AARON GILMORE (National) : I rise to support the second reading of the Crown Retail Deposit Guarantee Scheme Bill. I want to touch on a few things: the timing, the rules of engagement, and the industry acceptance. I am pleased that everybody in the House today is wide awake and listening to the debate on this bill.

I want to firstly touch on the timing of this bill. At the moment we are having discussions, particularly out of the US, on the so-called green shoots of economic recovery. I think the previous guarantee scheme had an expiry date of October 2010. Many people who invest, particularly those who invest in non-bank finance companies, invest for a period of about 12 months, so we are nearly getting to that period of 12 months, and between now and the end of that scheme people will start to make a decision on whether they reinvest their funds. That makes it quite an appropriate time to take the opportunity to get this revised new scheme in place to take over and extend through to December 2011. One of the reasons I look forward to that is that those green shoots by that time, having gone from being a planted seed to green shoots, should hopefully be a beautiful rose bush that we can harvest and hand out to the wonderful people of New Zealand. It has been mentioned that one of the reasons for a finishing date of a little over 12 months is to align better with our friends across the Tasman in Australia. As someone who has spent a number of years in the financial capital markets I say that it is critical, given the tight time frames and links that we have with Australia, that there is as much alignment as we can possibly get. I think that is of significant benefit to New Zealand savers and investors. However, as many speakers in the first reading and previous speakers on the second reading have mentioned, this benefit to investors and savers does come at some cost—there is no free lunch.

This scheme has been redesigned from the existing scheme; hence the reason why we have a brand new bill. The scheme grants the Minister of Finance specific powers to develop rules of engagement—as I call it—under which the scheme guarantee would apply. Importantly, the scheme—as I mentioned—comes at a cost; it will require participating companies to pay some sort of fee, as well as have what is known as a BB credit-rating. I want to spend a little bit of time on this issue of credit ratings. There is a little bit of confusion, I think, in the House today. A BB credit-rating as provided by the largest credit-rating provider in the world, a company called Standard and Poor’s, actually implies an investment that is below an investment grade; a typical investment grade is commonly known as BBB-. By giving a rating of BB, Standard and Poor’s implies normally that an investment is a speculative type of investment, not an investment of investment grade—not a safe investment—but a speculative investment with perhaps, based on normal work, a 25 percent chance of failure. That shows an interesting aspect that has not really been picked up by any previous speakers: that this guarantee cuts in at quite a relatively low level with quite a high speculative rate for investment.

The members on the other side of the House say that the cost of getting such a grade from a credit-rating agency like Standard and Poor’s is too expensive to participate in this scheme. I say to the members that this bill actually removes the compulsion to be in this scheme. It is absolutely optional for participants to take advantage of the scheme should they wish. To take up the advantage of a credit guarantee, obviously, participants have to spend some money. It is also interesting that no one has touched on the fact that the scheme is available only to participants currently in the existing scheme or to mergers or changes of companies that are in the current scheme. As far as I am aware, nearly all the participants currently in the scheme already have some form of credit rating.

Interestingly enough, also, the cost to take up the option of the scheme is relatively low, relative to the size of some of these companies. Most of the non-bank financial institutions in New Zealand that are of any note have anywhere between $100 million and above in assets. The cost of gaining a credit rating from entities such as Standard and Poor’s is somewhere in the region of about $100,000, and thereafter ranging from $100,000 to $200,000 per annum. Relative to an asset base of $100 million, it is quite a small cost for the opportunity to take advantage of this scheme. I think that most of the 19 finance companies that have collapsed in the past 2 to 6 years were small finance companies worth under $100 million in invested total assets. It just shows us that one of the reasons why that cost exists is that larger companies can pay the $100,000 and often they survive in many ways.

I will touch on a couple of things. I had the pleasure of giving a speech recently to a group of people from the Financial Services Institute of Australasia (FINSIA). FINSIA is the leading organisation for those who are involved in the financial sector, particularly in Australia. I am proud to be a member of the organisation.

Hon Clayton Cosgrove: You’re a member of everything.

AARON GILMORE: Absolutely. The single most popular question I was asked about the speech I gave was what we are going to do about the retail deposit scheme. Interestingly enough that speech was about 6 weeks ago. At that time I had to dodge the question quite appropriately because it was not clear at that stage what we would or would not do. We were still in the development of the scheme as outlined in the bill. Today I am quite pleased to be able to stand here and talk on the bill and to discuss the fact that we have a scheme, which will be extended past the 2010 deadline. I am pleased, and I am sure my fellow members of FINSIA will be very pleased as well, that the scheme is being extended.

The bill will not in itself save us money or save our economy, but it will provide some certainty and surety to those people who want to save and invest, in particular in our non-banking sector. We have heard some economic voodoo from people on the other side of the House about what is required to right the economy, about what is wrong with the banking sector, and about the perceived failure to participate in some form of charade of a banking inquiry. People on this side of the House are blessed. We are blessed with the experience of many people from the banking sector who do not have to undertake an education about the banking sector. We have a reasonable understanding and knowledge of the banking and finance sector, and the bill we have before us today is a classic example of that understanding and knowledge. I am pleased to be part of that team. The bill is one the finance sector wants. Since the introduction of the bill has been announced a number of people in the wider sector have accepted it and been very happy for it to be introduced. It is a bill I am very pleased to speak on today. Thank you.