Tuesday, 27 August 2019

TUESDAY, 27 AUGUST 2019

TUESDAY, 27 AUGUST 2019

The Speaker took the Chair at 2 p.m.

Prayers.

Obituaries

Pita Paraone

SPEAKER: I regret to inform the House of the death on 26 August 2019 of Rewiti Pomare Kingi “Pita” Paraone MNZM, who was a list member representing New Zealand First between 2002 and 2008 and between 2014 and 2017.

I desire, on behalf of this House, to express our sense of the loss we have sustained and our sympathy with the relatives of the late former member. I now ask members to stand with me and observe a period of silence as a mark of respect to his memory.

Members stood as a mark of respect.

Visitors

Portugal—President of the Assembly of the Republic

SPEAKER: I’m sure that members would wish to welcome His Excellency Eduardo Ferro Rodrigues, President of the Assembly of the Republic of Portugal, who is seated to my left with the Deputy Speaker, and his delegation who are present in the gallery.

[Applause]

Oral Questions

Questions to Ministers

Question No. 1—Prime Minister

1. Hon SIMON BRIDGES (Leader of the Opposition) to the Prime Minister: Does she stand by all her Government’s statements, policies, and actions?

Rt Hon JACINDA ARDERN (Prime Minister): Yes, particularly the New Zealand investment fund, the legislation for which will have its first reading in the House today. This will see $300 million invested in supporting start-up businesses to get to the next level. It is yet another example of the Government ensuring we have an economy that is growing and working for all of us.

Hon Simon Bridges: Does she say that because she’s defensive about the National Party’s outstanding economic discussion document?

Hon Member: That’s in order.

SPEAKER: No it’s not in order. It’s asking the Prime Minister to take responsibility for something which she doesn’t have responsibility for.

Hon Simon Bridges: Is she aware that the New Zealand Government collects the fourth-highest share of tax from businesses in the OECD, and does she support tax relief for New Zealand businesses?

Rt Hon JACINDA ARDERN: We have no policy to change the corporate tax rate in New Zealand. The member may have seen that we explored a range of options in the Tax Working Group. We even looked at comparisons with what Australia has done with their differentiated rate for small businesses. They came back with a rationale that suggested that wasn’t the best way to go. So we have no proposals in this area. However, we do have a plan that is about supporting innovation, skills and trade training; diversifying our trade; supporting our exporters—things that will support our businesses, particularly some of the issues that they have raised proactively with us. The thing that gets raised most significantly with us from business is things like getting the skilled people they need. Those are the things that we’re focused on as a Government.

Hon Simon Bridges: Does she agree with Jacinda Ardern MP, who said in 2012 that “if this Government was genuinely interested in the issue of sustainability, it would look first at superannuation … Politics can’t just be about making decisions that anger the least number of people … it has to be about doing the right thing.”?

Rt Hon JACINDA ARDERN: If that member and the last Government were focused on sustainability and doing the right thing, they would have kept up their contributions to the super fund. They did not. When we came into office, we restarted those contributions. In the next five years, that will cumulatively grow to $9 billion. That is what a Government focused on the sustainability of superannuation would have done, and it’s what we’re doing.

Hon Simon Bridges: Is superannuation still, as Jacinda Ardern MP said in 2012, the “Zimmer frame in the room”?

Rt Hon JACINDA ARDERN: I wouldn’t mind going back and checking the context in which I came up with that nifty little statement. It was with some frustration, of course, that we had to deal with a Government who would not continue to secure the future of his own generation by continuing to invest in the super fund. By turning off that tap, I think they were saying that they weren’t interested in ensuring that that generation can retire at 65. On this side, we are.

Hon Simon Bridges: Has the Crown had any discussions regarding a loan to the Kīngitanga or Tainui so either can purchase land at Ihumātao?

Rt Hon JACINDA ARDERN: I’m not going to undermine the discussions that are currently taking place between Kīngitanga and mana whenua. They are seeking a by Māori, for Māori solution, and I’m going to respect that process and allow that to occur.

Hon Simon Bridges: Has the Crown discussed a loan with anyone in the Kīngitanga or Tainui?

Rt Hon JACINDA ARDERN: Again, unlike that member, I actually want to see a solution for Ihumātao. I care what happens to that land. I care what happens to the many young people who have convened to try and find a solution for that land, and I care about getting an outcome for mana whenua that they can support. I’m not going to undermine the conversations that are happening between Kīngitanga and mana whenua. I respect that process, and I’m going to allow that conversation to finish.

David Seymour: How would it undermine negotiations between mana whenua and the Kīngitanga if the Prime Minister stood up in this House and said that the Government hasn’t discussed a loan with either of them?

Rt Hon JACINDA ARDERN: I am not going to discuss, in this House, negotiations that are occurring between the parties at the table in any form. That member may not be interested in seeing a solution; this side of the House is. I respect the process that is happening between them, and I’m going to allow it to conclude between them.

Hon Simon Bridges: Isn’t the reality that the Crown is in discussions about an interest-free loan from the Crown to Kīngitanga?

Rt Hon JACINDA ARDERN: No.

Hon Simon Bridges: Has her Government received any advice on the effect of a loan to the Kīngitanga or Tainui on New Zealand’s full and final Treaty settlement process?

Rt Hon JACINDA ARDERN: Again, I’m not going to get into a speculative conversation in this House. I’ve ruled out the statement that the member last stated, but I am going to allow this negotiation between mana whenua—this conversation, this discussion, this seeking of a resolution is between mana whenua and Kīngitanga, and I am not going to disrupt that process. It’s one of the reasons why I’ve been so cautious about the timing of my visit, and I am certainly not going to destabilise that conversation in this House with speculation.

Hon Simon Bridges: Is it, in fact, a discussion between the Crown and Tainui, not Kīngitanga?

Rt Hon JACINDA ARDERN: The member is completely disrespecting what Kīngitanga is trying to do, and I will not do that.

David Seymour: Why doesn’t the Prime Minister put an end to any speculation by simply stating that the Government will not loan or give any money to any third party with the intention of that third party purchasing the land at Ihumātao off Fletcher’s?

Rt Hon JACINDA ARDERN: Because the Crown is not a party in the primary discussion that is occurring at the table between mana whenua and Kīngitanga. I want to see them conclude their talks. It is a matter for them, and then, beyond that, I’m not going to enter into speculation.

Hon Simon Bridges: Does she agree that if Ihumātao is unpicked with any sort of financial arrangement involving the Crown, then all Treaty claims will be up for renegotiation?

Rt Hon JACINDA ARDERN: The Crown, of course, is aware of its obligations as a Treaty partner.

Hon Simon Bridges: Was Labour Party leader Jacinda Ardern correct in 2017 when she said that light rail down Dominion Road would be delivered within four years, “But actually we hope to deliver the entire project earlier than that”.

Rt Hon JACINDA ARDERN: Pick an issue, any issue, just an issue.

SPEAKER: Order!

Rt Hon JACINDA ARDERN: Traversing, broadly, now on to Auckland light rail—the member, of course, I know, hasn’t got an actual position on whether or not he supports light rail to the airport. We have been consistent that we absolutely do. What has changed, of course, since the period prior to the election is we have had a second party interested in delivering that project. It is in the form of NZ Infra. It is significantly different. That means we need to allow the differences, both in terms of how it would be financed and how it would be delivered, to be properly explored, and that is what we’re doing.

Hon Simon Bridges: I raise a point of order, Mr Speaker. I asked the Prime Minister about four years; she didn’t come close to addressing that.

SPEAKER: She certainly did address the question. The member asked quite a general question in that area based on a statement that the member had made as an Opposition member. That gives her a lot of flexibility in her answer, especially given the primary question.

Hon Chris Hipkins: Has the Prime Minister seen statements that route protection for light rail in Auckland was a significant step for Auckland and would secure better transport options for both Aucklanders and visitors to the city, and, if so, which former Minister of Transport does she think made those statements?

Hon Simon Bridges: I raise a point of order, Mr Speaker. That’s simply not correct. I’ve never referred to light rail; I’ve talked about a transport corridor.

SPEAKER: Well, first of all, I’m going to indicate that the member should not interject while questions are being asked. A second point I’ll make is that—the Minister of State Services might want to remind me, but I don’t think he named Mr Bridges.

Hon Members: No.

SPEAKER: Well, in that case denying that he said it is hardly a reason for ruling it out. Does it need to be asked again?

Rt Hon JACINDA ARDERN: No. Mr Speaker, yes, my understanding is that a past Minister of Transport in the last Government—

Hon Gerry Brownlee: Which one?

Rt Hon JACINDA ARDERN: —and I believe it was Simon Bridges—advocated as well for a staged, integrated transition to light rail along the preferred Auckland to city route.

Hon Simon Bridges: Will the project be delivered by 2021, as Labour leader Jacinda Ardern said, and how does that reconcile with transport Minister Phil Twyford, who said, just last week, “We won’t have spades in the ground in 2020.”?

Rt Hon JACINDA ARDERN: I’ve just explained to the member—at the time, of course, that we were talking about this, some two years ago, we did not have NZ Infra coming forward with a substantially different proposal that would be delivered differently, that would be financed differently, that, actually, in very tangible ways, is a very different proposition. That doesn’t mean that work won’t be ongoing. Negotiations, consenting, design, and property acquisition is, of course, likely to start this term.

Hon Simon Bridges: When will construction start on the light rail?

Rt Hon JACINDA ARDERN: Once the consideration of those different proposals has concluded.

Hon Simon Bridges: Has she got any idea on when construction will start on light rail?

Rt Hon JACINDA ARDERN: Again, I’ve already said that negotiations, consenting, design, and acquisition are likely to start this term. But in terms of spades in the ground, we’ve already said that it wouldn’t be before 2021.

Question No. 2—Finance

2. TAMATI COFFEY (Labour—Waiariki) to the Minister of Finance: What measures has the Government announced to improve New Zealand’s productivity?

Hon GRANT ROBERTSON (Minister of Finance): The Government has introduced a range of measures to improve productivity, including the R & D tax credit and other significant investments in innovation, boosting skills training, and more new infrastructure investment. But I want to reinforce the Prime Minister’s earlier answer about the importance of the bill that Parliament will debate tonight to establish the $300 million venture capital fund, which will help fill the capital gap and keep more of our innovative companies in New Zealand. The issue for many of our companies is that once they access seed funding to get off the ground, they struggle to get the further support they need and often have to look offshore for that. This contribution puts skin in the game from the Government, and I’d like to thank Minister David Parker for his hard work on this initiative.

Tamati Coffey: What other measures has the Government announced to boost productivity?

Hon GRANT ROBERTSON: In addition to the measures that I highlighted in my primary answer, we have made significant investments in areas which people may not traditionally associate with productivity. In the May Budget, the Government announced a $1.9 billion mental health package. We heard repeatedly during the last election campaign that New Zealanders wanted us to fix up the mental health system, because it is such an important social issue for New Zealand. But beyond its importance as a social issue, it was estimated that in 2014, the economic cost of serious mental illness alone was $12 billion—or, at the time, 5 percent of GDP. For every dollar that we spend on treating depression, $2.50 is gained in productivity and $1 of physical healthcare cost is saved. This Government is taking action to address mental health challenges in New Zealand, which are serious for social reasons but also have an impact on productivity.

Tamati Coffey: Has he seen any other reports about productivity?

Hon GRANT ROBERTSON: Yes, I have. Advice from Treasury shows that the long-term average output per hour worked in New Zealand has risen 1.1 percent since 1996. I do note that under Labour Governments, that figure is 1.3 percent; and under National, 0.9 percent. In fact, in the final year of the last Government, the figure was minus 2 percent. This Government has new programmes to lift productivity. The document that I saw yesterday is exactly the same strategy that left productivity in decline.

Question No. 3—Finance

3. Hon PAUL GOLDSMITH (National) to the Minister of Finance: Is it still the Government’s forecast to collect $20 billion more tax in the 2022 year than they did in 2018?

Hon GRANT ROBERTSON (Minister of Finance): The Government has not changed Treasury’s revenue forecasts since they were published in the Budget in 2019, but I do thank the member for reminding the House that the economy is forecast to keep growing solidly over the next five years.

Hon Paul Goldsmith: After accounting for growth and inflation, how much is he planning to increase tax revenues by 2022?

Hon GRANT ROBERTSON: I don’t have that calculation with me, but what I do know is that the forecast increase across the five-year period from 2018 to 2022 is about 24.8 percent, which contrasts with the five years from 2014 to 2018, under the previous Government, when that revenue went up by 30 percent.

Hon Paul Goldsmith: Does he have any plans to provide tax relief to individual New Zealanders this term?

Hon GRANT ROBERTSON: That is not the intention of the Government. We made very clear at the last election what we weren’t going to do around tax rates. What we have done is ensure that the revenue we’re getting is going into fixing up the messes that we inherited in health and in education. The question for the member has to be: how does he make it add up? You can’t keep reducing revenue and promising more, Mr Goldsmith.

SPEAKER: Order! Order! I’m just going to ask the Minister of Finance to straighten his tie, which appears to be in his pocket. Thank you.

Hon Paul Goldsmith: Does he believe more tax provides a solution to every problem?

Hon GRANT ROBERTSON: What we need in New Zealand is to lift productivity—there’s no doubt about that. That’s a challenge that the last Government utterly failed on for nine years. We now have programmes like the R & D tax credit, like the big lift in infrastructure spending, like the big lift in skills training, which actually will help our country develop. Taxation is what we collectively pull together to pay for the public services like our health system, like our education system, that the last Government let decline.

Rt Hon Jacinda Ardern: Can the member confirm that this Government, when we came into office, did focus on targeted tax relief to those who needed it most—through, for instance, the Families Package?

Hon GRANT ROBERTSON: Well, that’s absolutely right. We reversed the unfocused tax cuts of the previous Government that would have delivered over $1,000 a year to members of Parliament here, and put that into the pockets of low and middle income families.

Hon Paul Goldsmith: What big lift in infrastructure spending was he referring to just then, given the fact that his Government has cancelled a whole lot of projects that were ready to go and replaced them with projects that are not ready to go?

Hon GRANT ROBERTSON: What I’m referring to is the fact that before the election, the previous Government was forecasting infrastructure spend of around $30 billion over five years. That’s lifted to over $40 billion under this Government, let alone the $17.7 billion that’s going into transport as well. This is a Government that’s actually got a focus on increasing infrastructure spending over the long term, rather than what happened under the previous Government, when it declined and went into peaks and troughs that mean that we don’t have the capacity in the economy that we should.

Hon Paul Goldsmith: Does he believe it’s right that by 2022, someone on the average wage will be on the top tax bracket?

Hon GRANT ROBERTSON: The member is referring to the issue of bracket creep. It is an issue that all Governments have to take a look at. But what I know is that every dollar we’re getting in is going towards addressing the social issues that the last Government refused to face up to. We’re not prepared to put up with sewage in the walls of hospitals or children going hungry. On this side of the House, we’re using the tax money we get to fix the mess we were left with.

Question No. 4—Arts, Culture, and Heritage

4. Hon NICKY WAGNER (National) to the Minister for Arts, Culture and Heritage: Does she stand by all her policies, statements, and actions around cybersecurity and the Tuia 250 data breach?

Rt Hon JACINDA ARDERN (Minister for Arts, Culture and Heritage): Yes, including my statement that what has occurred here is “very disappointing”, and my endorsement of the work that the ministry is doing to establish how this occurred via the Tuia website.

Hon Nicky Wagner: Did she seek assurances that private information held by the ministry would be kept safe?

Rt Hon JACINDA ARDERN: Forgive me for a moment if I speak to the different delegations that do exist here. The website in question for Tuia was commissioned, I believe, in February of 2019. So as the member will probably already know, it was not developed by the Ministry for Culture and Heritage; it was contracted to be delivered by a private provider. That was done in February. Some months later, the additional requirement for them to be part of the process of recruiting individuals to be part of the flotilla around the country was added thereafter. The ministry is now looking at whether or not—

Hon Gerry Brownlee: Unbelievable.

Rt Hon JACINDA ARDERN: If the member doesn’t want detail on this, then don’t ask a question. The ministry is now looking at whether or not the contract was adequate around these issues. What I do want to point out is that I don’t have the specific delegation for Tuia, but I am responsible for the ministry as a whole, but not to that level of detail.

Hon Nicky Wagner: Did she seek assurances about the ministry’s data security in general, in light of the early release of the Budget information in May?

Rt Hon JACINDA ARDERN: Yes. Again, however, I point out that this was not relevant to the ministry’s own website and functions. It was a site contracted by a private provider that was specific for Tuia 250. It is not a Ministry for Culture and Heritage website.

Dr Shane Reti: Were children’s private cellphone numbers also part of the Tuia 250 data breach?

Rt Hon JACINDA ARDERN: I can’t speak specifically to the nature of some of the information. I will point out that the majority—of course, we’ve already made public that it’s involved licences, passports, and we consider it to be very, very serious. What I would point out, of course, is that the profile, yes, has affected a portion who are under 18—the majority over 18—but, again, when it comes to the specifics around phone numbers, I would say that would be a question relevant to the ministry itself.

Dr Shane Reti: Did the breached data also include details for an alternative contact person; if so, have all of these people also had their data breached?

Rt Hon JACINDA ARDERN: I can’t speak to what individual information was contained on every form. What I do know, of course, is that efforts were made by the Ministry for Culture and Heritage to bring in other Government departments over the weekend. They created a call centre to contact every individual involved, and managed either to successfully speak personally to those involved, or to have done so since, through leaving call centre numbers to liaise directly. Where there has been data via ID, like licences or passports, they’re offering support to renew those documents if they wish to have them cancelled. Of course, this is a very serious situation; the ministry is taking it very seriously. It’s not something that is being taken lightly at all in the action that’s been taken.

Hon Nicky Wagner: How far does her disappointment get us when the personal information of 302 young people is most probably now for sale on the dark web?

Rt Hon JACINDA ARDERN: Seriously enough that our focus has been on those individuals, and that is why the ministry moved very quickly to remove the website in question, to liaise with Google to try and remove any indexed information, and to contact them all individually and offer support to replace that information. The ministry is, of course—as I am—incredibly disappointed by what has happened here but is doing what it can to remedy the situation as well.

Hon Grant Robertson: Is this the first ever data breach of a Government agency in history?

Rt Hon JACINDA ARDERN: I have to acknowledge that, no, it’s not. We all have to lift our game. I’m reminded that in 2012—[Interruption] Again, the members will remember that in 2012 the Ministry of Social Development (MSD) self-service kiosk allowed 7,000 personal files of MSD clients to be accessed. We all have to do better, and I’m sure that side of the House would well remember that.

Hon Paula Bennett: In that 2012 MSD cybersecurity blunder, did the Minister actually front with the chief executive and take responsibility and then know the details and ensure it never happened again?

Rt Hon JACINDA ARDERN: I can’t speak to what the member did personally at that time, but I can say, Mr Speaker, that I would never weaponise people’s personal information, either.

Hon Gerry Brownlee: Is that comment allowed to stand?

SPEAKER: Well, there was a comment that was drowned out by a barrage of noise from my left, which I didn’t hear well enough to rule out.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. Now, Mr Speaker, the physical contortions of your face would have led me to believe that you did hear it, and it was an unacceptable statement and should be withdrawn.

SPEAKER: Order! The member is going to start by withdrawing and apologising, and then he will re-put his point of order.

Hon Gerry Brownlee: I withdraw and apologise. There will be a Hansard record of what has just been said. It will, I think, based on your past rulings, not meet the test of what should be an acceptable answer or comment in this House, and I think it would be appropriate for the Prime Minister to withdraw the comment.

Hon Chris Hipkins: The question from the former Minister asked the Prime Minister specifically to comment on the actions of the former Minister; therefore, that gives the Prime Minister some licence to do so.

Hon Gerry Brownlee: That would be fine if that was an absolute fact, but it’s not.

Hon Simon Bridges: I raise a point of order, Mr Speaker.

SPEAKER: Speaking to this point of order, the Hon Simon Bridges.

Hon Simon Bridges: I want to ask you, when you go back and watch the replay of today, as you do, to reflect on the Prime Minister’s various comments over question time and whether it is in fact—

SPEAKER: Order! [Interruption] No. Order! The member will resume his seat. I’m trying to deal with a specific case here—all right?

Hon Simon Bridges: And I was adding to that.

SPEAKER: Well, no, you weren’t; you were talking about a general question.

Hon Simon Bridges: I raise a point of order, Mr Speaker.

SPEAKER: As long as it’s related to the point of order currently before the House and not a new one.

Hon Simon Bridges: Yes, it is, Mr Speaker, of course. The point of order that has been raised is in relation to the Prime Minister’s words, and I am asking you, when you reflect on that after and watch the tape, to go away and look at what she says, and whether or not actually she is getting an easy ride.

SPEAKER: Oh, well, I think I know what the member is trying to do, and I’m not going to grant him his wish.

Question No. 5—Health

5. Dr LIZ CRAIG (Labour) to the Minister of Health: What is the Government doing to address the long-term challenge of unmet need for mental health services in New Zealand?

Hon Dr DAVID CLARK (Minister of Health): This Government is committed to action on improving mental health and addiction services. Budget 2019 included a record $1.9 billion investment in mental health across a range of portfolios. In health, this includes creating a new front-line workforce to deliver free services to all New Zealanders with mild to moderate needs—the people described in the report of the inquiry into mental health and addiction as the “missing middle”. Good progress is being made, building on existing services where they have already been piloted and developing wider services, with input at every stage from local communities, iwi, and people with lived experience. I expect to make announcements about several newly contracted services in coming weeks.

Dr Liz Craig: What other mental health initiatives is the Government progressing?

Hon Dr DAVID CLARK: Too many to list them all in one answer, but I will pick a few. In our first year, we rolled out mental health support to primary and intermediate schools in Canterbury and Kaikōura through Mana Ake. We’re delivering free mental health support for 18- to 24-year-olds in Wellington and Wairarapa, with the Piki programme, and I thank the Green Party for their support in that area. We’re investing $40 million into suicide prevention, including counselling for bereaved families. We’re putting $42 million into improved specialist alcohol and drug services. We’re expanding digital and telehealth supports so people can easily reach out when they need help, and, finally, we’ve also put aside $200 million for investment in mental health and addiction facilities over the next two years.

Dr Liz Craig: What work is the Government doing to ensure we have enough trained mental health workers and peer support people?

Hon Dr DAVID CLARK: It’s clear we need to build and upskill our mental health workforce so that we can deliver the services that people need and deserve. It’s estimated that we’ll need 1,600 fulltime-equivalent staff for our primary mental health initiative alone. This is a long-term challenge. For example, it takes seven years to become a practising clinical psychologist. This is why in Budget 2019 we invested $80 million into developing our mental health workforce. This workforce expansion will include nurses, GPs, peer support workers, health coaches, and other health professionals.

Question No. 6—Transport

6. CHRIS BISHOP (National—Hutt South) to the Minister of Transport: Does he stand by his statement from last week in relation to Auckland light rail, “We won’t have spades in the ground in 2020”, and what is the most recent estimated full cost of the City Centre to Māngere light rail project?

Hon CHRIS HIPKINS (Minister of Education) on behalf of the Minister of Transport: In answer to the first part of the question, yes, in the context it was made. In answer to the second part of the question, around $4 billion, but the business case in the final design will provide more certainty on the final cost.

Chris Bishop: Does he remember saying in relation to light rail to the airport “One of my first actions as minister will be to have officials advise on how quickly we can start, and how soon we can get it built. I would expect Queen St to Mt Roskill within four years as a minimum.”, and is he embarrassed he will not meet that commitment?

Hon CHRIS HIPKINS: In answer to the first part of the question, yes. In answer to the second part of the question, no.

Chris Bishop: Has he seen the comments from Matt Lowrie of TransportBlog, “Given light-rail was the Labour Party’s flagship transport announcement ahead of the last election … I definitely expected better progress than what has played out over the last 18 months.”, and what responsibility does he take for the massive delays to this flagship project?

Hon CHRIS HIPKINS: On behalf of the Minister, the Government thinks it’s important that we get this project right. I note that significant infrastructure projects can often take some time to get off the ground—for example, the Pūhoi to Wellsford State Highway 1 upgrade, which was announced in March 2009 and didn’t actually get started until December 2016. The Christchurch motorway projects were promised and announced in March 2009 but didn’t actually start until November 2016. It’s more important to get the details of these things right.

Chris Bishop: Has he discussed with New Zealand Transport Agency officials reallocating money from the rapid transit activity class to the State highway improvement activity class, in light of the delays to the roll-out of light rail?

Hon CHRIS HIPKINS: I don’t have that information to be able to answer on behalf of the Minister. I’m not sure what particular conversations he may have had about that.

Chris Bishop: Will he give a commitment in the House to discussing with the transport agency reallocating money from rapid transit activity to State highway improvements, in light of the Prime Minister’s Business Advisory Council warning that we are at an “infrastructure crisis point”?

Hon CHRIS HIPKINS: I’m not in a position to be able to give that commitment.

Question No. 7—Agriculture

7. TODD MULLER (National—Bay of Plenty) to the Minister of Agriculture: Does he stand by all his statements, policies, and actions?

Hon DAMIEN O’CONNOR (Minister of Agriculture): Yes. We are proud to promote the opportunities and future for sectors of our economy that are essential, that are sustainable, and that are exciting. We believe there are huge opportunities for great careers across agribusiness, and we reject the constant negative portrayal of agriculture by the National Party.

Todd Muller: What did he mean when he said on Q+A last week that the cost to farmers of meeting the Government’s proposed new water policy will be 1 to 2 percent—1 to 2 percent of what?

Hon DAMIEN O’CONNOR: My estimate was based on my personal experience and talking with farmers. It was a guesstimate. I understand that there will be many farmers that will not have to incur any cost because, in fact, they are way ahead of the National Party and the last Government—they are way ahead of what has to be done—but there will be other farmers that will have to spend more, because they have not received the signals yet that New Zealanders want better-quality water, higher-quality animal welfare standards, and better animal traceability, and that we’re trying to help them and encourage them to get up to that higher standard.

Todd Muller: Point of order.

SPEAKER: No, we’re not having a point of order. What we’re going to do is tell the Minister he addressed a question very well but it wasn’t the one that was asked. I think the key word was “what”—1 to 2 percent of what?

Hon DAMIEN O’CONNOR: The 1 to 2 percent is of gross revenue, in my estimation.

Todd Muller: What did he mean when he said in that same interview that these costs “will need to be absorbed by farming operations”?

Hon DAMIEN O’CONNOR: If that member had spent any time farming, he might understand that most of the costs of operation of farming are, in fact, absorbed by the farmers. They are not in a position to simply shift on their costs. That reality is well understood by this Government. Maybe that member should pick up on it too.

Todd Muller: At what farming meeting, then, did you sit, listen, and hear farmers say that they would be able to absorb these costs?

Hon DAMIEN O’CONNOR: I have many, many meetings up and down this country. I get out on the farm quite often. That member has probably spent too much time behind a desk at Fonterra to get out and learn what farmers actually want.

Kieran McAnulty: Does he stand by his statement that a hands-off, “she’ll be right” approach to agriculture policy does not serve the best interests of farmers and rural communities?

Hon DAMIEN O’CONNOR: I consider that that would be about as productive as standing behind a cow in a herringbone cowshed when she wants to relieve herself. It’s better that we take a proactive stance than the previous hands-off, laissez-faire, do-nothing approach of the previous National Government.

Todd Muller: Got to watch for the tail twitch. How did these proposed environmental changes and associated costs get through his and the Government’s rural-proofing process?

Hon DAMIEN O’CONNOR: I can assure this House and the farmers of New Zealand that all these proposals have been thoroughly discussed by numerous Ministers, by officials from the Ministry for the Environment and the Ministry for Primary Industries, by farming leaders’ groups, and by people up and down this country who support the direction of this Government in trying to improve our waterways, lift animal welfare standards, and ensure that we do commit to climate change agreements that were committed to in 1997 but ignored by the previous Government. We’re going to assist the farmers get into a better place where they get more for what they do—not simply ask them to do more, which is what the National Government did while in Government.

Todd Muller: I raise a point of order, Mr Speaker. Did that address the specific question about his rural-proofing process?

SPEAKER: I think mixed amongst it there was an addressing, yes.

Todd Muller: Oh, you’ve got to look hard—OK, very good.

SPEAKER: One sifts.

Question No. 8—Justice

8. GOLRIZ GHAHRAMAN (Green) to the Minister of Justice: Does he have confidence in New Zealand’s current electoral donation laws?

Hon ANDREW LITTLE (Minister of Justice): The way I would characterise it is I think that our current laws and the story that has appeared in the media today have exposed a vulnerability for New Zealand’s political donations regime. That is why I wrote to the Justice Committee in October last year and asked them, as part of their inquiry into the 2017 general election, to specifically consider the issue of foreign influence and foreign interference, and I eagerly await the conclusions by that committee in their report.

Golriz Ghahraman: Does he support strengthening our donations laws, given, specifically, the story this morning that a former Minister facilitated a $150,000 donation from an overseas person to the National Party?

Hon ANDREW LITTLE: One of the issues that particularly concerns me about the story that has appeared today is the fact that a donation that ostensibly has come from overseas has gone through a company registered in New Zealand but whose ownership is not known, whose source of revenue is not known, whose source of capital is not known. If it is correct that the source of revenue for that company is foreign, that the source of capital for that company is foreign, then that would appear to have defeated the objectives of the law that we have. That’s why I say that our law appears to contain a vulnerability. That is why I have asked the Justice Committee to look at the issue, and because this is an issue that affects all political parties, it is right that a body such as the select committee should have a look at it, and I eagerly await their recommendations.

Golriz Ghahraman: Will he ban overseas donations to New Zealand politicians and political parties, as provided in my strengthening democracy member’s bill?

Hon ANDREW LITTLE: I haven’t taken any view on whether or not foreign donations should be banned to political parties. I do note that the International Institute for Democracy and Electoral Assistance says that in their survey of countries, 121 countries outright ban foreign donations to political parties—and those countries include Australia, Canada, the United Kingdom, and the United States. But I eagerly await the conclusions and the recommendations of our Justice Committee before drawing any conclusions myself.

Golriz Ghahraman: Will he consider capping political parties’ donations at $35,000 and banning anonymous donations over $1,000, as provided in my strengthening democracy member’s bill?

Hon ANDREW LITTLE: Again, I am aware that those provisions are within that member’s member’s bill. I have reached no personal conclusions and I have no advice to give the Government at the moment. That is the reason why I am eagerly awaiting—I think it’s probably correct to say by now “anxiously awaiting”—the conclusions of the Justice Committee on this issue, because I think what that committee has to say will be very important.

Golriz Ghahraman: Does he think it could be difficult to get cross-party consensus on tightening our donations laws, given today’s allegations of a large donation from a foreign-owned company to the National Party?

Hon ANDREW LITTLE: No. I think every member in this House is concerned about the rising evidence from overseas about foreign interference and influence in political systems. I am reassured by a conversation that I had with the Hon Dr Nick Smith at the end of last year, when the issue about the Justice Committee examining foreign donations and foreign interference in our political system came up, and he said to me that he was very keen to make sure that that committee and this Parliament do the right thing, given the evidence abroad about political interference.

Question No. 9—Corrections

9. Hon DAVID BENNETT (National—Hamilton East) to the Minister of Corrections: Does he stand by his statement, “We have never had to manage a prisoner like this before”, in relation to the alleged Christchurch gunman?

Hon KELVIN DAVIS (Minister of Corrections): Yes.

Hon David Bennett: When the Minister said, in written questions, “I have asked questions concerning the management of this high-profile prisoner”, what specific questions did he ask prior to 14 August?

Hon KELVIN DAVIS: I asked for assurances around the management of the alleged gunman. I received those assurances from the Department of Corrections that he was being managed in accordance with the Corrections Act and our international obligations.

Hon David Bennett: When in response to written questions he said that corrections held regular meetings and updates on the management of this high-risk prisoner, then in the meetings prior to 14 August, did they update him on correspondence to and from that prisoner?

Hon KELVIN DAVIS: I was updated on the conditions that the alleged gunman is being held under and I was updated on a number of things to do with the way he is being incarcerated, including his ability to send and receive mail.

Hon David Bennett: So did the Minister know about this correspondence before it became public?

Hon KELVIN DAVIS: No, I didn’t know about the content of the correspondence that had been sent by the alleged gunman.

Hon David Bennett: What were the specific assurances he sought from corrections around correspondence in regard to this high-profile prisoner, and should he have asked for more assurances around correspondence around that prisoner?

Hon KELVIN DAVIS: Well, I asked for assurances that he is being managed under the Corrections Act and our international obligations. I received assurances that that was, in fact, the case and that he was being looked after in accordance to the way he should be: our international obligations and the Corrections Act.

Question No. 10—Education

10. NICOLA WILLIS (National) to the Minister of Education: What immediate steps, if any, has he taken to address teacher shortages in early childhood education, and does he agree with the chief executive of Te Rito Maioha, Kathy Wolfe, reported comments that the Government has not done enough to deliver on its commitments and has instead put early childhood services in a holding pattern?

Hon CHRIS HIPKINS (Minister of Education): In answer to the first part of the question, since becoming Minister of Education, the Government’s done a number of things, including introducing higher funding rates for initial teacher education providers, including those delivering early childhood education (ECE) teacher-training; we’ve implemented a marketing campaign to recruit more people to the teaching profession, including early childhood teachers; the teacher education refresher subsidy, which provides free refresher training for those whose registration has lapsed, has helped more than 400 early childhood educators back into teaching; early childhood education teachers have been added to the long-term skills shortage list; the Government has increased the number of scholarships being awarded to early childhood teacher trainees by 60 percent—among other things. In answer to the second part of the question, I’ve had some very good discussions with Kathy Wolfe. I don’t agree with her on this. For example, the Government has increased funding for early childhood education in both of the Budgets that we have been in Government, including the salary component of funding rates for early childhood education, which compares to the nine years prior, where the salary component of the funding rate was not increased once.

Nicola Willis: Does he accept there is a shortage of early childhood education teachers, and will he act on those shortages by streamlining teacher registration processes—

SPEAKER: Order!

Nicola Willis: —for teachers returning—

SPEAKER: Order! Order! The member’s already done two parts to a question.

Nicola Willis: Does he—

SPEAKER: No, no, the question’s finished. The Minister will answer it.

Hon CHRIS HIPKINS: Yes, I do accept that there is a shortage of early childhood education teachers, and I note that it typically takes a minimum of three years to train an early childhood education teacher, and this Government has been in office for less than two.

Nicola Willis: Is he aware that more than 2,000 early childhood educators responded to my survey about teacher shortages, with 85 percent reporting difficulty in finding suitable early childhood teachers—

SPEAKER: Order! Order! The member’s now finished—two legs.

Hon CHRIS HIPKINS: I don’t have responsibility for the member’s survey.

SPEAKER: No—you do have responsibility for your own awareness.

Hon CHRIS HIPKINS: Well, I’ve read her press statement.

Jan Tinetti: Does the Minister have authoritative information about teacher supply in early childhood education?

Hon CHRIS HIPKINS: One of the great frustrations here is that we do not have good information about teacher supply. When I became the Minister of Education, the monitoring tools for teacher supply in schooling were relatively weak, and in early childhood education, they were virtually non-existent. That is something that we have asked the Ministry of Education to work on remedying.

Jan Tinetti: What role have trends in initial teacher education for early childhood education teachers played in ECE teacher supply?

Hon CHRIS HIPKINS: The trends in initial teacher education participation have had a significant impact on teacher supply. In 2009, there were 2,990 people training to be early childhood education teachers; by 2017, that had fallen to 1,240—a 59 percent reduction in the number of people training to be early childhood education teachers. It is going to take some time to catch up after that nine years of not enough people training to be early childhood teachers.

Question No. 11—Finance

11. PAUL EAGLE (Labour—Rongotai) to the Associate Minister of Finance: What effect has the ban on foreign buyers of residential housing had on the number of residential properties purchased by persons who are not citizens or permanent residents?

Hon DAVID PARKER (Associate Minister of Finance): I’m pleased to inform the House that the ban on foreign buyers of residential property has greatly reduced the number of homes being sold to foreign buyers. In the June 2018 quarter, before the ban came into effect, 1,116 homes were sold to persons who weren’t permanent residents or citizens of New Zealand. In the most recent quarter, that number has dropped by 84 percent. Some had claimed that clamping down on foreign buyers couldn’t be done consistently with our free-trade agreements or that it wouldn’t work in practice. They were wrong: this Government did it. It’s working, and we’re ensuring that the prices of housing in the New Zealand market are set by New Zealanders for New Zealanders.

Paul Eagle: Where has the ban on foreign buyers had the greatest effect?

Hon DAVID PARKER: The foreign buyer ban was always intended to have the greatest effect in housing markets that were the most overheated, and that has been the result. In the first six months of 2018, 546 homes in central Auckland were sold to foreigners. In the first half of this year, this has fallen to under 100. Before the ban, one in 10 homes in the Queenstown Lakes District, which includes both Queenstown and Wānaka, was sold to foreign buyers. This has now declined by more than two-thirds. It’s no coincidence that these two areas were amongst the least affordable in New Zealand. This is where the foreign buyer ban has been most effective and where prices have settled. This also frees up construction effort for builders to concentrate on the affordable homes for New Zealanders who actually live there.

Paul Eagle: What effect would repealing the foreign buyer ban have?

Hon DAVID PARKER: There’s no doubt that I think the ban has strong support amongst New Zealanders, and this Government’s committed to maintaining it. I believe it would be foolhardy for any Government to attempt to repeal the legislation, because it would again allow foreigners to outbid New Zealanders, both undermining the Kiwi Dream and making us tenants in our own land. If any political party does have an agenda to allow foreign buyers back in the housing market, I’d expect that they tell the public about it in straight form before the election rather than after it, and I’d also make the point that foreign donations shouldn’t be the rule.

Question No. 12—Justice

12. JAMI-LEE ROSS (Botany) to the Minister of Justice: Is he satisfied the overseas donation provisions in the Electoral Act 1993 sufficiently protect New Zealand from foreign interference; if not, will he introduce legislation to ban foreign donations in time to ensure a ban is in place prior to the 2020 election?

Hon ANDREW LITTLE (Minister of Justice): It will be apparent from the answer to an earlier question today that I do have some discomfort about the extent to which the current law in the Electoral Act provides protection against the misuse of foreign donations in our political process. To the second part of the question, I am eagerly awaiting the conclusions by the Justice Committee on their examination of this issue as part of the inquiry into the 2017 general election, and before I contemplate any legislation in this regard, given that it is a matter that will be of acute interest to every political party in this Parliament and outside of it, I would rather see their conclusions before looking at legislation.

Jami-Lee Ross: Given he has previously expressed concerns about the Justice Committee’s progress on the foreign interference inquiry, why does he not start the legislative process now, to avoid a situation where the committee’s report comes too late to have any of the recommended changes implemented prior to the 2020 election?

Hon ANDREW LITTLE: I think the member makes a very fair point, and there will come a point at which I will need to consider whether the Government acts before the Justice Committee provides its report and its recommendations. It would not be my preference to do so before having the benefit of that committee’s collective wisdom, but I will closely watch the progress that the committee makes on its report on the inquiry into the 2017 general election.

Jami-Lee Ross: If the spirit of the law is such that a foreigner should not be able to donate to political parties via a New Zealand company, will the Government commit to tightening the law so that it can no longer happen?

Hon ANDREW LITTLE: As I’ve said, I accept that that member has consistently expressed concern about this issue, and I admire him for doing so, and—[Interruption]

SPEAKER: Order! This is an issue which members think is important, and I’d prefer to be able to hear the answer rather than have back and forth.

Hon ANDREW LITTLE: And, look, I think this House does need to consider the issue seriously, but because there is some complexity to it, I do want to hear what members from different political parties have to say about it before the Government would move on it. But the member should be reassured that I regard it as a matter that does require some attention and examination, which is why I referred it to the Justice Committee precisely for that reason.

Urgent Debates Declined

Government Review of ICT Projects—Data Safety

SPEAKER: I have received a letter from the Hon Nicky Wagner seeking to debate under Standing Order 389 the Prime Minister’s announcement that the Government will review present and planned ICT projects, to ensure that data is safe. This matter is one of several data security breaches that have come to light in the past five years which involve Government responsibility. These cases have not generally resulted in an urgent debate being held. I am not convinced that this case warrants a setting aside of the business of the House. The member will have the opportunity to debate the matter in the finance and government administration sector of the Estimates debate later today. The application is therefore declined.

Bills

Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill

Third Reading

Debate resumed from 22 August.

ANDREW BAYLY (National—Hunua): Thank you, Mr Speaker. It’s a pleasure to be talking on the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill at its third reading. Of course, we’ve had a few speeches on this bill, which is quite a technical bill dealing with an issue that not a lot of people have the opportunity to be involved in, but it’s about allowing entities, and particularly banks and financial institutions, to be able to use what’s called derivatives or hedging instruments to be able to manage their risks when they want to go and borrow money—as an example—or just generally to operate.

A good example is those foreign currency swaps where you might want to ensure that you always maintain a New Zealand dollar amount on your balance sheet but you have to borrow in US dollars. So you can swap that out at the time that you borrow that money, and when you have to repay it have a fixed rate at which you would repay it. That’s normally covered during that intervening time through an interest rate cost that’s a part of the cost of the derivative.

Another example is on interest rates. Often people borrow money at floating rates from offshore, and they may want to make sure that it’s fixed at a known rate and they can enter into interest rate swaps to ensure that, again, they have the ability to control that risk and manage it in a way that they want. Of course, other parties may want to take on more risk, because risk often correlates to a higher return, but not always, of course, as Madam Speaker will know.

Just to put this in context, this is a huge, huge trading platform that financial institutions use; not only banks but our large financial institutions such as the New Zealand Superannuation Fund, a $40 billion fund, the ACC fund—$40 billion as well. They all use it and most large corporates use it to some extent. Just to give context, the current value just of New Zealand trading banks annually is about $8.7 trillion, estimated. Of that, about $90 billion every year is with international counterparts.

This is the essence of this bill, because what this bill is doing is actually reacting to the European and the G20 requirements, as a result of the financial crisis, to make sure that these types of instruments have sufficient security—or another term for that is collateral—to ensure that banks do not get overexposed or financial institutions don’t get overexposed. The European Union and also the G20 have set about, around the world, putting in place some rules that have been agreed to make sure that there is a platform or an understanding about the collateral arrangements that go with it. New Zealand at the moment is slightly out of step with that.

What this bill seeks to do is bring New Zealand in line with those international requirements. It requires a lot of changes. It requires changes to the Reserve Bank of New Zealand Act, it requires changes to the Insolvency Practitioners Regulation Act, and it also requires changes to the Financial Markets Conduct Act.

I think that the main point about this is that we had a number of very technical submissions on it, but the first thing was around collateral, as I mentioned before. The issue is this: when you enter into a trading agreement or a swap of some sort, if an event occurs that will mean that the swap is not going to be paid or one of the parties, it may be the counterparty, fails for some reason, what is the collateral that sits in the middle that provides security to the person that has provided that loan? That point of collateral recognition, at the moment, is very confused under New Zealand law because it really doesn’t anticipate it, particularly under the Personal Property Securities Act. All these rules in New Zealand actually frustrate the ability of someone who’s legitimately entered into a swap to be able to grab the collateral, normally in the form of a margin and to apply that against the losses they may receive with the counterparty not actually fulfilling its obligations. That’s an important part of this bill.

Hon JAMES SHAW (Associate Minister of Finance): If you’ll allow me to pick up where the previous speaker, Andrew Bayly, left off about some of the important aspects of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. I just wanted to acknowledge the previous speaker, who gave, I think, a fairly detailed rundown of what’s in the content of the bill. I just wanted to sort of lift it up—this being the third reading of this bill’s passage through the House. So, of course, it will shortly become law.

Andrew Bayly: Second reading

Hon JAMES SHAW: As the—sorry. I beg your pardon, the second reading.

Hon Members: Third.

Hon JAMES SHAW: The key point that the previous—it is the third reading? All right, I beg your pardon. You got it wrong, Andrew.

DEPUTY SPEAKER: It is the third reading. We are on the third reading.

Hon JAMES SHAW: He had it wrong. Yes, yes.

DEPUTY SPEAKER: I’m saying that.

Hon JAMES SHAW: I was getting confused. Yes, I should always follow your guidance rather than an Opposition MP, Madam Speaker. The point that the previous speaker was making was that the whole point of the bill is to enable organisations that are engaged in these cross-border transactions to have an ability to manage their risk, including, as he said, the ability to actually take further risks if they want to, but in an environment that enables that. Current regulation, as it stands, doesn’t quite get there.

So I think there are a couple of key points that I’d like to make about this particular piece of legislation which I think help to enable that environment. The first is—and again, Mr Bayly referred to this—that what we’re doing with this piece of legislation is really aligning the New Zealand regulatory environment to that primarily of the European and Australian environments, with whom we’ve got quite close contacts, and a generally accepted global regulatory environment. I do want to acknowledge the officials that have worked on this, because this is a very complicated and technical area of regulation. To ensure that we are able to update our own regulation in a way that actually matches what’s going on in the rest of the world and to attempt to keep pace with that is no easy task.

I think, actually, one of the things that’s going to have to happen, of course, is that as soon as this piece of work is complete, we’re going to have to be looking at what’s coming next—what’s coming down the pipeline—because, certainly when it comes to financial services, regulation always follows innovation. If you don’t keep abreast of the innovation, and you allow your regulation to stagnate at a point in time whilst things move on, then you actually end up creating more instability in the market place. It can lead to the use of unregulated financial instruments, which can lead to some pretty negative consequences, the most famous, of course, being the global financial crisis that we all lived through in the not too distant past. So I say that both to commend the officials and to just to kind of put on the record that we cannot stop here. We actually need to keep up the work and make sure that we’re not falling behind and that we’re staying current, not just of the rest of the international regulatory environment but of what’s going on in industry as well.

The third point that I’d like to make about this, having spoken on this bill a number of times, is that this is one of those pieces of legislation that does have unanimity across the House, and that is significant when it comes to this form of regulation because what it means is that the markets are able to look at this and say that the will of Parliament is completely clear. There is no one who is questioning that this is the direction of travel that we have to go in. That means a much more secure operating environment for those businesses that are participating in the market. I think those things combined—the fact that we’re bringing our legislation up to date with the international environment and the fact that we’ve got unanimity in the House on this particular piece of legislation—do actually create that environment for businesses to be able to say that they are able to manage their risk in a supportive environment. But I say that, again, with the caveat that this is, essentially, past-looking, and it’s saying, well, we are literally just catching up with where industry and other markets have gotten to. The risk always that we, as a House, need to manage, and that the Ministry for Economic Development and Inland Revenue and so on and Treasury need to constantly monitor, is what is going on in the market place that we need to stay abreast of.

So I am pleased that we’ve managed to get to this point with this legislation. As Mr Bayly was just saying, it is a very technical bill and not an easy one for people to follow, but it is important, because a good regulatory environment, in this case, enables a more secure financial environment and a more stable financial system for us all to operate within. That, particularly given the current headwinds in the global economy, I think is important for us to maintain. So with those thoughts I’d like to say, again, to the officials: thank you for your work. Thank you to the Finance and Expenditure Committee who have pored over this for many hours, and to the submitters. I think that what we’ve got here is a good piece of legislation; I commend it to the House. Thank you, Madam Speaker.

ANDREW FALLOON (National—Rangitata): Thank you, Madam Speaker. It’s a great pleasure to take a call this afternoon on the third reading of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. I’m, unfortunately, not a typical member of the Finance and Expenditure Committee but I was fortunate to sit in on some of the considerations, deliberations, of this bill. It was very well chaired by Mr Michael Wood at the time, but I’d also like to acknowledge the contribution that Mr Andrew Bayly has made, the member for Hunua, because—as has been pointed out, I think, by a number of speakers now—he’s probably uniquely qualified to speak on this bill as he has very, very in-depth knowledge of the subject, and showed exactly why this afternoon.

As has been said quite a lot, actually, this bill is needed primarily for keeping access to capital by banks. It’s been said a number of times. What hasn’t been said so much is that although this bill was introduced in February this year—and I want to thank Minister Faafoi for doing so—the need for this bill has actually been noted for at least a couple of years. That’s no criticism of the Government; indeed, it was the previous Government that was considering this just before the last election. So the only reason I say that is it is a long time coming. This bill is needed by the industry. The banks have been asking for this for a very long time. I’m very, very happy to be supporting it this afternoon. I would like to see it passed this afternoon, and that’s why I’ll happily commend it to the House.

DEPUTY SPEAKER: This next call is a split call.

GREG O’CONNOR (Labour—Ōhāriu): People often say they stand up to take some great pleasure to speak on these bills, but, actually, I do take some pride in this in that I have been forced to dig deep into my knowledge of financial matters to understand it. I think, actually, everyone in New Zealand should quite easily understand derivatives, because we just go back to what caused the global financial crisis (GFC). We could sit through—and Mr Andrew Bayly gave us a very good technical description of what they are. But, quite simply put, what you do is you take a whole pile of assets; some of them might be risky, some of them might not. The whole idea of creating a derivative is that the whole product should balance out so when one of the products in the derivative is having a bad day, a bad week, a bad month, a bad year, the other one will be having a good one. So as Mr Bayly said, it’s about taking the risk out.

However, to understand the importance of ensuring that these are well-regulated, these derivatives, go back to what happened in 2008. These derivatives were made up of houses, and the houses were being sold to people who were called “NINJAs”—no income, no job, and I haven’t worked out what the other bit was on the “s”; someone might be able to help me there. But, essentially, it meant that houses were being sold to people at very low interest rates initially who were never ever going to be able to repay the mortgage when the interest rate came to the market rate. So they were fine for two, three, maybe five years, for the time of it. But when the time came to pay them, they were never going to be able to pay them. They were always going to be in default.

Now, the theory was that that was fine because for every bad loan, every “NINJA” loan, there would be a good loan, so these were safe. You could market these things around the United States, market them around the world. They were given by the rating agencies—Standard and Poor’s and the others—very good ratings, triple A ratings. So everyone thought they were buying this nice, safe derivative. Well, actually, what happened was that every single one of the products that made up these derivatives—which could go up for $100 million worth of derivatives—was bad. So when the American housing market collapsed, the whole derivative market collapsed. All of a sudden this nice bit of paper, this nice derivative that you had—and you thought, “Wow, this is worth millions, maybe billions.”—actually wasn’t worth the paper it was printed on.

So that is why this piece of legislation is very important. It is so that when people do—either directly; or indirectly, through their bank, through their investment adviser, or whatever—enter this highly sophisticated market, they have some understanding of what it is that makes up that particular derivative they’re investing in. But that’s unlikely, because we saw, following the GFC, just how hard it was to unravel these things. I think, from memory, one person somewhere in New Jersey went to jail at the end of it. No one else was held accountable. The American taxpayer bailed out the banks and the other financial institutions and everyone has gone on wonderfully since.

So that brings us to this piece of legislation, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, which, of course, is to bring New Zealand into line internationally so that there can be some comfort that people who are either directly or indirectly investing in the derivatives market will know that that product that they’re buying is what it is supposed to be. It is a hedge; it is some sort of bringing together, some countering the risk so that, ultimately, the potential bad stuff should potentially balance the potential good stuff.

So when we look at what it is meant to do: it will allow New Zealand entities to meet requirements by making technical amendments to the Reserve Bank of New Zealand Act, the Corporations (Investigation and Management) Act, the Companies Act, and the Personal Property Securities Act.

We can only hope—I mean, there is nothing certain; we know that just over the weekend, with President Trump’s on-again off-again trade war with China—that those sort of decisions, which may bring amusement to those watching Fox Television or CNN or BBC or even our own television here, are just the musings of a man who has become quite an entertainment in the political world. However, those decisions come right down to what we are trying to do here today. So I commend this bill to the House.

LAWRENCE YULE (National—Tukituki): It’s my pleasure to speak in this third reading of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. I congratulate the Minister, Minister Faafoi, on bringing it to the House.

For me, it’s quite a simple piece of legislation. What it really means is that we are able to operate within international laws, and we as a nation, and our banking institutions, are able to operate with the best codes around the world. I agree with the previous speaker, Greg O’Connor, that a lot was learnt in the global financial crisis. A lot was learnt with derivatives, subprime mortgages, and all sorts of things called swaptions and all those other types of things that for most New Zealanders wouldn’t make a lot of sense. But, effectively, they are a risk management tool. As the last speaker said, usually in a risk management tool one side of the risk wins and the other side loses. What this piece of legislation really does is bring us into line with international best practice and a global recognition of a series of regulations that we need.

This side of the House is prepared to support this, has been happy to support it, and, in fact, started much of the work on this. It’s my pleasure to commend it to the House at this third reading.

Dr DEBORAH RUSSELL (Labour—New Lynn): One of the interesting characteristics of the speeches this afternoon is that each person has been explaining a little of what this bill is about. It’s like a group of people in a darkened room, where there is a statue in the middle and no one quite knows the shape but each person shines a light on it from a different angle. Between us all, we are telling the whole story of what is going on with this bill and enabling people to understand it.

It is actually quite a short bill; it’s only 19 pages. As bills go in this House, it’s not a particularly long one. But it is complicated, not in terms of what it does, as Mr Yule has pointed out—because what it does is it brings us into line with our international markets—but in terms of the types of transactions it deals with. I thought that for the benefit of people listening, I would try to bring it back to a very practical example of what one of these derivatives is and why they can be so complicated.

A derivative: futures, swaps—let me explain a future. The first recorded futures are actually from the Dojima Rice Exchange in Japan, in about 1710, so they’re quite an old form of financial instrument. But the ones that we are really familiar with these days derive from the Chicago Board of Trade, which was first set up in 1848. The first futures trades were on corn. Essentially, what would happen is that a farmer, a corn-grower, would agree, say, in spring—and that would, of course, be in April in the United States—that come the Autumn, he—and it probably was a he—would sell his crop for a certain price. So he would get the money right then in April, and come August, he would actually have to hand his crop over. So, in essence, he would put a price on it in April, for delivery in August. That was the futures contract. It sounds very simple. Indeed, futures are quite simple in that respect, but they involve a bet on the future.

So for the people who are trying to understand what goes on with these complicated sorts of financial instruments, think of them as a bet—a bet like a bet at the horse races, where you’re not quite sure what the outcome is going to be. If you’re a good punter, then you’ve probably got a pretty good chance of bringing home some of the money. The problem is when these bets get piled one on top of the other. So imagine that as a punter, a punter might go and place a bet on a horse race at the TAB—come Melbourne Cup day, I’m sure many of us will be doing that—but then she perhaps might go and place another bet on a different horse, and one bet would counter the other a little bit and spread the risk a bit. But then imagine that the punter, in addition to doing that, might go and make a little casual investment, as we often do in our office sweepstake on Melbourne Cup day, and spread the risk a little bit further. But then imagine that that punter, on top of that, says to her mate, “Actually, I’m going to sell you the proceeds of my bet. We don’t know what it’s going to be, but here’s my bet. Here’s my betting ticket, and I’m got to sell it to you for $1. I don’t know what the outcome is going to be yet.” So you add another layer on to the bet. That’s what’s happened with derivatives and that’s what happened in the 2008 global financial crash. As my colleague Mr Greg O’Connor explained, layer upon layer of complexity was added on to these really quite simple bets, and when the original bets didn’t pay off, the whole structure came tumbling down.

I think a little bit of extra explanation is needed here. The whole structure came tumbling down because too many of the punters didn’t have any skin in the game. They didn’t have any skin in the game because in this great, complex world of financial trading, no money actually swapped hands. No one actually had to pay anything over. So in the wake of the global financial crisis, one of the responses that were put into place was to say that around derivatives trading, around trading these complicated futures and swaps and the like, an actual margin—a little bit of the earnings—actually had to change hands and be at risk in any transaction. So it brings an element of reality to what was going on in those very complicated derivatives markets.

Every player in those markets now has to have some skin in the game—that is the rule that is required in the international markets. For New Zealand to be able to participate in these markets, as Mr Yule pointed out, we need to ensure that people here in New Zealand also have skin in the game. So it enables our traders to participate in those international markets. It’s a critical part of our liquidity and the way we manage our liquidity.

There is another issue that was dealt with by this particular bill, and that’s to do with, well, the LIBOR—and everyone goes, “What on earth was the LIBOR?” It was the London Inter-bank Offered Rate. What it did was—it was a way of setting interest rates, and it depended on banks self-reporting what interest rates they thought ought to be underpinning the market. Once you had that rate underpinned, then people in that market could go ahead and trade and understand what was going on in the market. So, you know, the banks would submit an interest rate and give a picture of the health of the system. The system operated on trust, and often systems operating on trust can do very, very well, but in this case the sums of money at stake were such that people took advantage of it and manipulated the LIBOR, the London Inter-bank Offered Rate. So part of what this bill does is it ensures that instead of having a system that operates just on trust, in fact, the way that rate is set is determined by actual bank rates. It has to be set no longer on trust but in a certified way. Again, that’s what’s required by the international markets, and this particular bill brings New Zealand into line with those international markets.

It sounds like small things. It is quite complicated to understand this law. I think all of us had to work quite hard to get our heads around it, and I wish to offer a huge tribute to the officials who guided us through this. It is challenging legislation because it is actually difficult to understand, and it was difficult to get our heads around it, but the officials guided us through it very nicely indeed and turned what for many people can be financial gibberish into quite plain English and helped us to understand what was going on. So a big tribute to those officials, and it was a combination, as always, of the officials’ work, the work of the Minister, the work of the Finance and Expenditure Committee, and members of the select committee from all parties on that committee. We worked on this bill together, and I think we’ve come to a very good outcome. Madam Speaker, I commend this bill to the House.

PAULO GARCIA (National): Tēnā koe, Madam Speaker. Tēnā koutou katoa. I thank the member across the House for a very clear and simple rendition of all this. I myself, who was not a part of the Finance and Expenditure Committee, will strive to speak to the bill in broad strokes as best as I can. So I speak to the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill.

New Zealand banks use offshore and domestic finance to fund their activities. They enter into derivatives contracts to hedge on the exchange risk of raising money in foreign entities. Other large public sector managers—ACC, the New Zealand super fund—also use derivatives for hedging purposes. Large non-financial corporates also use derivatives. The current value of the big four of New Zealand banks’ derivatives activity would be impacted if this bill were not passed. Currently, it’s around $8.7 trillion annually, and with the outstanding notional amount of cross-country currency basis swaps contracted against international counterparts, it’s around $90 billion across the big four banks.

This omnibus bill seeks to amend several Acts to achieve mainly two primary purposes, two objectives: to ensure that New Zealand financial market participants can continue to participate in international financial markets, particularly by using derivatives to hedge their risks; and also to bring New Zealand law in line with financial market reforms in the European Union and G20 States. The National side supports the bill, and we support all reforming legislation so that banks are not impeded in any way from complying with international requirements in relation to over-the-counter derivatives. These reforms are needed to ensure the ongoing soundness and efficiency of our banking system. Our banks need access to capital, and our regulations shouldn’t prevent them from complying with international best practice, and this is what the bill allows them to do. We also support the need for a licensing regime, as it is the only way to ensure continued access for New Zealand benchmark users to European financial markets.

The G20 rules require that parties to over-the-counter uncleared bilateral derivatives provide security, also known as “margin”, under a derivative contract to support the contract. If one party fails to honour its obligation under the contract, the other party can call on the margin to shield it from any losses that may result. The G20 reforms were introduced as a way of reducing systemic risk in international derivatives markets that contributed to the global financial crisis, as many have already mentioned. There are certain features of New Zealand’s insolvency, statutory management, and personal property security laws that may impede banks’ ability to comply with the margin requirements. In particular, these laws restrict the ability of entities to post margin that the other party, through the derivative contract, can call upon immediately in the event of a default by the posting party. Inability to comply with margin requirements may restrict affected New Zealand entities’ access to overseas derivatives markets and their ability to hedge the exchange risk of underlying funding. For this reason, we find that the bill greatly supports this continued access by New Zealand banks, and we commend this bill to the House.

Hon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): Thank you, Madam Speaker. Can I thank members from all around the House for their contributions. I didn’t get to kick off this debate but am responsible for the piece of legislation and I just wanted to have the opportunity to thank a number of entities—first of all, the industry, for working collaboratively with a number of Government agencies, primarily the Ministry of Business, Innovation and Employment (MBIE) and the Reserve Bank—and also to commend the Finance and Expenditure Committee, led by Michael Wood, I believe, at the time, for going through this piece of legislation.

There isn’t going to be any print stopping for this piece of legislation when it is finally passed in all of about two minutes’ time, but it is one of those pieces of legislation that is very much needed to ensure that things continue as most New Zealanders would like. There have been a number of quite good attempts, I think, to explain what is a very complex bill in very simple terms, and I want to thank members—Andrew Bayly did a very good job, and also my colleague Deborah Russell did a very good job—for explaining to those people who may have been listening to this debate about what is going on with this piece of legislation. I wish that they had been there when I was first getting a briefing on this piece of legislation, but, having said that, I’ll try and do a little bit of that myself, because people may still be confused.

I think the best example is our banks, and they need to go overseas to acquire capital for the likes of New Zealanders to borrow. For those banks to be able to do that these days, given the events of the global finance crisis, there are conditions that the EU and G20 nations have put on, essentially, overseas lending. We have, by this legislation, started to comply with those decisions, with those regulations, because, quite simply, if we hadn’t, we would have been out of step with nearly every other nation and we wouldn’t have been able to do business with those who lend to our banks.

Essentially, what this means—and I think this is the best way to explain it, as the previous speaker has—is that these derivatives are used by the likes of banks to be able to hedge against any risks over time as that international borrowing is paid back. If, in the extremely unlikely event that one of those entities that are borrowing overseas were to fall over or to default on one of their payments—if those who have lent the money to, for example, a bank want to be paid as a result of a failure to pay a payment—then the hierarchy or the prioritisation of that entity was a little further down the chain. What this bill does is lift those entities further up the chain to give them more confidence to lend to New Zealand entities if something were to go wrong.

We couldn’t have been out of step with other nations. This legislation ensures that we are in step so that those entities go to those markets on an even footing to get the capital that is required here in New Zealand for our economy to keep ticking. If we hadn’t, getting access to that capital would have been much more difficult and, in plain English, that would have meant it was more expensive for the likes of our banks to get that capital, which may have had an impact on interest rates or lending rates here in New Zealand, which, obviously, everyone in this House did not want to happen.

So, again, can I thank the Reserve Bank and MBIE officials for the fact that we have got this legislation through in good time and without too much drama—again, to the select committee for making some changes that were required and for the pleasure of the House to get this piece of legislation through quickly this afternoon.

Bill read a third time.

Bills

Venture Capital Fund Bill

First Reading

Hon DAVID PARKER (Associate Minister of Finance): I move, That the Venture Capital Fund Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by Monday, 2 December 2019 and that the committee have authority to meet at any time while the House is sitting, except during oral questions; during any evening on a day on which there has been a sitting of the House; on a Friday in a week in which there has been a sitting of the House; and outside the Wellington area despite Standing Orders 191, 193, 194(1)(b), and 194(1)(c).

This bill establishes the Venture Capital Fund and provides for the Guardians of New Zealand Superannuation, whom I am going to refer to as the “Guardians”, to manage and administer the fund. At the heart of this is our drive for stronger economic growth, which we think relies upon improving our productivity performance. We recognise that lifting New Zealand’s productivity performance requires well-functioning capital markets that help high-potential firms to raise funds on their growth journey.

A recent Productivity Commission report found that New Zealand suffers from low per capita capital investment into our productive sector. They’ve said that our low per capita investment in the productive sector has been made worse by high rates of immigration, diverting investment capital into other things, like public and private infrastructure. It’s also true, in the view of the Government, that there has been an excessive proportion of our investment capital going into speculative asset classes, which are existing land-based asset classes. The effect of these factors has been that there has been reduced per capita investment left for our productive economy, and this has inhibited the diffusion of technology, which is a key part of improving productivity.

I believe that New Zealand’s productivity issues have been well canvassed and, as he’s recently left the Productivity Commission, I would pay particular regard to Paul Conway, who, I think, has made a very valuable contribution on analysing why it is that New Zealand, despite world-class institutions recognised by the OECD and others, has lagged in productivity growth relative to some of our peers. He says, and we believe, that the productivity gains that are to be made from technology diffusion and innovation are significant, and we think New Zealand needs to better harness these opportunities. To do this, we need to shift away from an excessive focus on investment in property, towards investments that create sustainable productivity gains.

The world is in the midst of a very exciting and disruptive technological revolution. It’s born of the confluence of affordable computing power, mobile positioning systems, sensors, robotics, big data and the Internet of Things, artificial intelligence, and genetics. We all know that the digitalisation of many parts of the economy creates challenges that countries like New Zealand are dealing with under the banner of “The Future of Work”. McKinsey predicts that by between 2030 and 2040, 60 percent of the current tasks in the New Zealand economy could be automated and 30 percent will be.

The flip side of the enormity of that change is the enormous opportunity to improve the efficiency of existing methods of production and to commercialise the new products and services born of this technological revolution. I believe that it’s the duty of all Governments to help the private sector chase down as many of these commercial opportunities as we can so as to harness the jobs and the value that is created.

We’ve already done a lot in that regard. We’ve extended the bright-line test from two to five years and are ring-fencing losses on property portfolios to discourage over-investment in property asset classes. On the encouragement side, we’ve got a 15 percent R & D tax credit—we campaigned on 12.5 percent but we’ve been able to push it up to 15 percent—a billion-dollar tax cut for businesses that innovate, over four years, and we’ve just extended that in the legislation related to the latest Budget to pre-profit companies so that pre-profit companies can get a refund. But we also believe that more needs to be done in respect of the gap that we have in our early-stage capital markets. These are widely acknowledged. These are the stages beyond seed or angel investment, where companies are looking to expand. They usually require, in this part of their development, some $2 million to $20 million capital to grow.

This lack of capital availability in the market is inhibiting the growth of our start-ups, it’s preventing them from achieving their potential both within New Zealand and on the world stage, and it’s increasing their reliance on offshore capital. We need fast-growing New Zealand firms to be operating in a healthy, well-capitalised start-up ecosystem so that ownership and the benefits thereof can better remain within New Zealand.

I would add that I’m not arguing that they shouldn’t be sold overseas or that we should prevent them from doing so. I’m not even trying to discourage it, but I am keen that they not be forced into that avenue for want of functioning capital markets, and I’m keen that they have access to capital to grow and are not forced to sell or forced to sell too early by current capital constraints. I believe it’s clear that many early-stage companies are continuing to struggle to access the capital they need to develop their potential, which is either constraining their growth or causing them to prematurely seek foreign investment to overcome the funding gap.

Again, once companies really expand into these overseas markets, their capital requirements are very large, and it’s clear from the likes of Rocket Lab, who have raised $200 million in the last year alone to meet their global expansion plans. What we’ve got as a solution is this $300 million capital investment, which has three objectives: first, to raise the number of start-ups that are progressing; secondly, to increase the volume of technology that’s commercialised both for the business units themselves but also to help technology diffusion across the entire economy; and we also think this will have a benefit of retaining ownership of more of these start-ups for longer.

The way we are doing this is we’re harnessing the skills of the Guardians of New Zealand Superannuation. They are the managers of the largest fund in New Zealand and they’ve got an enormous capability. They don’t want to be involved in the tiny individual investment decisions that are made by venture capital (VC) firms, but we need to harness their expertise to both structure these management contracts and use their reputation to help bring in some other private sector into these VC funds as well. The money will go from them through the New Zealand Venture Investment Fund, who will run a fund of fund models, appointing VC fund managers who will bring some matching funds to match the Government’s funds, and those VC funds will make the investment decisions and will maximise the return on these funds. Commercially we’ve got a goal of generating appropriate risk-adjusted returns. The funds will then be returned to the Government and they will then be put back towards meeting the future needs of superannuation. The amount is piffling in relation to the size of the total amount of funds that are currently in the fund, but we think this will make a material difference.

The arrangements require the first fund manager to be the New Zealand Venture Investment Fund, but at the request of the guardians—we thought this was a good point, and indeed I originally intended it anyway—we do want them to be at risk for non-performance. So the super fund could terminate the contract of the New Zealand Venture Investment Fund were they not performing. I don’t think that’s an outcome that will happen in practice, but that theoretical outcome exists.

So the Venture Investment Fund will be the delivery agency via the VC funds that will be a mixture of overseas VC funds and New Zealand VC funds. There will be a policy statement that is issued by Ministers that will guide the guardians in their work. We don’t want all of the funds to be going to overseas VCs, but neither do we want none of the funds to be going to overseas VCs. We want to be building the ecosystem in New Zealand so that, over time, private sector funds take over in this, as they’re already starting to in the early seed or angel funds, which, whilst still supported by Government, are not as reliant on Government funds as they were when those seed funds were initially established.

We believe that the outcome of this will be that we have a better capital cycle in New Zealand, that more of these businesses will be growing to their potential, and that this will have productivity improvements as well as bring jobs and income growth in New Zealand.

Hon PAUL GOLDSMITH (National): Thank you, Madam Speaker, and thank you for the opportunity to speak on the first reading of this, the Venture Capital Fund Bill. National will support this bill to first reading. I don’t like to be unkind, but it was perhaps arguably the only real thing in Budget 2019 which could be described as a growth policy—

Kieran McAnulty: Don’t be so negative.

Hon PAUL GOLDSMITH: No. That’s why we are supporting this bill to select committee.

In a perfect world we wouldn’t be needing such a fund. I mean, ideally the most likely way to get good judgment about whether to invest in a particular venture or a particular company or start-up is somebody putting their own money into it, in the private sector. Putting their money at risk, they’re much more likely to be careful about where that money goes and very focused on the returns. A Government fund, which is using other people’s money, taxpayers’ money, doesn’t tend to have such a good track record. But having said that, the New Zealand super fund does have an excellent track record. So their oversight of this $300 million fund gives some reassurance.

My understanding is they’re not very thrilled about having $300 million, or $240 million, taken from them and sent somewhere else. They’ll be interested to see the letters around all that. I don’t think they’re very thrilled at all. Having said that, it always struck me as an interesting thing, for the short period that I was the Minister responsible for science and innovation, that as a country we invest very large sums in the development of new technologies and new ideas—I’m talking about $1.6 billion, I think, in total in R & D spending through universities and all sorts of funds—creating more and more ideas, but as a country, I suppose, our greatest challenge has been converting those ideas into successful companies. Our public investment in that part of the process has been very limited. So I can certainly see the argument for providing a fund that will help deepen the market in this phase of the development of new, particularly technology, companies.

We’re always concerned about the way in which it’s developed and drawn together. Part of the real benefit that comes from private sector investment, and particularly overseas investment, in such companies and why it shouldn’t be seen as a negative generally is that with the money comes the ideas and the management experience and the world view and the real technical input into the development of these companies. That’s why we should never be afraid of international investment coming into new companies that have been started up or new ventures in such a way, and I don’t think the Minister is quite suggesting this, but if you were to say that we should be able to do it all on our own and if we have the Government sort of funding these things, then that would be a better outcome, because it’s a much more complex iterative process than that.

But, having said that, I do think overall we can understand the idea of the fund. I suppose our broader sort of critique though would be that none of all this makes up for private sector investment. The more important task of any Government is to create an environment where businesses and investors feel confident to invest. Our primary critique of the Government so far in the past 20 months has been that a lot of what they have done has driven down the business confidence that lies behind that investment. I know we’ve had a long-running debate about the merits of business confidence surveys, and I hope the Minister is now starting to take them more seriously, as indeed the Governor of the Reserve Bank and many other people refer to business sentiment as being important.

You know, there are different ways in which it’s measured, but the reality is that the increase in costs on business, the massive uncertainty caused by so much policy uncertainty in this country, with all the working groups, the 18 months of uncertainty around the capital gains tax that I know the Minister did want to introduce and wasn’t able to—all that uncertainty has made it less likely that investors feel confident to invest in companies such as what we’re talking about here, but also in a whole range of investments. So while we are willing to support this particular project that’s put forward, and this investment of taxpayers’ money in such a fund, and the legislation that’s required to support that—and we’ll want to go through it in detail in the select committee—we do make that broader point that good Government and an environment that is supportive of innovation is much broader, and any good Government needs to be consistent around that.

My main concern at this stage, of course, is I don’t understand why the Government is insisting that we report this back on 2 December, which is less than four months away. I don’t see why we shouldn’t be able to go through a normal select committee process with a proper amount of time so that we can get full consideration of how this is done. You know, there is always the risk of getting the arrangements wrong, and we don’t claim to be experts on every element of that, and we do want to hear from not just the fund managers that will benefit from this but a wide range of people who will have an interest in how this is put together. So I do not support rushing this process, and I think we’ll have a debate about that a bit later. But, overall, we’ll see this work its way through the process, and we support this bill to the select committee. Thank you.

Hon KRIS FAAFOI (Minister of Broadcasting, Communications and Digital Media): Madam Speaker, can I thank you for the opportunity to speak to this piece of legislation, and congratulate the Hon David Parker for both a successful Budget. But to get us here—to get this piece of legislation to the House—can I also acknowledge the finance spokesperson for the Opposition, the Hon Paul Goldsmith, for saying that the Opposition will support this piece of legislation to the select committee, where that dragon’s den, the Finance and Expenditure Committee, can have a look at this piece of legislation in much greater detail, as the member said.

I’d also like to thank him for the slight glimmer of sunshine that he had during his speech—in amongst some of the doom and gloom—in suggesting that this could be a good thing for a number of companies here in New Zealand. But I will suggest that it will be an extremely good thing for a number of companies here in New Zealand who have, certainly since our Government has taken power, taken many opportunities to suggest that there is a capital gap domestically here in New Zealand, and it needs to be filled. As the previous speaker said, his preference is that the taxpayer shouldn’t have to fill it, but that doesn’t take away from the fact that it does exist, and that many companies around the $2 million to $20 million mark have found it extremely difficult to get hold of capital to grow, for them to become more productive. At the end of the day, that growth could turn into more jobs, which, fundamentally, this Government is all about.

The mechanism by which this piece of legislation will go through is the Guardians of New Zealand Superannuation fund; that will be debated out in the select committee. But I just want to talk about the two areas in which this is very important for the two hats that I wear, both as Minister of Commerce and Consumer Affairs and Minister of Broadcasting, Communications and Digital Media. I’ll start with commerce, because there are a lot of very clever tech developers who would like to take the opportunity to do more in that space, with the likes of open banking, for instance—once that gets under way—but they are struggling to get investment and struggling to get the capital to go to the next level. I think this fund is a great opportunity for some of those extremely tech-savvy developers around the country who have had a degree of success already but really are struggling to go the next mile and haven’t got an option, whereas they may now.

For those who are watching at home and are concerned about this kind of mechanism, I just do also want to point out that it is dollar for dollar. So if the Government is putting in a dollar via the venture fund—

Fletcher Tabuteau: Skin in the game, eh? Skin in the game.

Hon KRIS FAAFOI: —they will also be expected to put a dollar into the venture fund as well. There is skin in the game, as Fletcher Tabuteau has said, to ensure that it isn’t just 100 percent pure capital from the taxpayer. So I think that is one point that we want to make sure is very clear and I’m sure the select committee will look into as well.

As Minister of Commerce and Consumer Affairs, if myself or the Minister of Finance had a dollar for every time we went along to our financial sector roundtables, etc., and they said to us that there’s not enough capital in the market—for instance, “Can you do something about KiwiSaver; can we get more of that put into the market domestically?”—I would be quite well off. I wouldn’t, of course, take the money, but that goes to the reality that there is a capital gap here in New Zealand, and we can sit on our hands and do nothing about it, which has been the modus operandi until this point where we’re saying it is important that medium and large sized companies that want to go to the next level need that capital. We want as many of them to stay here and be New Zealand - owned, if possible; we don’t want to stop those who have to go overseas and be more successful offshore to do that, but those who do see themselves having a future here in New Zealand—giving them a hand to do that. And, again, the examples in the tech sector and examples around the capital markets—and, of course, the New Zealand Stock Exchange is looking at a situation at the moment—are two pretty glaring examples of why this is needed.

The other reason why we think this is very much needed is our productivity issues at the moment. We think we’ve got a lot of firms out there in New Zealand who for want of the capital that they require, could be a hell of a lot more productive. And that is holding the growth of our economy back, and getting some stimulus via this fund may enable them to buy the tech or the plant to go the extra mile to be more productive and to, hopefully, supply more jobs to the market—again, what this Government is all about.

I’m not going to hold up proceedings too much longer, because we’ve already had the two main speakers lead off, and it looks like this piece of legislation is going to head to the select committee, with the blessing of the Opposition somewhat, but this is one of those pieces of legislation where we are tackling some of the long-term issues that are facing New Zealand—those being, here, a shortage of capital in the domestic market. And this piece of legislation is going to get us a long way towards sorting that issue out.

ANDREW BAYLY (National—Hunua): Thank you, Madam Speaker. It is interesting to be talking on the Venture Capital Fund Bill, first reading. I am slightly heartened that the bill is in the name of David Parker, having had some experience with fund managers and fund management prior to coming into politics. But I’ve got to say that when I looked at the New Zealand Venture Investment Fund, which is going to be a co-investor, I was a little bit disconcerted when I saw that the presiding Minister was the Hon Phil Twyford, which just slightly worried me in terms of the commerciality of that.

My colleague the Hon Paul Goldsmith has noted that we’re going to support this bill, but we do have some concerns. Before I start talking about those, I do want to acknowledge the Hon James Shaw for his persistence over a number of years in finally getting this through his coalition partners and actually being at a stage where we’re talking about it today.

The first question is: why a venture capital fund? That is a very important question, Madam Speaker, because I know you know these things. There are different types of funds, the most risky of which is a venture capital fund. That is where you invest in start-up companies. The next stage in investment is expansion capital. That is where you have companies that have moved forward in their progression and are more stable. Then you get the third stage, which is private equity. New Zealand has seen a huge investment, largely from Australia, of private equity funds coming into New Zealand. And then you get into a normal type of investment in a particular company that you see happening in every day of New Zealand corporate life.

So the most striking thing is that the Government has chosen to invest in the most risky part of the investment portfolio, namely in a venture capital fund. And I think that is an issue, because that implies that these companies in formative stages, who’ve typically not taken their market proposition to the market yet but have intellectual property that they’ve developed, which they think has commercial application but has not been proven in the market place—whereas, if you were further down the line with a private equity investment, for instance, that company would have already been operating and would have positive cash flows and would be a far less riskier investment.

And so, correspondingly, the required rate of return on a venture capital fund is very, very high. Normally, it’s more than 20 percent per annum because that reflects the amount of losses that will take place in the investee companies, i.e. the companies that the venture capital fund chooses to invest in. On average, probably one will be very successful, one or maybe two will be OK, and the remaining seven or eight will be hopeless and in many cases result in financial loss. And so for a Government entity, namely the New Zealand Superannuation Fund, to invest $240 million alongside a New Zealand venture investment fund for a total of $300 million—this is a diametrically opposed position in terms of the objects of the New Zealand Superannuation Fund, which has traditionally invested in large-scale funds and very, very secure companies with a position mainly of realising those assets over 30 to 40 years.

The second thing is I struggle with involving the New Zealand Superannuation Fund. That’s not to say I don’t believe they do an excellent job; they do. They’ve returned over 10 percent per annum compared to the required 20 percent for a venture capital fund. They’ve achieved over 10 percent since it’s been formed—an outstanding achievement. But there are different requirements to running a venture capital fund versus a $40 billion fund of funds - type of investment that, primarily, is the New Zealand Superannuation Fund’s modus operandi.

And so those different skill sets mean that the New Zealand Superannuation Fund will need to take on board different people to manage this $240 million investment. And it begs the question: if the Government wanted to go down the investment in venture capital route, why didn’t it just use the existing vehicle that the Government set up many, many years ago, which is the New Zealand Venture Investment Fund? That’s already got $240 million invested in about 11 venture capital funds and nearly 300 companies, I think, from memory. And so that to me is the first question: why on earth did it not choose the venture capital fund that’s been successful to date, been in operation for many, many years, and could have been the prime vehicle, because they are specialists in venture capital funds?

The other thing I’m concerned about—and I did ask the Hon David Parker this when we had the recent debate at select committee—is that there is no target return. Now, I spoke before about a 20 percent return for a venture capital fund and that is a very high expectation. The Minister’s response, broadly, was to say that because it was a supply agreement between the Greens and the New Zealand Labour Party that sort of detail hadn’t been specified—and, I note, is not specified in this legislation. I think that is an absolute essential element of all venture capital funds, and without that clarity no fund will ever operate. It’s an absurd proposition to be proposing a fund without clear parameters around its success.

Also the modus operandi of investing a fund of funds is a very unusual approach for this, particularly where you want to try and direct it towards green investments, because that requires the combined entity to find lots of subsidiary funds to invest in and there ain’t that many funds available. And so that is going to be an interesting issue and one, no doubt, we will explore in the select committee about just on earth who they are going to invest in.

And I think the last thing—I don’t want to take up too much time because I’m looking forward to debating this in the committee—is this issue around recycling. This is a wonderful concept—that the Government invests money in this wonderful concept and through wonderful management and governance out pops the original capital plus a profit. And of course that’ll be recirculated back and reinvested and we’ll get this ecosystem, which I heard mentioned before. Well, unfortunately, I think we heard that with KiwiBuild. Weren’t we going to recycle $2 billion? I seem to recall that. I don’t think there’s been much recycling other than Ministers—

Rt Hon David Carter: No, there’s a reset.

ANDREW BAYLY: It is a reset, we have had recycling of Ministers, but we certainly haven’t had recycling of investment, and certainly not the $2 billion. And so I am looking forward to learning more about this recycling as we go through the select committee stage, because I just want to see just what the Government has in store for us about how we’re going to get all this money back, even though a lot of these companies will fail, ultimately, unfortunately. Thank you, Madam Speaker.

FLETCHER TABUTEAU (Deputy Leader—NZ First): Thank you, Madam Speaker, for this opportunity to speak to this incredibly important piece of legislation, the Venture Capital Fund Bill. I just want to debunk some of the words put forward, unfortunately, by Mr Bayly, who on this side of the House we seem to have a respect for in his knowledge of those things financial.

Hon Kris Faafoi: Don’t go too far.

FLETCHER TABUTEAU: No, no, I’ll restrain myself. I’m certainly not surprised that Mr Goldsmith was confused in his contribution to the House earlier. I put it to the members here this afternoon, both Mr Bayly and Mr Goldsmith spoke about using taxpayers’ money in these risky venture capital funds and, in fact, Mr Bayly went so far as to assert that in terms of the investment lifecycle of this kind of product the venture capital stage was the most risky stage.

Andrew Bayly: It is.

FLETCHER TABUTEAU: No it’s not, Mr Bayly. It is not the most risky stage.

Andrew Bayly: What is then? Pray tell.

FLETCHER TABUTEAU: Well, the first one that comes to mind is seed—seed funding for—

Andrew Bayly: All right, OK.

FLETCHER TABUTEAU: “All right”, he says, “All right.” And so what I want to remind Mr Goldsmith and those members opposite is that that party opposite have mechanisms in place, which this Government has picked up, for Government to invest at the seed and research funding stage of development of businesses as they progress through that—

Andrew Bayly: Sounds like a lot of risk to me.

FLETCHER TABUTEAU: That’s the point, Mr Bayly. It is a lot of risk, which the National Party was more than willing to take on in terms of contributing to firms and enterprises at that incredibly risky stage of the investment cycle. And actually, here we have a conversation about an acknowledged gap in the capital market in New Zealand, a conversation that has been going on—well, certainly in my time in Parliament. But before that, the conversation has been long and arduous, especially in the last 10 years when the National Party was in Government—a conversation about a lamented, missed opportunity: the fact that there was a lack of a meaningful venture capital strategy and that a Government wasn’t willing to participate.

And so, begrudgingly, we have two contributions from the members opposite who acknowledge that there are possibilities here, and I’m grateful to hear actually—and it’s an important point to make—that it will be the Guardians of New Zealand Superannuation who will be overseeing and administrating this fund. It was nice to hear the concession from the shadow spokesperson opposite that that fund and those managers have a long history of success. Mr Bayly mentioned 30 percent, and I think one year they did actually make a 30 percent return on investment. But on average, the return of that fund has been 10 percent. That is world leading and it is that kind of expertise that is being, kind of—I’ll say—“injected” into a gap in the market where there are players, both private and existing, who want to participate in this venture capital fund market. And this will facilitate not only capacity and knowledge but obviously the money that’s being brought into this conversation.

As I said, it’s been a gap in the New Zealand capital market. Particularly, what this fund, I hope, will achieve is in that space where we have relatively large opportunities—that $5 million to $20 million mark—where investment opportunities exist but go begging. What this fund should achieve is enough funds to be invested, to take those screen companies to that next stage, through a process where not only are we availing them of money but what we hope to see here is an attraction of high-quality management: the ability to build a good product proposition to attract those larger investors from New Zealand and around the world that will help grow our capital investments in those firms.

New Zealand First has argued for many years that this is something that needs to be done. New Zealand companies have been lacking capital of size, and we know that they haven’t been able to grow. They’ve been stymied. They have stayed small or they have been selectively acquired by foreign speculators from around the world. There have been examples where companies have listed publicly prematurely, as it were. So this is about having a better domestic venture capital market to build this capacity here in New Zealand.

New Zealanders take pride in our entrepreneurial spirit and in the innovation and the risk taking of our businessmen and businesswomen. As Minister David Parker said in his contribution, we have a right to be proud and we should be focusing on these opportunities. The Minister spoke specifically about tech opportunities, and I know it’s one of the fastest-growing sectors in New Zealand. In fact, I was in Nelson this weekend, helping to invest through the Provincial Growth Fund in artificial intelligence opportunities. An opportunity there to grow—

Stuart Smith: New Zealand First could do with some of that.

FLETCHER TABUTEAU: Yes, perhaps an opportunity for the members opposite to at least get some kind of intelligence in their caucus—just some kind of intelligence. So grow capacity, grow performance—and the main driver, as the Minister outlined to the House this afternoon, is that this is a fundamental drive to support and grow productivity within the New Zealand economy. So I acknowledge the Minister for his efforts. This is a gap that has been identified. It’s a hugely important bill and a massive step in the right direction that New Zealand First absolutely supports, but this is also good for New Zealand firms and it will be good for this country’s economy.

I think, as I draw to a conclusion, that this is taking the gap in the market—I mentioned to Mr Bayly earlier about the initial research, the seed-funding opportunities that already exist, and there are those markets in New Zealand, but this is the gap. We’ve been told for years that this is the gap. So this is about being ambitious for innovation and for entrepreneurship in the New Zealand market, and, as the Minister said, that will be true, especially in the tech sector.

This is about a vision where New Zealand firms not only start up in New Zealand, but where New Zealand firms grow to a size that they present themselves to a world market, a global market, in a position where they can compete globally. That is exciting and that is ambitious for those businessmen and businesswomen who would love to take on that opportunity. This is enabling, and I am truly, truly excited to be talking in support of this legislation.

I have spoken for longer than I intended, so I simply say to the House that this is good, sensible, ambitious legislation. I thank the members opposite for their cautious support at this stage. I am confident that they will see in select committee just how powerful this legislation can be for those firms that we are talking about today and the New Zealand economy and our ambition to grow productivity. Thank you, Madam Speaker.

Rt Hon DAVID CARTER (National): Thank you, Madam Speaker, and it’s always a great pleasure to follow the New Zealand First member Fletcher Tabuteau, colloquially known around the House as “the Professor”. I just hope that when he was in front of his students in a former life, he was a little clearer with his arguments than he managed for the last eight minutes in this House. But let me take you through the Venture Capital Fund Bill, as I understand it.

First of all, as has been stated, National will support it to a select committee but with caution, and I want to outline some of the reasons why this particular legislation does have a worrying trend about it. The first point I’d make—and I know it will be the subject of a lengthy debate after this particular bill is voted on—is the surprising instruction from David Parker, the Minister in charge of this legislation, to rush it through a select committee process. That worries me, for a start. Fletcher Tabuteau made the comment that this legislation will be good for the New Zealand economy, and I hope he’s right, but he would be naive to think that this legislation doesn’t also carry risk for the New Zealand economy. Therefore, they are the sorts of issues that the Finance and Expenditure Committee should have the opportunity to tease out correctly, and it shouldn’t have to be done in a truncated process, with the Minister insisting it be back here, and I think the date is 2 December. So it’s rushed, considering the other work before that very busy select committee.

I acknowledge that it is important legislation and that there is a clear gap in the market for venture capital to be obtained by emerging companies, and there is no better example of that than two companies I’ll talk about: Rocket Lab and Synlait. Now, they are completely different businesses, I acknowledge, but Rocket Lab went to obtain further capital within New Zealand and was unable to do so. I think I’m right in actually saying that it went to the other Government-established organisation for venture capital that already exists, the New Zealand Venture Investment Fund (NZVIF), and I believe NZVIF actually turned down Rocket Lab as a premature, naive type of idea that was not worth investing in. We actually had the privilege of actually having Peter Beck, the chief executive of Rocket Lab, speak to us at a recent National Party conference in Christchurch, and what an impressive individual he is. What an impressive business he has developed. It is now truly an international business and a business that New Zealand could have had an investment in, if the New Zealand Venture Investment Fund had thought about it more wisely.

The second company I mentioned is Synlait, a Canterbury dairy company that struggled in its initial formation to develop to the scale that it is today. It went to the New Zealand market, certainly, on one occasion, I think, for a public float and maybe on a second occasion, if I remember correctly. The New Zealand capitalists were not prepared to support Synlait. It subsequently went offshore and got investment from offshore, allowing it to develop to its full potential, and is now a very, very significant contributor to the Canterbury economy and elsewhere within New Zealand. They’re currently trying to develop a substantial dairy processing plant in the Waikato. It is a huge success, and another example of where it presented to the New Zealand market, it was not able to obtain the capital it needed, it went offshore, and New Zealand is the poorer for the fact that that investment opportunity was overlooked.

I accept the need for venture capital. There are many, many companies we’ve come across in our time as members of Parliament, when we visit various fledgling businesses that are looking to expand and the opportunity to do so is not willingly provided by banks, who are becoming more and more risk-averse currently. Certainly, that is being driven also by the current Reserve Bank Governor’s personal campaign, I think, to tighten up capital ratios for banks, which is making them even more concerned about some of the ventures they’re prepared to fund. So why isn’t the New Zealand Venture Investment Fund, NZVIF, an avenue that could provide the venture capital? Why do we need two organisations? That is certainly something that I want to tease out in the select committee.

The second point that worries me is the size of this particular fund, at $300 million. The first point I’d make is that is exactly 10 percent of the money that’s been given to Shane Jones for nothing more than a slush fund, as he goes around the country with his $3 billion, spraying it around like confetti for the required photo opportunity for him to present himself in the local provincial papers, and it’s all about a very cheap, nasty scheme and designed to ensure the survivability of New Zealand First at the next election. Here we’ve got this important issue of a $300—

Fletcher Tabuteau: So bitter. So sad.

Rt Hon DAVID CARTER: Fletcher Tabuteau interjects and says it is so sad. I agree, because that $3 billion is hard-earned taxpayer money and under no circumstances should it be used so recklessly—so recklessly—in a forlorn attempt to ensure the survivability of the New Zealand First Party at election 2020. I can assure Mr Tabuteau, or “the Professor”, that New Zealand voters will not be so gullible.

And then the second point I’d make in regards to $300 million is they have already instructed the New Zealand Superannuation Fund to make $240 million of the $300 million available. I think, again, that is a very dangerous precedent. The New Zealand super fund has been a remarkable performer, and it has been a remarkable performer because of the guardians of that fund—and I respect them for their business acumen, their financial acumen. But what we have here, for the first time, is a political interference in that fund, whereby this Government—Labour, New Zealand First, and the Greens—are interfering with the decision-making ability of the New Zealand super fund and insisting that it makes $240 million available to the new venture capital fund, and that again is something that I want the opportunity to tease out in the select committee process. I think it’s a very, very sad day when we see interference like that for the New Zealand super fund. It has been a remarkably successful organisation, but, if this Government’s going to interfere and direct it as to where it must invest, that is a danger for (a) the fund and (b) for New Zealand.

I conclude with my final comments and again take a quote from professor Tabuteau. He said, “This legislation will be good for the New Zealand economy.” Well, I hope he’s right. It could be good for the New Zealand economy, but—

Hon Member: He is right.

Rt Hon DAVID CARTER: In fact, the Hon Kris Faafoi just interjects and says it will be good. This is a risky business that any investor goes into, and, as Andrew Bayly so clearly said, out of 10 projects, one or two might be winners. But if Kris Faafoi is naive enough to believe that every investment this fund makes will be a world better, will be highly successful, then he fails to understand—and this doesn’t surprise me—the risks associated with business in this economy, and that perhaps is exactly why. In fact, this is the very first piece of legislation you could even say they’ve advanced in this House that’s got any focus on business at all. This legislation is not without risk.

Hon JAMES SHAW (Associate Minister of Finance): Thank you, Madam Speaker. I’m rising on behalf of the Green Party to speak on the first reading of the Venture Capital Fund Bill. It’s always a pleasure to follow the Hon David Carter, who, conveniently, has provided me with a number of points that I’d like to rebut in my time on my feet in this.

But I actually wanted to start with some of the comments made by Andrew Bayly, who has had a slightly confused afternoon. On the previous bill in the House, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, he didn’t know which reading he was speaking on. He thought he was speaking on the second reading, when, in fact, we were speaking on the third reading. In this debate on the Venture Capital Fund Bill, I think that he has confused the venture capital fund that’s being established by this with the New Zealand Green Investment Fund. A number of times—at a couple of points in his speech—he acknowledged me for all the work that I’ve done over the years to bring this to the House. I’m grateful for that acknowledgment, except that I didn’t. I’m quite happy to take credit where it’s due, but, in this regard, I had almost nothing to do with this, to tell you the truth, before it came in. But I thank Mr Bayly.

I want to make sure that this is on the record, because, when he was conflating the two funds—the New Zealand Green Investment Fund and the venture capital fund—he talked about the required rate of return. I just want to point out that New Zealand Green Investment Finance Ltd, which is now established and is up and running, does have a required rate of return at the New Zealand Government bond rate over five years plus 2 percent. So it is important to know, because we put that rule in place that it had to have that rate of return across the portfolio over five years, because it’s required to demonstrate its commerciality to the private funds who we’re hoping to get as co-investors into it.

That brings me to the next point, that I think David Carter was talking about, which is the size of this fund, at $300 million. He pointed out that at $300 million it is only 10 percent of the size of the Provincial Growth Fund, which is one of the other funds that we’ve established. It’s also three times the size of New Zealand Green Investment Fund Ltd, which is a $100 million fund. I want to point out that when we set up the Green Investment Fund, we actually asked the private capital markets what they felt the minimum viable proposition was, and they said, “You can’t do it for less than $100 million.” We said, “Great. Well, we’ll start at $100 million then.”, because we actually want to force the fund to have to crowd in private finance. We actually want it to stimulate the private market, not to replace the private market. So we said we actually want to start with the minimum viable. I guess, if it’s wildly successful, a future Government might want to put more capital into it and expand it and so on. But, actually, with these funds—the New Zealand Green Investment Fund and the venture capital fund—we actually want to start small because the point is to stimulate the private finance market.

The Provincial Growth Fund has an entirely different purpose. It is largely grant funding; it’s not commercial investment. It doesn’t require that rate of return in the same way. And so the whole basis of its decision making is it’s actually there because there hasn’t been private investment in the regions. It’s actually trying to put some money in where it hasn’t been commercial to do so. So to compare them—to compare the Provincial Growth Fund, the Green Investment Fund, or the venture capital fund—is actually erroneous.

Anyway, I just wanted to return to the point about why this was necessary. A couple of the speakers on the Opposition side did talk about it. Everybody who pays attention to this will continuously tell you New Zealand has very thin capital markets and it has been very difficult for early-stage high-growth companies to get access to capital in New Zealand. Whilst there has been a growth of private equity funds in New Zealand and there has been some angel funding getting off the ground, actually, there is still a gap in that point in the chain, which is around that kind of early-stage high growth to kind of get companies that are up and running, that are trading, and that are starting to turn a profit to expand.

I just want to make this point because the Hon Paul Goldsmith in his speech referred to how David Parker, the Minister responsible for this, wanted to bring in a capital gains tax and couldn’t. Of course, one of the reasons why New Zealand has thin capital markets and doesn’t invest in the productive part of the economy is investment is entirely skewed towards property in this country because our tax system directs people towards tax-free capital gains on property and not to put their money into the kind of deep and liquid capital markets where you would get a venture capital fund like the one that we’re having to launch.

So, in a sense, we’re actually having to launch this to plug a gap because the Opposition was so vociferous in its opposition to levelling the playing field through the tax system, which would have enabled financing and investment to flow from the unproductive property investment markets and into early stage capital. So we’re actually having to compensate for the poor decisions that the Opposition have made.

I also just wanted to address a point that they’ve raised about the links between this venture capital fund, the existing Venture Investment Fund, and the New Zealand Superannuation Fund. And, actually, that’s part of the design, because what we’re trying to do here is to create a series of linked funds—right?—that actually have relationships with each other, and can, essentially—and it was Andrew Bayly talking about the chain of investment from angel to venture capital to expansion capital to private equity, and that actually, what we’re trying to do here is to create an ecosystem of funds where New Zealand businesses can get started in the garages and so on, and kind of attract capital at different stages and actually kind of grow and evolve through those.

That is why the relationship between the super fund and the Venture Investment Fund and this new venture capital fund is so significant. And I agree, I think it should be explored in select committee, just to allay some of those fears, one of which David Carter pointed out, which was the notion—and I want to dispel this—that we’re directing the super fund what to invest in. We’re actually not. We’re not saying which companies they should be investing in. What we’re saying is that, of the capital that they hold, $240 million should be set aside for early stage expansion capital rather than for the later stage part of the market. It would be interfering if we were telling them which businesses to invest in, but we’re not.

Now, Madam Speaker, I want to direct attention to a particular part of the bill and that’s—ah! Mr Speaker—clause 35 in the bill, and about two paragraphs down it mentions the directions that the policy statement may include and the guardians must have regard to. Then, three bullet points down, it says, “(c) the Government’s commitment to a low-emissions economy:”. The reason why I wanted to draw attention to this part of the bill is the Productivity Commission, which the previous National Government established an inquiry into about how to get to a low-emissions future, had, in their report, a number of recommendations that related to investment, decision making, and to, particularly, the innovation system. They made the very good point that, as the Government does work its way through its economic development priorities, and as it looks at its research, science, and technology policy and its investment funds and so on, that, actually, all of those things together need to, at the very least, not result in supporting businesses that would result in a higher emissions profile for the country. So, at the very least they should be neutral, and in an ideal world we should be investing in and supporting start-ups and businesses that support the transition to a low-emissions economy.

You know, there has been commentary in the past about the fact that, for example, the ACC fund doesn’t have a climate-related strategy; the New Zealand Superannuation Fund does, and it’s one of the world-class funds in its kind of category. But what we’re actually saying with this fund—and we also did with the Provincial Growth Fund—is to include in its decision making that the people who are making these investments need to consider the businesses that they are investing in in terms of what that could do to—

ASSISTANT SPEAKER (Adrian Rurawhe): Order! The member’s time has expired.

IAN McKELVIE (National—Rangitīkei): Thank you, Mr Speaker. It’s pleasure to take a call on the Venture Capital Fund Bill [Microphone feedback]—whoops, funny noise—and I think the last speech was living proof that the longer you go, the deeper you dig. I couldn’t recognise virtually anything that the last speaker, the Hon James Shaw, said when I compared it with what the Minister who introduced the bill said earlier in the afternoon. I did listen to David Parker quite closely and I thought a lot of what he said made sense.

It’s interesting though that we’ve tried to transform the New Zealand economy for most of my life now and we’ve never achieved it yet. One of the reasons we don’t achieve that is the nature of our economy and our position in the world is very different than anyone else’s. So it will be difficult to achieve that transformation.

Before I get on to the bill, I want to comment on a couple of other things that the last speaker said, because he talked about the tax changes that the Government’s made and how they’re going to introduce capital into this type of investment. They certainly will not, because the tax changes that the Government’s made to date, in respect of ring-fencing and brightline and things like that, will make no difference to where people invest their money, because those people don’t have spare cash to invest. The people they’re taxing have got no cash and they will not invest in this type of a fund. So that’s a complete nonsense.

The next thing he said was that this fund has been put up there as, effectively, a grant fund, not an investment fund. That beggars belief of mine. I don’t understand it. That’s extraordinary. He then went on to say that “We’re not going to interfere on where those investments are made, but it resembles the Provincial Growth Fund.” I then had a vision of Shane Jones going around the country dishing out the superannuation funds cash. I just can’t believe what I’ve heard. None the less, this bill, for me, is, or could be, a valuable tool in, I guess, our opportunity in New Zealand to promote some businesses—not businesses so much as initiatives or business ventures—that have for years struggled to get funding in New Zealand. Often, the best of them have been picked by overseas investors and taken away from the country. So I do support the reasons for promoting this fund.

I do find this House is full of irony, and it goes on and on. Today, the Prime Minister raised this fund in her answer to question No. 1 as showing us what the Government’s achieved in its last two years of operation. Well, if this fund is the most important thing the Government’s achieved in its last two years of occupying the Treasury benches then they’ve got some serious challenges. Very shortly after that, both the Prime Minister and the finance Minister then talked about no new funds going to the superannuation fund under the National Government and how irresponsible that was. They then tell us, “We’re going to give it all away in a grant.” So, not only have they reinstituted contributions to the super fund, but they’re going to give it away, according to James Shaw. So, I do find significant irony in the way this thing is being funded. I do think, as I said, it’s a worthwhile venture and I hope it’s successful, but I do find it ironic that we’re actually using funds that, effectively, were given to the superannuation fund to invest for New Zealand’s future. Those taxpayers, who are looking forward to a future funded by the superannuation fund, I hope they don’t miss out because of it.

Just one last point I’d like to make is that the superannuation fund might be extraordinarily successful and might have been for the last 15 years, but I would invite any of you to have gone back to the 90s—and, in fact, I experienced this myself—and chaired a superannuation fund and just see how successful those type of investments were in the 90s. They don’t always succeed.

So, we are supporting this bill to the select committee and, as I said, I do think it’s got some merit. Thank you.

ASSISTANT SPEAKER (Adrian Rurawhe): This is a split call. I call Dr Deborah Russell—five minutes.

Dr DEBORAH RUSSELL (Labour—New Lynn): This is an excellent bill, and it’s an excellent bill because it deals with one of the long-term problems that is facing New Zealand. That problem is the problem with productivity. It’s been talked about and talked about and talked about. And we do have a problem with productivity in this country. It hasn’t been solved by the private sector, and, with respect, it hasn’t been solved, I guess, by many of the Governments preceding us. But we are, at least, trying to look ahead—to look ahead not just for the next three years on the electoral cycle but to look ahead for 30 years and try to get something right in respect of the New Zealand economy. That’s what this bill is about. It’s about trying to deal with our productivity issues.

We’ve got some structural problems with investment in New Zealand. We are a small economy. We are not just a small economy; we are a small economy that is a long way distant from other economies that we might team up with. So it’s not for us to operate, say, like Ireland, which is right on the doorstep of Europe. We actually operate across the stretches of the Pacific. It limits investment in this country, it limits the investment that we can raise here, and it means that it limits what we can do with our companies to help them to grow.

This particular bill is about trying to find a way to help our successful companies to grow. It’s addressing a very particular gap in the market. We know that people with bright ideas operating out of their garage can actually get seed funding to go a bit further. We know that large companies can attract investment, but there is that gap in the middle of investment of around about between $2 million and $20 million that smaller start-up companies need in order to take the next step. And that is what this bill is about.

We’ve made, as a Government, a number of moves in this space. We’ve introduced an R & D tax credit. We’ve removed some of the tax incentives with respect to residential properties, which force investment in a particular direction. This is yet another one of these moves—setting up this venture capital fund to try to address those problems—because the reality is that, in this space, the private sector has failed. The private sector has failed in this space. Now, it might not have failed in market terms, but it has failed in terms of developing the sort of economy that we want and the sort of productivity that we want in New Zealand. The market is the answer to many things, but not to everything. In this case it has failed.

So what this fund does—and I think it’s a pretty important thing it does. We’ll be setting up this fund and then using the New Zealand Venture Investment Fund—the existing entity—to match funding from the Government via the New Zealand super scheme with private sector investors. So, in terms of looking at assessing risks and the like, of course the Government is not going it alone. It is going it with those private sector investments—the people who already run venture investment funds—to try to get the best of the private sector knowledge and the heft that Government can bring to ensure that we develop some real investment in this space.

I do want to just address one concern that was raised by some of the members of the Opposition worrying about the New Zealand Superannuation Fund having to divert $240 million from the funds that go into it. I have to say that’s a bit rich coming from the Opposition who, during their time in Government, didn’t put any money into the New Zealand Superannuation Fund at all. There are a few crocodile tears over on that side of the House I think.

However, I welcome the fact that the Opposition wants to work on this in the select committee. I am looking forward to working on it with members from across the House to make sure that this legislation is right. We’ll be working hard on it, and I’m sure that we can get it right. I commend this bill to the House.

LAWRENCE YULE (National—Tukituki): It’s a pleasure to speak to this Venture Capital Fund Bill. As the House has already been advised, the National Party will be supporting it to the first reading. But as we consider this bill, and after hearing some of the recent contributions, particularly from the co-leader of the Green Party, I do wish to restore a dose of reality into the House.

Earlier this year I was fortunate to be invited to two dinners in my electorate. Both dinners had two venture capitalists at the dinners—American venture capitalists who were actually spending time in Hawke’s Bay because it’s a lovely part of New Zealand. But we had in-depth conversations about venture capital, how it’s used and—

Greg O’Connor: Making it to the National Party.

LAWRENCE YULE: No, I never got any money from them. However, we did talk about the risks involved. I remember a departing thought that came from one of them, who said to me, “About one in 10 of my investments actually do really well, and the rest either lose money or break even.”

Hon Grant Robertson: Some of yours have been terrible, Lawrence.

LAWRENCE YULE: Here we are—Minister of Finance, you should be worried about this, because here we are investing $240 million of the New Zealand Superannuation Fund, putting it into something that the private sector won’t do, and that we want to support businesses in New Zealand. Now, I accept the very genuine argument that there is a gap in the market somehow to be filled. But let’s not kid ourselves that this is going to be the panacea, and somehow the Government, or even the New Zealand Superannuation Fund officials, know how to do this better than the private sector. This is a risky business. We are, effectively, investing New Zealand super funds to take a risk in uncharted territory.

If you go and do a Google search, as I’ve done today, and you go and look at what happened in the UK.

Fletcher Tabuteau: Well done!

LAWRENCE YULE: Yeah, nah, I learnt how to use Google! What happened in the UK in 2009 is they had a significant fund. At the end of that, they found it made no meaningful contribution to the ability of businesses to scale up as was desired.

Todd Muller: This is real.

LAWRENCE YULE: This is real. So what I’m saying is while we’re happy, on this side of the House, to support this bill to first reading, we have concerns about, effectively, a directive to the New Zealand Superannuation Fund. We have concerns about the level of risk, because, ultimately, these funds that are being put at risk are New Zealand super funds, and we need to be really careful about that. Thank you, Mr Speaker.

GREG O’CONNOR (Labour—Ōhāriu): Thank you, Mr Speaker. I just would reflect on that previous speaker, Lawrence Yule. It’s an interesting day to be talking about having some overseas businessmen around for dinner, but I’ll take his word that there was no donation involved. So if I can get on with the rest of my presentation.

As someone who has sat nervously for about three years as a director of a company, who required personal guarantees for the investment that they had borrowed for their directors so that they could go to the next step, I can fully understand the nervousness of anyone who is borrowing money and who is making a decision to expand. Fortunately, for myself and my family, that particular period passed, and the company did expand, and we were fortunate.

However, the reality of it is that New Zealand is a country where many of those successful businesses that operate today were actually built on the basis of Government investment. We only really need to go to New Zealand’s wealthiest man, Graeme Hart, who made all his money—and Mr Scott will know—from Government Print, which he got for a song in the Wairarapa, and which he very wisely, smartly, and through great business acumen, has turned that and other businesses he acquired into a worldwide, significant fund.

But the important point is that New Zealand Print—the organisation that he bought—was something that was built on the basis of taxpayer’s money. So it is with those of us who may have shares in power companies and those with shares in the utilities that have been sold off, which actually accounts for much of the wealth here and of overseas investors. All those things were built up on the basis of New Zealand taxpayer investment. They got to a certain level and they were then sold on. New Zealanders got the opportunity. Some held on to them. Some moved them on. The reality of it was the base was built by New Zealanders—the base was built by taxpayers.

That’s what this seeks to do. It’s an understanding that New Zealand—all the speakers opposite have talked about it and on this side of the House—is a small market. New Zealand is a small market. Mr McKelvie talked about the fact that there have been problems at various times in New Zealand with companies making that next step. There’s that great myth in New Zealand of the batch, the BMW, and the boat: boat, batch, and BMW. Now, they’re the thing that so many New Zealand companies, New Zealand start-ups, New Zealand people who’ve done the right thing, taken the chance, worked hard, but get to a certain level, and going to that next step is just too hard.

The good old Kiwi way—“Well, I’ve got my BMW, I’ve got my bach, I’ve got my boat, I’ll sell the thing on now and move on and enjoy it”. But that really underlines what the problem has been in New Zealand, that we haven’t gone to that next level. The odd company has—Frucor, the creator of V, down in the territory of South Canterbury. That was a company that grew considerably, went to Australia—was successful here, went to Australia. V, you’ll see that brand around the world. But, of course, it’s now owned by Suntory, I believe it is, the Japanese company. So these are the very companies that—we reach a certain level in New Zealand. Again, whether it’s the fact that we are isolated in more ways than geographically that when it just gets too big—I do consider, from my very early days, you might remember the Mr Asia syndicate in New Zealand. It was a syndicate that grew New Zealand out.

Hon Grant Robertson: That’s not the kind of venture capital we’re after, Greg.

GREG O’CONNOR: It was actually—if I can stand here and contradict my Minister of Finance—true venture capital, a true market where a group of New Zealanders not only cornered the heroin market in New Zealand they cornered the heroin market in Australia, and they then went on to attempt to corner the heroin market in the United Kingdom. It was only when they fell out in their very traditional criminal way, and instead of sorting the issue out in court they sorted the matter out in a much more traditional manner, which ended up with one of them, the protagonist, lying upside down in a quarry in Chorley in northern England, minus his hands and his head—perhaps there are those who argue that’s a much cleaner way of doing business. But can I just go back—I know it’s a long way from the New Zealand Venture Capital Fund Bill which we are discussing today, but I think I’d like to build a picture of what we’re trying to achieve here. While there are those I would think that, perhaps, lying upside down in a quarry in Chorley, handless and headless, [Interruption] some might think it might be a good place for them to end up—no, I couldn’t possibly say that. But the reality of it, can I say, that the venture capital—what it does mean is that was purely a market where people did go and they fell apart. Perhaps if there had been better invested along the way, things might have been different.

But in New Zealand, and I go back to what I’ve talked about before, is that necessity to be able to take another step. This Government, we’ve come in, we’ve had to rebuild a lot. We’ve had to rebase this country. I’m someone who believes before you go to the next step, you’ve actually got to have a pretty good base to build on. What we’ve found when we’ve come into Government, is we haven’t got a good base to build on. I don’t want to repeat the things we’ve found, the money we’ve had to invest in virtually every Government department. Anyone listening, anyone in this town, will know full well that every Government department—every stone that we have picked up there has been rats running under it, and those rats represent an absolute lack of investment, lack of funding over years. We’ve had to fix it, and fix it we are. But fixing it, as is often pointed out—fixing those things that are the base of New Zealand, that make New Zealand the country it is, that make New Zealand one of the easiest countries to do business in, that is one of the best countries to live in, but you can never take that for granted. As it’s constantly pointed out, someone’s got to pay the bills.

What this piece of legislation is about is ensuring that we can pay the bills, because those who pay the bills, those who create the wealth, create the wealth built on the basis of what we as a Government are doing—built on the basis of good education, built on the basis of good secondary services, good education right across the board, our polytechs etc. This is so important that for those that come out of that, we build on that base, but they’ve got to have jobs. They’ve got to have the ability to create that wealth when we give them those skills. This is what this bill is meant to do. This isn’t a start-up; it isn’t a start-up. As someone pointed out to Mr Bayly—Mr Bayly was talking about those parts of start-ups, those investments that are the most risky. The most risky are the start-ups; this isn’t a start-up. This is, actually, people who have actually proven they have a track record. These are people who have proved that they can make it.

We’ve talked a bit about Rocket Lab. It’s interesting that the Opposition did bring up Rocket Lab. Rocket Lab, under the system that was actually in place then, were turned down for this very investment that would have meant that now, when we do see those rockets taking off from Māhia Peninsula and sit there in pride and know what they’re delivering to space—there’s still that, “Wouldn’t it be nice if that was truly a company that was fully owned by New Zealanders?”. That, actually, it was a true New Zealand company that New Zealanders had the opportunity to invest in. Let’s just make sure—but there’s no point lamenting that. What this is about is making sure that when the next Rocket Lab does come along there is the opportunity, and yes, there is some risk involved; of course there is going to be risk involved. However, the risk is mitigated somewhat by the fact that those who are going to be accessing this fund will have a track record, and will have an idea that has been shown to work. It’s that $2 million to $20 million—that area as, say, if you’re bigger than that you will be able to attract those overseas financers; you will be able to attract that overseas capital. But there’s that middle ground of probably too small to be a risk for the big venture capitalists from overseas, probably too big for the local mum and dad investors in New Zealand. So this fills a gap.

But what it really is, is it just shows that this Government is addressing issues right across the board, from fixing up the infrastructure that we’ve found—and under our leader, under the Hon Jacinda Ardern, this country will end up in much better shape across the board. I commend this to the House.

ALASTAIR SCOTT (National—Wairarapa): Thank you, Mr Speaker. Mr O’Connor invited us to picture what it would be like with this bill in place. He talked about asset sales with the Government Print, he talked about drug dealing, and he talked about investment. I’m not sure if he meant the venture capital fund would be investing in the drug-dealing, or whether the venture capital fund would be investing in the next Government Print that might be an asset sale. He talked about education—venture capital into education. Well, I’m all good with that; private sector money, venture capital money into education. Fantastic idea, Mr O’Connor, but I don’t think that’s what he was really getting at.

We are supporting this with some reservations. Now, quite a few of the speakers on the other side talked about the gap in the market, and I contend that the New Zealand capital market is not as small as the other side would have us believe. It is connected to the global capital markets. There are hundreds and hundreds of traders sitting at their desks every day looking for opportunity, across the world. That includes opportunity in New Zealand; that includes opportunity in small, privately held opportunities for venture capital. They get that information through the fantastic networks that we have in New Zealand. We have fantastic networks which promote and put out there the opportunities to invest in New Zealand. I’m talking about the chambers of commerce, I’m talking about Business New Zealand. I’m talking about the venture capital funds that already exist in New Zealand; they’re forever picking over proposals, ideas. Icehouse is another example where, across the country—very well-known facilitator of venture capital into new ideas.

So the idea that no one understands what these ideas are that we have in New Zealand and, therefore, are not willing to invest is just nonsense. New Zealand is very, very well connected. The venture capital markets are very well connected, just as our New Zealand stock exchange is connected to the global capital markets. So I dispute that there is a thinness and a lack of understanding. The gap, therefore, in my view, does not exist. In fact, it was quite ironic that the other side were talking about the seed side of venture capital, the beginning stuff—plenty of money there. The private equity side—that’s the area post-venture capital, if you like—loads of money there, but not enough money in the little gap between, where they’re wanting to invest.

There is capital on the planet, so much money looking for a home that in parts of the world we have negative interest rates. There is so much capital that money that was printed in the last 10 years is looking for a home and it is looking for anything that it can put its hands on, including venture capital. There is no shortage of capital out there. People can borrow at zero in some parts of the world, swap it, and bring that money into New Zealand—no problem. So I dispute the idea that there is a gap in the market.

My problem with the whole idea of this venture capital fund is that we haven’t learnt our lessons from the New Zealand Venture Investment Fund (VIF). I remember those days. I remember it was quite easy to access that free money. It was cheap money, interest rates were a lot higher, but for a venture capital fund to turn up, apply one for one for the VIF fund, they’re very likely to have received the money. It was cheap money, it was zero-interest loans, and various other structures. But, basically, the taxpayer was subsidising the private sector investor into a venture capital proposition.

So my question for the Minister is: if a professional investor is unwilling to invest in an idea, why should the taxpayer? I’ve described the liquidity in that market—why should the taxpayer have to invest and take on that risk, when a private individual is unwilling to do so?

The other problem I have is that the venture capital sector is already being invested in by the Government or by the super fund. The super fund already allocates a certain amount of money to this end of the market; the venture capital end of the market. Just as the ACC fund invests a certain amount of their large portfolio into the venture capital; the high-risk end of the market.

Hon David Parker: But they don’t.

ALASTAIR SCOTT: But they are able to, and they are mandated to, and they are not investing. [Interruption] Mr Parker says they don’t—and this is the whole point: why would we want politicians to interfere in the professional judgment of a board of ACC or the board of the New Zealand Superannuation Fund, when Mr Parker has just said they don’t invest enough into the sector, even though he knows that they are able to do so? So he’s come across, you know, “Government knows best. Labour Party knows best. And you will overallocate more money into this specific sector”, because Mr Parker thinks that’s the best thing to do.

So the boards, the governing bodies that we’ve set up over the years, the fantastic performance the New Zealand Superannuation Fund has performed—and ACC fund as well, by the way, has outperformed the market—is at risk because Mr Parker wants to come across the top and direct them in how they are to invest. So that is the other problem I have with this model.

The other issue I have is that for the very good reasons the fund is promoted, the Minister talks about the idea of accessing and growth and productivity and access to market, but then why not allow an apple orchardist to have funding to take on the global market? Why not a sheep and beef farmer or dairy farmer to take on some taxpayer funding to do what they want to do for their business? Why not a local engineering company to say, “Look, I’ve got a machine that I’ve built and I’m selling 10 per month, and I think I can sell 100 per month overseas.”; why can’t they access this venture capital fund? And that’s the whole point: they shouldn’t be able to—they shouldn’t be able to. They should be going to the private sector, convincing their neighbours, their families, their friends, and their banks, to invest in the idea. And if it is a good idea, they will invest in it. And if an Australian partner wants to invest, great. Frucor was used as an example—I think, as a good example by Mr O’Connor—as a New Zealand company that grew, went and got some access to capital from, I think he said, Australia, and now is associated with a large distribution company. Fantastic. Great story. It doesn’t have to be 100 percent owned by New Zealand. In fact, you don’t want it to be; you want the distributors to own some of that change.

So although we support this bill, I do have some reservations, and I think I’ve outlined them reasonably succinctly.

Hon GRANT ROBERTSON (Minister of Finance): Thank you very much, Mr Speaker. It’s a pleasure to rise in support of this bill. At the outset, what I want to do is congratulate the Minister in whose name this bill is, the Hon David Parker. This is truly an idea that came from him. It is something that I know he has concerned himself with for many years, both in his own life as a person who has undertaken investments over the years—and has been an entrepreneur and somebody who sought to continually drive forward new ideas, new products, and new companies—but also as a Minister who is aware that we as a Government do have to step up to improve New Zealand’s productivity and also step up when there are failures in particular parts of the market. So Minister Parker, I want to thank you for putting this in front of the House and putting so much of your own effort into getting us to this point today.

We’ve just heard from the retiring Mr Scott. I guess the thing that I really focused on in that speech was the fact that Alastair Scott was telling us there was no gap to fill in the market. Let’s pick someone at random—I don’t know—Peter Beck from Rocket Lab, who says that there is a gap to fill in the market. Do we trust Peter Beck from Rocket Lab or do we trust Alastair Scott in this regard? It’s not just Peter Beck from Rocket Lab who has said to the Government and said to New Zealanders that there is a gap; there are many, many other people indeed.

This is a bill that is primarily focused on how we address one of the long-term challenges facing New Zealand, and that is our low productivity. Every Government over a succession of Governments and over the decades has said New Zealand has a productivity challenge. We even saw yesterday an attempt to rehash, to microwave up the soggy, old fish and chips of the last Government’s productivity strategy—putting that back out in front of us again yesterday. That’s not the path. The path is actually to undertake some truly innovative investments to help lift our productivity. And as a Government, we’ve done that with the R & D tax credit; we’ve even done that with the investment signals that we’re sending in the housing market as well, in terms of the foreign buyer ban and the brightline test and so on; we’ve done that with our investment in skills; and we’ve done that with our investment in innovation across the board. This is another part of that with the establishment of the venture capital fund, and it is an area where there is a gap.

Nobody is arguing that if you’ve got a start-up business in the garage, you won’t find someone to give you some money for that. For the most part that actually comes through family and friends and overdrafts, but also through things like the seed capital investment fund and other small start-up support funds. This is about the next stage. This is about the businesses who will, in the future, generate many jobs for New Zealand if they get the opportunity to move forward to the export market, if they get the opportunity to build better networks for their companies, and if they get the opportunity to build on their good ideas that they’ve had to begin the start-up. So this is about a gap, it is about market failure, and it is about addressing one of the long-term issues that sits in front of us.

I do want to correct some of the misapprehensions that I have heard from across the House. This is not about politicians deciding what’s good to invest in. This is also not even about taking a risk or a punt without a commercial basis beside it; this is actually about leveraging funding. This is actually about making sure that there is the New Zealand Venture Investment Fund working with fund managers—and on a matching basis, getting that investment. So there is commercial acumen at the table right away. This is not about taking risks that are undue; this is about actually leveraging funding, getting a functioning venture capital market going in New Zealand, and getting those with the commercial acumen and expertise to be able to do it. The difference is that this Government is prepared to put some skin in the game to make that happen, not to sit back and hope for the best. We heard from Mr Scott who said, “Well, people can make these investments.” There are people with capital out there who could do this; the problem is that they haven’t. This is the opportunity that we are opening up now. It’s that the Government has some skin in the game and we will be delivering this through a commercial model, through a fund of funds approach, and through the expertise of fund managers.

The second misapprehension that we want to correct is to make sure that members opposite understand that this is not about the super fund per se; the super fund itself is actually ring-fenced away from this. What this is about is the expertise of the guardians of the super fund in helping manage this and working with the New Zealand Venture Investment Fund to make sure that we manage this fund in the best interests of all New Zealanders. So the guardians of the super fund—it will require some minor amendments to that legislation as part of this—have got the role of overseeing this in the first instance, with the venture investment fund, on a commercial basis.

The other part of this that I want to address is the way in which New Zealand as a country sees ourselves on the world stage. When we have big ideas and good ideas like the ideas that Peter Beck had at Rocket Lab, what we don’t want is that the intellectual capital, and the job generation of those good ideas, drifts offshore without a New Zealand involvement in it for the long term. Yes, by all means, let’s have this as partnerships between New Zealand funds and others, but let’s make sure that the value that gets generated out of these good ideas is value that New Zealanders hang on to. I know that it’s something that Mr Parker, again, has spent a lot of time talking about—how we continue to generate value in New Zealand and capture that value in front of us today.

So I strongly support this bill. When I look at what we are trying to achieve here and what other things that will look like success for us, it’s that we’ve actually got an engagement here that’s in line with commercial principles; that fund managers are securing private capital alongside that Government funding to, in fact, more than double, if we can, the amount of money that’s available; that fund managers have got access to all the expertise they need, and, obviously, that’s the support of the guardians, and making sure that we do that; that we attract new fund managers here; that we deepen domestic capital, we deepen the capacity of our venture capital markets here in New Zealand; that we’ve got viable options for New Zealand companies to progress and develop in New Zealand; that we’ve got good returns that are appropriate to the sector; and, ultimately, that, actually, private capital does function in an efficient way, and the Government, at the end of this, can exit knowing that it’s helped create a vibrant venture capital market in New Zealand. Those are the elements that I see as success from this fund.

But it is true that there is nothing ventured, nothing gained. I’m not quite following down the path of my colleague Greg O’Connor around the venture capital nature of the Mr Asia syndicate, but I do think, short of that, there are some opportunities to make sure that we do push the boat out a little. From time to time, in the interests of future generations, Governments have to push the boat out and say, “We will put some skin in the game to make sure that we actually are building on the new ideas of our entrepreneurs and innovators.” I’m pleased that the Opposition is supporting this to select committee. I invite them to enter into this with an open mind—an idea that there are new ideas that we should be grabbing hold of, and that there are New Zealanders out there who deserve our support to be able to take their ideas forward. I think this is an excellent bill, an excellent fund, and I commend it to the House.

Bill read a first time.

ASSISTANT SPEAKER (Adrian Rurawhe): The question is that the Venture Capital Fund Bill be considered by the Finance and Expenditure Committee. Those of that opinion will say Aye. To the contrary No—

Hon David Parker: I raise a point of order, Mr Speaker. I just want to check that this doesn’t obviate my motion in respect of the period.

ASSISTANT SPEAKER (Adrian Rurawhe): No, I’ll just declare it—the Ayes have it—and now you can move the motion.

Bill referred to the Finance and Expenditure Committee.

Hon David Parker: Sorry, I just wasn’t clear. I thought that if that had gone through I might have been I querying my own—

ASSISTANT SPEAKER (Adrian Rurawhe): No, no.

Hon DAVID PARKER (Associate Minister of Finance): I move, That the Venture Capital Fund Bill be reported to the House by Monday, 2 December 2019, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington area, despite Standing Orders 191, 193, and 194(1)(b) and (c).

I would just ask if I could just have an indication from the Clerk that I’ve correctly read the motion? Thank you.

I want to explain why the Government thinks it is appropriate to shorten the period. It’s, essentially, because we want the capital to flow to this sector and we think that delays aren’t in the interests of the country. We did consider producing this legislation during the Budget itself and introducing Budget night legislation, in which we considered whether we should push through all stages under urgency as part of the Budget legislation. We chose not to do that because although at one level it’s a relatively simple bill, we thought that it was appropriate to consult in more detail with the guardians of the New Zealand Superannuation Fund, with the Venture Investment Fund, and with the venture capital (VC) industry. In the time since 30 May, that’s what we’ve done. So there’s already been considerable pre-consultation with the industry that’s affected, the VC fund management industry, but also with the guardians of the super fund and the New Zealand Venture Investment Fund.

I can give an illustration of the need for this to happen quickly. I was at a meeting with a number of VC fund managers, and a person with a long track record in these funds gave the example of his own involvement in five Wellington-based IT firms, all of which have a funding need—what you’d call a series A round—that needs about $1 million each. Contrary to what other members said, it’s not easy to access that money in respect of these start-up ventures. You can’t access public funds because of the directorial risk for making a public offering. As a consequence of that, you either have to choose between competent directors, if you’re getting an external director, or non-public methods of fund-raising. In addition, the costs of accessing public markets have gone up because of the complex prospectus processes that we have now in New Zealand. So you’re, effectively, driven to private equity sources, and private equity is easy enough to get—

ASSISTANT SPEAKER (Adrian Rurawhe): Can I just—sorry to interrupt the Minister, but it’s actually a very narrow debate on—

Hon DAVID PARKER: Well, it’s the reason for the urgency, sir. These funding needs are real.

ASSISTANT SPEAKER (Adrian Rurawhe): I’m just indicating to the Minister that if he’s creating debating points, then that will extend the debate, so he needs to be quite concise and to the point.

Hon DAVID PARKER: Thank you. The other reason, I would say, is that you never know when you’re going to have a liquidity event in the world. New Zealand encountered a liquidity event in 2008, at which point capital markets stopped to function, and our VC industry and a lot of things that were good actually went on the shelf then for a while. Now, there are some clouds on the horizon internationally, and it could be that the co-funding that we want to get for these matched funds is less likely to be available from international and New Zealand markets in a year than it is now. None of us know when these liquidity events can change quickly from being available to being a lot more closed. So although none of us can predict that future, that’s another reason to do this promptly.

So we think, given the nature of the bill, that the period ending 2 December 2019 is a reasonable one to request of the select committee, and we think that they will be able to meet that date in a way that’s not unreasonable.

Rt Hon DAVID CARTER (National): National just wants to record that it objects to a truncated select committee process. The Standing Orders have been developed over a long period of time to allow reasonable select committee processes that should only be truncated under very special circumstances, and what the Minister has just taken us through is a range of reasons as to why there’s suddenly urgency. The first question that I would ask of the Minister is: what’s suddenly become urgent that wasn’t evident to him as Minister 18 months or two years ago? He has had an enormous amount of time to develop this legislation and get it before the House without now thumbing his nose at a democratic process.

He further said that this is a simple bill. It is not a simple bill when he’s instructing the guardians of the New Zealand Superannuation Fund to give over $240 million to this created venture fund of $300 million. That is an issue that I think the select committee needs to examine very, very carefully. The New Zealand Superannuation Fund has been extremely successful, and one of the reasons that it has been successful is because politicians have not interfered with it. This is the first time since it was established in, from memory, 2006 or 2007 that we now have a Government moving to politically interfere with the decisions that the guardians of the super fund make. So to argue that it is a simple bill is simply not true.

The second reason given by the Hon David Parker is that the funding needs out there are suddenly urgent. No, this economy has been in decline since the Labour - New Zealand First - Green Government came to power. There is a complete lack of confidence from the business sector, which Mr Parker has chosen to ignore. I think I can recall his comments on some business surveys saying they are just rubbish—

Hon David Parker: Junk.

Rt Hon DAVID CARTER: “Junk.”, he said. Rubbish, junk—well, if he’s proud of that remark, I’m surprised. And he’s now saying that the funding needs are urgent. Can I suggest to Mr Parker that the funding needs became more urgent the day he said to New Zealand businesses, when they lacked confidence, that they were junk.

The third reason he gives is the pending potential liquidity crisis led by international circumstances, and I accept that there are clouds gathering on the horizon because of international pressures, not helped by politicians around the world with a bent on stopping the ability of nations to trade as freely as they have previously been able to. There are clouds gathering on the New Zealand horizon because of international factors, but don’t think that those factors are only international; they are also demonstrated very clearly by the lack of business confidence in this Government. Mr Grant Robertson shakes his head as if to say New Zealand businesses are tremendously confident in the process of this Government. Get out there during the next week of recess and go and talk to businesses.

Hon Grant Robertson: I’m out there.

Rt Hon DAVID CARTER: He says he’s out there. Well, then, he’ll come back next week a lot better informed than he is now.

So I don’t want to take long in this debate, except to register that the Standing Orders have been developed over a long period of time to allow select committees to do their job and to do it properly. We have no idea at this stage whether there will be many submissions to this legislation. There may be because of the interest in superannuation as an issue to all New Zealanders and the fact that the Government is now looking to take $240 million out of the New Zealand Superannuation Fund to establish its New Zealand Venture Capital Fund. There may be a lot of submissions, and bear in mind that if the Minister also bothered to talk to the chair of the Finance and Expenditure Committee, he would be able to find out that the select committee is already very, very busy—

Hon Grant Robertson: Oh, I’m sorry you’ll have to do some work.

Rt Hon DAVID CARTER: I’m not sorry at all. It’s the legislation the Government has put before us, Mr Robertson. I’m happy to do the job and examine it properly, but I don’t believe that under these circumstances, the need to report it back by 2 December has been adequately explained by this Minister.

In summary, it’s being done for a couple of reasons, in my opinion: one, to restrict the ability of people to make submissions—or to restrict the ability of the select committee to adequately hear those submissions—and the second reason, and probably the more appropriate reason, is that this Government has very little on the Order Paper and, therefore, is trying to truncate the process to get the legislation out of the select committee by 2 December so that it’s actually got some work to do as we come back after a lengthy Christmas recess.

The Standing Orders are developed for good reason. New Zealand’s democracy is one that I think is held in high regard right around the world. One of the reasons that it’s held in high regard is because of its select committee process, and I don’t believe it’s appropriate for the Government to move this particular motion in an attempt to truncate a select committee process that is an icon of the New Zealand democratic system. Mr Parker should be ashamed of himself for coming into the House today and truncating that very process.

Hon GRANT ROBERTSON (Minister of Finance): I just want to make a brief contribution to reinforce the comments made by the Hon David Parker. The Guardians of New Zealand Superannuation and others have been consulted with at some length about this proposal, despite what David Carter, the member who has just resumed his seat, might have to say. They are, in fact, engaging very constructively. They’re very pleased to be a part of this. They’re even more pleased that someone is finally putting money into the New Zealand Superannuation Fund.

ASSISTANT SPEAKER (Adrian Rurawhe): That’s not actually the motion on the Table. We’re talking about the shortened report-back period, and so you need to address that.

Hon GRANT ROBERTSON: The point I’m making is that the shorter report-back period is a completely acceptable path for us to be going down, because the negotiations have taken place with the New Zealand Superannuation Fund. This shortened report-back period will enable us to get on with making the investments that New Zealand needs to see.

ALASTAIR SCOTT (National—Wairarapa): Well, wasn’t that an interesting contribution from a man who stood up because he felt he needed to defend Minister Parker—

ASSISTANT SPEAKER (Adrian Rurawhe): And I’m going to say the same thing to you: this is a narrow debate on the shortened report-back period, and you should address that.

ALASTAIR SCOTT: The report-back period, sir, is far too short. I was interested to listen to Mr Parker’s initial comments before you closed them down. He was talking about private equity, which is not too much different from venture capital in the ability to access that being relatively easy.

Now, the problem with this report-back period is that the Minister started off by suggesting that he even thought about urgency—he even thought about bringing this through an urgency debate. That was his starting point? The starting point should surely be the Standing Orders, which is what David Carter was discussing. So, for me, that’s where the starting point should have been, and the reasons to bring it to a shorter period were totally unconvincing. I’m not convinced at all that because of some cloudy storm out there on the horizon, some global issue that might arise, we should be investing. In fact, that’s a reason not to invest. If you really think that the economy is going to deteriorate and assets are going to shrink, then you wouldn’t want to invest your money today, because you would expect the value of those things to diminish sooner rather than later. So that’s just a fallacious argument. That makes no sense at all.

I think there should be a proper process which allows people to contribute to the select committee process around even just the one issue of governance, and political interference is just one area that we could debate in select committee and have other people contribute on. Minister Robertson suggested that the only people that really needed to be consulted were the guardians of the Superannuation Fund. Well, that’s just nonsense. There are a whole lot of other issues that need to be discussed here. There are international participants. Minister Parker quite rightly discussed the idea of international participation—you know, entities moving offshore. That’s OK. Offshore guys investing internally—that’s OK. So, surely, those people would want to contribute to the process as well.

So, again, there is no reason to shorten the process. In fact, you’ll be excluding some of those people because of the shortened time period. So no real reason to shorten it up—totally unconvincing. It needed two Ministers to try and convince us, and, with that, I’ll let it rest.

A party vote was called for on the question, That the Venture Capital Fund Bill be reported to the House by Monday, 2 December 2019, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington area, despite Standing Orders 191, 193, and 194(1)(b) and (c).

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 56

New Zealand National 55; Ross.

Motion agreed to.

Bills

Dairy Industry Restructuring Amendment Bill (No 3)

First Reading

Hon DAMIEN O’CONNOR (Minister of Agriculture): I move, That the Dairy Industry Restructuring Amendment Bill (No 3) be now read a first time. I nominate the Primary Production Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 17 February 2020.

As this House is aware, the dairy industry makes an enormous contribution to the economic wellbeing of New Zealand. One of the 12 priority outcomes of the coalition Government is to build a productive, sustainable, and inclusive economy and the dairy industry is a crucial player in that journey. It is our largest export sector, accounting for more than one of four export goods dollars that our country earns. It contributes nearly $8 billion to New Zealand’s total GDP. The industry provides jobs and incomes for more than 40,000 workers, most of them on farms but many in dairy processing too. As a former farmer and part-time farmer now myself, as someone who has followed the fortunes of the dairy industry very closely, I know its reputation for being hard-working, enterprising, and innovation is indeed well deserved. There is much about the industry that we should admire.

We’re now at the point where change is necessary to help the dairy sector in better shape for the future. The wide-ranging review of the Dairy Industry Restructuring Act 2001, the Act which paved the way for Fonterra, has recently been completed and this bill is the result of that review. The Dairy Industry Restructuring Amendment Bill (No 3) contains a package of measures that will ensure that the Dairy Industry Restructuring Act (DIRA) regulatory regime operates in the long-term interests of dairy farmers, consumers, and of the wider economy.

The bill contains amendments to the DIRA itself and also to the associated raw milk regulations. I’m being absolutely transparent about the totality of the changes being made to the DIRA regulatory regime. This way the select committee will be able to examine the proposed regulations as well as the statute changes and the regulation amendments will be made at the same time as the bill is enacted.

The Dairy Industry Restructuring Act was passed nearly 20 years ago. As mentioned, it enabled the formation of the Fonterra dairy cooperative, the objective being to have a company with the scale to be a strong international competitor and the drive to have innovation across our dairy industry. But the DIRA also recognised that there were risks to be managed in enabling the creation of an entity that, effectively, controlled 96 percent of farmers’ milk production at that time and a near monopoly in the New Zealand domestic consumer markets. There were concerns that Fonterra’s market dominance could impact on the performance of the dairy industry and that its dominance in the domestic consumer market could impose higher prices or limit choice. The DIRA therefore imposed some important disciplines on Fonterra.

The key measures are, firstly, open entry. Fonterra is required to accept any farm as a shareholder and accept all milk from shareholding farmers, subject to limited exceptions. These provisions prevent Fonterra from imposing blunt volume restrictions on new farmers’ supply. Open exit is the next provision. Fonterra must allow farmers to withdraw from the cooperative without unreasonable restrictions or penalties, which allows farmers to switch their supply to other dairy processors should they deem that Fonterra is not performing in their best interests. The third thing is the calculation of the base milk price. This aims to provide a transparent benchmark price so that Fonterra’s shareholding farmers have a reference point against which they can assess Fonterra’s and other dairy processors’ milk price offers. And then we have the raw milk regulations, which have two functions: to provide a limited initial supply of raw milk to new dairy processors to ensure there was some competition in the market place, and to protect the interests of New Zealand consumers by ensuring that there was one major competitor to Fonterra in that consumer market.

Eighteen years on, the Government has reviewed DIRA to ask whether the regulatory regime is still needed to manage these risks. There have been changes in that time. Fonterra’s share of milk production has fallen from 96 percent to about 80 percent. New processors have entered the market as both exporters and suppliers, and the dairy industry has grown over that time. Its contribution to New Zealand’s per capita GDP is 74 percent higher than it was in 2001 and dairy export receipts have more than doubled.

The aim of the Government’s review of DIRA, which involved widespread consultation and independent expert analysis, was to determine, firstly, whether the DIRA is operating in a way that protects the long-term interests of New Zealand dairy farmers, of its consumers, and of the nation’s overall economic and environmental and social wellbeing. The second one was whether the DIRA has had any unintended consequences. Thirdly, whether DIRA is still fit for purpose, taking into account the wider economic, trade, and social context in which the dairy industry operates. We want to ensure that DIRA supports a higher performing, sustainable dairy industry that is aligned with the Government’s strategic priorities of productivity, sustainability, and inclusiveness.

The DIRA review was not intended to be a review or critique of Fonterra’s performance or its business strategies or structure. It does not direct Fonterra or any other dairy business on corporate strategy or product mix. These decisions are for the company and its shareholders. Again, DIRA does not make judgments on whether the dairy industry is a good thing or not or how many cows we should have or where they should indeed be. Those things are up to the dairy companies and the industry.

The review concluded, having received many submissions, many of them strongly held views, that regulation, and particularly retention of open entry and exit requirements, is still required. Fonterra’s share of farmers’ milk has decreased, but Fonterra remains the only dairy processor with a national presence still collecting 77 percent or more of farmers’ milk production in most dairying regions. Even though there are now several large processors established in New Zealand, they are individually and collectively small in comparison, and generally setting their prices and other terms of reference to Fonterra’s.

There are a number of changes that will be put into place. If I can, firstly, move to open entry and say that the bill addresses a key point in the way in which Fonterra calculates base milk price. Sorry, I’ve just gone to the wrong page here. It will allow Fonterra to have some discretion in taking new farmers’ supply. It has been accepted that the growth of the dairy industry has come at some environmental cost and that Fonterra have asked for the discretion to be able to refuse milk supply from new suppliers. Those requirements will be put in place through the legislation. Can I say that they will have, as I say, performance criteria based on animal welfare, hygiene, unsafe work practices. Again these are risks to Fonterra should they be forced to take supply from farmers that, indeed, might not be up to world’s best standard.

There are a number of other provisions in there. I won’t go into the technical side of regulated milk or base milk price, other than to say that the changes that have been considered very carefully work through the balance of ensuring Fonterra and its management—giving some protection to farmers who often have no alternative to where they supply their milk, keeping enough upward performance pressure on the board and management to deliver the returns for those farmers but, again, ensuring that there’s no blind obligation to take milk anywhere from anyone, any time. That has put pressure on Fonterra to invest in stainless steel. The reality is now that we probably will see less growth in the dairy industry, and moving into that different situation it is important that Fonterra is not exposed to all the risks and that its competitors pick up all the opportunities. That is the balance that this Government is trying to achieve here.

Can I say that we want to ensure that there is a review process of the legislation on a regular basis, moving forward, that we do not believe as a Government that this legislation should automatically expire. That was the view held by officials and the previous Government, that at some point regulation would be unnecessary for the dairy industry. It is my view, and the view of Government at this point, that with such an important industry we need to ensure there is the right regulatory structure around what is our single biggest and most important company. And I look forward to the review, the strategic review, that they’ve carried out over the last six months. They are now a more honest company. They have fronted up with their deficiencies in terms of performance and capital structure. They are about to launch a strategy that I hope will align with that of Government of ensuring that we have a sustainable, high-performing company that delivers economic sustainability, environmental sustainability, and the very best returns for this country, for its dairy farmers, and for the wider community.

TODD MULLER (National—Bay of Plenty): Thank you, Mr Speaker. I rise to talk to the Dairy Industry Restructuring Amendment Bill (No 3). At the end of the Minister of Agriculture’s speech, he posed a question. He said that in his Government’s view, there will be a time in the future where Fonterra and the dairy industry have reached the point where it doesn’t need significant regulatory impost but that time is not now. The National Party holds the view that with respect to open entry and exit provisions, and the obligation to provide a hand up for those who are wanting to put additional stainless steel at scale into the New Zealand dairy industry and then compete against Fonterra in the world market, we have reached that point, that those regulations in particular are no longer required and, therefore, the balance that the Minister talks about that he has sought to strike through this legislation, from the National Party’s perspective, has not been met. We therefore will oppose this legislation going to the select committee and oppose it here at first reading. Of course, we will debate it at select committee and look forward to the many, many submissions that we get from the agriculture sector and the dairy industry, in particular.

I would like to spend a bit of time reflecting on why we have got to that position. It is important to reflect a little bit on history. In 2001, when this company was established, clearly, with remarkable market power at 96-97 percent, it made a whole lot of sense to put some regulations over the top of that company to ensure that the right balance was struck in terms of ensuring a fair price paid back to farmers and, in particular, the New Zealand domestic liquid milk and retail market was competitive and there was the opportunity for new competitors to be able to move into the market.

But fast forward now to 2019, and Fonterra’s market share is around 80 percent. There are a significant number of competitors who have come into the market. Interestingly, when this legislation was initially established, the language that was used by the Labour Government at the time was that this regulation or requirement to assist new start-ups would particularly assist the domestic competition with respect to liquid milk and the retail brands. Well, what has happened, ladies and gentlemen, is that every single one of those new stainless steel competitors has got New Zealand milk and, understandably, commercially, immediately turned their eyes to the opportunity that exists around the world and from day one have competed with Fonterra vigorously, not only for New Zealand milk supply but particularly in the market.

So we hold the view from the National Party perspective that the market is working particularly well. There is a strong competitive tension that exists in this country with respect to access to New Zealand milk. Fonterra now should be freed from the obligation of giving a hand up, essentially, to new stainless steel at scale to come into New Zealand to immediately compete against them on the world stage. The National Party has no problem with the obligation to provide milk to those small, niche players that have cheeses and yoghurts—often, in a New Zealand context they sell some, plus a little bit offshore. That’s not what we’re talking about here. We’re talking about a strategic conversation on behalf of a critical industry in this country—25 percent of mercantile exports, huge value to the economy.

It’s not just a huge value to us. All those who compete in the global food space see New Zealand, see its milk pool, and see opportunity. Surely, we must put together a set of legislation and regulations that ensures that New Zealand can compete effectively in that context, as opposed to creating the obligation on Fonterra year after year to provide hand-ups and start-up opportunities for those. I acknowledge the Minister has reduced some of the obligation, but from the National Party’s perspective it hasn’t gone far enough.

Equally, with respect to the open entry and exit obligations, we acknowledge aspects of this bill which are in the right space, particularly the freeing up of Fonterra’s ability to be able to design commercial terms in terms of its annual supply conditions with its farmers that reflect the need to be able to expect from those same farmers best management practice with respect to environmental outcomes, animal welfare, and the like. I think it makes sense that they have now clarified through this legislation, regulations, the ability to be able to do it. It does make sense that they also now don’t have to take new conversions that appear in the context of the New Zealand industry, although if what we hear is true coming from the other side with respect to water, I suspect there will be very few opportunities for conversion, and, in fact, I think the whole conversation around which side of the House supports primary industry to be able to build and be sustainable and actually be successful on the world stage is going to become an acute focus over the next few weeks.

But a part of the open and entry part that is proposed in this bill that we disagree with is the continuing obligation on Fonterra to take back those who have left. Again, I think this needs to be painted out very clearly. You have farmers who leave, who sell up and go to a competitor, and then if it doesn’t work and they want to return back, Fonterra has no choice other than to have them back on exactly the same commercial terms as exist for those who have stayed with the co-op forever. That does not work well in rural New Zealand, and there are many people on the other side who know that. It doesn’t work, it doesn’t make sense, and it certainly doesn’t make sense in the context of a highly competitive domestic milk supply context.

We have some other issues that I will touch on and I’m sure my colleagues will explore in great depth. A particularly interesting focus from Minister O’Connor to put in here at the last minute some requirement to approve a ministerial appointment on to the Milk Price Panel. I think this is personal. I think that he has always had, in his view, deep suspicion that, somehow, the milk price manual, despite the fact that the Commerce Commission has had review after review around its efficacy—he still wants to have his person on there to be able to see what’s going on, to look under the lid, to really make sure. Well, I think that New Zealand politics, surely, has gone beyond that sort of behaviour. We have a milk price panel required under this legislation. It has proven efficacy over many, many years. Let it do its business. Don’t then try and say, “Well, actually, I want to put my own person in there, as the Minister.” They cannot help themselves. The only way issues get resolved from the Labour Party’s perspective is to put their own hands into the till, if it’s a tax conversation, or into the engine, if it’s the New Zealand economy. It ends up, I think, ultimately, cutting their hands off and making the engine go slower, and this is another example. They don’t need to make this appointment. I don’t think it adds any value. Again, we intend to push back quite strongly.

In terms of the components in this legislation which talk to the liquid milk and domestic retail space in New Zealand—and I’m talking here particularly the obligations on Fonterra to supply Goodman Fielder with, historically, 250 million litres but here it is suggested moving to 350 million. This is one part of the legislation that we are broadly comfortable with, and we can signal support with respect to that.

But, in conclusion, this is a position that we have reflected on and landed on very clearly as the National Party, that the time has come, because that is indeed the question that the Minister put. We’re having a conversation as to whether these regulations and legislation are fit for purpose for the 2020s. That’s what we’re talking about. So let go of the view of the world around constraining Fonterra that existed in this House in 2001 in the context of that market reality of a business with 97 percent. It now has 80. It is a hugely competitive space, New Zealand milk supply. It is part of a global food chain which has huge value to other players who want to come back and come from their countries and integrate back into our supply chain because they see opportunity. That’s fine. That’s the New Zealand way. We are open to the world. But let’s not add additional—we think unacceptable—regulation and obligation on Fonterra with respect to requiring them to give that new stainless steel a further opportunity when they’re already under huge competition from those already in this market and then, for those who leave the co-op, say “Welcome back, and you can come back and have the same terms and conditions of those many, many thousands who stay with them thick and thin.”

We will be opposing this, but we look forward to a very, very productive conversation in the select committee. Thank you.

KIERAN McANULTY (Labour): What a shame. The National Party had an opportunity here to send a message, as it has done numerous times in this House to the rural communities across this country, that they are going to work constructively with this Government to find a way in which we can establish a framework to ensure economic prosperity in our rural communities. And what do we see? We see the National Party playing politics yet again because they see—rather foolishly, in my mind—that fighting these battles and opposing such legislation is going to win them votes. But the message that they are sending in opposing the Dairy Industry Restructuring Amendment Bill (No 3) is that they are grasping at straws for relevancy. What they are doing is they are trying to appeal and create some differences to this Government. But with this legislation we are yet again as a Government proving that we are providing long-term solutions to agriculture and to rural communities.

What we have done is consulted wisely on this piece of legislation. We have undertaken an extensive review and consultation with various groups, and I’ve got them listed here—with farmers, independent dairy processors, NGOs, and representatives of Māori interests—on measures that will ensure the legislation is fit for purpose. Some said there should be less regulations; some said there should be more. We feel that we have found the balance. And what the National Party could have done—as they have done many, many times before—they could have stood and said, “We have reservations about this bill. We will support it at the first reading and get it to select committee and we will let the public have their say.” But they have nailed their colours to the mast in opposing this bill already, and far too soon in my view, because this piece of legislation will ensure that the dairy industry continues to be competitive and continues to operate in a way that restores and enhances and maintains our reputation as a fair and sustainable producer that lives up to the brand as much as it can whilst continuing to improve how we portray ourselves overseas.

But they haven’t taken that chance. The National Party have opposed this. They say that it is competitive enough. That’s not what we’ve heard when we’ve actually consulted the industry. They say, in their opening gambit—Todd Muller said that the Minister of Agriculture said something which he clearly did not say and then stood up and listed a number of things that they think that are good in this bill and that the Minister has clearly consulted in listening to the industry and made some changes which will go down well. The list of things that the National Party supported in this bill was longer than those which they opposed and I think that sends a very clear message to everybody.

They don’t oppose this bill. They don’t oppose this bill at all. They see merit in this bill but they are trying to create some relevancy in opposing something—anything. When they see the gains that this Government is making for rural communities they finally see an opportunity. I don’t believe that they oppose this bill, but if they want to play politics let them because we know, at the end of the day, that this bill benefits the dairy industry and benefits the rural communities that support it.

Hon DAVID BENNETT (National—Hamilton East): Thank you, Mr Speaker. Today is a good day for the New Zealand dairy industry because the biggest political party in this country has stood up for farmers and has stood up for the dairy industry and is making a pathway forward for that industry. This is time, as my colleague Todd Muller has said, to put the Dairy Industry Restructuring Act (DIRA) away. We have achieved the purpose of creating Fonterra and competition in the market. That has happened. They are down to 80 percent of the market and falling, and that will continue as more operators come in. But we do not need the hand of Government to determine what our biggest co-operative and company has to do. We need that company to be able to unshackle itself from this room and to go out into the markets and perform. And the Labour Government—the essence of what the Minister of Agriculture said in his speech was that the Government does not trust that company and that the Government knows better than that company what should happen to farmers, their assets, and their future generations.

I disagree completely with that. The New Zealand farmers have proven themselves over generations to be the best in the world. And Fonterra may have its good and bad points and it may have its detractors, but the fact is it is the only flagship we have on the world stage, and go to any other primary producer in New Zealand and Australia and they will tell you they want exactly the same thing. Go to the kiwifruit growers. They’re not going to give up Zespri tomorrow, are they? Go to Australia and look at their dairy industry where Murray Goulburn went under last year. There is no other co-operative that is world stage and it does not need this room to tell it what its future is. That is the first point.

The second point is that Fonterra and the market have come of age. In the market we have competitors that are out there. And as Mr Todd Muller said, many of those competitors have gone straight for the export market. They haven’t gone out there trying to reduce the price of milk for ordinary Kiwis. They’ve gone where the highest value is. And they haven’t gone out there and created a new vision of value-added products. A lot of the products they make are pure and simple milk powder and a lot of the way they sell their products is going around, following around Fonterra trying to pick up its market share. That’s the reality of what’s been happening to our New Zealand dairy industry and we’ve competed long enough in that sphere. It’s time we let that company go.

There are some points where we need to help. And there are some points where, you know—there is that point around the domestic supply that is there for Goodman Fielder. And we don’t see that that is a problem and Fonterra itself does not see that that is a problem. But we don’t need to have DIRA to achieve that purpose. We can achieve that in other ways in other legislation. The concept of having DIRA legislation where the co-operative is controlled by this Parliament is no longer needed.

This Parliament should not be dictating whether people can supply or not supply Fonterra. If the Government truly believed what it said about environmental outcomes and sustainability and wanting to have value-added products, it would let Fonterra set those signals and it would let Fonterra go out there and make the decisions about who supplies. But with having DIRA legislation there it constrains Fonterra from being able to do that. It constrains them from meeting the market because, effectively, they have to pick up milk that goes to another company and has to come back to it. Take away that and then Fonterra has much more power to go out there and put in those extra things that the Government says that they value: those environmental, those sustainability requirements. By doing what we do now we take that away from Fonterra.

Another issue that is in there will be the milk price and how that’s set and also the Government involvement in that. There is no need for the Government to put its arm and to put its hand into the management and direction of the milk price in New Zealand, as it is doing in other legislation around National Animal Identification and Tracing (NAIT). It is the hand of Government wanting to control our primary industry and they are doing that because they are wanting to be able to tax that industry long term. They want to be able to control by knowing all the information around that industry. Fonterra is a co-operative but it is in a corporate world. It does not need Government’s hand in there. There is no need for that and it is purely ideological from the Minister.

We’re going to come back after dinner and talk about this some more. But New Zealand First I see sitting there. They’ve got a choice in this room here now—in the next hour. Do they come back and support a Labour-Greens Government that is against farmers, against the wishes of farmers, or do they join with National in sending a signal to the Government that this is the time to stand up for rural New Zealand? This is the time to actually do a deal with us, with them, so that we get the right result for Fonterra shareholders, for the New Zealand industry, and for the future of our productive sector.

This is an important debate that comes around in this Parliament far too often. This country does not need to constrain its biggest economic player that’s in the private sector. We are a Parliament here that is devised to help people, to support people, and to look after people. We are not a Parliament that is designed to be a corporate watchdog to make decisions on economic decisions that private sector individuals do. Farmers should have that responsibility and they should take that upon themselves. And the day we take DIRA off the New Zealand dairy farming sector will be the day that New Zealand dairy farmers feel like they can actually go out there and do their own thing. They will feel that they can actually be achieving.

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

Hon DAVID BENNETT: I’d just like to carry on where we left off before the dinner break, and that was around the DIRA. When we had the Minister do his opening speech tonight, he said that the purpose that the Government had in having this Act continue through and to control Fonterra was that the Government wants to have regulation over New Zealand’s biggest company—those were his exact words. My argument is that we have now reached a stage in the New Zealand dairy industry where farmers need to have control over their biggest—

Hon Damien O’Connor: Well, they could if they’d made the bloody effort.

Hon DAVID BENNETT: —company and cooperative, not that Minister. This room has been a constraint on New Zealand industry for far too long, and we do not need to have that continue through this revamped DIRA legislation.

Another part he said was that generally setting prices are on the terms of reference of those companies and not following Fonterra, but that is simply not the case. The other companies that are out there, as my honourable colleague Todd Muller said earlier, have been using Fonterra’s pricing as their basis to enable them to go into the market places. They do not wildly change their prices from that that Fonterra has. They are very much there, trying to take advantage of the lead Fonterra has, and the Minister wants to put a hand of Government into the corporate decision-making of that organisation, like he is doing with NAIT. It is something that is not necessary.

DIRA has achieved its purpose. Fonterra is now only 80 percent of the New Zealand dairy market, and there will be questions in the future, not about new stainless steel being built around this country, but about what stainless steel has to be closed down. That will happen in the next decade, and this is time where Fonterra needs to be given the chance to create its own future now, for the issues it’s had in the last few months and in the past—they are really only a symptom that it needs to be able to take control and not be shackled by this Parliament. So—

Andrew Bayly: But Damien knows best.

Hon DAVID BENNETT: The Government does not know best. Farmers are the people that know best what to do with their assets and their control.

This gives us the opportunity here today to wrest back control for the people that are actually our producers. So I would encourage all parties in this House to support the National Party in looking beyond this bill and to work out how we can look after the Goodman Fielders of the world, but, at the same time, let’s give up on trying to have this room constrain and dictate the future of the New Zealand dairy industry.

MARK PATTERSON (NZ First): It is worth reflecting on the fact that we are debating the Dairy Industry Restructuring Amendment Bill (No 3), and we have the National Party over there, screaming that we should be doing more when, in fact, the No. 2 bill that was before this Parliament and was passed under the stewardship of Nathan Guy in the last Parliament was a much more tepid version of this current bill. Minister Damien O’Connor is to be commended for, in one of his first acts as Minister, kicking that well into the weeds and bringing it back now, after extensive reviews and consultations, into a much more workable and sustainable bill.

It is also rather ironic to hear the National Party over there standing up as champions of Fonterra. They have always conceptually and ideologically hated the concept of Fonterra. They have never been supporters of New Zealand ownership. They stood meekly aside as our biggest meat exporter, Silver Fern Farms, went into the control of foreign Government ownership, when the board and a significant amount of shareholders were reaching out to them for some help. On the other side of that debate, New Zealand First have always been strong and fierce supporters of New Zealand ownership and, particularly, strong supporters of the co-op model, where New Zealand farmers have control of the supply chain well beyond the farm gate.

This is a significant piece of legislation. This will be one of the most significant pieces of legislation to go through the 52nd Parliament. New Zealand First does support this bill. However, as the Minister knows, our support does come with some qualifications.

The creation of Fonterra has been enabled by this legislation. The merger of the Dairy Board, Kiwi Cooperative Dairies, and the New Zealand Dairy Group back in 2001 was a watershed moment for corporate New Zealand and the dairy industry. It created a national champion and one that offered great promise.

It is our only significant multinational. It is, by New Zealand standards, a corporate behemoth. It has an almost $20 billion turnover. It has 22,000 direct employees. It commands 25 percent of New Zealand’s merchandise exports. I believe that that is probably the highest stake in the economy that one single company has in any OECD economy—and I’m not sure if that’s a fact. Maybe it’s a patsy fact, but I would imagine that that would be the case. This is a tremendously significant company for New Zealand, and it controls something like 30 percent of the world’s cross-border dairy trade, so it’s internationally significant. It has been compared to being the OPEC of dairy.

So this legislation has had far-reaching consequences. It has enabled, through the open-entry provision, mass expansion of the dairy industry, with the provision for almost unlimited volumes of milk having to be taken by Fonterra. It has dramatically changed the landscape of New Zealand and it has, potentially, also constrained its ability to innovate as it’s had to take that wall of milk and put up milk powder dryers to handle that volume.

The promise, it’s fair to say, has not been delivered on that original version. We now see the co-op in a somewhat difficult position. It is having to liquidate assets, including iconic brands like Tip Top, and also looking at, I think, $800 million worth of liquidation of assets. It has signalled a significant loss this year, on the back of a significant loss last year.

There has been a culture of corporate excess, with the extraordinary salaries paid to those at the top end of town. The $8.5 million salary to Theo Spierings, who proved to be the emperor with no clothes—that is an affront to the 10,500 shareholders of this company, 86 percent of whom are mum and dad farmers who have one farm. They’re not corporate farmers; they are, by and large, small, family-owned farms.

New Zealand First has prioritised this piece of legislation. I myself, with my trusty sidekick Stu Husband from the Waikato—we conducted meetings around eight provinces in New Zealand and visited all the major processors and some of the smaller ones to get a flavour of what the feeling was out on the ground, and I can tell you that the shareholders of Fonterra are intensely passionate and proud of their co-op.

In terms of the legislation, there are four issues. The Milk Price Panel—I know that’s been discussed by the previous speaker, Mr Bennett. We have looked at this. I think setting the milk price has been a little bit contentious, having a Government appointee in there. We’re not particularly bothered by that. We don’t see that that is too much of a problem. But we will look at that through the select committee process.

We strongly support the limiting of requirements to provide independent processors with dearer milk. Actually, I’ll qualify that. We’re very supportive of small New Zealand start-ups getting that supply of milk. The foreign start-ups, or the foreign companies, we are not supportive of that. But the Minister has come up with an elegant solution, I believe, in the volumes of milk and time-limiting that for one year after the company has 30 million litres of its own supply, which does negate that and does protect New Zealand’s trade interests. New Zealand is well benefited by access to international markets. We don’t want to do anything that cuts across that.

Where we do have some reservations is around the open-entry provisions. We do support the increased discretion for Fonterra to decline supply around environmental issues or for animal welfare standards and the flexibility that that does give. But we believe this discretion is too narrow.

We do believe it is important that Fonterra are required to ring-fence its existing suppliers, and we support the increased footprint provision of 50 percent for those increased providers. But we do not think Fonterra should be required to hold capacity indefinitely for suppliers who have walked away. We think that there should be a sunset clause within these provisions. We think the five-year rollover until we look at that again is too long. This is a major cost on Fonterra’s business to hold this latent capacity, and we believe it is unfair that Fonterra should be required to compete with one hand tied behind its back, and we believe it is time to release those shackles. But we will see that prosecuted through the select committee process, as should be the way.

New Zealand First are strong supporters of the co-op and New Zealand ownership. We must look at the canary in the mine that was the Westland dairy co-op. We must look at the examples of Bonlac and Murray Goulburn, Australian co-ops that have fallen by the wayside, and we do not wish to be complacent. We believe that the Government shouldn’t be adding to these pressures by unfairly handicapping Fonterra, and we will, as I said, look to prosecute that through the select committee process. We do think there is a danger of New Zealand farmers becoming peasants in their own land if we do lose these valuable supply chains. It is imperative that in this our most major industry we keep control of that within New Zealand farmer ownership, and New Zealand First will be standing solidly behind our farmers in making sure that that happens.

So New Zealand First have looked at this bill very closely. We will look through the select committee process to make sure that it comes out the other end in a place where we believe it should be and that Fonterra can get back on the road to being the national champion that was envisaged for it when it was created in 2001. Thank you.

Rt Hon DAVID CARTER (National): For anybody who is still listening to the debate, that contribution was Mark Patterson, New Zealand First, who spent 10 minutes telling this House why he shouldn’t be voting for this legislation and then said he will vote for this legislation. I cannot understand New Zealand First, who claims it’s the champion of the rural sector, out there imposing the zero-carbon bill and fuel taxes galore, and, with an opportunity to show solidarity tonight to every dairy farmer in New Zealand, that opportunity has been ignored by New Zealand First.

I was trying to think of a charitable way to describe this legislation over the lunch break, and it is lightweight legislation by a lightweight Minister of Agriculture.

I know more about the history of this legislation than anybody, probably, in this House. I know that Damien O’Connor claims credit for the original legislation in 2001, but the background to that was these negotiations started in 1998. I was the Associate Minister for agriculture, and I was involved. At that stage, Damien O’Connor, there were heavyweights involved. The Hon John Luxton—

Hon Damien O’Connor: You didn’t have the guts to do it.

ASSISTANT SPEAKER (Hon Ruth Dyson): Order! Sorry, the Hon Damien O’Connor, please stop that sort of comment.

Rt Hon DAVID CARTER: Thank you, Madam Speaker. At that time, there weren’t lightweights involved in this discussion; they were heavyweights. The Hon Bill Birch, the Hon John Luxton, the Hon Bill English, and men of that ilk were approached by two major dairy co-ops to come together to form Fonterra. That is the history of this legislation. The donkey work was done by the National Government prior to the 1999 election. Damien O’Connor then became the Minister of agriculture. He claims credit for the formation of this idea, and that is not correct. It is erroneous or, at the very least, duplicitous.

But, having put two major competitors together, there were issues around the Commerce Commission. At that stage, Fonterra would have been collecting 97 percent of all milk produced in this country. There had to be some restrictions on Fonterra. There had to be the ability for competition to come into this industry. You could argue that that legislation was about Fonterra being on trainer wheels, and tonight there’s the opportunity to take the trainer wheels away from Fonterra, get this House out of its business, and let the dairy industry foster. But the lightweight Minister has missed that opportunity, supported by New Zealand First. This legislation would not go through if New Zealand First really believed it was the saviour, the representative, of rural New Zealand. They are missing a golden opportunity.

Having said that, and having been involved in the initial discussions around the formation of Fonterra, I want to put on record here tonight that I have been extremely disappointed with the financial performance of Fonterra over many years. I say that sincerely, because it is the biggest company in New Zealand, the standard of living of every New Zealander is affected by the performance of Fonterra. One thing the Hon David Bennett said in his contribution is overseas it is well regarded. It is an international icon. But, here in New Zealand, it hasn’t performed financially as it should. It promised to us, as the original foundation Ministers involved in these discussions, that it would become the Nestlé for New Zealand. It has failed to do so.

I say to this House tonight that one of the things that the original legislation ensured was the opportunity for other competitors to come into this industry. We’ve got the likes of Oceania Dairy, Synlait, and Talley’s organisation there now, and thank God we’ve got them, because they’ve been one test against the performance of Fonterra.

Subsequently to the original legislation, we then moved to the trading amongst farmers, trying to give opportunities for Fonterra to raise the necessary capital that it needs to prosper. I feel very, very sorry for any investor who has bought shares in Fonterra from the time trading amongst farmers started, because they have lost considerable equity and the returns have been minimal, and in this year they will be nil.

Hon Damien O’Connor: The member supported trading among farmers.

Rt Hon DAVID CARTER: We delivered trading amongst farmers, and it has been a failure—it’s been a failure. This is the stupidity—

ASSISTANT SPEAKER (Hon Ruth Dyson): Could the member move towards the bill—just passing reference or a little more on the bill that we’re debating. It’s the first reading.

Rt Hon DAVID CARTER: This is about the bill, Madam Speaker. It’s about Fonterra’s failure to perform, and you, Madam Speaker, are affected by the failure of Fonterra to perform. And here’s the opportunity to actually get this House out of it, to let Fonterra stand on its own two feet, and not have it coming back every three years or four years for dairy industry restructuring legislation.

I think that 18 years on it’s time to take the training wheels off, let Fonterra go. Let it compete adequately with the Synlaits, and the Oceania Dairies, and the Mirakas; let it have a go. Give farmers the opportunity to produce their milk and for them to decide who is the best processor for them to cooperate with.

What I totally disagree with is this open and entry clause, which Damien O’Connor is persisting with, that a farmer can actually make a choice to go to another processor and then a year or so later change his or her mind, and this legislation means Fonterra must take them back again. What sort of hurdle is that to Fonterra. What you’ve got is a completely changed dairy industry, Damien O’Connor, from what we had in 1998. Since that time, we’ve got an industry now which I would describe as stainless steel - capacity reached. I’d go further, Mr Damien O’Connor, to say dairy cow numbers have reached their peak in this country. The situation is totally different to what it was when these discussions occurred in 1998. So take the shackles away. New Zealand First should’ve realised the folly of their position.

This is an industry which can be iconic. It can really provide for the standard of living of every New Zealander, but it needs the opportunity to do so. The only part I think I totally agree with in this legislation is the need for provision of some domestic competition. Supply more to Goodman Fielder; 250 million litres up to 350 million litres, that would be on a par with the population increase that’s occurred in this country since 1998.

But let us internationally get out there, perform, for the benefit of New Zealand. Don’t shackle and protect an industry that actually wants the trainer wheels taken off them, Damien O’Connor. Let it have the opportunity to maximise its economic potential because it hasn’t done so, and I think it can argue one of the reasons it hasn’t done so is the shackling of the dairy legislation.

So I say to this Government, “Think again—think again about the legislation you’re passing here tonight.” There was an opportunity, 18 years on from the original passing of the legislation to let it go; but no, the Government’s intent on missing that opportunity.

I am absolutely staggered that New Zealand First, as a party that actually claims it’s got an interest in New Zealand agriculture, has marched into the lobbies of the Ayes to vote with the Government without thinking about it. Mark Patterson smirks over there because he’s a good guy, but this will be the sort of legislation if he supports, he’ll have one of the shortest parliamentary careers of all times, three years and three years only. There’s still a chance, Mark Patterson, talk to your New Zealand First colleagues, get them to see reason, and change your mind.

Hon JAMES SHAW (Minister for Climate Change): Well, always a pleasure to follow the Hon David Carter, second time today.

So I’d actually just like to start by following on from some of the things that the Hon David Carter was saying. Bill Birch, John Luxton, Bill English, men of that ilk, would perhaps be the headline line of this debate so far. I’m not a man of that ilk.

What I want to say about the Dairy Industry Restructuring Amendment Bill (No 3) is that the Green Party will be supporting it to select committee. There are some changes that we’re looking for. At the very least we want some assurance that the changes that are proposed in the bill go as far as we would like, because our view is that this bill is a good start but actually it needs to go further, actually to remove the restrictions around open entry completely. The reason for that, and I think we may be arguing from a different spot, and strange times do end up with strange bedfellows, but the Green Party has a view that the existing provisions have led to a situation—and it was interesting hearing the Hon David Carter saying that he thought that we had reached the maximum number of dairy cows that the land and could sustain in New Zealand, because we share that view. In fact, we think that we probably passed that point a while ago—that the existing regime means that an investor in Queen Street could buy a patch of land in a place that was completely inappropriate for a dairy farm like say the Mackenzie Country, for example, and go and convert that into a dairy farm and then require Fonterra to pick that milk up. If there were sufficient numbers of conversions in an area what that meant was that, essentially, Fonterra had to create a drying unit in the area otherwise it was completely uneconomic to do so. So it had to build the infrastructure in order to do that. And so what you had is a regulated environment that, essentially, enabled investors to force conversions, get a guaranteed buyer for their product, create all of that infrastructure, and cause environmental havoc in places that were completely inappropriate for dairy farming. There’s lots of parts of the country where, you know, it’s fine within certain boundaries but there are parts of the country where you had huge conversions and it was completely inappropriate. So in our view that regime was responsible for actually a lot of the overcapacity that we’ve seen, and a lot of the strain on the environment that we’ve seen in New Zealand in relation to the industry.

It’s also a completely production-led approach rather than a consumer-led approach. Of course Fonterra has to actually sell products to the rest of the world, so it is a consumer- and a business-to-business business in that it actually has customers, and so it’s got to work out what do they want, where’s the value, and then in an ideal world they would actually be passing that back down the chain and saying to farmers “Look, this is the kind of product that we’re looking for. This is the amount that we’re looking for.”, and so on. That’s actually how markets should operate, not one that’s led entirely from a production end and say, “We’re actually going to create this volume. Now you have to push it out there, almost no matter what the market wants.” I think that some of the performance issues that David Carter was referring to are caused by that. I mean, I know that there are other issues, but part of it is actually that the entire design of the legislation is set up for a production-led approach not a consumer-led approach. Actually marketing-led, consumer-facing companies, who are much more responsive to market requirements—I think, if you start at that end of the value chain you would end up with a better result.

Related to that, of course, given New Zealand’s overall strategy, because we are limited in terms of the amount of productive land that we’ve got, we’re only ever going to be a niche producer of anything in terms of the global marketplace. Then, obviously, the way for us to improve our livelihoods is to move up the value chain. And I know that we’ve got an economy that over the past century and a half of the modern period has been built on, essentially, commodities, and has been at the whim of the commodity markets, then you’re not going to create more wealth that way, particularly when you get to capacity. So I would argue that the existing regime has led to a situation where we’ve chosen production over value creation, and that what we need to do through this legislation, in freeing up Fonterra, would actually enable Fonterra to take those consumer insights and say “How do we get value?”, and then pass that back down to farmers and get a much more dynamic, value-led situation, which also happens to be way more environmentally sustainable than the model that’s been allowed to perpetuate over the last 18 years.

So we are going to be supporting this legislation through to select committee. At the very least we want some assurances that the draft legislation of the bill that’s been presented to the House will actually enable the kinds of changes that we’re looking for, the kinds of results that we’re looking for. If we’re not assured of that, we’ll be proposing changes to the legislation, perhaps in line with some of the other speakers who have gone before in terms of actually removing some of those constraints completely and really freeing it up. So I think it’ll be a very interesting and lively debate at select committee in terms of how we move forward on that.

If the bill was to remain as has been presented, one of the things that I think would be important for us would be to—Fonterra’s actually got quite sophisticated environmental reporting, but that would actually need to become legislated, I think, in order to incentivise the use of the proposed exceptions to open entry that are outlined in the bill. Again, we think that that would be a poor second choice because, ultimately, if you just free it up, then those incentives would get passed through anyway.

So that is what we’re hoping for from this bill. We do think that there is a real opportunity. I noticed, again, the Hon David Carter pointed out that this has been 18 years since it was first created as such, and that, in fact, it wasn’t designed to go on this long. It was supposed to be deregulated some time ago. But I do want to point out that of the 18 years that the Act has been in place, National were in power for half of those years. You have to wonder what they were doing with their time, given the passion and the energy that they have devoted to their speeches tonight about the urgent need for reform and the extent of reform that they’re outlining. You have to wonder, if this legislation was supposed to have expired, and the industry was supposed to be deregulated some time ago, and this is urgent, and it is critical, and they want to free Fonterra and unleash the shackles and so on, what were they doing for half the period of time that the legislation was in place? I just find that kind of extraordinary. You would think, given the critical nature, apparently, of everything that they’ve been talking about, given that they only left office a couple of years ago, you would think that they would have taken the opportunity to push through those major reforms in the period of time that they actually had.

But having said that, as I said, the Green Party supports this bill through into select committee. It is time for some deregulation. In fact, ideally, a greater level of deregulation in order to take away that existing regime around the open entry and so on, which we think has produced some really perverse outcomes in New Zealand. We will be looking for a stronger regime to ensure that, actually, we get the kinds of outcomes that New Zealanders want. Again, I have to say that this is one of those apparently rare times when people who are environmentalists, when the industry itself, farmers, and so on, actually appear to be pretty united on what needs to happen in order for the kinds of outcomes that we all want to take place. So I do think that this deserves a good working out at select committee because I do think we’ve got an opportunity to create some real change here. Thank you, Madam Speaker.

NICOLA WILLIS (National): It is a particular honour to rise tonight to speak about the Dairy Industry Restructuring Amendment Bill (No 3). As Minister O’Connor has mentioned in the House several times over recent days, I worked at Fonterra for several years between the years of 2012 and 2017. I admit readily that when I started my work at Fonterra I was sceptical of this idea of a cooperative, propped up by a piece of legislation with special rules, running New Zealand’s dairy industry. I was sceptical, because my view was that, actually, competitive markets, wherever they can be, should be allowed to flourish and can serve New Zealand best. But what I learnt when I was at Fonterra is quite how different our dairy industry is because of the global context in which it operates and the nature of the milk business and what it truly involves.

I remember vividly, early on in my time at Fonterra, sitting down with a man called John Wilson. When I sat down with John Wilson, he was a director on the board. He later became the chairman, and various members of this House tussled with him in that role, and he is now departed. But what I remember him saying to me so vividly when I questioned him, and I said “Why is it so important that we have a cooperative running our dairy industry?”, he said, “Nicola, the existential fear that all dairy farmers have is that the milk will not be picked up. We fear the possibility of becoming peasants in our own land, where other countries, other nations, other companies own our manufacturing stainless steel, they make the profits from our milk, and we exist at their whim and mercy, and we must work to ensure that is never the case.” And John Wilson was right.

I continue to have some scepticism about the performance that Fonterra has had in recent years, the decisions it’s made, and the investments it’s made. I can tell you very frankly that I know there are men and women working at Fonterra today who share that disappointment, who wish that they had performed better for their farmers. But we must remember that the most important people in all of this are not the managers at Fonterra, not the people even sitting around the board table or the executives; it is the suppliers to Fonterra—the 10,500 farmers who own that cooperative—that we should all in this House be considering, because when they do well, New Zealand does well.

I would say that the thing I learnt the most when I was working at Fonterra was that we need to think about those farmers and how we ensure that they are best placed to create more value from the land, to do it in a sustainable way, and to compete effectively on the world stage. This bill is not fit for the global world, the competitive world in which Fonterra must compete. This is a piece of legislation which is timid in a world that has changed rapidly.

In 2001, when Fonterra was formed, it had about 97 percent of milk supply in New Zealand. Today, we find ourselves in a world where Fonterra actually only gets around 80 percent of milk supply. We have a matured market. We have competition. We have independent processors entering New Zealand because they know how efficient our farmers are at producing milk, and what they want to do is get a slice of the action. There has been competition. We now find ourselves in a very different place. The place we find ourselves in is that Fonterra is having to compete in a world that is viciously difficult to compete in when it comes to producing milk at value, effectively, and at a higher return for farmers.

So what National says about this bill is that it does not strike the right balance. It does not ensure that New Zealand dairy farmers can remain competitive internationally. That’s no surprise because, actually, the ideas in this bill, and Minister Damien O’Connor knows this, came about after a very dated report: the Commerce Commission Review of the state of competition in the New Zealand Dairy Industry. That report is four years old now. Actually, what’s happened in the four years since is that every year Fonterra has lost about another 1 percent of milk supply in New Zealand. That trend has not ended, yet Damien O’Connor has introduced to this House a bill that may have worked four years ago, but is not fit for today.

I want to take you through a couple of the elements, because the first is this concept of open entry and exit. I think it makes sense that Fonterra should be able to make its own commercial decisions over who it is required to take milk from. Right now, what Fonterra’s required to do is pick up milk from anyone who wishes to supply it to them. Of course, this bill takes some good steps forward. It says, “Well, actually, if farmers are farming unsustainably, then Fonterra shouldn’t have to pick it up. If they’re new conversions, it shouldn’t have to pick it up.”, but, actually, it should go further than that.

I want to actually walk you through what happens right now in New Zealand if a farmer leaves Fonterra and says, “Well, I want to supply milk to a competing processor; a foreign-backed processor whose said that next year they might pay me a little bit more.” Well, what happens when they do that is that that foreign-owned processor can be very confident and that farmer can be confident that if they fall over, the next day they can just go trotting back to Fonterra.

I want you to think about the impact that has on the psyche of farmers who know that if it doesn’t work out, they can always return to Fonterra. I put it to you that it seems completely right in a competitive market that Fonterra should be able to have some discretion over the terms on which it accepts milk. We have now a far more competitive market than when the Dairy Industry Restructuring Act (DIRA) was formed, and these open entry and exit provisions need to move accordingly, because, actually, if we get that wrong, the threat, Damien O’Connor—the threat, Minister, is that we get an oversupply of stainless steel in New Zealand, such as that we have empty factories running at half-capacity up and down this country inefficiently, unsustainably, and, frankly, not profitably. And the result for New Zealand? The result is our farmers get less for their milk, shareholders get fewer returns; our local towns, our provincial suppliers, our provincial contractors—there’s less money for them too. We all need this to be a competitive industry that is working efficiently, and these rules will not allow for that. That should bother you, Minister O’Connor, and it certainly bothers us on this side of the House.

I want to turn, also, to the raw milk regulations; because these are an area that I know deeply upsets many of—

ASSISTANT SPEAKER (Hon Ruth Dyson): In the bill?

NICOLA WILLIS: The raw milk regulations are designed within the DIRA, and what this bill doesn’t do—this is absolutely in the bill.

ASSISTANT SPEAKER (Hon Ruth Dyson): Sorry, the first reading should be about what the bill does do rather than what it doesn’t do.

NICOLA WILLIS: Let me tell you what this bill does, Madam Speaker.

ASSISTANT SPEAKER (Hon Ruth Dyson): That would be good.

NICOLA WILLIS: What this bill does is it perpetuates the current regime. That means that farmers are forced to send their milk from their cows down the road to a foreign-owned competitor at price so that that foreign competitor can get a leg up in this world—can get a leg up, can get their foothold in the New Zealand dairy industry. What I put to you is that in a globally competitive dairy market where Fonterra is competing with businesses of huge scale across the world, how can it possibly make sense for Fonterra to continue to have to, effectively, subsidise foreign competitors to come here and set up in New Zealand? It doesn’t make sense. I’ll tell you the image I have in my mind when I think about this requirement. I think of the farmer who showed me his videocam of the tanker that he followed that picked up milk from his farm and drove down the road to another factory. I sympathise with that farmer, because it is very hard for me to explain to him why that makes sense or why that serves our country or New Zealanders. I invite Damien O’Connor to explain that, because here, on this side of the House, we absolutely support a competitive dairy industry, a dairy industry in which there are multiple processes, but we think the time has long passed where we need to prop up new entrants into the future.

I know the members of the National “Ag. caucus” will be very constructive on the select committee for this bill; that is the way they’re made. But I am deeply concerned that we have opposite us a Government that does not fundamentally respect farmers. They owe it to New Zealand farmers to get the structure of Fonterra right, to get the DIRA right. This isn’t about annual returns one year; this is about the very structure of our dairy industry. This bill fails to deliver for the globally competitive world that our farmers farm in, and we oppose it.

ASSISTANT SPEAKER (Hon Ruth Dyson): The next call is a split call.

RINO TIRIKATENE (Labour—Te Tai Tonga): Well, thank you, Madam Speaker. I am indeed proud to stand in support of this outstanding bill at its first reading. I want to congratulate our Minister of Agriculture, the Hon Damien O’Connor, for his leadership in actually fronting up to the hard issues that are confronting our dairy industry, and actually putting in place a very sound and sensible bill which will ensure the future prosperity of our dairy industry. So I want to acknowledge the Minister, and I want to acknowledge all the efforts of our coalition Government in bringing this bill to the House, because this—forget about the doom and gloom that has been spouted from the other side, this Government stands by our dairy industry. We want to support our number one export, dairy—the prosperity and the wealth that it creates for our country.

The Dairy Industry Restructuring Act (DIRA) needs updating, and it’s taken nearly 20 years for this to happen. We’ve heard a lot of talk tonight about how the shackles should be unlocked or freed, and how the training wheels need to be taken off. Well, the National Party was in Government for, what, some nine-odd years of Fonterra’s existence? Maybe even longer, and did nothing. But on this side, we are fronting up. We are. We are listening to the dairy sector and we are providing the leadership to help provide that stability and certainty for Fonterra into the future. We know it’s challenging times; this isn’t 2001, when 96 percent of farm dairy supply—it’s far from that today, but 80 percent is still a sizeable chunk of the total milk production of our nation. There do need to be some tweaks to the overall DIRA requirements. There are risks and there are also some constraints that need to be, maybe, loosened, and some that might need to be tightened. That’s what we’re doing with this bill.

We need to provide leadership for Fonterra; it is our number one exporter. But this bill, or the DIRA legislation, is not the reason for the woes which Fonterra is facing at the moment. We know it’s a highly competitive international market that it competes in. We know that management has made some very poor decisions in terms of its international investments, which it had to write down significantly in this year’s results. We know that there are ongoing issues in our major markets with tariff and trade wars, which are ongoing right as we speak. So there are really big challenges which our dairy sector is facing.

Thank goodness for our Minister and the leadership that he is showing in bringing this bill to the House. We need to ensure that those requirements that are in place in the existing bill—certainly some of them are outdated; some of them need to be loosened up. The entry and exit requirements—there is scope for Fonterra to have an increased say, in terms of flexibility, to turn away supply, to also turn away new entrants. So this isn’t—this bill hasn’t just been plucked out of the air. There has been a comprehensive review that underpins this piece of legislation and the regulations which go with it. That has been going on with industry participants and with experts for close to a year. Further to that, there was a Commerce Commission report which was the forerunner to the review, which also provided the platform which this bill has now manifested.

These are very sensible changes that we are making to the DIRA legislation. It’s actually going to help provide a solid foundation for Fonterra. We know that there are new entrants in the market place—I welcome the addition of the likes of Miraka, our 100 percent - owned Māori dairy-processer. There is a place for increased players in the dairy sector but we must also ensure that our number one company is supported, and that’s what this bill does. We want to ensure that our farm suppliers, the owners of Fonterra, the consumers of New Zealand, and also our international markets—because it’s our reputation that’s on the line everyday with our flagship company. We want to ensure that that has the support, and that’s why I support this bill. Kia ora tātou.

LAWRENCE YULE (National—Tukituki): It’s a pleasure to speak to the Dairy Industry Restructuring Amendment Bill (No 3), and I do so after several very eloquent and well-put speeches from this side of the House. It actually gives us no pleasure to oppose this bill but we are doing it as a matter of principle, because we are trying to and will continue to support our farmers, Fonterra, and the significance of this industry to New Zealand. Quite frankly, Minister, we think you’ve got it wrong. Fonterra is our largest multinational—$20 billion worth of turnover, 22,000 employees; it is huge. It is important in this House, as we debate this bill, that we get it right. Fonterra also is internationally significant in the dairy industry. Not many companies in New Zealand can bear that title, but Fonterra can. In previous work I’ve done in Asia and other parts of the world, people are very proud of what Fonterra can do.

So this review comes from the Dairy Industry Restructuring Act (DIRA) 2001. It’s being reviewed every four to six years. It vitally affects 10,500 farming families in New Zealand, and it actually has a fundamental impact on the economy of New Zealand. When I stand back from not just looking at this from a pure agricultural perspective but I look at it as what we’re being asked to do here, we’re being asked to let a company allow a competitor to move into its patch, supply it with 30 million litres of milk so it can get started, and then proceed to take more of its market share. We also then say, “By the way, if you don’t like Fonterra for a while, you can leave but you can always come back at the same terms and conditions.” Can you name a market or any other organisation that would allow that type of disloyalty or disruption? We also have the fact that Fonterra’s share of the milk has dropped from 97 percent in 2001 to 80 percent now, and has been dropping by 1 percent per year.

I agree with previous speakers, including the Hon David Carter, who said that dairy cow numbers are probably at their peak. I also agree that we’ve probably got as much stainless steel as we need in New Zealand, in terms of facilities. I also agree that we do need to provide the likes of Goodman Fielder and others a domestic offshoot for milk.

But let’s not tie the hands of our largest corporate behind its back 18 years on from when the DIRA Act was formed. We are working for farmers and we will continue to do so. For those of you that are very strong in supporting the cooperative model and who want to support this bill—in my role as horticultural spokesman, I want you to reflect on what happened, for instance, to the apple industry, which was run as a co-op; hell was going to freeze over before it changed, it was deregulated, and look at the prices now. Look at how the market’s working: people are innovating. You see, big isn’t always better. I know Fonterra is a special case, but it’s really hard being big when you’ve got both hands tied behind your back—you actually can’t move.

So I want to come back to this issue of how you can leave with no responsibility—really, all care and no responsibility. See, it would be like Mark Patterson coming back to the National Party, which is where he started, not liking it for a while, and then going back to New Zealand First.

Rt Hon David Carter: Or back to the farm after the next election.

LAWRENCE YULE: Or back to the farm. Now, New Zealand First would never have him back. So what we’re doing here in this DIRA bill is we’re saying, “You can leave Fonterra, you can leave us, the fact that we’ve got huge drying towers that can’t be used now because we’ve got no milk, we can’t do anything about that because we need to hold them because one day you might want to come back.” That is the most ridiculous and ludicrous business proposition you can ever think of. Yet this Minister, despite some of the other things that have been changed, wants to leave that in the legislation. This is a bad move and that’s why we’re opposing it.

Debate interrupted.

Business of the House

Business of the House

Hon CHRIS HIPKINS (Leader of the House): Apologies for interrupting the debate momentarily. Following discussions at the Business Committee today, I seek leave for the first reading of the Sale and Supply of Alcohol (Rugby World Cup 2019 Extended Trading Hours) Amendment Bill to be set down as Government order of the day No. 1 tomorrow on Wednesday, 28 August, and that following the first reading it be set down for second reading, committee stage, and third reading forthwith.

ASSISTANT SPEAKER (Hon Ruth Dyson): Leave is sought for that purpose. Is there any objection? It is agreed. Leave is granted.

Bills

Dairy Industry Restructuring Amendment Bill (No 3)

First Reading

Debate resumed.

JO LUXTON (Labour): Thank you, Madam Speaker. I’m really pleased to stand here and take a call on the Dairy Industry Restructuring Amendment Bill (No 3).

Hon Member: Are you going to oppose it?

JO LUXTON: No, I am absolutely not going to oppose it, because I support it wholeheartedly and I too want to commend our Minister Damien O’Connor for being brave enough to bring this piece of legislation to the House. He’s keen on making the hard decisions, not sticking his head in the sand and looking for the next vote. He’s happy to make the hard decisions because sometimes that’s what you have to do to make progress. And this will make progress.

We’ve heard from the Opposition—[Interruption] here they go, they must be getting excited—that Fonterra is going to be constrained and handcuffed and all the rest of it. But I have to agree with other colleagues here and the Hon James Shaw: where were you in the last nine years? Not the Speaker, sorry, Madam Speaker, but where were the Opposition in the last nine years? The defenders of the farmers, the defenders of Fonterra, they sat there quiet as mice until this Government was brave enough to bring this piece of legislation to the House, then all of a sudden it’s an uproar—an absolute uproar. Well, we know that the DIRA Act came in in 2001, and, yes, we know that times have changed, 18 years have gone by, things change; the industry has changed. But the fact of the matter is that Fonterra, even though they’ve gone from having 96 percent of the market share, they still have 80 percent, which is still a really significant amount of the market share.

One of the things that this piece of legislation proposes—and I think this is really good—is the ability for Fonterra to be flexible in whether they say yes or no to someone becoming a shareholder or, actually, collecting their milk. It comes back to the point that the Hon James Shaw made with regard to, say, a dairy farm being set up in the Mackenzie Country or in places that are actually not ideal, and it’s not good for the environment to be turned into a dairy farm. There are lots and lots of places within New Zealand that are fantastic pieces of land for dairy farming, but some places are not, and if somebody wants to set up a dairy farm there, then the obligation is on Fonterra to collect their milk. Well, that’s not OK.

What this piece of legislation also does is it gives Fonterra some protection with regard to the ability of saying yes or no, because we know—we know—that the dairy sector is our largest export sector here in New Zealand. I think the Minister said it brings in around $8 billion of total GDP. Now, a lot of that is based on the fact that they have a good reputation, and we know that other milk factories have agreements with their farmers that they must farm in a certain way and they must show that they can protect the environment and farm sustainably. We know that the majority of farmers do farm and look after their environment, because they want to pass the farm—if it’s a family farm—on to the next generation better than when they received it. So they do genuinely care about their land, they work really hard to sustain it, and they want to do the right thing. That is the majority. It is unfortunate that some make the news, and then everyone seems to be tarred with the same brush. However, the fact that we have Fonterra, and the dairy industry here is our largest export sector, we need to protect it. So that is good that Fonterra will have the ability to perhaps say no to a farmer who is actually not going to comply with what they believe is good farming practice.

I’m not going to go on any longer. I just want to say that I really, really commend this bill to the House. I look forward to seeing it go through the committee stage, and see what comes out at the other end. But, again, I commend the Minister for being brave and making the hard decisions.

BARBARA KURIGER (National—Taranaki - King Country): Thank you, Madam Speaker. That was a really interesting contribution from the last member, Jo Luxton, describing this as progress. I’m not so sure how staying the same as it is, is going to be progress. But the interesting thing, from my perspective, is that there was a big attack, from Jo Luxton, on this side of the House for keeping Fonterra constrained and handcuffed, and then went on and used the rest of her speech to give reasons why she thought that Fonterra should continue to be constrained in handcuffs.

The other piece of the argument was around entry and exit. So if we go back to some of the conversations that we’ve had tonight about environmental issues. So just take it now, if we have a farmer that’s in the Mackenzie Country who’s all of a sudden one day not happy with Fonterra and decides to exit Fonterra—well, that’s fine; bye-bye farm in the Mackenzie Country—and goes off to some other organisation who may pick up the milk. If that farmer then decides that they want to go back to Fonterra, under this regime Fonterra has no grounds not to pick it up. It will be entered back into the company on the same terms and conditions as what it has left. So there you go. Some of the things that were just said in that last speech simply did not make any sense in my mind.

Now, I want to go back to the first speech, because Minister O’Connor stated in his speech that Fonterra is the only dairy company with a national presence, and he doesn’t believe that the Dairy Industry Restructuring Act (DIRA) should expire. So I really challenge Minister O’Connor, because is Minister O’Connor waiting for Fonterra not to be the only dairy company with a national presence in New Zealand, because would that be enough, in Minister O’Connor’s mind, to expire DIRA? What that would take us back to would be the two big companies that were in competition that we had in the first place. Is that what the Minister’s asking for? Despite all the promises made of when the South Island gets to a certain level and when the North Island gets to a certain level—even though it was started under a National Government, it was stamped under a previous Labour Government; those criteria that the farmers have met—the Minister’s saying, “No, no, no. That’s not good enough. Now we want to wait until this is not one dairy company with a national presence.” So it did expire. The criteria did expire in the South Island, Minister, and your Government rushed through legislation to make sure that we could hold on to DIRA until you got to the point of doing this piece of legislation.

One thing I did agree with the Minister—he said the domestic bit’s not an issue. The domestic bit was never an issue. In fact, most people in New Zealand, and even now, were quite happy to have domestic competition. It is not domestic competition in the milk market for our own local supply that is the issue; it is other companies coming into New Zealand, setting up against Fonterra, having to be supplied with milk from Fonterra to compete with Fonterra. Mr Yule actually said at one point in his speech: where else in the world would anything like that happen, where you’re actually supplying your competitors? So I think the time is up to release those shackles.

I would challenge Mark Patterson, who said New Zealand First does not want Fonterra sitting on stainless steel. Well, currently, Mr Patterson, you know that Fonterra is sitting on stainless steel, and under this regime, if we don’t unconstrain it—

Mark Patterson: You actually listened to what I said.

BARBARA KURIGER: We did listen to what you said, Mr Patterson. We did hear you, and, actually, we’re very hopeful that when we get to the vote on this piece of legislation, you might be voting in the direction that your speech indicated that you were supporting.

I must admit, one of the best speeches that I’ve actually heard tonight came from James Shaw, because James—

Rt Hon David Carter: I thought mine was better than that.

BARBARA KURIGER: Sorry—sorry, the Rt Hon David Carter. I’m probably referring to people on the other side of the House. Of course our MPs have all made fantastic speeches tonight. But, you know, James Shaw gets the piece that Fonterra is forced to take milk against its own wishes, which then may add to conditions around environmental standards. That is one of the things that, when you’re forced to do something as a business that you don’t want to do, there is no way out of it. They’ve been forced to build extra stainless steel. They have grown in production, and I must admit, some of that hasn’t been forced; some of that has been encouraged by Fonterra over the years. Not all of it has been forced, at this point in time; some of it has been their own decision. But it has been a very production-led approach, and it’s absolutely correct, what James Shaw was saying about the production-led and having a bulk of commodities and actually thinking more clearly, without being constrained and without being forced, about where Fonterra needs to be going in the future. There’s a saying in our dairy industry—it actually says production is vanity and profit is sanity.

Look, we are all proud as dairy farmers to belong to a co-operative. We know that things haven’t been going well in Fonterra over recent times—in fact, they’ve been going pretty badly. It’s time to actually pick this up. It’s under new leadership. We haven’t been impressed with where it’s been going for the last little while, but it is under new leadership. Here’s an opportunity to pick it up. Here is an opportunity for this Government to unconstrain it, to let it go, to let it get involved in some of the value-add that it’s been talking about, without forcing it and forcing it to be uncompetitive.

So when we went through the global financial crisis in 2008, when everything else was down, this dairy industry was the thing that held this country up—it held this country up, big time. It’s really interesting because at that time people were very concerned about, you know, mental health, depression, and all of those sorts of things. The dairy industry actually came through that global financial crisis and held the rest of the country up very well. Well, I would request that at this point in time, the country actually holds its dairy industry in high regard, because I would suggest that all the pressures that are coming down on this industry right now—they don’t need to be constrained with DIRA on top of it. As my colleague Todd Muller has rightly been saying, and I’ve known this for a long career in this dairy industry—that if the prices are right, that if the interest rates are low, that if the weather’s doing the right thing, which it currently is—[Bell rung]

ASSISTANT SPEAKER (Hon Ruth Dyson): Perhaps back to the bill for the last two minutes, or on to the bill for the last couple of minutes? Thank you.

BARBARA KURIGER: —yeah, we’re on to the bill—that farmers will be happy. But right now, the pressures that are coming down on farmers are huge, and I believe that this bill is just going to be another one of those things that’s going to put pressure down on farmers. The promise of where those shackles are going to be removed is being broken, and it’s time to get back to letting farmers take control of their own business.

I do not believe that the Minister’s idea of putting a person onto the Milk Price Panel is going to be of any value at all. Why would we put someone on the Milk Price Panel when the questions aren’t even being asked about whether that person would be a deemed director of Fonterra? What are they going to be doing? I know in my time on the shareholders’ council, the milk price has been checked out, it’s been modelled, it’s been verified so many times, and it’s been peer-reviewed and it comes under all sorts of pressure, and I can’t see how someone from a Government department sitting on that milk price committee is going to make any difference.

A year ago, Government Ministers talked about smashing apart Fonterra, but they have dialled back on their rhetoric. I was very concerned when I heard the Minister say tonight, under this regime, that Fonterra was the only national significant dairy industry company co-operative. I want to keep it that way, the National Party wants to keep it that way, and I can tell you that farmers absolutely want to keep it this way. We will not see it put in danger, and for that reason, we are opposing this reading of this legislation. Thank you, Madam Speaker.

Dr DUNCAN WEBB (Labour—Christchurch Central): Madam Speaker, thank you very much. It gives me great pleasure to rise in support of this bill. I was going to rebut all of the arguments of the member opposite, but I actually didn’t hear any. They were entirely incoherent. But this is a fantastic piece of legislation. Once again, our fantastic Minister Damien O’Connor has struck the perfect balance. Notwithstanding the lobbying he’s getting from every quarter to absolutely gut this industry, he’s taken a balanced approach to build a sustainable dairy industry into the future. I’m very pleased to see that Fonterra will now be able to take into account the environmental performance of farmers when they make decisions around milk supply. That’s a great leap forward. So I don’t need to say any more. The speakers on this side of the House have made it very clear—a very good piece of legislation, moving Fonterra and the New Zealand dairy industry forward together. I commend this bill to the House.

Andrew Bayly: Why don’t you speak for a decent period of time?

ASSISTANT SPEAKER (Hon Ruth Dyson): I think the discretion that the Speaker indicated could be now applied to the use of “you” might be quite limited, Mr Bayly.

A party vote was called for on the question, That the Dairy Industry Restructuring Amendment Bill (No 3) be now read a first time.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Bill read a first time.

Bill referred to the Primary Production Committee.

Hon DAMIEN O’CONNOR (Minister of Agriculture): I move, That the Dairy Industry Restructuring Amendment Bill (No 3) be reported back to the House by 17 February 2020.

Motion agreed to.

Estimates Debate

In Committee

Debate resumed from 20 August.

Education and Workforce Sector (continued)

CHAIRPERSON (Hon Anne Tolley): There are 8 hours and 55 minutes remaining in the debate. When we were last considering the bill, the committee was debating the education and workforce sector. The question is that Vote Education, Vote Education Review Office, Vote Labour Market, Vote Pike River Re-entry, and Vote Tertiary Education stand part of the Schedules. The Hon Iain Lees-Galloway moved that progress be reported, and the call is now available to him.

Hon IAIN LEES-GALLOWAY (Minister for Workplace Relations and Safety): Thank you very much, Madam Chair, and it gives me great pleasure to rise during this debate to speak to a report which I don’t believe I’ve heard any member of the Opposition refer to, and that is the excellent report of the Education and Workforce Committee into the Estimates for Vote Labour Market. I am surprised that members opposite haven’t engaged in this part of the debate, because the honourable member Scott Simpson was a lion in the hearings. He was determined to make the case that this Government’s efforts to increase the minimum wage, to improve collective bargaining, to introduce fair pay agreements, to improve ACC outcomes, and to improve the immigration system were all going to destroy the New Zealand economy and that the result would be more people unemployed and fewer jobs.

Well, what have we seen in the weeks since that hearing—what have we seen in the weeks since that hearing? Possibly the reason why the members of the Opposition have said not a dickie bird about this part of the debate is that we have seen unemployment fall to its lowest level in over a decade—its lowest level since the last time the Labour Party was in Government—at 3.9 percent. We’ve also seen wages increase, hourly earnings increase, by 4.4 percent: the largest annual increase in over a decade, and you guessed it—that’s right—the largest increase since the last time the Labour Party was in Government. The truth is that no matter how much the National Party run around the country trying to fearmonger and scare business and reduce and undermine business confidence, the stats tell us that people are working, and that more people are working and they’re earning more for the time they spend at work.

We talked a lot at the committee about labour market productivity, and the National Party again tried to make the case that the changes that this Government is making are having an impact on productivity. Well, that’s not the case at all; the statistics tell us the truth. Our productivity has kept up with other OECD countries, but our labour productivity has been lower than the average of high OECD countries for some time. In fact, the report itself says that New Zealand has had—quote—“ ‘a bit of a conundrum around productivity’ for the last 10 to 20 years.” That conundrum is that we’ve followed neo-liberal theory for 30 years and we haven’t had the productivity gains that we were promised. So it is actually time for a new approach. It is actually time to deal with some of these long-term issues which have grown over decades, and that’s what this Government is doing, because we do have a productivity challenge in New Zealand. It’s been around for a long time. The last Government—the National Government—was not able to deal with it, because they didn’t make it a priority. This Government is making it a priority.

But the thing that really concerns me is that, whatever productivity growth we have had, wages have not kept up with it. So, as our economy has grown, the benefits of that economic growth have gone to a very few at the top whilst most middle and lower income earners have not been able to enjoy the fruits of that economic growth. That’s why this Government is pursuing changes to our industrial relations framework—not just the changes that we introduced through the amendments to the Employment Relations Act but our work on fair pay agreements, which is a significant piece of work, again to deal with those large problems that the National Party simply were not prepared to deal with.

I understand that Simon Bridges believes that if it’s hard, you shouldn’t do it. That’s what he said about fuel prices. There were no easy answers, so the National Party in Government didn’t deal with it. Well, it’s certainly the case that when it comes to labour productivity—improving productivity and improving wages and growing the number of jobs—there are no easy answers, and that’s why this Government is embarking on a significant reform of our industrial relations framework through fair pay agreements, because it’s hard but it’s necessary and it’s work that needs to be done. We won’t shy away from it just because it isn’t easy, and I say to people who are looking forward tonight to that work coming to fruition: these problems have taken a long time to grow and they will take a long time to solve, but this Government is committed to doing it.

So I’m going to say that I welcome this report. I think it’s an excellent report that demonstrates what this Government is doing to grow wages and to improve jobs in New Zealand.

CHAIRPERSON (Hon Anne Tolley): I call—Jo Luxton. My apologies.

JO LUXTON (Labour): That’s all right. Thank you so much, Madam Chair, for the opportunity to take a call here—

Marja Lubeck: You’ve been away a bit.

JO LUXTON: —yeah, I’ve been away a bit—tonight in this Estimates debate. I think I am the last member on this side of the Chamber, and in the committee, to take a call. So I am pleased to be able to do that. I was worried that I was going to miss it, having been away last week, when it all got under way, but I am here now.

One of the reasons that I came into this place, or that I put myself forward as a candidate, was that I was really passionate about our education system in New Zealand and had been involved, as an early childhood teacher and then later on as a centre owner, for over 20 years. The things that I had been seeing in the education system over the last 10 years were, I thought, heart breaking. So I’m really pleased to see a lot of the things that this Government is doing and putting in place for education and our education system. We know that we’re not going to be able to solve it all right away, but we’re getting started and we are making really, really great progress.

One of the things that I think is really fantastic is that we are spending the largest amount of any Government in school property. Another thing that’s really, really good about what’s happening in this space is that we’ve actually got a Minister of Education who’s forward thinking. He’s thinking beyond three years, beyond the election cycle, and looking forward into the future, even up to 30 years—into 30 years. We’ve seen the abolishment of charter schools. You know, I think it’s important to be progressive, but I don’t think it’s good to do that at the expense of our children and experiment with their education in such a way as what we have seen the previous Government do.

We’ve seen that the NCEA fees are not going to be charged any more, and what I think is really fantastic about that is the people who have got NCEA in the past are now going to be able have their qualification recognised, even though they weren’t able to afford their fees back then. That’s a real shame for those who had to go through that, who probably felt stigmatised and embarrassed because they couldn’t afford their NCEA fees, and now that’s no longer going to be an issue for them.

I’m really excited to see that we have had an across-the-board rise in funding for the early childhood sector. What we saw under the previous Government was cuts by stealth, with the removal of the 100 percent qualified funding ratios under the previous Government, but they gave us primary teachers, as compensation, which actually—no disrespect to the primary school sector or the teachers, but they were trained in a different way and not in the early childhood sector, so that wasn’t really gaining a lot in the area.

We know that there is a lot more to do here. We know that everywhere needs more funding and everywhere needs more money, but we can’t fix it overnight. We’re taking a balanced approach at how we can start to fix nine years of neglect under the previous Government. These are big issues. We are tackling the big issues. This is a Government that’s not afraid to tackle these big issues, and we’re seeing a lot happen in the education space.

One last thing I want to talk about is the increase in minimum wage. We had the Minister touch on that before—the increase in minimum wage. We heard people across the House screaming that businesses are going to go under, employment would go up, but what we’ve seen is the exact opposite. So I want to commend our Ministers and thank them for the opportunity that we had for them to come before our select committee, and I’m very much looking forward to what we see, going forward in the future, from this Government in the education and workforce space.

A party vote was called for on the question, That Vote Education, Vote Education Review Office, Vote Labour Market, Vote Pike River Re-entry, and Vote Tertiary Education be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Votes agreed to.

Environment Sector

CHAIRPERSON (Hon Anne Tolley): Members, we come now to the votes in the environment sector, B.5, Volume 3. The question is that Vote Conservation, Vote Environment, and Vote Parliamentary Commissioner for the Environment stand part of the Schedules.

Dr DUNCAN WEBB (Chairperson of the Environment Committee): Oh, thank you, Madam Chair. I must say this is the first time I’ve had an opportunity to stand and speak as chair of this committee and it’s a real pleasure. It’s an excellent committee that’s doing fantastic work. These Estimates, of course, are an important part of that work and I report now on behalf of the committee.

Turning first to conservation, it’s very clear that a large funding boost was needed. I note that $105 million in extra funding has been appropriated for conservation, and it’s interesting to see where that will go. Obviously, protecting threatened species is an important part of the work that’s done. And I want to say that I’m reporting for the committee but was not lucky enough to be at these hearings. But there’s important work being done. It’s always hard, I understand the Minister reported—always hard to have targets in respect of protection of threatened species, because of things that may happen. The kākāpō and the fungal infection that actually caused considerable damage there is a good example of that, which was reported to the committee.

I do want to also touch on a couple of other things. One is the predator control, Predator Free 2050, and the important work being done there and the real need to use 1080, which the Minister explained. I say that for a couple of reasons: first, because of the progress that is being made as a result of that work, including the very careful use of that which the Minister outlined. I’m saying at one point that a teaspoon is used across several acres, rather than the kind of much wider use of it previously.

The other thing I wanted to talk about, though, was the unfortunate use of Crown funds which have been appropriated to protecting DOC staff from people who feel very strongly about the use of 1080, and the fact is that there’s some $4 million for a security team that’s been appropriated, $5 million for health safety systems and staffing levels, and $1.6 million spent on physical security. Now, that’s unfortunate and it’s unfortunate that there are people out there who hold political views, which they’re entitled to, but they choose to express them in a way that places others at risk. I note there that the whitebaiting community has also been guilty of that, as the Minister reported. Improving education about 1080 is another thing that the Minister spoke about, and that’s important work as well.

Turning briefly to environment, as well—and I must say, this is a very important piece of the vote and the work that is being done, and essentially a lot of the appropriations are looking forward to the prevention of denigration of fresh water. The fact is that the Minister spoke about the significant work being done on that, including $15.5 million to the Freshwater Improvement Fund, including work, for example, on the Waikato River clean-up. But he did note that it’s far better to address river pollution at source rather than trying to clean up a river, because a river ultimately will clean itself up if the pollution at source is stopped. So it’s good to see the Minister using funds for that.

Also prefaced was the significant Resource Management Act reforms that are contemplated, and it’s noted that this will come in two parts and we are likely to see soon a bill to make technical changes, including changes to assist with freshwater protection and also some aspects of urban development, including work on planning standards. It was observed that there were significant inconsistencies across the country in terms of planning standards, and new planning standards will address this without imposing any additional costs.

It was also noted, of course, the Climate Change Response (Zero Carbon) Amendment Bill and the work being done on that—

Chlöe Swarbrick: A great piece of legislation.

Dr DUNCAN WEBB: A great piece of legislation that James Shaw is the Minister in charge of, which is currently working its way through the select committee. The committee is working very hard on that, I must say. And there was some discussion around the targets adopted, noting that there is a 1.5 degree target, as opposed to the 2 degrees that some have suggested, and it was observed that if it were 2 degrees, then we would lose neighbours such as Tuvalu and Kiribati and we would likely lose 90 percent of our coral reefs in the Pacific.

We also heard from the Parliamentary Commissioner for the Environment, who’s doing good work. I look forward to the work he mentioned coming up on estuaries, because that’s obviously an important part of our environment. An excellent report from the committee.

SARAH DOWIE (National—Invercargill): Thank you, Madam Chair. It is a pleasure to lead off this side of the Chamber with respect to the 2019/2020 Estimates for Vote Conservation, and a pleasure to follow on from our new chairperson, Dr Duncan Webb. I’m pleased that he started with conservation. As the spokesperson for conservation on this side of the Chamber, I certainly want to focus my contribution on that vote.

I will start off being gracious. I think that the Minister does need to be congratulated for securing an extra $100 million for annual permanent and multi-year funding in this vote. I would say, however, that it is on the back of the Hon Maggie Barry, from this side of the Chamber, who secured an extra $76 million in her time as the Minister of Conservation as part of a wider tourism infrastructure fund for the Department of Conservation (DOC). That was part of a wider fund of $178 million. This is despite, obviously, coming through a global financial crisis and the Christchurch earthquake.

So DOC has experienced increases in the vote, and I am pleased that this has been an extra increase again to secure projects such as Battle for our Birds. It is needed, and it is great to see that DOC is well resourced. However, therein lies the problem, and Mr Duncan Webb started to touch on it, in that the Minister of Conservation is certainly not prepared to start committing to targets. That is a problem with that side of the House. They’re prepared to throw money at certain matters or issues but are not prepared to put their money where their mouth is and actually have some tangible targets which need to be achieved as part of that revenue spend. Of course, it is New Zealanders’ money that is going into these initiatives, and it is New Zealanders that the Government needs to be accountable to.

So what we have seen is this increase in spending but very little results. Mr Duncan Webb talked about some of the 1080 drops that are planned, quite extensive 1080 drops planned for around the country on the conservation estate but yet no tangible targets for increases in native species. That brings us to, for example, the Kākāpō Recovery Programme, where we saw that our kākāpō numbers were actually decreasing because of the risk of fungal disease and yet the Department of Conservation was going out to the public for public funding despite there being quite a kitty in Vote Conservation. Now, it’s all very well to say that New Zealanders or overseas people would like to get in behind these projects, but, quite frankly, when you have this sort of funding, it needs to be prioritised appropriately, and perhaps that public funding could go elsewhere. So the Minister really does need to get behind these species recovery programmes, put her money where her mouth is, and start committing to some tangible targets moving forward.

I think the other thing that we’ve seen is that there’s a lot of promise with this Government as to things that are going to happen—or, should I say, promise from the Green Party and the Minister in the past but yet is now finding it very difficult now that she is part of a minor party in a three-headed monster of a coalition, and finding it very hard to get some wins across the line. Some of the things that I talked about and questioned the Minister on was cameras on commercial fishing vessels to start monitoring bycatch, and, of course, there has been some cameras put on commercial fishing vessels, but it’s less than 5 percent of the fleet—so not an achievement at all, and that was certainly criticised by lobby groups such as Greenpeace.

The other thing that is concerning about this Government and this Minister is she certainly has a disregard for involving community in conservation, and we’ve seen that in a number of different initiatives that she has led where Minister knows best—“I’m going to lock up the land and set it aside and not involve the community in certain initiatives.”—such as the tahr culls, such as we’ve seen with the whitebaiting bill go through. So she’s not prepared to listen. She runs pseudo-consultation processes but has little regard for what people are saying on the ground.

For us, we are a very polar opposed party. We support recreation; we support conservation initiatives with community involved.

Dr LIZ CRAIG (Labour): Thank you, Madam Chair. It’s an absolute pleasure to speak on this bill, because I’m proud to be part of a Government that’s taking some of these long-term issues seriously, and I think, within the environment space, two of the most important ones are our approach to freshwater quality and also our approach to climate change. The Government’s making significant investments in Budget 2019 in both of these areas.

I think, for me, based in Invercargill, the best way to think about the previous Government’s hands-off approach to freshwater quality was thinking about what’s happened to our New River Estuary, because what’s happened over the last decade or so is we’ve had years and years of sediment and nutrient washing downstream from our local farms, but we’ve also had issues with storm water contaminated with sewage that’s been leaking into our local estuary because we haven’t upgraded the pipe work. We’ve also had stuff leaking from one of our local rubbish dumps into the estuary. So what we’ve got is we’ve got an estuary that’s completely silted up. You go out there and you’re up to your knees in thick, sticky, oozy mud, and in some places even the nuisance algae is struggling to survive.

So I’m proud to be part of a Government that’s taking this issue seriously. What we’re doing in Budget 2019 is investing $229 million in a sustainable land use package, and what that will do is it’s going to invest in projects to restore at-risk waterways. It’s also going to provide support to farmers and growers to use their land more sustainably. So what it will mean for farmers and growers around the country is it’ll be providing them with the tools to understand some of the impacts that they’re having on the environment and to make some informed decisions about things like nutrient use. What we’re doing is investing in improving decision support tools like OVERSEER. So what farmers and their advisers can do is have a look at and optimise their nutrient budgets on farm.

But also what that package does is it’s going to be investing in projects to improve water quality in at-risk catchments, and so one of our first investments is in the Kaipara harbour, where we’re going to be benefiting from that fund. I think it’s also more important to, if we can, stop those catchments deteriorating before the harm starts to happen, but I think for many, like the New River Estuary, that early intervention is actually—the moment has passed.

But across the country and also in our community there are a lot of people that are willing to put up their hands to make that difference in terms of freshwater quality. I think I’m just thinking about the catchment groups that have sprung up—20 or so of them—around Southland, these farmer-led catchment groups that are doing all they can to improve water quality in their regions. Over the last couple of years, I’ve had the privilege of attending many of their Fieldays. They’re sharing best practice in terms of winter grazing, looking at some of the other opportunities in terms of sustainability—so things like solar-powered dairy sheds and on-farm effluent management systems—but are thinking about that ability to disseminate best practice across our region and around the country.

The other thing, though, is it’s really important that we do have quite strong rules, and so enforcement and implementation are also crucially important. That’s why the package is also investing in support so that we can improve some of that consistency between councils to look at compliance and enforcement and looking at how we improve the scientific knowledge that’s going into some of those plans in terms of on-farm use. I think a lot of this is crucially important because with consumers around the world becoming increasingly environmentally aware, our economic bottom line in our region is going to depend on us being able to produce high-quality foods in an environmentally sustainable manner.

I think that comes on to the second part of what I want to talk about in terms of sustainability, and that’s actually our zero carbon bill, because this is something that we’re looking at as a select committee at the moment. What it aims to do is make sure that New Zealand can make our contribution to ensuring that our temperatures don’t rise more than 1.5 degrees above pre-industrial levels. So what the bill does is it sets emission reduction targets right out to 2050, but it also creates an independent Climate Change Commission to advise the Government on achieving those targets.

So these are some really great investments that are going on in Budget 2019 to ensure that New Zealand does our share in terms of reducing global warming. I’m proud to be part of a Government that’s taking a proactive approach in both of these areas. Thank you.

Hon SCOTT SIMPSON (National—Coromandel): It’s really interesting listening to the speaker who has just resumed her seat, Dr Liz Craig, as she prepares for her electoral migratory transformation north to Dunedin South for opportunities to nest there in her new habitat. I’m sure that it won’t be long before she takes flight from her current habitat and decides that the attraction and lure of Dunedin South is far too compelling, and her migratory flight will be complete in a few months’ time.

CHAIRPERSON (Hon Anne Tolley): That’s very interesting, but could you come to the Estimates.

Hon SCOTT SIMPSON: The Estimates debate is very important. What we’ve found actually is that this was a Government that came into Government on such high promise and such high hope, and then what’s happened is that we heard at the Estimates hearings actually so little has been delivered—so little. So much of the promise, so much of the hype, so much of the expectation hasn’t been delivered. For a party or an accumulation of parties that like to ban it, tax it, or make things compulsory, actually they’ve done very little. Their urge and their natural instinct is to do that, but they haven’t really done it, and so we heard about plans for further tinkering with the Resource Management Act. Actually what it amounts to is the Minister conceding that really all they’ve done is set up another working group—

Dan Bidois: Another one.

Hon SCOTT SIMPSON: —literally another working group—and just literally kicked the can down the road for another couple of years.

We heard that they hadn’t been able to deliver on their promise, on their much-vaunted campaign promise and then the commitment that was made in the Speech from the Throne. The Minister came to the select committee and told us that they had made no progress on their commitment to put a royalty or tax on the export of bottled water—that that had proved too hard for them; that the slogan, that the campaign placards actually were too hard for them to deliver on. And then guess what? Now suddenly it’s not a priority for them. Just changed priority because that’s an area they’re not delivering on.

We heard about the lack of progress in terms of planning standards: no delivery, no progress, no policy formulation, no delivery at all. And then we heard about their lack of performance and their lack of focus on our much-degraded urban waterways. And it’s well known across the country that our most degraded waterways are, in fact, our urban waterways. What progress has been made? Zero—almost none, almost none. And here we are into their—well, they’re running towards the end of their term. They’re running out of legislative runway, they’re running out of regulatory runway, and they’re running out of time, and so there won’t be anything there for them to do.

The Kermadec Ocean Sanctuary is another area—absolute non delivery. There’s a bill that’s been sitting on the Order Paper for years now and no progress made. They came in and they said they were going to fix it. They said that there was an opportunity to fix it. Nothing has occurred.

We talked about at select committee the lack of progress on coming to terms with the new science and technology of biotechnology. Nothing being done. The Government is seeking advice on whether the law caters appropriately for any new technologies. That’s about all: seeking advice. And so what we found in select committee when we were hearing from the Minister—and it was interesting that none of the Associate Ministers fronted and were ready to answer questions—

Hon Member: Again, again.

Hon SCOTT SIMPSON: —for a second year in a row, no Associate Ministers prepared to come and answer questions of the select committee.

But the real problem for this Government is actually—we as an Opposition, of course, had very low expectations of this Government delivering on any of their environmental promises. And, sadly, I have to report that our low expectations have been met. In fact, our low expectations of their delivery have been exceeded. But the people who are feeling most let down about the lack of delivery from this Government, particularly in environmental areas and particularly from the Green members of the coalition, are their own supporters. Those are the people who had the highest expectations. Those are the people who had an expectation that the promises that were made, the commitments that were made, would be kept. Actually, no delivery, and it’s their own supporters who have been most frustrated, who are most angry, and are feeling most let down by a Government who has been utterly unable to deliver on even some of the most basic of their environmental commitments and promises. And as an environmentalist, as a conservationist, it comes as a great shame.

Hon JAMES SHAW (Minister for Climate Change): Thank you, Madam Chair. I felt compelled following that diatribe from the Hon Scott Simpson to respond in relation to this year’s Appropriation Bill in relation to the environment. There is a reason why it’s difficult to get through the programme of government that we’ve got, and that is because we inherited a Public Service that had been atrophied under the previous National Government to the point where it actually was extremely constrained in what it was able to do.

So what we have done over the course of the last couple of years—and is happening again as a result of this Appropriation Bill—is to rebuild the Public Service, in particular in the environmental area, in order to be able to deliver on all of the priorities that went neglected under the previous National Government. I would like to list them: so that the last National Government—they basically had one environmental priority, and that was to clean up our rivers, and they got it wrong.

CHAIRPERSON (Hon Anne Tolley): We are actually discussing the Government of which you are a part—the Estimates. So let’s focus on the Estimates—sort of looking forward.

Hon JAMES SHAW: It’s a fair point—it’s a fair point. My point being that the reason why the Estimates bill is in the shape that it is is because the Ministry for the Environment was resourced for one environmental priority under the previous Government, and we have had to scale it up to be able to deliver on five environmental priorities. They didn’t even get the environmental priority that they had right. One of the reasons why they lost the election is because they couldn’t deliver on clean water. We’re having to deliver on water, on climate change, on biodiversity, resource management reform, and on waste management—all things which got neglected under the previous Government, and that’s why we’re investing in them in this Budget and through this Appropriation Bill.

When it comes to some of the reforms around biotech that the former Minister referred to, I would encourage him to listen to Fonterra. In their submission on the zero carbon bill, when somebody said “Do you think that gene editing is the way out of this?”, they said “You would be crazy to try and despoil our ‘clean, green’ brand with something that consumers overseas would devalue.” The science is a science—right?—but there is an argument to be had about whether or not you want to introduce a technology that would instantly devalue the value of our products and services. So that is why we will only step into that very cautiously.

I want to refer to some of the funding around waste. I have to say, I think China actually did New Zealand a great service by cutting off our exports to China of our waste, where we had been sending so much of it, because it has forced us to take responsibility for our own waste. We’ve now got product stewardship schemes coming in for the first time since the waste minimisation bill was passed by my former colleague Nandor Tanczos 10 years ago. We’re actually bringing in the first-ever product stewardship schemes, covering areas such as battery disposal, because, obviously, in the new low-emissions economy, we’re going to have to work out how to deal with, in particular, car batteries and things like that—bottles and container deposit schemes, tyres, and all of these kind of things that are crying out for attention and haven’t had attention for many, many years.

Because it was raised by Sarah Dowie, the point around Department of Conservation spending—you know, you’ve got to remember that the Department of Conservation has to look after all of our marine conservation inside our exclusive economic zone—which is enormous: the size of Europe—plus one-third of New Zealand’s entire landmass, on less than 1 percent of our entire Government Budget, right? It’s got to look after a third of our land on less than 1 percent of our Budget, and they do an extraordinary job under those conditions.

So the funding that we put in—we put in roughly $180 million over four years in Budget 2018, and then we doubled that in Budget 2019 through the international visitor levy. That side of the House said that the economy would collapse and that no one would come to New Zealand if people had to pay a $35 levy on their travel to get here. As it happens, tourism numbers continue to grow to come into New Zealand. I went and presented to a regional mayors’ conference a couple of months ago and they clapped when we said that we had got that over the line, because they could see the value of it.

So we are delivering in this Budget. We’re delivering through this Appropriation Bill. We’re looking at waste, we’re looking at water, climate, resource management, biodiversity—many things have been neglected for many, many years.

CHAIRPERSON (Hon Anne Tolley): I call—Erica Stanford.

ERICA STANFORD (National—East Coast Bays): Thank you, Madam Chair.

CHAIRPERSON (Hon Anne Tolley): It’s not a good night.

ERICA STANFORD: It’s all right. It’s been a long day. It’s fantastic to have the Ministers in front of select committee to ask them detailed questions about their spending, their plans, so that we can work out what their priorities are, because despite this being the most open and transparent Government of all time, in their year of delivery their actual plans and priorities are very difficult to decipher. During these Estimates hearings, it actually did become quite clear to us, because despite being the self-appointed greenest Government ever, in their year of delivery their priority is not the environment. They might like talking about the environment a great deal, but actually doing anything about it is not their priority, and the evidence of this is the past 12 months. Let’s not forget that this Government have, supposedly, passed more legislation in the last six months than any other Government in the history of time, according to one learned political historian on Twitter the other day.

But let’s take a look at what we spoke about in the Environment Committee about what they’ve actually done, and let’s take the last 12 months, to be even fairer to them. Three environmental bills we spoke about in select committee that were passed: the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Amendment Bill—that was a small drafting error we fixed—there was the Conservation (Infringement System) Bill, a National Party bill; and the last one was the immigration tourism levy bill, which was a tax. That’s all we’ve had in 12 months, those three bills: a tax, a National bill, and a small amendment fix-up bill because of a drafting error. The only bill that we’ve had in the last 12 months that we spoke about in select committee was the litter bill, from by learned colleague here, Mr Scott Simpson, and they voted it down. They voted it down. So four pieces of legislation, one of which was good, and they voted it down.

Well, I’d like to talk about Minister Sage. She, for the second year running, did not turn up to our select committee to partake in these questions we had for her, and it was really unfortunate because, actually, she’s the Minister with the delegation for waste. We are in a situation where we have stockpiles of plastic around the country that we don’t have markets for any more that we are now sending to landfill because it’s been so long—thousands of tonnes of plastic that I’m seeing being sent to landfill. It can’t be recycled here. We’ve got breaching landfills and we’ve got contaminated sites, and she doesn’t show up to answer questions.

So Minister Parker was there, answering questions on her behalf, and, really, the only thing that he could point to was the plastic bag ban, the only thing this Minister’s achieved in her portfolio in the last 12 months, and when I say “achieved”, I’m saying that in the following context: by the time the ban came in, we were 75 percent of the way there anyway because of the voluntary measures that the supermarkets had put in place. So that’s what she’s achieved in the last 12 months.

I spend a lot of time with my colleague Scott Simpson. We travel the country looking at the waste sector, and a month or so ago, I was actually in Invercargill with Sarah Dowie. We were looking at the Southland disAbility Enterprises, a fantastic recycling business. There, they showed me a massive pile of plastic waste that we cannot recycle here and that we cannot ship overseas, and he said to me, “The Minister, in banning plastic bags, got her priorities wrong. This is the stuff that we need to be doing something with.” There’s a market for plastic bags. It’s great she’s banned it—it’s no problem—but why was that a priority? Those are some of the questions that we asked in select committee.

Minister Parker talked about how the Minister was thinking about waste, thinking about product stewardship schemes, and doing a lot of nasal gazing—navel gazing and thinking about things. That was a great spoonerism, wasn’t it? I’ll remember that one. But the fact is we’re 22 months into this greenest Government ever, in their year of delivery, and we’ve had almost nothing.

Then, of course, we spoke about the Fox landfill disaster, the biggest environmental disaster since the Rena. The Minister dragged her feet on this. She sat on her hands, did nothing for months and months and giving a small, nominal amount to the council down there, and then complained when they spent it all quite quickly and she cast aspersions on the way that they spent it. It wasn’t until my colleague Scott Simpson and others—and, actually, to be fair, the New Zealand First MP Jenny Marcroft—went down there and put pressure on her until she had to do something about it. This is a Green Party Minister sitting on her hands, doing nothing about one of New Zealand’s biggest environmental disasters.

Let’s not forget their broken promises. Cameras on fishing boats—no. Royalties on bottled water—no. Urban water standards—no. Kermadec Ocean Sanctuary—nothing.

ANGIE WARREN-CLARK (Labour): Thank you, Madam Chair. We’re having a lot of fun, over this side of the Chamber, tonight. Look, I’m delighted—absolutely delighted—to stand and speak in the Estimates debate on climate change, Vote Conservation, and the environment. It’s an absolute pleasure to be on this side of the House. It’s a hard-working Government. We have been doing a lot of work, and I’m really, really, really proud to be under the leadership of our Prime Minister, Jacinda Ardern, who is not only incredibly hard-working; she’s a tremendous leader for our country but also for the world in this space.

Look, we stand on the brink of a catastrophic environmental disaster, and I for one am tremendously pleased that we on this side of the House are tackling the long-term issues facing New Zealand. We’re tackling them.

The environment suffered at the hands of that last Government. We know it. Everyone knows it—in fact, we’ve been spending hours and hours, under the zero carbon bill, hearing that—and we’re playing catch up, right? We’re playing catch up. There are lots of areas that need to be fixed and, let’s face it, it’s going to take more than one term to do this. But we’re here and we’re going to be doing it.

So we sit on the right side of history, with our plan to transition to a clean, green, carbon-neutral New Zealand. The mess that they have left us with is—

CHAIRPERSON (Hon Anne Tolley): It would be nice if the member could actually speak about the Estimates and—

ANGIE WARREN-CLARK: Sure.

CHAIRPERSON (Hon Anne Tolley): —the select committee work.

ANGIE WARREN-CLARK: Absolutely. I was just coming on to that.

CHAIRPERSON (Hon Anne Tolley): Good.

ANGIE WARREN-CLARK: So we’re overhauling the resource management system, which has been underperforming, and our Opposition members had left it for a very long time. Kiwis tell us that they want to be able to swim in our lakes and in our rivers, and we’ve put $229 million into that. We’re not talking about wadeable rivers here; we’re talking about swimmable rivers. We want to be able to put our heads under the water, people, and just remember that—everyone wants to be able to do that. We’re helping the farmers and the growers to improve their waterways and the land use, and, in fact, the Kaipara Harbour, which my colleague spoke about, is the first cab off the rank for that.

Our goal as this Government is to improve the wellbeing and the living standards of all New Zealanders through productive, sustainable, inclusive growth within the environment and within environmental limits. So we’re currently progressing the zero carbon bill and, absolutely, Madam Chair, you will know that this is a big issue for the entire country. In fact, we’ve had thousands and thousands of submissions on this matter—absolutely thousands of submissions—and—

Chris Bishop: I’d vote for you.

ANGIE WARREN-CLARK: You’d vote for me? That’s wonderful—I have a vote. In fact, we’ve reached a historic consensus to bring farmers into the emissions trading scheme (ETS)—a historic consensus to bring farmers into the ETS—by 2025. It’s one of those amazing things. The Opposition will tell us that we have not done that, but, actually, we have.

Finally, the science is clear: we have to change our emissions footprint. New Zealand has a 46 percent emissions profile from agriculture—46 percent—and so we’re working within those limits. We ended new offshore oil and gas permits; we’ve got more choice, with electric cars; we’re investing in R & D—millions of dollars in R & D—to realise our renewable futures; and, of course, we’ve all heard about the massive spend in conservation, including for the safety of our workers in that sector.

I’m absolutely delighted. I had this huge list of things that we are doing and I’ve run out of time, but I’m absolutely delighted to stand on this side of the Chamber, in Government, on behalf of the environment. Thank you.

JENNY MARCROFT (NZ First): Tēnā koe, Madam Chair. Thank you very much for the opportunity to speak to the Appropriation (2019/20 Estimates) Bill, talking to the environment. You can literally hear the environment breathing a sigh of relief that this Government is focused on the environment, because there is no Planet B.

We are committed to transitioning to a clean, green, and carbon-neutral New Zealand. We are overhauling the resource management system because it’s underperforming. We are ensuring the wellbeing of society is about improving our waterways, and we are starting with a body of water close to my heart as an Albertlander. Now, Albertlanders arrived in New Zealand in 1863, my family on board the Matilda Wattenbach. The Mayor of Kaipara also, his whānau arrived 1860-odds on the Hanover, and Mayor Smith was also very impressed with the recent announcement as the Government went up to the Kaipara and met with farmers who have started some incredible work. Like many other farmers around the country, they are planting up their waterways. They are ensuring that their swales are planted and protected, because the water that flows, mostly through the northern region down into the Kaipara, which is one of our biggest bodies of water, is actually our snapper hatchery. So, predominantly, the snapper on the west coast begin their days in the Kaipara. So it is really important that the $12 million from Budget 2019 is the beginning of this work, working with council and working with families to ensure these bodies of water, these estuaries, are getting rid of that sedimentation, which has been clogging them up. The scallops you can no longer gather. We need to ensure that this waterway particular area will have clean, clear water, which will actually be reflecting the wellbeing of society as a result.

Also, something else that has been really important to us, and in particular to New Zealand First: we need to stop banging up brick and tiles on our elite soils. We cannot keep putting housing on our food basket. It just does not make sense. So it’s great to see that we will be protecting our most fertile soils in the Pukekohe area—this versatile land. We must continue to grow food for New Zealanders and for our export markets as well. So taking care that on this most highly productive land, we ensure that we can keep growing.

Plastics—fantastics. Ensuring that we get rid of plastic bags was a signal to society that we are taking care of what we’re doing with plastics. That’s a wee small step. It’s a big indication. Society was moving there anyway, so we said, “Yes, we will embrace this as well, as an indication.” China banning low-quality recycled plastics also has given us a fantastic opportunity to take a better look at what we’re doing in respect of our waste systems. So it is great to see that waste is on the agenda—particularly tyres.

New Zealand First, in our coalition agreement with Labour—we have a tyre stewardship programme, and so we’re very pleased that that has recently been announced. These 4 million - odd tyres a year, which are recycled off vehicles—tractors, quite a few of them; cars as well. These stockpiles all around the country are leeching into the soils. They are fire hazards as well. But we will take care of our waste. We are ensuring that we are doing that.

Also too, just very quickly, very, very pleased about the $20.75 million in Budget 2019 going to kauri dieback research. Provincial Growth Fund for the Predator Free 2050—$19.5 million there. I recently had a catch up with Predator Free New Zealand. There’re some great initiatives about to be rolled out from that Provincial Growth Fund allotment, so I’m looking forward to that being laid out before us to see what great work, so we don’t have to use so much 1080. Thank you very much, Madam Chair.

CHLÖE SWARBRICK (Green): It’s a pleasure to rise on behalf of the Green Party of Aotearoa New Zealand as one of the members of the Environment Committee. In my contribution tonight, I would like to speak to two of the hearings that we held, both that for Vote Conservation and that for Vote Environment. First, in referring to Vote Conservation, I want to clarify the record for those who may be listening at home or in the gallery and also for the sake of Hansard: it’s been said multiple times by members of the Opposition that the honourable member Eugenie Sage did not appear before select committee, and I want to make it clear that in her role as conservation Minister, she did. In her role as conservation Minister, she appeared before the select committee, talking to us about a number of things, but what I would like to refer to is two parts in particular which haven’t been canvassed, largely, by many of the members who have contributed so far in the debate.

The first thing is the international visitor levy. That is the $35 per visitor being charged to visitors to this country, which is expected to provide an extra $42 million a year to the creaking infrastructure, particularly in regional rural New Zealand, where, actually, we want our tourists to be going, to explore the great outdoors and many of the things that we in this country pride ourselves on. It was fascinating to me to hear members of the Opposition talking about how this would somehow result in this massive exodus or, rather, that international visitors simply would not be coming to New Zealand as a result of this imposition of this $35 per visitor. Frankly, it just doesn’t quite make sense. If somebody is spending hundreds, if not thousands, of dollars to travel to this tiny, beautiful country at the bottom of the world, why would they not be comfortable to contribute to ensure that that beautiful country continues to be beautiful? As we have seen, it has allowed us to continue to maintain that beauty and that conservation infrastructure.

Erica Stanford: Great policy making—another tax.

CHLÖE SWARBRICK: The other point that I want to make—it’s interesting to hear members of the Opposition talking about another tax, because I do wonder how they intend to pay for their conservation endeavours, or the endeavours that they talk about. It’s quite an interesting proposition for them to be saying that they are going to be doing all of these things but not how they are going to be raising the revenue. I’m really interested to hear more about this proverbial bonfire of regulation. It sounds a heck of a lot like a terrible, terrible pathway for Resource Management Act (RMA) reform.

But anyway, back to Vote Conservation, I’d like to speak to the issue of the harassment of Department of Conservation (DOC) staff. We spoke to the Minister of Conservation about this issue because it has been raised in the media multiple times, and it has come to the attention of the general public. There has been $10.7 million invested over the next four years to ensure the safety of staff. That is $4.1 million for a permanent security team, $5 million for improving health and safety systems and staffing levels, and $1.6 million for improving the physical security at DOC sites. Importantly, the reason that we were told by the Minister and the director-general of DOC is that most of the threats that DOC staff are receiving are from people who are opposed to the use of 1080 but also that they are starting to experience an increase in threats and abuse from people in the whitebaiting community. I say this not to attack people who hold those positions but to warn politicians who are presently engaged in fearmongering on these very issues, such as what we have started to hear from members of the Opposition.

I’m just spitballing and speeding as fast as I can in my final minute through all of the other amazing things that have occurred in Vote Environment. The first is on RMA reform I alluded to earlier. It would appear that the National Party would like to just chuck it in a bonfire. But we, however, on this side of the House are seeking to do it in two tranches: the first is in freshwater protection, and the second is a complete overhaul—

Erica Stanford: Nine years in Opposition, haven’t done a thing.

CHLÖE SWARBRICK: —looking at a broader project of holistic assessment. I’m glad that members of the Opposition have raised nine years of inaction on their behalf in this area.

The next point that I would like to speak to is that of climate change. We are currently going through over a thousand submissions, oral submissions, from the public, showing the immense amount of interest in this issue.

The fourth is that of waste management. This is us moving away from a take-make-waste economy to designing waste out of the system.

A party vote was called for on the question, That Vote Conservation, Vote Environment, and Vote Parliamentary Commissioner for the Environment be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Votes agreed to.

External Sector

CHAIRPERSON (Hon Anne Tolley): Members, we come now to the votes in the external sector, B.5, Volume 4. The question is that Vote Customs, Vote Defence, Vote Defence Force, Vote Foreign Affairs and Trade, and Vote Official Development Assistance stand part of the Schedules.

I understand the chairperson of the Foreign Affairs, Defence and Trade Committee, Simon O’Connor, is not with us but that Paulo Garcia is going to speak for that committee.

PAULO GARCIA (National) on behalf of the Chairperson of the Foreign Affairs, Defence and Trade Committee: I stand to speak in respect of the appropriations for external affairs. In the committee, we met, discussed, and held hearings on all the votes—foreign affairs, official development assistance, customs, defence, and defence force. In respect of the Vote Foreign Affairs, it was discussed by the committee that New Zealand is hosting APEC in 2021. The Government has allocated a fund of $200 million for the event. Concern was raised by some members of the committee that the funds could be insufficient in the light of Australian APEC having cost $331 million and Papua New Guinea’s APEC cost $330 million, making the point that in both Australia and Papua New Guinea APECs, the figures were in Australian dollars.

Then the discussion went on to the upgrade for Scott Base in Antarctica, which is set to cost $250 million to $290 million. The Minister mentioned that around $50 million will come from private donors. At this, some of the members of the committee expressed that there could not be any assurance on this.

Then the matter of the Venezuelan crisis was discussed, where members of the committee expressed their concern that New Zealand had not condemned President Nicolás Maduro as strongly and as quickly as it should have.

Then there was a discussion on Israel where Immigration New Zealand seems to have removed all references to Israel, with the Minister noting that as an error.

Discussions in relation to trade agreements included whether New Zealand would be prepared to deal with Brexit. The Minister confirmed that New Zealand was indeed prepared to deal with Brexit, with Opposition members of the committee expressing concern and saying that they will be watching these matters relating to Brexit as they unfold. The committee asked for updates around negotiations with both the USA and the EU. The Minister indicated there were challenges, and the committee expressed its keenness to progress information about this.

For Vote Customs, the honourable Minister Kris Faafoi, who was then Minister, spoke to the committee and confirmed that customs had sought a budget of $241 million. But the committee noted that the current budget of $241 million was 3 percent lower than what the department has spent last year. The concern was raised that with plans and new initiatives to combat child sex exploitation and to manage ever-growing risks at the borders, particularly due to GST being sought to be payable on any imported products purchased by New Zealanders from overseas and coming into our borders, initially purchased for prices over $400 and which has now been set at $1,000. Questions arose in relation to how customs could work out what the products actually were valued at.

In respect of Vote Defence and Vote Defence Force, which are comprised of two separate appropriations—one for the Ministry of Defence and the other for the defence force itself—the Ministry of Defence had budgeted substantially more funds in support of the defence capability plan. A large portion of the funds are to progress procurement for high-value assets to increase airlift and sealift capabilities of the defence force. Some committee members asked why the procurement process was not used to find a replacement for the Hercules fleet instead of the ministry going straight to Lockheed Martin. The committee also expressed concern on the decision to withdraw from Iraq.

LOUISA WALL (Labour—Manurewa): Tēnā koe, Madam Chair. Tēnā koutou katoa. It’s a pleasure to be a member of the Foreign Affairs, Defence and Trade Committee. Our responsibilities are to oversee Vote Customs, Vote Defence, Vote Defence Force, Vote Foreign Affairs and Trade, and Vote Official Development Assistance. It is in fact the last two that I mentioned that I’d like to focus on tonight: so Vote Foreign Affairs and Trade and Vote Official Development Assistance.

Essentially, I’ve chosen to focus on those, and I’ll start with the Pacific reset, because the Pacific reset actually provides the context for much discussion within the committee at the moment about our official development assistance, within a context of us valuing our Pacific brothers and sisters. I’ll start there because, actually, that is why we have had an emphasis on our aid money going into the region, and also trying to reframe the historical relationship we have had with the Pacific in terms of assisting and developing their dreams and aspirations.

One of those dreams and aspirations, obviously, which was emphasized by the Minister of Foreign Affairs when he spoke to the committee, was our commitment to climate change. So it’s been very significant recently. We have had the Pacific Islands Forum. Obviously, within that context, we as a country have pledged $150 million, of $300 million that we’ve highlighted for official overseas development, to ensure that the Pacific is fit to meet the demands of climate change. It’s specifically and exclusively for projects such as climate hazard mapping. We currently have initiatives in Tokelau and the Marshall Islands. It is to provide for risk planning in terms of energy production and energy efficiency sources so that these Pacific nations can be self-sufficient. So, essentially, our commitment is how can we help Pacific people to defend their homes and their livelihoods? I think, as we move into the future, that’s going to be an area that we will have to emphasize more and more, unfortunately, because climate change does exist.

One of the other things I wanted to highlight in terms of the kōrero that we had before the committee—there’s a nice-headed contribution called “Bipartisanship in foreign affairs”. One of the things the Minister said when he presented to the committee was that he hoped that there will be further Opposition input into foreign policy in the future. But I do want to specifically highlight that the reason there isn’t as much as we would expect or we would like is because we who aren’t in the executive are constrained by a lack of information to members outside of the executive. I wanted to put that on the table, because I think there’s always been a willingness in foreign affairs for us to collaborate and for us to work together. But, obviously, if there are constraints or Cabinet conventions, then that’s not always possible.

One of the things that have happened in this last year was the opening of new embassies. I particularly wanted to emphasise the opening of our embassy in Ireland. We’ve never had an embassy in Ireland, and I think the fact that we have prioritised that embassy in this particular year, which started with an announcement in March 2017 by the previous Minister of Foreign Affairs, Murray McCully, highlights how important we see Ireland as, in terms of developing a relationship—particularly in the racing industry, I noted. That is going to enhance our ability, hopefully, to have trade agreements that are going to be beneficial not only to our country but to those in Ireland and also in Europe, where we have historic connections.

I just want to focus on one last issue, and it was an emphasis on West Papua. So there is an acknowledgment by the Minister of Foreign Affairs that we have an issue in West Papua. Recent days have highlighted some of the military operations in that particular part of Indonesia, and so I want to put on the table that the Minister has raised these issues. We as a country are incredibly interested in what’s happening within that region, and so there is a willingness for us to engage with the Indonesian Government to ensure that there isn’t any harm happening to the inhabitants. Kia ora.

Hon MARK MITCHELL (National—Rodney): Thank you, Madam Chair. It’s a pleasure to take a call on the Appropriation (2019/20 Estimates) Bill tonight. I want to, firstly, acknowledge Minister Ron Mark, because on coming into Government—I was very concerned, as the outgoing Minister, that the Labour finance Minister had signalled very clearly to the country that the first area that would be looked to make cuts in was defence, because we’d spent a lot of time in Government doing our defence white paper and putting our defence capability plan together. I was very concerned that they’d start to make cuts in that. I spoke to the Minister and said, “We’d support you as long as you can keep the investment flowing.” Up to date, they have adopted our defence capability plan and they continue to make the investment where we felt it was very important in personnel, equipment, and, of course, the regeneration of defence property.

However, when I get to the part of the speech where I’m going to talk about property, I am concerned about some of the things that were signalled during the Estimates debate. Firstly, though—procurement of aircraft. The Government has signalled, or the Minister has signalled, that the replacements of our C-130 Hercules are going to be the C130J-30 Super Hercules. The thing that I was concerned about with this process—and it relates to feedback that I’ve received directly from manufacturers that had showed an interest in this process, including the Japanese Government. They actually deserved to be treated with a bit of respect throughout the procurement process, because they actually had a very good platform that, I believe, should have actually—our Ministry of Defence, when we were in Government, we spent a lot of money and we made a big investment to make sure that we had a world-class procurement system, because historically in New Zealand, one of the issues has been—and the Minister raised this in the hearing—that we have made poor decisions on procurement. The latest example that he gave of that was the NH90s. Let’s be honest, it was a painful process bringing those NH90s into service; there’s no doubt about that. But now if you were to ask any of our Royal New Zealand Air Force personnel, they would tell you that it’s an outstanding platform that brings a lot more capability not only to our own service but also to our partners whom we often have to operate with.

The one interesting point that I made—because the Minister was highly critical and was pointing the finger at the National Government around poor procurement decisions. I thought, “That’s ironic.”, because every poor procurement decision that has been made in New Zealand for our New Zealand defence forces has been made by the Labour-led Government, often in partnership with New Zealand First. Actually, the NH90s are a clear example of that. They were a poor decision made by a Labour Government supported by New Zealand First. The good decisions have actually been made by National, the National Government. So I just wanted to take this opportunity to be able to correct the record on that.

The Embraer KC-390: very, very good aircraft. Yes, I accept the fact that it’s only been brought into service for the Brazilian Air Force. It’s a new platform, it’s new technology, and it’s state of the art. Embraer actually brought one of the KC-390s down to New Zealand, to Whenuapai. I went up there with the Chief of Defence Force and the Chief of Air Force. We went on the aircraft, we went for a test flight, I spoke to the pilot—so I spoke right from the loadmasters through to the pilots. They loved it. They said, “This is new technology; this is modern technology.” I feel that we should have used our procurement process to actually go through and make sure that we’ve been fair to every manufacturer in every country that had engaged with us—

CHAIRPERSON (Hon Anne Tolley): I am sorry to interrupt the member but the time has come for me to report progress to the House.

House resumed.

Bill reported with progress.

Report adopted.

The House adjourned at 9.56 p.m.