Matter of Opinion

A minor league play, by a minor party

The implications of the not so fleeting political engagement with internet entrepreneur Kim Dotcom, are many.  The need for transparency is far from the least of them. 

Any intrusion into politics of patronage, money and special interests justifies close public scrutiny.  But when the main protagonist is the subject of a contested extradition to face serious criminal charges, the case for transparency becomes compelling. 

But add Dotcom’s criminal history to this already toxic mix and circumspection is also the order of the day.  In politics, it’s how nature says “beware”.

That hasn’t stopped Greens Co-leader, Dr Russel Norman, from embracing Dotcom’s cause.  Whatever his reasons – political self-interest, an anti-authority knee-jerk – Norman has declared the Greens’ intention to oppose Dotcom’s extradition.  In Government, this will mean pushing the then Minister of Justice to bring down the curtain on the exercise – a political decision which can be taken once the courts have done their thing.

But that’s a decision for later.  For now it’s something for the Court, and Constitution 101 says very clearly it’s a sand pit in which politicians most assuredly ought not play.

Cunliffe was smart enough to take and make that point.  Possessed of sufficient constitutional awareness (and knowledge of the legislation) to look past Dotcom’s odd status as a digital folk hero, the Labour leader has done the right thing.  “A matter for the courts”, “separation of powers”, “integrity of the judicial process”, “the fullness of time” etc., etc.

This didn’t stop him joining Norman in conflating the issue of Dotcom’s extradition with the irregularities of his arrest.  But he has at least succeeded in reasserting Labour’s authority as the responsible and therefore leading party of Opposition.

The converse has been true for Norman.  By doing violence to convention and very arguably the rule of law, he has confirmed the Greens as a still immature and unconfident political force.  His was the stuff of a leader who fears even ham-fisted competition and never expects to (or cannot) be a meaningful player in a responsible Government. 

It also gives rise to serious questions about what political benefits he thought were to be gleaned from singing Dotcom’s tune and the price he was willing to pay.  And given the Greens high moral tone about lobbyists, special interests and transparency it casts Norman’s judgement and adherence to principle firmly in doubt. 

The Greens may take the short-term political point with but nonetheless the Dotcom affair has been for them a sad and revealing chapter.

In The News

Productivity Commission Reports on the Services Sector

The Productivity Commission has published its second interim report on the services sector as part of its wider Boosting Productivity in the Services Sector inquiry. The report provides policy options to lift productivity in the services sector. 

The Government commissioned the wider inquiry to prevent the sector becoming a drag on the export economy.  It was stated that there was a need for the services sector to operate as productively as possible, as it accounts for nearly three-quarters of the country's gross domestic product and, directly or indirectly, half of its exports.

In this latest report, the Commission produced 25 recommendations focusing on areas from the costs of searching for and switching between providers, to supply and demand in IT skills and cloud computing. Two of the main recommendations were changes to anti-competitive behaviour legislation (section 36 of the Commerce Act 1986) and increasing the use and availability of Information and Communication Technology (ICT).

The Commission concluded that the current test for assessing whether a firm is engaged in anti-competitive behaviour was complex, artificial and illogical. The Commission recommended a test that focuses on the unique nature of New Zealand's economy, taking account of its size and the dominance of major players.The Commission would like to improve competition in the services sector, in the hope that it would give consumers more choice, better products and lower prices.

The Commission's Chair said that increasing the use of ICT could provide a much needed boost to New Zealand's services sector, from tourism to software design, and by extension the whole economy.  He commented that the reliance New Zealand has on the one Southern Cross cable has been identified as an issue that New Zealand needs to overcome; and recommended that the Government place prominence on internet issues in trade talks.  New Zealand businesses could then take advantage of ICT developments to improve the productivity of their business.

The full report can be found here. Submissions on the second interim report can be made by 7 March 2014. Once all submissions have been considered a final report will be presented to the Government on 30 April 2014.

Electricity Authority Publishes Report on Costs and Prices

The Electricity Authority has released the final report of its analysis of historical electricity industry costs.  Since 1996, the rate at which retail electricity prices has increased has generally outpaced inflation, drawing criticism from a number of quarters.

The purpose of the report was to explore possible drivers of price changes by preparing a breakdown of the electricity industry since 1974.  The methodology used by the Authority was to measure the total historic cost of supplying electricity to consumers, and compare those costs to historic retail charges.

Key findings of the report include:

  • There is no evidence of windfall gains over historic generation costs accruing to generators or retailers.  Electricity prices were far below the actual cost of supply for many decades and current charges to consumers overall are almost in line with the historic cost of supply.
  • Steep rises in household electricity prices since 1985 appear to have been largely driven by the removal of cross-subsidies and more recently by higher costs to generate and supply electricity. 
  • Average total charges never exceeded estimated costs throughout the early-mid 2000s, despite retail charges increasing relative to generating costs across all consumer types. The cumulative under-recovery has been borne by a mix of taxpayers and company shareholders.
  • Although average costs reduced slightly in the 1990s, they increased quite sharply from the early 2000s as a result of increasing fuel costs, the increase to GST in 2010 and more recently increases in transmission and distribution charges.
  • The residual margin paid by residential consumers relative to other consumers indicates there may be scope for improvement in the residential retail market.

The Authority has released a consultation paper seeking feedback on issues relating to incomplete retail data and the lack of widespread confidence that the retail market is competitive and delivering benefits to consumers.  Feedback is also sought on the Authority's specified preliminary options that may address the issues identified.

The report on historic electricity costs can be found here, and the consultation paper can be found here.

Consultation on Financial Reporting Obligations

The Financial Markets Authority (FMA) is calling for submissions on changes to financial reporting obligations in response to the newly enacted Financial Markets Conduct Act 2013 (FMC Act).

Financial reporting requirements for a reporting entity have been consolidated in Part 7 of the FMC Act.  In addition, the FMC Act applies to more entities as the concept of an FMC reporting entity is broader than the definition of an "issuer" under the Financial Reporting Act 1993.  It also introduces a concept of "higher public accountability" by identifying certain classes of entities which influence External Board Reporting obligations.

A more flexible approach to exemptions is a further implication of the FMC Act.  The FMA will be able to grant exemptions when they support the purposes of the Act, including granting exemptions to any FMC reporting entities (local or overseas), if deemed appropriate. 

Due to the above changes, the FMA has reviewed the default accountability designations in the FMC Act, and proposes to make changes to some entity classes.  In most cases there are no changes from the default except for:

  • not-for-profit debt issuers;
  • licensed derivative managers; and
  • recipients of money from a conduit issuer.

The FMA also proposes to marginally alter its exemption policy to:

  • align the policy with new initiative to the FMC Act; and
  • extend the policy to cover new circumstances where the FMA can consider exemptions.

The FMA's schedule for the consultation process:

  • Consultation workshops are available in February 2014
  • Feedback is due in by 28 February 2014
  • Policies and notices will be published in April 2014

The consultation document can be found here.

Auditor-General Report on Crown-Owned Companies' Governance Systems

The Auditor-General has released a report on the governance of Crown-owned companies, examining the ability of those governance systems to support "future-thinking" and to adjust strategies accordingly.

Crown-owned companies consist of a wide variety of entities, including State-owned enterprises, Crown research institutes and other Crown companies.  These operate in different ways and are prone to change, as they have done in the 25 years since New Zealand's State-owned enterprise model was established.

Crown-owned companies account for strategically important services, including electricity infrastructure and assuring meat quality.  They also hold significant public resources, including around $28.3 billion in assets and $5.1 billion in annual revenue.

The report looks into what the current arrangements are, the challenges present when maintaining a focus on the future, and what insights and lessons can be learned from Board members currently working within the commercial model.

The report highlights important tensions that the Boards must consider, such as balancing between profit with social responsibility, and competition between Crown-owned companies.   It also discusses the most useful benchmarks against which the performance of Crown-owned companies should be measured.

The report found that, in order to manage those tensions and maintain a future focus, the key practises are mutual respect, comprehensive information and a shared understanding of the company's purpose, role and contribution to the public. These must be shared by the Board, the Minister and monitoring agents.

A recurring theme of the report was the finding that the ability to step above the details and govern, rather than manage, was an important discipline. 

The report was prepared as part of the 2012/13 theme of "Our future needs: is the public sector ready?"  During the report's development, the Crown made the decision to wind up Learning Media Ltd and to sell Orcon Kordia's retail service provider to private investors.

The report can be accessed here.

Progress on Treaty Settlements

In his Waitangi Day speech, the Prime Minister gave an update on the progress of the Crown settling historic Treaty of Waitangi breaches.  It is estimated that there are around 58 more settlements to be reached, though negotiations with many of these iwi and hapu are already underway.  While the Prime Minster promised in his speech that more deeds of settlement would be signed before the end of the year, he stated it would take more than a year to resolve them all. He again reiterated that 2014, the target for settling all claims that National set itself during the 2008 election, had been a best endeavour goal, but made no comment on the proposed timeline for resolving the remaining settlement claims.

In 2005, the Labour Party declared an intention to resolve all historic Treaty settlement claims by 2020, and in 2006 legislated a deadline of 1 September 2008 for filing historical claims with the Waitangi Tribunal.  In 2008, the National Party pushed the target forward, intending to achieve settlement of all historic grievances by 2014.  After good progress in its first three years in Government, in 2011 National stated it would extend the target to 2017.  At that time the Treaty Negotiations Minister said that 2014 was always intended as an aspirational goal rather than a deadline, because the Government could not impose settlements on parties who might not be ready to settle.  The Minister further commented that his best guess estimate was for all claims to be settled by 2016.

The Prime Minister also stated in his speech that progress had sped up since National took over from the Labour Government.  Over the past five years, the current Government has signed 41 of the 67 deeds of settlement signed to date.  This has included the settlement with Tuhoe, and many iwi and hapu in Tamaki Makaurau.  As well as increasing the operating budget of the Office of Treaty Settlements, the Government has innovated a change to the Standing Orders to help progress settlement legislation.  Next week the House will again use the new extended hours mechanism, where it has an extra sitting in the morning without going into 'urgency', in order to progress more Treaty settlement Bills.

Revised Code of Conduct for Financial Advisers Proposed

In December 2013 the Code Committee for Financial Advisers submitted a revised Code of Conduct for Authorised Financial Advisers (AFAs) to the Financial Markets Authority. The review was undertaken in accordance with the Financial Advisors Act 2008, which obliges the Committee to make periodic updates to ensure the Code's ongoing compliance with the objectives of the Act.

While the Committee considered that the current principles-based approach was fit for purpose, consultation with industry participants revealed that some standards were causing confusion. The major purpose of the review, therefore, was to clarify the responsibilities of AFAs to their clients. The review also proposed a number of technical amendments to accommodate recent changes to the legislative regime.

The draft Code submitted for approval:

  • clarifies that consumer protection is the primary objective of the code;
  • increases the compulsory amount of structured professional development for AFAs from 20 to 30 hours, while widening the definition of "structured";
  • enables financial advisers to give advice on KiwiSaver home withdrawals without requiring that they have certain investment qualifications;
  • introduces a new procedure for managing conflicts of interest; and
  • emphasises that AFAs must at all times comply with overarching competence requirements.

The proposals offer more guidance on the explanations that must accompany advice, particularly on advice category 1 products, which have more of an investment-type focus.  They also outline the responsibilities that advisers have to prospective clients, who must be provided with information sufficient to enable informed decision-making.  Overall, it is expected that both clients and advisers will benefit from a more rigorous definition of the terms of their relationship.

The draft Code requires the approval of the Financial Markets Authority before it can be accepted and gazetted by the Minister of Commerce. This process will likely be completed before the middle of the year.

Insurance Solvency Standards Consultation

The Reserve Bank is consulting on proposed reforms seeking to ensure that licensed insurers have appropriate levels of credit risk mitigation from the use of guarantees. It is the second consultation paper regarding the solvency treatment of guarantees, and reflects changes made to initial proposals following responses to the first consultation paper issued in June 2013.

The June 2013 consultation paper proposed recognition of certain guarantees, using the Limited Term Guarantee (LTG) formula.  Under that formula, guarantees with a term of less than one year would not be recognised.

Amongst other initiatives, the Reserve Bank intends to adopt the LTG formula broadly as proposed, but is considering some minor amendments, relating to residual maturity timeframes, and definitions.

Submissions on the proposed wording of the solvency standards and other issues set out in the consultation paper are open until 28 February 2014.  The consultation paper can be found here.

AML/CFT certification process guidelines

The New Zealand Law Society (NZLS) has published guidance to lawyers on the requirements for certifying documentation for customers of reporting entities under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

The Act requires "reporting entities", such as banks and financial advisers, to collect and verify identity information about customers, in order to reduce the opportunities for money laundering and terrorism financing.  The Verification Code of Practice 2013 further provides best practice for all reporting entities in conducting customer due diligence.  While lawyers are not "reporting entities", they are considered "trusted referees" and are asked to certify documentation.  The NZLS practice briefing aims to solve doubts as to the wording which lawyers should use during this certifying process.  

There is no absolute rule on the wording lawyers should use when certifying documentation. However, wording must satisfy the particular reporting entity's requirements.  If a reporting entity will only accept a certified copy that has adopted specific wording, the customer should ask the lawyer to adopt that prescribed wording. If, on the other hand, there is no requirement of specific wording, the NZLS provides suggested wording for photographic/non-photographic identification.  In these instances, prefabricated certification stamps are suggested as a time-saving device.  The onus is then on the reporting entity to decide whether to accept it.

The guidance further notes that trusted referees cannot certify documents if:

  • they have a certain relationship with the customer (e.g. spouse); or
  • the document is given to them by a third party.  

The NZLS practice briefing is intended to provide guidance for lawyers in an area where there are no definitive procedures.  It was shaped by legal advice provided to the NZLS.

The use of urgency in Parliament

The New Zealand Law Society (NZLS) has recently expressed concern about the use of urgency in Parliament.  The Attorney-General has responded that these criticisms are unfounded.   

Usually, Parliament sits on Tuesdays, Wednesdays and Thursdays, and no two stages of a Bill can proceed on the same day.  However, when sitting under urgency, Parliament extends its usual sitting hours to accelerate the passage of legislation, and a Bill may pass several or all of its stages in one day.  Urgency was originally intended as an exceptional measure to be used to pass legislation in response to an emergency. 

The NZLS has stated that the overuse of urgency bypasses the opportunity for public consultation and principles of democratic legitimacy, and that urgency should be used only where there is a genuine need for haste.  In particular, it has criticised the use of urgency in cases where constitutional or human rights are affected by the proposed legislation.  It has noted that the Public Health and Disability Amendment Act 2013 was passed under urgency in a single day, preventing any challenge to government policies concerning payment of family members who provide health and disability support services.  The NZLS has suggested that urgency should not be available in such cases where legislation is inconsistent with the New Zealand Bill of Rights Act 1990 (NZBORA). 

The Attorney-General dismissed these criticisms in a press release issued on 31 January.  He maintained that Parliament has reduced the use of urgency since 2011, and that the use of urgency is not a human rights issue but rather an issue of administrative procedure.  The Attorney-General stated that he has prepared reports as required under NZBORA when legislation is inconsistent with such rights, but that these reports do not prevent the passage of legislation.

Progress Of Legislation

Bills Awaiting First Reading

Building (Earthquake-prone Buildings) Amendment Bill
Education (Breakfast and Lunch Programmes in Schools) Amendment Bill
Education (Food in Schools) Amendment Bill
Electoral (Adjustment of Thresholds) Amendment Bill
Electronic Data Safety Bill
Energy (Fuels, Levies, and References) Amendment Bill
Healthy Homes Guarantee Bill
Land Transport (Safer Alcohol Limits for Driving) Amendment Bill
New Zealand Superannuation and Retirement Income Amendment Bill
Nga Rohe Moana o Nga Hapu o Ngati Porou Bill
SuperGold Health Check Bill
Overseas Investment (Owning our Own Rural Land) Amendment Bill
Underground Coal Mining Safety Bill
Waitangi National Trust Board Amendment Bill 

Bills before Select Committee

Submissions open

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Submissions closed

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Bills Awaiting Second reading

Bills that have recently been reported back to the House from a Select Committee are in bold and the Select Committee reports on these Bills are linked.

Border Processing (Trade Single Window and Duties) Bill
Commerce (Cartels and Other Matters) Amendment Bill
Construction Contracts Amendment Bill
Defence Amendment Bill
Electronic Transactions (Contract Formation) Amendment Bill
Employment Relations Amendment Bill
Fisheries (Foreign Charter Vessels and Other Matters) Amendment Bill
Housing Corporation Amendment Bill
Maungaharuru-Tangitu Hapu Claims Settlement Bill
Nga Mana Whenua o Tamaki Makaurau Collective Redress Bill
Nga Punawai o Te Tokotoru Claims Settlement Bill
Public Health Bill
Radio New Zealand Amendment Bill
Reserves and Other Lands Disposal Bill
Resource Management (Restricted Duration of Certain Discharge and Coastal Permits) Amendment Bill
Raukawa Claims Settlement Bill
Social Security Amendment Bill (No 3)
Social Security (Fraud Measures and Debt Recovery) Amendment Bill (report of the Social Services Committee)
Spending Cap (People's Veto) Bill
Sullivan Birth Certificate Bill
Tasman District Council (Validation and Recovery of Certain Rates) Bill
Taxation (Income-sharing Tax Credit) Bill
Te Tau Ihu Claims Settlement Bill
Therapeutic Products and Medicines Bill
Victims of Crime Reform Bill

Bills Awaiting Third Reading

Appropriation (2012/13 Financial Review) Bill
Companies and Limited Partnerships Amendment Bill
Families Commission Amendment Bill
Electoral Amendment Bill
Gambling Amendment Bill (No 2)
Heritage New Zealand Pouhere Taonga Bill
Insolvency Practitioners Bill
Kaipara District Council (Validation of Rates and Other Matters) Bill
Natural Health and Supplementary Products Bill (formerly the Natural Health Products Bill) Student Loan Scheme Amendment Bill (No 3)
Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill
Trade (Safeguard Measures) Bill

Bills Awaiting Assent

Airports (Cost Recovery for Processing of International Travellers) Bill
Subantarctic Islands Marine Reserves Bill

Acts Assented

Arts Council of New Zealand Toi AotearoaAct 2013

This Act replaces the structure of the Arts Council with a single board, which will be responsible for determining strategic direction, priorities, and a policy framework for the whole organisation and for funding allocation decisions.  The Act also makes changes to the role of community arts providers.  It will come into force on 30 April 2014.

Legislative Instruments

Community Work Centre (Anchor Place (Tokoroa)) Notice 2014
Community Work Centre (Willoughby Street (Thames)) Notice 2014
Health Practitioners (Quality Assurance Activity—MidCentral DHB Medical Oncology Department) Notice 2014
Fisheries (High Seas Fishing Notifications: Western and Central Pacific Fisheries Commission) Amendment Notice 2014
Local Government Elected Members (2013/14) (Certain Local Authorities) Determination 2013 Amendment Determination 2014

In the Week Ahead

The House's second sitting week for the year ended Thursday 13 February.  It will sit again on Tuesday 18 February, when the Government will aim to progress the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, the Student Loan Scheme Amendment Bill (No 3) and a number of other Bills on the Order Paper.  Wednesday will be a Members' Day, and on Thursday morning the House will sit under extended hours to progress Treaty of Waitangi Settlement legislation.  Following that week, the House will next sit on 4 March.

Speeches of note

Prime Ministers Key and Abbott meet in Sydney

Prime Minister John Key met with his Australian counterpart Tony Abbott in Sydney on 7 February to jointly chair the annual Australia-New Zealand Leaders' Meeting. 

In a speech before the Trans-Tasman Business Circle, Prime Minister Key stated that New Zealand and Australia shared one of the closest economic partnerships in the world and he considered it critical that they continue to deepen their economic and business links.

The Leaders' Meeting was followed by the third joint meeting of Australian and New Zealand Cabinet Ministers.  A wide variety of issues were discussed, from the upcoming Cricket World Cup and G20 conference, to the rights of New Zealanders living in Australia and the ongoing Trans-Pacific Partnership Agreement negotiations.

Both Prime Ministers stated that they look forward to Australian and New Zealand businesses working together to advance trade and economic reform.  Prime Minister Key thanked the Australian Prime Minister for his invitation for New Zealand to attend the G20 Conference to be held in Brisbane in November.  While it is common for invited guest nations to attend the G20 summit, Prime Minister Abbott commented that the Brisbane event would be "G21".

Noting a shared relationship on the battlefield and the sporting field, both Prime Ministers outlined the upcoming commemoration of the Centenary of departure of ANZAC troops for the First World War.  The Prime Ministers also pledged to allow visitors to the two nations for the 2015 Cricket World Cup to do so on one visa.  

During his visit to Australia, Prime Minister Key was able to secure the right to student loans for the children of New Zealand expatriates living in Australia, but no progress was made on the issue of other benefits for New Zealanders living in Australia.  The Australian Prime Minister reiterated that he expected New Zealanders in Australia to be "lifters, not leaners".

On his return to New Zealand, Prime Minister Key has stated he was satisfied with the outcome of the meeting in Sydney.

In Committee

The Privileges Committee heard submissions on its inquiry into the use of intrusive powers within parliamentary precinct.

The Maori Affairs Committee heard submissions on the two Treaty settlement Bills before it. 

The Justice and Electoral Committee heard submissions on the Human Rights Amendment Bill, and the Local Government and Environment Committee heard submissions on the Local Government Act 2002 Amendment Bill (No 3). 

The Finance and Expenditure Committee has continued to consider the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, and the Government Administration Committee considered the Chief Ombudsman and Privacy Commissioner's report on EQC's handling of information requests in Canterbury. 

The Commerce Committee sat in financial review of several Crown companies, and the Takeovers Panel. 

The Primary Production Committee continued to consider the Food Bill, having received a letter from the Food Minister advising that the Government has accepted the Dean Inquiry's recommended changes to food safety legislation. 

In Trade

Tariff Concessions   

The following applications for tariff concessions have been made in the past two weeks:

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