a feature of a lot of legislation that comes through this House that it sort of gets stuck and then disappears, sometimes for a year or two, before it comes back to the House for proper discussion. So I think it is important that we move it on and that we actually get it through the legislative process, and that this Construction Contracts Amendment Bill actually does become legislation and does see that there is—

Dr DAVID CLARK (Labour—Dunedin North): Look, Labour does support the measures in this bill, obviously, because we think that it is important to speed up the resolving of disputes in construction contract cases. If I think back to the meetings I have had with the industry in the time that this bill has been in Parliament, there is a real desire to solve this issue, and that is regardless of whether those people in the conversations are from the big end of town or the small end of town. I have had two quite separate sets of conversations about this topic, and certainly at the small end of town there is the concern about livelihoods, concern about the borrowing that has to go on sometimes to sustain businesses and pay employees, and concern about the fairness and justice of the system as it is presented.

At the big end of town there is a concern about the costs of measures that set up protection mechanisms and the fact that that will be borne by an entire industry, and there is a concern that that will push up building prices and, therefore, reduce the amount of activity that goes on in our country. These are, I think, tensions that sit in the system, and they are legitimate tensions to be debated and to be worked out. I want to congratulate those members who have brought this bill through the House, because it is an issue that needs to be improved on as we have seen with Mainzeal—that is the obvious example that is frequently cited. It is the subcontractors who are hit the hardest, but that does not take away from the issue of increasing costs on the industry and where those costs will fall. It is really important that there are no unintended consequences when the final deal is struck.

I am aware of some of the conversations that have gone on behind the scenes—Treasury and the Minister for Building and Housing are having a few differences of opinion on this and that—and that is healthy, actually. That is the kind of robust debate that we in this Parliament think ought to be happening, so I am glad that the Minister is having robust discussions, whether I agree with him on every point that he makes or not. I think that in this Parliament we should acknowledge that good process and good, robust debate are essential. We should also thank the officials who have worked on this and who have argued the principles, because we need a fair solution and we need a better solution than the one that we have now.

We supported the contractors’ liens option—that is the favoured approach of the Labour Party. We worked through with contractors in the industry to find out how they best thought these issues could be addressed, and that is the point that we came to as a party. We support the measures in the bill that speed up the resolving of disputes and construction contract cases, because that is something that sorts out the uncertainty and the uncertainty that carries costs, but we want to see more done to make sure that subcontractors do not miss out on the money they are owed when things go wrong. We need to take action so that the situation we saw with Mainzeal does not happen again. That is where we are coming from when we are discussing this bill and Part 1, where the main action occurs—the principle of making sure that there are speedy mechanisms and that there is something that is fit for purpose for addressing the obvious issues.

The second option that we considered was statutory construction trusts where money would flow through to a trust to ensure that subcontractors got paid first, should a construction company collapse. We know that these solutions apply to significant commercial—

Hon Dr Nick Smith: I raise a point of order, Mr Chairperson. I appreciate the contributions that the current speaker and the previous speaker are both making about the Supplementary Order Paper that addresses the retentions in Part 2. The contributions they are making are valuable. I wonder whether it would be helpful, so that we can actually debate the bill as one debate, to take leave for the debate to be on Parts 1 and 2 together, and then for them to be voted on separately, given that the major retention issues that members wish to discuss are in Part 2.

The CHAIRPERSON (Lindsay Tisch): Well, that is not a point of order. We will just let the member have his few seconds remaining, if he wishes—only a few seconds—and then if you want to bring forward a point of order, we can handle that then.

Dr DAVID CLARK: In the few seconds available to me, I would like to say that I think it is important to have a good, strong debate on Part 1. I know that I have got colleagues still wishing to debate that part, but we will make the call when the Minister puts the leave. Thank you.

Dr MEGAN WOODS (Labour—Wigram): It is my pleasure to take a short call on Part 1 of this legislation. Part 1 is a very important part of this legislation, in that it is where the definitions of a number of the issues that we are dealing with are very clearly laid out. As my colleagues who have spoken before me have mentioned, Labour is supporting this legislation. We think that it is vitally important that we get this right, and critical to getting this right are the provisions laid out in clauses 4 to 8A, which are where we are doing the definitional work. Some of the hard work that we see of the Commerce Committee was actually in its work when it came to consider much of the definitional changes that needed to be made.

If we have a look at the change that the select committee made to the definition of “construction site” in clause 5 of the bill as it relates to related services, this was in order to include the land where work is planned but has not yet begun. It is vitally important that this is captured so that work that may well be in plan but that has not yet begun is captured by this legislation. I think that this was a very important change that the select committee has made to clause 5 in Part 1 of this legislation.

If we then turn our attention to clause 6, this is where the amendment was made by the select committee to add operations that are critical to the completion of, or preparatory to, construction—the scope of design, engineering, and quantity surveying work—to the definition of “construction work”. Again, we have to have a very clear understanding of just what is meant by “construction work” when we go to consider the more principled parts of this legislation, which are contained in Part 2. So this addition—the scope, design, engineering, and quantity surveying work—is vitally important. We understand that that is part of the construction cycle, and in this way, we are making sure that we are offering the protections that are going to be offered in other parts of this legislation.

The select committee did not stop just there; it went through the definitions with a fine-tooth comb. When it came to clause 7(2), the commencement date for the Act applied to related services to 1 November 2015. So where it was sensible, there has been a staggering of the commencement of these provisions, as it made sense under the Act.

Then, of course, there is the work that the committee did to include new section 9(3), in clause 7, and new clause 32, which adds a schedule to the Act that makes it clear that the amendments proposed in this legislation would apply only to contracts entered into or renewed on or after the commencement date. This was a very important change that the select committee made. I think it is, of course, a principle of good legislation that we are not legislating retrospectively—that we are legislating forward, that we are changing the rules from the date of the commencement of the legislation, and that we do not have a retrospective bill. I think the change that the select committee made there to clause 7 was vitally important.

The last change that the select committee made to Part 1 of this bill was, of course, to insert new clause 8A, which excludes contract provisions for the sale and purchase of second-hand assets and property management when they are part of a contract that includes construction work. This was excluded from the Act, and there were deliberations at the select committee that made it very clear why this needed to be excluded from the Act. Although all of these changes may seem minor—and there may be a temptation, even, to gloss over them and not think them important—the key to getting this legislation right is having very clear definitions and having very clear definitions of what we are talking about.

I think the amendments that the select committee made that I have spoken about in my contribution tonight make it very clear just how important those amendments are. So when we are talking about amending “related services” to include the land where work is planned but has not yet begun, this is, of course, a very important part of the construction cycle. The planning is vitally important, and there is always going to be work to be done. So I commend the work that the committee did to clear up many of the definitions in this bill.

CLARE CURRAN (Labour—Dunedin South): Speaking specifically to Part 1 of the bill, I have a couple of questions for the Minister for Building and Housing on this. I too want to just refer initially to clause 6, with some further questions about some of the implications of the changes that were made at the Commerce Committee. In the commentary on the bill it says: “In the bill as introduced, clause 6 extends the definition of construction work to include design, engineering, and quantity surveying activities.” We in the select committee recommended amending this clause to add operations, and I do remember that there was a reasonably extensive discussion about this 2 years ago when this bill went through the select committee process.

The commentary also states: “We recommend amending this clause”—clause 6—“to add operations that are critical for the completion of, or preparatory to, the scope of design, engineering, and quantity surveying work. These ‘related services’ directly affect the quality of building work, and it would benefit consumers if they were covered by the legislation. We”—in the select committee discussion—“did not agree with the contention that extending the meaning of construction work would unfairly open up to adjudication persons who were not party to a construction contract.” I do remember that there were pretty extensive discussions, there were submissions on this, and we came to the conclusion that under the Act, any dispute that required adjudication would be between the parties to the construction contract.

What I would like to ask the Minister about—and I have been doing a bit of further reading about this subsequently—is the bill’s main purpose. It is about implementing stronger consumer protections, but it is also about extending the definition of “construction work” and, of course, the retentions reform, which we are going to talk about in more detail in Part 2. But the whole idea of broadening the definition of “construction work” to include the work of engineers, designers, and quantity surveyors—who are collectively consultants—still remains somewhat contentious. I do want to ask the Minister about this: although consultants are able to rely on the protections under this Act where their payment claims can be enforced as a debt due, there is a contention that it remains to be seen whether those benefits would outweigh the potential drawbacks of consultants being brought under the Act. For example, consultants might bear the brunt of the amendments proposed in the bill, which would remove the distinction between enforcing an adjudicator’s decision regarding payment and enforcing a decision concerning their rights and obligations, but it is also possible that adjudicators would be able to hear consultants’ negligence claims, and their decisions on such claims would be enforceable in the courts.

Some of the things that have not been defined in this bill are the terms “design”, “engineering work”, and “quantity surveying work”. They are not defined in the bill, and my question is: does the Minister have any concerns about the fact that they will end up being defined in the courts as opposed to being defined in this bill and is this an ambiguity that he has considered, and does he have any remaining concerns? I do remember that there was extensive discussion around this. For example, is the work that is carried out by project managers in relation to a construction contract caught out by the amended definition or not? So if the Minister is mindful of taking a call on this part of the bill and if he was able to address that question, that would be quite helpful because that is on Part 1 of the bill, with which we are directly engaged.

This bill is very much about trying to prescribe—

Hon DAVID CUNLIFFE (Labour—New Lynn): It is a pleasure to take a call in this Committee stage of the Construction Contracts Amendment Bill to note that Labour supports the bill. I note also the presence of the Minister in the chair, the Hon Nick Smith. We were not at all sure that he was going to be able to join us for this debate, so we welcome him back to the Chamber.

Let us begin with a definition of the problem in respect of why this legislation is being passed today, the options that were explored, the amendments that the Commerce Committee made, and the reasons that Labour is supporting it, although with one or two minor reservations. Can I note, before I get into it, that this is the fourth bill in a row that we have had in a Committee stage where the Labour Opposition has been supporting the bill. So to members of the public, today is perhaps one of those days when we see the other side of Parliament in action. We see quiet cooperation behind the scenes, in select committees, and we see work across all sides of the House to try to tease through complicated problems and come up with workable solutions.

The problem that we are seeking to resolve with this Construction Contracts Act amendment is the fact that the original 2002 Act—we will call it the Act—essentially, provides for a different regime for adjudicating or arbitrating commercial construction contracts from that of residential construction contracts. It has a two-stage process of adjudication or arbitration, and if that fails for low-value claims, the claimants in the commercial claim can go to the court and receive a judgment. Unfortunately, in the case of residential contracts, that two-stage process has not been available, and, therefore, the regulatory impact statement notes that people have gone to the court as a first resort, not as a last resort, thus imposing undue cost and delay on the system.

The second part of the problem has been where risk is borne in the construction industry. Essentially, the construction industry is like a pyramid. The client contracts with a lead contractor, who contracts with specialist subcontractors—an architect, quantity surveyor, master builder, etc.—and underneath each of those, particularly in the case of the building contractor, there is a large number. There are often several layers of subcontractors—many layers in some cases. Risk tends to be passed down the system, and, over time, professionals in the industry work their way up the layers of the system so that their position is more secure. That does not work when things go wrong, because the subcontractors or the sub-subcontractors keep getting it in the neck. That is not fair; they are the most vulnerable. So a second objective of reform here, as well as making the system more efficient and robust and bringing more of the same opportunities to bear in the case of residential contracts as well as commercial contracts, is to ensure that risk is more fairly and evenly shared throughout the industry so that we have a process that is robust, efficient, and fair.

The Labour Party supports the measures in this bill that are designed to resolve and speed up the resolution of disputes in construction contract cases. We want to see more done to ensure that when things go wrong, subcontractors do not miss out on the money that they are owed—the so-called progress payments. If we need any further evidence of the importance of this issue, the Mainzeal Property and Construction case shows that subcontractors are hit the hardest when a construction company fails. Subcontractors are almost always last in the creditor queue, and they miss out when money is held up. That is not fair, and we wanted to take action to ensure that this did not happen again.

We have developed two options—contractor’s liens and statutory construction trusts—as a way of addressing the issue of subcontractor risk. In the first option—contractor liens—contractors would be required to retain a portion of the money that they owe. The second option is the statutory construction trust, where money would flow through a trust to ensure that subcontractors get paid first should a construction company collapse. Our solution would apply to significant commercial construction projects and would not interfere with contractors’ arrangements. We would also clarify and tighten the law to ensure that in the event of a construction company failure, subcontractors could get access to their tools as fast as possible. [Bell rung]

The CHAIRPERSON (Lindsay Tisch): I call the Hon David Cunliffe.

Hon DAVID CUNLIFFE: Thank you. I appreciate the opportunity to continue the exposition of this debate.

Following consultation with the industry on these options, Labour put forward as Supplementary Order Paper 439, in the name of the Hon Clayton Cosgrove, the requirement that retention money for commercial and industrial developments be held in trust for the benefit of the subcontractor entitled to the money. The Minister for Building and Housing has, in effect, piggybacked on Labour’s proposal, adding provisions, via a Supplementary Order Paper that he has put forward, for retentions now to be held in trust. The Supplementary Order Papers that are before us include Supplementary Order Paper 439 from the Hon Clayton Cosgrove, released on 17 April; Supplementary Order Paper 446 from Julie Anne Genter; and Supplementary Order Paper 52 from the Hon Nick Smith. Mr Cosgrove’s Supplementary Order Paper inserts new clause 9B, which would create new section 24AA requiring “retention money for commercial and industrial developments to be held in trust”. The Minister’s Supplementary Order Paper provides provision for “retentions being money withheld by one party to a construction contract from money payable to another …”—so that is, in effect, the other option.

Can I turn now, briefly, to the Commerce Committee’s report. The committee considered this bill at some length, and it has done, I think it is fair to say, a pretty comprehensive report given the size of the bill. It has turned its mind, firstly, to the purposes of the bill: to remove the distinctions between residential and commercial contracts, as I said; to extend the scope of the Act to apply to contracts for design, engineering, and quantity surveying work; to remove the distinction between enforcement of payment determinations and of those relating to rights and obligations that are not payment related; and to speed up and make more efficient the enforcement process, particularly for residential contracts, as we described earlier.

The committee first turned its mind to a range of provisions relating to adjudication. It was worried about so-called ambush claims in the tight time frames that the Act set out, so it therefore proposed to insert by amendment new clause 13A changing the time frame from 2 to 5 working days—

The CHAIRPERSON (Lindsay Tisch): That is in Part 2.

Hon DAVID CUNLIFFE: In Part 2?

The CHAIRPERSON (Lindsay Tisch): Well, we are not on Part 2. We are on Part 1.

Hon DAVID CUNLIFFE: We are on Part 1; you are quite right, Mr Chair. I will restrict myself to Part 1. So we will leave it to a further call to trace through some of the select committee’s amendments, and I will return, then, to the final purpose of the bill, which is to ensure that the process is smooth, that the risk is fair and to be shared, and that the time frames achieve the right balance between avoiding ambush and providing for a speedy resolution of complaints, which are common in the industry.

How common? Well, our regulatory impact statement indicated that the authorised nominating authorities under the current Act have heard nearly 700 claims under the Act since it was set up—nearly 700 claims, which are, by definition, commercial and do not extend to residential claims. They will be significant in quantum. They are important, and the Committee’s time is well used in trying to improve this area of law. I thank you for the opportunity to comment on this stage of the bill, and I look forward to further comment as we get into subsequent parts. Thank you.

BRETT HUDSON (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 63

New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.

Noes 58

New Zealand Labour 32; Green Party 14; New Zealand First 12.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 106 in the name of the Hon Dr Nick Smith to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Amendments to principal provisions

JULIE ANNE GENTER (Green): It is with great pleasure that I rise to speak on Part 2 in the Committee stage of the Construction Contracts Amendment Bill. It has been quite a long time since we considered this in the Commerce Committee. In fact, it has been about 2 years, and it has been even longer since some of the changes in this bill were first considered.

The Government initially asked for a Building Act review in 2009. Subsequent to that, in 2010, there was a review of the Construction Contracts Act itself, and in that review two of the recommendations that originally were not put forward were specifically around the use of retentions and security of payment for subcontractors. Unfortunately, when the National Government initially introduced the bill it did not deal with the issue of retentions, and so 2 years ago in the select committee deliberation—which was, of course, in 2013, and not long after the issue with Mainzeal Property and Construction, which collapsed in February 2013—the issue of retentions became one of the biggest issues for submitters that we heard about during the select committee process.

Just for those who might be watching at home tonight, I will get to the issue of retentions, or an explanation of them. Retentions are a portion of the contract price that are withheld by the principal or head contractor and not paid until after the construction work is checked and found to be free of defects. What was happening was that we had principal contractors who were receiving payment from the client and they were withholding a portion of the payment that technically would belong to subcontractors who were meant to undertake the work, until they were certain that that work was completed and free from defect, except instead of holding on to that money, the principal contractors—many of them, some of them—were using it as cash flow on some of their other projects. Even though the money technically should have belonged to the subcontractors who had been engaged to do the work, who oftentimes had done the work already, they were not being paid.

We heard that there were significant problems with the late payment of retentions and the money being held back, and in cases where the principal contractor became insolvent—which happened, of course, to Mainzeal Property and Construction in February 2013—then the subcontractors missed out on payment for work that they had already undertaken. Although we were not meant to consider the issue of retentions because the Government had deemed that it was not going to deal with it in the Construction Contracts Amendment Bill as it came to the select committee in 2013, we heard from 14 submitters, and almost half of the submitters talked about how important it was to deal with this issue of retentions as soon as possible. It was unjust for the subcontractors that money that technically belonged to them was being used by principal contractors for cash flow and for other purposes, and then it was not always there as it should be, or at times it was being paid late.

Although we heard about this during the whole select committee process and the officials told us that they were considering options, initially when the bill came to the second reading there were no changes introduced and there was no intention from the National Government to introduce the changes to deal with retentions. So, obviously, the Labour Party came up with a solution and put forward Supplementary Order Paper 439. I put forward Supplementary Order Paper 446 myself. Mine was a little bit simpler than the one that the Labour Party proposed. I have it here. We will still be voting on it tonight. My Supplementary Order Paper 446 was designed in conjunction with people in the industry who were extremely concerned about this issue and the lack of action on the part of the National Government Minister at the time, Maurice Williamson.

The way that Supplementary Order Paper 446 works is quite simple. It simply deems that retentions must be held in trust. So the principal contractor has to be holding the money in an account somewhere. They do not have to set up a new or separate account for this; it just needs to be an account and deemed to be held in trust until such time that it is paid to the subcontractor. It is an elegant solution, and I am very, very pleased to see that the Government has, in fact, picked up something very similar to this Supplementary Order Paper 446 on its own Supplementary Order Paper 106, which is obviously somewhat more complex. It has worked through it with officials. I assume that it is for that reason that it has taken so long for this bill to come back to the House for its Committee stage—because the Government actually has listened to the industry and has succumbed to pressure and is going to do right by the subcontractors and ensure that their property, their earnings, are protected from this sort of abuse that was quite rampant in the building sector.

I congratulate the Minister in the chair tonight, Nick Smith, because I do think that he must have played a critical role in actually including the retentions issue in this legislation, because it did not seem that former Minister Maurice Williamson was intending to do so, and it was only after the change in portfolios that this change came forward. So we are very, very pleased tonight to be supporting the bill and supporting the Government’s proposed amendment, although we have not had the time to scrutinise it in the select committee. Looking at the Government’s amendment on Supplementary Order Paper 106, it outlines all the different changes, and new Subpart 2A is about retention money.

The one question that I would ask the Minister to address is that although we have got the use of retention money in new section 18E, in proposed clause 8BC, which says “Party A must not appropriate any retention money to a use other than to remedy defects in the performance of party B’s obligations under the contract.” and that sounds very good, I am slightly concerned about new section 18F, which says that “Retention money may be invested by party A”—the head contractor—“in accordance with the Trustee Act 1956 …”. So it looks like the Government has accepted that the principal contractor does need to legally be held to account and hold the money aside in trust so that it is safe, but it looks like the main contractor is still free to invest the retention money in accordance with the Trustee Act 1956, and if they make a profit on that money, they get to keep the profit. They do have to pay interest on a late payment. I think that sounds good.

So, all in all, I would say that this has been a win for democracy because the bill that came before the select committee was not addressing significant issues that had been identified in the review. Because of the circumstances of the Mainzeal meltdown and the reverberations that it sent throughout the building sector, we did hear from a number of submitters in the select committee process about the retentions issue. I believe that Opposition parties like Labour and the Greens were instrumental in putting pressure on the National Government to actually take action when it was failing to do so by putting forward our own options, by asking questions of the Minister in the House, and by demonstrating to the construction sector that we took its concerns very seriously and we were willing to stand up for its rights.

We are very, very pleased to see from the changes tonight that, actually, our democratic process can work. This bill can be improved, even if it takes 2 years to deal with a substantial issue that is affecting people’s lives and that is affecting the subcontractors who are out there doing the dirty work out on a building site, by ensuring that they are not going to lose their money because the principal contractors have been misusing it. I invite the Minister to address my questions about section 18F—whether that is standard, and whether there are any concerns about what might happen if retention money is invested and, in fact, lost and it turns out that the principal contractor no longer has the money to pay back the subcontractor. Because that is really the issue here, right? It is that when the principal contractors lose money and go into receivership or insolvency, then the subbies who are out there doing the real hard work—not getting paid an enormous amount for it and taking a huge amount of risk for themselves—miss out. Thank you.

Hon Dr NICK SMITH (Minister for Building and Housing): Because Supplementary Order Paper 106 deals with this issue of retentions, which was not in the Construction Contracts Amendment Bill that went off to the select committee, it is reasonable to take just a moment of the Committee’s time both to explain the history of these new provisions and to answer some of the questions that members have raised.

I think it is important, firstly, to put on the record that the genesis of the problems that have occurred in ill-disciplined construction contracts actually goes back to significant changes that were made in 1988 by the Labour Government in repealing, as one member mentioned, the Wages Protection and Contractors’ Liens Act. The liens legislation was a very powerful tool by which a subcontractor or contractor on a building site could register a liens against the title and so protect the considerable investment that that builder or subbie may have had in a particular building project. After the liens legislation was repealed at the height of Rogernomics, an increasing number of incidents occurred in the construction industry that I think made New Zealand and Parliament feel uncomfortable. I actually introduced a member’s bill in Opposition in 2001 to try to get action in this space—the Construction Contracts Act. I commend the work at the time that was done by Laila Harré in bringing that legislation to the fore.

Today we are dealing with this quite specific issue of how retentions can be dealt with fairly. I think David Cunliffe put his finger on the pulse accurately in that this is an issue about where the risk is carried. There are no free lunches here. No matter where Parliament chooses to impose the risk, there is a cost. The true question for Parliament is to try to ensure that our commercial law around construction ensures that the risk rests with the party that is best able to manage that risk. That, in my view, is where the public interest in what this Parliament does should be focused.

I do agree with those members who have said that in the current environment, where a main contractor is often in the position to have the most information about the bankability of the client—whether he is going to pay his bills or such things—the main contractor is not necessarily the party that carries the risk. We have seen a number of high-profile failures where good, hard-working small New Zealand businesses have lost out.

What we have attempted to do in Supplementary Order Paper 106 is to provide a practical regime that will address that issue, but we are also being cautious about not either wasting money or introducing compliance costs that overegg the problem and end up adding more cost than we save. So let me go through, firstly, the questions that Julie Anne Genter asked, which actually relate to one of the most beneficial elements of the changes in these retention provisions, and it is this. At the moment, if a large construction company goes broke and there are retentions owing, the subcontractors are unsecured creditors and they are at the back of the queue. The key change that is made in this bill is that those funds are deemed to be held in trust, and that means that those funds are, firstly, paid out of the circumstance—and I will take the high-profile example of Mainzeal, where there was about $20 million worth of retentions. All of those subbies would have got paid ahead of either the secured creditors like the banks or ahead of things such as the taxes, the wages, and the other things that normally occur when there is a liquidation of a company. So that is a big gain.

The second provision, then, is how we ensure that these moneys are, firstly, transparently reported, and also that there is not a waste of money. So what we have done with these provisions, starting with section 18A, is set out those trust obligations that rest with the party holding the retentions. We have set out that there will be a default rate of interest set by regulation in the event that they are not paid on time, and we have set out when that trust obligation concludes either they are either paid out to the subbie, the substandard work is fixed, or there is some other legal means. These provisions also enable the party that holds those trust funds to not just have the moneys sitting loose, and to not have to have a separate lawyer’s bank account. It is true that in some jurisdictions they require that. In my view, that would be overstretched. That would make the compliance costs excessive.

We also need to be honest about what these provisions will do in terms of the bankability of development in construction projects. There is no free lunch in terms of improving the security of the payments for the subcontractors. It does mean that there are projects that may have gone ahead and would have been bankable that now will not be, because the trust imposed by this law means that there will be banks and other parties that are more cautious about a particular construction project proceeding. It is also true that it significantly changes the cash-flow position for a number of projects, and that is why the provisions in the Supplementary Order Paper give a reasonable time of transition over to these new arrangements for the construction industry.

The last point I would make is that I have had contact from a number of people in the construction industry who would prefer to have alternative arrangements that are common in the United States—bond arrangements, and those sorts of things. I want to emphasise that no matter what we have in our construction law, this is in the area of contract, and if people want to enter into arrangements for performance bonds, they are free to do so. Equally so, no amount of good construction law will ever save somebody from contracting with parties that are not bankable, and parties entering into construction contracts do still need to show caution about who they are doing business with, to ensure that they are bankable, and to show the normal due diligence, because this Parliament would be misleading subbies if it said that any law is going to provide them with absolute protection of payment.

In my view, these are pragmatic provisions. I do note that some members have claimed that their Supplementary Order Papers were tabled first, prior to the Government’s, and I would simply point out, actually, that the Government noted last July, in fact, that we intended to make these changes and to provide for increased protection for these retention payments because we do believe that it will provide for a more disciplined and sensible way in which retentions are managed in the construction industry.

CLARE CURRAN (Labour—Dunedin South): I thank the Minister in the chair, the Minister for Building and Housing, for his contribution, for his substantive comments on Part 2 of the bill, and for the explanations that he has given. I would like to make a few points. I preface the points by saying that, in the main, Labour finds itself in the position of agreeing with the Minister on many of the points that he has made tonight.

But the main point I want to make, and I think that my colleague Julie Anne Genter has made this point as well, is that it is better late than never in coming to the party on these substantive changes to this piece of legislation. Can I say that Part 2 looks completely different from the bill that went through the Commerce Committee. Although it is better late than never, these substantive changes around the retentions part of this bill, which the Opposition parties argued very strongly for during the select committee hearing—they were argued for by many of the submitters. There were arguments with officials. There were pleas. There were letters written to the Minister. And there was no response—no response at all.

I would like to acknowledge that it was not the Minister sitting in the chair tonight, but it was Maurice Williamson who happened to be the Minister at that time. There were sensible, pragmatic, reasoned arguments following the collapse of Mainzeal, which was the major company that collapsed and that was on everybody’s mind when this bill was before the select committee. There were compelling reasons to consider making changes to the retentions, where subcontractors would end up being paid and not being left floundering, with some of them ending up going out of business—but, no, there were none.

So what we have now is a substantive part of this bill that has been added in after the select committee process, with no ability for there to be discussion with those submitters or to seek more submissions from the industry and from other independent interested parties about how well this will work. We have had no ability to do that, and we are having this debate in the Committee of the whole House stage tonight, which is just not acceptable for how the legislative process should occur. I cannot hold the current Minister in the chair to account. He has actually done the work of bringing some substantive changes to the Committee tonight. But the problem is that it has not been tested, so all we have is the Minister’s word that he has done the consultation. In fact, during his contribution we did not hear what consultation there had been and where these changes came from and what lies behind them. If the Minister does address this part of the bill tonight again, it would be useful for the Committee to hear what input there has been and what assurances he has that this is the best way forward and that there are not others.

I would like to refer to my colleague Clayton Cosgrove’s quite comprehensive Supplementary Order Paper 439, which was put forward quite some time ago to try to address this after we came out of that select committee process without the retention process. That Supplementary Order Paper called for the retention money for commercial and industrial developments to be held in trust for the subcontractors entitled to the money, which is where the Minister has gone, but also it added another clause that required the head contractor, who holds the retention money, to pay the money into an independent trust account, which was the retention money trust account established and operated in accordance with the regulations.

I suppose, given the fact that we are unable to have a discussion with officials as to how that money gets paid out, what the assurances are that there will be adequate transparency and good process around that and accountability back to the industry and to Parliament, and given that we are passing this legislation, that those are the things that we want to know more about tonight. I hope that there is the opportunity for there to be some more information provided to this Committee tonight as to what process the Minister has gone through to come to the conclusions that he has, to put in these quite substantive provisions in new Subpart 2A in proposed clause 8BC in Part 2, new section 18A right through to section 18I, which make those changes.

I do want to take us back to the reason for the main debate in this Committee tonight on this bill, and it was the collapses of companies—the collapses that shocked the nation, and the severity of them. Of course, Mainzeal Property and Construction has been held up. In 2013 it affected 486 workers, and was a severe shock to the construction industry that sent those shock waves right through all those subcontracting parts of the industry. But, more than that, it was preceded by Alliance Construction in Auckland in 2012, Gremara in the Waikato, the Pothole People in Christchurch, Canbuild Construction Ltd, Tectonic Construction in Christchurch, Abode Design and Build in New Plymouth, and, in 2015, Phil Rouse Ltd in Tokoroa—so it is still happening, and the need for these clauses, for this legislation to be passed, is critical so that there is that ability to protect that subcontracting part of the industry. There are also Williams and Co. in Christchurch, Strongline Buildings Ltd, and NZ Premium Construction, also in Christchurch.

This issue has been around for a long time. This legislation has taken such a long time to get to get this point, and yet, despite the calls from submitters, despite the calls from the Opposition, despite a strong Supplementary Order Paper from my colleague Clayton Cosgrove and another one from the Greens’ Julie Anne Genter, and despite the knowledge that there were some simple solutions that could be put forward, it took this Government 2 years to actually get to that point. Yes, it was signalled. It was signalled just before the election, actually, and I wonder why—because all of a sudden the Government woke up and realised that it should really be paying attention to this. It had gone to sleep in the select committee, but it woke up and decided that it needed to do something about it, but it has taken this long to actually get these clauses back to the Committee stage with an explanation of how this retention scheme will work to protect those subcontractors.

Unfortunately, there has not been the ability for there to be independent input into that process. So I am asking for the Minister tonight to give us some indication of what process he has gone through to assure himself and this Committee that this is rigorous and that these clauses will stand up and will be able to be enacted in a way that will provide that protection to subcontractors in the building industry.

RIA BOND (NZ First): I am pleased to rise on behalf of New Zealand First and take this call on the Construction Contracts Amendment Bill. I have trawled through Hansard and I have read the Supplementary Order Papers. This was in order for me to completely understand that the intentions of the bill are clear, what it is hoping to achieve, and also what effect the Supplementary Order Papers may have in improving this bill. I found the commentary from the Commerce Committee very informative—in particular, the commentary regarding retentions; and this has been a real concern. I would like to quote the commentary: “We were concerned to hear that many head contractors may be misusing retentions as working capital, delaying payment, or holding retention amounts disproportionate to the contract prices. This behaviour undermines the sector’s growth and productivity. While it is outside the scope of this bill we are encouraged to hear the Ministry of Business, Innovation and Employment is giving priority to addressing these issues. We urge the ministry to continue to work with industry players and look forward to policy solutions in legislation in early 2014.”

Then I read the debate pack provided by the Parliamentary Library, and in the legal commentary—which, again, I will quote—it says: “It is long-established practice in New Zealand and internationally for retentions to be held under construction contracts to ensure that, if there are defective works, the head contractor or principal is able to recover the cost of fixing these defects. In the wake of the Mainzeal collapse, where subcontractor’s retentions were unsecured debts in Mainzeal’s liquidation, amendments were seen as necessary to protect payment of retentions to subcontractors and head contractors.”

What these two commentaries tell me is that the biggest losers here were, in fact, the subbies—the plasterers, the painters, the bricklayers, the drainlayers, the plumbers, and the electricians. Where has their protection been these past 2 years? It is the subbies who have been shafted and left out of pocket, all because developers and contractors withheld the retention money and moved it to other projects. This placed even further risk on that money, because they actually turned round and used it as working capital. As I mentioned earlier, the millions of dollars lost in the collapse of Mainzeal and the subcontractors having no legal protection whatsoever was of real concern. We have seen with the Canterbury rebuild that homeowners have had two options available to them: one, to go through the Earthquake Commission and use the Government contractors, or, two, to opt out, do their own research, and select a private contractor or company.

Another issue that this bill does not address is the substandard work that has been carried out that has, in fact, left some homeowners unable to seek a remedy from the contractors or companies, because they have disappeared. They have been struck off the New Zealand Companies Register, but then the next day, like a pop-up shop, they come along as a new company, with a new name, and open for business, subjecting more homeowners to be left with no apparent way to take possible legal action, because not only the contractors but also the companies have avoided responsibility.

This bill has taken 2 years since its first reading in June 2013 to get to the Committee stage. My question to the Minister is: why has it taken so long? Everyone knows that for small to medium sized businesses, time is money—time is money. Perhaps spending more time on a real issue, such as this bill, and not changing our flag would have—

The CHAIRPERSON (Lindsay Tisch): Order! That is not part of the bill.

RIA BOND: Sorry, Mr Chair. I am pleased to see that the Minister has sought further advice and has listened to the concerns raised earlier this year by members of the House. New Zealand First is pleased with Supplementary Order Paper 106, introduced to amend the Construction Contracts Amendment Bill. It replaces Supplementary Order Paper 52. This will make provisions in the Construction Contracts Act 2002, the principal Act, for retentions—that is, money withheld by one party to a construction contract from money payable to another party to the contract as security for the performance of obligations under the contract. New Zealand First supports this bill.

Hon DAVID CUNLIFFE (Labour—New Lynn): In my last contribution I strayed into Part 2 of the bill, and you, Mr Chair, quite rightly turned me back to Part 1. I am now going to address, on a clause by clause basis, several of the issues in Part 2, but recalling first the purpose of the bill, which is, of course, to solve two problems: to make access to justice more evenly and readily available across the industry, and, secondly, to avoid a cascade of risk down on to subbies, which the Minister has very aptly described as a problem that has been rife in this industry for too long.

What is really interesting, when you go through the clause by clause analysis and the amendments that the Commerce Committee has very thoroughly addressed its mind to—and I will say it again. This is one of those bills where the hard slog has gone on in the back room, and the public do not see, I do not think, the amount of cooperation that has occurred between the parties to get to where we have got to today. But it is intriguing, the level of prescription that is now contained in the drafting, which the committee, if anything, has added to on the basis of submissions, and fair enough. This is clearly against the background of an industry where end runs occur, shady things happen, people get cheated, and bad practice does occur. So the law has to be robust and provide remedies for that.

One matter that the committee turned its mind to was the issue of so-called ambush claims—a claim is very quickly brought and the defendant does not have sufficient time to prepare a defence. So in new clause 13A the committee has recommended that the time frame for selecting an adjudicator be shifted—there is actually a typo in the committee’s report; the commentary—from 2 to 5 working days after the notice of adjudication has been served.

Clare Curran: Well spotted.

Hon DAVID CUNLIFFE: Thank you. Likewise, in new clause 14A the committee has recommended adding a new clause to require the information in a notice of acceptance to be prescribed by regulation. As I say, fair enough. The Minister of the day, whoever that is, should have the power to be very explicit about what information needs to be provided, because by definition this law has to be robust to a conflict situation where the parties do not agree. If they cannot agree, and they cannot even agree on what information they are entitled to have access to and needs to be provided to the adjudicator, they will not be able to solve the problem. The adjudicator then cannot do his or her job. So we support the addition of that power. There are a number of sub-points under new clause 14A, but I do not think we need to trouble the Committee with the sub-points.

Let me flick back quickly to the start of Part 2, new clauses 8A, 8B, and 8C. It is quite interesting because the committee has both narrowed and widened the scope of the bill. It has narrowed the scope by excluding second-hand assets in property management contracts under certain circumstances, but it has widened it, in respect of the claimed amounts, to include liquidated damages, breaches of implied warranties, and construction work already carried out. The committee has made it a little more flexible by allowing the parties to agree on single payments as well as part payments. The committee has then tightened new clause 9A to replace the word “indicate” with the word “state” in sections 20(2)(d) and 21(2)(c), thus requiring the amount of the claim to be specified exactly. The combined effect of those clauses is, as I commented in relation to the regulation-making power, to accept the fact that this is a conflict situation by definition, to ensure that the law is clear about its boundaries and scope, and, within that scope, to drive quite definitely and clearly to a solution, which is what it is seeking to do with those amendments.

Clause 15 had proposed mandatory pre-adjudication conferences. The rationale was to require the parties to go through a low-cost, low-legality step in the process, and escalate gradually. The committee reached the view, after hearing submissions, that that was likely, in fact, to add time, cost, and delay because it was a requirement, not an option. So the committee has removed that requirement by amending the clause that had required pre-adjudication conferences—clause 15.

In clause 16 the committee has recommended inserting a new subclause (2) that requires an adjudicator to allow a respondent additional time if the adjudicator believes the claim has been served with undue haste and the respondent has had insufficient time to prepare a response. That is a further measure against ambush claims, and we think it is a reasonable step to take. The right of reply is strengthened in new clause 16A, which is amended by the select committee. It allows claimants a right of reply in response to an adjudication response. Adjudicators are free to ignore those replies, but they may raise new issues and material, and it would be proper, then, for the adjudicator to address those matters.

Coming towards the end of Part 2, in clause 18 there is an amendment recommended to require an adjudicator’s determination to be dated. It is a small thing in itself, but I think it is another example of the Commerce Committee’s focus on bombproofing these rules so that people cannot do an end run around them. It is a shame when that has to be written into the law, but we accept that that is the world we are in with a conflict situation that has led to these types of claims, and it is an industry where those issues are, shall we say, not unknown.

There is an amendment to clause 28(3) to remove the distinction between payment and other types of determinations—that is, to ensure that an adjudicator’s determination is enforceable, whether that is payment related or not. That has got to be a good thing. Finally, the defendant may oppose entry as a judgment. That is to preserve the defendant’s right in relation to any subsequent District Court action, and we think that is reasonable.

Summing up, it is clear that the select committee has turned its mind, in some detail, to the drafting of this part, and thank you, Mr Chairperson, for allowing me the time to mention most but not all of the select committee’s amendments on a clause by clause basis. The select committee has also worked hard, and the Government has worked with it, to look at issues such as a trust or contract payments that get around the problem of the risk passing to subcontractors. We are supporting this bill because we think that with the Supplementary Order Papers on board, we have got to a reasonable place.

It will be instructive to see, once this bill has been passed—as I am sure it soon will be by the Committee stage—how it beds in, and, from a Regulation Review Committee point of view, we will be interested to see what regulations are promulgated by the Minister for Building and Housing under the bill. I wonder whether the Minister would take a short call, perhaps just to provide a short outline to the Committee as to the regulation-making process that he envisages and the scope of those regulations under the relevant clause. I think that would help the Committee’s consideration, because regulation-making powers are never to be taken lightly. They have to be prescribed in legislation, and the conduct of that regulation making must occur within the scope and ambit of the empowering provisions. We are hopeful that it will be, and we have no reason to think otherwise, but I think it would assist the Committee if the Minister could give us a brief outline to that effect. Thank you.

IAIN LEES-GALLOWAY (Labour—Palmerston North): It is a pleasure to rise and speak on Part 2 of the Construction Contracts Amendment Bill, a part that appears to be significantly amended by the Minister for Building and Housing’s Supplementary Order Paper 106. Can I say at the outset that on this side of the Chamber we acknowledge the interest and enthusiasm from the Minister in the issues addressed by the Supplementary Order Paper. I understand from speaking with colleagues who were on the Commerce Committee that the interest in this issue of retentions and this issue of trying not to give a cast-iron guarantee but to provide more security of payment to small-business people, and to tradespeople in particular, is something that this Minister has picked up. That enthusiasm was absent before the current Minister took over the role, so I want to acknowledge that the Minister has decided to pick this up. That is probably why it has been a long time between drinks as far as this legislation’s progress through the House is concerned, as the Minister has been working on this Supplementary Order Paper with officials. So we appreciate that that has taken some time.

I agree, though, with Ria Bond that time is money, and we are talking about people who are not big-business people. They are not people with large accounts. They are people who are going from one contract to the next, and it is money in, money out for most people. So the fact that this has been something that has taken considerable time for Parliament and the Government to reach this point on will have been concerning and devastating for a lot of people who were affected by some of those high-profile collapses, and for other people who have not had their stories told in the media and who have had to face the issue of not being able to recover payments from principal contractors.

These changes are significant, though. It is a shame that the changes have not been put before the select committee and that the Minister has not assured us that he has consulted. We do not know exactly the scope of that consultation and with whom it has been carried out, but I think that with this level of amendment to the legislation we are almost, in Part 2, dealing with an entirely different piece of legislation from what the select committee considered. It is shame that the amendments have not had a chance to go back to the select committee.

I want to look at new Subpart 2A, in proposed clause 8BC, which relates to the retention money. This sets out in quite some detail how retention money is to be dealt with and how parties have to put that money into trust and what they can and cannot do with that money. One bit that was of interest to me—and I would appreciate the Minister in the chair, the Hon Nick Smith, taking a call on this—is new section 18F, under Subpart 2A, which deals with the investment of retention money. This may be something that has been addressed, but new section 18F(1) says: “Retention money may be invested by party A in accordance with the Trustee Act 1956 …”.

I have to be honest. I do not know what limitations the Trustee Act 1956 places on the types of investment that money can be used for. But then 18F(2) concerns me a little bit. It says: “If, upon the realisation of any investment, the amount received is—(a) less than the amount invested, party A must make up the difference between the amount invested and the amount realised:”. In other words, it envisages the possibility that party A could invest that money into something that actually leads to a loss, and some of that retention money is lost as a result of that. Of course, in the legislation there is an expectation that that loss would be made up when any payment to party B had to be made. But in the event that party A meets some unfortunate circumstances and finds it difficult to make their payments to party B—which is exactly the type of situation that we are envisaging here; it is exactly the reason why money should be set aside in trust so that there is some more security around those payments to party B—or if party A finds themselves in financial difficulty, they may have some trouble making up that difference between what they actually put in trust and what they are able to recover from it if there is a loss as a result of investing that money.

So I would appreciate some clarification from the Minister as to exactly what restrictions and limitations are placed upon the types of investment that that money can be used for. If there are no limitations—and, as I said, I do not know what the Trustee Act 1956 says about this—then there is the potential there for that money to be invested in something that is high risk and that could result in exactly the opposite of what this part of the legislation seeks to achieve, which is to have money put aside securely so that it is available for payment to be made. So I would appreciate some advice on that from the Minister, or from any member opposite who has some knowledge about how that is potentially going to work.

The other provisions under section 18 do appear to be all about protecting the money. There is interest on late payments. That is to be expected under any contract. There is protection of retention money under section 18H, which says that “Retention money—(a) is not available for the payment of debts of any creditor of party A (other than party B): (b) is not liable to be attached or taken in execution under the order or process of any court …”, and section 18E(1) talks about the use of retention money and says it cannot be used “other than to remedy defects in the performance of party B’s obligations under the contract.” So the purpose of that money is quite clear in other parts of Subpart 2A. But I just wonder whether that ability to invest that money is really in line with those—

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

House resumed.

The Chairperson reported the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill without amendment, the Passports Amendment Bill (No 2) with amendment, the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill without amendment, and progress on the Construction Contracts Amendment Bill.

Report adopted.

The House adjourned at 9.56 p.m.