Reports of select committees on the 2019/20 annual reviews of Government departments, Offices of Parliament, Crown entities, public organisations, and State enterprises
Volume 1
Financial Statements of the Government for the year ended 30 June 2020 Economic Development and Infrastructure Sector Education and Workforce Sector Environment Sector External Sector Finance and Government Administration Sector
Fifty-third Parliament April 2021
Presented to the House of Representatives
Contents
Crown entity/public Select Committee Date Page organisation/State enterprise presented
Financial Statements of the Finance and Expenditure 31 Mar 2021 13 Government of New Zealand for the year ended 30 June 2020
Economic Development and Infrastructure Sector
Accreditation Council Economic Development, 29 Mar 2021 67 Science and Innovation
AgResearch Limited Economic Development, 29 Mar 2021 68 Science and Innovation
Air New Zealand Limited Transport and 24 Mar 2021 74 Infrastructure
Airways Corporation of New Zealand Transport and 24 Mar 2021 81 Limited Infrastructure
Broadcasting Standards Authority Economic Development, 29 Mar 2021 88 Science and Innovation
Callaghan Innovation Economic Development, 29 Mar 2021 89 Science and Innovation
City Rail Link Limited Transport and 24 Mar 2021 96 Infrastructure
Civil Aviation Authority of New Zealand Transport and 24 Mar 2021 97 Infrastructure
Commerce Commission Economic Development, 29 Mar 2021 104 Science and Innovation
Crown Infrastructure Partners Limited Economic Development, 31 Mar 2021 112 Science and Innovation
Electricity Authority Economic Development, 29 Mar 2021 88 Science and Innovation
Electricity Corporation of New Zealand Transport and 26 Mar 2021 119 Limited Infrastructure
Energy Efficiency and Conservation Economic Development, 29 Mar 2021 88 Authority Science and Innovation
External Reporting Board Economic Development, 29 Mar 2021 67 Science and Innovation
Crown entity/public Select Committee Date Page organisation/State enterprise presented Financial Markets Authority Economic Development, 29 Mar 2021 67 Science and Innovation
Genesis Energy Limited Transport and 26 Mar 2021 119 Infrastructure
Institute of Environmental Science and Economic Development, 26 Mar 2021 120 Research Limited (ESR) Science and Innovation
Institute of Geological and Nuclear Economic Development, 26 Mar 2021 120 Sciences Limited (GNS Science) Science and Innovation
KiwiRail Holdings Limited Transport and 29 Mar 2021 121 Infrastructure
Kordia Group Limited Economic Development, 29 Mar 2021 88 Science and Innovation
Landcare Research New Zealand Limited Economic Development, 26 Mar 2021 128 (Manaaki Whenua) Science and Innovation
Maritime New Zealand Transport and 24 Mar 2021 96 Infrastructure
Mercury NZ Limited Transport and 26 Mar 2021 119 Infrastructure
Meridian Energy Limited Transport and 26 Mar 2021 129 Infrastructure
Meteorological Service of New Zealand Transport and 24 Mar 2021 96 Limited (MetService) Infrastructure
Ministry of Business, Innovation and Economic Development, 29 Mar 2021 135 Employment Science and Innovation
Ministry of Transport Transport and 29 Mar 2021 147 Infrastructure
National Institute of Water and Economic Development, 29 Mar 2021 161 Atmospheric Research Limited (NIWA) Science and Innovation
New Zealand Forest Research Institute Economic Development, 26 Mar 2021 128 Limited (Scion) Science and Innovation
New Zealand Growth Capital Partners Economic Development, 26 Mar 2021 167 Limited (previously known as New Science and Innovation Zealand Venture Investment Fund)
New Zealand Institute for Plant and Food Economic Development, 26 Mar 2021 128 Research Limited Science and Innovation
Crown entity/public Select Committee Date Page organisation/State enterprise presented New Zealand Post Limited Economic Development, 29 Mar 2021 174 Science and Innovation
New Zealand Railways Corporation Transport and 29 Mar 2021 121 Infrastructure
New Zealand Tourism Board Economic Development, 29 Mar 2021 182 Science and Innovation
New Zealand Trade and Enterprise Economic Development, 29 Mar 2021 191 Science and Innovation
New Zealand Transport Agency Transport and 29 Mar 2021 198 Infrastructure
Provincial Growth Fund Limited Economic Development, 29 Mar 2021 210 Science and Innovation
Real Estate Agents Authority Economic Development, 29 Mar 2021 216 Science and Innovation
Research and Education Advanced Economic Development, 26 Mar 2021 128 Network New Zealand Limited (REANNZ) Science and Innovation
Retirement Commissioner Economic Development, 29 Mar 2021 221 Science and Innovation
Takeovers Panel Economic Development, 29 Mar 2021 67 Science and Innovation
Transport Accident Investigation Transport and 24 Mar 2021 96 Commission Infrastructure
Transpower New Zealand Limited Transport and 26 Mar 2021 119 Infrastructure
Education and Workforce Sector Accident Compensation Corporation Education and Workforce 29 Mar 2021 229
Education New Zealand Education and Workforce 26 Mar 2021 251
Education Payroll Limited Education and Workforce 26 Mar 2021 251
Education Review Office Education and Workforce 26 Mar 2021 251
Ministry of Education Education and Workforce 26 Mar 2021 251
Network for Learning Limited Education and Workforce 26 Mar 2021 251
New Zealand Qualifications Authority Education and Workforce 26 Mar 2021 251
Tertiary Education Commission Education and Workforce 26 Mar 2021 251
WorkSafe New Zealand Education and Workforce 29 Mar 2021 229
Environment Sector Climate Change Commission Environment 29 Mar 2021 284
Department of Conservation Environment 29 Mar 2021 291
Environmental Protection Authority Environment 29 Mar 2021 300
Ministry for the Environment Environment 29 Mar 2021 306
Parliamentary Commissioner for the Environment 29 Mar 2021 313 Environment
Predator Free 2050 Limited Environment 29 Mar 2021 314
External Sector Ministry of Defence Foreign Affairs, Defence and 31 Mar 2021 318 Trade
Ministry of Foreign Affairs and Foreign Affairs, Defence and 31 Mar 2021 328 Trade Trade
New Zealand Antarctic Institute Foreign Affairs, Defence and 31 Mar 2021 337 Trade
New Zealand Customs Service Foreign Affairs, Defence and 31 Mar 2021 343 Trade
New Zealand Defence Force Foreign Affairs, Defence and 31 Mar 2021 318 Trade
Finance and Government Administration Sector Department of Internal Affairs Governance and 26 Mar 2021 350 Administration
Department of the Prime Minister Governance and 29 Mar 2021 359 and Cabinet Administration
Earthquake Commission Finance and Expenditure 31 Mar 2021 367
Fire and Emergency New Zealand Governance and 26 Mar 2021 377 Administration
Government Communications Intelligence and Security 25 Mar 2021 385 Security Bureau Committee
Government Superannuation Fund Finance and Expenditure 31 Mar 2021 13 Authority
Guardians of New Zealand Finance and Expenditure 31 Mar 2021 13 Superannuation
Inland Revenue Department Finance and Expenditure 31 Mar 2021 13
Kiwi Group Holdings Limited Finance and Expenditure 31 Mar 2021 13
National Emergency Management Governance and 26 Mar 2021 386 Agency Administration
New Zealand Green Investment Finance and Expenditure 31 Mar 2021 13 Finance Limited
New Zealand Infrastructure Finance and Expenditure 31 Mar 2021 13 Commission
New Zealand Productivity Finance and Expenditure 31 Mar 2021 13 Commission
New Zealand Security Intelligence Intelligence and Security 25 Mar 2021 393 Service Committee
Office of the Clerk of the House of Governance and 26 Mar 2021 394 Representatives Administration
Office of the Controller and Auditor- Finance and Expenditure 31 Mar 2021 13 General
Office of Film and Literature Governance and 29 Mar 2021 406 Classification Administration
Office of the Ombudsman Governance and 26 Mar 2021 407 Administration
Ōtākaro Limited Finance and Expenditure 31 Mar 2021 367
Parliamentary Service Governance and 26 Mar 2021 394 Administration
Pike River Recovery Agency Finance and Expenditure 18 Mar 2021 413
Public Service Commission Governance and 26 Mar 2021 420 (previously the State Services Administration Commission)
Reserve Bank of New Zealand Finance and Expenditure 31 Mar 2021 13
Southern Response Earthquake Finance and Expenditure 31 Mar 2021 367 Services Limited
Statistics New Zealand Governance and 29 Mar 2021 414 Administration
Tāmaki Redevelopment Company Finance and Expenditure 18 Mar 2021 426 Limited
The Treasury Finance and Expenditure 31 Mar 2021 13
Volume 2:
Health Sector Auckland District Health Board Health 26 Mar 2021 427
Bay of Plenty District Health Board Health 26 Mar 2021 427
Canterbury District Health Board Health 26 Mar 2021 428
Capital and Coast District Health Board Health 24 Mar 2021 437
Counties Manukau District Health Board Health 26 Mar 2021 448
Hawke’s Bay District Health Board Health 31 Mar 2021 454
Health and Disability Commissioner Health 26 Mar 2021 461
Health Promotion Agency Health 26 Mar 2021 461
Health Quality and Safety Commission Health 26 Mar 2021 461
Hutt Valley District Health Board Health 24 Mar 2021
Lakes District Health Board Health 26 Mar 2021 427
MidCentral District Health Board Health 26 Mar 2021 427
Ministry of Health Health 31 Mar 2021 462
Nelson Marlborough District Health Board Health 26 Mar 2021 475
Northland District Health Board Health 26 Mar 2021 475
New Zealand Blood Service Health 26 Mar 2021 461
Pharmaceutical Management Agency Health 24 Mar 2021 476 (PHARMAC)
South Canterbury District Health Board Health 26 Mar 2021 485
Southern District Health Board Health 26 Mar 2021 498
Tairāwhiti District Health Board Health 26 Mar 2021 475
Taranaki District Health Board Health 26 Mar 2021 475
Te Aho o Te Kahu – Cancer Control Health 24 Mar 2021 492 Agency
Waikato District Health Board Health 24 Mar 2021 507
Wairarapa District Health Board Health 26 Mar 2021 514
Waitemata District Health Board Health 26 Mar 2021 514
West Coast District Health Board Health 26 Mar 2021 514
Whanganui District Health Board Health 26 Mar 2021 514
Justice Sector Crown Law Office Justice 29 Mar 2021 515
Department of Corrections Justice 31 Mar 2021 516
Electoral Commission Justice 29 Mar 2021 523
Human Rights Commission Justice 29 Mar 2021 515
Independent Police Conduct Authority Justice 29 Mar 2021 515
Law Commission Justice 29 Mar 2021 515
Ministry of Justice Justice 26 Mar 2021 530
New Zealand Police Justice 26 Mar 2021 538
Office of the Judicial Conduct Justice 29 Mar 2021 515 Commissioner
Parliamentary Counsel Office Justice 29 Mar 2021 515
Privacy Commissioner Justice 29 Mar 2021 515
Public Trust Justice 29 Mar 2021 547
Serious Fraud Office Justice 29 Mar 2021 552
Māori Affairs Sector Ministry of Māori Development (Te Māori Affairs 31 Mar 2021 557 Puni Kōkiri)
Office for Māori Crown Relations— Māori Affairs 31 Mar 2021 571 Te Arawhiti
Te Aratuku Whakaata Irirangi Māori Māori Affairs 31 Mar 2021 587 (Māori Television Service)
Te Reo Whakapuaki Irirangi (Māori Māori Affairs 31 Mar 2021 603 Broadcasting Funding Agency)
Te Taura Whiri I Te Reo Māori Māori Affairs 31 Mar 2021 605 (Māori Language Commission)
Primary Sector Animal Control Products Limited Primary Production 30 Mar 2021 619
AsureQuality Limited Primary Production 30 Mar 2021 619
Crown Irrigation Investments Primary Production 30 Mar 2021 619 Limited
Land Information New Zealand Primary Production 30 Mar 2021 619
Landcorp Farming Limited Primary Production 30 Mar 2021 619
Ministry for Primary Industries Primary Production 30 Mar 2021 619
New Zealand Walking Access Primary Production 30 Mar 2021 619 Commission
Quotable Value Limited Primary Production 30 Mar 2021 619
Social Services and Community Sector Arts Council of New Zealand Toi Social Services and 24 Mar 2021 651 Aotearoa Community
Broadcasting Commission (NZ On Social Services and 24 Mar 2021 651 Air) Community
Children’s Commissioner Social Services and 31 Mar 2021 652 Community
Drug Free Sport New Zealand Social Services and 24 Mar 2021 651 Community
Heritage New Zealand (Pouhere Social Services and 24 Mar 2021 651 Taonga) Community
Kainga Ora – Homes and Social Services and 29 Mar 2021 668 Communities Community
Ministry for Culture and Heritage Social Services and 30 Mar 2021 687 Community
Ministry of Housing and Urban Social Services and 29 Mar 2021 668 Development Community
Ministry for Pacific Peoples Social Services and 24 Mar 2021 702 Community
Ministry of Social Development Social Services and 30 Mar 2021 703 Community
Ministry for Women Social Services and 24 Mar 2021 702 Community
Museum of New Zealand Te Papa Social Services and 30 Mar 2021 687 Tongarewa Board Community
New Zealand Artificial Limb Service Social Services and 24 Mar 2021 702 Community
New Zealand Film Commission Social Services and 24 Mar 2021 725 Community
New Zealand Lotteries Commission Social Services and 24 Mar 2021 725 Community
New Zealand Symphony Orchestra Social Services and 30 Mar 2021 726 Community
Oranga Tamariki – Ministry for Social Services and 31 Mar 2021 652 Children Community
Radio New Zealand Limited Social Services and 30 Mar 2021 727 Community
Social Wellbeing Agency Social Services and 30 Mar 2021 703 Community
Social Workers Registration Board Social Services and 30 Mar 2021 703 Community
Sport and Recreation New Zealand Social Services and 30 Mar 2021 744 Community
Television New Zealand Limited Social Services and 30 Mar 2021 727 Community
About this compendium
This is a compendium of select committee reports on the 2019/20 annual reviews of Government departments, Offices of Parliament, Crown entities, public organisations, and State enterprises. It contains all the reports that had been presented to the House by 31 March 2021.
The Health Research Council of New Zealand is not included in the compendium as its annual report was not presented in the House by that date. Therefore, no annual review was conducted.
The compendium has been structured to reflect the way the Estimates of appropriations for 2019/20 were organised into 10 sector groupings.
Reports on the annual reviews of security agencies, conducted by the Intelligence and Security Committee, are included in the compendium for ease of reference (under the Finance and Government Administration Sector). Consideration of reports by the House The annual review reports are considered in the House during the committee stage of the Appropriation (2019/20 Confirmation and Validation) Bill. The debate also provides an opportunity for debate on the Government’s financial position.
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Finance sector annual reviews:
Financial Statements of the Government of New Zealand for the year ended 30 June 2020 2019/20 Annual review of Crown Asset Management Limited 2019/20 Annual review of the Government Superannuation Fund Authority 2019/20 Annual review of the Guardians of New Zealand Superannuation 2019/20 Annual review of the Inland Revenue Department 2019/20 Annual review of Kiwi Group Holdings Limited 2019/20 Annual review of New Zealand Green Investment Finance Limited 2019/20 Annual review of the New Zealand Infrastructure Commission 2019/20 Annual review of the New Zealand Productivity Commission 2019/20 Annual review of the Office of the Controller and Auditor-General 2019/20 Annual review of the Reserve Bank of New Zealand 2019/20 Annual review of the Treasury Briefing on the progress of Inland Revenue Department's Business Transformation programme Report of the Finance and Expenditure Committee
Fifty-third Parliament (Dr Duncan Webb, Chairperson) March 2021
Presented to the House of Representatives
Dr Duncan Webb Chairperson 14
FINANCE SECTOR ANNUAL REVIEWS
Contents Recommendation ...... 4 Finance sector overview ...... 5 About our consideration and the structure of this report ...... 5 The COVID-19 pandemic has greatly affected the finance sector ...... 5 Housing policy is a cross-government challenge ...... 6 Financial Statements of the Government for the year ended 30 June 2020 ...... 7 About the Financial Statements of the Government ...... 7 Fiscal overview ...... 7 The output gap brought on by COVID-19 necessitated a large fiscal response ...... 7 Debt levels have increased substantially ...... 8 Assessing the value for money of Government spending ...... 9 The Government chose fiscal policies that would help provide long-term confidence in the economy ...... 9 2019/20 Annual review of the Treasury ...... 11 About the Treasury ...... 11 The Treasury was one of the Government’s most important entities in the response to COVID-19 ...... 12 The Treasury has contributed to New Zealand’s strong employment figures ...... 14 Aspects of the economic response to COVID-19 have contributed towards housing unaffordability ...... 16 2019/20 Annual review of the Reserve Bank of New Zealand ...... 19 About the Reserve Bank of New Zealand ...... 19 COVID-19 and monetary policy ...... 21 Housing ...... 23 The Reserve Bank’s systems and the cyber breach ...... 26 The review of the Reserve Bank Act and the new five-year funding agreement ...... 26 Diversity and inclusion within the Reserve Bank ...... 27 2019/20 Annual review of the Inland Revenue Department and Briefing on the progress of the Inland Revenue Department's Business Transformation programme ...... 29 About Inland Revenue ...... 29 Briefing on the progress of the Inland Revenue Department's Business Transformation programme ...... 30 COVID-19 was an effective stress test of New Zealand’s revenue system ...... 30
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Inland Revenue is confident that it is able to ensure improved compliance with the bright- line test ...... 32 Business Transformation ...... 32 2019/20 Annual review of the Guardians of New Zealand Superannuation ...... 37 About the Guardians of New Zealand Superannuation ...... 37 The outbreak of COVID-19 had a significant effect on the Fund ...... 39 Elevate NZ Venture Fund ...... 39 Review of the reference portfolio ...... 39 Divesting from Israeli banks ...... 40 Approach to wellbeing and inequity ...... 41 Climate change is an investment risk ...... 41 Investment opportunities in New Zealand ...... 41 No asset allocation for digital currencies at present ...... 42 2019/20 Annual review of the New Zealand Infrastructure Commission ...... 43 About the Infrastructure Commission ...... 43 Addressing New Zealand’s infrastructure “deficit” ...... 43 The Infrastructure Commission and climate change ...... 45 2019/20 Annual review of Kiwi Group Holdings Limited ...... 46 About Kiwi Group Holdings Limited ...... 46 Assistance to customers following the outbreak of COVID-19 ...... 47 Closure of branches ...... 47 The use of cheques has been phased out ...... 47 Supporting social enterprise ...... 48 Customer growth and growth in lending ...... 48 Kiwi Wealth and responsible investment ...... 48 Other entities within the sector ...... 50 Crown Asset Management Limited ...... 50 Government Superannuation Fund Authority ...... 50 New Zealand Green Investment Finance Limited ...... 51 New Zealand Productivity Commission...... 51 Office of the Controller and Auditor-General ...... 52 Appendix ...... 53
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FINANCE SECTOR ANNUAL REVIEWS
Finance sector annual reviews
Recommendation The Finance and Expenditure Committee has conducted the annual review of the Financial Statements of the Government for the year ended 30 June 2020, and the 2019/20 annual reviews of the following entities: Crown Asset Management Limited Government Superannuation Fund Authority Guardians of New Zealand Superannuation Inland Revenue Department Kiwi Group Holdings Limited New Zealand Green Investment Finance Limited New Zealand Infrastructure Commission New Zealand Productivity Commission Office of the Controller and Auditor-General Reserve Bank of New Zealand The Treasury. The committee has concluded the Briefing on the progress of the Inland Revenue Department's Business Transformation programme. The committee recommends that the House take note of its report.
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FINANCE SECTOR ANNUAL REVIEWS
Finance sector overview
About our consideration and the structure of this report This year, we have decided to consider and report on the finance sector as a whole, rather than reporting separately on each entity. We held a hearing with the Minister of Finance, as well as meeting with individual agencies. The various sections of this report cover the main points from those hearings.
In the Review of Standing Orders 2020,1 the Standing Orders Committee encouraged select committees to make overall sector reports, as well as their more traditional reporting on individual agencies. It also encouraged committees to invite Ministers to a hearing, to give evidence about the results of appropriations in the sectors they oversee.
The hope is that, over time, this form of scrutiny and reporting will make it easier for committees to comment on themes relating to an entire sector. They may be able to report on findings across a group of agencies, and on the sector-wide outcomes being achieved for New Zealand.
The COVID-19 pandemic has greatly affected the finance sector The public finance sector has been heavily affected by the COVID-19 pandemic. All of the entities we heard from have in some way been affected by the pandemic, with many having to make significant adjustments in how they operate. We took the opportunity to discuss some of these changes with the relevant entities.
The extraordinary circumstances facing entities in the finance sector were largely a result of the ongoing economic fallout of the pandemic. On 19 March 2020, New Zealand shut its borders to all non-residents (with limited exceptions), shutting off nearly all income for industries reliant on international visitors. On 23 March 2020, New Zealand entered into alert level 4 lockdown, severely restricting New Zealand’s economic activity.
In the time since New Zealand’s lockdown was lifted on 13 May 2020, domestic economic conditions have returned somewhat to normal. Consumer spending levels made a strong recovery in the third quarter of 2020. However, industries such as tourism and international student education remain heavily constrained. Businesses remain highly uncertain. This uncertainty has affected business investment levels, which have remained low despite highly favourable interest rates and Government support for business lending. In addition, New Zealand’s trading partners suffered similar economic downturns, affecting New Zealand’s export earnings.
1 Standing Orders Committee, Review of Standing Orders 2020, (I.18A), July 2020, p. 43.
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FINANCE SECTOR ANNUAL REVIEWS
Housing policy is a cross-government challenge Housing policy was a key theme across many of our annual reviews. We believe that addressing New Zealand’s housing crisis will require an urgent and sustained effort by much of the public sector. On 23 March 2021, after our hearings with relevant entities, the Government announced a suite of significant new housing policies. The Government designed these policies with the intention that they will help manage the country’s current rampant house price growth. The Treasury, the Reserve Bank, and Inland Revenue were key advisors to the Government on these policies.
Because the policies were released after our hearing with these entities, they could not discuss specific details of their advice. However, we appreciated the opportunity to discuss wider housing policy with these organisations.
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FINANCE SECTOR ANNUAL REVIEWS
Financial Statements of the Government for the year ended 30 June 2020
About the Financial Statements of the Government We met with the Minister of Finance, Hon Grant Robertson, and the Secretary to the Treasury, Dr Caralee McLiesh, to discuss the Government’s financial statements for the year ended 30 June 2020, released on 24 November 2020.
The Financial Statements of the Government provide a consolidated view of the income, expenditure, assets, and liabilities of all government entities. The statements compare the results for the year ending 30 June 2020 against those for previous years, and the forecasts prepared by the Treasury in previous Budgets.
Fiscal overview The effect of COVID-19 is clearly shown in the Financial Statements of the Government for 2019/20. The Government’s operating balance before gains and losses (OBEGAL) was a $23.1 billion loss. This is a fall of $30.5 billion from 2018/19.
Core tax revenue was $85.1 billion, $1.4 billion lower than in 2018/19. Core Crown expenses were $108.8 billion, which is 35.3 percent of GDP. This is a substantial increase from 2018/19, when core Crown expenses were $86.9 billion, or 28.6 percent of GDP.
Net core Crown debt has reached $83.4 billion, or 27 percent of GDP. In 2018/19, net core Crown debt was $57.7 billion.
However, the financial statements also reveal how the economic downturn was less severe than what was forecasted in Budget 2020. The OBEGAL deficit was $5 billion less than what was forecast. Core Crown revenue was $3 billion higher than forecast. Net core Crown debt had been expected to reach 30 percent of GDP, in comparison to the 27 percent achieved.
The output gap brought on by COVID-19 necessitated a large fiscal response Government finances in 2019/20 were heavily affected by the COVID-19 pandemic. Restrictions on economic activity, ongoing uncertainty, and border closures have resulted in a substantial economic output gap. The difference between the actual output in the economy in the first half of 2020, and New Zealand’s maximum potential output is substantial. The output gap was reflected in an 11 percent contraction of GDP for the second quarter of 2020, a record for a single quarter.
The Treasury told us that its advice to the Government was that a swift and strong fiscal response was required: “We looked at the output gap…and it was simply enormous, so we advised the Government on establishing the COVID fund to help support the economy.” The
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FINANCE SECTOR ANNUAL REVIEWS
COVID-19 Response and Recovery Fund totalled $50 billion of fiscal support. Not all of this fund will likely be spent. However, the outlay represents the largest ever single fiscal outlay in New Zealand’s history.
Debt levels have increased substantially Budget deficits will reach a cumulative $83.1 billion over the period of 2020–25, according to Government forecasts. To fund the budget deficits, the Government will increase its borrowing programme. The Government has forecast that core Crown debt will reach 53 percent of GDP by 2023, up from 19 percent in 2019. We asked Minister of Finance how the Government was planning to reduce structural budget deficits, and minimise borrowing, in upcoming years.
The Minister told us that responsible fiscal management at this point in time requires the active use of fiscal policy to support economic recovery and employment. We heard that targeting large reductions in deficit levels would require the Government to embark on a programme of austerity.
The Minister also noted that, although debt targets are an important measure for any Government, they are also somewhat arbitrary. Whether debt is unsustainable depends on the wider context. Before the pandemic, the Government had achieved a target of reducing debt levels to 20 percent of GDP. He described that target as an important, if arbitrary measure, which helped the Government maintain debt at prudent levels. Since the pandemic, however, circumstances have changed what would be considered a prudent level of debt.
To help explain this, the Minister pointed to the Government’s debt servicing costs. The Government’s debt servicing costs, according to the Minister, are a (sometimes) better measure of fiscal prudence than total debt levels. Interest rates on Government lending, the biggest determinant of debt servicing costs, are at historically low levels. In 2020, despite the Government’s total debt increasing substantially, the Government’s debt servicing costs are similar to what they were in 2016.
National Party members disagreed with the Minister’s assertion that decreasing structural budget deficits is irresponsible. Those members are concerned that the Government’s projected fiscal spending in upcoming years indicates that the Government has permanently increased spending. National Party members believe that more sustainable levels of debt can be attained without the need for large cuts to important public services.
The Green Party, however, noted that the Minister described the rate of debt reduction as a political choice for the Government of the day. Given that the Minister also described debt level targets as arbitrary, the Green Party is disappointed that the Minister has not chosen to use the Government’s “fiscal headroom” to alleviate poverty. New Zealand’s sovereign international credit rating has recently been upgraded to AA+, and the interest rate on Government borrowing was already very low before the upgrade. The Green Party believes that increases in spending in areas such as poverty reduction, education, and health would benefit future generations more than reducing current debt levels would.
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FINANCE SECTOR ANNUAL REVIEWS
Assessing the value for money of Government spending During the pandemic, the Treasury was unable to provide the Government with its traditional cost–benefit advice on many of the Government’s fiscal policies. We wanted to know if the Government had been able to properly assess its COVID-19-related initiatives. Some of us are concerned that Government programmes may not have been subject to effective scrutiny. Some of us also wanted to know whether the economic costs and benefits of alternative strategies had been properly considered. Given the substantial outlay on the COVID-19 Response and Recovery Fund, it was important for the Government to have access to effective advice when it was responding to the pandemic.
The Minister responded that the Government was making decisions at a pace that did not allow those decisions to be subject to traditional cost–benefit analysis. Inevitably, he said, the Government was making decisions based off imperfect information. This, however, was a necessary trade-off to allow the Government to make decisions in the timeframes required.
We also heard that the Treasury was able to provide advice that assisted the Government with its COVID-19 policy: for example, the Treasury quantified the economic costs that came with various alert levels. This enabled the Government to “take the best information that was available to us at the time, in order to make the decisions that we made”. This resulted in strong employment figures.
The Government ensured it met its obligations under the Public Finance Act 1989—all the money spent by the Government in its COVID-19 response was properly appropriated. The Public Finance Act helps to ensure that Government fiscal policy is transparent. However, the Act does not assist with reporting back on various initiatives. We heard from the Minister that he wanted to modernise the public finance system. The Minister explained that he is working with the Auditor-General on making systemic changes to the public finance system. His intention is to make government entities more effective at providing real-time analysis of decisions in an emergency.
We asked about how well-being was being measured. The Minister told us an example was the clustering of appropriations to assess the impact. Some of us are concerned that there is not a rigorous well-being measurement framework in place.
We also heard from the Minister that the Government is now retrospectively assessing various initiatives. It has asked Ministers and ministries whether their initiatives were successful in achieving what they were designed for. The Government is doing this as a part of the process for Budget 2021.
The Government chose fiscal policies that would help provide long-term confidence in the economy The Government has chosen not to provide fiscal stimulus directly to New Zealanders, through schemes known as “helicopter payments”. Helicopter payment schemes are designed to stimulate the economy by providing New Zealanders with direct payments, with the intention that this will boost consumer spending across the economy. We asked the Minister why the Government’s fiscal policy did not make use of helicopter payments.
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FINANCE SECTOR ANNUAL REVIEWS
The Minister told us that the Government considered a range of options for how to best deliver that fiscal support. The Government’s fiscal response was designed to provide long- term confidence in the economy. The Minister told us he was reluctant to provide economic stimulus through helicopter payments. The Minister believes that helicopter payment schemes can be effective at providing a short-term boost to consumer spending. However, he believes that it is more effective to support the economy by providing people with long- term confidence.
For example, people who are confident that they will continue in a job are likely to spend at a level similar to what they did before the pandemic. Someone who has been given a one-off payment, but is uncertain about their own long-term financial position, would be reluctant to use that payment in a way that provides effective economic stimulus. Instead, that person may decide to save the funds for a “rainy day” that never comes.
The Minister differentiated New Zealand’s position from that of other countries which decided to implement helicopter payment schemes. The countries that used helicopter payments did so because they were facing different economic imperatives than New Zealand, with the prospect of significantly shaper downturns and job losses.
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FINANCE SECTOR ANNUAL REVIEWS
2019/20 Annual review of the Treasury
About the Treasury The Treasury is the Government’s lead economic and financial advisor. This advice covers New Zealand’s economy, the Government’s fiscal strategy, and recommendations for ensuring the effective financial management of the Crown’s assets and liabilities.
The Treasury is also responsible for publishing economic and fiscal forecasts and the financial statements of the Government.
In 2019/20 the Treasury led work across government on the economic response to COVID- 19. Among other things, this work included a last-minute “recasting” of Budget 2020, to accommodate the substantial fiscal outlay necessitated by the economic consequences of COVID-19.
Governance and accountability arrangements The Treasury is led by Dr Caralee McLiesh, who is the chief executive and the Secretary to the Treasury. Dr McLiesh has been in the role since September 2019. She is supported in the executive leadership team by five deputy secretaries. The Treasury has several subject-matter committees to provide oversight of its decision- making:
the Risk and Audit Committee the Financial Statements of Government Committee the Capital Markets Advisory Committee. Committee members are chosen to provide a range of perspectives and expertise, and are appointed by the Secretary. The Treasury is accountable to the Minister of Finance.
Financial performance The Treasury received total revenue of $112.92 million in 2019/20. Of this, nearly $100 million came from the Crown, while most of the balance in “Other Revenue” came from cost recoveries from other agencies for shared services. Expenditure over the period was $110.14 million, leaving a surplus of $2.78 million.
By comparison, the Treasury’s total revenue for the 2019/20 financial year was $114.2 million, and its total expenditure was $102.1 million.
Audit results The Auditor-General rated the Treasury’s financial information and supporting systems and controls, and its performance information and supporting systems and controls, as “good”. These performance measures have been rated “good” for the previous four years.
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FINANCE SECTOR ANNUAL REVIEWS
We were disappointed to note that the Auditor-General rated the Treasury’s management control environment as “needs improvement”. The Treasury, through its internal audit function, identified serious weaknesses in the Treasury’s procurement practices. According to the Auditor-General, the Treasury has appropriate procurement policies, but the audit identified that those policies were not being followed by senior management.
Specifically, the Auditor-General identified that the internal audit testing showed that:
some contracts over $100,000 did not go through a tender process there were incomplete conflict-of-interest declarations contracts were not being subject to appropriate legal review procurement plans were incomplete. Because the Treasury uses outsourced providers for a significant part of its activities, procurement is a particularly important area. We asked the Secretary whether the integrity of any public expenditure has been compromised by the lack of good procurement practices. The Secretary stated that she accepts the problems identified in the audit. We heard that the Auditor-General has conducted an external audit of the Treasury’s procurement practices, which reached similar conclusions to those in the Treasury’s internal audit. The internal audit made 23 recommendations, and the senior leadership team of the Treasury has accepted all of them. Of those 23 recommendations, 17 have already been implemented. The Secretary explained to us that the audit identified problems in the Treasury’s documentation processes and systems. The Treasury has now implemented a central register of declarations of interest. It has not found any conflicts of interests after it retrospectively examined previous procurements for conflicts. We were pleased to hear that the Treasury did not compromise value for money with any of its procurement. However, we were surprised that it had not already implemented a central contracts register.
The Treasury was one of the Government’s most important entities in the response to COVID-19 The Treasury, as the Government’s lead economic advisor, had a key role in contributing to the response to the COVID-19 pandemic. The Secretary described 2019/20 as a “very intense year that was defined by the pandemic”. We heard that 80 percent of the Treasury’s staff worked on the response to COVID-19.
The Secretary listed what she considered were the Treasury’s three most important achievements during 2019/20:
It produced Budget 2020 to schedule, along with several annual economic and fiscal updates. The Treasury also provided advice on several iterations of the COVID-19 Response and Recovery Fund. In contrast, we heard that the governments of many countries postponed their annual budgets.
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The Treasury provided advice to the Government on economic support programmes, such as the Wage Subsidy Scheme, which helped keep businesses afloat and employees in their jobs. The Treasury managed the largest borrowing programme ever undertaken by the Government. We appreciate the work that the Treasury has done to help New Zealand’s economic recovery. Economic forecasts released during New Zealand’s initial lockdown expected that the pandemic would have a much larger negative effect on both GDP and unemployment.2 Although New Zealand’s economic outlook is uncertain, New Zealand has performed better on several key headline economic indicators than most other OECD countries.
The Government did not have access to the Treasury’s traditional analysis on its COVD-19 policies We asked the Secretary whether the Treasury had advised the Government on the costs and benefits of locking down the economy in order to eliminate the virus.3 We wanted to know whether the Treasury had provided advice on alternative approaches to managing the pandemic. Some of us noted that other countries, such as Taiwan, have also been successful in mitigating the public health effects of the virus. Those countries have done so without the use of lockdowns. Instead they have relied on technologies, such as the electronic monitoring of returnees, or Bluetooth tracking to facilitate their public health response.
Some of us noted that, because of the lack of traditional advice, many people felt there were no other choices available to the Government than the approach that it took. Without the public being able to consider alternative policy approaches, it became difficult to be critical of the Government’s management of the pandemic.
The Secretary told us that it was impossible to provide the Government with traditional advice on the opportunity costs and benefits of different approaches. In normal circumstances, the Treasury would advise the Government on a set of options, all of which would have quantifiable costs and benefits.
With the timeframe available to the Treasury, and the extreme uncertainty regarding the nature of the risks, the Treasury could not follow its normal approach in formulating advice. We heard that the Treasury could quantify the economic costs of various alert levels. However, it was impossible for the Treasury to quantify the benefits of those alert levels, or the risks to public health if the lockdowns were not successful in eliminating COVID-19. For example, when the Government developed its lockdown strategy, the Ministry of Health could not provide the Treasury with accurate information on basic things such as the virus’s reproduction rate or mortality rate.
2 For more information on economic forecasts released during this period, refer to the report of the Finance and Expenditure Committee of the 52nd Parliament, “Briefing on the Treasury's economic modelling on the impact of COVID-19”. 3 The World Health Organization describes elimination as “the reduction to zero or to a very low defined target rate of new cases in a defined geographical area”.
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We heard that the Treasury did advise the Government that, in its view, the risks of an uncontrolled outbreak far exceeded the cost of the lockdown. The Treasury based this advice on an assessment of the health risks. This assessment was reached after considering the epidemiological knowledge at the time, which was provided by the Ministry of Health.
Some of us expressed disappointment that the Treasury was not more proactive in making this advice publicly available. The Secretary responded that the Treasury could supply information through Official Information Act requests. It is also releasing a blog, which describes how the Treasury reached the conclusions provided in its advice.
The Treasury has contributed to New Zealand’s strong employment figures The Wage Subsidy Scheme was one of the largest fiscal programmes ever undertaken by a New Zealand Government. Many commentators have attributed New Zealand’s relatively strong employment figures to the scheme’s success. At its peak, the scheme was supporting the incomes of 1.7 million New Zealanders, which is almost two-thirds of the workforce. The Wage subsidy scheme had paid out $12.7 billion by 30 June 2020.
The Treasury was the key advisor to the Government on the design and implementation of the Wage Subsidy Scheme.
New Zealand’s labour market has been more resilient than the Treasury had expected The unemployment rate reached a peak of 5.3 percent in 2020, up from 4.2 percent immediately before the pandemic. It is currently 4.9 percent. By comparison, the Treasury’s most optimistic scenario in its economic modelling released in April 2020 envisioned unemployment reaching 8.5 percent in 2020, before falling to 5.5 percent in 2021.
New Zealand’s employment figures are especially favourable in comparison to its international partners. Total unemployment in the OECD reached a peak of 8.8 percent in 2020, and is currently 6.9 percent. Australia, which also had a successful public health response to COVID-19, had an unemployment rate that peaked at 7.5 percent in 2020. Currently, Australia’s unemployment rate is 6.9 percent.4
The Secretary admitted to us that the Treasury did not anticipate this level of strength in the labour market. Unexpectedly strong growth in sectors such as construction, education, and health has offset job losses in heavily affected sectors, such as tourism.
The Secretary acknowledged the shortcomings in its economic modelling. At the time these economic models were made, severe economic uncertainty prevented any hopes of accurate forecasting. However, to improve its modelling of the labour market, the Treasury has committed to increasing its understanding of the fundamental features of employment in
4 Australia’s unemployment rate immediately prior to the pandemic was higher than New Zealand’s (5.2 percent compared to 4 percent). Therefore, it reached its peak from a higher base. Australia’s underutilisation rate is also lower than New Zealand’s (8.1 percent compared to 11.9 percent). 14 27
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New Zealand. The Treasury hopes to improve the data it uses in its economic modelling, and will engage with businesses to do this.
Does the latest employment data reflect the true state of unemployment in New Zealand? We asked the Secretary whether the positive employment numbers could be misleading. The employment data may not reflect the true state of unemployment in the economy. Other factors could make the numbers look artificially strong. For example, the economic consequences of COVID-19 may have led to more people who have abandoned looking for a job. More people may also be retiring earlier than they would otherwise, because finding a new job in this economy is too difficult. These groups are not counted as “unemployed” in the official employment statistics.
The Secretary explained that the recent employment figures showed widespread improvement across multiple labour indicators. Statistics New Zealand released the employment numbers the week before our meeting with the Treasury. The numbers were previously updated in December.
The data released showed that, in addition to the headline figure of 4.9 percent unemployment, overall employment grew by 17,000 people. The rate of workforce participation was up marginally to 70.2 percent. The numbers of hours worked increased substantially, and the underutilisation rate dropped to 11.9 percent. The employment data that was recently released is still not as strong as it was before the pandemic. However, the data does show widespread improvement, which has also had a positive effect on GDP.
Despite the improvement in the employment figures, some groups have been disproportionately affected by higher rates of unemployment. For example, youth unemployment has risen substantially in comparison to the general population. In addition, women and some ethnicities (such as Pacific people) have had larger increases in their rates of unemployment. However, the Secretary pointed out that the distributional effects of the pandemic on employment have been less severe than in other economic downturns.
The success of the Wage Subsidy Scheme has been attributed to its high-trust, high-speed model The Secretary attributed the success of the Wage Subsidy Scheme to the speed with which it delivered payments to businesses. The Secretary told us that the scheme was delivering funds to businesses within a matter of days. We heard that the Treasury’s advice was to “keep it simple, and make it quick”. The aim of the scheme was to ensure that businesses remained attached to their staff during lockdowns, when the market could not adjust to the changed economic situation.
When it was developing the Wage Subsidy Scheme, we heard, there was a known risk that many businesses which might not need the funding would still receive support. The Secretary told us that “on balance, our assessment was that the risk was worth taking”. We heard that the alternative to this fiscal risk was chilling—there could have been very high levels of business failures, causing mass unemployment and extensive economic scarring.
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The Treasury assessed the schemes developed by other countries. Specifically, the Treasury looked at the schemes developed by Germany, Australia, and the United Kingdom. Often those schemes were more sophisticated than the Wage Subsidy Scheme, but they also took more time to deliver support to businesses. We heard that the schemes employed by those countries would often take months to deliver money to the businesses that needed it. The Secretary explained to us that delaying support to businesses would have created substantial risk. If businesses had to wait months before receiving support, or if the outcome of their application was uncertain, that would have caused substantial uncertainty. We heard that, faced with this uncertainty, businesses would have then made decisions around staff and operations accordingly.
The Treasury told us that a successful feature of the scheme was its transparency. We heard that it would be impossible, under the timeframes available, to audit every recipient of a wage subsidy. However, the details are published to show all businesses that receive support through the scheme. We heard that transparency about who is receiving support payments has reduced the probability of fraud. Businesses want to avoid reputational damage, and so are discouraged from fraudulently taking advantage of the scheme. The Treasury noted that there was some auditing of businesses throughout the Wage Subsidy Scheme.
Businesses could expect support in the event of a resurgence of COVID-19 Shortly after our meeting with the Treasury, Auckland went into an alert level 3 lockdown, while the rest of the country went into alert level 2. During our discussion, we asked the Treasury what support would be available for businesses in the event of the COVID-19 resurgence in the community, and the return of lockdown restrictions.
The Treasury told us that it is important to provide businesses with certainty about the level of support they would receive in the event of a resurgence. It said that in the event of a resurgence, the Wage Subsidy Scheme would again apply to qualifying businesses. Businesses would receive a one-off resurgence payment of $1,500 at alert level 2, and then $400 per employee up to $21,000 per firm. The Government has also recently announced the COVID-19 Short-Term Absence Payment scheme. This scheme would help businesses continue to pay employees who cannot work because they are isolating.
The Treasury told us that these support measures deliberately favour smaller businesses, which tend to be disproportionately affected by alert-level changes.
Aspects of the economic response to COVID-19 have contributed towards housing unaffordability The Treasury is currently formulating advice to Government about how to improve housing affordability for New Zealanders, particularly first home buyers. Since the second half of 2020, house prices have risen at extreme levels—by as much as 22 percent over the course of a year.
In the initial stages of the pandemic, when the economy was under severe restrictions in alert level 4 lockdown, the Reserve Bank began implementing unconventional monetary
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policy. This monetary policy has helped lower interest rates on bank lending, including on household mortgages. This has helped the Reserve Bank with its goals of supporting maximum sustainable employment and managing inflation levels.
However, there have been trade-offs. We accept that the Reserve Bank’s monetary policy has contributed towards growing housing unaffordability for many New Zealanders, particularly for first home buyers. The unconventional monetary policy has been successful in that it has provided stimulus to a slowing economy. However, we are concerned that these measures have contributed towards growing wealth inequality.
The Secretary admitted that lower interest rates have been one of the most significant factors leading to higher house prices. However, we also heard that “the overall impacts [of the unconventional monetary policy] on wealth inequality are quite complex and difficult to unpack”. We heard from the Secretary that the monetary and fiscal measures taken by the Government have been “absolutely essential in supporting the economy”. The Secretary stated that, without the economy being supported by both monetary and fiscal policy, there could have been a severe economic contraction. We heard that this would have led to widespread unemployment, with GDP growth remaining very low for a long time. That would have led to deep economic scarring, with many workers facing the prospect of long-term unemployment.
How to achieve “sustained moderation” in house price growth The Government’s stated goal for its housing policy is to support “sustained moderation” in house price growth. We asked the Secretary about the advice the Treasury is preparing for the Government in support of this goal. We were especially interested in whether the Treasury’s advice would focus on measures that would increase the supply of housing, or whether it would focus on measures that would hamper the demand for housing.
Some of us noted that the Reserve Bank, drawing conclusions from previous Government research, has stated that housing supply is the most significant determinant of house prices. This research indicates that, without sufficient supply, reducing the demand for housing would only be a short-term solution to escalating house price growth.
We heard from the Secretary that the Minister of Finance has asked for the advice to focus on demand-side measures. The Secretary stated that the lowering of interest rates, fuelled by monetary policy since the beginning of the pandemic, has contributed to speculator activity in the housing market. And we heard that both the Treasury and the Reserve Bank believe that speculative activity by investors is a significant driver of the recent growth in house prices.
We also heard that tax settings are a significant factor contributing to growth in the housing market.
However, the Secretary told us that housing is a very complex area of policy, and that “sustained effort on both the supply and demand side” is necessary to address the housing crisis. She listed various measures that could contribute towards improving the supply of housing in New Zealand, such as:
incentivising councils to help grow their cities
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long-term spatial planning which would support high-density housing integrated infrastructure planning and removing obstacles to infrastructure financing removing land use restrictions lowering housing construction costs, which are comparatively high in New Zealand. We heard that the most recent National Policy Statement on Urban Development, and the planned reforms to the Resource Management Act 1991, are two examples of Government policy that would help to improve the supply of housing.
At the time of the review, we were looking forward to the Government releasing more details on its policies to address housing affordability. Those policies have now been released. Some of us, however, remain disappointed in the apparent lack of urgency from the Government in regards to developing and delivering on its housing policies.
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2019/20 Annual review of the Reserve Bank of New Zealand
About the Reserve Bank of New Zealand The Reserve Bank of New Zealand is the nation’s central bank. The Reserve Bank is not a government department, but is a body corporate whose finances are included in the Crown accounts. Its functions and duties are described in the Reserve Bank of New Zealand Act 1989, and it exercises its powers across the financial sector. The Reserve Bank acts as a “full service” central bank: it is responsible both for setting monetary policy and for regulating the financial sector. The Bank carries out the following main functions:
formulating monetary policy promoting a sound and efficient financial system maintaining the supply and integrity of New Zealand’s currency transacting with, monitoring, and liaising with financial markets to manage aggregate liquidity in the New Zealand banking system overseeing and operating settlement services. In June 2020 the Reserve Bank concluded a new funding agreement for 2020–25. The agreement provides the Reserve Bank with a substantial increase of funding. The Reserve Bank has stated that the increase in funding will enable it to address critical risks to the Bank, as well as risks to the financial system. The Government has undertaken a review of the Reserve Bank Act, with the intention to “create a modern monetary and financial policy framework”. The Government is currently implementing phase two of its review of the Reserve Bank Act, and has referred the Reserve Bank of New Zealand Bill to us. Phase two is a wide-ranging review of the financial policy provisions of the Reserve Bank Act. The bill will address the Reserve Bank’s financial stability role, with implications for the level of funding available to it.
Phase one of the review resulted in the passage of the Reserve Bank of New Zealand (Monetary Policy) Amendment Act 2018. This Act requires the Reserve Bank to consider maintaining maximum sustainable employment when formulating monetary policy. Traditionally, the Reserve Bank’s primary function under that Act has been to achieve and maintain stability in the general level of prices.
Governance and accountability arrangements The Reserve Bank has a board of directors which operates as an advisory board, bringing an independent, external viewpoint to the work of the Bank, and provides guidance to the Governor. The board also provides oversight of the performance of the Bank, the Governor, the Deputy Governor, and the Monetary Policy Committee (MPC). The board chair is Professor Neil Quigley.
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The Reserve Bank exercises its authority through the Governor of the Reserve Bank. The current Governor is Adrian Orr, who was appointed by the Minister of Finance, on the recommendation of the Board, for a five-year term in March 2018. The Governor leads the Reserve Bank’s seven-member senior leadership team.
The Reserve Bank’s MPC has been responsible for formulating monetary policy since April 2019. The MPC currently has seven members: four Reserve Bank staff including the Governor and Deputy Governor, and three external members, all appointed by the Minister of Finance on the recommendation of the Board.
The Reserve Bank acts independently from the rest of government when it formulates and implements monetary policy. Its autonomy is granted by its governing legislation, the Reserve Bank Act. Alongside its governing legislation, the Reserve Bank is subject to:
the Policy Targets Agreement, a written contract between the Minister of Finance and the Governor detailing the monetary policy outcomes that the Reserve Bank is required to achieve the Reserve Bank Funding Agreement, a five-yearly agreement between the Governor and the Minister of Finance that specifies how much of the Reserve Bank’s income can be retained to meet its operating costs the Memorandum of Understanding with the Minister of Finance setting out the Reserve Bank’s macro-prudential responsibilities. The Reserve Bank also receives an annual letter from the Minister of Finance which sets out the Minister’s broad expectations of its relationship with the Reserve Bank and areas of particular interest for the year.
Financial performance The Reserve Bank receives no direct government funding. It earns income from its investments, which are funded by the issue of currency and from equity. The Funding Agreement with the Minister of Finance sets the maximum amount of the Reserve Bank’s income that may be used to meet operating expenses in each financial year. Funding agreements are for five-year terms, and the most recent term expired during 2020. The Bank’s cumulative net operating expenses for the full five years of the 2015–20 agreement were $326.7 million, against a budgeted $324.3 million.
The Reserve Bank recorded a surplus of $371 million in 2019/20, compared with $243 million in the previous year. However, the Reserve Bank has stated that it will not be paying a dividend to the Crown for 2019/20. The surplus will instead be used to increase the Reserve Bank’s capital buffers, and to provide additional financial flexibility.
The Reserve Bank’s operating expenses in 2019/20 totalled $105 million. This was $19.1 million higher than in 2018/19. A key reason for this increase was the Bank’s higher staffing costs, which are $9.4 million higher than 2018/19. The Bank has increased its staff by an additional 75 full-time-equivalent positions in 2019/20. This will enable the Bank to increase its supervisory capability.
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The Reserve Bank held $56.1 billion of assets as at 30 June 2020, an increase of $29.4 billion from 2018/19. Of the increase in the Bank’s assets, $22 billion was used to fund the Bank’s Large-Scale Asset Purchase Programme (LSAP). The LSAP is a bond-buying programme implemented by the Reserve Bank to provide monetary stimulus in response to the economic fallout of the COVID-19 pandemic. The Bank pays for the bonds by creating new central bank reserves that increase the bond-seller’s deposit at the Reserve Bank. It does not receive government funding to conduct the LSAP programme. However, the financial risks of the LSAP programme have been indemnified by the Crown
Audit results The Auditor-General issued a standard audit report on the Reserve Bank. It assessed the Reserve Bank’s management control environment, and its financial information systems and controls as “very good”, with no recommendations for improvement.
COVID-19 and monetary policy The economic fallout of the COVID-19 pandemic required the Reserve Bank to inject substantial monetary stimulus into the economy. In March 2020 the MPC cut the OCR (official cash rate) by 75 basis points, from 1 to 0.25 percent, which is a record low for the OCR. The MPC committed to keeping the OCR at 0.25 for at least 12 months.
In addition to cutting the OCR, the MPC also utilised “alternative” monetary policy tools. Those tools have been the Large Scale Asset Purchase (LSAP) programme, and the Funding for Lending Programme (FLP).
Under the LSAP programme, the Reserve Bank purchases New Zealand Government- issued bonds, as well as local government funding agency bonds, on the secondary market. The LSAP has two important operational constraints. It has a cap of $100 billion of New Zealand Government bonds. In addition, the Bank has committed to not owning more than 60 percent of the Government bonds that are on the market. Outside of these constraints, the Reserve Bank stated to us that it will do “whatever it takes” to achieve its desired effect on interest rates. The monetary stimulus will be achieved by:
lowering the yields of New Zealand Government bonds, which are benchmark rates for other domestic rates, by reducing the supply available to investors lowering other domestic yields, as investors who sell their bonds to the Reserve Bank are likely to rebalance their portfolios into other domestic assets depreciating the New Zealand dollar as investors rebalance into overseas assets. Meanwhile the FLP involves the Reserve Bank providing qualifying banks with long-term funding at a low cost, secured against high-quality collateral. The programme aims to promote lending to businesses and households by lowering interest rates, thus increasing investment and consumption, and supporting the Reserve Bank’s inflation and employment objectives. Retail banks can borrow for a term of three years at a floating rate matching the OCR. Although the FLP looks similar to a liquidity policy, it is not directed at ensuring that capital remains available for lending, since lenders in New Zealand do not face liquidity issues.
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In March 2020 the Reserve Bank stated that its preference was to deliver monetary stimulus through alternative tools, such as LSAPs and the FLP, instead of further cuts to the OCR. This was for two reasons. First, the Reserve Bank believed that the use of tools such as the LSAP programme and the FLP was the most effective and most efficient way of lowering retail interest rates. According to the Reserve Bank, international experience shows that cuts to the OCR beyond a rate of negative 0.5 or 0.75 percent would not be effective at providing monetary stimulus. Second, some of New Zealand’s retail banks were not operationally ready to manage the practicalities of negative interest rates. The Governor has recently confirmed that all of the banks have made the necessary adjustments, and now would be able to operate with negative interest rates.
Alternative monetary policy tools have supported New Zealand’s economic recovery The Reserve Bank’s monetary policy has lowered retail interest rates. This has encouraged lending growth, which in turn has supported higher levels of spending and investment in the economy. By the end of the 2020 calendar year: inflation had reached 1.4 percent unemployment had fallen to 4.9 percent annual GDP growth had contracted by 2.9 percent (New Zealand’s GDP rebounded 13.9 percent in the 3rd quarter of 2020, after contracting 11 percent in the previous quarter). However, the Reserve Bank’s annual report warns that the New Zealand economy is still operating well below capacity. General economic conditions remain weak, as losses of income in directly affected sectors, such as tourism, flow into a decline in overall demand. Because of this economic uncertainty, and the potential for worsening economic conditions, the Reserve Bank stated to us that it remains committed to pursuing monetary stimulus for the foreseeable future.
Other work the Reserve Bank did to support the economic recovery In addition to implementing monetary policy, the Reserve Bank has also supported the economic recovery by:
removing loan-to-value ratio (LVR) restrictions for residential lending for 12 months (this is discussed in more detail below) deferring the implementation of planned increases to the new capital requirements, allowing the banks to lend an additional $47 billion5
5 In December 2019 the Reserve Bank announced that the banking sector will be required to significantly increase the amount of capital individual banks hold. The new requirements may lead to slightly increased lending costs and a reduction in capital available to the market through lending.
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working with the banks to encourage the widespread uptake of mortgage deferral arrangements relaxing core funding requirements for banks from 75 percent to 50 percent. An important component of the economic recovery has been ensuring that credit continues to flow to parts of the economy that need it the most. The Government has enacted two policies to help with this: the Business Finance Guarantee Scheme and the Small Business Cashflow (Loan) Scheme. Both of these schemes provide the banks with Government- funded security on loans. The Reserve Bank has a role to monitor the money that is lent through these schemes.
The Business Finance Guarantee Scheme had a very slow initial uptake. Firms were extremely reluctant to invest owing to significant economic uncertainty. However, the Governor told us that, as economic conditions have improved, businesses are more willing to invest. We heard that the scheme is now playing a more important role in supporting business recovery.
The Small Business Cashflow (Loan) Scheme has been more successful, and by the time of our hearing had paid out $1.7 billion to approximately 103,000 businesses. Many New Zealand small businesses are struggling, with ongoing COVID-19 restrictions reducing several revenue streams. Those businesses may be able to benefit from quick and relatively easy access to capital.
However, despite the implementation of these two schemes, we are disappointed to note that overall levels of business investment have remained low. Because the loans given out through these scheme have very low rates, if not a 0 percent rate of interest, National Party members are concerned that businesses may be using these loans as a “rainy day” fund, or otherwise use them to pay back other debt. We noted that the Reserve Bank is unsure of the extent to which the money lent out under the scheme has actually been invested in ways that directly support the productive economy.
Housing The Governor told us that the Reserve Bank has observed positive signs of a genuine economic recovery. He attributes some of this economic growth to the strength of the housing market. House price growth was at extreme levels in the second half of 2020, with the average rate of growth across New Zealand reaching 21 percent. Growing house prices create a “wealth effect”: home owners and property investors “feel” wealthier when the value of their asset increases, and so are more likely to go out and spend.
We accept that monetary policy has, at least partly, contributed towards the growth in house prices. The Reserve Bank’s monetary policy has resulted in a large increase of lending to the residential mortgage sector. Lower interest rates have made mortgages cheaper and more accessible for homebuyers, contributing to stronger demand.
This has had distributional effects. The Reserve Bank’s monetary policy has made mortgages cheaper—but with the trade-off of making it more difficult for people who are wanting to buy their first home. We are also concerned that there has been little or no corresponding increase of lending to businesses or the agriculture sector. Higher levels of
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FINANCE SECTOR ANNUAL REVIEWS lending on residential mortgages for existing housing can stimulate the economy indirectly. However, it does little to increase New Zealand’s productive capacity or economic output.
The Governor told us that when interest rates are lowered, asset prices will nearly always increase. That is an international phenomenon—the Governor told us he could not think of another country where this effect on asset prices has not occurred. In fact, he went on to say that raising asset prices is actually a key part of monetary policy.
New Zealand is particularly vulnerable to house price growth However, low interest rates have had an exaggerated effect on New Zealand house prices. The Governor attributes this to underlying structural issues that affect the price of houses in New Zealand. In New Zealand the “vast bulk” of investment wealth goes into housing. Therefore, when interest rates are lowered, house prices will grow at a rate that is disproportionate to other assets. The Governor stated that monetary policy would never be able to solve the issues that have led to this over-reliance on residential property. And the Governor stressed to us that the MPC’s paramount intention when setting monetary policy will always be to keep consumer price index inflation between 1 and 3 percent.6
Instead, the Governor told us it is the responsibility of the Government of the day, and not the MPC, to implement overarching economic policies which improve housing affordability:
There are a lot of things the Government can consider in a broader sense, and should consider in a broader sense, to support a housing market that’s got supply and demand dimensions to it.
The Governor told us that the Reserve Bank’s role will mostly be limited to influencing demand-side behaviour around housing.
The Reserve Bank is, however, currently advising the Government on housing policy. The Governor spoke of the need to address housing affordability issues holistically. The Reserve Bank’s advice will include advice on what can be done to increase the supply of housing— such as improving access to suitable land, decreasing construction and regulatory costs, and increasing the quantity of residential buildings.
Macro-prudential tools can help mitigate risks posed by unsustainable house price growth The Reserve Bank has re-introduced LVR restrictions as a means to stem excessive lending in the residential mortgage sector, particularly lending to property investors. The LVR rules restrict bank lending to both owner-occupiers and investors without large deposits. Most owner-occupiers now need a deposit of at least 20 percent, whilst most investors need a deposit of at least 30 percent (this will increase to 40 percent for investors from 1 May 2021).
LVR restrictions are a financial stability tool. They are not designed to limit house price growth specifically, but instead they are designed to limit the risks to financial stability. The
6 On 25 February, after our hearing with the Governor, the Minister of Finance formally directed the MPC to “have regard to Government policy on housing when setting monetary policy”. However, the MPC’s remit targets of inflation and employment continue unchanged. We do not expect that monetary policy formulation will be greatly affected by this directive. 24 37
FINANCE SECTOR ANNUAL REVIEWS concentration of debt in a single asset leaves the New Zealand economy vulnerable to the behaviour of that asset. LVRs lower this risk by limiting the exposure of banks to people who have excessively leveraged and have taken on too much debt. Because the Reserve Bank thinks that the investor market is more prone to risky, speculative behaviour, it has imposed greater restrictions on property investors than owner-occupiers.
Should the Reserve Bank have removed LVR restrictions in March 2020? LVR restrictions were removed in March 2020. Given the state of the housing market in early 2021, we asked the Reserve Bank if LVR restrictions should have been lifted. In response, the Reserve Bank described LVRs as cyclical tools: “you tighten them when things are going too fast, and you need to lean against excessive credit growth, and you remove them where there is little credit growth”. During the early stages of the pandemic, the Reserve Bank expected that rising unemployment and economic uncertainty would depress residential lending levels. The Treasury, as well as many commentators (including the banks) were expecting house prices to fall by as much as 15 percent. A lack of residential lending factored into this. We heard that removing LVR restrictions in March 2020 was considered necessary for the Reserve Bank to encourage lending to the residential mortgage sector, in order to help it achieve its monetary policy targets.
The Reserve Bank has requested the use of a debt-to-income ratio tool The 2013 memorandum of understanding provides operating guidelines for the Reserve Bank when it is considering the use of macro-prudential policy. We asked the Reserve Bank whether the 2013 memorandum of understanding should to be updated in order to address the housing crisis. We suggested that a new memorandum of understanding should enable the Reserve Bank to be more effective at targeting property investors and speculative investing, whilst not unduly restricting first home buyers.
The Reserve Bank has asked the Minister of Finance for the ability to implement a debt-to- income ratio (DTI) tool. Loans that are subject to a DTI ratio would be capped at a certain size, relative to the income of the borrower. The Reserve Bank explained to us that the use of tools such as a DTI would enable the Bank to better target specific lending risks, particularly in the residential lending sector. Property investors who own multiple properties are often able to use the equity in those properties to gain funds for a deposit. A DTI tool could be particularly effective at targeting those property investors, who might otherwise not be restricted by an LVR.
However, the Reserve Bank warned us that a DTI tool would not be a “silver bullet”. Like other macro-prudential tools, a DTI ratio is a blunt tool. The Governor stated that it could actually make it more difficult for people trying to buy their first home.
We also heard that the Reserve Bank has previously requested from successive Governments the power to implement a DTI ratio. However, a DTI ratio tool is difficult to design in way that minimises the downsides. We heard that setting guidelines for a DTI ratio tool would require the Government to make some difficult decisions. For example, due to the relative levels of house prices, a DTI could severely restrict lending in a market such as Auckland, whilst providing little restriction on lending in Christchurch. However, the Governor
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The Reserve Bank’s systems and the cyber breach The Reserve Bank recently reported a security breach of a third-party file sharing software application that the Bank uses to share and store sensitive information. The system is Accellion FTA, and we heard that the Bank has been using this system for 20 years.
A forensic investigation is under way, and the Reserve Bank has also appointed KPMG to undertake a comprehensive, independent review. The Governor acknowledged to us that there were shortcomings in the Bank’s response once its own alert systems notified it of the breach.
The Governor provided for us a timeline of events. The company that owns the system, also called Accellion, was aware of the breach on 17 December 2020. Accellion released a patch to remedy the breach on the same day. However, we heard that Accellion did not make the Reserve Bank aware of the breach, nor did they provide it with the patch, until 7 January. Accellion provided the patch to some but not all of its customers on 17 December. On 20 December Accellion released the patch to more customers, but this did not include the Reserve Bank.
Accellion has provided a substantially different version of events. In a press release, it claimed that it was made aware of the breach in mid-December, and released a patch within “72 hours to the less than 50 customers affected”.
We look forward to both the completion of the forensic investigation, and to the release of the KPMG report.
The risk from the breach to the Reserve Bank and relevant third parties The Governor told us that the Reserve Bank has taken the breach extremely seriously. It has compiled experts from both the public and private sectors, including international cyber forensic and security experts, to provide it with advice. The Bank now has a good understanding of the nature and scale of the breach.
We were pleased to hear that it was only a “very small” subset of data which was actually illegally downloaded. However, this data includes a range of high, medium, and low sensitivity information. We heard that the Reserve Bank is actively working with the affected parties in order to minimise the risks of the breach. The Governor described this work as “meticulous”, and we heard that the Bank wants to avoid making any operational mistakes that would make the situation worse.
The review of the Reserve Bank Act and the new five-year funding agreement Phase two of the Government’s review into the Reserve Bank Act has resulted in the introduction of the Reserve Bank of New Zealand Bill, which is before the committee. The bill will update the process by which the Reserve Bank and the Minister of Finance agree to new
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FINANCE SECTOR ANNUAL REVIEWS funding agreements, with the intention of increasing the level of funding available to the Bank.
Prior to the proposed changes becoming law, the Reserve Bank had agreed a new funding agreement with the Minister. The new agreement will provide the Bank with an annual average of $115 million a year for operational expenditure, with a further $13 million a year for the issuance of currency. This funding agreement is a big increase on the previous funding agreement, which provided the Bank with an average of $50.4 million a year for operational expenditure.
Some of us were surprised by the size of the increase to the funding agreement. More than doubling the budget for operational spending would be an extraordinary increase for any organisation. Some of us are also disappointed that there has been little public debate regarding this extraordinary increase. The Reserve Bank is a public organisation, and some of us would expect a greater degree of public scrutiny over such a large increase in funding.
The Governor stated that there has previously been “significant underinvestment” in the Reserve Bank’s capability and capacity. We heard that previous levels of funding were not adequate for the Reserve Bank to appropriately manage financial security risks. Traditionally, the Reserve Bank’s oversight of the banking sector has relied on self-discipline and self-reporting by the retail banks.
The Reserve Bank will now be approaching bank oversight through a focus on positive assurance. To enable this, staff costs will increase by approximately 50 percent, and the Reserve Bank will engage more staff in supervisory roles.
The Governor told us that when he began his tenure as Governor, the Reserve Bank had a 19.3 percent staff turnover rate, which he described as a “high-risk status”. The Governor also cited the Bank’s inability to invest in its technological systems, highlighting that the security system that was the subject of the recent cyber breach was a 20 year old system.
The Reserve Bank has noted that the increases to the Bank’s funding are consistent with a recommendation of the International Monetary Fund (IMF). The IMF has previously strongly recommended that the Bank improve its financial supervisory and enforcement capability.7
Diversity and inclusion within the Reserve Bank The Reserve Bank’s annual report states that it “recognises the value that diversity and inclusion offers all New Zealanders and the Bank”. The Reserve Bank’s stated goal is for New Zealand to have a central bank that reflects the society it seeks to serve. The Reserve Bank is doing this through several channels.
One of those channels is Te Whāriki, which the Reserve Bank described as a diversity and inclusion programme. The Bank aspires to create an environment through the help of this programme where staff can be themselves: “this means we are inclusive in all we do and ensure that everyone has a voice and all views are valued”.
7 The IMF made this recommendation in its 2017 Financial Sector Assessment Programme Review.
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In addition to Te Whāriki, the Reserve Bank has an internal, cross-Bank working group which has a goal of increasing diversity among the Bank’s staff. The Reserve Bank took pride in highlighting to us that women now occupy 42 percent of all roles, and 39 percent of senior leadership positions.
A major piece of the Reserve Bank’s diversity work is its te ao Māori strategy. This strategy involves the Bank looking at its financial stability and monetary policy work with a te ao Māori lens. The Bank is actively broadening its stakeholder base to include more diverse voices. It hopes that this will improve the Reserve Bank’s consultation processes, which will in turn help the Bank to improve its policy formulation. For example, the Bank is consulting with Māori organisations to have a better understanding of Māori employment. The Governor described this work as important because the burden of unemployment has disproportionally affected Māori. The Reserve Bank has previously acknowledged to the Finance and Expenditure Committee of the 5nd Parliament that much is still unknown about the dynamics of maximum sustainable employment. The maximum sustainable employment level is probably fluid, and is something that can be affected by public policy. By improving its understanding of Māori employment, the Reserve Bank is hoping to have a better understanding of how under-utilised Māori can help meet labour shortfalls.
The Reserve Bank, in partnership with the economic research firm BERL, has released Te Ōhanga Māori – The Economy 2018.8 This report is a comprehensive study of the Māori economy. It discusses the role that the Māori economy plays in the wider New Zealand economy. It also addresses some of the challenges in the Māori economy, such as the need to improve access to capital.
We raised with the Governor the issue of banking structures that would make it easier for Muslim communities to enter the housing market. He told us that he would discuss it with the Council of Financial Regulators.
8 This report can be found on the Reserve Bank’s website. 28 41
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2019/20 Annual review of the Inland Revenue Department and Briefing on the progress of the Inland Revenue Department's Business Transformation programme
About Inland Revenue The Inland Revenue Department collects more than 80 percent of the Crown’s revenue— mainly through personal tax, company tax, and GST. In 2019/20, Inland Revenue collected $77.7 billion in tax revenue, a decrease of about $200 million from 2018/19. The decrease is largely due to the economic consequences of the COVID-19 pandemic. Although the drop in tax revenue is significant, it was not as severe as many initially feared it would be.
The tax revenue was collected from three main sources:
individual income tax revenue of $40 billion (51 percent of tax revenue) GST revenue of $20.6 billion (27 percent of tax revenue) corporate income tax revenue of $12.9 billion (17 percent of tax revenue). Inland Revenue also has a role in administering social policy programmes, often in conjunction with other entities.
The services Inland Revenue is responsible for include:
informing the public about their entitlements and obligations processing entitlements and obligations managing debt and outstanding returns undertaking taxpayer investigations providing tax policy advice to the Government.
Governance and accountability arrangements Naomi Ferguson is the Commissioner and chief executive of the Inland Revenue Department. She has held the position since July 2012.
Inland Revenue is accountable to the Minister of Revenue.
Financial performance Inland Revenue’s total departmental expenses for the year totalled $824.8 million, $6 million less than in 2018/19. The reduction in operating expenses has been attributed to phasing of its Business Transformation Programme and to the savings realised from the programme (see: “Business Transformation”).
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Inland Revenue receives most of its funding from Vote Revenue. In 2019/20 it had a net surplus of $54.9 million, which was $40.1 million more than the previous year.
Audit results The Auditor-General rated Inland Revenue’s management control environment, and its financial information systems and controls as “good”. The Auditor-General rated Inland Revenue’s performance information and associated systems and controls as “very good”. Inland Revenue rated the same across all three performance measures in 2018/19.
Briefing on the progress of the Inland Revenue Department's Business Transformation programme We have concluded our briefing on the progress of Inland Revenue Department's Business Transformation programme. We will continue to monitor the progress of this programme in future annual reviews. We have included our discussion on the Business Transformation programme in this report (see: “Business Transformation”).
COVID-19 was an effective stress test of New Zealand’s revenue system Like other government departments, Inland Revenue had to operate under the extreme conditions that resulted from the COVID-19 pandemic. The Commissioner commented to us on Inland Revenue’s challenges in keeping “the revenue system going through that period…working from our bedrooms and our garages”. Despite the pandemic, in 2019/20 Inland Revenue:
collected $77.7 billion in tax revenue distributed $3 billion in Working For Families tax credits distributed $422 million of paid parental leave entitlements issued 3.1 million income tax assessments, distributing $688 million in tax refunds. Most Inland Revenue staff were able to work from home during New Zealand’s initial lockdown. The Commissioner told us that Inland Revenue was able to continue to operate fully during this lockdown by successfully transitioning to remote working. It had to make the transition almost overnight. She attributed this success to the investments that Inland Revenue has made over the last five years in improving its digital capability. When Auckland again moved to alert level 3 in February 2021, we heard, Auckland-based staff could very easily return to remote working.
Despite its success in transitioning most of its staff to remote working, 800 of its customer- facing staff continued to work from Inland Revenue offices. Inland Revenue could not operate its telephone technology remotely, so in order to keep its phone lines open during alert levels 4 and 3, the necessary staff were classified as essential workers. During this period, Inland Revenue made some changes to minimise the number of customer-facing staff that would need to work from its offices. For example, it closed various specialist phone lines, such as the one used by tax agents.
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In light of Inland Revenue’s success with remote working, we asked the Commissioner whether the Department would consider having more staff working remotely full-time. We noted some of the benefits of remote working, such as the benefits it can provide for people with family commitments, and that remote working is environmentally friendly.
The Commissioner told us that Inland Revenue will remain an organisation with predominantly office-based staff. We heard that this suits its organisational culture. However, Inland Revenue has now embedded increased flexibility into its working arrangements. This change has come from its positive experience with remote working during COVID-19 restrictions, as well as its improved technological capacity.
Inland Revenue contributed to the Government’s economic response to COVID-19 Inland Revenue is one of the most important Government agencies contributing to the all-of- Government response to the pandemic. Inland Revenue:
implemented the Small Business Cashflow (Loan) Scheme, which has now paid out $1.7 billion to approximately 103,000 businesses supported the Ministry of Social Development with the Wage Subsidy Scheme, which had paid out $12.7 billion by 30 June 2020, and has contributed to New Zealand’s recent strong employment figures implemented the small-business asset write-off scheme made adjustments to the provisional tax threshold implemented the temporary loss carry-back scheme, which had paid out $87 million in tax refunds by 30 June 2020 supported the COVID-19 resurgence automatic payments, which had paid out an average of $3,000 across 7,000 applications during the February 2021 community outbreak of COVID-19. Finally, Inland Revenue also completed Stage 4 of its Business Transformation programme. Business Transformation is discussed in more detail below.
Revenue collection over the next two years will be heavily influenced by New Zealand’s economic performance New Zealand’s ongoing economic recovery will likely affect revenue collection for the foreseeable future. We asked the Commissioner what trends she expected to see in the revenue system in the next two years.
The Commissioner agreed that revenue collection will be closely related to the state of the economy. She stressed that there is a lot of uncertainty in the economic outlook. The extent of this uncertainty makes it difficult to accurately forecast how revenue collection will be affected over the next two years.
As an example, the Commissioner told us that debt and unfiled returns rose substantially in the last quarter of 2019/20. She attributes this to the ongoing fallout from COVID-19: the final quarter accounted for 71 percent of the year’s increase. Although the debt levels have begun
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Inland Revenue is confident that it is able to ensure improved compliance with the bright-line test In 2015 the Government introduced the bright-line test. The aim was to try to prevent speculators buying properties and then selling them shortly after at a profit. This activity increases the demand for housing, which puts upward pressure on house prices.
Recent media reports have indicated that no tax has been paid in as many as one in four transactions which should have been subject to the bright-line test. We took this opportunity to ask the Commissioner what the reasons are for this. We also asked whether Inland Revenue has the necessary tools to ensure that the bright-line test is not being routinely avoided by property speculators.
The Commissioner explained that Inland Revenue is able to consider each relevant transaction after it has occurred. Through this consideration, it is able to identify whether the vendor in the transaction has complied with the bright-line test. Inland Revenue would then take action to contact people who appear to be non-compliant.
We heard that Inland Revenue is taking this issue seriously, and monitoring relevant transactions closely. In 2019 it identified 9,000 transactions involving 8,000 customers which appeared to be subject to the bright-line test. Of those 8,000 customers, 3,000 had actually already satisfied their obligations by complying with other provisions outside the bright-line test. Of the remaining 5,000, Inland Revenue has contacted 1,500. Approximately 600 were able to explain why the transaction should not be subject to the bright-line test, 900 made a voluntary payment, and 300 are still under investigation.
The Commissioner went on to say that, in 2020, legislation was passed that made it mandatory for parties to a residential property transaction to provide Land Information New Zealand with their IRD number. Inland Revenue is able to access this information, and this legislative change should make it substantially more effective at policing non-compliance with the bright-line test. Therefore, the Commissioner does not believe Inland Revenue needs more legislative tools to improve compliance with the bright-line test.
Business Transformation Inland Revenue is managing the ongoing Business Transformation programme, which aims to modernise the tax system. The Finance and Expenditure Committee of the 51st Parliament initiated a briefing into Inland Revenue’s Business Transformation programme. At the same time as we spoke to the Inland Revenue about the annual review, we were also updated about the Business Transformation programme. We have included an examination of the Business Transformation programme into our annual review of Inland Revenue.
Between 1 July 2014 and 30 June 2020, the Business Transformation programme cost $747 million in operating expenses, and $374.9 million in capital expenses. Operational
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FINANCE SECTOR ANNUAL REVIEWS expenditure for this period was $103.4 under budget, and capital expenditure was $17 million under budget.
In April 2020 Inland Revenue progressed with Release 4 of the Business Transformation programme, despite the department (and the rest of New Zealand) operating under alert level 4 lockdown. Release 4 involves KiwiSaver and student loans moving to the new “START” tax system.
The next stage of the Business Transformation programme has been named Stage 4. This stage also involves several workstreams that will progressively finalise the Business Transformation and close the programme. Release 1 of Stage 4 was planned to go live in March 2021, and will implement changes to paid parental leave, unclaimed monies, duties, and foreign trusts in the START programme.
Stage 4 has an operational expenditure budget of $208.2 million, and the capital expenditure budget is $9.7 million.
Inland Revenue has since told us that Stage 4 of the programme went live as planned.
The Business Transformation programme has created substantial efficiencies in the way Inland Revenue operates The Commissioner spoke to us of how the Business Transformation programme has changed the nature of the work that Inland Revenue performs. The Commissioner said it is now “seeing substantial efficiencies as a result”. The Commissioner used the example of the tax return process to help illustrate this. Previously, physical copies of tax returns needed to be filed with Inland Revenue, and the department needed 500 to 600 staff to process those returns. Now, 96 percent of all tax returns are filed online, and 90 percent of payments are done digitally.
In addition, previously it would take 15 hours of staff time for Inland Revenue to prepare a case before it could go to an auditor. Now it takes 10 hours. An audit of property tax compliance would take 30 hours, and now it takes 8 hours.
Despite the benefits of Business Transformation, Inland Revenue is failing to meet several performance targets Despite some of the programme’s achievements, Inland Revenue’s annual review highlighted several areas that are concerning to us. Overall, it achieved 24 out of its 39 customer service targets, compared with 28 out of 40 last year. We accept that 2019/20 was an exceptionally disrupted year. However, we noted that going back to the beginning of the Business Transformation programme in 2015, Inland Revenue has consistently met fewer performance targets than the preceding year.
In addition, Inland Revenue failed to meet a key Business Transformation target: to have 87 percent of customers say they “find it easy to comply” with their tax obligations—81 percent of respondents agreed with that statement. We believe it is critical that Inland Revenue meet targets such as this. One of the most important objectives of the programme was to make it easier for people to comply with their obligations.
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We asked the Commissioner whether the promised benefits of Business Transformation will actually be realised. The Commissioner stated that she remains “completely confident” that Inland Revenue will realise the benefits promised to the Government in 2015.
On the issue of failing to meet performance targets, the Commissioner raised two points. First, she explained that throughout the Business Transformation, Inland Revenue has had to essentially run two technology systems concurrently. It has had to do a huge amount of work each year transferring from the old system to the new. This has affected Inland Revenue’s overall performance. However, as the new system becomes embedded into Inland’s Revenue’s day-to-day operations, this problem will recede.
Second, the Commissioner explained that the Business Transformation programme was not designed to simply reduce Inland Revenue’s workload or save staff costs. The overall goal is to make a better, more modern tax system. She reiterated that the Business Transformation has resulted in a shift in the nature of Inland Revenue’s work. In some cases, it has actually increased the workload, but with benefits that go beyond merely saving on processing time.
For example, Inland Revenue now runs an auto-calculation process for tax refunds. This has resulted in a better tax system: taxpayers who may be due a refund no longer need to apply for it themselves, or have an agent do it for them. Now, Inland Revenue manages the process of calculating, and then distributing, refunds to taxpayers. Previously, the tax refund system supported an entire industry, where tax agents would take a percentage of a taxpayer’s refund.
We heard that this change alone has resulted in another 3.1 million customers for Inland Revenue to contend with. Another example is the changes to payday filing: employers can now file payday returns with Inland Revenue as they go, rather than at a set date. Although this simplifies the process for employers, it has resulted in increased volumes of payday returns for Inland Revenue to process.
The Commissioner has told us that it will take time for the department to understand how these changes affect their workflows and staffing levels. She describes it as a work in progress. She noted, however, that the tax refund auto-calculation process now takes the Inland Revenue three weeks to complete, down from an initial eight weeks. She expects that it will improve performance levels as it increases its understanding of the new processes and systems.
Inland Revenue should improve its service to tax agents National Party members are disappointed to note that some tax agents are reporting increasing levels of dissatisfaction with Inland Revenue. We are somewhat surprised by this—policies and procedures enacted under Business Transformation programme should have improved satisfaction levels across Inland Revenue’s customer base.
One of the biggest criticisms that tax agents have of Inland Revenue is that the department continues to directly contact the clients of tax agents. This is problematic—it bypasses the relationship that agents have with their clients, and it does so in a way that is often confusing or intimidating for those clients.
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The Commissioner told us that Inland Revenue is aware of this issue, and is seeking to address it. She stressed to us that it is not the intention of Inland Revenue to bypass tax agents, and “cut them out of the loop”. She expects that aspects of the Business Transformation programme should help mitigate this issue. For example, a tax agent, once they have been authorised by their client, is able to view in real time all the information that goes to a customer. In addition, certain information (such as statements) are now going directly to the tax agent, and not the client. However, she told us that Inland Revenue will continue to contact the clients of tax agents directly regarding certain matters, such as when the client has changed their bank account details.
The Commissioner also noted that recent surveys have indicated that tax agents’ satisfaction with Inland Revenue has improved. We will continue to monitor this issue, and we expect that Inland Revenue will continue to improve its business practices relating to tax agents and their clients.
Reducing staffing levels will help Inland Revenue reach its cost-saving target One of the most important objectives of Inland Revenue’s Business Transformation programme is to lower staffing costs. Staffing is Inland Revenue’s biggest financial cost, and most of the expected $495 million in savings from the Business Transformation programme will occur from reducing staffing levels. The Commissioner told us that Inland Revenue currently employs 4,100 permanent staff, which is down from 5,500 at the beginning of the programme.
We were interested in discussing with the Commissioner some of the issues around staffing, and how they relate to the Business Transformation programme.
What Inland Revenue is doing to minimise the negative consequences that come from shedding a lot of staff We asked the Commissioner whether she is concerned that Inland Revenue will lose its hard-won reputation as a customer-friendly and customer-focused organisation. Inland Revenue has reduced the number of staff it has in customer-facing roles. It has also changed its customer service model to one that has an online focus. We are concerned that Inland Revenue could lose its “personal touch”. Customers who have a unique problem may find it more difficult to resolve their issue if they cannot talk to a real person face-to-face or over the phone.
The Commissioner explained that Inland Revenue still has a large number of customer- facing staff. This includes community-based and call centre staff. She expects it will still need to be able to process a high volume of calls, and will continue to allocate sufficient resources to manage those calls.
An overall intention of the programme is to distinguish between jobs that are simple and easy to do, and therefore could be done online, and things that are more complex. This enables customers to do these easy jobs quickly online, at any time they want, and without the need to speak with an employee of Inland Revenue. This enables Inland Revenue’s customer service staff to focus on more technical issues; problems that require the assistance of an Inland Revenue employee.
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We also asked the Commissioner about the process for exiting staff. The Commissioner told us that it has relied on redundancies to remove permanent staff. However, we heard that the majority of those redundancies were voluntary. Inland Revenue has also supported many staff to gain secondments with organisations in both the public and private sectors.
Finally, we asked the Commissioner how Inland Revenue has protected its intellectual capital during this period of downsizing. The Commissioner told us that Inland Revenue’s intellectual capital was still intact. We heard that only 6 percent of staff who have left the department came from technical roles. The average length of service for staff in those roles was over 14 years, which is relatively high.
Inland Revenue’s annual report shows that staffing costs have actually increased in recent years Despite the reduction in the number of its permanent staff, Inland Revenue has forecast that its staffing costs for 2020/21 will be 10.6 percent higher than in 2019/20. This was surprising to some of us, as one of the key goals of the Business Transformation was to lower staff costs. We asked the Commissioner why staffing costs were continuing to increase at the same time as the overall number of staff was falling.
The Commissioner explained that Inland Revenue has relied heavily on fixed term and casual contract staff throughout the Business Transformation programme. This will continue until the end of the programme. However, we heard that Inland Revenue will rely less on temporary staff once the programme has concluded and the time-saving efficiencies have been fully realised. By 2020/21, Inland Revenue is not intending to use any temporary staff for its “peak” periods. We accept that the Business Transformation programme has required the use of temporary staff. However, some of us are concerned that staffing costs continue to rise, year-on-year, even at this late stage of the programme.
Increasing the diversity of Inland Revenue’s staff Inland Revenue’s annual report states that diversity and inclusion are critical to help it understand and meet the needs of New Zealand’s communities. We asked how it is promoting diversity and inclusion within its staff. Despite Inland Revenue’s encouraging statements in its annual report, we were disappointed to note that it was failing to achieve diversity amongst all levels of its staff. For example, 94 percent of its senior management are of European descent. In addition, although traditionally 64–65 percent of roles throughout the organisation have been held by women, women are still under-represented in senior and highly complex roles. This has resulted in a gender pay gap of 18 percent.
The Commissioner agreed that these are problems Inland Revenue must rectify. She stated that Inland Revenue is attempting to address them, including by looking at how it can promote more women into senior leadership roles. She also told us that Inland Revenue has started its Māhutonga programme, which seeks to improve how the department serves the need of its Māori staff and customers. As a part of this programme, the Commissioner said, she will be attending hui with Māori staff across New Zealand. At these hui, the Commissioner and other members of the senior leadership team will discuss how Inland Revenue can better accommodate Māori staff in its workplace.
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2019/20 Annual review of the Guardians of New Zealand Superannuation
About the Guardians of New Zealand Superannuation The Guardians of New Zealand Superannuation is an autonomous Crown entity responsible for managing the New Zealand Superannuation Fund. The Fund comprises a pool of assets on the Government’s balance sheet.
The purpose of the Fund is to reduce the tax burden of superannuation for future taxpayers. It was created as a way to partly pre-fund future retirement benefits, which will help smooth the cost of New Zealand Superannuation between today’s taxpayers and future generations.
The New Zealand Superannuation and Retirement Income Act 2001 requires the Guardians to manage the Fund on a prudent, commercial basis, consistent with:
best-practice portfolio management maximising returns without undue risk to the Fund as a whole avoiding prejudice to New Zealand’s reputation as a responsible member of the world community. The Guardians are also responsible for the Elevate NZ Venture Fund (the Elevate Fund). The Elevate Fund was launched in March 2020, with the objective of increasing capital availability to young, innovative New Zealand companies, and developing New Zealand’s venture capital markets to function more effectively. Although the Guardians have responsibility for the governance and oversight of the Elevate Fund, it is managed externally by NZ Growth Capital Partners (NZGCP).9
Governance arrangements The board of the Guardians has seven members and is chaired by Catherine Savage, whose term ends in March 2021. She will be replaced by Catherine Drayton. Matt Whineray has been the chief executive since July 2018. The entity employed 155 full-time-equivalent staff as of 30 June 2020.
Financial overview The Fund achieved a return of 1.7 percent in 2019/20 (after costs but before New Zealand tax), significantly lower than the 7 percent return in 2018/19. The economic shock of COVID- 19 had a large effect on the Fund’s annual performance in 2019/20. It recorded a profit before tax of $679.8 million, compared with $2.818 billion in 2018/19.
9 The Economic Development, Science and Innovation Committee has conducted the 2019/20 Annual review of New Zealand Growth Capital Partners Limited.
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Just over half of the Fund is managed passively in line with its reference portfolio,10 with the remainder actively managed. The Fund under-performed its reference portfolio benchmark by $923 million, or 2.08 percent, in 2019/20. Many of the asset classes held by the Fund under-performed in 2019/20. The Fund is underweight in bonds, which performed strongly in 2019/20.
Over the long term the Fund expects to outperform its reference portfolio by 1 percent each year. Since it began in 2003, the Fund has outperformed its reference portfolio by 1.21 percent. Returns over this period have averaged 9.63 percent per annum (after costs but before New Zealand tax), with the Fund outperforming its reference portfolio benchmark by $7.8 billion.
As at 30 June 2020, the size of the Fund was $44.8 billion, up $1.68 billion from a year earlier, after costs but before New Zealand tax. This included Government contributions of $1.46 billion in 2019/20. Just over $7.2 billion of the Fund is invested in New Zealand, including Kaingaroa Timberlands, Kiwibank, NZ Gourmet, and rural land.
The Government has contributed a total of $17.8 billion to the Fund since 2003. Following the outbreak of the global financial crisis in 2008, Government contributions were suspended in 2009 as the Crown accounts deteriorated, but were restarted in December 2017. We were told that the Fund would have been approximately $26 billion larger as at 30 June 2020 if Government contributions had continued throughout this time. The estimated returns foregone because of that were about $12 billion. The Government is projected to contribute a further $2.12 billion in 2020/21 and $2.42 billion in 2021/22.
Withdrawals from the Fund to help pay the cost of New Zealand Superannuation are expected to start from around 2034/35. The size of the Fund is expected to peak in the early 2070s as a proportion of GDP. Based on current Treasury projections, at its peak, the Fund will provide around 19.5 percent of the total net cost of New Zealand Superannuation through capital withdrawals and the Fund’s tax contributions.
Audit results The Auditor-General issued a standard audit report for the Guardians and the Elevate Fund, while issuing a non-standard audit report for the Fund. The report is non-standard to draw to readers’ attention the disclosures in the Fund’s financial statements and performance information regarding the impact of COVID-19 on the Fund’s accounts.
We were pleased to note that the Auditor-General rated the Guardians as “very good” across the management control environment, financial information systems and controls, and performance information and associated systems and controls. There were no recommendations made for improvement in any of these areas.
10 The Guardians use a “reference portfolio” to benchmark the Fund’s active investment. The reference portfolio performance expectation is set at the 90-day Treasury bill rate plus 2.7 percent (changed to 2.8 percent in July 2020). The Treasury bill rate is the cost to the Government of contributing capital to the Fund, instead of using this capital to repay debt. 38
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The outbreak of COVID-19 had a significant effect on the Fund We were told that the Fund lost around $13 billion in value following the outbreak of COVID- 19, falling from $48 billion on 19 February 2020 to $35 billion in March 2020. During this time, the Fund managers rebalanced the portfolio using contrarian strategies (buying undervalued assets and selling overvalued assets), and were able to benefit from the volatility. The Guardians told us that, since the March 2020 low, the Fund has returned more than 50 percent, and is currently valued at $54 billion. The Guardians told us that the low interest rate environment has reduced their expectations of returns.
Elevate NZ Venture Fund The Guardians of New Zealand Superannuation administer the Elevate Fund following the enactment of the Venture Capital Fund Act 2019. The Elevate Fund assists the development of New Zealand’s venture capital markets by providing venture capital to New Zealand entities. The Elevate Fund is managed on the Fund’s behalf by New Zealand Growth Capital Partners (NZCGP). The Government has made an initial commitment of $259.5 million, with a total of $300 million in contributions expected.
We asked whether there was a benchmark return for the Elevate Fund against which its performance can be evaluated, as there is for the Fund. We were informed that the policy objectives and legislative framework for the Fund did not include any return requirements. The purpose of the Fund is to see capital flow into the venture capital markets and assist with their development. A minimum financial return requirement could result in these objectives not being met.
We were interested in how much had been allocated to date from the Fund, and were told that $72.5 million had so far been committed. Three fund managers have been appointed by NZCGP to manage the Elevate Fund, and these managers are required to have a New Zealand connection. We were told that these fund managers had raised an additional $280 million from private markets for venture capital market investments.
Review of the reference portfolio During the financial year, the Guardians undertook its statutorily required five-yearly review of the Fund’s reference portfolio. This portfolio is one of two key benchmarks against which the Fund’s performance is compared. The other key benchmark is the Treasury bill measure, which is a rate of return 2.8 percentage points per annum above the 90-day Treasury bill rate on a moving average basis over a 20-year period.
The reference portfolio is a notional portfolio created of low-cost, listed investments which matches the Fund’s long-term horizon and risk profile. The adopted reference portfolio consists of 75 percent global equities, 5 percent New Zealand equities, and 20 percent fixed income assets. In 2009 the Minister of Finance directed the Fund to consider opportunities to increase the allocation of New Zealand assets in the Fund. This was a factor behind retaining a 5 percent weighting for New Zealand equities in the reference portfolio. This is a higher weighting relative to the size of New Zealand’s equity markets on a global basis.
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Currently just over half the Fund matches the asset allocations within the reference portfolio, and the remainder of the Fund is actively managed. We were told that the Fund compares its returns against the reference portfolio benchmark to assess the additional value created through tactical and active investing, especially during times of market volatility as seen during the 2019/20 financial year.
We were interested to hear whether there was a change in the benchmark return with the change in the reference portfolio. We were told that the Fund’s long-run expectations of a 7.8 percent return (on average) did not change with the review of the reference portfolio.
Divesting from Israeli banks We asked the Guardians about the Fund’s recent decision to divest from five Israeli banks on responsible investment grounds. The Guardians noted that the Israeli banks were providing financing for construction of Israeli settlements in the Occupied Palestinian Territories, and that New Zealand had co-sponsored a 2016 United Nations Security Council resolution calling for the cessation of such settlement activity. Under their governing legislation the Guardians are required to manage the Fund in a way that avoids prejudice to New Zealand’s reputation as a responsible member of the global community.
Some members were concerned about possible inconsistencies in investment approaches between countries, and how those decisions could adversely affect New Zealand’s international relationships. The Guardians informed us that they apply their Responsible Investment Framework to divestment decisions. The Framework is publicly available, as are the Guardians’ divestment decisions and reasoning.
The Guardians explained that a number of factors are taken into account when deciding to divest or exclude an investment class. They include international conventions, New Zealand law, Crown actions and material statements of public policy, along with the company’s own involvement and activities. The Guardians told us that they have a “no surprises” policy, and inform the Minister of Finance, the Treasury, and the Ministry of Foreign Affairs and Trade of significant policy decisions.
We were told that investment exclusions were made under either a category (or product) exclusion or a conduct exclusion. Category exclusions are associated with a certain activity, such as the manufacture of tobacco or cluster weapons. Conduct exclusions occur when the company concerned does not meet the Fund’s standards of behaviour. The Fund uses the United Nations Global Compact in deciding which companies are not meeting its standards of corporate behaviour. The Compact sets out standards of corporate behaviour across a number of areas, including business conduct, human rights, labour standards, climate, and the environment.
We asked how the decision about Israeli banks compared with other Fund investment decisions, such as those made in China, given reports around the treatment of the Uyghurs in the Xianjiang region. In regards to concerns in respect to the Uyghurs and other minorities in the Xianjiang province, the Guardians informed us that they were working with other Crown financial institutions (such as the Accident Compensation Corporation and the
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Government Superannuation Fund Authority) on a common approach to engage with companies to review their supply chain connections.
Approach to wellbeing and inequity We were interested in the Fund’s approach to wellbeing and inequity and whether these were included in its performance metrics or Responsible Investment Framework. We were told that the Fund’s mandate is set out in legislation and does not include any specific wellbeing factors. Despite this, the Guardians believe that environmental, social, and governance issues (including climate change) are fundamental to the Fund’s long-term returns, and these factors are incorporated into their investment strategy.
Climate change is an investment risk Climate change is seen as a specific investment risk to the long-run performance of the Fund. The Fund’s Climate Change Investment Strategy, which was first established in 2016, guides investment decisions.
One of the aims of the strategy is to reduce exposure to fossil fuel reserves and emissions. The Guardians informed us that the Fund has no material long term holdings of fossil fuel reserves, apart from a relatively small international private equity investment, which was in the process of being wound down. No further investments in fossil fuel reserve companies were being contemplated. The Fund is investing in a number of companies that were mitigating or addressing climate crisis.
The Guardians reassessed their climate change approach during the 2019/20 financial year. As a result, they set new carbon targets for the Fund. By 2025, they expect:
to reduce carbon emissions intensity for the Fund by at least 40 percent to reduce the carbon reserves of the Fund by at least 80 percent, relative to the original reference portfolio.
Investment opportunities in New Zealand The Fund is one of the largest institutional investors in New Zealand, with domestic investments valued at just over $7.2 billion. This was an increase from $6.3 billion a year ago, with some significant transactions occurring during the year. The Fund invested $300 million in a hotel portfolio, and purchased a 50 percent stake in Asia Pacific Health Group (New Zealand’s largest pathology business) in 2019/20.
We asked the Guardians about the reduction in the proportion of the Fund invested in New Zealand assets. The proportion of funds invested in New Zealand has fallen from 21.3 percent in 2009 to 18.4 percent in 2019/20 (in value terms), despite the increase in the dollar amount of its New Zealand investment portfolio. We were told that a reason for this was the strong performance of the Fund’s global equity, resulting in the proportion of the investment portfolio held in New Zealand declining.
The Fund’s largest New Zealand exposure is an investment in Kaingaroa forest, along with Canada’s Public Sector Pension Investment Board and a number of central North Island iwi.
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Other significant New Zealand investments include a shareholding in private companies like Datacom and Kiwibank. The Fund was also involved in the Hobsonville housing development (with Ngāi Tahu as an investment partner), and has farming and horticultural assets, along with a large New Zealand listed equity portfolio. We were told that the Fund is actively looking for further New Zealand investments, especially in the private growth company sector.
The Guardians expressed interest in continuing discussions with the Government on the Auckland light rail proposal. They believe that the proposal they put forward was the best model for that type of investment, where a long-term investor would have aligned interests with the Crown around build quality and ongoing operations.
No asset allocation for digital currencies at present We asked whether the Fund is investing in digital currencies or whether they feature in its investment strategies. The Guardians told us that there is not an asset allocation for digital currencies at present. It was something that they were thinking about, particularly around the issue of valuing currencies and in the context of the long-run value of different markets.
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2019/20 Annual review of the New Zealand Infrastructure Commission
About the Infrastructure Commission The New Zealand Infrastructure Commission seeks to “lift infrastructure planning and delivery to a more strategic level, and by doing so, improve New Zealand’s long-term economic performance and environmental wellbeing”. The Commission’s four main areas of activity are summarised below:
Development of a 30-year Strategy Report, which the Commission hopes will improve long-term infrastructure outcomes. Publication of a works “pipeline” programme for the construction sector. Improvement of infrastructure procurement capability of government agencies and the construction sector. Improvement in the provision of evidence-based advice to Government. The Commission is an autonomous Crown entity. Its 2020 annual report was the first since it was established in 2019.
Governance and accountability arrangements Dr Alan Bollard is the chairperson of the Infrastructure Commission. Ross Copland is the chief executive. The Commission is accountable to the Minister of Infrastructure.
Financial performance The Infrastructure Commission receives nearly all its revenue through Crown funding. In 2019/20 its total revenue was $8.1 million. Its expenses were $5.3 million, leaving a surplus of $2.8 million.
Audit results The Auditor-General rated the Infrastructure Commission’s financial information and supporting systems as “very good”. He rated the Commission’s management control environment as “very good”.
The Auditor-General rated the Infrastructure Commission’s performance information and supporting systems and controls as “good”, with some improvements recommended.
Addressing New Zealand’s infrastructure “deficit” New Zealand has long-standing and well known issues with infrastructure. These issues have resulted in a substantial infrastructure deficit; the country does not have sufficient infrastructure to cope with a fast-growing population. This affects the wellbeing of New Zealanders, and it is also detrimental to the country’s economic performance. For example,
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the delivery of imports from New Zealand’s second largest port, the Port of Auckland, is hamstrung by a clogged Auckland road network.
We asked the Infrastructure Commission what work it is doing to address New Zealand’s infrastructure deficit. We were particularly interested in finding out how the work of the Commission differs from some of the Government’s other economic agencies, such as the Treasury, or the Ministry of Business, Innovation and Employment.
Long-term issues with New Zealand’s infrastructure The Commission is currently producing a 30-year infrastructure strategy. The Commission will present the report to the Minister by September 2020. The Minister has a statutory obligation to receive the report and to formally respond to it.
The 30-year strategy will consider structural changes that are happening in New Zealand, for example long-term demographic changes, new technology, and climate change. It will assess how those changes might affect infrastructure. The 30-year strategy report is deliberately high-level, and seeks to address systemic issues.
However, the Commission is also developing a second version of the report. This version will provide the Government with a more tactical assessment of infrastructure in New Zealand. The Commission hopes this will help the Government to triage infrastructure projects. This second report will also address issues such as the labour market’s capacity, fiscal costs, and the specific needs of communities.
Providing near-term benefits to New Zealand’s provision of infrastructure To help address medium-term issues, the Infrastructure Commission is developing a pipeline of medium-term projects. We heard that the intention behind this pipeline is to try to get New Zealand out of a “boom–bust cycle”, and instead help the country deliver infrastructure at a consistent pace. The Infrastructure Commission told us that there are currently $50 billion worth of projects in that pipeline. We heard that both the construction sector and community expectation are probably over-committed, and it doubts that New Zealand has the capacity to complete all of these projects.
We also asked about the Infrastructure Commission’s role in improving the procurement practices of government agencies. The Infrastructure Commission explained that, in combination with the Treasury, it is working on calibrating the business case processes across Government. This work involves the Commission comparing business case frameworks used in Australia, and assessing the value of those frameworks in producing effective procurement outcomes.
The Infrastructure Commission is also involved in giving specific policy advice to the Government on issues around infrastructure. For example, at the moment the Commission is engaged in providing advice on proposed reforms to the Resource Management Act.
The chief executive distinguished the Infrastructure Commission’s work from that done by other agencies by noting that the Commission is the one agency to “look across the spectrum of infrastructure”. For example, the Commission will help address transport 44
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infrastructure holistically, which will include a focus on addressing climate change policies. He stated that an agency like Waka Kotahi (the New Zealand Transport Agency) is not set up to do this.
The Infrastructure Commission and climate change The climate change work the Infrastructure Commission is doing focuses on three overall areas: mitigation of the effects, adaptation to a warmer world, and most importantly, ensuring New Zealand’s infrastructure development is consistent with the Climate Change Commission’s carbon emissions budgets.
For example, the Infrastructure Commission hopes to improve the capacity of the construction industry to lower its carbon emissions in relation to individual projects. This might involve the consideration of alternative construction materials, or techniques, that produce less carbon. This work involves the Infrastructure Commission partnering with the Crown research institution GNS Science to locate and quantify resources that could be used as alternative building materials.
The Infrastructure Commission will also seek to include climate change considerations in business case processes, as a part of its work on improving government agencies’ procurement practices. It will not seek to dictate to agencies that certain modes of transport should be favoured over others. Instead, the Commission will ensure that the costs of climate change are considered objectively in business cases.
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2019/20 Annual review of Kiwi Group Holdings Limited
About Kiwi Group Holdings Limited Kiwi Group Holdings Limited is a holding company for a number of subsidiary companies, the major ones of which are Kiwibank, Kiwi Financial Services Retail, Kiwi Insurance, Kiwi Wealth, and New Zealand Home Loans. New Zealand’s largest New Zealand-owned bank, Kiwibank, is the main subsidiary of the Group and contributed over 85 percent of Kiwi Group Holdings’ operating revenue in 2019/20.
Kiwi Group Holdings has three shareholders, with the Crown as the ultimate owner. New Zealand Post owns 53 percent of the Group, with the New Zealand Superannuation Fund holding a 25 percent shareholding and the Accident Compensation Corporation a 22 percent shareholding. New Zealand Post previously held 100 percent of Kiwi Group Holdings, but reduced its shareholding in October 2016.
Governance arrangements The board of Kiwi Group Holdings has six members and is currently chaired by Dame Paula Rebstock. Jackie Lloyd chaired the board from 1 November 2019 to 16 June 2020. Each of the subsidiary companies has its own board, with the board of Kiwibank chaired by Jon Hartley. Kiwibank’s chief executive is Steve Jurkovich.
Financial overview Kiwi Group Holdings reported an after tax profit of $52 million for the year ended 30 June 2020, with the company’s profit negatively affected by the COVID-19 pandemic. The comparative profit after tax for the 2018/19 financial year was $110 million.
Kiwibank reported a profit after tax of $57 million for the year ended 30 June 2020, down from $108 million in 2018/19. A $39 million increase in credit impairment provisions during the year was a key reason behind the reduction in profit after tax. The COVID-19 pandemic introduced a level of uncertainty around loan and mortgage repayments, leading to the increase in impairment provisions. Total credit impairment losses for the financial year were $51 million. Operating expenses rose by $53 million during the year as Kiwibank increased spending in a number of areas. These areas included technology, its strategic and branch transformation, activities to support growth, and higher compliance and regulatory costs.
Audit results The Auditor-General issued a non-standard audit report for Kiwi Group Holdings. The report is non-standard because it draws readers’ attention to the disclosures in the Group’s financial statements regarding the impact of the COVID-19 pandemic on the Group’s accounts.
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The Auditor-General rated the Group’s management control environment, and its financial information and supporting systems and controls as “good”. The Auditor-General recommended that Kiwibank remain focused on executing its strategic plan. He also recommended that the Group address previously identified issues with its IT management process, and strengthen the controls surrounding the new NZ IFRS 16 lease accounting process.
Assistance to customers following the outbreak of COVID-19 We were told that, following the outbreak of COVID-19, Kiwibank placed approximately 8,000 personal and business customers onto customer care packages, such as mortgage repayment holidays. The number of customers on care packages has since fallen to around 700. Kiwibank plans to contact customers on care packages over the next couple of months to discuss the pathway towards recommencing their loan repayments.
Closure of branches We raised the issue of bank branch closures and the consolidation of banking services, especially in rural communities. As a result, some people have to travel significant distances to access a branch, which raises difficulties for the elderly and cash businesses in particular. Kiwibank acknowledged that this is a problem for some customers, but said that its network of 183 branches, service agents, and franchises was significant given its size (particularly when compared to some of its larger competitors). Some of the branches it is considering closing experience low levels of foot traffic, and are not sustainable.
To help move customers onto its digital banking services platform, Kiwibank has been trying a number of different programmes, including a partnership with Digital Inclusion Alliance Aotearoa, and “digital angels” in branches. Digital Inclusion Alliance Aotearoa has a programme called Stepping UP that provides free, community-based training to build digital skills and knowledge. This programme includes training on online banking services. The digital angels in branches programme involved showing customers how to use Kiwibank’s online banking services while they were visiting a bank branch.
Kiwibank has invested in technology during the financial year to improve customer experiences, and it sees this investment as a key strategic objective. We were told that customers increasingly want to engage with Kiwibank digitally, with demand for digital self- service rising by 400 percent per annum.
Kiwibank welcomed the smart-hub concept where banking facilities for a range of banks were available in one spot, focused around a deposit-accepting ATM and other digital devices.
The use of cheques has been phased out Kiwibank stopped issuing and accepting cheques from February 2020, with customers unable to write a cheque, or deposit a cheque into their Kiwibank account from this date. It also stopped providing bank cheques.
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We asked about Kiwibank’s role in the move away from accepting cheques within the banking industry, and the difficulties this imposes on those without access to the internet or digital devices. While acknowledging the difficulties imposed by this decision on some customers, Kiwibank said that cheque volumes have fallen so significantly that the investment requirements to extend this service for another five years could not be justified. Given its size, Kiwibank said it faces tough choices regarding where it focuses investment spending, and it was not in a position to roll the contract over for a further five years.
Kiwibank told us it was convinced that other payment options are available for the majority of customers, but it acknowledged that some customers have been disenfranchised by the decision.
Supporting social enterprise We recognised Kiwibank’s partnership with the Ākina Foundation, and support that the bank provides to social enterprises. We were interested in whether Kiwibank saw a role for itself in extending this concept across the wider banking sector. Chief executive Steve Jurkovich told us that this was an area in which the bank’s board continues to challenge management to aim higher. Kiwibank participates in the microfinance market through its partnership with the Ngā Tangata Microfinance Trust and Aviva. The microfinance market is where small fee-free and interest-free loans are provided to individuals who may not qualify for credit with mainstream financial institutions. Microfinance is an area where Kiwibank believes it can play a part, and we heard it expects to make further announcements in the future.
Customer growth and growth in lending We heard that Kiwibank had experienced customer growth throughout the country, especially in the regions. It said that growth in the Auckland region had been hamstrung by a lack of broker share. Kiwibank’s business lending portfolio makes up a smaller proportion of its total lending book than it does for the main Australian-owned banks, so there is an opportunity there to expand lending to the business sector.
We heard that approximately 35 percent of new mortgage lending in the last couple of months had been to investors, a greater share than normal. Typically around a third of Kiwibank’s new lending is to investors and two-thirds to owner occupiers. Around 14 percent of new lending goes to first-home buyers. We learned that mortgage application volumes were currently extremely high at around 1,100 applications a week versus a long-term average of about 800.
Kiwi Wealth and responsible investment We asked about Kiwi Wealth’s responsible investment policy, and whether it was in line with best practice. Kiwi Wealth has an investment in Raytheon Technologies, a company that has provided munitions to the Saudi military. We heard that Kiwi Wealth is fully committed to responsible investing, with the company becoming a signatory to the United Nations’ Principles for Responsible Investment framework in 2020. Its shareholding in Raytheon Technologies is managed by a third-party investment manager, and is a very small amount.
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We were informed that Kiwi Wealth was going to review its investment in the company based on recently available environmental, social, and governance (ESG) research for Raytheon Technologies. The Board of Kiwi Group Holdings said it would be watching this issue closely, as it expects subsidiary companies to deliver on their ESG responsibilities.
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Other entities within the sector
Our annual reviews of the following entities focused on examining written responses to a range of questions.11 We did not hold oral hearings with these entities, and we have no matters regarding these entities to bring to the attention of the House.
Crown Asset Management Limited Crown Asset Management was established in 2012 to acquire, manage, and realise all of the assets from various Crown finance companies. It was also tasked with managing certain assets of Southern Response.
Crown Asset Management is now a residual entity. It is due to go into liquidation in early 2021, and will do so once the sole remaining asset under its management is settled.
Gary Traveller has been the chairperson of the entity since March 2012. His term will expire on 30 June 2021.
Financial performance Crown Asset Management had total revenue of $243 million for the 2019/20 financial year. Total expenses were $282 million, for a net deficit of $39 million.
In 2018/19 total expenses were $1.33 billion, with a total revenue of $227 million.
Government Superannuation Fund Authority The Government Superannuation Fund Authority is an autonomous Crown entity. Its function is to manage and administer the Government Superannuation Fund in accordance with the Government Superannuation Fund Act 1956.
The Authority’s investment objective is to maximise returns without creating undue risk to the Fund as a whole, in line with best practice for portfolio management. To achieve its objective, the fund relies on equities. The Fund’s Annual Report for 2019/20 states that historically, equities produce greater returns than investing in government bonds.
The Authority benchmarks its investment performance against a reference portfolio, and against New Zealand Government bonds. It assess all investment decisions against these benchmarks.
Anne Blackburn is the chairperson of the Authority. Ms Blackburn has been in this position since July 2019. Simon Tyler is the chief executive of the Authority.
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Financial performance The Fund measures its returns against benchmarks and a reference portfolio. In 2019/20 its returns were negative against these measures. Returns were -1.7 percent compared to its benchmarks and -4.5 percent in comparison to its reference portfolio. However, it bettered New Zealand Government bonds by 5.7 percent.
Underperformance in recent years has reduced the Fund’s average investment returns over the last 10 years to 8.6 percent per annum. The Fund’s 10 year performance is 1 percent behind its reference portfolio. However, the investment returns over the previous 10 years have bettered New Zealand Government bonds by 3.2 percent.
The Authority has commissioned an independent review of its investment strategy in response to its recent underperformance in comparison to its reference portfolio.
New Zealand Green Investment Finance Limited New Zealand Green Investment Finance Ltd (NZGIF) is an investment bank established by the Government in April 2019. It has a mandate to invest in projects that reduce New Zealand’s greenhouse gas emissions.
Its annual report states that it is currently targeting investments in the transport, heating, agriculture, renewable energy, and construction sectors.
Although NZGIF was created and initially funded by the Government, it is an independent limited liability company, and it operates on a commercial basis.
Cecilia Tarrant is the chairperson of NZGIF. Craig Weise is the chief executive.
Financial performance NZGIF was established in April 2019. The Government contributed initial capital funding of $100 million.
To date, it has made two investments. NZGIF invested $15 million into Wellington’s CentrePort for a credit facility to electrify and decarbonise the port. NGIF also invested $1.1 million in the telecommunications company Thinxtra.
The chief executive of NZGIF stated in the annual report that its current focus is on laying the foundation for the organisation, with a long-term outlook towards 2050.
New Zealand Productivity Commission The Productivity Commission is an independent Crown entity that provide advice to the Government on improving productivity in the economy, to enhance the wellbeing of New Zealanders. The Commission undertakes inquiries on topics referred to it by the Government. It also independently carries out productivity-related research.
Murray Sherwin has been the chairperson of the Productivity Commission since its inception in 2011. Daiman Smith is the general manager.
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Financial performance in 2019/20 In 2019/20 the Productivity Commission’s total revenue was $5.1 million, the same as the previous year. Its total expenses were $5 million, compared with $5.2 million the previous year.
Office of the Controller and Auditor-General The Office of the Controller and Auditor-General (OAG) is one of the most important entities in the public sector. The OAG has two primary functions. It provides independent audits of the financial performance of public sector organisations. This work includes, for example, an assessment of each entity’s annual financial statements, ensuring that the information provided is reliable and can be trusted. This greatly assists parliamentary select committees when conducting annual reviews.
The OAG is also tasked with ensuring that public organisations are operating consistently with Parliament’s intentions. Ultimate authority for all public sector activity stems from Parliament.
John Ryan is the Controller and Auditor-General.
Financial performance in 2019/20 In 2019/20 the OAG’s total expenses were $101.4 million. By comparison, total expenses for the 2018/19 year were $94.5 million.
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Appendix
Committee procedure We met between 10 February and 29 March 2021 to consider the annual reviews of the entities in the Finance sector, the annual review of the Financial Statements of the Government for the year ended 30 June 2020, and the Briefing on the progress of Inland Revenue Department’s Business Transformation programme.
We heard evidence from the Minister of Finance, the Treasury, the Reserve Bank of New Zealand, the Inland Revenue Department, the Guardians of New Zealand Superannuation, the New Zealand Infrastructure Commission, and Kiwi Group Holdings.
We received written evidence from all the entities we reviewed, and received advice from the Office of the Auditor-General.
Committee members Dr Duncan Webb (Chairperson) Andrew Bayly Barbara Edmonds Ingrid Leary Anna Lorck Greg O’Connor Damien Smith Chlöe Swarbrick Helen White Nicola Willis Hon Michael Woodhouse
Advice and evidence received We received the following documents as advice and evidence for these annual reviews. They are available on the Parliament website, www.parliament.nz, along with transcripts of our hearings.
Office of the Auditor-General (Briefing papers)
The Treasury (Responses to written questions).
Reserve Bank of New Zealand (Responses to written questions).
Inland Revenue Department (Responses to written questions).
The Guardians of New Zealand Superannuation (Responses to written questions).
New Zealand Infrastructure Commission (Responses to written questions).
Kiwi Group Holdings (Responses to written questions).
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Crown Asset Management Limited (Responses to written questions).
Government Superannuation Fund Authority (Responses to written questions).
New Zealand Green Investment Finance Limited (Responses to written questions).
New Zealand Productivity Commission (Responses to written questions).
Office of the Controller and Auditor-General (Responses to written questions).
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2019/20 Annual review of the Accreditation Council 2019/20 Annual review of the External Reporting Board (XRB) 2019/20 Annual review of the Financial Markets Authority 2019/20 Annual review of the Takeovers Panel
Report of the Economic Development, Science and Innovation Committee
March 2021
The Economic Development, Science and Innovation Committee has conducted the annual reviews of the Accreditation Council, External Reporting Board (XRB), Financial Markets Authority, and the Takeovers Panel for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
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2019/20 Annual review of AgResearch Limited
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 Introduction to AgResearch Limited ...... 2 Financial overview ...... 2 Audit results ...... 2 COVID-19 response and recovery ...... 3 He Ara Hou (New Ways of Working project) ...... 3 Research on methane reduction ...... 3 Our Land and Water Science Challenge ...... 4 Plant-based and alternative food research ...... 4 Te Ohu Rangahau Kai research facility ...... 4 Digital agriculture and genetic work ...... 5 Appendix ...... 6
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2019/20 ANNUAL REVIEW OF AGRESEARCH LIMITED AgResearch Limited
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of AgResearch Limited for 2019/20, and recommends that the House take note of its report.
Introduction to AgResearch Limited AgResearch Limited (AgResearch) is a Crown Research Institute (CRI), responsible for carrying out scientific research for the benefit of New Zealand. AgResearch aims to drive prosperity by developing knowledge and technology in the agricultural industry. Its three main goals are:
to help foster and support prosperous land-based enterprises to produce research that protects and enhances natural resources in a sustainable way to contribute scientific understanding to added-value foods and bio-based products to meet ever-changing consumer demands. Dr Paul Reynolds is the board chair and Dr Sue Bidrose is the chief executive. AgResearch has around 700 staff. It has four “centres of excellence”, in Palmerston North, Lincoln, Ruakura, and Invermay, and nine research farms. Its headquarters are at Lincoln in Canterbury.
Financial overview AgResearch made a net $6 million profit in 2019/20, compared with a budgeted net loss of $3.2 million and the previous year’s net loss of $7 million.
AgResearch’s total revenue was $1.2 million less than in 2018/19, but was ahead of budget by approximately $0.6 million. This was largely due to $13.57 million of COVID-19 Response and Recovery funding. This funding was provided to maintain its science capability and offset a drop in revenue from commercial sources and the National Science Challenge.
Commercial revenue was $57 million. This was $5 million less than in 2018/19, and almost $8 million less than budgeted. This was predominantly due to the effects of COVID-19, with progress on research and commercial contracts affected in the final quarter following the outbreak.
Audit results The Auditor-General graded AgResearch’s management control environment and financial information and supporting systems as “good”. He recommended that AgResearch continue to refine and improve its management of IT access and change management security risks.
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We note that in previous years the Ministry of Business, Innovation and Employment had AgResearch on performance watch. This was primarily because of its financial performance, and uncertainty surrounding its large capital investments. The Ministry found AgResearch made significant progress on addressing these issues over 2020. We are pleased to hear that AgResearch has recently come off this watch, and will follow its progress over the next year with interest.
The Auditor-General also noted future uncertainty as a result of the COVID-19 pandemic. The Auditor-General reviewed AgResearch’s 2020/21 budget projection and noted a budgeted net loss of $7.5 million before tax. The Auditor-General said that this is sufficiently mitigated by a material positive cash position, strong current working capital, and the confirmed receipt of an additional $13.57 million in COVID-19 Response and Recovery funding for the 30 June 2021 year (that was not reflected in the budget).
COVID-19 response and recovery COVID-19 affected AgResearch’s ability to progress commercial science contracts in the final quarter of the year. It was unable to perform either laboratory or farm-based science during alert level 4. This affected its ability to deliver projects, and consequently revenue. Total science revenue was $103.7 million against a target of $114.6 million.
AgResearch reported a safe and managed return to work for some of its science staff at alert levels 3 and 2. It is now focused on understanding the longer-term effects of COVID-19 on the research and development plans of its stakeholders.
He Ara Hou (New Ways of Working project) AgResearch told us that it wants to increase its interactions with other institutions such as fellow CRIs, universities, and other industry research institutions. AgResearch is tailoring this project for its new education, science, and innovation precinct that will be built at its Lincoln campus, including by developing change management guidance. The proposed science structure will be confirmed early in the 2021 calendar year. We look forward to seeing AgResearch’s progress in this area.
Research on methane reduction We heard about some of the research that AgResearch is undertaking on methane reduction. A decade-long study identified specific genetic traits in sheep that mean some emit less methane than others. AgResearch’s engineers developed a mobile laboratory that identifies breeding stock that can pass the trait on to their offspring, thereby reducing methane emissions. AgResearch told us that there is a methane reduction of approximately 7 percent for generations specifically selected for this genetic type.
This research is also being embraced by other industry partners such as Beef + Lamb New Zealand, which is including this research in its breeding value indexes. AgResearch said that it gives priority to this area of research. We were told that, internationally, New Zealand is at the forefront of methane research.
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Our Land and Water Science Challenge AgResearch is hosting the “Our Land and Water” National Science Challenge. We heard that a large part of the work being done through this initiative is on how the industry can work more collaboratively to understand and manage its effects on the environment.
AgResearch is collaborating with Manaaki Whenua – Landcare Research with the support of the Science Challenge. The first collaboration will be the research project “How to Enact Environmental Change”. The aim of the collaboration is to help connect the science with farmers and support farmers to be prosperous and sustainable.
We heard that another piece of work in the Science Challenge is determining what qualities consumers particularly value in products and will pay a premium for. For example, what drives consumers to buy free-range eggs instead of cage eggs? AgResearch said it wants to capitalise on what features will allow New Zealand products to stand out and command a premium, not simply through “a label that says it’s a more efficient greenhouse gas product”.
Plant-based and alternative food research We were interested in the work being done around changing consumer tastes. AgResearch told us about some of the research in alternative and plant-based proteins, emerging food groups such as sheep’s milk, and fermented foods. To benefit its farmers, AgResearch works with both domestic and international partners to ensure it keeps up to date with the latest food and ingredient trends and technologies.
We asked about the demand for sheep milk. We learnt that a $50 million sheep milk dryer has been built in Hamilton by a relatively new company. The company has increased production but cannot keep up with demand for its product, which is primarily being sold to niche markets in China. AgResearch told us that its partnership with the company focused on breeding traits in the sheep flock that would allow the company to farm more easily. For example, breeding for less belly wool made for easier milking.
Another small but growing area of AgResearch’s science is on fermented foods. It told us that this is an area that appeals to Asian food tastes, and where New Zealand is seeking to increase its export share.
AgResearch told us that although plant-based food is a small area of its research, it is conscious of changing diets. Although AgResearch’s work focuses on animal protein, it acknowledges that the industry is going to change and it must be prepared for new opportunities. It works in partnership with Plant & Food Research, which specialises in non- animal products. The same farmers are often involved with both agencies.
Te Ohu Rangahau Kai research facility Much of AgResearch’s work in food and bio-products is occurring at its newest research facility in Palmerston North: Te Ohu Rangahau Kai. This facility is a world-class food-science hub that has nearly 300 of the world’s best food scientists working at it. Staff have just moved in, and the facility is expected to be officially opened in March. We were given an example of one of the machines in its laboratory that can distinguish between a lamb raised in New Zealand and a lamb raised in Wales, and whether the animal was fed on grass or
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2019/20 ANNUAL REVIEW OF AGRESEARCH LIMITED grain. AgResearch said that this sort of science is important when viewing the position of New Zealand products in the overseas market.
Digital agriculture and genetic work We asked about the digital technology used by AgResearch in its work. AgResearch told us that technology has been vital to its research in genetic work to improve flocks. For example, it is attempting to breed sheep that are resistant to parasitic worms. As the technology develops, it will allow AgResearch to be more precise with its genetic work and distinguish areas where work is needed.
AgResearch highlighted the work being done on digital agriculture tools for farmers. We heard that an increasing number of tools are available, so it is focused on creating common databases, in collaboration with other CRIs and industry partners, to simplify digital resources for farmers.
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Appendix
Committee procedure We met on 11 February and 25 March 2021 to consider the annual review of AgResearch Limited. We heard evidence from AgResearch Limited and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on AgResearch Limited).
AgResearch (Responses to written questions).
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2019/20 Annual review of Air New Zealand Limited
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 About Air New Zealand ...... 2 Financial overview and audit results ...... 2 COVID-19’s effect on Air New Zealand ...... 3 Crown standby loan facility ...... 3 Comparison with Qantas’ international operation ...... 4 International Airfreight Capacity scheme (IAFC) ...... 4 Staff cuts tough on everyone but some staff have returned ...... 4 Sustainable aviation fuel ...... 5 Planning for a post COVID-19 world ...... 5 Air New Zealand’s work for the Royal Saudi Arabian Navy ...... 5 Appendix ...... 7
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2019/20 ANNUAL REVIEW OF AIR NEW ZEALAND LIMITED
Air New Zealand Limited
Recommendation The Transport and Infrastructure Committee has conducted the annual review of Air New Zealand Limited for 2019/20, and recommends that the House take note of its report.
About Air New Zealand Air New Zealand is the national airline and operates domestic and international passenger transport and cargo. It is a public company listed on the New Zealand and Australian stock exchanges. The Crown is the major shareholder, owning 51.9 percent of the shares in the company. The Crown also holds the Kiwi Share, a single share that does not carry general voting rights but requires the Crown’s consent for certain actions. This is designed to maintain Air New Zealand’s status as a substantially New Zealand-owned and controlled company.
An independent, eight-member board governs Air New Zealand, chaired by Dame Therese Walsh. Greg Foran was appointed chief executive in February 2020 following Christopher Luxon’s departure from the position in September 2019. In 2019/20, the executive team was reduced from nine to six members, reflecting COVID-19’s effects on the airline.
Financial overview and audit results The Auditor-General issued a standard audit report, and is satisfied that the information he audited fairly reflected the company’s activities for the year and its financial position at the end of the year.
On 25 February 2021, the airline released its 2021 Interim Financial Report with updated figures.
As at 30 June 2020, the net assets of Air New Zealand were $1.318 billion with cash and cash equivalents of $438 million. The 2021 interim report notes that, as at 31 December 2020, the net assets of Air New Zealand are $1.266 billion with cash on hand of $174 million. This is a decrease of $264 million since 30 June 2020.1 This balance shows the continued impact of significantly reduced customer sales due to border restrictions.
The Auditor-General reported that the airline’s operating revenue for 2019/20 was $4.8 billion. The 2021 interim report records the half-year operating revenue as $1.2 billion, a 59 percent decline on the prior six-month period. It primarily consists of passenger revenue, which totalled $708 million in contrast with $4.960 billion in 2019.
Air New Zealand’s operating expenses declined by 12 percent to $4.052 billion, with the largest saving coming from fuel and aircraft operations due to the continuing effect of
1 The 2021 Interim Financial Report can be found here: https://p-airnz.com/cms/assets/PDFs/air-nz-2021- interim-financial-report.pdf. 2
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COVID-19. Air New Zealand managed the “cash burn” (capital used to run its day-to-day operations) by reducing staffing levels by 30 percent, cancelling the 2020 interim dividend, deferring $700 million in capital expenditure, and reducing operating costs (by operating fewer flights). Air New Zealand has also confirmed in its 2021 interim report that there will be no interim dividend for the 2021 financial year.
These cost reductions have reduced the cash burn from around $175 million between April and June 2020 to an average of $79 million between September 2020 and January 2021.
Air New Zealand has announced it is carrying out a strategic capital structure review, to be completed in early 2021. It then expects to proceed with raising equity capital by 30 June 2021. The Crown has confirmed to Air New Zealand that, subject to Cabinet being satisfied with the terms of the proposed equity capital raising, it would participate in it to maintain a majority shareholding in Air New Zealand.
COVID-19’s effect on Air New Zealand We heard that July to December 2019 went well, with a profit made for those six months. The COVID-19 pandemic began to affect the company’s operations in January to March 2020. Government-imposed travel restrictions and border closures in New Zealand and other key jurisdictions negatively affected financial performance and cash flow.
To help the airline respond to the effects of COVID-19, the Government provided a support package to Air New Zealand, comprising the following:
a $900 million standby loan facility (discussed below) $113 million in wage subsidies (including the wage subsidy, the extension to the wage subsidy, and the resurgence wage subsidy), of which $75 million was received in 2019/20 an aviation support package (managed through the Ministry of Transport), including: o financial support to pay passenger-based government charges and airways-related fees ($27 million was received by Air New Zealand in 2019/20) o a grant to supply international airfreight services worth $21 million (International Airfreight Capacity scheme, discussed below). While there are challenges, Air New Zealand said it was fortunate to have a strong domestic business. It stated that it is back to around 80 percent of where it was before COVID-19.
Crown standby loan facility We were interested in the structure of the loan facility. We understand that the $900 million loan is structured in two tranches, which have interest rates at 7 to 9 percent. The first tranche is $600 million with an interest rate of 7 to 8 percent, and the second is $300 million with a 9 percent interest rate. The interest rates will increase by 1 percent if the loan remains after 12 months (27 May 2021). The current drawn-down balance is $350 million (as at 25 February 2021). Refunds, fixed asset purchases, and debt and lease payments were offset by the loan.
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The airline has short-term liquidity available of just over $700 million, consisting of $174 million cash and $550 million of undrawn funds on the Crown facility.
Comparison with Qantas’ international operation We were interested in how this compared with the finance secured by Qantas from the Australian Government. In particular, we note that it received a loan of just over A$1 billion at 2.75 percent interest over 10 years, which is much lower than the interest rates secured by Air New Zealand.
Air New Zealand commented that each international airline is in a different situation, with a different context as to how COVID-19 was being handled. It said the Government provided the standby loan facility at a time of need, and the interest rate was part of the negotiation at the time. Air New Zealand acknowledged that it has a significant loan facility but said that, unlike other airlines, it has not needed to source more funds. Air New Zealand added that it has tried to draw down as little as possible of the loan. It has focussed more on raising capital to restructure so it does not need to use the facility. We noted Qantas stopped international passenger flights.
We were interested to hear that Air New Zealand approached global lenders. However, with the constantly shifting markets at the time in the airline’s view the Government was the best option for it.
International Airfreight Capacity scheme (IAFC) On 30 April 2020, following a tender process, Air New Zealand was awarded a grant to supply international airfreight services to the Government. It was initially for the period up to June 2020, but was then extended to 30 April 2021. This ensured the supply and delivery of imports and exports during the COVID-19 pandemic and enabled the airline to undertake more than 1,400 cargo flights. In its 2021 interim report, the airline states that the IAFC contributed to the increase of cargo revenue by 91 percent, to $373 million.
We heard that, as part of this scheme, Air New Zealand also operated repatriation flights to provide support in the response to COVID-19. In addition, it undertook domestic charter flights to support quarantine activity. Air New Zealand said that these flights contributed to a vital cash flow during a time of limited international passenger revenue.
Staff cuts tough on everyone but some staff have returned Air New Zealand has made significant changes to its operations in order to manage the effects of COVID-19. This included a 30 percent reduction of staff, approximately 4,000 people, at a cost of $140 million in redundancies. The redundancies affected all parts of the organisation, with greater reductions in airports and the international cabin crew workforce.
We asked how Air New Zealand is going to bring in a culture of wellbeing once there is a fully functioning service when the borders open. Air New Zealand referred to its new company-wide reset strategy called “Kia Mau”, which comprises five foundational pillars. One of the pillars is “people”. It acknowledged that bringing people back will be critical, and noted that they had already started returning. Recently, 140 staff (out of 170 contacted) from the A320 crew returned to work. It had also created the Āwhina Charitable Trust to support
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2019/20 ANNUAL REVIEW OF AIR NEW ZEALAND LIMITED staff who were affected financially. The trust provides one-off grants to employees who are in financial hardship due to COVID-19 and are struggling to meet their day-to-day living costs.
We were told that through the chief executive there is regular contact and good relationships between the executive team and the various unions within the sector. The chief executive meets with the unions once every 10 to 12 weeks.
Air New Zealand said jobs were affected at all levels of the organisation. The executive team was reduced by 30 percent. Also, salaries for the chief executive and executive team, and the directors’ fees, were reduced by 15 percent to 30 June 2021.
Sustainable aviation fuel We were pleased to hear that that Air New Zealand is committed to reducing its carbon footprint while continuing to focus on making the operation as fuel-efficient as possible.
Two noticeable areas of change have been:
ensuring that the average life of the fleet is low because newer aircraft are more energy efficient reducing the use of in-flight plastic and engineering. The “Kia Mau” strategy includes “sustainability” as one of its five pillars. We note with interest that the airline has a goal of being carbon neutral by 2050. Its membership of the International Air Transport Association also comes with a goal of bringing down carbon emissions.
The airline is also exploring new technologies. We heard that sustainable aviation fuels are critical to bringing down carbon emissions. We were told it is also a key factor to the long- term survivability of the airline. The airline is committed to using sustainable aviation fuels over time. A challenge is that these fuels cost two to three times more than traditional fuels. The accompanying infrastructure to these fuels will need close collaboration and investment from the public and private sectors as well as new policy settings to attract investment and ensure long-term industry competitiveness.
Planning for a post COVID-19 world We were told that Air New Zealand relies on the borders opening for two-thirds of its revenue. Therefore, its medium-to long-term priorities are to innovate and grow the airline when the borders open. Another is to build back the network. It hopes to use customer loyalty and stimulate travel on Tasman and Pacific Island routes.
In the longer term, the airline expects to be smaller, with a particular focus on the Pacific Rim.
Air New Zealand’s work for the Royal Saudi Arabian Navy Air New Zealand confirmed that, from 2019, its gas turbines unit did work for the Royal Saudi Arabian Navy. Work on the navy’s engines came to the attention of Air New Zealand’s chief
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2019/20 ANNUAL REVIEW OF AIR NEW ZEALAND LIMITED executive in late January 2021. We heard that, once this contract came to the chief executive’s attention, Air New Zealand terminated the work immediately.
We asked why the airline did not respond to media requests once this controversial contract became public knowledge, and a focus of criticism. Air New Zealand admitted there were internal communication issues it was working through before being able to comment in a public forum.
In response to the situation, the airline confirmed that an internal review of its processes was under way. The board has also commissioned an external review by PwC New Zealand. In addition, the airline and the Ministry of Foreign Affairs and Trade are engaging a Queen’s Counsel to review the technical aspects relating to the company’s licensing requirements.
We look forward to the results of these reviews.
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Appendix
Committee procedure We met on 11 February and 18 March 2021 to consider the annual review of Air New Zealand Limited. We heard evidence from Air New Zealand and received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Golriz Ghahraman replaced Hon Julie Anne Genter, and Hon Michael Woodhouse replaced Christopher Luxon for this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Air New Zealand Limited).
Air New Zealand (Responses to written questions).
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2019/20 Annual review of the Airways Corporation of New Zealand Limited
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial overview and audit report ...... 2 Results of the annual audit ...... 2 COVID-19 has had a substantial effect on Airways ...... 3 International air travel remains at low levels ...... 3 Staff are necessary to ensure safety ...... 4 Development of new air traffic management system, SkyLine-X ...... 4 Large software development projects involve risk ...... 4 Changes to Airways’ services at seven regional airports ...... 4 Drone technology continues to develop rapidly ...... 5 New regulations or legislation around drone use may be released soon ...... 5 Airways would like to continue investing in drone management ...... 5 Appendix ...... 7
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Airways Corporation of New Zealand Limited
Recommendation The Transport and Infrastructure Committee has conducted the annual review of the Airways Corporation of New Zealand Limited for 2019/20, and recommends that the House take note of its report.
Introduction The Airways Corporation (Airways) is a state-owned enterprise providing air navigation services for all New Zealand. It is responsible for providing air traffic control and infrastructure services to an area of over 30 million square kilometres. Its core mission is “providing safe skies today and tomorrow”.
Airways International, a commercial business which sits within Airways, provides airways training, software solutions, and other aviation services worldwide.
Airways also manages Airshare, a website which provides information for people who want to use unmanned aerial vehicles or drones in New Zealand airspace.
We heard from the chair of the Airways board, Denise Church, and chief executive Graeme Sumner.
Financial overview and audit report Airways is typically fully funded by the fees it charges airlines for its services, and by its commercial activities. Since the beginning of 2020, border restrictions due to COVID-19 significantly decreased the number of flights in New Zealand, leading to a loss in revenue.
In 2019/20, Airways incurred an after-tax loss of $31.325 million. This contrasts with a profit of $23.487 million in 2018/19.
Airways received a $70 million capital injection from the Government in March 2020 to allow it to continue providing services. This left it with net current liabilities of $11.7 million at 30 June 2020 (similar to the 2018/19 year-end position). To enable Airways to continue as a going concern for at least 12 months, the Airways Group issued 95 million ordinary unpaid shares to its owner, the Crown. This provided a $95 million undrawn capital facility, available up to the end of June 2022.
Results of the annual audit The Auditor-General issued a standard audit report for Airways. However, he noted that Airways had faced some unprecedented challenges in 2019/20 due to COVID-19. He highlighted four significant matters during the audit, largely related to the effects of COVID- 19:
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• the going concern assessment, taking into account the $95 million funding agreement from the Crown • impairment and customer pricing, noting that there are significant uncertainties about the effect of COVID-19, and the key assumptions used in the model to determine the value of assets • the amount of capital investment, particularly in the development of the SkyLine-X system, and new air traffic control centres in Auckland and Christchurch • restructuring, including the movement of Airways’ finance operations from Auckland to Wellington, and redundancies made as a result of COVID-19 The Auditor-General assessed both Airways’ management control environment, and its financial information and supporting systems and controls, as “good”.
COVID-19 has had a substantial effect on Airways We heard that COVID-19 had a big effect on Airways, particularly its revenue. The chair of the Airways board noted that domestic air travel decreased by 90 percent when New Zealand entered level four lockdown in March 2020. Because Airways earns money by charging airlines fees for its services, fewer flights resulted in much less revenue. Airways said it had to adapt to reduce its costs. It aims to rely on Government funding only as necessary while still meeting its safety and operational requirements.
We asked about the effect on corporate culture and engagement, given that this blow to revenue required a number of redundancies. We learned that Airways has reduced FTE staff by 117 as a result of COVID-19. It acknowledged that the past year has been “pretty challenging”. It said it was not surprising that some of the changes being discussed were not universally welcome, especially because it has historically been a very stable organisation. However, it said it wants to be transparent about the changes it is trying to make, and it wants to work with unions and all staff to achieve them.
Airways’ internationally focused subsidiary, Airways International, performed well despite COVID-19. It had an after-tax profit of $9.1 million, up from $8 million the year before. We heard that Airways International continued to serve clients in New Zealand and around the world through digital platforms. Its success allowed Airways to retain staff with valuable skills.
International air travel remains at low levels We heard that, although domestic air travel has returned to about 85 percent of pre-COVID levels, international air travel is still low. This is why Airways remains in a revenue shortfall. We asked whether Airways’ model is sustainable, noting that it seems international air travel rates will remain low for some time. Airways said that it is optimistic about the future of international air travel. The chief executive said he expects international air travel rates to be returning to normal levels in 2023, which would contribute to Airways’ profitability. However, he noted that there is more focus on the effect of long-haul travel on climate change, which may also have implications for international air travel in the future.
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Staff are necessary to ensure safety We were interested in how Airways is managing its staffing numbers given its decrease in revenue and flight activity. Airways said its main priority is aviation safety, so it does not have much flexibility with staff numbers for air traffic control. It said that at this stage it has not lost any resources within the air traffic control community. We also heard that most of Airways’ cost-cutting measures have come from other parts of its business.
We were also curious to hear whether Airways would still have enough staff with the necessary skills if air travel rates were to quickly return to pre-COVID levels. Airways said it could readily handle a resurgence in flight activity. It said that, although the number of aircraft movements processed over a specific period may vary a lot, staff always need to be available.
We also asked how Airways is managing any tension in the organisation caused by the drop in revenue and air traffic. Airways reiterated that its focus is on safety. It said it is an “unpalatable reality” that revenue has declined. However, Airways said it remains positive, and it believes its position will be more viable in the future.
Development of new air traffic management system, SkyLine-X Airways announced in March 2017 that it was beginning work on replacing its two air traffic management (ATM) systems with a new system called SkyLine-X. Airways is working with an American technology provider, Leidos, to develop it. When it was first announced, Airways planned that SkyLine-X would be operational in New Zealand’s domestic airspace in 2020. However, this is now expected in early 2022.
Large software development projects involve risk We were interested in how Airways views the risks associated with developing SkyLine-X, both financial and in terms of project management. Airways acknowledged that large software projects like this come with risk. It said that although most ATM systems around the world are partly customised, it has tried to limit bespoke elements in SkyLine-X to reduce risk. It said it is monitoring and managing the project closely, and is happy with progress. Airways also noted that SkyLine-X could be operated from two different centres, providing more resilience in the event of a power outage or other disruption.
We asked what Airways does when it encounters problems in its large software development projects. Airways pointed out that it has many in-house development resources, which gives it more control over development than if it were relying fully on overseas suppliers. Ultimately, Airways said, close attention and monitoring of projects helps it to manage any issues during development. It said projects like SkyLine-X come before its board regularly; the board would be considering another progress report that month.
Changes to Airways’ services at seven regional airports In April 2020, Airways announced plans to review the services it provides to seven regional airports. In May 2020, it said it intends to remove services from all seven. This would entail removing its air traffic control services from the airports in Hawke’s Bay, Gisborne, New
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Plymouth, Rotorua, and Invercargill. It is also removing the airfield flight information services it provides to Kapiti Coast Airport and Milford Sound Piopiotahi Aerodrome.
We asked how Airways is managing the risk around this restructuring, and ensuring that its systems stay safe during the transition. It said that safety is a critical focus, and that it wants to maintain a low level of risk. It said it has consulted all of its partners about the change. It is currently working through a process with the airports and the Civil Aviation Authority (CAA) on risk management scenarios to confirm whether it can remove its services safely. Airways said the regions it planned to remove services from are lacking in good quality aeronautical studies, and that the process it is undergoing is providing useful information.
Asked how long this process may take, Airways said the case for each airport is progressing at a different rate. It said the information on most cases is now with the CAA. The CAA will now undertake final consultations and make a determination on the minimum services needed at each location. Airways said it will continue to provide any services deemed necessary by the CAA.
Drone technology continues to develop rapidly We were interested in Airways’ thoughts on drone technology, and what work it has done in this area. It said it expects drone technology to increase even faster as a result of the pandemic. Because drones are cheaper than many current aircraft, it sees a lot of potential for them to replace aircraft such as commercial helicopters and possibly others. Airways believes that, in five or ten years, commercial drones may occupy more airspace than passenger aircraft.
New regulations or legislation around drone use may be released soon Airways highlighted that it hopes to see some reforms to regulations or legislation governing drone use. With the fast increase in drone technology, it believes changes are needed so it can manage drones in controlled airspace. Airways wants to see drones equipped with Automatic Dependent Surveillance Broadcast (ADS-B) transponders, or other similar devices, which would allow air traffic controllers to “see” them.
Airways said it is part of a drone leadership group which includes the Ministry of Business, Innovation and Employment, the Ministry of Transport, and the CAA. It expects that regulatory or legislative reform of the rules for drone use will be released soon.
Airways would like to continue investing in drone management We expressed concern that Airways may not be able to continue investing in work on drone management because of COVID-19. We consider it important that Airways is still investing for the future.
Airways agreed that it needs to be prepared for the future of air travel, but its current situation means its priority is investing in safety-critical matters. Some of its other initiatives have been paused or are progressing at a slower rate, but it is still funding them to the extent that it can. It said that drone management is central to a number of digital initiatives. Development of those initiatives would depend on what happens over the next twelve months. Airways assured us that it would notify the Government, as its shareholder, if it felt
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2019/20 ANNUAL REVIEW OF THE AIRWAYS CORPORATION that more funding was needed, particularly if safety was being compromised. We encouraged Airways to continue to invest in its vision and strategy for the future, noting that there are some innovative developments in the aviation sector in New Zealand.
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Appendix
Committee procedure We met on 18 February and 18 March 2021 to consider the annual review of the Airways Corporation of New Zealand Limited. We heard evidence from the Airways Corporation of New Zealand Limited and received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Airways Corporation of New Zealand Limited).
Airways Corporation of New Zealand Limited (Responses to written questions).
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2019/20 Annual review of the Broadcasting Standards Authority 2019/20 Annual review of the Electricity Authority 2019/20 Annual review of the Energy Efficiency and Conservation Authority 2019/20 Annual review of Kordia Group Limited
Report of the Economic Development, Science and Innovation Committee
March 2021
The Economic Development, Science and Innovation Committee has conducted the annual reviews of the Broadcasting Standards Authority, the Electricity Authority, the Energy Efficiency and Conservation Authority, and Kordia Group Limited for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Jamie Strange Chairperson 89
2019/20 Annual review of Callaghan Innovation
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About Callaghan Innovation ...... 2 Financial performance and audit results ...... 2 Callaghan is undergoing an organisational transformation ...... 2 Redevelopment of the Gracefield Innovation Quarter continues ...... 4 The Auditor-General says that Callaghan’s performance information systems and controls need improvement ...... 4 Purpose of Callaghan is to support R&D and its commercialisation ...... 5 Callaghan is improving its cybersecurity resilience ...... 5 Callaghan wants more involvement in discussions about the future of work ...... 6 Appendix ...... 7 90
2019/20 ANNUAL REVIEW OF CALLAGHAN INNOVATION
Callaghan Innovation
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of Callaghan Innovation for 2019/20, and recommends that the House take note of its report.
About Callaghan Innovation Callaghan Innovation is a Crown agent under the provisions of the Crown Entities Act 2004 and is established by the Callaghan Innovation Act 2012. Its main objective, outlined in its governing legislation, is to support science and technology-based innovation and its commercialisation by businesses, primarily in the manufacturing and services sector. Callaghan has an important role in the Government’s goal of increasing research and development (R&D) expenditure in New Zealand to 2 percent of GDP by 2027.
The board is chaired by Pete Hodgson, and the chief executive is Vic Crone. In 2019/20, Callaghan employed approximately 450 staff, principally based in Wellington, Auckland, and Christchurch.
Financial performance and audit results Callaghan’s total revenue for 2019/20 was $378.6 million, an increase of about 7.1 percent compared with 2018/19. Most of its revenue came from the Crown (approximately $351.6 million, about 8.1 percent more than the previous year). The organisation reported that Crown funding for grants in 2019/20 was higher than budgeted because of higher demand for growth, project, and student grants.
Callaghan achieved a 2019/20 surplus of $8.7 million, which compares well against its budgeted deficit of $2.5 million. The majority of Callaghan’s expenses (over 69 percent) were grant payments. Total expenses were about 5 percent higher than in 2018/19.
The Auditor-General assessed Callaghan’s management control environment and financial information and supporting systems and controls as “good”, making some recommendations for improvement. He assessed Callaghan’s performance information and supporting systems and controls as “needs improvement”, a downgrade from the previous year. We discuss this in a later section of our report.
The Auditor-General issued a non-standard audit report. He included an additional paragraph drawing readers’ attention to disclosures in the financial statements about the impact of COVID-19 on Callaghan Innovation and its performance.
Callaghan is undergoing an organisational transformation Callaghan is undergoing a number of changes aimed at addressing what it calls operational deficits inherited at its establishment. Its approach is to transform its services through a new business and operating model, and upgrade its physical assets—infrastructure and digital—
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2019/20 ANNUAL REVIEW OF CALLAGHAN INNOVATION to enhance the way it operates. It says that transformation is necessary to be able to meet rising customer expectations, to be more efficient, and to be able to respond to rapid disruption and uncertainty over the next decade. This work has four broad objectives:
return the organisation’s core business to research and technical services embrace a fully digital way of working revitalise ageing infrastructure renew the organisation’s commitment to the vision of no longer prioritising economic development at the expense of social and environmental capital. We were particularly interested in Callaghan’s objective to prioritise more social and environmental capital. We sought clarity as to what this means practically for businesses that seek grant funding but do not have environmental or social objectives.
Callaghan told us that, historically, most of its grants have gone to entities focused on economic development. However, business and government priorities have shifted, and many businesses now look to solve social and environmental problems, not just generate a profit. Callaghan explained that its objective to prioritise more social and environmental capital does not mean it will no longer invest in businesses that do not have social and environmental objectives. Instead, it seeks to clarify that businesses that have social or environmental goals are eligible for support. It said that many social entrepreneurs simply do not apply because the eligibility criteria have not been clear.
Embracing a fully digital way of working is a significant focus A further objective of the transformation programme is to embrace a fully digital way of working. A significant change for Callaghan as part of this work in 2019/20 has been its transition to Google Workspace, a cloud-based collaboration platform. Google Workspace is an internal platform used by Callaghan’s staff; it replaces use of the Microsoft platform. Callaghan told us that although some staff preferred the Microsoft system, the new platform had been “working well”. It had led to new ways of working and “unbelievably” improved speed and collaboration. Callaghan expects that the transition will enable it to adapt to future demand and incorporate machine learning, business process intelligence, and artificial intelligence.
Callaghan reported that its client-facing Scale-Up platform has also been performing well since its launch in 2018/19. The platform seeks to connect entrepreneurs, investors, and entities across New Zealand that are involved in innovation, and gives businesses resources to allow them to innovate and grow. It also allows Callaghan to track the health and development of the innovation system both as a whole and by sector. The number of active profiles using Scale-Up grew in 2019/20 to 1,659, up from 900 the previous year. We agree this is a good result.
Looking ahead, Callaghan plans to completely replace the platform it uses to administer grants. It expects this work to be completed in early 2022. We will follow it with interest.
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Redevelopment of the Gracefield Innovation Quarter continues The redevelopment of the Gracefield Innovation Quarter remains a significant and ongoing piece of work for Callaghan. The Gracefield facility contains specialist workshops, pilot plants, labs, and equipment that are available for short- and long-term hire by businesses. However, a lack of investment over several decades has meant that the facility was at risk of not meeting statutory health and safety regulations. The redevelopment project seeks to bring the facility up to an acceptable standard, performing structural upgrades to buildings, removing asbestos, and completing maintenance that had been deferred. Callaghan told us that redeveloping the site is preferable given the complex consents involved. As at 30 June 2020, the Government’s total investment in the Gracefield redevelopment project was more than $110 million.
We were told that work on the Gracefield facility has been progressing well. In 2019/20, this included the construction and fit-out of the Measurement Standards Laboratory, the laying of foundations for a new biotechnology hub, and the settlement of an insurance claim related to a fire at the site in December 2018. Callaghan explained that a third of its buildings had had leaky roofs and other weather-tightness issues, which had also been fixed in the last financial year. Projects over the next two years will include refurbishing one of the facility’s five-storey buildings, relocating an on-site crèche, and demolishing several blocks that have reached end of life.
We were interested in whether Callaghan believes the Gracefield facility is fit for purpose. Callaghan told us that the success of Gracefield to date has relied on people with “incredible resilience” who are willing to work in buildings that are outdated. It said that although its current funding is sufficient to fix basic issues, it is not enough to build a fit-for-purpose facility that can support an expected doubling in the amount of R&D investment over the next decade. In Callaghan’s opinion, the Gracefield facility has the potential to become a world- class hub for research and development if it has the right level of investment.
We asked whether Callaghan had considered relocating the Gracefield site given that its location in Lower Hutt is a 20-minute drive from Wellington’s city centre. Callaghan said that it would not be able to find another 10-hectare site suitable for holding 15,000 chemicals and 100 labs nearer to the city. It also noted that similar facilities are never located in a major city in other countries.
The Auditor-General says that Callaghan’s performance information systems and controls need improvement We were concerned that the Auditor-General downgraded his assessment of Callaghan’s performance information and supporting systems and controls for 2019/20, assessing them as “needs improvement”. He based his assessment on the combined effect and severity of the deficiencies in controls identified in the audit. One of the control points was deemed significant. It related to insufficient controls to prevent or detect unauthorised or inaccurate changes to Survey Monkey survey data, which Callaghan used to measure non-performance outputs. Three other recommendations related to:
insufficient review and reconciliation of output measures
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lack of review of audit logs outlining manual changes to survey results insufficient review and validation of automated calculation of output measures. Callaghan acknowledged that it needs to improve the way it reports and measures its performance. Since the audit, it has reprioritised some of its work and is putting short-term controls in place to address the matters raised. The board recently agreed to invest in a new data platform for performance information, replacing its old platform that Callaghan told us produced “unstable” data and required workarounds to be effective. This is expected to take about 15 months to build. We will follow up on how effective these steps have been at our next annual review.
Purpose of Callaghan is to support R&D and its commercialisation We sought more information from Callaghan about how it chooses which businesses receive funding for R&D. In particular, we were interested in whether it prioritises businesses with tested ideas, which are less risky, at the expense of businesses with new ideas and innovations. Some of us were concerned that this could give Callaghan a reputation for being risk averse, which might in turn deter businesses from applying for support. Some of us felt that this contributes to a perception that Callaghan only funds businesses that it already knows.
The principal purpose of Callaghan is to support science and technology-based innovation and its commercialisation by businesses. It does this by working with businesses on tailored R&D services, by connecting businesses with talent to help them grow, and by administering a range of R&D funding initiatives on behalf of the Government. In 2019/20, these funding initiatives included the R&D growth grants scheme (now closed to new applicants), the R&D loan scheme (announced in Budget 2020), the R&D tax incentive, and project and student grants.
Callaghan told us that New Zealand has a low appetite for risk when compared to other countries. While Callaghan does not consider itself to be particularly risk averse, it nonetheless invests in a high number of low-risk businesses because those are what the New Zealand policy environment, tools, and risk appetite enables. However, it said that its technology incubator programme is a good example of where it is backing ideas that have a higher degree of risk. The programme has been piloted since 2014 and invests in complex products and technologies, often derived out of research and development, which it deems to have potential to become high-value exports.
Callaghan also said that the business model for awarding funding is reliant on its people and this might create variation in its service quality. It is improving its business model in this area to ensure it is more consistent.
Callaghan is improving its cybersecurity resilience We were interested in steps that Callaghan is taking to become more cyber-resilient. We are aware of a number of cybersecurity incidents at high-profile public and private entities in 2019/20, including the New Zealand Stock Exchange, MetService, and Radio New Zealand.
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Most recently, the Reserve Bank reported a data breach after sensitive information stored on a third-party file-sharing service was allegedly hacked, prompting an external review of the bank’s processes.
Callaghan said it has recently undertaken “a lot of work” on cybersecurity resilience, including training for its staff, employing staff with cybersecurity backgrounds, and locking down vulnerable apps. It has identified the use of USB memory sticks for transporting information as a particular area of vulnerability, and is in the process of setting up a new cloud platform to phase these out. We understand this will go live in the next three or four months.
Callaghan wants more involvement in discussions about the future of work A challenge for Callaghan over the next decade will be ensuring that the workforce has necessary skills to fill the jobs of tomorrow. As the Government’s R&D entity, we asked Callaghan about its role in workforce development.
Callaghan explained that it develops skillsets through its student grants programme, which places students in a commercial R&D environment as part of their studies. The placements are typically for three months over the summer, although it also offers six and 12 month placements. The programme benefits both the students and the businesses. We were told that these grants are very popular, and Callaghan reported a 199 percent increase in the number of approvals compared to the previous year.
More broadly, Callaghan believes that stakeholder collaboration on projects preparing for the future of work has been fragmented, including between government agencies. Consequently, Callaghan has not had input into projects that it could have had. An example of where Callaghan believes it could have been more involved was the Government’s reforms of vocational education and training, beginning in early 2019. It said it found strategic discussions on these reforms “hard to connect with”.
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of Callaghan Innovation. We heard evidence from Callaghan Innovation and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Callaghan Innovation).
Callaghan Innovation (Responses to written questions).
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2019/20 Annual review of City Rail Link Limited 2019/20 Annual review of Maritime New Zealand 2019/20 Annual review of the Meteorological Service of New Zealand Limited (MetService) 2019/20 Annual review of the Transport Accident Investigation Commission
Report of the Transport and Infrastructure Committee
March 2021
The Transport and Infrastructure Committee has conducted the annual reviews of City Rail Link Limited, Maritime New Zealand, the Meteorological Service of New Zealand Limited (MetService), and the Transport Accident Investigation Commission for 2019/20.
We have no matters to bring to the attention of the House. We recommend that the House take note of this report.
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2019/20 Annual review of the Civil Aviation Authority of New Zealand
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial overview and the effects of COVID-19 ...... 2 Results of the annual audit ...... 2 The CAA is taking steps to improve its culture ...... 3 The CAA accepts all recommendations from the ministerial review ...... 3 The CAA is taking a top-down approach to culture change ...... 4 Staff have opportunities to speak up ...... 4 The CAA’s response to COVID-19 ...... 4 The CAA’s regulatory approach ...... 5 Work to update the CAA’s regulatory business system has paused ...... 5 The CAA supports emerging aircraft technology in New Zealand ...... 6 Regulation of drone use ...... 6 The CAA’s actions in the Pacific ...... 6 Appendix ...... 7
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Civil Aviation Authority of New Zealand
Recommendation The Transport and Infrastructure Committee has conducted the annual review of the Civil Aviation Authority of New Zealand and recommends that the House take note of its report.
Introduction The Civil Aviation Authority of New Zealand (CAA) is a Crown entity responsible to the Minister of Transport. Its primary objective is providing safety and security in aviation. It has two main functions: a regulatory function, and a security service function which is delivered through its operational unit, the Aviation Security Service (Avsec).
The CAA is governed by the Authority, which is a board of five members appointed by the Minister. The Authority is also responsible for governing Avsec. The Authority appoints a chief executive, who becomes the Director of Civil Aviation.
We spoke with Janice Fredric, chair of the Authority; Keith Manch, Chief Executive and Director of Civil Aviation; and Shelley Turner, Deputy Chief Executive Organisational Development and Support. Shelley Turner was Acting Chief Executive and Director of Civil Aviation for the nine months to 1 February 2021, when Keith Manch was appointed.
Financial overview and the effects of COVID-19 The CAA is mostly self-funded, by charging for the services it provides (including services provided to the Government), and by levies charged to airlines.
The dramatic impact of COVID-19 on the aviation sector was also felt by the CAA and Avsec. In 2019/20, it received $155.078 million in revenue, and its expenses totalled $177.511 million. This resulted in a $22.433 million deficit, against a projected budget surplus of $6.620 million. In 2018/19, the CAA had a deficit of $6.368 million.
The Auditor-General noted that the CAA’s revenue was reduced due to the effects of COVID-19. In response, Cabinet had approved additional funding under a new multi-year appropriation. Of this, $13 million was used by Avsec in 2019/20. The Crown has also issued a letter of support to the CAA, confirming it will continue to provide support beyond June 2021.
Results of the annual audit The Auditor-General issued an unmodified audit opinion on the CAA’s financial statements.
A modified audit report was issued on the CAA’s performance information. This is because the Auditor-General was unable to independently confirm the accuracy of information about passenger waiting times at screening areas. Because of this, he lowered his rating for the performance information and supporting systems and controls from “very good” to “good”.
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The Auditor-General noted that the CAA is investigating ways it may be able to provide this information in a way that can be independently confirmed in the future.
The Auditor-General dropped his rating for the CAA’s management control environment from “very good” in 2018/19, to “good” in 2019/20. This is largely in response to the findings of a Ministerial review into the CAA’s culture, discussed later in this report.
The Auditor-General’s rating of the CAA’s financial information and supporting systems and controls remains “very good”, unchanged from 2018/19.
The CAA is taking steps to improve its culture The Ministry of Transport was instructed to undertake an independent review into the CAA’s organisational culture by the Minister in September 2019. This was prompted by media reports of bullying, harassment, and poor workplace culture in the CAA. The review has since been completed. A report on the findings was released in May 2020.1 The executive summary of the report noted:
Our overall finding is that the current and past work culture within the CAA does not operate to support a safe and respectful workplace and, in some areas, it is below the standard that meets bottom-line standards for health, safety and well-being.
A total of 31 recommendations were made in the report, relating to: leadership and management; keeping staff engaged and safe; policies, procedures and guidelines; and general recommendations.
The CAA accepts all recommendations from the ministerial review The CAA’s board has accepted all 31 recommendations from the review. We heard that it has established a culture change programme, called Te Kākano, in response. The CAA said Te Kākano is a staff-led approach, with a taskforce of staff and union representatives. The taskforce has worked in response to feedback from the industry. It has revised the CAA’s policy on how it addresses bullying, harassment, and discrimination. It is now working on updating the CAA’s code of conduct.
We asked about the CAA’s progress on implementing all 31 recommendations. It aims to do so within 18 months. It said it has already completed more than half of the recommendations, and work on many others is ongoing. It highlighted that it needs to take actions such as staff engagement surveys to make sure the changes are effective.
We asked whether the CAA is reporting to the Minister on its progress. It said it briefs the ministry, and also briefed the Minister at its initial meeting with him. It said it was clear in its briefing to the Minister that while progress is being made, not all recommendations have been implemented. It will also brief the Minister on the progress reports made available on its website.
1 The full report can be read here: https://www.transport.govt.nz//assets/Uploads/Report/caa-organisational- culture-review.pdf.
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The CAA is taking a top-down approach to culture change We noted that there appeared to be a significant culture change in areas like the CAA’s board. We were interested to hear how this is reaching staff at other levels. The CAA said it values the input of staff and unions on its taskforce. It said it goes to them for their views on new ideas and policies. The CAA also said it gives the taskforce feedback. It provides six- monthly progress reports on its website to show its commitment to staff and stakeholders.
The CAA noted that it has been almost a year since its Te Kākano programme started. It said it now wants the changes it has made to be seen as its standard way of doing things, rather than as a response to the review.
Staff have opportunities to speak up We were interested in how CAA staff can raise any concerns about the culture. We heard that they can call an independent helpline, which has been available since 1 July 2020. The CAA said 17 staff have contacted the helpline to discuss behaviour they are experiencing, or have experienced in the past. Reports from the helpline show that 3 of the 17 cases remain open. The CAA said this shows that people who contact the helpline are getting advice and closure about the issues they raise. It said it reports on use of the helpline to the Te Kākano taskforce, and to the CAA board.
The CAA has also begun holding “respect and inclusion” workshops around the country. About one third of staff have already participated in these workshops.
The CAA’s response to COVID-19 The CAA noted that COVID-19 led to a significant reduction in revenue for the organisation, due to fewer flights. With most of its revenue coming from fees, levies, and charges, it said it is one of the regulators most reliant on third-party funding. However, it said its usual regulatory activities have not reduced as a result of COVID-19. Rather, because of changes to the sector, regulatory activity has increased in some cases. The CAA said it has responded quickly to the impacts of COVID-19, and that it has provided regulatory relief in some cases by making emergency directives in rule exemptions. It said its work has been received positively by stakeholders.
We also heard that some staff are working in different roles as a result of COVID-19. The CAA said 155 Avsec staff are now working in managed isolation facilities until June 2022, and that this number has increased at some points during the pandemic. Its specialist behavioural detection teams have also adapted to roles interviewing international arrivals. The CAA said it also developed and deployed a system to track people going through managed isolation facilities.
The CAA highlighted that although international air travel rates are low, it still collaborates actively with aviation regulators in other countries. It said it continues to advocate for New Zealand on decisions made by the International Civil Aviation Organisation.
The CAA noted that COVID-19 has not reduced the “attractiveness” of aviation as the target for terrorist attacks. Avsec has introduced new screening systems at security-designated airports. This will allow for the management of security risks when borders re-open. The
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CAA said being able to deploy staff to alternative COVID-19-related roles has allowed it to keep its trained and skilled workforce, ready for when aviation activity returned to pre- COVID-19 levels.
We appreciate that COVID-19 has presented specific challenges for the aviation sector, and we commended the CAA on its activities over the past year.
The CAA’s regulatory approach We note that the CAA aims to use a “just culture” approach in its management of safety in the aviation industry. We sought its views on how it could do so, considering there is currently no legislation to support this approach. The CAA website explains that “just culture” is a way of managing three types of behaviour: human error, at-risk behaviour, and reckless behaviour.2 It says it uses just culture principles both proactively, and in the way it responds to safety deficiencies and risk. In its proactive work, the CAA is starting to assess the safety culture of aviation participants. It gives feedback to those participants to help them move beyond a standard safety system to one which is “operating and effective”. In its work using just culture principles in response to safety issues, the CAA’s examination considers whether the issue was self-reported, whether it is part of a pattern, and whether people involved accept accountability. It factors these details into its response to the event, while also considering what is best for the public.
The CAA said that the principles of a just culture approach overlap with those used in the modern regulatory decision-making that it currently undertakes. It said there should always be a considered approach when responding to regulatory issues.
The CAA highlighted that, through its regulatory approach, it can hold people to account and put issues before a court. This would likely not be the result of an approach based only on just culture principles. It gave the hypothetical example of a person who was injured as a result of the actions of an aircraft operator. A “pure” just culture model might treat the event as a learning opportunity. Under a regulatory model, it might be dealt with by the courts.
Work to update the CAA’s regulatory business system has paused The CAA is working to improve its technology support. The project focuses on replacing the main business system the CAA uses, Aviation Safety Management System. It aims to replace it with a regulatory software called EMPIC, which is widely used by aviation regulators.
We asked about progress, noting that the project is now on hold. The CAA said this is because it has not been able to meet the requirements of the loan that the funding was provided under. This is due to the loss in funds caused by COVID-19.
2 The CAA website describes its use of just culture principles here: https://www.aviation.govt.nz/about-us/what- we-do/operational-policies/just-culture-what-it-means-to-the-caa/.
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The CAA supports emerging aircraft technology in New Zealand We asked what aerospace technology the CAA had worked on in the past 12 months. It said it is focusing most on supporting emerging aircraft technology from around the world to come into New Zealand.
Regulation of drone use In particular, the CAA has worked with Dawn Aerospace, a company based in the Netherlands and New Zealand. The CAA said Dawn Aerospace is working on developing drones. It supported the company by working to provide it with an operating certificate. This allows Dawn Aerospace to continue its drone use trials in New Zealand, and eventually take that technology back to the northern hemisphere.
The CAA explained that prescriptive rules are not useful when working with fast-changing technology like drones. It said this is a challenge for regulators. However, the CAA’s outcome-based approach allows it to support developments in drone technology.
The CAA’s actions in the Pacific We heard that the CAA, in collaboration with the Ministry of Foreign Affairs and Trade, provides aviation-related support to Pacific Island states. We were interested in how it is providing this support throughout the COVID-19 pandemic. The CAA said it is providing online support, but noted also that the Pacific airspace is quiet due to COVID-19. When COVID-19 restrictions are lowered, the CAA expects to go back to providing training, and introducing new technologies, to countries in the Pacific.
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Appendix
Committee procedure We met on 18 February and 18 March 2021 to consider the annual review of the Civil Aviation Authority. We heard evidence from the Civil Aviation Authority and received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Civil Aviation Authority of New Zealand).
Civil Aviation Authority of New Zealand (Responses to written questions).
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2019/20 Annual review of the Commerce Commission
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About the Commerce Commission ...... 2 Financial overview and audit results ...... 2 The commission has begun its second market study into supermarket pricing ...... 2 The commission remains interested in travel and tickets cancelled due to COVID-19 ...... 3 Implementation of the recommendations from the fuel market study is ongoing ...... 3 The commission watches the international digital sector closely ...... 4 Reviews after a security breach show the commission has some robust processes ...... 4 Protecting vulnerable consumers and ensuring the resilience of telecommunications networks ...... 5 Amendments to the Telecommunications Act will help a smooth transition from copper to fibre networks ...... 5 The commission is regularly involved in insurance work ...... 6 There are many markets the commission could study ...... 6 The commission has regulatory tools to make sure New Zealanders have safe, reliable electricity access ...... 6 Appendix ...... 8
Jamie Strange Chairperson 105
2019/20 ANNUAL REVIEW OF THE COMMERCE COMMISSION Commerce Commission
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the Commerce Commission for 2019/20, and recommends that the House take note of its report.
About the Commerce Commission The Commerce Commission is an independent Crown entity. It is responsible for enforcing laws related to competition, fair trading, and consumer credit contracts. It also has regulatory responsibilities covering electricity lines, gas pipelines, telecommunications, the dairy industry, and airports. In 2018, the commission was given power to undertake studies of markets to see how well they work. The commission’s purpose is to achieve the best possible outcomes in competitive and regulated markets for the long-term benefit of New Zealanders.
The commission’s chief executive is Adrienne Meikle. Anna Rawlings is the commission’s chairperson.
Financial overview and audit results The commission’s expenses in 2019/20 were $53.8 million. This was up $5.9 million from 2018/19, mainly due to an increase in salaries and wages, and legal and other fees. The commission’s revenue was $53.7 million, an increase of $5.3 million. This was because of an increase in funding for the commission’s competition and consumer activities and the fibre multi-year appropriation.
The Auditor-General issued a non-standard audit report, drawing attention to disclosures about the effect of COVID-19 on the commission. He said that the commission did not experience any significant financial effects from COVID-19. However, it did affect the commission’s ability to produce a final determination for the input methodologies for fibre services under Part 6 of the Telecommunications Act 2001.
The Auditor-General rated the commission’s management control environment and financial information and supporting systems and controls as “very good”. The commission’s performance information and supporting systems and controls were rated as “good”. The Auditor-General noted that deficiencies identified in 2018/19 have been resolved.
The commission has begun its second market study into supermarket pricing In November 2020, the Commerce Commission began a year-long study into whether competition in the grocery sector is working well and, if not, what can be done to improve it. This is the second market study the commission has undertaken. We discuss below its earlier study of the fuel market. So far, the commission has met with and requested information from parties that it expects to be main stakeholders. It has recently begun
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2019/20 ANNUAL REVIEW OF THE COMMERCE COMMISSION surveys of grocery suppliers and consumers to learn about their experiences. It expects to release a draft report in the middle of 2021 and a final report toward the end of the year.
We asked whether the commission will investigate the effect of government rules and regulations on the price of grocery items. The commission said that its focus is on the competitive dynamics on the sector rather than the price of groceries. Some of us believe the commission should also be investigating this as it is having a significant impact on supermarket prices. The commission expects that, when competition is working well, it results in appropriate prices. The commission noted that it was often asked about the impact of fuel taxes during its fuel market study, but Government-imposed costs did not factor into its work then either. Some of us think that not examining the effect of regulation means the public will not be able to gain a full picture of food costs.
The commission remains interested in travel and tickets cancelled due to COVID-19 We note that many New Zealanders were affected by the cancellation of events and travel due to COVID-19. Although in many situations customers have easily been able to obtain refunds, this has not always been the case with airline tickets. Air New Zealand provides customers with credits for the full value of travel affected by COVID-19. However, we have heard about delays in credits becoming available for use. We have also heard that it is difficult for customers to know how much credit they have.
The commission told us that cancellation of tickets and travel arrangements was a major issue during the national lockdown. It said the rules in this area depend on the contractual arrangements and legislative regime in place when consumers bought the tickets. The commission published guidance to address questions it received about consumers’ rights and dealt with many complaints. It encourages anyone experiencing problems in accessing credits, or ticketing problems more broadly, to contact the commission.
Implementation of the recommendations from the fuel market study is ongoing In December 2019, the commission published its final report on the fuel market study.1 The report found that New Zealand does not have an active wholesale fuel market. This is weakening price competition. The commission’s recommendations included introducing a terminal gate pricing regime. This would require all importers to offer a spot price at which they will sell fuel to wholesale customers at storage terminals. It also recommended regulating wholesale supply contracts to give fuel resellers greater freedom to switch suppliers, and creating an enforceable industry code of conduct.
We asked how implementation of the recommendations is progressing. The commission is not responsible for implementing the recommendations, but told us that most of them have been incorporated in the Fuel Industry Act 2020. This means they can be enforced under
1 Further information is available on the Commerce Commission’s website here: https://comcom.govt.nz/about- us/our-role/competition-studies/fuel-market-study
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2019/20 ANNUAL REVIEW OF THE COMMERCE COMMISSION legislation. Other recommendations will be implemented through regulation. The commission is supporting this work.
The commission watches the international digital sector closely In the week of our hearing, Facebook banned Australian news organisations from posting content on its platform. Australian-based users were unable to link news from Australian or international sources on their accounts. The ban also blocked some information from government pages, including health and emergency services.
Facebook said the ban was in response to Australia’s recent news media code, which requires online platforms to negotiate a fair payment to news publishers for using their content. Facebook overturned the ban after the Australian Government agreed not to apply the code to Facebook if it demonstrates it has signed enough deals with media outlets to pay them for content.
We discussed the commission’s role in navigating this type of situation in New Zealand. It told us that its Australian counterpart studied Australia’s media, advertising, and digital platforms’ competitive dynamics in 2017. It recommended a voluntary code regarding the acquisition and dissemination of news media. The Australian Government introduced a mandatory code because progress on the voluntary one was slow. We will continue to watch this area with interest.
The commission said it has been closely watching other international issues regarding digital platforms. It carefully assesses whether it has the resources to get involved in these issues, but takes action if it believes this is needed to directly protect New Zealanders’ interests. The commission is considering expanding its capability to consider these issues.
Reviews after a security breach show the commission has some robust processes In October 2019, the commission experienced a significant security breach when a contractor was burgled. Computer equipment with confidential information from businesses and individuals was stolen.
After the breach, the commission immediately alerted the police and the Privacy Commissioner. The police investigation is still open but is not active. The burglar has not been identified and the equipment has not been recovered. The commission obtained court orders to prevent recipients from being able to use the equipment or the information on it. It also quickly contacted affected stakeholders and made public statements.
The commission engaged two independent studies, one by KPMG and the other by RJB Fowler QC. The KPMG study reviewed the commission’s information management and security. The QC’s report looked at the circumstances that led to the incident.
We heard that, although further steps could have been taken, it was found that the commission had some robust security processes. There were “no particular criticisms” of the
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2019/20 ANNUAL REVIEW OF THE COMMERCE COMMISSION commission’s processes. Some improvements could be made, but the commission’s processes were good when compared with other agencies.
Steps that the commission has taken to increase its security include:
bringing some external services in-house engaging with third-party providers to make sure their security is at an acceptable standard including dedicated security governance in the work of its information technology governance group creating a full-time security role to deal with physical and people security, and a fixed- term role to ensure robustness in the commission’s information technology security.
Protecting vulnerable consumers and ensuring the resilience of telecommunications networks The commission’s 111 Contact Code requires telecommunications service providers to ensure that vulnerable consumers have reasonable access to the 111 emergency service during a power cut. We asked whether the commission expects specific concerns about the regulation of the 111 Contact Code to be raised over the next 12 months. The commission said it is not aware of specific concerns, but agrees that resilience of the code is critical. It told us that the primary responsibility for ensuring that things are working well rests with individual telecommunications operators. The New Zealand Telecommunications Forum and the industry have agreed policies to make sure they can cooperate to restore service after any outage.
We heard that the Ministry of Business, Innovation and Employment is reviewing the resilience of telecommunications networks in natural disasters. The review aims to improve understanding of the network’s current resilience and the specific risks natural disasters pose to telecommunication services’ continuity.
Amendments to the Telecommunications Act will help a smooth transition from copper to fibre networks Chorus is preparing for the withdrawal of the copper network. It is beginning some removal trials in March 2021. The Commerce Commission administers the copper withdrawal legislative regime. We asked how it expects the regime to operate. The commission said that, as well as the 111 Contact Code discussed above, the Copper Withdrawal Code is an important element of the regime. It sets out minimum requirements Chorus must satisfy before it can start withdrawing copper.
Copper can only be withdrawn in areas where fibre is available. Consumers must be given at least six months’ notice of copper withdrawal, and Chorus must notify consumers three times in the notice period. If a consumer chooses to order fibre during the notice period, fibre must be installed and operational before copper can be withdrawn. The commission assured us that fibre must be available household-by-household before copper can be withdrawn. This means houses just outside a town’s boundaries will still have a connection available.
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Members of the committee note that letters have begun being circulated to households indicated their likelihood of being removed from the copper network from later this year as per the regulatory framework advanced during the previous Parliament. We believe it is important that the Commerce Commission maintains a vigilant watch to ensure no New Zealanders are disconnected from their existing services without being able to engage with better connectivity options available in their community. We also encourage retail service providers (RSPs) to reach out to their customers to make sure they do not lose their existing connectivity. We note that the copper withdrawal process is something that has made a number of New Zealanders, particularly from older or vulnerable backgrounds, anxious and apprehensive due to the nature of their digital divide and we recognise the need for a more welcoming and educational approach in this space to ensure all New Zealanders can keep connected.
The commission is regularly involved in insurance work We asked whether the Commerce Commission deals with many issues concerning the insurance market. The commission said it is currently considering an insurance merger. It noted that it had declined Vero’s application to acquire Tower in 2017 because of concerns that the acquisition would reduce competition. The commission looks at the specific impact a proposed merger would have on competition in the market when considering mergers, rather than the broader operation of the market.
There are many markets the commission could study We asked whether the insurance sector is a potential candidate for a market study. The commission said that the Government has signalled interest in the construction industry being the next area of study. Although the commission can initiate its own market studies, it is only funded to conduct one study a year. This means that if the Government initiates a study, the commission generally cannot also do a self-initiated study. The commission noted that amendments to the Financial Markets Conducts Act 2013 currently being considered by Parliament may address some issues in the insurance sector.
The commission is aware that there are many markets that people would like it to study. In between its fuel and grocery market studies, it spent time considering how it might identify areas of interest in future. However, it observed that while the Government has a pipeline of markets to study, the commission is unlikely to initiate its own study.
The commission has regulatory tools to make sure New Zealanders have safe and reliable electricity access We asked the commission about its work on ensuring that people have safe and reliable access to electricity. The commission said it has two regulatory tools in this area. One is to set price–quality paths, which apply to 17 companies. These paths are intended to influence the behaviour of electricity distributors by setting the maximum average price or total allowable revenue that these businesses can charge. The paths also have quality standards to make sure the businesses invest in their networks and that there are not substantial outages.
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The second regulatory tool is the setting of information-disclosure requirements. The commission requires electricity distributors to prepare and release asset management plans that show how the distributors manage their assets and forecast expenditure. The distributors must disclose detailed information about the state of their assets. The commission scrutinises this information and encourages improvements.
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Appendix
Committee procedure We met on 18 February and 25 March 2021 to consider the annual review of the Commerce Commission. We heard evidence from the Commerce Commission and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Commerce Commission).
Commerce Commission (Responses to written questions).
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2019/20 Annual review of Crown Infrastructure Partners Limited
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial performance and audit results ...... 2 Improving broadband capacity ...... 3 New funding has been announced to increase rural broadband access ...... 3 Improving connectivity and resilience in remote areas ...... 3 Providing connectivity and hardware to marae and rural hubs ...... 3 Work on “shovel-ready” projects ...... 4 A new model for funding infrastructure ...... 4 Reviewing plans for the three waters programme ...... 5 Responses to Official Information Act requests ...... 5 National Party differing view ...... 5 Appendix ...... 7
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2019/20 ANNUAL REVIEW OF CROWN INFRASTRUCTURE PARTNERS LIMITED
Crown Infrastructure Partners Limited
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of Crown Infrastructure Partners Limited for 2019/20, and recommends that the House take note of its report.
Introduction Crown Infrastructure Partners Limited (CIP) is a Crown-owned company, originally established under the name Crown Fibre Holdings to manage the Government’s investment in ultra-fast broadband (UFB).
In 2017, CIP’s responsibilities were broadened to support the development of roading and water infrastructure to enable an increase in housing supply. Its name was changed at this time. The Infrastructure Funding and Financing Act 2020 widens the scope of its infrastructure financing role and it can now facilitate the financing of housing infrastructure, as well as transport and community infrastructure and facilities.
CIP acted as secretariat for the Infrastructure Reference Group (IRG), and was tasked with the identification, funding, and monitoring of “shovel-ready” projects in response to COVID- 19. In addition, it is working with the Department of Internal Affairs around delivery plans for three waters infrastructure funding.
The Minister of Finance and the Minister for State Owned Enterprises are CIP’s shareholders. Mark Binns is chair of its board and Graham Mitchell is its chief executive.
Financial performance and audit results The Auditor-General issued a non-standard audit report for 2019/20 to draw attention to disclosures about the impact of COVID-19 on CIP. He noted that the pandemic did not have significant financial effects on CIP. Some projects were delayed during the lockdown period, but this did not significantly affect the overall delivery of CIP’s performance targets.
CIP does not have a commercial mandate and is allocated a set level of funding which it uses to meet its objectives. In 2019/20 CIP had total income of $88.4 million and its total expenses were $140.7 million. This resulted in a deficit of $52.3 million. These results were similar to the previous year, when it had a deficit of $54.1 million.
We are pleased to see that CIP continues to receive the Auditor-General’s highest rating of “very good” across its management control environment, financial information systems and controls, and performance information and associated systems and controls. It has achieved this rating for four consecutive years.
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Improving broadband capacity CIP completed the first phase of the Ultra-Fast Broadband (UFB1) roll-out in November 2019. It has a target for 86 percent of New Zealanders to have access to fibre by 2022. CIP has surpassed its 2020 target, with 83 percent of the population now having access to fibre. We are pleased with the progress on UFB.
New funding has been announced to increase rural broadband access We asked about the work being done to increase access to UFB. We note that many members of Parliament still receive complaints about UFB connectivity. In many instances, people living in new developments have problems connecting to UFB, despite living close to a city centre. CIP said that the Infrastructure Reference Group (IRF) recently announced a $50 million digital connectivity package. The package is designed to address network constraints in areas covered by the Rural Broadband One (RBI1) initiative.
CIP said some people under RBI1 can only access strong 4G on their mobile phone but cannot access good broadband due to capacity problems. It said that it has invested about $12 million to upgrade rural broadband capacity at existing rural mobile towers as part of its post-COVID emergency action.
Improving connectivity and resilience in remote areas We asked about fibre links to the West Coast, where recently there was a significant interruption in connectivity due to a fibre cut. CIP told us that a fibre link from Fox Glacier to Hāwea is being built with funding from the Provincial Growth Fund. Currently there is no fibre access in this area because the terrain is so difficult to build on. The link will provide a back- up route along the West Coast should another fibre cut occur. Work on mobile towers along this stretch of highway is progressing at the same time.
Providing connectivity and hardware to marae and rural hubs We discussed the work CIP is doing with the Marae Digital Connectivity Programme. The programme aims to ensure New Zealanders living in regional areas can access more modern and reliable digital services in their community. The Ministry of Business, Innovation and Employment, the Provincial Development Unit, Te Puni Kōkiri, and CIP make decisions on how the programme’s funding is used.
We were interested in feedback from the 374 marae that have been connected through the programme. We heard that the feedback has been “fantastic” and that marae are seeing a lot of benefits. For example, it has provided the ability to hold digital hui, which can speed up consultation with hāpu. All marae involved in the programme will have Wi-Fi facilities once their broadband is connected.
We asked who is able to access the marae’s connections, and were told that security and access is decided and managed by the marae. For example, the lower marae at Waitangi has outdoor access points. This means that people can come onto the marae and use the Wi-Fi services. In some instances, whānau who live near the marae can access the marae’s broadband as well. Other hardware, such as smoke detectors and security cameras, is also being installed at marae.
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We also asked about the establishment of regional digital hubs. CIP informed us that the Provincial Development Unit determines where they will be based, and CIP will provide the technology for them. CIP provides similar hardware to what it provides marae. At present CIP is working on about 12 hubs.
Work on “shovel-ready” projects The Infrastructure Reference Group (IRG) was established as part of the Government’s response to COVID-19, amid concerns of a downturn in the infrastructure and construction sectors. We heard that Cabinet has approved more than 150 projects and assigned $3 billion in funding for delivery. CIP has been allocated 45 IRG projects to deliver, using approximately $1.3 billion of public funding.
We are interested in how the IRG projects were selected, noting that the projects varied widely. CIP emphasised that, although it chaired the IRG, the group involved a number of different people. Its mandate was to provide jobs for New Zealanders quickly. The IRG focused on what construction projects were available by region, their size, the employment opportunities they provided, whether they could begin within twelve months, and whether they were in the public interest. As it only had an eight-week period to assess projects, they had not been subject to a cost–benefit analysis. We asked whether it would take a different approach if it was to run the process again. CIP indicated that if the economic outlook remained stable, it might use different criteria for assessment.
We asked what process was used in assigning projects to different agencies. CIP informed us that the IRG provided the Government with a list that it thought fit the mandate, and the Government then selected the projects and assigned them to the relevant agencies. CIP said it was generally assigned large and complex projects to deliver. CIP then did an extra level of due diligence on the selected projects before they were contracted.
We observe that there is a large investment in infrastructure under the IRG, and are interested in what public reporting will be available to ensure transparency. CIP said it will prepare quarterly reports, similar to the reports it currently produces on broadband infrastructure. The reports will show progress at both a national and regional level. They will include information such as how many projects have been started, what they are, how many people have been employed, and how much money has been invested. CIP noted that information on these projects will be available on the New Zealand Infrastructure Commission’s website.
We note that the Government has announced a $12 billion upgrade programme, and asked what involvement CIP has with this. CIP said it has no official involvement, but it does maintain a dialogue with the Infrastructure Commission. Work on this is being done by agencies such as Waka Kotahi New Zealand Transport Agency.
A new model for funding infrastructure The Infrastructure Funding and Financing Act 2020 enables a new infrastructure levy model to fund infrastructure projects for housing, urban development, and other types of infrastructure.
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We asked for clarification about CIP’s role under the Act. We heard that when councils do not have the funds for the infrastructure needed for large developments, CIP can arrange financing, including borrowing money to pay for necessary infrastructure. A levy charged to property owners within the development will fund the repayments. This is an evolution of the alternative financing model that CIP has been using to help fund infrastructure at the Milldale development, north of Auckland. CIP indicated that it is primarily engaging with “growth councils”, such as Auckland, Hamilton, Tauranga, and Queenstown, where there is a lot of pressure on housing supply.
Looking at the example of Milldale, we asked how much of the infrastructure costs CIP is responsible for, and how much would fall on councils. CIP stated that there are some negotiations with councils, but ultimately the amount of the levy that can be charged on the property determines how much it can contribute. There are protections in the legislation to ensure that households do not pay too much for the levy. For the Milldale development, there were spill-over benefits, and Auckland Council contributed to funding for the infrastructure.
Reviewing plans for the three waters programme We discussed CIP’s work with the Department of Internal Affairs on allocating funding to councils for work on infrastructure for drinking water, wastewater, and stormwater (known as three waters infrastructure). The department has created a formula for allocating funding to the councils. The councils then submitted delivery plans outlining how they would spend the money. CIP is reviewing the plans to make sure that they align with the department’s policy settings, which prioritise drinking water safety and environmentally safe wastewater. CIP also has a monitoring role. It monitors and advises on how the council is meeting the requirements outlined in the delivery plans. Payment of funding is dependent on evidence of work done. We learnt that the funding for this project is expected to be used by the end of the 2022 financial year.
Responses to Official Information Act requests We sought clarification of how CIP responds to Official Information Act (OIA) requests, particularly about whether it consults the Minister to ensure that it has provided the correct answer. CIP informed us that it responds to direct OIA requests and informs the Minister under the “no surprises” policy. Since it advised the Minister after the response is sent, the Minister cannot ask for the answer to be changed. Given that some of CIP’s work involves multiple agencies, it has to co-ordinate its response on occasion if a Minister’s office has been involved or has relevant information, they will be part of this process.
National Party differing view National members note the significant work begun under the previous National-led Government to get more New Zealanders connected to high-quality broadband and connectivity around our country. There is still far more work to be done to close the digital divide with many New Zealanders on the urban fringes of our largest centres, particularly in the Auckland and Canterbury regions failing to achieve suitable connectivity due to existing limitations within the budget of Crown Infrastructure Partners.
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We believe that the Labour Government’s rural connectivity additions to the rural broadband rollout have been insufficient in the last Parliament for the rapidly growing development of our country as well as future planning. It is vital more funding be provided to CIP and other appropriate groups to keep our nation connected with world-class internet speeds via Ultrafast Broadband (UFB) and high-quality rural broadband networks.
In particular, National members note the extreme congestion on rural broadband networks in streets that are now definitively part of our cities. We note there are bizarre situations where some communities, such as Dunollie on the West Coast, have achieved UFB connectivity but cannot get a mobile signal to their house, and the CIP funded Rural Connectivity Group rollouts are not always maximising their potential at their build sites.
We also believe a coherent message needs to be undertaken through CIP in long-term planning regarding connectivity in relation to future infrastructure growth as our towns and cities expand; the role of digital connectivity in the home and workplace is more important than ever, as many New Zealanders encountered during the starkest lockdown periods of the COVID-19 pandemic.
We must and can do better for a more digital nation.
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Appendix
Committee procedure We met on 11 February and 25 March 2021 to consider the annual review of Crown Infrastructure Partners Limited. We heard evidence from Crown Infrastructure Partners Limited and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Crown Infrastructure Partners Limited).
Crown Infrastructure Partners Limited (Responses to written questions).
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2019/20 Annual review of the Electricity Corporation of New Zealand Limited 2019/20 Annual review of Genesis Energy Limited 2019/20 Annual review of Mercury NZ Limited 2019/20 Annual review of Transpower New Zealand Limited
Report of the Transport and Infrastructure Committee
March 2021
The Transport and Infrastructure Committee has conducted the annual reviews of the Electricity Corporation of New Zealand Limited, Genesis Energy Limited, Mercury NZ Limited, and Transpower New Zealand Limited for 2019/20.
We have no matters to bring to the attention of the House. We recommend that the House take note of this report.
Greg O’Connor Chairperson 120
2019/20 Annual review of the Institute of Environmental Science and Research Limited (ESR) 2019/20 Annual review of the Institute of Geological and Nuclear Sciences Limited (GNS Science)
Report of the Economic Development, Science and Innovation Committee
March 2021
The Economic Development, Science and Innovation Committee has conducted the annual reviews of the Institute of Environmental Science and Research Limited (ESR) and the Institute of Geological and Nuclear Sciences Limited (GNS Science) for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Jamie Strange Chairperson 121
2019/20 Annual review of Kiwi Rail Holdings Limited 2019/20 Annual review of the New Zealand Railways Corporation
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial overview ...... 2 Results of the 2019/20 audit...... 2 Equalising revenue and operating costs ...... 3 KiwiRail’s for-profit designation and the public benefit ...... 3 Value to customers ...... 3 Business hesitancy to use rail ...... 4 Electrification and improvements...... 4 Deferred maintenance and track resilience ...... 4 Safety issues ...... 5 Tourism ...... 5 Workforce developments ...... 5 Appendix ...... 7
Greg O’Connor Chairperson 122
2019/20 ANNUAL REVIEW OF KIWIRAIL AND NZ RAILWAYS CORPORATION
KiwiRail Holdings Limited and the New Zealand Railways Corporation
Recommendation The Transport and Infrastructure Committee has conducted the annual review of Kiwi Rail Holdings Limited and the New Zealand Railways Corporation for 2019/20, and recommends that the House take note of its report.
Introduction KiwiRail Holdings Limited (KiwiRail) is a state-owned enterprise (SOE) that owns and operates New Zealand’s rail network and the Interislander ferries. Its operations include logistics, shipping, tourism, public transport, infrastructure, rolling stock, and property. KiwiRail is responsible for approximately 3,700 kilometres of track, 247 locomotives, and three ships. It employs about 3,900 staff.
The New Zealand Railways Corporation (the Corporation) owns the rail network land (approximately 17,800 hectares), which it leases to KiwiRail at a nominal cost. Its primary purpose is to make railway land available to KiwiRail. The corporation does not have any employees or executives and is not expected to derive any return from the land nor operate a rail business. Its board is accountable to the Minister of Finance and the Minister for State Owned Enterprises (the shareholding Ministers).
Financial overview In 2019/20, KiwiRail reported total operating revenue of $639.2 million, down 6 percent from 2018/19. Operating costs for the year decreased by 8 percent, to $599.2 million. This resulted in an operating surplus of $40 million. This surplus was up from $26 million the previous year, but fell short of its target of $91–101 million. These reductions, in both operating costs and revenues, reflect the impact of the COVID-19 pandemic on KiwiRail’s operations. This impact has, however, been somewhat mitigated by cost-saving measures and operational changes.
Results of the 2019/20 audit The Auditor-General issued a non-standard audit report for KiwiRail and the Corporation. The auditor’s opinion on the KiwiRail audit included three emphasis of matter paragraphs, drawing attention to some uncertainties and disclosures. The three matters highlighted in the report were:
• the potential impact of the Future of Rail review on the way KiwiRail’s assets are valued and presented in the financial statements
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• the key assumptions used in the impairment assessment of the Interislander cash- generating unit • the impact of the COVID-19 pandemic on the Group. The auditor’s opinion on the Corporation audit included only one emphasis of matter paragraph:
• the impact of the COVID-19 pandemic. The Auditor-General assessed the management control environment as “good” and the financial information and supporting systems and controls as “very good”, with no recommendations for improvement.
Equalising revenue and operating costs During the level 4 lockdown in early 2020, KiwiRail condensed its weekly services from 950 trains a week to 400. The Interislander ferries reduced from 88 to 15 services a week. These reductions in services led to losses of $2 million a day. However, KiwiRail stated that it succeeded in equalising its revenue and operating costs.
We asked how it had achieved this. It said that by the sixth week of lockdown, costs were equalised through close work with its partners in the Rail & Maritime Transport Union and implementation of rigorous controls on spending, including staff travel, labour costs, and other discretionary expenditure.
KiwiRail’s for-profit designation and the public benefit As an SOE, KiwiRail is expected to operate as profitably and efficiently as comparable businesses not owned by the Crown. Its for-profit designation means its assets are valued on the basis of projected future cash flows. In the past financial years, a number of the rail network assets have been impaired as the forecast cash flows indicated that they would not generate sufficient cash flows to replace these assets. This impairment is why KiwiRail has recorded year-on-year losses ($234.1 million in 2019/20 and $324.9 million in 2018/19).
We queried whether KiwiRail should remain a for-profit organisation in light of its continuing losses, or if it would be more appropriate as a public-benefit entity.
KiwiRail told us that the appropriateness of its designation as a for-profit entity is a complex question, and ultimately a decision for Government. It described itself as “a commercial team running a public benefit”, stating that it has clear commercial objectives in its freight business, which competes against other commercial entities. However, it acknowledges that it also plays an important public-benefit role, which is why it operates some services at a loss.
Value to customers We understand that a 10-year strategic plan is due to be signed off in March 2021. The purpose of the plan is to speak to the future vision of having both KiwiRail’s commercial side and public-benefit side working together.
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KiwiRail is currently not optimised for passenger movements on its rail network. This is because its primary passenger services are a tourism business rather than a commuter service. It is a network provider for public transport services run by councils, but it is not a commuter business. Thus the value of KiwiRail to taxpayers is not as a public transport service or in direct service to the consumer. Rather, the value lies in the benefits to primary industry and the supply chain. The rail network is built around servicing the primary sector, ports, and heavy industry, and contributes to gross domestic product growth in this way. Out of 80 large transport customers spoken to, 78 said that they could not operate without rail. The Value of Rail in New Zealand1 report explains that rail delivers $1.6 billion worth of value per year in “safety, emissions, conversions, and road cost-savings”.
Business hesitancy to use rail We asked whether businesses were only using KiwiRail’s services due to COVID-related supply chain issues. KiwiRail disagreed that this was the case. Rather, it said a lack of equipment had previously prevented it from delivering required outcomes. However, with continued funding for its proposed building programme, it does not foresee this remaining a problem.
Electrification and improvements We recalled from our last annual review that KiwiRail had completed a business case for the electrification of the line between Papakura and Pukekohe, and this was being considered by Waka Kotahi NZ Transport Agency. We noted that KiwiRail has said that electrification of the line will improve the frequency of passenger services, expand rail freight services, and allow direct routes from Pukekohe to Britomart. We asked KiwiRail about progress on this work.
KiwiRail told us that the project will begin its consenting process shortly, and the project should be complete by the end of 2024, along with the City Rail Link and Third Main Line between Wiri and Quay Park.
We understand that KiwiRail also plans to expand the electrified track for the Wellington metro line. This is expected to allow for improved service between Wellington, Wairarapa, and beyond Waikanae. Further investments into the Wellington lines include increasing capacity, improving resilience, and investigating options around new bi-mode rolling stock— trains which can operate on battery power when outside the electrified network. Upgrades to the transformer network in Wellington will give 60 to 100 years of future life for the electrified network.
Deferred maintenance and track resilience Deferred maintenance and infrastructure work remains an ongoing issue for KiwiRail. In previous annual reviews, KiwiRail has told us that a lack of capital for track maintenance and infrastructure work resulted in some lines being taken out of service altogether, because the tracks posed a derailment risk. More recently, KiwiRail undertook urgent maintenance work
1 The Value of Rail in New Zealand (2016) is a report published by Waka Kotahi investigating whether the value of rail to the wider transport system is greater than the commercial return and subsidy support it receives. 4
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2019/20 ANNUAL REVIEW OF KIWIRAIL AND NZ RAILWAYS CORPORATION on its West Auckland line, announced at short notice, because the line posed safety risks. Consequently, services were disrupted, with fewer trains operating and at reduced speed. We asked KiwiRail for an update on its track maintenance programme, and how it ensures its lines operate safely.
In 2019/20, KiwiRail spent $700 million on network capital expenditure. It regularly inspects the track, upgrades assets, and carries out preventative maintenance and repairs throughout the network in the interests of maintaining a reliable and resilient network. KiwiRail anticipates that ongoing maintenance will be costly, over $400 million a year for a decade. However, the National Land Transport Fund is expected to provide $148 million over two years to ensure the reliability and resilience of the rail network. KiwiRail says this will allow it to prioritise its deferred maintenance.
Safety issues Rail safety and the risk around level crossings is another issue KiwiRail is aware of. On the West Auckland line, a train travels every two minutes through the Britomart to Henderson corridor without adequate safety components in place yet. Safety is a multiagency issue, and one that KiwiRail is working on, but it is expensive and quite a bit of work remains.
Tourism KiwiRail operates The Great Journeys of New Zealand, a tourism venture offering three train journeys—Northern Explorer, Coastal Pacific, and TranzAlpine—along with the Interislander Cook Strait ferries. Although they were affected by the COVID-19 pandemic, KiwiRail continues to explore opportunities to develop the tourist services it offers.
We are aware that many New Zealanders are planning to travel around the country while overseas travel continues to be thwarted by COVID-19. Many train stations are linked to cycleways, including the Wilderness Trail from Greymouth. We expressed concern that KiwiRail’s scenic business did not allow for much carriage of bicycles. The scenic trains provide some small capacity, but this requires forward booking. Careful planning is needed for people to safely transport bicycles, some of which can cost upwards of $10,000. We heard that plans for luggage van upgrades will incorporate more cycle racks, despite the design challenges involved in fitting them into carriages.
We were also interested to hear about KiwiRail’s plans for further development of its luxury tourism operations. Market research overseas has shown that New Zealand has “got it all” outside the trains’ windows. So the board believes that the rail cruising market has the potential to be as profitable as the freight company. However, this will rely on the market returning post-COVID. KiwiRail has formed several international relationships to help grow its luxury rail offerings when and if the market comes back.
Workforce developments We heard about the growth of KiwiRail’s workforce, which included 1,000 jobs created as a result of Provincial Growth Fund projects in the last year. KiwiRail employs around 3,900 employees, and this year it has also taken on 100 new apprentices and 90 new trainees. It has also had nine new starters in its graduate programme, and is working with the
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Department of Corrections to help induct, educate, and train prisoners, helping them reintegrate into society. We were interested to hear about this programme, which has so far successfully seen six prisoners supported into part-time work, while providing more holistic pastoral care and mentoring, through Te Kupenga Mahi, Roopu Awhina, KiwiRail’s internal cultural network.
We were also pleased by KiwiRail’s acknowledgment of the older members of its workforce. Although about 90 employees retire each year, it seeks to retain those kaumātua for the transition, where possible, so they can educate new talent, and pass on their upwards of 30 years’ worth of skill and experience.
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of KiwiRail Holdings Limited (KiwiRail) and New Zealand Railways Corporation (the Corporation). We heard evidence from KiwiRail and the Corporation, and received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White Barbara Edmonds replaced Shanan Halbert for some of this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on KiwiRail Holdings Limited and the New Zealand Railways Corporation).
KiwiRail Holdings Limited (Responses to written questions).
New Zealand Railways Corporation (Responses to written questions).
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2019/20 Annual review of Landcare Research, Manaaki Whenua 2019/20 Annual review of New Zealand Forest Research (Scion) 2019/20 Annual review of the New Zealand Institute for Plant and Food Research 2019/20 Annual review of the Research and Education Advanced Network New Zealand Limited (REAANZ)
Report of the Economic Development, Science and Innovation Committee
March 2021
The Economic Development, Science and Innovation Committee has conducted the annual reviews of Landcare Research, Manaaki Whenua; New Zealand Forest Research (Scion); the New Zealand Institute for Plant and Food Research; and the Research and Education Advanced Network New Zealand Limited (REAANZ) for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
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2019/20 Annual review of Meridian Energy Limited
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 About Meridian Energy Limited ...... 2 Financial results and audit opinion ...... 2 Sustainability ...... 3 Renewable energy generation ...... 3 Use of non-renewable generation ...... 3 Resource management framework ...... 3 Transmission ...... 4 Electricity pricing ...... 4 Planned closure of the Tiwai Point aluminium smelter ...... 4 Undesirable trading situation and the Electricity Authority’s findings ...... 4 Diversity and inclusion ...... 5 Appendix ...... 6
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2019/20 ANNUAL REVIEW OF MERIDIAN ENERGY LIMITED
Meridian Energy Limited
Recommendation The Transport and Infrastructure Committee has conducted the annual review of Meridian Energy Limited for 2019/20, and recommends that the House take note of its report.
About Meridian Energy Limited In 1999 the State-owned enterprise ECNZ was split into three competing state-owned electricity generators: Genesis Energy, Meridian Energy, and Mighty River Power (now Mercury). The three SOEs became Mixed Ownership Model companies after the Government partially privatised them in 2012, while retaining majority ownership.
Meridian Energy Limited (Meridian) is New Zealand’s largest renewable energy generator. It meets approximately 30 percent of New Zealand’s total electricity needs, primarily through hydro stations, but also increasingly through wind power. Meridian has a large financial contract with New Zealand Aluminium Smelter (NZAS) at Tiwai Point, equivalent to around 38 percent of Meridian’s generation.
Meridian is listed on both the New Zealand and Australian stock exchanges. It is one of the country’s largest organisations, employing nearly 900 people in New Zealand. It provides retail operations in three countries: New Zealand, Australia, and the United Kingdom. Including its subsidiary, Powershop, it has around 450,000 customers in New Zealand and Australia.
The chairman is Mark Verbiest and the chief executive is Neal Barclay.
Financial results and audit opinion Meridian produced total group revenue of approximately $3,405 million for the year ended 30 June 2020. Net profit after tax (NPAT) was $176 million, down 48 percent from the 2018/19 net profit of $339 million. When adjusted for the effects of changes in the fair value of hedges and other non-cash items, profit was 5 percent lower than the previous year.
The interim results, released in February 2021 for the six months ended 31 December 2020, showed a 19 percent increase in net profit before tax, however NPAT was 15 percent lower than the previous period, which had seen high volumes of generation.
The Auditor-General issued an unmodified audit opinion, which means that he was satisfied that the information audited fairly reflected Meridian’s activities for the year and its financial position at the end of the year. With regard to the valuation of generation structures and plant, and electricity derivatives, the Auditor-General found the assumptions and resulting valuations to be reasonable.
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Sustainability Meridian told us that its passenger vehicle fleet is now fully electric, and it expects all its fleet to be electric within the next two years. It is planting a carbon sink to “mop up” its carbon emissions. The company has an active commitment to sustainability.
Renewable energy generation Meridian told us it had recently announced that construction would begin on the Harapaki wind farm, expected to cost $395 million. It reported that renewable energy generation (wind, geothermal, and solar) is becoming cheaper, and can replace older, fossil fuel-based generation. It did not see a problem with future supply, but would encourage policy makers to think about stimulating demand.
We asked whether new hydro dams are needed. Meridian noted that the cost and environmental impact of a dam is high. With wind and grid-scale solar energy coming online within the next five years, there is probably no need. It added that while solar panels are becoming cheaper to deploy, their cost is currently still an impediment to wider use. Land cost and land use are also an issue. Although wind turbines can co-exist with agriculture, a solar array fits less well with farming. Wind technology continues to become cheaper to deploy and is likely to remain the key technology used to produce more renewable energy.
In Australia, the company is planning to build renewable energy in relation to retail customer growth and usage, including the proposed Rangoon Wind Farm and battery energy storage system in New South Wales.
Use of non-renewable generation We discussed the “just transition” away from fossil fuels. We expressed concern about the reliance on coal while making the transition. Meridian acknowledged the dependence on coal and gas in dry-year management. It noted the challenge to ensure continued investment in gas, to ensure it remains available for back-up generation over the next few years while the transition occurs.
We talked about the “swaption” arrangement that Meridian has with Genesis Energy, which includes the use of non-renewable generation. The arrangement is used when hydro water levels are low. Meridian told us that while its commitment is only to generate electricity from renewable sources, low hydro storage levels in 2021 mean the swaption arrangement has been called upon.
Resource management framework We asked whether the current resource management framework was slowing the move to renewables. Meridian responded that it had slowed the construction of the Harapaki wind farm. It suggested that increased flexibility was needed, and a streamlined process to speed up consenting for wind farms. It noted that a wind farm takes around two years to build, which is often less time than it takes to obtain consent. Asked how this could be improved, Meridian suggested that stronger guidance be given to councils about the desirability of renewable energy. It suggested that National Policy Statements could be used so equal consideration was given to renewable energy alongside other environment aspects. Meridian
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2019/20 ANNUAL REVIEW OF MERIDIAN ENERGY LIMITED said it does not think that consenting should be undertaken at a national level, as it could disincentivise companies like Meridian from properly consulting with local stakeholders.
Transmission In Meridian’s view “transmission is the single largest enabler for competition in the generation market”. It acknowledged that Transpower has invested a lot over the past 10 years, but said this was making up for underinvestment over the previous 20 years. It believes a lot more transmission investment is needed. It said that transmission capacity should ideally be built ahead of time, not just in time. This was particularly needed in view of the additional generation coming online after the end of the New Zealand Aluminium Smelter contract.
Electricity pricing We were reminded that New Zealand is isolated geographically, and that power is often generated a long way from where it is used. Nevertheless, the company noted real (after inflation) energy costs are at the lowest level in eight years. Meridian does not believe that the cost to New Zealand consumers will increase in the future.
The company told us that they think the industry “stepped up” during COVID-19 and offered support to customers. Meridian suspended late payment fees and disconnections during this period.
Planned closure of the Tiwai Point aluminium smelter Meridian announced in January 2021 that it had reached an agreement with its largest customer, Rio Tinto, which operates New Zealand Aluminium Smelter at Tiwai Point in Southland. The planned closure has been extended from August 2021 to December 2024. Meridian noted that it was very unlikely that the contract would be extended past 2024.
We asked what sort of users were likely to replace the aluminium smelter, after the contract expires. We heard that it is likely that a number of industrial users would move from coal boilers to using the renewable capacity. A green data centre, and hydrogen production in Southland are also likely options, according to Meridian. The latter would be primarily export- driven, to countries such as Japan.
Undesirable trading situation and the Electricity Authority’s findings We note that Meridian told us it was involved in an undesirable trading situation (UTS) during 2019/20. A UTS is a situation outside the normal operation of the electricity market that threatens, or may threaten, confidence in, or the integrity of, the wholesale market. In this case, Meridian spilled excess water from its South Island dams following severe rainfall that led to flooding. Because the water could have been used to generate electricity, this caused a spike in wholesale prices, and increased security of supply risks in the North Island.
The Electricity Authority is required to attempt to correct such situations and restore the normal operation of the market. The Electricity Authority confirmed its final decision on 22
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December 2020 that a UTS did occur between 3 and 27 December 2019. The Authority concluded that a confluence of factors resulted in competitive pressure not operating in the spot market in the way normally observed. In particular, there was a lack of competitive pressure which meant prices remained high despite an abundant supply of water.
Meridian told us that it agrees with the facts, but its motive was around managing a flood event. It said the company did not set out to unduly profit from the event. Meridian told us that it would likely have to pay approximately $2 million as a consequence of the UTS.
After Meridian’s hearing with us, the Authority published a consultation paper on 11 March 2021 titled Proposed Actions to Correct Undesirable Trading Situation 2019.1 The paper proposes to reset prices for the three week period of the UTS. For Meridian, the proposed impact is $11.4 million. The committee expressed its concern that Meridian stated its exposure at $2 million when its liability was still to be determined by the Electricity Authority at that time.
We look forward to any further findings.
Diversity and inclusion Meridian told us that its people are highly engaged, and committed to its vision. Women represent 46 percent of staff, 34 percent of senior roles, and half of the board. Inclusivity and diversity initiatives in the organisation are led by the “belonging committee”. We asked about Māori and Pasifika staff numbers, and were told that they make up only around 5 percent. Meridian is working on growing a more diverse workforce through its apprenticeship and graduate programmes, and having stronger targets for ethnic and gender diversity.
1 This can be found here: https://www.ea.govt.nz/assets/dms-assets/28/Consultation-paper-Proposed-Actions- to-Correct-Undesirable-Trading-Situation-2019.pdf
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of Meridian Energy Limited. We heard evidence from Meridian Energy Limited and received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Barbara Edmonds replaced Shanan Halbert, and Barbara Kuriger replaced Hon Mark Mitchell for this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Meridian Energy Limited).
Meridian Energy Limited (Responses to written questions).
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Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About the Ministry of Business, Innovation and Employment ...... 2 Financial performance and audit results ...... 2 The ministry is a key player in the COVID-19 response ...... 3 The ministry has responsibility for MIQ ...... 3 A closed border has challenged the immigration system ...... 5 Tourism was heavily affected by COVID-19 ...... 6 The ministry has a role supporting regional New Zealand ...... 9 The small business Digital Boost initiative is supporting SMEs ...... 10 The ministry uses partnerships for spectrum allocations ...... 10 National Party differing view ...... 11 Appendix ...... 12
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Ministry of Business, Innovation and Employment
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the Ministry of Business, Innovation and Employment for 2019/20, and recommends that the House take note of its report.
About the Ministry of Business, Innovation and Employment The Ministry of Business, Innovation and Employment is one of the largest government departments. Its purpose is to “grow New Zealand for all”.
The ministry is responsible for a large variety of areas. They include immigration, science and innovation, communications, energy and resources, regional development, building and construction, tourism, and government procurement. In July 2020, the ministry also became responsible for managed isolation and quarantine (MIQ).
In 2019/20 the ministry employed 4,772 people across 46 offices in New Zealand and 14 offices overseas. Its chief executive is Carolyn Tremain.
Financial performance and audit results The ministry was responsible for $5.7 billion of departmental and non-departmental expenditure in 2019/20.
The ministry’s departmental expenditure was $930.9 million and departmental revenue was $886.6 million. This resulted in a deficit of about $44.3 million, substantially lower than its estimate of breaking even, and the surplus of $23.96 million in 2018/19. The deficit was the result of a decline in revenue, particularly from immigration levies, and higher than usual costs to deliver business-as-usual activities. The ministry’s financial performance is expected to worsen in 2020/21, with a forecast deficit of $228 million.
The ministry was also responsible for about $4.789 billion of non-departmental expenditure in 2019/20. This was an increase from $4.286 billion in 2018/19. This funding was administered on behalf of Ministers for services provided by Crown entities, state-owned enterprises, and other third parties.
The Auditor-General issued a non-standard audit report for the ministry. He was satisfied that the information audited fairly reflected the ministry’s activities and financial position. However, he drew attention to the disclosures about the effect of COVID-19 on the ministry and the uncertainties relating to the Tui oil field decommissioning costs.
Tui oil field decommissioning and unappropriated expenditure The ministry, on behalf of the Crown, is obligated to decommission the Tui oil field. However, the nature of the decommissioning means that costs can only be confirmed at a later stage. The ministry has based its costs on the information available. However, the estimate is
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2019/20 ANNUAL REVIEW OF THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT based on a 2015 report (updated for inflation) and there are risks that there will be additional costs.
We were advised that the initial provision has given rise to unappropriated expenditure. We note that the Auditor-General has made several recommendations to the ministry relating to managing and seeking approval for costs, and making the process more transparent. We encourage the ministry to follow these recommendations. It is concerning that spending has occurred outside the authority given by Parliament. We look forward to hearing about how this is progressing at the ministry’s next annual review.
The ministry’s systems and controls were rated “good” The Auditor-General rated the ministry’s management control environment and its performance information and supporting systems as “good”. This is an improvement from the 2018/19 rating of “needs improvement.” The Auditor-General still recommended further improvements. We commend the ministry for its progress, particularly given the challenges it has faced this financial year.
The Auditor-General rated the ministry’s financial information and supporting systems and controls as “good”, the same rating as last year. The Auditor-General recommended some improvements.
The ministry is a key player in the COVID-19 response Given the scale of the ministry and the nature of its work, it has been involved in multiple aspects of the Government’s COVID-19 response. Some of these activities included:
leading work on the all-of-government workforce, which helped agencies identify their key services and established criteria for assessing what was a priority in running the country in an emergency status establishing and supporting the essential services regime under alert level 4 having primary responsibility for maintaining the provision of critical national infrastructure services under alert level 4 managing border restrictions, including the exemptions regime and supporting evacuation and repatriation flights leading the procurement of COVID-19 vaccines. We heard that the ministry seconded 500 staff to the all-of-government COVID-19 response. The chief executive said that taking on new COVID-19-related responsibilities had a ripple effect across the ministry. It increased the workload of both frontline and back office staff.
We thank the ministry and its staff for their work in responding to the COVID-19 pandemic.
The ministry has responsibility for MIQ Everyone who arrives in New Zealand is required to stay in MIQ for 14 days. As at 14 February 2021, 109,836 people had gone through the MIQ facilities. Exemptions from MIQ are available in rare circumstances. Decisions on exemptions are made in the ministry’s MIQ business unit by the deputy chief executive for MIQ and the head of MIQ. As at 28 October
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2020, 2,560 applications for exemptions had been received, of which 13 percent had been approved.
There is an emergency allocation process for MIQ MIQ has capacity for 4,500 people at any one time across 32 hotels in five locations. The demand for MIQ spaces is higher than the supply. This has resulted in the creation of an emergency allocation process. A person can apply for emergency allocation in MIQ if their circumstances fall within one of two categories for emergency allocation requests. Each category has multiple subcategories.1
We asked the ministry to provide an outline of the emergency allocation process. Each application requests as much evidence as the applicant can provide. The website has guidance about the type of information. Where relevant, information from an employer or government agency (if the reason for applying is a Government priority) is also asked for.
When an application is received, it is assigned to a case manager. The case manager will ensure the application contains all information necessary. At every stage of the process, the ministry can request additional information from the applicant.
After this stage, a decision-maker determines whether an exemption should be given or not. The deputy chief executive for MIQ and the head of MIQ have the delegation to make those decisions. However, the chief executive is ultimately responsible for the decisions. Cases can be escalated to her when necessary (about two have been escalated, we heard).
When an application is declined, the applicant is informed that they may ask the ministry to reconsider it. A reconsideration could take place if the applicant believed the decision was wrong, there was additional information they can provide, or their situation had changed. The ministry said it often has a different person consider the case a second time.
The ministry emphasised that the emergency allocation process was built quickly and from scratch. It drew on experiences from statutory decision-makers within the ministry, as well as agencies such as Inland Revenue. When the process was being set up, experienced workers from agencies such as Immigration New Zealand assisted the case managers. The emergency allocation categories are regularly reviewed to reflect the situations that arise in applications. Applications are also subject to a quality assurance process, which includes random sampling of decisions, and getting advice from other agencies.
A Green Party member of Parliament was declined emergency allocation in MIQ Some of us noted that Ricardo Menéndez March, a Green Party member of Parliament, applied for emergency application in MIQ twice, on 13 and 15 January 2021. He applied on the basis of categories 2b and 2d. These categories are for people whose entry to New Zealand is time-critical for delivering a critical public or health service, or where urgent travel is required for national security, national interest, or law enforcement reasons.
Some of us wanted to know about the information that was provided to the decision-maker in this case. The ministry said that although the case manager would likely have seen detailed
1 These categories are available on the MIQ website: https://www.miq.govt.nz/travel-to-new-zealand/secure- your-place-in-managed-isolation/emergency-allocation-requests/. 4
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2019/20 ANNUAL REVIEW OF THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT information, personal information is anonymised on the decision document given to the deputy chief executive or head of MIQ. We heard that the application would have mentioned that Mr Menéndez March had a role in Government, but not said who he was.
We heard that the case was escalated to the chief executive once it was clear that the application was about a member of Parliament. The request was escalated because of the need to interpret the allocation criteria, given that “national interest” is wide ranging and the team felt unable to assess whether this was the case. The chief executive said she thought there might have been information she was unaware of, so contacted the leader of the Green Party about it.
The emergency allocation team had recommended that both Mr Menéndez March’s applications be declined. The chief executive formally declined both applications. The chief executive advised the Minister for COVID-19 Response of this decision under the “no- surprises” policy.
Ventilation and air filtration at the Pullman hotel in Auckland is being upgraded The Pullman hotel in Auckland is being used for MIQ. In January 2021, five people were infected with COVID-19 while at the facility. Conditions at the hotel were investigated and COVID-19 was found to have spread through the air. Ventilation and air filtration at the hotel have been changed as a result.
We asked who paid for the upgrades. The ministry said the lift ventilation was being paid for by the Ministry of Health. Additional funding is being sought for further ventilation upgrades, which will depend on the scope of the problem assessed in a ventilation report. We heard that the Government intends to have upgrades made to the other facilities, after seeing the results from the Pullman upgrades.
The contracts for MIQ hotels are due to expire at the end of April The ministry was transferred responsibility for MIQ facility contracts by the Ministry of Health at the end of 2020. The contracts are due for renewal at the end of April 2021. We asked about the status of these contracts, given reports that at least one hotel group has indicated they will not be renewing their contract.
The ministry said it is working with hotel groups individually about the renewal of contracts. It said it had followed up with the particular hotel group. The ministry said it has had no formal indication that any group intends to stop working with the ministry. However, it is a commercial process. The ministry was confident it has good relations with all the groups.
A closed border has challenged the immigration system New Zealand closed its border to international visitors in March 2020. This caused huge challenges for the immigration system. It particularly affected the tourism and education sectors.
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Discrepancies in the border exception process Immigration New Zealand has established a new border exception process. This allows people with a critical purpose for travelling to New Zealand to be allowed into the country. To give effect to the process, a new visa category has been established. About 60,000 requests under this category have been processed and 22,000 visas issued.
Some of us are concerned about discrepancies as to who can bring their family into New Zealand. Migrant nurses who arrived in New Zealand before the border closed have not been able to bring their families, but those who arrived after the border closed can. We asked when the ministry became aware of this issue.
The ministry said that this occurred when the critical purpose visa was established, replacing the previous regime. It has been an issue since June 2020. The ministry noted that it extended beyond nurses, with a number of people unable to enter New Zealand.
The ministry said this issue has been traversed a number of times with officials and the Minister’s office. It said it has been given these visa settings to apply. It cannot change its decision-making in this context unless there are changes to visa settings.
Many New Zealanders cannot have their partner join them We note that many New Zealanders have not been able to bring their overseas partners into the country. For this to occur, the H6 critical purpose visitor visa requires that the couple has lived together and is in a genuine and stable relationship. We note that this bar is high. A couple would be required to prove this is the case, and have evidence of living at the same address.
Immigration New Zealand confirmed that a couple who live in two houses in two countries, but stayed together on holiday, would probably not fit the criteria for the H6 visa. It said it encounters this situation regularly. Immigration New Zealand said that case officers have no discretion in these cases. Delegated decision makers (DDMs) have absolute discretionary power so could intervene, but DDMs typically only get involved in humanitarian cases.
The Immigration Protection Tribunal schedules its own cases We asked what Immigration New Zealand does to ensure that a person who is liable for deportation has their appeal heard before parole is granted. The Immigration Protection Tribunal (IPT) is an independent body that hears and determines appeals about immigration decisions, including decisions about deportation. The Immigration Act requires appeals against deportation notices to be heard before parole is granted.
The IPT schedules its cases as it sees fit. As part of the justice sector, it falls within the responsibility of the Ministry of Justice. Immigration New Zealand said it cannot control when decisions happen.
Tourism was heavily affected by COVID-19 COVID-19 and the resulting border closure effectively stopped international tourism in New Zealand. Although domestic tourism has increased, it is not enough to fill the gap left by international tourists.
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The ministry said the effects were not as severe as it had anticipated, although it acknowledged that the effects varied across the country. Places such as Queenstown and Franz Josef have been significantly affected by the loss of international tourism and this will continue. Other areas have had a resurgence of domestic tourism. However, the ministry noted that the sector would face challenges as New Zealanders return to work after summer.
The Strategic Tourism Assets Protection Programme
The tourism sector needed funding to respond to the effects of COVID-19 To respond to the effects of COVID-19, the tourism sector received specific funding of $400 million through the Tourism Recovery Package. The largest part of the package is the Strategic Tourism Assets Protection Programme (STAPP).
We asked what advice the ministry provided on the number of businesses and jobs that would be lost if there was no intervention in the sector. Some of us are concerned that, if this is not quantified, it is difficult to target the spending to be as effective as possible.
The ministry said it provided advice to the Minister of Tourism as part of its broader COVID- 19 response advice. A lot of the work was done in conjunction with the Treasury. At the time, the Treasury had established a set of scenarios that might unfold in New Zealand, given the border closure. The scenarios informed the advice the ministry gave about the tourism sector. The ministry said that a tourism taskforce was created to make sure there was good industry involvement.
The ministry said that the initial assessment was that the effect on the tourism industry would be serious. It advised the Minister to think about how to maintain the key “anchor products”. These are products that would be needed to help the industry re-emerge once the borders reopen. Funding was allocated for the STAPP on this basis.
Three tourism businesses received funding before applications opened We note that three tourism businesses made applications and were approved for funding before the first funding round of STAPP opened. The ministry provided advice on two of those businesses. When asked what the advice was, the ministry said it was that the businesses were likely to meet the criteria when the funding round opened in terms of their size, significance, and “anchor nature”. The ministry advised that if these businesses applied during the normal funding round, they would be successful and “towards the top of the list”.
Some of us are concerned that some businesses received funding before other businesses were able to apply. We asked why this occurred. The ministry said that events moved rapidly. The Minister of Tourism announced that STAPP would be implemented on 14 May 2020 and the first funding round opened on 4 June. The ministry said it believed the disappearance of certain anchor products could cause real problems for the re-emergence of the region’s tourism industry. We heard that Ministers made the funding decisions, and decided that those products were important to the region and needed funding immediately.
In February 2021, the Auditor-General announced he was launching an inquiry into aspects of STAPP. In particular, he will look at the information available about the eligibility criteria and assessment process, how the applications were assessed (including the fact that three businesses received funding before the formal application round began), and whether there
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Other support is available to the tourism sector The ministry noted that tourism businesses are eligible for other forms of business support that is not sector-specific. The tourism workforce was also eligible for the COVID-19 Income Relief Payment. Further support has been available to businesses through the Business Finance Guarantee Scheme and Small Business Cash-flow Loan Scheme. We heard that the sector’s uptake of the wage subsidy was high.
A trans-Tasman bubble would hugely benefit the tourism sector We note that Tourism New Zealand has estimated that tourism spending could reach 70 percent of its pre-COVID levels if a trans-Tasman bubble with Australia was opened. The ministry said a lot of work had been done by the Ministry of Foreign Affairs and Trade on safe travel zones. However, further work is still needed between Australia and New Zealand about processes to manage outbreaks and what would happen if outbreaks did occur in either country.
We asked what advice the ministry had given about the benefit of a trans-Tasman bubble for businesses and the tourism sector. The ministry said, from a tourism and MIQ perspective, it would like to see a safe travel zone opened with Australia when it is safe to do so. It said the Treasury had given an estimation of the economic benefit of the border opening with Australia. However, the benefit was not as high as people thought it might have been.
We believe it is important to the tourism sector that the border is opened when it can be done safely. Some of us recognise that Australia opened to New Zealand in October 2020. This is particularly so for areas that rely on international visitors and are facing the prospect of business closures. Some of us are extremely disappointed at the “playing down” of the benefits of the border being opened safely.
The ministry acknowledged the importance of international tourism to parts of New Zealand. It noted that places within three hours of a major centre are benefitting from domestic tourism, even though the benefit is not as high as it would have been when international tourists were in New Zealand.
The new public holiday for Matariki may increase tourism We asked what effect the new Matariki public holiday would have on the tourism sector. The ministry said that, because the holiday will fall during a time when there are no other public holidays, the impact is hard to quantify. However, it also believes long weekends encourage New Zealanders to travel more. The ministry noted that, with the borders closed, many New Zealanders are taking advantage of long weekends by travelling the country.
The Tourism Infrastructure Fund operates in a different context now The Tourism Infrastructure Fund was introduced in Budget 2017. It provides $25 million annually to develop tourism-related infrastructure to support regions facing pressure from tourism growth. It was introduced at a time of increasing tourist demand, when it was important to establish facilities to support regions.
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We understand there have been significant delays in the implementation of the fund arising from council requirements about engaging contractors. We asked which councils were creating the problem.
The ministry said that pressure on the contracting and construction workforce has caused difficulties on a few occasions. Projects for the South Wairarapa District Council, Masterton District Council, Far North District Council, Ashburton District Council, and Whanganui District Council have been delayed because of the unavailability of contractors.
The ministry said the context of the fund has also changed, away from supporting infrastructure for large numbers of tourists and more about supporting businesses.
The ministry has a role supporting regional New Zealand The ministry manages the Provincial Growth Fund The ministry manages the Provincial Growth Fund through its operating unit, the Provincial Development Unit (PDU). The PGF is a $3 billion fund established to support investment in regional initiatives.
In May 2020, the PGF was reset to support the recovery from COVID-19. At least $600 million was repurposed to support projects that provided for immediate jobs, as well as meeting the PGF’s underlying objectives.
In its audit, the Auditor-General said there was an absence of appropriate and meaningful output and outcome measures for the appropriations administered by the PDU. This means the public cannot assess the actual effects, contributions, and success achieved by the funding.
The Auditor-General released a report, Managing the Provincial Growth Fund, in August 2020. The report made three recommendations. It recommended the ministry:
further strengthen transparency about how the PGF’s application, assessment, and decision-making processes operate work with the Ministry for Primary Industries and the Ministry of Transport to improve consolidated reporting, and more meaningfully report to Parliament and the public on the PGF as a whole complete and publish, as quickly as possible, a plan for evaluating the overall effectiveness of the PGF to ensure it is transparent about how officials plan to give assurance to Parliament and the public about what the PGF is achieving.
Supporting industry transitions in the regions We asked the ministry how it is supporting industry transitions in the regions. We were particularly interested in how it is connecting different pieces of the Government’s work programme for this purpose.
The ministry said that Industry Transformation Plans help where a transition is needed. The plans look at the economic, social, and labour effects of a transition, to make sure they work
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2019/20 ANNUAL REVIEW OF THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT in the region. A Regional Skills Leadership Group works with people in the region to connect different Government work programmes.
The ministry said its internal policy coordination group looks across various policy areas and makes links. It noted that the Public Service Commission is leading work to identify a regional lead coordinator to make sure different government agencies understand the effect they have on the community.
We asked how the ministry ensures a good supply of workers who are able to transition across industries, for example, to help a region transition from oil and gas into other types of energy. The ministry said it is working with the Ministry of Social Development, Ministry of Education, and the Tertiary Education Commission to look at what initiatives are in place. It aims to provide more integration across different initiatives.
The small business Digital Boost initiative is supporting SMEs We asked the ministry for an update on the small business Digital Boost initiative. This initiative is an online platform that provides digital skills training for small- to medium-sized enterprises. It aims to help businesses learn how to make their business more internet- friendly.
The ministry said that over 3,000 businesses use the initiative, across a range of industries. The support the businesses receive includes private sector contributions; free staff, time, and resources; training modules; discounted services; and other support through social media and promotional businesses. There are online tutorials; for example, one gives businesses practical advice and the basics on how to build their own website.
We asked for a breakdown of geographic engagement in the initiative. The ministry said at present it is around 40 percent Auckland, 14 percent Canterbury, 12 percent Wellington, and 10 percent Waikato.
The ministry uses partnerships for spectrum allocations Telecommunications operators need access to sufficient radio spectrum to build 5G mobile networks. The ministry said the previous allocations of spectrum were not “universally enjoyed”. It has been working with a Māori reference group to work out what a genuine Treaty of Waitangi partnership would look like in relation to spectrum allocations. It said it is continuing to engage with telecommunications providers during this process, to ensure their interests are properly balanced.
Some of us asked for reassurance that spectrum that can be used immediately will not sit idle because spectrum was issued and is not being used. We think this is particularly important given there are many rural New Zealanders who suffer from a lack of connectivity options.
The ministry said the Government is actively looking at unallocated and unused spectrum to see where it can enhance service. For example, in February 2019 an allocation was provided in advance of the formal long-term allocation of spectrum, to providers who had progressed with their 5G network.
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We asked who comprised the Interim Māori Spectrum Commission. The ministry said the working group was established by Māori in May 2019 and it included a group with long- standing interest in spectrum. As well as the ministry, it includes Waitangi Tribunal claimants, representatives from the Iwi Chairs Forum, Te Hauarahi Tika Trust, as well as Te Puni Kōkiri and Te Arawhiti.
We asked whether spectrum auctions are likely to go ahead in 2021. The ministry said it has always been its intention to have spectrum allocation conducted by November 2022 and this is still on track. It said it is working with the Minister on the details of the plan, in terms of how the allocation process will work. This will be announced soon.
National Party differing view National members note our concern at the processes that have been undertaken regarding the allocation of spectrum for the purposes of 5G connectivity rollouts.
We are also concerned at the enigmatic processes that the ministry and another agencies have been a part of with this Government concerning Māori spectrum in relation to treaty claims and the potential impacts any decisions may have on wider rights access and innovation in the technology sector.
We believe it is imperative that the Government be more transparent about their proposals, whether draft or otherwise, for activity in this space and that a far better and more productive process is needed for the rollout of spectrum to get more New Zealanders connected wherever they live in New Zealand, so better enhancement can be made to rural broadband and urban connectivity options alike.
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of the Ministry of Business, Innovation and Employment. We heard evidence from the Ministry of Business, Innovation and Employment and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Ministry of Business, Innovation and Employment).
Ministry of Business, Innovation and Employment (Responses to written questions).
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2019/20 Annual review of the Ministry of Transport
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 The Government’s response to the effects of COVID-19 on the transport sector ...... 3 The ministry’s review of the Government Policy Statement 2021 ...... 4 Alignment of transport sector agencies in New Zealand ...... 6 Auckland Light Rail ...... 7 Rail from Hamilton to Auckland ...... 8 Let’s Get Wellington Moving ...... 9 The effects of COVID-19 on supply chains and ports ...... 10 The ministry’s staff resourcing ...... 12 Auckland congestion charging ...... 12 The ministry’s Māori engagement strategy ...... 12 Appendix ...... 14
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Ministry of Transport
Recommendation The Transport and Infrastructure Committee has conducted the annual review of the Ministry of Transport for 2019/20, and recommends that the House take note of its report.
Introduction About our consideration We held a hearing with the Minister of Transport, Hon Michael Wood, for an overarching discussion about issues in the transport sector. In our hearing with the Minister, he was joined by Sir Brian Roche, chair of Waka Kotahi NZ Transport Agency (Waka Kotahi), and Peter Mersi, chief executive of the Ministry of Transport. We held a separate hearing with the Ministry of Transport.
About the Ministry of Transport The Ministry of Transport is the Government’s principal advisor on transport policy. It provides impartial, expert advice to the Government to help it meet its transport objectives. The ministry’s purpose is “to enable New Zealanders to flourish, reflecting transport’s role in shaping our society, economy and environment”.
The Ministry of Transport works with a number of government agencies in the transport sector. Its work includes collaborating with agencies on policy development and resourcing, and monitoring their performance.
We heard from the ministry’s chief executive, Peter Mersi in our hearing with the Ministry of Transport.
Financial overview and audit report The ministry receives most of its funding from the Crown. In 2019/20, its departmental revenue was $60 million, up from $43 million in 2018/19. It incurred departmental expenses of $51 million, and non-departmental expenditure of $5.472 billion. This resulted in a surplus of $8.5 million, compared with a surplus of $3.2 million in 2018/19.
Results of the annual audit The Auditor-General issued an unmodified audit opinion for the ministry. He rated its management control environment as “good”, and its financial information and supporting systems and controls as “very good”. However, the ministry’s performance information and supporting systems and controls were rated as “needs improvement”. This rating is a result of the ministry’s interim statement of intent (SOI) from 2017/18 remaining its most recent version. Although it initially planned to release a new SOI in 2018/19, the Auditor-General understands that a new SOI will not be released until the second half of 2020/21.
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The Auditor-General also highlighted two of the ministry’s roles: monitoring and tracking expenditure for projects funded under the Provincial Growth Fund (PGF); and accounting for, and managing, the Crown’s interest in City Rail Link (CRL). He said he is satisfied with the ministry’s systems and controls relating to the PGF. He noted that uncertainties about final ownership of some CRL assets created challenges in the audit, and it is important that these are resolved with the Crown.
The Auditor-General noted some key points in his audit of the ministry. One is the changing landscape the ministry faces, particularly the effects of COVID-19 on its operations and activities. He also noted that the ministry is becoming responsible for a bigger proportion of transport funding, and needs to increase its capability and capacity as a result.
Other key matters raised by the Auditor-General included the New Zealand Upgrade Programme, supply chain issues, reducing transport emissions, and road safety.
The Government’s response to the effects of COVID-19 on the transport sector We were interested to hear how COVID-19 has affected the transport sector, and the Government’s response. The Minister highlighted that New Zealand faces unique challenges due to its location. He pointed out that typically, 80 percent of air freight comes to New Zealand on commercial flights. With air travel dramatically reduced due to COVID-19, New Zealand risked becoming very isolated from international markets. The Government announced $600 million for aviation support in March 2020, over half of which was allocated to the International Air Freight Capacity scheme. He said this scheme has resulted in air freight capacity returning to 90 percent of its previous levels. Feedback on this scheme has been very positive, and he is looking at how it will continue.
The Crown’s transport entities have been affected by COVID-19 The Minister also drew attention to the effect of COVID-19 on the Crown’s transport entities. Although they have felt the effects of COVID-19 strongly, he believes they have responded well. He noted the following points:
• Waka Kotahi has achieved most of the measures in its 2019–20 statement of performance expectations. However, revenue collected into the National Land Transport Fund dropped significantly, and Waka Kotahi was supported with Crown loans as a result. • In the aviation sector, the Civil Aviation Authority’s revenue also fell dramatically. The CAA has adapted by providing about 150 staff to work at managed isolation facilities. The Minister commended the work of those staff. • Maritime New Zealand has responded admirably to the challenges of COVID-19 by working with the shipping community. The Minister concluded that all Crown transport agencies have worked hard to keep New Zealand safe, while maintaining strong regulatory oversight. He thanked staff in those entities for their work.
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The ministry’s review of the Government Policy Statement 2021 The Government Policy Statement on land transport (GPS) sets out the Government’s priorities for investment in land transport. It covers a 10-year period, and is updated by the ministry every three years. The current GPS (GPS 2018) covers 2018/19 to 2027/28, and is set to be replaced by an updated GPS in June 2021.
We asked how GPS 2018 is progressing, and whether there is a way for the public to see if the GPS is prompting any changes in the transport sector. The ministry said it added a monitoring framework to GPS 2018 for the first time. In July 2020, it released its first annual progress report on the GPS—this report is available on the ministry’s website. The ministry is now working on a second annual progress report on GPS 2018. It said it is still working on its ability to monitor the GPS, and thinks it is too early to draw conclusions from its first progress report.
The Minister highlighted the intent of the GPS to improve the transport system in relation to safety, providing many travel options, reducing carbon emissions, and providing strong freight connections. He said the GPS represents a change for the transport system by focusing on mode neutrality, which prioritises finding the best transport mode for a particular problem, rather than focusing on one mode. Improvements to road safety through the Road to Zero programme are also embedded in the GPS. The Minister said initial results from road safety projects appear positive.
Monitoring of other agencies’ actions in relation to the GPS We asked whether the ministry is able to hold other government agencies to account over decisions which may go against the GPS’ principles. In particular, we noted that recent forecasts by Waka Kotahi NZ Transport Agency show it spending more on state highways, and less on walking and cycling, than the limits set in GPS 2018. The ministry highlighted that Waka Kotahi has statutory independence, and that its role is to deliver the GPS. It said part of its monitoring of the GPS would include looking at how Waka Kotahi’s board is executing the strategies in the GPS. It said that, ultimately, Waka Kotahi’s board would need to engage with the Minister about any actions that were not in line with the GPS. We asked the Minister how he could hold Waka Kotahi to account if its projects are not giving effect to the GPS. The Minister said funding bands are designated in the GPS, and his expectation is that spending will occur within those bands. He said he engages with Waka Kotahi about this, and is supported by the ministry. He acknowledged that some roading projects have gone over budget, and said that this is a result of long-term decisions made previously.
We wondered whether this shows a lack of accountability to Government from Waka Kotahi. The ministry said the Minister would hold Waka Kotahi to account. It also said, however, that the unexpected effects of COVID-19 need to be taken into account when monitoring GPS 2018, and that the Minister and Waka Kotahi will discuss this.
We asked whether the ministry has concerns about Waka Kotahi’s state highway projects. These projects have incurred an additional unanticipated cost of over $1 billion in three years. We expressed concern that these additional costs could affect Waka Kotahi’s ability to deliver on some of its targets such as the Road to Zero road safety strategy, and
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2019/20 ANNUAL REVIEW OF THE MINISTRY OF TRANSPORT reduction of emissions. The ministry said in its next monitoring of the GPS, it will look at cost drivers to see what factors could be increasing the cost of some projects.
In our hearing with the Minister, Waka Kotahi said it is committed to delivering to the current and future GPS. It acknowledged that it was slow in starting some projects, but believes progress is being made.
The ministry also highlighted that the transport system is very complex. It said that, because of the long lead-in time needed, a lot of funding for transport is already committed to projects. As a result, changes to allocations of funding take time.
Mode neutrality in the GPS may lead to a decrease in emissions The Minister drew attention to the recent report released by the Climate Change Commission,1 which makes recommendations for reducing emissions in New Zealand. He said transport is “front and centre” in terms of reducing carbon emissions. For New Zealand to meet its commitments to the Paris Agreement, and the recommendations made by the Climate Change Commission, transport emissions will need to decrease dramatically. The Minister highlighted that mode neutrality has been embedded in the GPS. He said the GPS now funds all modes of transport, and is creating a meaningful shift. He pointed to investment in rail and coastal shipping as indicators that changes to funding are being made with emissions in mind.
We noted that emissions have been increasing faster in the transport sector than many other sectors. We asked how the Minister intends to ensure that investment in capital projects will reduce carbon emissions from transport, given that significant funding has already been allocated to projects. The Minister said transport has an opportunity to make a big impact on emissions, as one of the largest emitting sectors, but he acknowledged the challenges. The Minister said the transport sector’s increase in emissions is due to New Zealand’s light vehicle fleet, and a failure to encourage mode shift. 2
We asked Waka Kotahi if the intent of mode neutrality is to treat all transport modes equally, or if it is to ensure that investments deliver the greatest accessibility and reduction in carbon emissions. Waka Kotahi said its view is the latter. It said mode neutrality is about making sure it does not have an unconscious bias towards things that would not give effect to the expectations of the Government and communities. It said it needs to consciously and deliberately intervene to change people’s behaviour.
The New Zealand Upgrade Programme The New Zealand Upgrade Programme (NZUP) is a $12 billion funding package intended to upgrade rail, road, schools, and hospitals. It was announced in January 2020. We asked whether the ministry believes the transport projects in the NZUP fall under the GPS. The ministry said that, although the NZUP projects are funded differently from projects funded by the National Land Transport Fund, the principles of the GPS should apply to all transport projects. However, it highlighted that decisions about projects funded by the NZUP or the National Land Transport Fund are made differently.
1 https://www.climatecommission.govt.nz/get-involved/our-advice-and-evidence/ 2 Mode shift is the change in transport supply or use due to increased advantages of one mode over another.
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We asked whether projects funded under the NZUP will be monitored for their impact on emissions, or their contribution to mode shift. The ministry said NZUP projects are currently at an early stage. The committee noted it is keen to follow progress on this matter.
Alignment of transport sector agencies in New Zealand We note that numerous agencies are active in the transport sector: the ministry, Waka Kotahi, Auckland Transport, and others. We wondered whether New Zealand’s transport system is too complicated because of this. We also wondered how New Zealand compares against other countries of similar size and with similar economies, such as Singapore, Israel, or Denmark.
The ministry acknowledged that the transport system is very complex. It said that it may have become more complicated due to the different ways the Crown is funding transport projects. However, it noted that one objective of having different funding paths is to create more transparency and clearer accountability.
The ministry also highlighted that all Crown agencies follow the Transport Outcomes Framework.3 The framework “sets a purpose for the transport system centred around the wellbeing of New Zealanders and the liveability of places.” It said the various agencies’ goals are aligned through this framework.
When considering transport systems in other countries, the ministry noted that some countries, like Singapore, are much more centralised. It said this makes it difficult to use them as examples. We asked whether New Zealand should become more centralised, and whether that might allow projects to progress faster. The ministry said it would be concerned about losing local voices. It also said that having multiple agencies in the sector encouraged robust conversation and testing.
Delays in procurement and delivery of transport projects We asked what concerns the Minister has about delays to the procurement or service delivery of some projects. The Minister said the big capital projects face numerous challenges. He said that projects generally make good progress, and significant analysis is undertaken on projects that are experiencing delays. After projects are announced, there is often a lot of work to do on the project’s scope and design. Many things can arise at that stage which affect the time frame and cost of a project.
We asked whether a shortage of qualified labourers could be causing delays, especially considering COVID-19 border restrictions. The Minister said the sector often raises the availability of the workforce as an issue, along with the need to have a steady programme of jobs available. He said the two issues are linked. He has spoken with the industry about these issues, and about workforce-level planning. He also highlighted that the Government has made free apprenticeships and trades training available to encourage people to view trades as meaningful, well-paying work.
The Minister said that the New Zealand Infrastructure Commission, a Crown entity established in 2019, will be important in ensuring a steady stream of transport and
3 https://www.transport.govt.nz/area-of-interest/strategy-and-direction/transport-outcomes-framework/ 6
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2019/20 ANNUAL REVIEW OF THE MINISTRY OF TRANSPORT infrastructure projects for people to work on. He said the commission will be looking at long- term projects over the next 30 years. Although projects will change as governments change, the Minister believes the commission can play an important role in project and workforce planning. He said Waka Kotahi is acting similarly in taking a long-term planning view.
Auckland Light Rail We were interested in the status of the Auckland Light Rail project. This project lies within the Auckland Transport Alignment Project (ATAP), a collaboration between Auckland Council and government agencies to address Auckland’s transport challenges.4 In 2018, Waka Kotahi was developing a business case for Auckland Light Rail. An unsolicited business case to build and operate light rail was then put forward by NZ Infra.5 Cabinet tasked the ministry with leading the process to decide the delivery partner. Both Waka Kotahi and NZ Infra were asked to develop their proposals for further consideration, and these were delivered to the ministry in November 2019. The ministry evaluated both proposals. In June 2020, it was announced that the Cabinet process to select a preferred delivery partner had concluded with no decision made. The ministry was asked to work with the Treasury to build on the work already done, and to develop options to present to the Government.
We asked the Minister whether it is still Government policy to develop Auckland Light Rail. The Minister said it is still Government policy, and a clear commitment it made before the last election. He said he had received advice from the ministry in late 2020 on how the project could progress. He is now considering that advice.
We asked the Minister if he had a date when he would like to see “spades in the ground” on Auckland Light Rail. He said he would like to see it happen as soon as possible, but hopes to provide more details in announcements over the coming months. We also asked whether he had cost estimates for the project, considering that Waka Kotahi and NZ Infra would have presented some. The Minister said that information was commercially sensitive. He said costing would be a key point of public discussion in the future. He said that, going forward, it is important that Auckland authorities and communities have a role and can engage with the process.
The ministry’s process was to find a delivery partner We expressed our concern that the project has not progressed further. We also asked the ministry why the value for money of each proposition did not appear to have been considered. The ministry said the process it was following was to decide the delivery partner for Auckland Light Rail. It said it intended that the delivery partner would develop a business case and assess its value for money once the delivery partner was chosen.
We questioned how a delivery partner could be chosen without value for money information from both Waka Kotahi and NZ Infra. We also noted that the Auditor-General reported that value for money was not covered enough in the process the ministry was undertaking. The
4 https://www.transport.govt.nz/area-of-interest/auckland/auckland-transport-alignment-project/ 5 NZ Infra is a joint venture between the NZ Super Fund and CDPQ Infra, a wholly owned subsidiary of Canadian pension fund Caisse de dépôt et placement du Québec.
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ministry said its process was to focus on each potential delivery partner’s expertise. This covered its ability to design, develop, and run light rail. It said the route, type of service, and other decisions about the project would be made after the delivery partner was chosen. It also said the Auditor-General’s view was that the ministry was running a procurement, whereas the ministry believes its process was about selecting a delivery partner. Had a partner been selected, a procurement process would have followed.
We asked whether the ministry had recommended a delivery partner from the two options presented to Cabinet. The ministry said it had recommended NZ Infra as the delivery partner, if Cabinet decided it wanted to go ahead at that point. The ministry said its decision was based on its belief that NZ Infra had demonstrated the capability, capacity, and expertise necessary to deliver a very complex project like light rail. It also noted that it had consulted with a number of experts, including staff from Auckland Transport, when developing its advice to Cabinet.
We were also curious whether there would have been any risks if the ministry had not considered NZ Infra’s proposal. It said that, if it had not undertaken a formal consideration process, it risked not hearing what an experienced delivery partner had learnt from its experience with light rail in other countries.
The ministry said it is now working with Treasury and the Ministry for Business, Innovation and Employment on how it can handle proposals, like the one NZ Infra made, in the future. It said a different framework could mean some of the information the Auditor-General wished to see would be available earlier in the process.
The need for light rail in Auckland We were interested to hear why light rail in Auckland is necessary. The ministry said that Auckland needs a rapid transit system to support its growth over the next few decades. The Minister similarly highlighted that Auckland’s urban growth challenges are significant. He said light rail would connect areas with significant housing developments. It would also create links between Auckland’s current largest employment zone and its fastest-growing employment zone.
The ministry said, from ATAP’s perspective, it is critical that Auckland has a transit system which responds to current and future demand. Light rail could also encourage mode shift, where people change to a different mode of transport because of its advantages, which could reduce transport emissions.
Rail from Hamilton to Auckland We were keen to hear what progress has been made on a passenger rail service between Hamilton and Auckland. An indicative business case for this rail service began in November 2018. The ministry said it worked with Waikato City Council, Auckland Council, and other stakeholders to develop its business case. In February 2021, it was announced that a new passenger rail service from Hamilton to Auckland, called Te Huia, would begin in April. It is funded on a trial period through to June 2024. Two northbound services will run in the morning, and two southbound services in the evening during the week, and one service will
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run each way on some Saturdays. The northbound service departs from Frankton and arrives at Papakura, with the total journey lasting about 98 minutes.
The ministry said it expects Te Huia to extend Auckland’s employment market down to Hamilton. It said it will also provide opportunities for places along the rail corridor to develop over time.
Let’s Get Wellington Moving Let’s Get Wellington Moving (LGWM) is a joint initiative between Wellington City Council, Wellington Regional Council, and Waka Kotahi. LGWM is investigating a number of transport projects. The executive summary of a recent internal, independent “health check” review6 into the programme stated:
One of the key findings of our review was that all parties considered the value proposition of a programme approach holds true. However, LGWM in its current state is at risk of failing to deliver an integrated, cohesive, prioritised and outcomes-driven package of investments.
The Minister noted that there is high interest in LGWM, particularly following the release of the “health check” report. He has asked the LGWM board to present a plan to address the failings noted in the report. The Minister also identified a number of projects which he believes LGWM can make faster progress on. He said he is interested in its response. He intended to meet with the board to discuss its response about a week after our hearing. The Minister said the Government remains committed to LGWM, and that more coordination is needed to resolve transport challenges.
We asked whether the Minister has confidence in the LGWM board. The Minister said he believes LGWM is aware of the issues it faces, and he is confident the board will come to him with a way forward. Since our hearing, it has been announced that a new independent chair will be appointed to LGWM, along with other changes to its governance.
We asked how the Minister will apply pressure if things with LGWM remain unchanged in six months. The Minister said the health check is specific in its recommendations. It raised specific points which he has asked LGWM to address. He has asked to be informed about progress. He has also asked LGWM to come back with suggestions about what projects it can move ahead with more quickly than others. He thinks action on those projects will encourage people to work together, and give people confidence that the overall project is progressing.
We asked the ministry about its involvement in LGWM. The ministry clarified that LGWM is a collaboration between Wellington councils and Government. It is delivered through the National Land Transport Fund, which is the responsibility of Waka Kotahi. The ministry does not have direct insight into LGWM, or any staff seconded on the programme. It also said it is not directly involved in LGWM, but that it would provide advice to the Minister relating to the project if it is asked to.
6 The LGWM health check can be viewed here: https://lgwm.nz/resources/documents/2021/.
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We asked the ministry whether it has any views on the governance structure of LGWM. We also asked if it had any concerns about Waka Kotahi’s role in the programme. The ministry said the governance structure was decided by the parties involved.
When asked whether it would provide advice to LGWM or Waka Kotahi directly, the ministry said it would provide help if asked, and if it believed it could help. However, it said it is a small ministry, and responsibility for the programme’s delivery lies with Waka Kotahi.
Differences between the ministry’s role in LGWM and ATAP We were interested in why the ministry has a role in ATAP, but not LGWM. The projects seem similar in levels of investment, and are seeking similar outcomes.
The ministry said it did have a role in providing the Minister with advice about LGWM when it was being developed. Once the project was under way, it moved to being funded by the National Land Transport Fund, under the responsibility of Waka Kotahi. It said the setup of ATAP was different, with the Government committing to long-term engagement on ATAP. ATAP has a 30-year time frame, with a focus on the first decade. It said LGWM and ATAP are different constructs, and the request from the Crown was different for each.
The effects of COVID-19 on supply chains and ports We were interested to hear about the effects of COVID-19 on supply chains and ports. Both the Minister and ministry pointed to COVID-19 as the main cause of disruption to supply chains. The Minister noted that the expectation at the beginning of the pandemic was that demand for supply chains would collapse, but the opposite occurred. As economies recovered from the effects of COVID-19 faster than anticipated, demand for production and shipping increased. Global supply chains struggled with this sudden resurgence in activity. There is now high demand for shipping containers, and freight prices are high. The Minister said that, in addition to COVID-19, a number of other international issues, such as trade disputes, industrial action at ports, and extreme weather events, have made shipping less reliable. He said reliability of ships is currently about 45 percent against a global index—the lowest it has ever been rated. The Minister and the ministry expressed that they expect pressure on supply chains to continue into this year.
The ministry has established an inter-agency supply chain group to enable discussions and decision-making on freight and supply chains. It said that all freight companies have been working together on these issues. It highlighted that, over Christmas, there were concerns that some medications might not reach New Zealand when they were needed. With the ports and freight forwarders working together, those specific containers were identified and offloaded to ensure supplies of medication were maintained.
We were curious whether increased coastal shipping could alleviate supply chain delays. The ministry said GPS 2021 will have an activity class for coastal shipping. It said this raises initial questions about coastal shipping, such as what opportunities exist for it, what barriers might arise, and how it could help decarbonisation. It said it does not have answers to many of these questions yet. However, the GPS 2021 will acknowledge that all modes of transport need to be considered, including coastal shipping.
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Performance of the Ports of Auckland We were particularly interested in delays at the Ports of Auckland. Recent media reports have noted cases where ships at the Ports of Auckland had to wait longer than usual for their cargo to be offloaded. We acknowledged that, as a small country, New Zealand will always face difficulty with shipping. However, we wondered whether the Minister has plans to improve the performance of the Ports of Auckland. The Minister said the current issues have brought a focus to the ports. He said the ports did not respond to challenges as quickly as he would have liked. He said questions about that are for the Ports of Auckland’s owner to consider.
The ministry said it has been working closely with stakeholders to understand the situation, and see how it might help. It had arranged a workshop in Auckland to bring stakeholders together to consider solutions the private sector or the Government could provide. This workshop was postponed due to COVID-19 level three restrictions in Auckland.
The Minister said the situation has raised questions as to whether New Zealand’s ports are efficient, and whether the supply chain works rationally and strategically. He believes things are not as coordinated as they could be. He said he has a manifesto policy on a North Island supply chain strategy, which will address these questions. The Minister intends to pursue work on this later this year. The ministry also noted that it will continue to monitor waiting times in Auckland.
There is a shortage of crane drivers in Auckland The Minister said issues at the Ports of Auckland combined with international issues create a “perfect storm”. He said problems arose at the Ports of Auckland because it was part-way through work to automate its crane operations, and had fewer crane operators on hand as a result. The ministry also commented that there is a shortage of crane drivers in Auckland, which is putting pressure on the ports. It said it has been working together with the ports, Immigration New Zealand, and the Ministry of Business, Innovation and Employment to identify critical workers in the visa programme. It said discussions with the ports have also led to some crane drivers being brought in on fixed-term positions.
We questioned why a shortage of a few crane drivers should have caused such problems in the Ports of Auckland. The ministry said that information was with the Ports of Auckland. It said it knows that the Ports of Auckland has reached out to other ports for support. It also said crane drivers are specialists, and some shortages are due to needing drivers for specific types of cranes.
We asked about the progress of Ports of Auckland’s automation project. This project aims to increase capacity by using automated straddle carriers to stack shipping containers. The ministry said the Ports are halfway through the project, and is starting to see benefits. It said the Ports are looking at how to move ahead with the project, but commented that automation would never completely replace crane drivers.
The ministry is considering a supply chain strategy We asked where responsibility lies for supply chain issues. The ministry said it is largely a private sector issue. However, it is thinking about developing a supply chain strategy. It said it is keen to work with the private sector to learn more about what investments would benefit
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New Zealand. It also said that decisions the Crown makes about rail and road could link in to a supply chain strategy.
The ministry’s staff resourcing We noted that the ministry’s spending on staff had increased, including increases in the cost of contractors and consultants, salaries, and the overall number of staff.
The ministry said that it needs to hire contractors and consultants because it has time-limited funding for specific projects. It cannot hire permanent staff for that work, as the funding is not ongoing. It also said the ministry’s small size means it does not always have staff with the necessary specialised skills for certain pieces of work.
The ministry said it undertook an organisational review in 2017, and concluded that it needed to build more capability. It linked rising salaries to building capability, noting that ministry staff work in a broad and complicated sector. We asked why, if there was a focus on building capability, there was still an increased use of contractors and consultants. The ministry said that it has built capability in its role of system stewardship and leadership. Its additional capacity is fulfilling this role, which it may not have been doing before its 2017 organisational review. It said it will always need to draw on contractors and consultants for their technical skills.
We also asked whether the ministry believes it has the resources to monitor large agencies like Waka Kotahi. It said that although it may not have had enough resourcing in the past, it has increased its monitoring resources in the last two years. It also said it has received more funding to monitor the New Zealand Upgrade Programme. It said it will always be limited by its small size, and it will continue to discuss this with ministers.
Auckland congestion charging We discussed the potential for congestion charging in Auckland. We asked what projects have been funded by revenue from the current fuel tax in Auckland. The ministry said the funding goes to Auckland Council, and is used by Auckland Transport, so it does not have information on how Auckland Transport uses the funds.
We asked whether the ministry thinks congestion charging could replace Auckland’s fuel tax. It said one of ATAP’s priorities is demand management. Congestion charging would be a tool to manage demand; generating revenue would be secondary to that. Because the priority is not raising revenue, it said it would make sense to ask if a fuel tax is necessary in addition to a congestion charge.
The ministry’s Māori engagement strategy We asked how the ministry views its Treaty relations and engagement with Māori. When we discussed this last year, the ministry said it was “on a journey”, so we were interested to hear how it has progressed. The ministry said it is still on its journey. It said it has a Māori strategy, and is still working to build its capability and understanding of te ao Māori. It said it wants to bring more of a te ao Māori perspective to its work.
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The ministry said it also continues to look at how it can engage with Māori on policy development. It noted that it has talked with the Police Commissioner’s Māori advisory group to understand Māori perspectives on particular policies in the past. It said it hopes to undertake similar engagement in the future.
We encouraged the ministry to continue its work on this journey.
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Appendix Committee procedure We met on 18 and 25 February and 25 March 2021 to consider the annual review of the Ministry of Transport. We heard evidence from the Ministry of Transport and Hon Michael Wood, Minister of Transport. We received advice from the Office of the Auditor-General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Chris Bishop replaced Hon Mark Mitchell, and Kieran McAnulty replaced Shanan Halbert for the sector review with the Minister.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Ministry of Transport).
Ministry of Transport (Responses to written questions).
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2019/20 Annual review of the National Institute of Water and Atmospheric Research Limited (NIWA)
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About NIWA ...... 2 Financial performance and audit results ...... 2 Financial performance ...... 2 Audit results...... 2 Provision for doubtful debt ...... 3 Effects of and response to COVID-19 ...... 3 Financial effects ...... 3 Key capital investment programmes ...... 4 Future property programme ...... 4 Kaharoa replacement ...... 4 Use of new technology ...... 4 Workforce development ...... 5 Support for the next generation of scientists ...... 5 Appendix ...... 6
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National Institute of Water and Atmospheric Research Limited
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the National Institute of Water and Atmospheric Research Limited (NIWA) for 2019/20, and recommends that the House take note of its report.
About NIWA NIWA is a Crown Research Institute (CRI). Its purpose is to enhance the economic value and sustainable management of New Zealand’s aquatic environment, to improve understanding of climate and the atmosphere, and to increase New Zealand’s resilience to weather and climate hazards. It specialises in three areas of scientific knowledge: climate science, freshwater science, and ocean science. The chief executive is John Morgan, and Barry Harris is the board chair.
NIWA employs over 700 staff working out of main sites in Auckland, Hamilton, Wellington, and Christchurch, as well as at a number of smaller sites across New Zealand and Australia.
Financial performance and audit results In 2019/20 NIWA achieved 51 of its 55 research and applied science key performance indicators (KPIs). The four it did not achieve were disrupted by science problems detected at the review stage and where international collaboration was prevented by COVID-19.
Financial performance NIWA’s revenue was $158.9 million, $2.4 million (1.5 percent) less than in 2018/19 and $6.47 million (3.9 percent) lower than planned. NIWA attributed this reduction to COVID-19’s effects on its operating environment, which are discussed later in this report.
NIWA made an after-tax profit of $7.37 million. This is $1.12 million (18 percent) more than the previous year and well above its target of $5.07 million. NIWA maintained a profit due to a reduction in operating expenses and because it received $8.27 million from the COVID-19 Response and Recovery Fund (CRRF).
Audit results As in the last two years, the Auditor-General rated NIWA’s management control environment and financial information systems and controls “very good”, with no recommendations for improvement. We commend NIWA for its continued good results in this area.
The Auditor-General issued a non-standard audit report. This was intended to draw readers’ attention to the disclosures in the financial statements about COVID-19’s effect on NIWA. The biggest effect was NIWA’s revenue being lower than planned due to restricted working arrangements and lower spending from customers. 2
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Provision for doubtful debt Last year our report noted that NIWA had a $1.6 million overdue debt from one customer and had taken legal action to pursue this debt. NIWA’s management has now assessed that the entire receivable balance is at high risk of being uncollected. The Auditor-General agrees with that assessment. In 2019/20, NIWA’s management has made a full credit loss provision against the debt.
Effects of and response to COVID-19 We discussed the way COVID-19 affected NIWA’s work. During the alert level 4 lockdown, NIWA halted all vessel voyages and field and laboratory work, and NIWA staff worked from home to the extent possible. The only exceptions to these arrangements were in essential services such as hazard monitoring, biosecurity, and the maintenance of animal facilities such as feeding fish at aquaculture sites in Ruakākā. Under alert level 3, some laboratory and field work was possible, and all staff were able to return to work under alert level 2. However, due to the border closure, international work has been halted across the board, and a number of other projects were delayed or unable to be completed to schedule during 2019/20.
We were particularly interested in how COVID-19 had affected NIWA’s scientific voyages. NIWA told us that at the start of the alert level 4 lockdown two of its vessels were at sea, staffed by scientists and technicians from several different parts of the world. Border closures and the lockdown meant it was challenging for NIWA to get approval for the vessels to dock and then to make arrangements for people to return to their home countries. However, NIWA was able to dock and get staff home.
NIWA told us that voyages under alert level 4 will continue to be impossible, as complicated logistics combine with high risks. However, NIWA was able to satisfy the conditions of alert level 3 on its voyages. NIWA told us that continuing voyages at alert levels 3 and below requires careful contingency planning. With its experience from 2020, however, it expects to be able to continue voyages except under alert level 4.
Financial effects The restricted working arrangements due to changing COVID-19 alert levels led to a reduction in work that generated revenue. This, along with lower spending by NIWA’s customers due to the wider economic impact of COVID-19, meant that NIWA’s revenue in 2019/20 was approximately $15 million less than in 2018/19, until offset by the $8.27 million NIWA received from the CRRF.
NIWA predicts that its commercial revenue will be affected by the economic impacts of COVID-19 for some time. However, it expects its research funding from the Government to continue at planned levels, which accounts for approximately two-thirds of its planned revenue for 2020/21. This includes the CRRF funding, which aims to help retain scientific capability and ensure the continuity of critical science services and advice. We acknowledge that COVID-19 meant a difficult year for everyone. However, we were pleased to hear that, in line with the CRRF’s objectives, NIWA will be able to maintain its essential services and scientific capability, while remaining profitable and proceeding with its planned capital investment programmes.
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Key capital investment programmes Future property programme NIWA’s future property programme is progressing well. The programme aims to replace existing buildings and infrastructure in Wellington, Hamilton, and Christchurch with contemporary, environmentally sustainable facilities that will meet the future needs of NIWA’s researchers. We heard that NIWA has received approval from the relevant Ministers to proceed with planned construction in Hamilton, and that plans are well advanced in Wellington and Christchurch. NIWA has advised that the total expected cost of the programme remains at $170 million. NIWA plans to fund this spending from cash flows over the next several years and from debt, with all debt paid down by 2029/30.
Kaharoa replacement The Kaharoa is NIWA’s mid-sized research vessel. NIWA told us the Kaharoa has travelled from the east coast of Africa to the west coast of South America. However, it is ageing and less profitable than NIWA’s two other research vessels. NIWA is reviewing whether replacing the Kaharoa is economically viable, and has commissioned new designs from the Norwegian company that designed NIWA’s largest vessel, the Tangaroa. NIWA emphasised to us that it is important that its fleet meets its clients’ needs. It wants to ensure that if the Kaharoa is replaced, it is replaced with a vessel that is fit for purpose for future scientific research.
NIWA told us the replacement would cost around $20–25 million, which it expected to be able to fund itself.
Use of new technology We were interested to hear about some of the new technologies NIWA employs, and asked whether it will be bidding for a portion of the 5G spectrum for use in its aquaculture projects. NIWA told us it does not currently use 5G and does not expect to benefit from the 5G roll- out. It said 5G is less effective over long distances and NIWA’s field assets are located in areas where 5G will not reach. Instead, NIWA uses other wireless technologies. We were interested to hear that NIWA uses radio-frequency identification technology in its aquaculture projects to monitor its stock, even getting data from individual fish that allows it to monitor growth rates, flesh quality, and the health of the fish.
NIWA also told us that it routinely looks for new ways to use technology to improve its research. For example, NIWA deploys artificial intelligence (AI) in a number of its research projects (such as detecting invasive weeds in underwater images and automating some weather and aquaculture processes). We were especially interested to hear that NIWA is developing AI solutions for a number of its commercial projects in the agricultural, financial, and health sectors. NIWA also manages New Zealand’s high-performance computing centre, in Wellington. NIWA’s high-performance computing and data science work stream has a specific focus on developing its AI-related expertise.
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Workforce development Support for the next generation of scientists We discussed the work NIWA does in developing young scientists in New Zealand. NIWA sponsors most of the major secondary school science fairs and sees this as an important way for it to promote science in secondary schools. NIWA also partners with the Sir Peter Blake Trust, which selects young people as Blake Ambassadors to work in the field with NIWA staff.
At a tertiary level, NIWA has a focus on providing supervision to a large number of Masters and PhD students. It pointed out that, with a staff of 700, it supervises or co-supervises upwards of 130 students, which represents a substantial commitment. NIWA told us that in its supervision it encourages students to focus on research that directly benefits the country and that will be relevant to future career choices.
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of the National Institute of Water and Atmospheric Research Limited (NIWA). We heard evidence from NIWA and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on National Institute of Water and Atmospheric Research).
National Institute of Water and Atmospheric Research Ltd (Responses to written questions).
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Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About New Zealand Growth Capital Partners Limited ...... 2 Organisational changes ...... 2 Financial performance ...... 3 Recommendations from the 2019/20 audit ...... 3 Progress of the Elevate Fund ...... 3 Effects of COVID-19 on availability of capital ...... 4 Payment of short-term incentives to staff members ...... 4 Documentation of sensitive expenditure ...... 5 Review of workplace culture ...... 6 Appendix ...... 7
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New Zealand Growth Capital Partners Limited
Recommendation
The Economic Development, Science and Innovation Committee has conducted the annual review of New Zealand Growth Capital Partners Limited for 2019/20, and recommends that the House take note of its report.
About New Zealand Growth Capital Partners Limited New Zealand Growth Capital Partners Limited—previously called the New Zealand Venture Investment Fund—is a Crown entity company established in 2002. It was rebranded as New Zealand Growth Capital Partners (NZGCP) in 2019/20. It is responsible for managing the Aspire Fund and the Venture Investment Fund on behalf of the Government, the purposes of which are to stimulate private investment into early-stage technology companies. This is done through:
direct investment in partnership with private investors into early-stage companies (Aspire Fund) investment into privately managed venture capital funds, to make available more risk capital to emerging businesses (Venture Investment Fund). More recently, NZGCP became responsible for managing the Elevate Fund on behalf of the Guardians of New Zealand Superannuation. The objective of the fund is to stimulate approximately $1 billion of investments into series A and B stage1 New Zealand businesses over the next 15 years. It was announced in Budget 2019, and has $300 million allocated to it to invest.
NZGCP employs 16 permanent staff: 13 full time and 3 part time. The chair of the board is David Smol, and the interim chief executive is James Fletcher.
Organisational changes Two members of the NZGCP board stepped down in the year under review, and a further three members stepped down after 30 June 2020, including the acting chair. A new chair was announced in December 2020, and the Ministry of Business, Innovation and Employment announced it had appointed four new board members in January 2021.
The chief executive left in August 2020. A replacement chief executive was announced in September 2020 but “dropped out before serving in the role”.2 An acting chief executive was announced in January 2021.
1 Series A funding refers to investments in companies that have shown progress in building their business model and demonstrated the potential to grow and generate revenue. Series B funding refers to companies that have accomplished certain milestones and are past the initial start-up stage. 2 https://investmentnews.co.nz/investment-news/venture-fund-hires-short-term-chief-refits-board/ 2
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Financial performance NZGCP’s total revenue for 2019/20 was $4.65 million, compared with $4.82 million in 2018/19. Revenue was higher than the budget of $4.08 million. Most of NZGCP’s revenue in 2019/20 came from operating funding from the Crown ($2.33 million, consistent with previous years) and from interest payments ($1.69 million).
NZGCP’s total expenses were $6.57 million. This comprised mostly administration expenses ($4.29 million), fund management fees and costs ($0.45 million), and losses on the fair value of investments ($1.89 million).
NZGCP had a deficit of $1.92 million for the year, which exceeded the budgeted loss of $0.05 million. This compares with a surplus of $13.01 million in 2018/19. NZGCP’s deficit is largely the result of higher than budgeted administration expenses and significant losses on the fair value of its investments (a $1.89 million loss compared to an $11.64 million gain in the previous year).
Recommendations from the 2019/20 audit The Auditor-General issued a non-standard audit report for 2019/20 that included two additional paragraphs. One paragraph draws readers’ attention to disclosures in the financial statements about the impact of the COVID-19 pandemic on NZGCP. The disclosures highlight that volatile market conditions have resulted in certain valuation inputs for investment valuations being less reliable than is normally the case.
A second paragraph draws attention to short-term incentives paid out to NZGCP’s investment team. The Auditor-General noted that although these payments were approved by the board of directors, the company did not have individual short-term incentive criteria in place to support the payments made.
The Auditor-General assessed NZGCP’s management control environment as “needs improvement”, and made several recommendations. They include:
improving board oversight of management to ensure that delegated authority is administered appropriately changing the management philosophy and operating style to encourage an appropriate culture within the organisation setting clear policies and practices for all aspects of human resources, including remuneration. The Auditor-General also recommended some improvements to NZGCP’s performance information and associated systems and controls, and its financial information systems and controls. He assessed these as “good”.
Progress of the Elevate Fund The Elevate Fund was announced in Budget 2019 and officially launched in March 2020, with $300 million allocated to it to invest. Its purpose is to increase the amount of capital available to start-ups at the series A and B stage, and to develop New Zealand’s venture capital market to function more effectively. The Guardians of New Zealand Superannuation
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Broadly, the fund makes available more risk capital for investment into New Zealand start- ups. It does this by investing in private venture capital funds that are looking to invest in early-stage entities. The venture capital funds then need to raise matching capital from other investors that is at least equal to the commitment from the Elevate Fund. In this way, the Elevate Fund aims to stimulate $1 billion into New Zealand entities over the next 15 years.
NZGCP told us the fund has “made a good start” in its first year of operation, having invested a total of $72.75 million into three venture capital funds. Funds to receive investment were Blackbird NZ ($22.75 million), Movac Fund 5 ($30 million), and Pacific Channel Fund 2 (a conditional allocation of $20 million). These investments have been matched by private investments totalling $290 million, and the underlying funds have already begun deploying capital into start-ups. This is a good result, and we commend NZGCP for exceeding the aspirational target set in its statement of performance expectations to return matching capital at a ratio of 1:2.
Given the significant amounts being invested, we asked NZGCP whether it has tools to encourage start-ups to remain in New Zealand once they receive capital from the Elevate Fund. NZGCP informed us that it has no influence over the investments that fund managers make once they are allocated money from the fund. However, NZGCP believes that making available more venture capital in New Zealand does in itself encourage companies to remain in the country for longer.
Effects of COVID-19 on availability of capital We were interested in how economic headwinds as a consequence of COVID-19 have affected the availability of capital for start-ups. NZGCP told us that the effect of COVID-19 on businesses has been “a mixture of positives and negatives”, with some sectors more able than others to generate sales remotely and adapt to a stronger digital focus. With venture capital, increased uncertainty has meant an overall slowing of investment into new start-ups, but this has not been as severe as predicted earlier in the financial year. In the first six months of 2020, investment for the broader angel investment sector decreased by 5 percent compared with the same period the previous year, which NZGCP does not consider a significant change. NZGCP noted that most of the funds it invested with in 2019/20 were able to raise money from institutional and private investors subsequently.
Payment of short-term incentives to staff members We were concerned by the Auditor-General’s paragraph in the audit report drawing attention to short-term incentive payments to investment staff. These totalled $306,000, and were paid out to the investment team and the former chief executive at year-end. The payments represented 100 percent of the eligible bonus level set out in the incentive component of the employees’ agreements. The former chief executive recommended the payments to the investment team members, and the board at the time approved the payments to the former chief executive and investment team members.
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The Auditor-General found that the basis for the payments did not appear to be appropriately documented. Moreover, he was unable to obtain evidence of a formal framework for performance assessments being in place prior to the approval of the payments. We asked NZGCP to explain the basis on which the payments were made.
NZGCP told us that, although there were no specific individual performance objectives for staff when the payments were made, the board assessed the company’s overall performance against its critical objectives. The board concluded that it was appropriate to approve the incentive payments because the company had broadly met the objectives set out in its statement of performance expectations. However, NZGCP said that, in future, it will endeavour to establish individual performance criteria for staff “much earlier”, adding that it is in the process of finalising these arrangements for the current year.
We consider it important that entities receiving Crown funding have appropriate performance frameworks in place when staff are eligible for incentive payments. We are pleased that NZGCP is undertaking to do so in future. We will follow up on this matter at our next annual review.
Documentation of sensitive expenditure As part of the 2019/20 audit, the Auditor-General tested a sample of operating expenditure that it considered to be sensitive in nature, including payments for travel and dinners. It evaluated whether the expenses were in line with internal policy and appropriately approved, and did not indicate issues with waste or probity. The Auditor-General concluded that NZGCP’s policies covering sensitive expenditure were broadly in line with good practice guidance. However, it had no policies for staff support and welfare (beyond a wellness allowance policy), nor for the private use of entity assets.
In its sample of sensitive expenditure, the Auditor-General found that some of the expenses claimed lacked evidence of appropriate approval. Some payments lacked receipts or support to validate the claim. In about half of audited spending, the Auditor-General was unable to obtain sufficient explanation of how the expenses related to a valid business purpose.3 We asked NZGCP to explain how it ensures sensitive expenditure is for a valid business purpose and properly documented.
NZGCP said that although staff did not retain all receipts for expense transactions in 2019/20, it validated their expenses by reviewing credit card statements. However, it acknowledged that this process needed to be improved. Since the audit, NZGCP has reviewed its expense and entertainment policy and is in the process of implementing an automated expense management system. Staff will be required to take photos of their receipts for incurred expenses and upload them into this system. NZGCP expects this will significantly reduce the number of receipts being lost.
3 The audit of sensitive expenditure tested 62 items, totalling $67,382. Of these, 32 items (totalling $31,460) lacked a documented business rationale, 15 items lacked evidence of approval ($13,075), and 7 items lacked appropriate receipts ($1,492). The audit also tested spending on credit cards held by the chair and chief executive. Of the 21 items tested (totalling $3,516), 10 lacked evidence of approval ($1,684), 5 lacked appropriate receipts ($467), and 9 lacked a documented business rationale ($927).
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The Auditor-General’s guidance on sensitive expenditure emphasises that, for corporate credit cards and purchase cards, employees should have acceptable original documentation to explain and corroborate transactions. The Auditor-General’s position is that credit card statements are unlikely to be sufficient supporting documentation, because they do not provide a sufficient breakdown of what was purchased. We expect NZGCP to ensure that employees have acceptable original documentation to explain and corroborate transactions in future.
Review of workplace culture In late 2020, the board of directors commissioned former employment court judge Graeme Colgan to conduct a review of NZGCP’s workplace culture. This was in response to “several complaints of unacceptable behaviours towards staff including what is described as bullying, harassment, disrespectful communications, discrimination and the like”.4 We understand that the outcome of the review, and NZGCP’s response to it, will be released soon.
NZGCP told us that it is in the process of overhauling its people-related policies in anticipation of the review’s findings. To do this, it is being guided on good practice by the Guardians of New Zealand Superannuation and the Public Service Association. It explained that since the review was announced it has completed “a lot of work” on initiatives that it expects will align with the review’s recommendations, including changes to the way it attracts, retains, and supports staff. It has also agreed on a new strategic plan with its board, and it believes this will provide the company with an important sense of direction and guidance.
4 https://www.nbr.co.nz/story/government-agency-conducts-bullying-inquiry 6
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Appendix
Committee procedure We met on 18 February and 25 March 2021 to consider the annual review of New Zealand Growth Capital Partners. We heard evidence from New Zealand Growth Capital Partners and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on New Zealand Growth Capital Partners).
New Zealand Growth Capital Partners (Responses to written questions).
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Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About New Zealand Post Limited ...... 2 Financial performance ...... 2 The Government provided financial assistance because of COVID-19 ...... 2 Audit results ...... 3 NZ Post is grappling with the future of mail services ...... 3 Mail is in decline, both in New Zealand and internationally ...... 3 NZ Post is currently funded to provide mail services ...... 3 Work is under way to deal with a declining mail service ...... 4 NZ Post is experiencing significant growth in parcel volumes ...... 4 COVID-19 presents problems with parcel deliveries ...... 5 Connecting the whole of New Zealand ...... 5 Fuel is the largest part of NZ Post’s carbon footprint ...... 5 NZ Post believes its workforce is reflective of New Zealand ...... 6 Spending on software licensing has increased ...... 6 NZ Post keeps its cyber security under review ...... 7 Appendix ...... 8
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New Zealand Post Limited
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of New Zealand Post Limited for 2019/20, and recommends that the House take note of its report.
About New Zealand Post Limited New Zealand Post Limited (NZ Post) is a State-owned enterprise providing courier and logistics services, focusing on mail and parcel deliveries.
By law, NZ Post is required to operate as a successful business. It is also required to achieve the following objectives:
to be as profitable and efficient as comparable businesses that are not Crown-owned to be a good employer to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates. David Walsh is the chief executive of NZ Post. In August 2019, Rodger Finlay was appointed as chair.
At the hearing, Mr Finlay described 2019/20 as a year of two halves for the business: “the COVID half and the other half”. Both the chair and the chief executive emphasised their thanks to NZ Post’s staff for their hard work during the COVID-19 lockdowns.
Financial performance In 2019/20, NZ Post had an after tax profit of $6 million. This is a substantial increase from the $121 million loss in 2018/19. (The 2018/19 result was attributable in part to a number of one-off costs1). At the hearing, NZ Post noted that it achieved an operating profit of $17 million in 2019/20, compared to an operating loss of $55 million the previous year.
NZ Post continues to experience a decline in revenue from its mail services, and an increase in revenue from its parcel delivery services. Its revenue decreased by $1 million (excluding the wage subsidy) in 2019/20 to $911 million.
The Government provided financial assistance because of COVID-19 NZ Post received $30 million from the wage subsidy scheme in 2019/20. Other postal and courier companies also received the wage subsidy.
The company also received approval for an equity injection of up to $150 million from the COVID Response and Recovery Fund. In June 2020 NZ Post drew down $80 million of this capital injection. The remaining $70 million is available until June 2022 if forecast cash
1 These costs included the write-down of mail assets, provision for payments to remediate Holidays Act non- compliance, and deferred tax assets not recognised or written off. 2
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Audit results The Auditor-General issued a standard audit report for NZ Post. He rated the company’s management control environment “very good”, with no recommendations for improvement.
NZ Post’s financial information and supporting systems and controls were rated “good”. Some deficiencies were noted, as in the previous year. The Auditor-General said these deficiencies have been resolved in part, and made recommendations for their further improvement.
NZ Post is grappling with the future of mail services Mail is in decline, both in New Zealand and internationally Mail as a form of communication is in decline worldwide. Ten years ago, New Zealand Post delivered about a billion letters each year. In 2019/20 about 317 million were delivered. NZ Post was expecting this to fall to 100 million over the next five years, but COVID-19 has accelerated this decline.
NZ Post noted that, since lockdown, organisations were promoting digital solutions if they had them. It has therefore revised its estimate of a 12 percent annual decline to 17 or 18 percent.
The decline has meant that mail is no longer a commercially viable service. NZ Post’s mail assets are considered to have no value because the company does not expect to earn a profit from their use.
We asked about the make-up of the mail being sent in New Zealand. NZ Post said government departments, insurance companies, and banks provide the biggest proportion: about 50 to 60 percent of the mail volume. About 2 percent of letters are sent by households.
NZ Post is currently funded to provide mail services Despite the decline in mail services, mail is still an important communication tool for New Zealanders. This is especially so for people with little or no digital connectivity.
Because of this, NZ Post has received a $130 million contract for service from the Government to fund mail service losses in the short-term. This is intended as transitional funding, to allow time for NZ Post and the Government to agree a better medium-to-long- term solution. The contract for service requires NZ Post to reduce costs, maintain mail services, and limit price increases.
The contract began on 1 July 2020 and was intended to fund losses for three years. However, because COVID-19 has accelerated the decline, the contract is now expected to cover losses for two to three years.
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Work is under way to deal with a declining mail service
NZ Post is required to maintain mail services while the future of mail is considered A Deed of Understanding with the Government sets out NZ Post’s minimum universal service obligations. Its obligations include delivering three days a week to most urban areas and five days a week to rural areas. It is also required to maintain its network of postal outlets. A review of the Deed was due to be completed on 1 March 2021.
NZ Post services most locations through an agency partnership. This involves NZ Post partnering with a local business to provide its services, rather than having a dedicated NZ Post shop. It believes an agency partnership often provides a better service because the sites are often open six or seven days a week.
We asked what happens when an agency partnership does not work out. NZ Post said it goes through a process which includes consideration of nearby alternative ways to access postal services. NZ Post said it does everything it can to partner with another business. It said it tries to partner with organisations that have a strong network and a solid business. It has a stronger relationship with some businesses, such as PaperPlus.
NZ Post is required to have about 800 full-service sites across the country. We noted that some branches have closed in recent years, and asked whether more were likely to go. NZ Post said it had a programme of transitioning its corporate-operated branches to ones hosted by an agent. One hundred of these transitions have occurred, with one remaining. NZ Post said it has not materially reduced the number of sites it services.
Various factors are being considered regarding the future of mail delivery NZ Post said it is looking at its strategies to deal with a declining mail service. The Ministry of Business, Innovation and Employment is leading work to provide policy advice on this. NZ Post said its Budget 2020 funding had given it the opportunity to maintain services, while allowing time to engage with stakeholders and explore options.
NZ Post said it is considering a number of factors as part of the work on what the future of mail services might look like. This includes understanding what trade-offs it would have to make, faced with the downward trajectory. It is also looking internationally at what is happening with other postal models. In response to questions about factors such as price and frequency of service, NZ Post said it is too early to make a determination.
As part of this work, NZ Post is trying to better understand who uses the mail service, and why. It is also considering what the trade-offs are for reduced service delivery or pricing changes. We note that, under the current contract with the Government, price increases cannot be “excessive”. NZ Post said that whether delivering mail provides a public service also has to be considered.
NZ Post is experiencing significant growth in parcel volumes About three years ago, parcel revenue began to exceed mail revenue. NZ Post expects its annual parcel volume to double by 2033, from 95 to 190 million items.
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To respond to this growth, NZ Post plans to invest about $170 million in infrastructure as part of its National Backbone Strategy (Te Iho). The investment will provide the capacity and technology to efficiently process the significant growth in parcel volumes. The COVID Response and Recovery Fund included approval for NZ Post to draw down on a $150 million equity injection, of which it has drawn down $80 million. This equity injection gave NZ Post the confidence to invest in its parcel infrastructure.
The initial stages of investment include new or improved processing centres in Auckland, Wellington, and Christchurch to be opened in 2022 or 2023. The next stage of investment includes automated processing technology. Further stages will include processing centres in other cities.
COVID-19 presents problems with parcel deliveries We heard that NZ Post experienced substantial growth in its parcel business after the Alert Level 4 lockdown. To support more parcel deliveries, NZ Post had to scale up its network and delivery capacity.
Some of us were concerned by reports that NZ Post could still not guarantee when a parcel would be delivered overseas. NZ Post acknowledged that this was disappointing for senders. However, it noted that even by the date of our hearing in February, 36 countries were not accepting mail. A further 77 countries were advising that their delivery networks were under so much pressure that they could not guarantee timeframes.
We noted that some private courier services could guarantee delivery timeframes. NZ Post explained that commercial networks differ from the postal network. Commercial operators often have dedicated aeroplanes, whereas NZ Post relies on the belly space of passenger aircraft to move goods. It noted that airfreight capacity has dropped by about 60 percent from pre-COVID levels, so its ability has been greatly reduced.
Connecting the whole of New Zealand We asked why NZ Post thought it should remain a Crown entity, given its competition in the private sector. The chair said the feature that sets it apart from its competitors is that it delivers to all parts of the country, whereas competitors do not. For some competitors, NZ Post delivers parcels for the last part of the journey. We heard that the strength of NZ Post’s network across the whole of New Zealand is the reason it is able to grow its parcel delivery services.
Fuel is the largest part of NZ Post’s carbon footprint In 2018, NZ Post announced its target to be carbon neutral from 2030. It has committed to reducing its emissions by 32 percent by that date, in line with its contribution to keeping the world within 1.5 degrees of warming. We heard that, year-on-year, NZ Post reduces its total carbon emissions by 4 percent, equivalent to taking 2,216 cars off the road.
Fuel makes up 95 percent of NZ Post’s carbon footprint, so fuel is its focus for reducing emissions. The company aims to have a fully electric vehicle fleet by 2025. It also wants to ensure that 25 percent of its “last mile delivery partners” are in electric vans. NZ Post said it can have the biggest direct impact on the emissions from its trucks and courier vans.
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The work on this goal is supported by a dedicated decarbonisation fund, established two years ago. The fund supports the company’s move into electric vehicles.
NZ Post acknowledged the challenges it faces with this move, such as the availability of suitable electric vehicles (particularly vans) and getting a supply of them into New Zealand. The upfront costs are also a lot higher. However, NZ Post said that it is committed to working on solutions.
We asked whether electric vehicles are widely used overseas for postal fleets. NZ Post said it is seeing both electrification and alternative fuel types in other countries. It is part of the International Post Corporation, sharing information with other countries’ postal services. It regularly talks with Australia Post to make sure it is at the forefront of any changes or new technologies.
About 40 percent of NZ Post’s carbon footprint is its international air freight. Because the company uses commercial airlines, it is dependent on what they are doing to reduce their carbon footprint. NZ Post uses Air New Zealand, internationally and domestically, to shift freight. NZ Post also has three domestic aeroplanes which it leases as part of a joint venture. They contribute less than 10 percent of its carbon emissions.
NZ Post believes its workforce is reflective of New Zealand We asked about work NZ Post is doing to ensure its workforce is diverse. The company said that its workforce reflects the New Zealand population.
In terms of gender, 55 percent of NZ Post’s staff are women, and 50 percent of the board. Women make up about 45 percent of the broader leadership team, and occupy three out of seven executive leadership positions. NZ Post said it has been working to manage the gender pay gap.
NZ Post said it is also looking at cultural and broader diversity. It noted that its board represents five different ethnicities. In 2020 NZ Post was awarded the Rainbow Tick.
We also heard about Te Hononga, NZ Post’s Māori leadership programme, which about 40 to 45 Māori leaders have gone through. The company had received positive feedback on this programme.
Spending on software licensing has increased We note that spending on software licensing has increased substantially, from $12.7 million in 2018/19 to $17 million in 2019/20. NZ Post said this was because a lot of historical systems needed to be upgraded or changed. It has subscribed to a number of different systems used to improve efficiencies in various parts of the business.
We asked whether NZ Post was actively trying to use New Zealand providers, given the large amount of money that is spent on software licensing. NZ Post said it could not provide specifics, but it has used local providers in several areas. However, it said it does still use a lot of big international providers, such as Microsoft and Oracle.
NZ Post told us it uses a cloud-based solution for its print house. Its general ledger is also a cloud-based service, and it is exploring other cloud options 6
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NZ Post keeps its cyber security under review NZ Post told us it has an active internal cyber security team, which continues to improve and upgrade the company’s firewall. It does penetration tests to ensure that the firewall works.
NZ Post has also put in double-authentication processes for its applications and password management. The company issues internal communications about the importance of cyber management. NZ Post said it is conscious that there is always more to do, but assured us that this issue is front of mind.
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Appendix
Committee procedure We met on 11 February and 25 March 2021 to consider the annual review of New Zealand Post Limited. We heard evidence from NZ Post and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on New Zealand Post Limited).
New Zealand Post Limited (Responses to written questions).
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2019/20 Annual review of the New Zealand Tourism Board
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About Tourism New Zealand ...... 2 Financial performance and audit results ...... 2 COVID-19 “devastated” the tourism sector ...... 3 Tourism New Zealand’s focus is promoting domestic tourism ...... 3 Domestic tourism businesses need support ...... 4 The benefit of a “trans-Tasman bubble” would be substantial ...... 5 Work is ongoing to keep the New Zealand brand alive overseas ...... 6 COVID-19 has had an impact on overseas staff ...... 7 The Auditor-General is investigating the Strategic Tourism Assets Protection Programme ... 7 Tourism New Zealand is looking at the future of tourism ...... 8 Demand for travel to New Zealand was looking positive before COVID-19 ...... 8 Appendix ...... 9
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New Zealand Tourism Board
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the New Zealand Tourism Board for 2019/20, and recommends that the House take note of its report.
About Tourism New Zealand The New Zealand Tourism Board (known as Tourism New Zealand) is a Crown entity established under the New Zealand Tourism Board Act 1991. Its responsibility is to promote New Zealand as a tourist destination to the world.
The Act sets out Tourism New Zealand’s core functions, which are to:
market New Zealand as a destination for the long-term benefit of New Zealand develop, implement, and promote strategies for tourism advise the Government and the New Zealand tourism industry on matters relating to the development, implementation, and promotion of those tourism strategies. Tourism New Zealand has two subsidiary companies. Qualmark is a quality assurance agency for domestic tourism operators. Visitor Information Network Incorporated (known as i-Site New Zealand) is New Zealand’s official visitor information network.
Jamie Tuuta is the chair of Tourism New Zealand. In the 2019/20 year, Stephen England- Hall was the chief executive. René de Monchy has been the interim chief executive since January 2021.
As at June 2020, Tourism New Zealand had 148.6 full-time-equivalent staff. Staff are based in offices in Auckland and Wellington, as well as 13 locations overseas.
Financial performance and audit results In 2019/20 Tourism New Zealand was originally appropriated $111.5 million of Crown funding, the same as in 2018/19. However, Tourism New Zealand received a one-off funding increase of $9.7 million in February 2020 for the COVID-19 Tourism Response. The total Crown funding appropriated to Tourism New Zealand for 2019/20 was therefore $121.2 million.
Due to the effect of COVID-19, particularly the nationwide lockdown, Tourism New Zealand did not spend that full amount. To recognise this, the Ministry of Business, Innovation and Employment gave approval for $10 million of unspent funds from 2019/20 to be carried over to 2020/21. Tourism New Zealand does not operate to make a financial return.
The Auditor-General issued a non-standard audit report for Tourism New Zealand for 2019/20. He was satisfied that the information audited fairly reflected the entity’s activities
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2019/20 ANNUAL REVIEW OF TOURISM NEW ZEALAND and financial position. However, he wanted to draw attention to the disclosures on the financial statements that outlined the effects of COVID-19 on the entity.
Tourism New Zealand was rated “very good” for its management control environment, its financial information and supporting systems and controls, and its performance information and supporting systems and controls. The Auditor-General made no recommendations for improvement. We commend Tourism New Zealand for these results.
COVID-19 “devastated” the tourism sector Before COVID-19, spending by international tourists was about $17.2 billion in the year ending 31 March 2019. Tourism was New Zealand’s largest export earner, making up 20.4 percent of total export earnings.
In that year, tourism directly contributed 5.8 percent to New Zealand’s GDP. It indirectly contributed a further 4 percent. The sector directly employed nearly 230,000 people in 2019.
Tourism New Zealand’s primary purpose is to market New Zealand as a tourist destination around the world. The border closure on 19 March 2020 effectively stopped international tourism in New Zealand. This has forced Tourism New Zealand to reorient its work, including reprioritising its funding and staff. Tourism New Zealand now has four new objectives, to better reflect the current circumstances. They are:
driving domestic tourism demand restarting international demand supporting the domestic tourism sector advising the Government and the tourism sector recovery.
Tourism New Zealand’s focus is promoting domestic tourism Tourism New Zealand has reprioritised a lot of its resources into marketing to drive the demand for domestic tourism. Domestic consumers are currently the only people able to support New Zealand tourism businesses.
Tourism New Zealand said it is seeing a high desire from New Zealanders to go out and see their own country. In a recent run of research, about 70 percent of New Zealanders intend to have a domestic holiday in the next 12 months.
The “Do Something New, New Zealand” campaign was successful In May 2020, Tourism New Zealand launched its largest marketing investment in a single market. The “Do Something New, New Zealand” campaign aimed to encourage New Zealanders to holiday around the country, rather than waiting for the ability to travel overseas. Tourism New Zealand tried to make sure New Zealanders saw the campaign in as many places as possible.
We heard that the campaign had positive results. Market research identified 88 percent support for the campaign. More than 100,000 referrals to the domestic tourism industry were recorded. NewZealand.com, Tourism New Zealand’s main platform for operators to list
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2019/20 ANNUAL REVIEW OF TOURISM NEW ZEALAND content, received 270,000 visits. About 13,800 businesses had direct referrals from the site, with booking traffic at about 10 percent of that.
Money spent by domestic tourists has increased 15 percent over the past year. At December 2020, the number of domestic tourists increased since last year at every destination except Auckland (which is down 5 percent). Domestic tourists in Queenstown increased by 53 percent.
We are encouraged by these results, but are still concerned about the gap left by international tourists.
Driving tourism demand is difficult outside the natural holiday periods Tourism New Zealand said it continues to promote domestic tourism. However, it faces challenges now that most New Zealanders are back at school and work. It said it has to be realistic about how much it can get New Zealanders to participate in the sector over the next few months. We heard that it will not be enough to fill the gap left by international tourists.
Now that the summer holiday period has passed, Tourism New Zealand is focusing on audiences less reliant on statutory and school holidays. This includes adults without children and older consumers. It is also focusing on promoting the idea of having a lot of small trips each year, rather than one big trip. It currently has an urban leisure campaign running, which encourages people to visit an urban centre for a long weekend.
Tourism operators are having to be innovative In response to our questions, Tourism New Zealand discussed tourism operators who were adapting their goods or services to a domestic audience. It said it had seen a lot of businesses changing what they offer. For example, some operators are packaging up their services with other operators to create an itinerary of products. Tourism New Zealand said this was a “real innovation” to make particular regions enticing for domestic tourists.
Tourism New Zealand said it is also looking for new ways to be innovative in getting New Zealanders to travel more domestically. For example, we heard about a test programme that it promotes on Facebook. Sitting directly underneath the Facebook advertising posts, there are a list of bookable products. When a consumer sees an ad, they can click directly through and make a booking. This programme launched in October 2020. Almost $2.9 million in operator bookings have been made since the launch. Tourism New Zealand is using these sorts of programmes as tests to see how they could work for international markets.
Domestic tourism businesses need support Domestic tourism cannot replace the money from international tourists We are pleased to see the increase in spending from domestic tourists. However, we know that this can only replace the loss in revenue from international tourists to a limited degree. Tourism New Zealand acknowledges that domestic tourism spending will never be enough to fill the gap left by international tourists.
Tourism New Zealand’s research has estimated that domestic tourism spending would have to increase by 72 percent to replace the absence of international tourists. We heard that
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2019/20 ANNUAL REVIEW OF TOURISM NEW ZEALAND domestic tourists tend to spend 33 percent less per day than international tourists. New Zealanders are also more likely to take short breaks, rather than extended trips. These breaks also tend to be concentrated at particular times of the year: summer and long weekends.
Tourism New Zealand said it expects 2021 will be very tough for tourism businesses. Given the uncertainty with borders, it is encouraging operators to start planning scenarios where the border may not open soon and they have to rely on domestic visitors for potentially a two-year period.
Tourism operators in tourist hot spots are struggling Anecdotally, we have heard from tourist operators in traditional tourism hot spots, such as Queenstown and Te Anau, who have had a 90 percent decrease in revenue since COVID- 19. Tourism New Zealand acknowledged the substantial effect of the lack of international tourism on such places. This is especially noticeable now the traditional domestic holiday period has finished.
Tourism New Zealand said it is focusing on getting as many New Zealanders as possible to participate in the tourism economy. In particular, it is trying to get domestic tourists to stay in accommodation and undertake paid activities, to keep as many businesses operating as possible.
Qualmark is supporting struggling tourism operators At our hearing, we noted that some inbound tourist operators and souvenir shops cater specifically to visitors from their ethnic communities. Such operators have been hugely affected by the lack of international tourists. We asked Tourism New Zealand what it is doing to support operators that rely on specific international markets.
Tourism New Zealand acknowledged that it has been challenging for these businesses. Its subsidiary, Qualmark, received $10 million funding as part of the Government’s Tourism Transitions Programme to help tourism operators.
Part of this funding, $5 million, is to provide free advisory services to help tourism operators cope with COVID-19 trading conditions. This includes giving advice on how to reorient their businesses to a domestic market, or to hibernate the business until borders open. Nearly 650 businesses registered for this support in 2019/20. By February 2021, more than 1,000 businesses had accessed this support, including some souvenir shops and inbound tourism operators.
The other $5 million of this funding is to support tourism operators improve their digital capability. Examples are help with digital marketing, website performance, and the use of social media.
The benefit of a “trans-Tasman bubble” would be substantial Before COVID-19, Australia was New Zealand’s largest source of international tourists. Australian tourists made up 40 percent of arrivals and contributed $2.7 billion to the economy in 2019. Tourism New Zealand’s view is that it would be a huge benefit to tourism operators to reopen the Australian market. It has projected that the opening of the trans-
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Tasman bubble coupled with strong domestic tourism would re-build the tourism sector up to 70 percent of pre-COVID levels.
We understand that there cannot be certainty as to when the border will open. However, it would be helpful for tourism operators to have an idea of when it might open, so they can start planning financially. We asked Tourism New Zealand what advice it had given the Government on the possibility of the border opening.
Tourism New Zealand understands that a number of factors are being considered regarding when borders might open. It has provided a number of scenarios to the Government and mapped out the challenges and economic benefits of each scenario. The focus of its advice has been the benefit of opening the Australian market. This recognises the value of the Australian market in terms of spending, and the ease of air connectivity between Australia and New Zealand.
Tourism New Zealand has had marketing campaigns ready to go since mid-2020. They will be rolled out when the border reopening is announced. We heard that Tourism New Zealand is working with Tourism Australia to coordinate marketing and promote travel when a trans- Tasman bubble is in place.
We note that some states in Australia have not had community transmission in months, similar to the South Island. Tourism New Zealand said it can promote New Zealand on a state-by-state basis if the opportunity arises and the border opens to some states before others. It is flexible in targeting its marketing to the most appropriate places.
Tourism New Zealand is encouraging tourism operators to look at their offerings and business models in line with what resonates with the Australian market. It is providing insight to businesses from the domestic work it is doing to help with this.
Work is ongoing to keep the New Zealand brand alive overseas While borders are closed, Tourism New Zealand’s focus with the international market is maintaining New Zealand’s “brand appeal”. This is particularly in countries that were the largest and highest-priority markets before COVID-19. Tourism New Zealand has maintained a marketing presence overseas to build visitor demand for when borders reopen.
We heard that building a brand takes time, so it is important to continue to remind future international visitors about the possibility of travelling to New Zealand. Tourism New Zealand’s research shows that New Zealand’s brand appeal in its top markets has remained stable since the outbreak of COVID-19, except in China.
We asked why the brand appeal in China had been softening over time. Tourism New Zealand said that the two countries’ different geopolitical viewpoints on certain policies tends to affect New Zealand’s appeal to the Chinese market. It also reflected reduced marketing spending by New Zealand prior to COVID-19.
Tourism New Zealand said it recognises that there will be a lot of competition for particular visitors when borders reopen. It said it is refining its audience targeting to make New Zealand worth waiting for in the eyes of high-value consumers. It will be looking at how to differentiate New Zealand from the rest of the competition.
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Tourism New Zealand said its approach to restarting demand is to be flexible with marketing plans, rather than trying to predict which regions might open their borders first.
A lead-in time is needed so outbound operators can market New Zealand We asked when clearer signals would be needed about a reopening of the border, to ensure that outbound tour operators overseas could include New Zealand in their marketing materials. We are concerned that people will think New Zealand is “closed for business” when borders do reopen.
Tourism New Zealand acknowledged that lead-in times are needed for advertising. Historically, booking windows in long-haul markets can be as long as 9 or 12 months before travel. Because of this, timing for advertising is important. However, Tourism New Zealand thinks that outbound operators will adapt as quickly as they can to sell New Zealand.
Although Tourism New Zealand said it cannot commit to the timelines for brochures and advertising, it has been focused on continuing to support overseas operators to make sure they are ready when the time comes. This is particularly important because more than 70 percent of travel to New Zealand from long-haul markets is purchased through a third party. Tourism New Zealand said it is important to keep those operators up to date.
As part of keeping overseas operators up to date, Tourism New Zealand is conducting training via online webinars. It started this work in China. In the last 12 months it has trained more than 15,000 travel sellers in China. One of Tourism New Zealand’s webinars reached more than four million views in China. Tourism New Zealand said this had been successful in keeping international buyers connected to New Zealand.
COVID-19 has had an impact on overseas staff Tourism New Zealand has 13 offices outside New Zealand. We asked whether it was expecting redundancies in these offices.
Since the beginning of the pandemic, Tourism New Zealand said, it has looked at its international positions and the work that needs to be done. The unpredictability has been challenging but its focus has been on being ready as soon as the borders reopen. For this reason, it has maintained its Australian office at full capacity.
For other markets, Tourism New Zealand has engaged with agencies such as New Zealand Trade and Enterprise, the Ministry of Foreign Affairs and Trade, and Education New Zealand. It seconded a number of staff to those agencies, to help fill gaps. It said it has held vacancies internationally and put a number of internationally based staff into domestic roles.
These actions mean that, in net terms, it did not make any redundancies. However, in its long-haul markets it has reduced staff by almost 25 percent. It acknowledged that as the pandemic continues, it will continue to assess what the right level of staffing is.
The Auditor-General is investigating the Strategic Tourism Assets Protection Programme On 5 February 2021, the Auditor-General announced that he will be investigating some aspects of the Strategic Tourism Assets Protection Programme. This programme of
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Government funding was designed to protect the core assets in the tourism sector to ensure their survival through COVID-19. The programme offered grants and loans to tourism businesses. Decisions were made by the Tourism Recovery Ministers Group, supported by advice from the Ministry of Business, Innovation and Employment.
We asked what input Tourism New Zealand had into the criteria for this programme. It said it provided advice on aspects of the industry pre-COVID. It provided details on the potential effects of the programme. It also gave information on the importance of tourism businesses and the scale that they deliver.
We asked whether Tourism New Zealand had given advice to the Government that some tour operators should be given funding before the process formally opened. Tourism New Zealand said that was outside its role.
Tourism New Zealand is looking at the future of tourism Tourism New Zealand is a member of the Tourism Futures Taskforce. The taskforce is looking at the longer-term view of tourism in New Zealand. As part of its input into this work, it is providing the views of international visitors and New Zealanders from a research perspective.
We asked what it thought the “right level” of tourism was, in terms of the environment, transport, and the economy. Tourism New Zealand said it had started to see the challenges regarding New Zealanders’ tolerance for tourism before COVID-19. It is talking at a board and executive level about the tension of putting New Zealanders at the heart of what it does, but also considering the views of international visitors. It has seen the COVID-19 period as an opportunity to reflect and better understand the views of New Zealanders and think about what New Zealand wants as a country for the future.
Demand for travel to New Zealand was looking positive before COVID-19 Tourism New Zealand told us that New Zealand had experienced softening arrival figures in the first half of 2019/20. In response to softening demand, it had tried to boost demand in New Zealand’s top three markets: Australia, China, and the United States. It said it had been able to create momentum in these markets. There were strong forward bookings from China, demand from Australia after the bushfires, and increased air capacity coming from the United States. We heard that New Zealand had been well positioned to capitalise on this demand.
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Appendix
Committee procedure We met on 18 February and 25 March 2021 to consider the annual review of the New Zealand Tourism Board. We heard evidence from the New Zealand Tourism Board and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the New Zealand Tourism Board).
New Zealand Tourism Board (Responses to written questions).
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2019/20 Annual review of New Zealand Trade and Enterprise
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 Introduction to New Zealand Trade and Enterprise ...... 2 Financial performance and audit results ...... 2 The COVID-19 response and recovery has been challenging ...... 3 NZTE worked quickly to support export customers ...... 3 Trade Recovery Strategy ...... 3 NZTE believes global trade will increase in 2021 ...... 4 Supporting overseas staff ...... 4 COVID-19 has hindered investment ...... 5 NZTE has a contingency plan for Expo 2020 ...... 5 Workforce diversity and inclusion is a focus for NZTE ...... 6 NZTE’s new digital portal has opened ...... 6 Appendix ...... 7
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2019/20 ANNUAL REVIEW OF NEW ZEALAND TRADE AND ENTERPRISE
New Zealand Trade and Enterprise
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of New Zealand Trade and Enterprise for 2019/20, and recommends that the House take note of its report.
Introduction to New Zealand Trade and Enterprise New Zealand Trade and Enterprise Te Taurapa Tūhono (NZTE) is a Crown Agent. It is the Government’s international business development agency. NZTE’s focus is to support New Zealand businesses to grow internationally, and to attract high-quality capital investment to New Zealand.
The agency works with two customer types: export customers and investment customers. Export customers are New Zealand companies seeking to grow internationally. Investment customers are companies, sectors, and regions looking for investment opportunities, and investors who NZTE works with to match to those opportunities.
NZTE collaborates with other government agencies involved in international engagement, such as the Ministry of Foreign Affairs and Trade (MFAT), Tourism New Zealand, and the Ministry of Business, Innovation and Employment (MBIE). Collectively these agencies are sometimes referred to as “NZ Inc”.
The agency has 645 full-time staff across 43 global locations, with 45 percent of its staff based offshore. The chief executive is Peter Chrisp and the board chair is Andrew Ferrier.
Financial performance and audit results In 2019/20, NZTE received revenue of $255.4 million, up 18 percent from $215.7 million in 2018/19. Its expenses were $233.2 million, up 8 percent from $215.3 million in 2018/19. This resulted in a net surplus after tax of $22.2 million, an increase from its $470,000 surplus in 2018/19. The surplus was driven by factors including additional Government funding from the COVID-19 Response and Recovery Fund, delayed expenditure due to the postponement of Expo 2020, and reduced travel and international operating expenditure as a result of COVID-19.
The Auditor-General issued a non-standard audit opinion, drawing attention to disclosures in the financial statements and performance information that outline the effects of the COVID- 19 pandemic on NZTE.
The Auditor-General rated NZTE’s management control environment, its financial information systems and controls, and its performance information systems and controls as “good”. This is unchanged from the previous two financial years. The Auditor-General made some recommendations for improvement, including improving documentation for managing conflicts of interest, and continuing to develop impact measures relating to Expo 2020.
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The Auditor-General commended NZTE for meeting most of its performance measures for 2019/20, despite difficulties presented by the COVID-19 pandemic.
The COVID-19 response and recovery has been challenging NZTE told us that the COVID-19 pandemic and resulting economic conditions made for a challenging year for the agency and its customers. Business has been difficult for many New Zealand exporters, as activities such as maintaining supply chains, developing new markets, raising capital, and engaging with customers have been severely disrupted.
We heard that NZTE’s focus during this period has been on supporting its export customers as much as possible, to ensure that New Zealand stays connected to international markets.
We acknowledge NZTE’s proactive response to COVID-19 and the work of its international staff in particular, who have had to adapt to extremely difficult working conditions brought on by the pandemic.
NZTE worked quickly to support export customers The onset of COVID-19 caused NZTE to quickly shift its focus towards helping New Zealand exporters navigate a significantly altered trade environment. NZTE’s support to exporters in the early stages of the pandemic included:
setting up a webpage to communicate COVID-19-related market insights to exporters establishing a business continuity service to assist exporters in developing a response plan for their businesses underwriting charter flights to key export markets, to help exporters who are dependent on air freight to transport their products. We sought information on whether any businesses had to withdraw from the International Growth Fund (IGF) in 2019/20 because they could no longer meet the required level of investment. We were told that some businesses were faced with having to withdraw for this reason. NZTE had responded by requesting that the government-to-business co-funding ratio be increased from 40:60 to 50:50. The IGF was also expanded to support some types of investment not previously available within the fund.
Trade Recovery Strategy In June 2020 the Government launched a Trade Recovery Strategy. The strategy aims to help the export sector rebuild from the effects of the pandemic, and contribute to the recovery of New Zealand’s wider economy. NZTE and other international-facing government agencies are responsible for its implementation. We heard that the Trade Recovery Strategy is the most comprehensive “NZ Inc” effort that NZTE has ever been involved in. It has allowed NZTE to build on the initial support it provided to exporters early in the pandemic.
NZTE’s contribution to the strategy focuses on enhancing the intensity, reach, and scale of its support to New Zealand exporters. Key initiatives in 2019/20 included:
doubling the number of export companies NZTE intensively supports from 700 to 1,400
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providing more information, tools, and advice to the wider export sector through digital channels, including through a new online portal called myNZTE extending services to small and medium-sized enterprises through the Regional Business Partner Network expanding the IGF to make co-funding available to more businesses wanting to grow internationally recruiting 37 staff in overseas posts, to provide additional support to exporters while international travel is restricted. NZTE has been given funding from the COVID-19 Response and Recovery Fund to implement the strategy. It will receive $54 million of additional funding over the next four years, at a total of $216 million.
We asked for details about how NZTE selected the additional focus customers it is now able to intensively support, and what proportion of them are small-to-medium enterprises. NZTE told us that it was able to quickly identify about 800 companies that were already being provided with light-touch services, and bring them over to the focus group. The focus group now includes just over 1,400 companies. On average most of those companies are small or medium-sized.
NZTE believes global trade will increase in 2021 We asked whether NZTE agrees with the World Trade Organization’s recent assessment that global trade volumes will recover by 7.2 percent in 2021, but fail to make up for the 9.2 percent drop seen in 2020. We also discussed how global trade trends will affect New Zealand’s economic prospects in the coming year. NZTE responded that trade trends are hard to predict, but it believes that global trade will increase as supply chains start to be re- established. Improved supply chains will help New Zealand businesses increase their export volumes, particularly those serving niche markets.
NZTE also commented that trade patterns have been variable across different sectors, with some companies growing or remaining stable, and others struggling to survive. Companies producing essential goods like food tend to have done better than more niche businesses. We heard that some technology and software companies have also seen big increases in business since COVID-19 hit. NZTE’s priority over the past year has been working closely with customers to help them understand and adapt to changes in their sectors.
NZTE said that supply chain problems are still affecting businesses worldwide. Currently there is a major container imbalance. Many countries are struggling to access the appropriate number of empty containers to ship goods. The lockdowns in different countries at varying times have exacerbated this problem. Normally, increasing shipping prices solves this problem. However, the imbalance is so great that empty containers are still not being freed up at the required rate.
Supporting overseas staff Nearly half of NZTE’s staff work in countries with considerably more stringent COVID-19 restrictions than New Zealand, and many are facing prolonged lockdown conditions. NZTE’s support for staff during the pandemic has included using a risk-assessment tool for home 4
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We asked how well NZTE’s IT infrastructure was able to cope with a rapid switch to remote working in early 2020. NZTE told us that the agency was already a high user of digital communication technologies such as video conferencing software. The agency’s existing IT systems and tools allowed staff to continue business electronically, with little interruption, from the start of lockdown conditions.
We also queried whether NZTE has a policy or procurement plan to ensure that all offshore staff are able to access COVID-19 vaccines. NZTE said it has contracted the international health service Healix, which is providing specialist advice to employees on the vaccines available in their country. NZTE will facilitate local procurement where possible. However, it will not be shipping vaccines from New Zealand to overseas locations due to difficulties with supply chains. Some of us believe that NZTE should urgently vaccinate staff and families overseas so that they can go back to business on behalf of New Zealand. Waiting for host governments to agree to vaccination risks some staff being vaccinated and others not.
COVID-19 has hindered investment We sought NZTE’s comment on the extent to which current Government settings may be repelling or, conversely, attracting offshore investors. NZTE observed that New Zealand’s international reputation has increased, as its management of COVID-19 is perceived positively around the world. As a result there is a high level of interest in New Zealand from offshore investors.
However, NZTE told us that progressing investment deals is still difficult due to current border settings. The closed border has hindered investors’ ability to undertake due diligence in New Zealand. This is making it harder to attract “greenfield” investment in particular.1 NZTE is now using digital tools to facilitate virtual due diligence, although this is challenging.
We requested an update on the progress of the Tourism Attraction Programme, which was launched in 2019 to help the New Zealand tourism industry attract capital investment. We were informed that the programme resulted in the development of three new hotels, but it is not currently running due to the collapse of the global tourism market.
NZTE has a contingency plan for Expo 2020 NZTE has received funding over several years to deliver New Zealand’s participation in Expo 2020 in Dubai. This includes managing the design, construction, and operation of the New Zealand pavilion at the Expo, and seeking sponsors and participants for the event.
In early 2020, the Expo was postponed by a year as a result of the COVID-19 pandemic. It is now scheduled to take place from October 2021 to March 2022. At the end of 2019/20 the pavilion was 80 percent complete due to COVID-19-related construction delays. NZTE has received $7.78 million from the COVID-19 Response and Recovery Fund to cover additional costs relating to Expo 2020.
1 Greenfield investing is a type of foreign direct investment where a company builds its own facilities from the ground up. In contrast, brownfield investment involves a company purchasing or leasing an existing facility.
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We commented that attendance levels at the Expo are likely to remain uncertain because of ongoing travel restrictions. We asked what contingency planning NZTE has in place to prepare for low attendance. We were told that the agency is developing an alternative plan which focuses on digital engagement opportunities. It is currently exploring how New Zealand companies may be able to use the pavilion facilities to engage virtually with Expo visitors. NZTE noted that digital engagement would likely be an element of its participation in Expo 2020, no matter what form the Expo takes.
Workforce diversity and inclusion is a focus for NZTE We were interested in how NZTE is working to ensure that its workforce is diverse. NZTE reported that it has now reached its 40:40:20 target for gender diversity across its board and leadership teams. (The leadership teams now comprise 40 percent men, 40 percent women, and 20 percent either men or women.) The proportion of women in leadership within NZTE is at its highest-ever level.
We were told that the results of a recent diversity and inclusion survey showed improvements in the number of Māori in the agency. However, the survey highlighted that NZTE lacks Asian representation in its leadership structure, and the agency will be looking for ways to improve in this area. NZTE will also be seeking to understand more about the experience of staff with disabilities in the organisation. We look forward to seeing continued progress in this area.
NZTE’s new digital portal has opened We were interested in NZTE’s response to our written question 27. The answer indicated that the third phase of NZTE’s work on its myNZTE portal cost $465,890, which is $279,620 more than either of the other phases. NZTE said that work on the portal built up over time and the third phase was the biggest stage of the project. The myNZTE portal aims to provide curated, in-depth information to New Zealand exporters, free of charge.
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of New Zealand Trade and Enterprise. We heard evidence from New Zealand Trade and Enterprise and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on New Zealand Trade and Enterprise).
New Zealand Trade and Enterprise (Responses to written questions).
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2019/20 Annual review of the New Zealand Transport Agency
Report of the Transport and Infrastructure Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial overview and audit report ...... 2 Waka Kotahi’s spending on projects ...... 3 Progress on the New Zealand Upgrade Programme ...... 4 Resilience of the transport sector in New Zealand ...... 4 Waka Kotahi’s performance compared with other countries ...... 5 Transport across Auckland Harbour ...... 5 Waka Kotahi is considering its in-house capability ...... 6 Waka Kotahi aims to be multimodal ...... 6 Waka Kotahi expects challenges due to the National Land Transport Programme ...... 7 Let’s Get Wellington Moving ...... 7 Regional input into transport projects ...... 8 Extending rail transport beyond Waikanae ...... 9 Reducing carbon emissions is a goal of the GPS ...... 9 Waka Kotahi’s role in Auckland Light Rail ...... 9 Waka Kotahi has worked on resetting its organisational culture ...... 10 Efforts to make high-risk roads safer ...... 10 Appendix ...... 12
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New Zealand Transport Agency
Recommendation The Transport and Infrastructure Committee has conducted the annual review of the New Zealand Transport Agency for 2019/20, and recommends that the House take note of its report.
Introduction Waka Kotahi New Zealand Transport Agency (Waka Kotahi) is a Crown agency that works to provide an integrated land transport system in New Zealand. It is responsible for driver and vehicle licensing, managing the state highway network, and investing in New Zealand’s land transport system.
We spoke with chief executive Nicole Rosie, chairperson Sir Brian Roche, and Brett Gliddon, general manager transport services.
Financial overview and audit report Waka Kotahi is mostly funded through revenue from the National Land Transport Fund (NLTF), and by the Crown. The NLTF consists of revenue collected from:
• fuel excise duty • road user charges • vehicle and driver registration and licensing • state highway property disposal and leasing • road tolling. The NLTF is used to fund investment in land transport activities under the National Land Transport Programme (NLTP). A reduction in economic activity due to COVID-19 meant that less revenue came into the NLTF (particularly from fuel excise duty and road user charges). The Government responded by providing additional funding of up to $600 million and by allowing Waka Kotahi to increase its borrowing from the Crown.
Waka Kotahi had total revenue of $3.474 billion in 2019/20, an increase of 20 percent from 2018/19. Its operating expenditure totalled $3.510 billion, an increase of 21 percent from 2018/19.
Results of the annual audit The Auditor-General issued a non-standard audit report on Waka Kotahi’s financial statements and performance information. The audit opinion was modified to draw attention to Waka Kotahi’s disclosures in its financial statements outlining estimates, assumptions, and judgements made about the state highway network valuations. The Auditor-General also highlighted disclosures outlining the impact of COVID-19 on the financial statements. The
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Auditor-General believes both of these matters are important for readers of the financial statements.
The Auditor-General also issued a non-standard audit opinion on the financial statements and performance of the NLTF, in order to draw attention to disclosures outlining the impact of COVID-19.
The Auditor-General rated Waka Kotahi’s management control environment as “needs improvement”. He noted that it is undertaking various programmes of work in response to a 2018 review of its regulatory capability and performance, and in response to other internal and external reviews undertaken in 2019/20. He said he does not expect to raise this rating until these programmes are complete.
Waka Kotahi’s performance information and supporting systems and controls were also rated as “needs improvement.” The Auditor-General noted that the large number of performance measures that Waka Kotahi reports on makes it challenging for the public to assess its core performance.
The Auditor-General rated Waka Kotahi’s financial information and supporting systems and controls as “good”.
Waka Kotahi’s spending on projects Some projects have gone over budget We expressed concern that Waka Kotahi needed more funding to complete some of its major projects. Waka Kotahi acknowledged it has experienced cost pressures on some projects. It said most projects have been delivered at around their estimated cost, with 7 percent of projects costing more than originally budgeted. However, it conceded that projects that go over budget are usually over by a significant amount.
We asked whether Waka Kotahi has revised its assessment of the economic efficiency of these projects, noting that their outcomes remain the same. Waka Kotahi said it does recheck the economic benefits of projects. It said it has recently raised this point about a particular project with the board, and it is considering whether that project should go ahead. It highlighted that expectations often increase as a project progresses, which can present a challenge. It said a project’s scope is often changed and added to when Waka Kotahi starts its investigation phase. It said costs are also added into the consenting phase of projects when it begins its investigations.
We also asked whether Waka Kotahi would consider reprioritising a project if its value for money decreased because more funding was needed. Waka Kotahi said when this happens during a project, more public money would be wasted by reprioritising, rather than completing, the project.
Waka Kotahi also highlighted that it is reviewing its procurement approach. It said it will introduce new approaches to improve supply chain procurement. To increase accuracy, it is also improving its estimates of unknown risks at the early stages of a project.
We asked whether Waka Kotahi thinks the problem of projects going over budget has worsened in recent years. We particularly noted that, over the past three years, state
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highway projects have needed $1.1 billion in additional funding not originally budgeted. We wondered whether Waka Kotahi’s board is saving money in other areas to fund the additional state highway project costs. Waka Kotahi said that, because it operates within a fixed budget, it must make trade-offs to fund increased project costs. It said it is still committed to the current Government Policy Statement on land transport (GPS), and the NLTP.
Underspending on walking and cycling We were curious why Waka Kotahi has underspent on developing walking and cycling infrastructure. Waka Kotahi said it would still be within the spending range for walking and cycling. It said some walking and cycling projects have been difficult to deliver. It said it was too ambitious in what it wanted to achieve, and that it has faced challenges with these projects.
Waka Kotahi also said plans for future walking and cycling projects were not well advanced. Because of this, when it experienced problems with some projects, it did not have other projects waiting which it could turn to. It said it is focused on improving its delivery and consistency of walking and cycling projects.
Progress on the New Zealand Upgrade Programme The New Zealand Upgrade Programme (NZUP) is a $12 billion funding package intended to upgrade rail, road, schools, and hospitals. It was announced in January 2020. From the total package, $6.8 billion is allocated for investing across road, rail, public transport, and walking and cycling infrastructure
We asked Waka Kotahi about the progress of projects funded under the programme. It said it has spent the last year working on all of the projects which fall under NZUP funding. It also said it has reviewed the projects to ensure the costings are accurate, and it has re-baselined some of the projects. It is doing this work based on what it has learned about cost pressures over the past few years. Waka Kotahi said it provides a full list of the NZUP projects it is delivering, including the original timelines and costs, on its website.1
We noted that, at our hearing with Waka Kotahi the previous year, it said it was proposing a number of projects to ministers for funding under the NZUP. We asked for more details about the full range of projects that were originally proposed. Waka Kotahi said its proposals were provided to the Government in confidence, and questions about that should be directed to the Minister of Transport. It noted that this information has previously been requested and was withheld by the Minister of Transport under the Official Information Act 1982.
Resilience of the transport sector in New Zealand We asked how much confidence New Zealanders can have in the transport sector. Waka Kotahi acknowledged that some parts of the transport network are not resilient enough.
1 Waka Kotahi provided this link to the information: https://www.nzta.govt.nz/planning-and-investment/nz- upgrade/. 4
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Waka Kotahi has a National Resilience Programme Business Case, endorsed by its board in May 2020. This programme “identifies and rates nationally important risks from natural hazards (including climate change-related) in the New Zealand land transport system and addresses a range of system-wide resilience process issues”. Waka Kotahi said that, although it is trying to mitigate risks, some cases (such as the Auckland Harbour Bridge, discussed further below) are not straightforward.
Waka Kotahi agreed with us that cost is an issue in mitigating risk. However, it said it is confident it can respond quickly to urgent matters, or in crises.
Waka Kotahi’s performance compared with other countries We asked how Waka Kotahi benchmarks its performance against that of transport agencies in other countries. We were particularly interested in comparisons with other small, advanced economies, such as Denmark, Switzerland, Ireland, Israel, and Singapore. We also asked whether Waka Kotahi looks to other countries to benchmark its management of earthquake risk.
Waka Kotahi said benchmarking against other countries can be misleading, so it looks for comparable examples. They include Australia, Japan, Sweden, and Norway. It said it looks at these countries when evaluating its own productivity, and whether it is delivering similar value for money. It noted that, although it does look to Japan as an example of a country with a similar number of earthquakes, the population density and economics in Japan are very different. Overall, it views these countries as reference points which can drive its own questions and performance.
Waka Kotahi said it is good at what it does, but acknowledges that it could be better. It said overall it is good at delivery, but it has a lot of work and limited capability.
Transport across Auckland Harbour We were keen to hear Waka Kotahi’s thoughts about other methods of crossing Auckland Harbour. It said it has backup plans and a disaster recovery plan for Auckland Harbour Bridge. It also sees ferries taking a wider role in Auckland Harbour. Waka Kotahi highlighted that anything that reduces the number of people in cars, and the total number of journeys taken, is a positive.
We were interested to hear about Waka Kotahi’s plans for a future second harbour crossing. We recalled that, on 18 September 2020, two trucks were buffeted by strong winds on Auckland Harbour Bridge, resulting in damage to parts of the bridge. The bridge was temporarily closed for repairs, and all eight lanes did not fully reopen until 6 October 2020. The closure caused significant traffic delays in Auckland. We asked whether Waka Kotahi has provided the Minister of Transport with cost estimates or timings for a second Auckland harbour crossing. It said it does not think it has provided costings, but the cost would be several billion dollars. It does not have timings, but said it has been doing work on a second harbour crossing for some time. It said the closing of the bridge in 2020 focused its attention on a second harbour crossing.
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Waka Kotahi said public transport would be a key part of a second harbour crossing. It is still working on what mode of public transport that would be, and what support networks would be needed on the North Shore. It said it will be working on that on 2021, along with making decisions on timing and financing. We asked whether Waka Kotahi has in-house capability to do this work. It said it will bring in people with expertise in development and engineering. It noted that, while Auckland has big transport projects under way or planned, such as the City Rail Link and Auckland Light Rail, a second harbour crossing would be the city’s biggest project.
Waka Kotahi highlighted that its recent project developing the western ring route was intended to de-stress the Auckland Harbour crossing. The western ring route links Manukau, Auckland, Waitakere, and the North Shore, providing people and freight with a second route through Auckland. However, Waka Kotahi said that although the western ring route provided an alternative when the Harbour Bridge was damaged, Auckland still experienced traffic congestion. It said its priority is maintaining the bridge, acknowledging that support also comes from the western ring route and the northern corridor on the North Shore. It views the bridge as a very productive asset, but does not deny that it needs to develop the next piece of infrastructure for the harbour crossing.
Strengthening Auckland Harbour Bridge We noted that Waka Kotahi has advised the Minister that further strengthening of the Auckland Harbour Bridge is not possible. It also advised that some heavy restrictions will need to be imposed on the bridge to manage its structural integrity. We asked whether this could result in trucks being banned from the bridge over the next 20 years.
Waka Kotahi explained its advice, noting that the bridge has been strengthened before. It said that adding more steel to the bridge in an attempt to strengthen it further would increase the bridge’s dead load by too much. This would be counter-productive. Instead, it said it will have to manage vehicles on the bridge in the future. Management might include restricting heavy vehicles, but there might be other options. It said it has not made any decisions about this, and does not expect to impose any restrictions within the next 12 to 18 months.
Waka Kotahi is considering its in-house capability We asked Waka Kotahi about its in-house capability. We expressed concern that it appears reliant on contractors, and has said it lacks capability to deliver some projects. We wondered whether it has considered developing its own workforce so it can deliver some projects. Waka Kotahi said it is actively discussing this. It said some people think it has outsourced too much of its work to industry, and it is looking at changing that.
Waka Kotahi aims to be multimodal We were interested in Waka Kotahi’s progress on encouraging mode shift.2 Waka Kotahi said it is building its ability to take a multimodal approach to planning. It said it is
2 Mode shift is the change in transport supply or use due to increased advantages of one mode over another. 6
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strengthening its capabilities in rail, light rail, walking, and cycling. Its new operating model encourages more integrated multimodal planning, with a long-term focus.
Waka Kotahi also highlighted that it is much cheaper to build a road with walking and cycling integrated at the design stage, rather than trying to add these features later. Similarly, it is cheaper to build in safer and more sustainable ways from the design stage. Waka Kotahi thinks about balancing these aspects, and ensuring diverse voices about all options are heard.
Waka Kotahi expects challenges due to the National Land Transport Programme The National Land Transport Programme (NLTP) is a three-year programme that sets out activities that can receive funding from the National Land Transport Fund (NLTF), administered by Waka Kotahi. The NLTP must give effect to the Government Policy Statement on land transport. Waka Kotahi is currently developing the 2021–24 NLTP.
We asked whether Waka Kotahi foresees challenges with funding activity classes3 over the next NLTP period due to funding commitments that have already been made. Waka Kotahi said the 2021–24 NLTP will be the most difficult one it has had to work on. It said there is always an imbalance between funding and expectation. It said it will be working closely with ministers to get guidance about activity classes.
Let’s Get Wellington Moving We were interested to hear about progress on Let’s Get Wellington Moving (LGWM), a joint initiative between Wellington City Council, Wellington Regional Council, and Waka Kotahi. LGWM is investigating a number of projects.
We asked whether Waka Kotahi would be recommending projects that will deliver on the outcomes identified in LGWM, or if it will recommend other projects that have already been planned for some time. Waka Kotahi said it will work to solve Wellington’s transport problems, and to deliver on the Government’s commitment. It expressed its disappointment at suggestions it was not working within the LGWM framework.
We noted that confidence in LGWM has dropped, following an internal, independent “health check” review into the programme. The executive summary of the review stated:
One of the key findings of our review was that all parties considered the value proposition of a programme approach holds true. However, LGWM in its current state is at risk of failing to deliver an integrated, cohesive, prioritised and outcomes-driven package of investments.
We heard that Waka Kotahi will discuss its renewed approach to LGWM with the Minister. We wondered how Waka Kotahi intends to approach stakeholder engagement given the current low confidence in LGWM. Waka Kotahi said it would also discuss engagement with
3 Activity classes are high-level groupings of outputs, such as walking and cycling improvements, or local road maintenance.
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the Minister, and acknowledged that it needs to improve on this. It said it will take time to build public trust and confidence.
Waka Kotahi also said that getting tangible progress would take time. We asked what tangible progress might look like. Waka Kotahi said early projects could include bus priority initiatives, walking and cycling initiatives, and speed management projects. It said these are projects it could deliver quickly compared to some of the larger roading and mass transit projects. We wondered whether Wellington councils could delay bus priority projects. Waka Kotahi said, as partners in LGWM, councils are part of discussions about those initiatives.
Waka Kotahi is investigating a second Mt Victoria tunnel One project under LGWM is a second tunnel through Mt Victoria. We asked whether Waka Kotahi is committed to funding an extra tunnel. It said it is still absolutely committed to the programme as it was announced. Waka Kotahi said it has made clear that it is working on sequencing the programmes included in LGWM. We asked if there are disagreements between Wellington councils and Waka Kotahi about the sequencing of projects. Waka Kotahi said it does not believe that is the case.
We asked whether an indicative business case on the tunnel has been prepared, and if the tunnel might be delayed in the sequencing of projects. Waka Kotahi said it is still in the investigation stage, and it has not completed an indicative business case. It said the projects in LGWM are very complex, and it had underestimated the work involved. It said projects also need to be interlinked, and cannot be planned separately. It will report on the indicative business case, timing, and projects later this year. It confirmed that there is no agreed date for when work on a second Mt Victoria tunnel would begin.
We asked whether the delays Waka Kotahi has encountered in preparing the business case could lead to delays in the delivery timeline of the project. Waka Kotahi acknowledged it is late in preparing the business case, but does not think this will have an effect on the overall delivery timeline. It said it hopes to be able to make informed decisions, and to make options public, over the next few months. It will then begin public engagement.
Regional input into transport projects We asked how Waka Kotahi ensures that it makes decisions integrated across New Zealand, rather than focused on particular cities. It said regions develop regional land transport plans, which then become part of a broader plan. When considering projects, it said it assesses economic factors, strategic fit, and effectiveness. Through this process, it recognises issues in different communities for a fair distribution of projects.
Waka Kotahi wants to increase its engagement with iwi and hapū We asked how Waka Kotahi engages with iwi and hapū. It acknowledged that, while it actively engages with iwi on specific projects, its engagement has not been as good as it should be. It wants to get beyond transactional relationships. It said it has strong relationships with some iwi, such as Ngāi Tūhoe and Waikato-Tainui. It has also developed an iwi Māori strategy, and is establishing iwi liaison roles in each of its regional teams.
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Extending rail transport beyond Waikanae We asked whether Waka Kotahi is investigating extending rail from Waikanae to Levin, or potentially even further north. We noted that this is an area experiencing significant growth. An extended rail service could aid in reducing emissions and improving access in the region.
Waka Kotahi said positive work has been done in the past few years to improve rail connectivity between Waikanae and Wellington, but it needs to extend further north. It is looking at whether the Capital Connection service could be extended. It acknowledged there is a large commuter population in the area, and that current traffic conditions are not good.
Waka Kotahi noted it has invested about $200 million into KiwiRail through Wellington Regional Council, for a significant upgrade of the rail network out of Wellington. It is also looking into what further transport investments could be made in the central North Island.
Reducing carbon emissions is a goal of the GPS We asked how Waka Kotahi will ensure that a reduction in carbon emissions is the major considering factor for strategic long-term infrastructure investments over the next decade. Waka Kotahi clarified that under the GPS it has to weigh up four criteria, of which environmental sustainability is just one. It said it will need to balance: environmental sustainability, healthy and safe people, economic prosperity, and resilience and security
Waka Kotahi said that most projects are already committed and under way over the next three years under the GPS. While acknowledging the strong intent in the GPS for the transport sector to become more carbon-neutral, it said this is unlikely to change in the next three years.
We expressed concern that there could be no progress on reducing emissions over the next three years, and that they could, instead, increase. Waka Kotahi said that potentially there will not be a significant decrease to emissions. It said it expects more discussions with the Government about how it can ensure it is assisting in mitigating and reducing emissions.
We asked whether Waka Kotahi sees an overlap between the goals of reducing carbon emissions and reducing road deaths. Waka Kotahi said it does in some cases, but not all. It said safer vehicles are usually more efficient, and electric vehicles are also usually safer because they are newer. It also said public transport is generally safer.
Waka Kotahi’s role in Auckland Light Rail In 2018, Waka Kotahi was developing a business case for Auckland Light Rail. An unsolicited business case to build and operate light rail was then put forward by NZ Infra.4 Cabinet tasked the Ministry of Transport with leading the process to decide the delivery partner. Both Waka Kotahi and NZ Infra were asked to develop their proposals for further consideration, and these were delivered to the ministry in November 2019. The ministry evaluated both proposals. In June 2020, it was announced that the Cabinet process to select a preferred delivery partner had concluded with no decision made. The Ministry of Transport
4 NZ Infra is a joint venture between the NZ Super Fund and CDPQ Infra, a wholly owned subsidiary of Canadian pension fund Caisse de dépôt et placement du Québec.
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was asked to work together with Treasury to build on the work already done, and to develop options to present to the Government.
We asked what the cost of Waka Kotahi’s proposal was, noting it was not the ministry’s preferred proposal. Waka Kotahi referred this question to the Ministry of Transport. The ministry said that the cost estimates remain confidential to the commercial process. The ministry also said that costs provided by Waka Kotahi were specific to its proposal, which is not being progressed. Waka Kotahi said that, regardless of which delivery partner is chosen, it supports a new mode of rapid transport in Auckland.
We asked whether Waka Kotahi sees the project as being back at the beginning, with the mode, costs, and timing all yet to be decided. Waka Kotahi said it thinks much of the work already done will be a basis for the project going forward. It said it is keen to see the project advance. It noted that, because all transport networks need to work with each other, decisions about this project would affect decisions about a second harbour crossing.
Waka Kotahi has worked on resetting its organisational culture In 2018, the Ministry of Transport led a review of Waka Kotahi’s regulatory capability and performance. This was in response to reports of regulatory failure, and concerns raised by Waka Kotahi's board. The report concluded that there were “significant deficiencies in the NZTA’s regulatory capability and approach that, over time, have led to regulatory failure within the Agency.” The ministry made a number of recommendations in the report, including that Waka Kotahi “provide for a good regulatory culture where people are encouraged to raise risks and are able to exercise regulatory judgment within clear regulatory practices and approaches”.
We asked what practical actions have been taken to encourage a culture change. Waka Kotahi said COVID-19 presented an opportunity to reset the organisation and its culture. It said it has been partnering with others, collaborating effectively, and taking a whole system approach. It said it has worked with the board to develop a new strategic direction, which clarifies its strategic priorities.
Waka Kotahi said it has defined its values, using Māori concepts and English. It has also defined the behaviour it expects. It said its senior leadership team is focused on demonstrating these behaviours through better communication. It said this has resulted in more engagement throughout the organisation.
Efforts to make high-risk roads safer Waka Kotahi is working with local government and the wider safety sector on the Safe Network Programme. The programme implements safety infrastructure (including median barriers, roundabouts, wide centre lines, and rumble strips), and speed limit changes. It aims to save 160 deaths and serious injuries every year across New Zealand’s highest risk state highways and local roads.
We noted that Waka Kotahi has not met its spending target for the Safe Network Programme, and asked how it plans to change this. Waka Kotahi said it will spend about $1 billion of the $1.3 billion allocated to the project for 2019/20. It said because a lot of planning,
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Appendix
Committee procedure We met on 25 February and 25 March 2021 to consider the annual review of Waka Kotahi. We heard evidence from Waka Kotahi and received advice from the Office of the Auditor- General.
Committee members Greg O’Connor (Chairperson) Paul Eagle Hon Julie Anne Genter Shanan Halbert Christopher Luxon Dr James McDowall Hon Mark Mitchell Terisa Ngobi Helen White
Chris Bishop and Nicola Willis replaced Hon Mark Mitchell, and Kieran McAnulty and Barbara Edmonds replaced Shanan Halbert for this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the New Zealand Transport Agency).
New Zealand Transport Agency (Responses to written questions).
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Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 Introduction to Provincial Growth Fund Limited ...... 2 Financial overview and audit results ...... 2 PGFL is a new entity with a unique mandate ...... 3 Governance, monitoring, and collection ...... 3 PGFL has been sharing its expertise ...... 3 PGFL invests where commercial finance is unavailable ...... 4 Risk assessment is part of PGFL’s core work ...... 4 PGFL projects contribute to economic recovery from COVID-19 ...... 4 Appendix ...... 6
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Provincial Growth Fund Limited
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of Provincial Growth Fund Limited for 2019/20, and recommends that the House take note of its report.
Introduction to Provincial Growth Fund Limited Provincial Growth Fund Limited (PGFL) is a limited liability company set up by the Crown to hold and monitor regional development loans and investments. These loans and investments were made from the $3 billion Provincial Growth Fund (PGF), which was set up to provide capital to projects based outside the main centres. PGFL was incorporated in September 2019, with a mandate to oversee both the investments made by the Crown, and the progress of the projects to which they relate. Its day-to-day management is operated out of the Ministry of Business, Innovation and Employment (MBIE).
PGFL is led by three directors, chaired by Rodger Finlay.
Financial overview and audit results At 30 June 2020, the Crown had transferred 30 loans and investments to PGFL, totalling $127 million. At the time, only $36 million had been drawn down, with much of the rest to be distributed when projects met particular milestones.
PGFL reported a total deficit of $8.7 million in the 10 months to 30 June 2020. This was largely on the basis of changes to the fair value of its investments, or impairment of loans where risk was increasing. The deficit was substantially lower than the budgeted deficit of $22.6 million, as a result of PGFL not making some advances as planned, which in turn led to a lower than budgeted concession expense.
Given that much of PGFL’s day-to-day monitoring is carried out by MBIE, its own operating cashflow expenses are low, at around $133,000 for the year.
PGFL’s management control environment was rated as “good” and its financial information and supporting systems and controls were rated “very good” by the Auditor-General.
However, the Auditor-General rated PGFL’s performance information and supporting systems and controls as “needs improvement”, meaning major improvements are needed at the earliest reasonable opportunity. In particular, the audit report noted that PGFL provided little reporting information outside its financial statements. Given PGFL’s comments during our hearing with it that it is “looking for outcomes more than just financial outcomes”, we encourage it to ensure that these outcomes are reported on in the future.
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PGFL is a new entity with a unique mandate During our hearing with PGFL’s directors, we discussed its role in detail, both in terms of where it currently stands, and where the directors and the Government see it moving in the future.
Governance, monitoring, and collection A substantial portion of the $3 billion allocated to the Provincial Growth Fund during the last term of Government was distributed in the form of loans and investments, rather than grants. PGFL was created to hold these investments on behalf of the Crown, to monitor their performance, and to collect repayment of loans and equity investments. These repayments can be held by PGFL, so that decisions can be made about reinvesting the funds in other programmes.
PGFL is not responsible for decisions made around the allocation of investment money. These decisions are made by ministers, who can then transfer the loans and investments to PGFL, so that it can exercise its governance role over them. We heard that ministers are also the final decision makers should a particular loan or investment go wrong.
Some of us asked how they meet their obligations as directors when ministers are making decisions on investment and in some cases the loans are impaired as soon as they arrive on PGFL’s books. PGFL noted that, although it is not responsible for any impairment of a loan that occurs before a loan is delegated to it, it monitors loan performance continually once loans are transferred. If it considers it appropriate, it will either increase or reduce the level of impairment of a loan, based on its changing risk profile. We heard that the directors are very aware of their responsibilities. Some of us remain concerned.
We noted that some of PGFL’s investments give it substantial equity in the companies in which it has invested. We asked how it could remain a passive investor while controlling as much as almost 40 percent of some companies. PGFL noted that, while this passive investment model is unusual for the Crown, it is a relatively common role for many New Zealand investors. The directors also pointed out that each of PGFL’s investments is relatively bespoke, and the particular arrangements for control or influence in each case will be unique.
PGFL has been sharing its expertise PGFL was unable to tell us whether there were any plans for its mandate to be broadened, saying that this was a matter for the Government. However, we heard that PGFL has been working with regional economic development agencies around New Zealand to share its expertise, and that of the Provincial Development Unit within MBIE. International regional development agencies have also been in contact. In part their interest reflects the relatively unusual use of investments, rather than grants, from the PGF, and because of the substantial size, on a per capita basis, of the Government’s initial $3 billion investment in the PGF.
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PGFL invests where commercial finance is unavailable We also heard at length about the nature of PGFL’s investments, and the reasons why some projects that the PGF invested in were not able to access the necessary commercial finance.
Some of the projects that the PGF invested in were expected to create broader benefits outside their commercial returns, such as hydrogen energy projects in the Taranaki region. Others were conventionally good candidates for investment, but the PGF was better placed to provide investment with a longer repayment horizon than a bank. Others again were in sectors that had historically not been well served by conventional finance, such as water storage projects, or projects to make use of Māori land held in complex titles. We heard that the PGF tried to limit its exposure to risk by refusing to provide 100 percent funding to projects with commercial prospects, to ensure that the project would need to establish at least some private sector support.
We heard that PGFL is satisfied that the substantial majority of its loans and investments are operating well. A number of projects that the PGF funded, using its more agile and innovative funding structures, have already been successful. At least one loan has already been repaid in full, years ahead of schedule, because the particular project was successful enough to attract commercial funding to supersede the PGFL funding.
Risk assessment is part of PGFL’s core work Although we heard about the successful projects overseen by PGFL, we also discussed how PGFL assesses the risk that its investments might go wrong, and what it does as this risk increases.
We heard that PGFL has a traffic light system, whereby investments are characterised as green, amber, or red. Green is the lowest risk category, while red is the highest. PGFL reported that it had four investments in the amber category, while the rest were green. It indicated that there had not been any problems with repayments (although we note that some of these loans were not yet subject to repayment anyway). Growing investment risk would be managed first by MBIE’s staff in the Provincial Development Unit, then by the directors, and then, as a last resort, brought to the attention of the Ministers responsible for PGFL for their decision.
We also discussed the process of impairment of PGF loans. Impairment occurs when the value of a loan is written down, on the basis that the risk that not all of the principal or interest due on the loan will be repaid. We heard that impairment can occur before the loan is transferred to PGFL, and perhaps further impaired by PGFL as time goes on. Some of us expressed concern that this could lead to substantial impairment of loans that were initially made in the expectation of commercial return. PGFL might be unable to refuse the transfer of these potentially risky loans. PGFL noted that it was able to roll back impairment if it believed this was necessary. A situation had never arisen where it had been asked to take responsibility for a loan when the directors were uncomfortable doing so because of the risk.
PGFL projects contribute to economic recovery from COVID-19 PGFL noted that a number of its projects are focused on regions that have been hard-hit by COVID-19, and we accept that PGF projects have helped support the regional recovery from 4
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COVID-19. Some of us, however, noted that this is only coincidental, as the projects often significantly predate COVID-19.
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Appendix
Committee procedure We met on 11 and 25 March 2021 to consider the annual review of Provincial Growth Fund Limited. We heard evidence from Provincial Growth Fund Limited and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Provincial Growth Fund Limited).
Provincial Growth Fund Limited (Responses to written questions).
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Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 About the Real Estate Agents Authority ...... 2 Financial results and audit opinion ...... 2 Making it easier for non-English speakers to buy and sell houses ...... 2 Redesigning the real estate agent qualification framework ...... 3 The REAA could regulate property managers ...... 3 Educating real estate agents about anti-money-laundering requirements ...... 4 Preventing fraud by real estate agents ...... 4 Appendix ...... 5
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2019/20 ANNUAL REVIEW OF THE REAL ESTATE AGENTS AUTHORITY
Real Estate Agents Authority
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the Real Estate Agents Authority for 2019/20, and recommends that the House take note of its report.
About the Real Estate Agents Authority The Real Estate Agents Authority (REAA) is the independent Government regulatory body for the real estate industry in New Zealand. It is a Crown entity, established under the Real Estate Agents Act 2008.
The authority aims to promote high standards of service and professionalism in the real estate industry, help to protect buyers and sellers, and promote public confidence in the performance of real estate agency work. It does this by providing information to buyers and sellers, providing advice and guidance to agents, and dealing with complaints about agents’ behaviour.
Financial results and audit opinion The authority’s surplus has declined over the past few years, from $2.2 million in 2015/16 to a $1.7 million deficit in 2019/20. During the same period, revenue has declined by $1.5 million, and expenses increased by $2.5 million.
The authority is primarily funded by levies from real estate licensees. During the last three years it has deliberately operated at a deficit. During this time net assets have reduced from $5.9 million in 2016/17 to $2.6 million in 2019/20. Another deficit is forecast for 2020/21. This has been a planned strategy to reduce its cash holdings to an optimal level. The authority plans to move to a breakeven position in the future.
The Auditor-General issued a non-standard audit report for 2019/20, drawing attention to the authority’s disclosures about potential effects of COVID-19. He noted that the actual effects would not be known until 2020/21.
The Auditor-General rated the REAA’s management control environment and financial information systems and controls as “very good”. The REAA’s performance information and associated systems and controls were rated as “good”. The Auditor-General noted that deficiencies identified in 2018/19 have been resolved in part.
Making it easier for non-English speakers to buy and sell houses We were interested in how the REAA serves non-English speakers, especially in complaints processes. We asked how many licensees speak a different language, and whether the authority has any statistics on ethnicity.
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The authority informed us that it has done consumer research to understand the problems and issues faced by purchasers who do not speak English. The authority provides its two mandatory consumer guides in Chinese.
The authority previously provided these guides in four other languages, but these were not used and are no longer available on the REAA website. The authority makes use of translation services in the complaints process. The authority also assists speakers of other languages by using plain English, particularly on its website.
The authority agrees that there is more work to be done in this area and told us that it is a focus in its future strategic direction. Understanding cultural barriers to successful transactions is a big focus for the authority. It is working towards improving data collection regarding the ethnicity of licensees, sellers, and purchasers.
Redesigning the real estate agent qualification framework We asked what progress has been made by the REAA in its review of New Zealand’s real estate agent qualifications. The REAA said that licensee applications have increased by 45 percent since the national COVID-19 lockdown. We agree that it is important an appropriate qualification system is in place during this growth period. The REAA expects that in the next ten years many experienced branch managers and agents will retire. It said it is important to provide a pathway for current sales people to move into branch manager and agent positions.
In 2020, in response to feedback from the industry, the authority initiated a review of the real estate qualifications suite. Consultation with the industry opened in January and the results were published on the REAA’s website in late February 2021. The REAA plans to work with training providers between June and December 2021. It would like enrolments to be open for new learners from December 2021 until early 2022.
The authority said it has had trouble with a real estate agent course offered in Queensland that does not sufficiently address problems that are specifically relevant to New Zealand. The Queensland course also does not require trainees to have as much experience working in the industry as the authority would like. However, the authority has an obligation under the Trans-Tasman Mutual Recognition Act 1997 to recognise this qualification. The authority hopes to offer a shorter, more focused course that will be more attractive to trainees than the Queensland course.
The REAA could regulate property managers The 2020 Speech from the Throne signalled that the Government intends to regulate property managers. We asked what the authority’s view is on qualifications for property managers and landlords. The REAA believes it has good systems for property managers to gain qualifications, and for dealing with licensing, complaints, and discipline. It has not considered dealing with landlords.
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Educating real estate agents about anti-money-laundering requirements We asked how anti-money-laundering (AML) requirements affect the real estate industry. Real estate agents have been required to adhere to AML regulations since January 2019. The REAA told us that many real estate agents find complying with the requirements difficult and time-intensive. It supports agents by providing education, so that all licensees know what their obligations are. It holds industry advisory group meetings and also provides professional development through its regulator forum. The REAA works closely with the Department of Internal Affairs, which oversees AML rules in the sector.
We note that real estate agents, in meeting their AML obligations, must undertake the same inquiry as banks and lawyers. We believe there is scope for greater cooperation to reduce the burden of compliance on real estate agents.
Preventing fraud by real estate agents We asked what controls there are to stop agents taking advantage of their position and making an unfair personal profit from house sales.
The REAA noted that this issue had been raised with it a few years ago, especially in Auckland where some houses were sold and then quickly on-sold. It assured us that it addressed such behaviour. It now also tries to monitor this by looking at data around house sales. We heard that the REAA’s code of conduct includes principles relating to professionalism and “flipping” houses. The authority also requires agents to provide appraisals that are realistic and based on a fair, competent assessment. It has the ability to investigate a complaint about a seemingly inflated appraisal. However, there are currently no significant complaints before the REAA about agents providing inflated appraisals.
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Appendix
Committee procedure We met on 18 February and 25 March 2021 to consider the annual review of the Real Estate Agents Authority. We heard evidence from the Real Estate Agents Authority and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Glen Bennett Naisi Chen Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Real Estate Agents Authority).
Real Estate Agents Authority (Responses to written questions).
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2019/20 Annual review of the Retirement Commissioner
Report of the Economic Development, Science and Innovation Committee
March 2021
Contents Recommendation ...... 2 Introduction to the Retirement Commissioner ...... 2 Financial performance and audit results ...... 2 Review of Retirement Income Policies 2019 ...... 3 What the future of New Zealand Superannuation might look like ...... 3 NZ Superannuation and Retirement Income (Fair Residency) Amendment Bill ...... 3 Reassurance is needed for younger New Zealanders ...... 4 Challenges expected for an aging workforce ...... 4 Impact of COVID-19 and the commission’s response ...... 4 Tools and programmes in response to COVID-19 ...... 4 Redesigning the national strategy for financial capability ...... 5 Results of the OECD-led study about COVID-19 and financial wellbeing ...... 6 Improving youth financial literacy through school-based initiatives ...... 6 Updating the commission’s information technology policy ...... 7 Appendix ...... 8
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Retirement Commissioner
Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of the Retirement Commissioner (also known as the Commission for Financial Capability) for 2019/20, and recommends that the House take note of its report.
Introduction to the Retirement Commissioner The Retirement Commissioner is an autonomous Crown entity defined by the Crown Entities Act 2004. The Commission for Financial Capability is the office of the Retirement Commissioner.
The office’s name reflects the way the Retirement Commissioner’s work has expanded over the years: it does not just work on retirement matters, but also promotes the skills for people to secure a comfortable retirement.
The commission’s principal activities are to:
help all New Zealanders prepare financially for their retirement through improved financial capability and driving sustainable and enduring behaviour change raising awareness of retirement income policy issues, monitoring and reporting on the effects and effectiveness of retirement income policies monitor the provisions of the Retirement Villages Act 2003 and administer the Retirement Villages Act disputes process. The commission completed an organisation redesign in June 2020. This was intended to increase the focus on retirement policy and advocacy, cultural competence, and the integration of marketing and service delivery. A new approach to the National Strategy for Financial Capability will be produced in 2020/21.
Jane Wrightson was appointed Retirement Commissioner in February 2020. Peter Cordtz acted as Retirement Commissioner for 14 months prior to this.
Financial performance and audit results The Commission’s total revenue in 2019/20 was $8.864 million. This was $7,000 more than budgeted, but $58,000 less than in 2018/19. Total expenditure was $9.320 million in 2019/20, which was $0.703 million less than budgeted, and $0.884 million more than in 2018/19.
On the whole, the commission’s total revenue and expenditure has steadily increased over the last five financial years.
The Auditor-General rated both the commission’s management control environment and financial information and supporting systems and controls as “very good”. The commission’s
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2019/20 ANNUAL REVIEW OF THE RETIREMENT COMMISSIONER performance information and supporting systems and controls were rated as “needs improvement”, needing major improvements at the earliest reasonable opportunity. This view mainly related to significant deficiencies that the auditor noted in the commission’s Statement of Intent (SOI) 2017–2020. This was reported against for the last time in the 2019/20 Annual Report. The deficiencies affected the quality of the information reported in the annual report. The Auditor-General noted that the commission has a new SOI from 1 July 2020, which is expected to improve the information reported in the 2021 annual report. The Auditor-General also made several recommendations on how the commission can improve its performance reporting.
Review of Retirement Income Policies 2019 The commission is required to perform a review of retirement income policies every three years. Completing the most recent review was a major focus of the year under review. Eight pieces of research were produced to inform a broad set of recommendations. This included conducting focus sessions with vulnerable groups, including Māori and Pacific peoples. Expert advisory groups also examined issues such as the gender gap at retirement, KiwiSaver improvements, and the aging workforce.
What the future of New Zealand Superannuation might look like In its two previous reviews, the commission called for a rise in the age of eligibility for New Zealand superannuation because the scheme was unaffordable. However, the 2019 report concluded that Treasury projections showed that the cost of New Zealand Superannuation is sustainable for at least the next 30 years. It concluded that raising the age would do more harm than good. The commission therefore recommended that current settings for New Zealand Superannuation should be retained.
In addition, the commission recognised the importance of New Zealand Superannuation in addressing the inequalities experienced and accumulated during New Zealanders’ lives. This is particularly relevant for Māori and Pacific peoples. The commissioner said that as a Treaty of Waitangi partner, the commission will continue to identify the policy implications of inequality, and continue to apply a focus on distribution in its recommendations to the Government.
New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill We asked whether the commissioner supports the New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill. The bill is currently being considered by the Finance and Expenditure Committee. The bill would raise the minimum residency qualification for New Zealand Superannuation from 10 to 20 years. We heard that although the commissioner agrees with the bill’s aims in principle, she has concerns that it would not be able to be applied consistently. The commissioner expressed a further concern that the bill would disproportionately affect Chinese and Indian migrants. She said that New Zealand’s treaties with countries like Australia and the United Kingdom mean that the age of eligibility would not rise for immigrants from those countries. The commissioner said she would be “uncomfortable” if the bill purposefully aimed to disproportionately affect Chinese and Indian immigrants.
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The commissioner also noted the lack of costings for the bill. She believes that the bill would not save much money, given that many large countries would be exempt because of treaties. The commissioner also said that the bill should be grandparented so that it does not affect people currently residing in New Zealand. She told us that random changes to policy are a “bad idea” because of their large impact.
Reassurance is needed for younger New Zealanders The commissioner noted that attention should also be given to reassuring younger New Zealanders that superannuation will be there for them too. She said that a number of young people think they will not be able to access superannuation and “we must assure them they are wrong”.
Challenges expected for an aging workforce The commission notes that more people will be in need of state support as they enter retirement in coming years, due to declining home ownership, rising levels of debt, and the changing nature of work inhibiting people’s ability to save. The commission noted that COVID-19 intensified these issues.
We asked whether the commissioner was concerned about the provision of housing for seniors in New Zealand, taking into consideration the increasing life expectancy. She said that a whole range of people in the public sector are concerned.
We heard that an increasing number of people will reach retirement over the next 20 years who are either still renting or have a substantial mortgage to pay off. Since the pension assumes retirees have a mortgage-free home, the income will be insufficient and will present considerable personal challenges. People may need support to meet their living costs. In addition, the provision of old-style pensioner housing is becoming difficult and diminishing. The commissioner said the provision of housing for seniors should be “tackled alongside the issues facing first-time owners”.
We asked about the different approaches to capital gains in the retirement village sector. The commissioner told us that the majority of retirement village licences to occupy do not allow residents to keep the capital gain earned on their property. The commissioner also said that, as the framework is 20 years old, the tensions between operators and residents on this issue are worth discussing. She noted that the framework is “relatively well-weighted to the industry, and whether or not that’s right is one of the questions”.
Impact of COVID-19 and the commission’s response Responding to COVID-19 was a key focus for the office in 2020. The commissioner’s 2019/20 annual report notes that she “watched in shock as New Zealanders panicked in response to job loss and income reduction and had to quickly swing into action with my team to prevent a run on KiwiSaver, steering people instead towards help that we and others could offer”.
Tools and programmes in response to COVID-19 The Sorted website has been around for nearly 20 years, and the commissioner told us she had wondered before COVID-19 struck whether it had “had its day”. However, it proved 4
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2019/20 ANNUAL REVIEW OF THE RETIREMENT COMMISSIONER highly valuable to deal with people’s concerns. After a marketing boost, she said, site usage “went through the roof, and feedback was fantastic”.
We asked what the commission is doing to improve the public’s understanding of their personal finances. We heard that the commissioner found that New Zealand’s understanding of investment capability is generally poor. She said that one of the most frequently expressed concerns was that people do not understand that KiwiSaver is an investment account, not a savings account.
The commission used its knowledge of personal finance to offer various tools and programmes to the public as a response to COVID-19. They included:
designing and marketing a content strategy to inform New Zealanders about the Sorted.org.nz guides and tools, and promoting these resources and programmes to a number of target audiences building partnerships with other government agencies to deliver Sorted content, thereby ensuring consistent messaging creating simplified guides on financial issues worrying New Zealanders the most, making these available on the Sorted website, and distributing them through social channels focusing Sorted content on not just long-term savings for retirement, but education on debt and setting up emergency funds to buffer unexpected economic shocks using blogs and social media to prompt people to consider their situations and to act producing a half-hour programme featuring a financial adviser talking about questions people are fretting over and giving advice; it screened on TVNZ 1 and was “enormously well-received” developing a one-hour webinar called “Navigating Covid-19: Get your money Sorted” to address the high level of public anxiety. A second webinar was later developed called “Design your new normal”. The commission reported that as a result of the tools and programmes during COVID-19, content engagement rose to record levels. We heard that the commission used analytics, verbatim reports, and surveys to measure, and evaluate this success.
Redesigning the national strategy for financial capability We heard that COVID-19 has exposed how fragile New Zealanders’ financial capability and planning was and is. As a result, the commissioner has been working on a redesign of the national strategy for financial capability.
The commission learned three key lessons from its work during COVID-19:
too many New Zealanders are unprepared for a financial shock New Zealanders want and need financial guidance from an independent source they can trust the sector needs to work together to ensure the consistency of consumer messages.
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These factors have been considered in the redesign of the national strategy for financial capability.
The national strategy aims to focus efforts, resources, and messaging from the sector more efficiently to help the consumer. We heard that it has the potential to unite a wide variety of government, community, and industry stakeholders, and connect their work to better help New Zealanders.
The national strategy will be relaunched on 16 April 2021.
Results of the OECD-led study about COVID-19 and financial wellbeing We heard that during nationwide lockdown the commission was part of an OECD-led study about the effects of COVID-19 on financial wellbeing. The study revealed that, in addition to 34 percent of New Zealand households being in financial difficulty, another 40 percent of households were newly at risk of tipping into hardship. We also learnt that one in 10 households missed a mortgage payment.
The follow-up survey conducted six months later in October confirmed the types of households most affected by COVID-19. Many working families were hit hard. Couples aged 18 to 54 with children; families who were renting; families with large mortgages; families with a parent at home; and those working in hard-hit sectors such as retail, food, and accommodation services were still likely to have reduced incomes compared with February 2020.
Māori and Pacific households were even more likely to have reduced incomes. Many in this cohort saw their incomes drop by more than a third. Forty-one percent of households are still fragile and exposed to shocks due to high debt and low savings. This is in addition to those who were already facing extreme hardship before COVID-19. Even though income levels seem to be slowly improving overall, financial resilience is still an issue. The commissioner said it will be vital in the economic recovery that New Zealanders learn to be better with money.
Improving youth financial literacy through school-based initiatives We asked about the work the commission is doing with young people to improve their financial literacy. The commissioner told us that the road to retirement starts with young people. However, over a 20-year period financial education was not taught in schools. The commission is trying to right this through initiatives that seek to improve youth financial literacy.
The commission launched “Sorted in Schools” four years ago. It was initially provided to senior secondary school students but is now offered from year 9. The programme trains teachers to build an inspiring and engaging financial capability programme. We heard that these modules have just been accredited on the NZQA framework.
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As of February 2021, 68 percent of secondary schools are registered for the scheme along with 60 percent of kura. Based on these numbers, the programme has a potential student reach of 192,604. An independent evaluation completed by the New Zealand Council for Educational Research in July 2020 showed that 62 percent of secondary schools have used the programme in the classroom.
Over the next year, the commission will look at the schools that are not participating to see why they are not and what more can be done to help them. The commissioner acknowledged that the Sorted programme is not the only tool available. While its modules are designed for teachers to use, the “Banquer” app is designed for children to use directly, to improve their financial capability.
Updating the commission’s information technology policy We asked about the work involved in updating the commission’s IT policy. We heard it involves bringing a range of current IT policies together into a comprehensive whole. In particular, it involves confirming policy relating to personal use of emails. Employees may not use their personal email account for commission business or to distribute or receive commission correspondence or documents.
We asked about cybersecurity and the security of portable devices, memory sticks, and similar equipment. We were told that all devices with access to commission information must be protected by a confidential password, PIN code, or biometric lock, and multi-factor authentication is to be used where possible. All commission devices are centrally managed and loaded with a current security suite to protect them from attack and malicious activity. External drives and portable devices must be scanned for viruses prior to use. They must not be used to share or move commission information without a legitimate reason and proper approval.
We note that software licensing costs increased in 2020. The commissioner said this was due to the migration to SharePoint, which meant the commission was well equipped to deal with lockdown. The costs should be relatively contained now, and the IT environment at the commission is now fit for purpose.
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Appendix
Committee procedure We met on 18 February and 25 March 2021 to consider the annual review of the Retirement Commissioner. We heard evidence from the Retirement Commissioner and received advice from the Office of the Auditor-General.
Committee members Jamie Strange (Chairperson) Naisi Chen Glen Bennett Melissa Lee Hon Todd McClay
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing Paper, Retirement Commissioner).
Retirement Commissioner (Responses to written questions).
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Labour sector annual reviews
• 2019/20 Annual review of the Accident Compensation Corporation • 2019/20 Annual review of WorkSafe New Zealand
Report of the Education and Workforce Committee
Fifty-third Parliament (Marja Lubeck, Chairperson) March 2021
Presented to the House of Representatives
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Contents Recommendation ...... 4 Labour sector overview ...... 5 Overview of funding for the labour sector ...... 5 Effect of COVID-19 on the labour sector ...... 5 Hearing with labour sector Ministers ...... 5 COVID-19 response ...... 5 Increasing minimum wage ...... 6 Psychosocial harm ...... 6 Holidays (Increasing Sick Leave) Amendment Bill ...... 7 WorkSafe’s resourcing ...... 7 Protections for security guards ...... 8 2019/20 Annual review of the Accident Compensation Corporation ...... 9 Introduction ...... 9 Financial performance and audit results ...... 9 ACC’s liabilities have increased ...... 9 Audit results...... 10 Levy income not enough to cover claims cost in 2019/20 ...... 10 Improving services for claimants ...... 11 Implementing a new case management model ...... 11 Improving outcomes for Māori ...... 11 Introducing a climate change framework ...... 12 Ethical investment policy ...... 12 ACC achieves mixed results for public value targets ...... 13 Focussing on customers ...... 13 Notices of decision ...... 13 Investing in prevention ...... 13 Exploring psychosocial harm ...... 14 2019/20 Annual review of WorkSafe New Zealand ...... 15 Introduction ...... 15 Financial performance ...... 15 WorkSafe’s expenditure increased ...... 15 Audit results ...... 15 ICT services need improvement ...... 15 2
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Asset stocktaking ...... 15 Performance reporting ...... 16 Health and safety performance ...... 16 Work-related injuries increase ...... 16 Work-related fatalities have reduced ...... 16 Harm Reduction Action Plan ...... 17 Funding challenges ...... 18 Public expectations are growing ...... 18 Whakaari (White Island) eruption ...... 18 Strengthening WorkSafe’s adventure activity regulations ...... 18 Māori still experience more workplace fatalities and injuries...... 19 Taura Here Waka ...... 20 Improving mental health in the workplace ...... 20 Establishing a mental health team ...... 20 Workplace bullying ...... 20 Ensuring workplace safety during COVID-19 ...... 21 Appendix ...... 22
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Labour sector annual reviews
Recommendation The Education and Workforce Committee has conducted the 2019/20 annual reviews of the following entities: • Accident Compensation Corporation • WorkSafe New Zealand. The committee recommends that the House take note of its report.
About our consideration and the structure of this report This year, we have decided to consider and report on the labour market sector as a whole, rather than reporting separately on each entity. In addition to individual hearings with the Accident Compensation Corporation and WorkSafe New Zealand, we held a hearing with the Ministers for ACC and Workplace Relations and Safety for an overarching discussion about issues in the sector. The various sections of this report cover the main points from those hearings.
In the Review of Standing Orders 2020,1 the Standing Orders Committee encouraged select committees to make overall sector reports, as well as their more traditional reporting on individual agencies. It also encouraged committees to invite Ministers to a hearing, to give evidence about the results of appropriations in the sectors they oversee.
The hope is that, over time, this form of scrutiny and reporting will make it easier for committees to comment on themes relating to an entire sector. They may be able to report on findings across a group of agencies, and on the sector-wide outcomes being achieved for New Zealand.
1 Standing Orders Committee, Review of Standing Orders 2020, (I.18A), July 2020, p. 43. 4
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Labour sector overview
Overview of funding for the labour sector Public agencies within the labour sector received a total of $6.9 billion in 2019/20, including both third-party and Crown revenue. This was made up of:
• $629.8 million for immigration • $209.7 million for workplace relations and safety • $22.8 million for employment • $6,043.7 million for accident compensation and rehabilitation. Labour market initiatives were also allocated $333.98 million from the COVID-19 Response and Recovery Fund from 2019/20 to 2023/24.
Effect of COVID-19 on the labour sector COVID-19 has hugely affected the labour sector. The labour sector has experienced:
• a short-term reduction in immigration, which has led to shortages in some specialised skill areas (such as healthcare professionals) and in sectors more reliant on migrant labour • adverse effects on employment in some sectors, such as tourism, with a consequent need to support people to transition to other sectors or retrain • the stress of COVID-19 on vulnerable employees, including the risk of businesses focusing less on health and safety when working with fewer resources • a loss of third-party revenue.
Hearing with labour sector Ministers We invited the Minister for ACC, Hon Carmel Sepuloni, and the Minister for Workplace Relations and Safety, Hon Michael Wood, to meet us as part of our consideration of the 2019/20 labour sector annual reviews.
COVID-19 response In their opening remarks, both Ministers spoke to us about COVID-19 and the roles of ACC and WorkSafe.
The Minister for ACC said that ACC has had a big role to play since COVID-19 spread to New Zealand in 2020. She told us that ACC has focused on looking after pre-existing claimants and whānau and ensuring their safety. ACC was also proactive in modifying the way that treatment and support were provided to claimants.
The Minister for ACC said that the Government also made the decision in July 2020 to keep levy rates unchanged until 2022. We heard that this helped ease the financial pressures of COVID-19 and provided more certainty to businesses.
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The Minister for ACC explained that ACC’s performance against its public value targets was mixed during 2019/20 and said that COVID-19 had an effect on these targets. She said 2019/20 was a period of significant movement in the economy. There were changes in volumes and types of claims and limited access to medical and vocational assessments, particularly during level 4 lockdown.
We heard that ACC experienced approximately a 50 percent decline in claims growth on a weekly basis during more restrictive COVID-19 alert levels. After returning to level 1, claims picked up again to pre COVID-19 levels. The Minister for ACC told us that claim volumes and costs have increased in recent years, but rehabilitation performance has declined. She said that working on rehabilitation rates will be a main focus for ACC.
The Minister for Workplace Relations and Safety said that workplace relations and safety has been an important area as the country has dealt with COVID-19. He acknowledged and thanked employers, employees, the Ministry of Business, Innovation and Employment and WorkSafe for the way they responded and adapted to challenges as a result of the virus. He said that, as a result of their hard work and innovative ways of working, unemployment figures are now at 4.9 percent, which is lower than what had been forecast.
Increasing the minimum wage We asked the Minister for Workplace Relations and Safety about the minimum wage increasing to $20 per hour from April 2021 and why increasing it was a priority. He said that the Government made a commitment to increase the minimum wage three years ago, and it was important to follow through on that commitment.
He also said that COVID-19 made people more aware of the importance of lower-income jobs, such as supermarket and cleaning positions. He said these positions have been incredibly important throughout COVID-19, but historically these roles have been perceived to have a lower value and, as a result, have been lower-paid. We heard that he is confident that increasing the minimum wage is sustainable according to advice he has received.
We asked about any future increases to the minimum wage, above $20 an hour. The Minister for Workplace Relations and Safety said he has asked for advice to help give him a framework for what the next three years of decisions will be around the minimum wage. He also told us that he will not be making any decisions about what the minimum wage might be in 2022 until he has received advice on the matter.
Psychosocial harm We asked both Ministers about psychosocial harm, which we discuss in more depth later in this report.2 Although we are pleased that WorkSafe appears to have taken steps to respond to psychosocial harm, we note that such harm is not covered by ACC. Some of us are concerned that it sends conflicting messages to workplaces, and that the treatment of psychosocial harm is not consistent across the system.
2 When referring to work, the term “psychosocial harm” refers to the aspects of design and management of work and its social organisational contexts that may have the potential for causing psychological or physical harm. It includes the psychological and physical wellbeing of workers. 6
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The Minister for Workplace Relations and Safety told us that addressing psychosocial harm is important. Historically, he said, New Zealanders have tended to think about health in terms of physical safety. However, he noted that health and safety is much broader and can involve several psychosocial factors including bullying, harassment, and stress. He said that these factors can have huge effects on the health and wellbeing of many New Zealanders.
Although WorkSafe is doing a lot of work in this area, he said, there is more to do. He emphasised that workplaces, employees, and employers need to be equipped to deal with psychosocial harm. The Minister for Workplace Relations and Safety said that he and the Minister for ACC have been discussing this issue, as have WorkSafe, ACC, and MBIE. We consider psychosocial harm and its effects important and hope to see more progress in this area soon.
Holidays (Increasing Sick Leave) Amendment Bill We asked the Minister of Workplace Relations and Safety about the Holidays (Increasing Sick Leave) Amendment Bill, which at the time of our meeting was before our committee. We were interested to know how the bill fits into the Government’s work plan and how it would relate to the Government’s review of the Holidays Act 2003. The Government established a taskforce to suggest improvements to the Holidays Act. The taskforce included business, union, and government representatives and was chaired by Victoria University professor Gordon Anderson. In February 2021 the Government accepted the taskforce’s 22 recommendations.
The Minister for Workplace Relations and Safety said that the need for access to adequate sick leave has become even more important with the effects of COVID-19. He acknowledged the taskforce’s recommendations and said he intends to progress work as a result of the review in the coming months.
WorkSafe’s resourcing Some of us questioned The Minister for Workplace Relations and Safety about whether WorkSafe is resourced well enough to meet public expectations and its statutory requirements. These members referred to a statement WorkSafe had made about resourcing in its Briefing to the Incoming Minister.
He said that it is not unusual for entities to make comments about funding in briefings to incoming Ministers. He noted that an additional $57 million was allocated to WorkSafe in Budget 2019. We heard that he believes the result of the additional funding is becoming apparent, such as WorkSafe’s recent focus on psychosocial harm.
However, he said that although WorkSafe has primary responsibility, it cannot achieve workplace health and safety alone. He said WorkSafe should be an enforcer, an educator, and a partner but that employers and employees also need to work together to create safe workplaces. The Minister for Workplace Relations and Safety said that if WorkSafe’s resources were doubled tomorrow, it still would not be able to have an inspector in every workplace where there is a health and safety risk. He said he will continue to work with WorkSafe’s chair and board on balancing WorkSafe’s priorities.
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Protections for security guards We acknowledged the recently introduced protections for security guards by adding them to Schedule 1A of the Employment Relations Act 2000. We asked specifically what protections are being given to security guards’ pay and conditions.
The Minister for Workplace Relations and Safety said that the security sector tends to involve a lot of contracting. He said that because of this, security guards have been at risk of losing employment. He said they have also been at risk of losing conditions that have been built up over a long period of time if they move to a different contract. He said that the new protections will help these issues. The Minister for Workplace Relations and Safety said he also intends to bring contractors into the living wage. He said that undertaking this is complex and will take time but it is something he hopes to pursue to ensure decent terms and conditions for security guards.
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2019/20 Annual review of the Accident Compensation Corporation
Introduction The Accident Compensation Corporation (ACC) is a Crown agent administered under the Accident Compensation Act 2001. ACC’s core functions under the Act are to provide:
a fair and sustainable scheme for managing personal injury that has, as its overriding goals, minimising both the overall incidence of injury in the community, and the impact of injury on the community (including economic, social, and personal costs).
The scheme provides no-fault personal injury cover for everyone in New Zealand, funded through dedicated levies and appropriations.
ACC’s chief executive is Scott Pickering, and its board chair is Dame Paula Rebstock.
Financial performance and audit results ACC recorded revenue of approximately $7.9 billion in 2019/20, a decrease of about $1.6 billion from 2018/19. ACC’s costs decreased from approximately $18.2 billion in 2018/19 to $13.9 billion in 2019/20.3
ACC recorded a deficit of $5.95 billion in 2019/20, compared with a deficit of $8.6 billion in 2018/19. The deficit was due to changes in discount and inflation rates, which increased the outstanding claims liability (OCL) by $5.7 billion. We discuss this further below. Total claims cost increased by about $650 million compared with 2018/19.
ACC’s liabilities have increased ACC’s liabilities increased by $8.2 billion compared with 2018/19. This is mainly because of movement in the OCL. This increase is partially offset by an increase in the investment portfolio of $2.6 billion. At 30 June 2020, ACC’s liabilities were greater than its assets by about $16 billion.
The OCL is an estimate of the total future cost of all current clients. It allows ACC to gauge whether it has enough assets on hand to cover all of the expected future costs of its clients, and whether it needs more funding. ACC reported its OCL at the end of 2019/20 as around $61.5 billion.
The OCL increases and decreases in part due to changes in inflation and interest rates. When interest rates are high or inflation is low, the OCL decreases. This is because ACC can expect higher average returns on its current investments (and so needs less invested now to meet future costs), or because low inflation means that future costs are unlikely to
3 Revenue includes net investment income, appropriations for non-earners, and levy income. Expenses include rehabilitation and compensation costs, operating costs, and changes in the outstanding claims liability.
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rise as fast as ACC may have expected. When interest rates are low or inflation is high, the reverse is true.
Audit results The Auditor-General issued a non-standard audit report. Although he was satisfied that the information audited fairly reflected ACC’s activities and financial position, he drew attention to ACC’s disclosures about how it has been affected by COVID-19. These effects included:
• the potential for economic uncertainty to affect future claim patterns and returns on investments • the deferral of some treatment and rehabilitation services during lockdown, which could result in higher costs in 2020/21 • delayed invoicing and collection of levies. The Auditor-General rated both ACC’s management control environment and its performance information and supporting systems and controls as “very good”. ACC’s financial information and supporting systems and controls were rated “good”, but some improvements were recommended.
The Auditor-General noted that ACC is receptive to continuous improvement across the organisation.
Levy income not enough to cover claims cost in 2019/20 We note that the amount of revenue ACC earned through levies was insufficient to cover the total cost of claims in 2019/20. We also note that as at 30 June 2020, the gap between ACC’s assets (including its investment portfolio) and its liabilities (including the OCL) is now$16 billion. Some of us are concerned by this and we asked ACC how it will meet the cost of claims in 2021.
ACC’s board chair told us that its investment fund has consistently over-performed and brought in additional capital. She said the fund is invested to meet the cost of claims already incurred, but because it has over-performed it can use money from the fund to meet the cost of claims this year. She acknowledged that this system is not sustainable as it cannot always rely on its investment fund over-performing, and there is risk involved. A main focus for ACC will be looking into levies and what it can recommend to the Government to ensure they cover the cost of claims.
We asked whether ACC intends to advise the Minister for ACC that an increase in levies is needed. The board chair said that ACC has consultation with the Government scheduled in September 2021 to discuss levies as well as technological changes at ACC. She told us that one of the challenges is that ACC plans 10 years in advance for covering claims. It has to take into consideration all economic factors that might cause instability in the market, and the market is “a daily moving picture”.
We recognise the risk of ACC relying on its investment fund, but we are also aware of the economic challenges as New Zealand—and the world—deals with the effects of COVID-19. We trust that ACC will find a solution and will monitor the situation closely. 10
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Improving services for claimants Implementing a new case management model Over the past five years, ACC has invested heavily in making its services more client- centred. Previously, the scheme was designed to be administratively efficient for ACC to operate. In 2020 ACC completed the introduction of its new case management model, called Next Generation Case Management. The model’s purpose is to: • improve the consistency of customer services through simpler and more transparent processes • allow ACC to better meet the diverse needs of claimants • lead to faster recovery because of better targeted and integrated rehabilitation interventions and better coordinated support for claimants who are unlikely to fully recover from their injuries. Under the model, claimants are assigned to a particular “recovery team” based on their individual needs for an effective recovery (as opposed to the type or severity of injury). We heard that since introducing the new model, ACC’s client satisfaction rates have improved significantly.
Improving outcomes for Māori We are pleased to hear that ACC has made improvements in how it works with Māori. We heard that its strategy, Whāia Te Tika, has three focus areas to create better experiences and outcomes for Māori. The focus areas are Te Arotahi Kiritaki (a strong customer focus), Kia Hiranga Te Mahi Ngātahi (partnering for excellence), and Whakawhanaketia (developing capability). We understand that ACC has started several initiatives to support its strategy during 2019/20. They include: • holding hui to explore the challenges and opportunities to improve awareness, access, experiences, and outcomes for whānau Māori • introducing a Māori customer advisory panel • awarding two workplace injury prevention grants to proposals focused on improving health, safety, and wellbeing outcomes for Māori • testing a Whānau Ora model for the delivery of home-based disability and support services. The board chair told us that Māori tend to score ACC highly in client satisfaction surveys compared with the wider population. However, she acknowledged that there is more work to do to ensure ACC is supporting the needs of Māori. As a result of the hui mentioned above, ACC has developed focus areas and an action plan for the next 12 months.
Working with Whānau Ora We asked about ACC’s work with the Whānau Ora commissioning agency, noting that Whānau Ora ended a contract with ACC. The contract was for a navigation service, where
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support people could provide free advice and advocacy to clients about ACC and help them work through ACC’s systems. ACC also funds Way Finders for this service, another independent agency.
The service was introduced in September 2019. ACC’s Chief Customer Officer said that ACC continues to work with Whānau Ora on what navigation for whānau Māori looks like. She said that a number of clients came through the navigation service whose cases were far more complex than expected. Some had multiple agencies involved with them and a number of historical issues. She said an internal review of the service has been completed. She assured us that ACC is committed to understanding how it can work with whānau Māori and continually improve its services.
Introducing a climate change framework We heard that, in August 2020, ACC introduced a climate change framework. It sets out how ACC will contribute to the global effort under the Paris Agreement, and support New Zealand’s efforts to reduce net emissions to zero by 2050.
The board chair told us that emissions and carbon intensity reduction targets would cover both the corporate and investment parts of ACC. We understand that ACC aims to reduce corporate emissions by 60 percent compared with 2019 levels. It is also trying to reduce emissions by being more selective about its investments. We understand that it is aiming to reduce the carbon intensity of its investment portfolio by at least 50 percent by 2030, compared with 2019 levels.
We note the timeliness of ACC’s framework, with the Government declaring a climate emergency in 2020 as well as announcing the Carbon Neutral Government Programme. The programme requires public sector agencies to measure and publicly report on their emissions, and to offset any emissions they cannot cut by 2025. All Crown agencies, including ACC, are required to measure, verify and report emissions annually. We are pleased to hear that ACC has already taken steps to reduce its emissions.
Ethical investment policy ACC has an ethical investment policy that aims to avoid investment in areas that could affect New Zealand’s reputation. It also does not invest in companies that it believes are behaving in an unethical manner, such as companies selling tobacco-based products. We asked ACC how it ensures that it is not investing in companies on its exclusion list. The board chair told us that a “whole back office” is dedicated to ensuring that ACC meets its ethical investment policy. If there were an accidental breach, she said, ACC would take immediate action.
We heard about one or two cases where a technical breach occurred for a very brief period. On one occasion ACC told an external fund manager that it would divest its holdings if they could not provide a fund that excluded the parties in question. In response, the external manager set up a separate fund for ACC. The board chair emphasised that ACC is incredibly careful with its investments.
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ACC achieves mixed results for public value targets ACC uses a range of measures to evaluate its “public value” performance each financial year across important categories. The categories include customer, impact, rehabilitation, and cost-effectiveness. Each category has a target result, and ACC reports the target alongside the actual result.
ACC met close to half of its target measures, reporting mixed results. We understand that some targets were affected by COVID-19, which made them difficult to achieve.
Focusing on customers We note that ACC did not meet its targets for client net trust and provider net trust in 2019/20. However, we are pleased to see that it exceeded its client net trust score for Māori. We asked why the first two targets were not met.
The chief executive told us that ACC is trending above its targets for client trust and general public trust and confidence for the current financial year. He said that ACC has been in a transition phase with the implementation of its new management model. He said there were some challenges when introducing the new model because of COVID-19. He also said that although the model is fully operational, some cases are transitioning from the old to the new system.
We heard that 2019/20 saw more than 1.8 million claims, and a system ACC has put in place has allowed it to accept claims very quickly.
Notices of decisions We are concerned to learn that ACC’s system was not sending notices of decisions. However, we understand that ACC has been providing decisions when requested by clients. We note that not sending notices of decisions is in breach of section 64 of the Accident Compensation Act 2001. We understand that ACC’s management expected to resolve this issue in late 2020.
We hope that ACC’s new management system will ensure that all claim decisions are communicated in a timely manner. While we are concerned by this, we are pleased that ACC has implemented a new algorithm-based system that allows it to accept claims rapidly. We were told that 67 percent of accepted claims are now confirmed within one hour, and 84 percent of accepted claims are confirmed on the same day. We are encouraged by these response times, but we will continue to monitor this situation closely.
Investing in prevention We sought information on what ACC is doing to prevent workplace injuries. The board chair told us it invests with WorkSafe in workplace safety. However, it also has its own investments. She said that it has invested in companies that produce products or technology that reduce injuries in the workplace. The chief executive told us that ACC focuses its attention on high-risk industries like farming, construction, and forestry. He said ACC has made investments to reduce harm in those types of occupations, which has led to fewer claims.
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Exploring psychosocial harm We sought ACC’s view on dealing with psychosocial harm, and asked if there is any evidence of a history of psychosocial harm in cases that later go on to be covered by ACC. We were told that ACC does not have any “concrete evidence” of this, but it is an area it has been thinking about. It has been in discussion with its counterparts in Australia and Canada and will continue to explore this matter. We look forward to hearing more about this.
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2019/20 Annual review of WorkSafe New Zealand
Introduction WorkSafe New Zealand is a Crown agent established in December 2013. It is the primary workplace health and safety regulator in New Zealand and is monitored by MBIE.
WorkSafe’s main aims are to provide regulatory confidence and leadership and to prevent harm at work. The board is chaired by Ross Wilson. Its chief executive is Phil Parkes.
Financial performance WorkSafe is primarily funded through revenue from the Crown. In 2019/20 it received $125.152 million compared with $103.9 million in 2018/19. Its revenue rose due to an increase in Crown funding of $13.7 million to support its capacity to improve health and safety outcomes. It also received an increase in funding of $6.7 million from ACC.
WorkSafe’s expenditure increased WorkSafe’s expenditure was $122.8 million, an increase of $18.6 million from 2018/19. It spent $7.7 million more on salaries and wages than in 2018/19. The number of staff earning more than $100,000 a year rose from 212 to 283. WorkSafe also spent more than three times as much on contractors ($7 million in 2019/20, up from $2.3 million in 2018/19). This increase is due to the need to employ more contractors for the Whakaari/White Island eruption investigation.
WorkSafe had a surplus of $2.3 million compared with a deficit of $347,000 in 2018/19.
Audit results The Auditor-General issued a non-standard audit report due to the unforeseen effects of COVID-19 on operations and finance. The Auditor-General rated its management and control environment, financial information and supporting systems and controls, and performance information and supporting systems and controls as “good”. However, some improvements were recommended, which are outlined below.
ICT services WorkSafe has made improvements to its management control environment since 2018/19. Currently, WorkSafe relies on some ICT services from the MBIE but is working on bringing its ICT services in-house. The Auditor-General said that as WorkSafe continues to separate services from MBIE, it needs to ensure that these ICT functions will continue without interruption while they transition to being directly managed. The Auditor-General said it also needs to update its information systems strategic plan. This plan aims to increase the capability and maturity of its information systems services.
Asset stocktaking The Auditor-General said that WorkSafe needs to complete a stocktake of assets purchased from MBIE as part of its separation from the entity. WorkSafe purchased several laptops
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from MBIE and later identified that the list MBIE provided did not reflect what WorkSafe was purchasing.
The Auditor-General recommended introducing a standardised process to record its purchases.
Performance reporting The Auditor-General said that WorkSafe continues to focus on improving its performance reporting. However, he recommends that it make its performance measures more concise and focussed so it provides a clearer picture of its performance.
It also recommended that WorkSafe review its systems and controls for recorded data to ensure that the dates recorded are accurate.
Health and safety performance We heard that workplace health and safety is plateauing, and there is inconsistency between different sectors in approach and performance for work safety. We expressed concern about this, with some of us asking whether WorkSafe is carrying out its statutory function. We were told that WorkSafe is doing its best to effectively carry out the job it has been charged with. The chief executive said that although New Zealand is not yet on track to reduce serious non-fatal work-related injuries, it is on track to reduce workplace fatalities.
Work-related injuries increase WorkSafe has a target of reducing work-related injuries by 25 percent by 2020 from the average over the period 2008 to 2010 (equivalent to no more than 14.3 injuries per 100,000 full-time employees). It aims to reduce both serious non-fatal work-related injuries, and claims for work-related injuries resulting in more than one week away from work.
In 2016, WorkSafe achieved the target, but progress has reversed since then. Provisional data for 2019 showed that the rate increased to 18.3 injuries per 100,000 FTEs.
Claims for work-related injuries resulting in more than one week away from work have trended upward since 2011. The provisional result for 2019 of 13.1 per 100,000 FTEs is over 50 percent higher than the target 2020 rate.
We are concerned that there has been an increase in workplace injuries and will monitor this situation closely. We hope to see improvements before WorkSafe’s next annual review.
We heard that WorkSafe and ACC are working together to reduce workplace injury rates through a Harm Reduction Action Plan. We discuss this further below.
Work-related fatalities have reduced The chief executive said that WorkSafe operates over a broad jurisdiction and it needs to prioritise on the basis of harm. He referred to the target set by the previous Government to reduce work fatalities by 25 percent by 2020. He told us that the current statistics show that fatalities have reduced by 30 percent compared with the 2008–2010 baseline. However, we
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note that the rate has been increasing since 2016. We understand that full results about work fatalities will be released by Statistics New Zealand in late 2021.
Some of us queried the 30 percent reduction in New Zealand’s workplace fatalities. We raised the fact that more New Zealanders have been working from home due to COVID-19. We noted that in level 4 conditions in 2020, many New Zealanders were not able to enter their work premises and observed that COVID-19 may show the fatality rate as being lower than it normally would be. The chief executive told us that WorkSafe uses three-year rolling average data. He said the data includes 2020, where COVID-19 had a big effect on workers. However, he said he is confident that the target has been met and that there are significantly fewer people dying from acute injury than there were in the “baseline” year.
Despite the chief executive’s response, some of us are not satisfied that the data could be a true reflection of a falling workplace fatality rate, after a year of significant lockdowns and a change in work patterns. We will continue to monitor workplace fatality and injury rates closely.
Harm Reduction Action Plan ACC and WorkSafe are working together through a Harm Reduction Action Plan to reduce work-related fatalities and serious injuries. ACC funds its programmes from the ACC Work Account. It also transfers up to $15 million to WorkSafe under a partnering agreement to invest in work harm prevention.
Under the plan, WorkSafe and ACC have the following focus areas:
• Five focus areas to reduce harm in the agriculture, construction, forestry, manufacturing, healthcare, and social sectors. These sectors have the highest rates of fatalities, injuries, and weeks away from work. • Three focus areas to reduce harm from risks that are common across sectors:
o work-related health (including psychosocial, carcinogens, and musculoskeletal) o body stressing o vehicle-related injuries. • Three focus areas to support or enable businesses to improve health and safety for workers in New Zealand:
o incentives to encourage people to adopt and maintain behaviours at work that reduce the risk of work injuries
o worker engagement, participation, and representation o workers with greater needs including Māori, Pacific people, migrant and seasonal workers, and younger and older workers. We heard that a lead agency is assigned to each focus area. While we are pleased to see that WorkSafe and ACC are working together, we note that in its briefing to the Minister for Workplace Relations and Safety, WorkSafe said that the focus and objectives of the two agencies do not align when investing in harm prevention. We understand this is because of ACC’s requirement to show a return to the scheme through a reduction in claims compared
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to WorkSafe’s broader health and safety at work mandate. We understand that WorkSafe told the Minister for Workplace Relations and Safety that this has led to fragmented and inefficient investment and funding decisions.
Funding challenges We asked about the number of complaints WorkSafe triages and the number it is able to respond to. The chief executive told us it receives between 10,000 and 15,000 complaints and notifications from public workers and businesses each year. He said WorkSafe is able to intervene—through a physical visit or an enforcement action—less than 5 percent of the time.
The chief executive told us that WorkSafe mentioned its funding concerns in its briefing to the incoming Minister. He said he is aware that people do not always get the response that they would like and that it causes frustration. However, he said much of WorkSafe’s capability is restrained by the way the regime is designed. He said it has the power to intervene across a wide jurisdiction but only has the operational capability to respond to the most serious notifications or complaints.
We heard from the chair that WorkSafe is very conscious of the need to maintain public confidence for its operating mandate and that it wants to ensure it has adequate ongoing funding. We were surprised to hear how few complaints WorkSafe is able to seriously respond to. We are aware of the important job WorkSafe has and hope it receives adequate funding to respond to more complaints and notifications.
Public expectations are growing We heard from WorkSafe’s chair that public expectations of the entity have been growing since it was established in 2013. He said that this is positive but is also a challenge as WorkSafe needs to constantly reprioritise and make tough choices about where it can intervene in health and safety.
We agree that expectations on WorkSafe are growing. Some of us also note that criticism of WorkSafe has also increased and that its focus and direction do not always match up with public expectation.
Whakaari (White Island) eruption Strengthening WorkSafe’s adventure activity regulations On 9 December 2019 Whakaari (White Island) erupted, causing 22 deaths and 25 serious injuries. We note that this is the first catastrophic workplace event since WorkSafe was established. During 2019/20 WorkSafe opened an investigation under the Health and Safety at Work Act 2015 into the work-related health and safety issues surrounding the eruption. We understand that WorkSafe diverted significant resources into its investigation. On 30 November 2020, WorkSafe announced that it had filed charges against 13 parties as a result of its investigation.
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WorkSafe told us that it could not discuss certain elements of the tragedy in any detail as it may risk prejudicing criminal legal proceedings.
Following the tragedy, the Minister for Workplace Relations and Safety directed MBIE to complete a review of the adventure activities regulatory regime. The results of this review were published in December 2020. The review identified that the regime has improved standards and that the legislative framework is working as intended. However, it also identified that:
• the regulatory leadership of WorkSafe could be strengthened so it has greater oversight of the sector and greater assurance that safety standards are being met • WorkSafe could increase its safety audit standard’s focus on natural hazards • the adventure activities certification scheme should be improved by increasing the number of on-site audits, increasing its focus to ensure the right technical experts for natural hazard management are being used, and developing a more bespoke range of “notifiable events”. WorkSafe has identified several steps it needs to take to strengthen the regime. We understand that these actions include identifying and addressing gaps in the operational policy framework and reviewing the certification scheme and safety audit standard. WorkSafe expects to complete these steps by 30 June 2021.
There is also a separate review into WorkSafe’s performance of its regulatory functions in relation to activities on Whakaari (White Island) being led by MBIE. A report should be completed by 30 April 2021.
Māori still experience more workplace fatalities and injuries We heard that WorkSafe is working with Māori to reduce the disproportionately high rate of harm to Māori workers. The chair told us that Māori workers tend to work in sectors that are high risk, but that is not the only reason Māori experience more harm. He said that Māori also have higher health and physical harm rates across the sectors.
We were told that WorkSafe is establishing a partners’ council and that one of the possible outcomes will be the development of partnerships with iwi around harm reduction programmes. It is also working to engage with Māori through its Maruiti 2025 – Safe Haven strategy. It said it has a specialist team to implement the strategy. This strategy was discussed in more depth at WorkSafe’s 2018/19 annual review, where WorkSafe said the strategies aim is to:
• run pilots on marae to talk with workers directly in a comfortable setting • target specific industries where WorkSafe knows Māori are overrepresented both in the workforce and in harm statistics • have an internal team of both inspectors and non-inspectors working to engage with Māori and iwi across the country. We would like to see more progress in reducing harm to Māori in the workplace. We look forward to an update on this strategy and its outcomes at WorkSafe’s next annual review.
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Taura Here Waka We heard that WorkSafe has implemented a new strategic delivery plan to 2030 called Taura Here Waka, which means “strength in every strand”. WorkSafe plans to use it to transform how New Zealand views health and safety so that it shifts from a compliance exercise to a workplace culture.
The chair told us he looks forward to reporting on its progress. We also look forward to seeing how the strategy affects workplace health and safety in New Zealand.
Improving mental health in the workplace We asked WorkSafe how it decides which complaints or issues to follow up on, and if it focuses more on physical harm than mental harm.
The chief executive told us that the previous targets set for the nation were around physical harm in the workplace. He said this is because WorkSafe was set up not long after the Pike River Mine tragedy. He said WorkSafe is intervening more in “long-latency” work-related health, which includes mental health.
Establishing a mental health team We asked about the increased funding WorkSafe received in Budget 2019 to support mental health and how it is using it. We were told that it has set up a team called Mentally Healthy Work. The chief executive said that it has enlisted the help of psychologists and experts who understand how to create the right culture to create the conditions for success in the workplace. He said WorkSafe has also changed its operational response. If it is told of conditions that are affecting workers’ mental health, it has a much more effective set of responses that are more likely to resolve the issue. However, he said the challenge is broader than WorkSafe. To improve mental health, he said, there need to be changes in the way organisations are set up, changes in culture, and changes in leadership style. He said WorkSafe has an important contribution but cannot improve mental health in the workplace on its own.
We heard that 88 percent of the “burden of harm” for New Zealand is work-related health and 17 percent of that is to do with mental health. He said this includes anxiety, depression, bullying, and harassment.
Workplace bullying We asked whether WorkSafe had completed any prosecutions for workplace bullying. We heard that WorkSafe had not completed any prosecutions as it has changed its approach to dealing with workplace bullying. We were told that the majority of bullying issues tend to be relationship issues between individuals and that it is difficult to meet the Solicitor-General’s guidelines for a formal criminal prosecution.
The chief executive said that WorkSafe tries to respond early by talking to the worker and employer about how to resolve the issue without the need for a one- to two-year criminal process. He said WorkSafe has found that criminal processes can re-traumatise the victim
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and do not always serve everyone involved. However, he said if there was a serious issue, WorkSafe would open an investigation and take criminal action if it could find the evidence.
We were told that there are at least four punitive actions WorkSafe could take before it looks at prosecution. The chief executive said that WorkSafe takes a considered approach as to which enforcement method is the right one to use.
Ensuring workplace safety during COVID-19 We asked about the challenges WorkSafe faced during COVID-19 given its important role in ensuring workplace safety. The chief executive told us he is extremely proud of the way WorkSafe responded to the all-of-Government effort to respond to COVID-19 in 2020. He said that worker protection was a main focus. We heard that WorkSafe created guidance for workplaces and workers on how to operate under level 4, level 3, and level 2. He said this process normally takes up to six months, but WorkSafe was able to provide this guidance within three to four days. He said this required a lot of collaboration from business, workers, unions, and WorkSafe staff.
We also heard that WorkSafe changed its business operating model, as it was not appropriate for it to visit workplaces during level 4. He said staff were redeployed to a calling regime, where they spoke to workplaces about their requirements around social distancing and wearing masks. We were told it responded to every complaint from a worker who did not feel the business was taking the safety guidelines seriously.
The chief executive also said it provided technical advice about how to produce sanitiser safely and supported the Ministry of Health and MBIE to deal with counterfeit personal protective equipment.
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Appendix
Committee procedure We met between 17 February and 24 March 2021 to consider the annual reviews of the entities in the labour sector.
On 17 February we heard evidence from the Minister for Workplace Relations and Safety and the Minister for ACC. We also heard evidence from the Accident Compensation Corporation and WorkSafe New Zealand.
We received advice from the Office of the Auditor-General.
Committee members Marja Lubeck (Chairperson) Chris Baillie Camilla Belich Hon Paul Goldsmith Jan Logie Jo Luxton Ibrahim Omer Angela Roberts Erica Stanford
Hon Scott Simpson attended our hearings and participated in both annual reviews.
Advice and evidence received We received the following documents as advice and evidence for these annual reviews. They are available on the Parliament website, www.parliament.nz, along with transcripts of our hearings.
Office of the Auditor-General (Briefing paper, Accident Compensation Corporation).
Office of the Auditor-General (Briefing paper, WorkSafe New Zealand).
Office of the Auditor-General (Briefing paper, Labour Market Sector).
Accident Compensation Corporation (Responses to written questions).
WorkSafe New Zealand (Responses to written questions).
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Education sector annual reviews:
• 2019/20 Annual review of the Ministry of Education • 2019/20 Annual review of the Education Review Office • 2019/20 Annual review of the Tertiary Education Commission • 2019/20 Annual review of the New Zealand Qualifications Authority • 2019/20 Annual review of Education New Zealand • 2019/20 Annual review of Education Payroll Limited • 2019/20 Annual review of the Network for Learning Limited Report of the Education and Workforce Committee
Fifty-third Parliament (Marja Lubeck, Chairperson) March 2021
Presented to the House of Representatives
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Contents Recommendation ...... 4 Education sector overview ...... 5 Overview of funding for the education sector ...... 5 Different experiences of COVID-19 amongst schools ...... 5 School attendance rates ...... 5 Addressing disparities for Māori and Pacific learners ...... 6 Ensuring teachers can adapt to the education system changes ...... 6 Measuring students’ progress ...... 7 Learning Support Coordinators ...... 7 Ministry of Education ...... 8 About the ministry ...... 8 Financial results and audit opinion ...... 8 Impact of COVID-19 on the ministry’s work programme ...... 8 Lessons from the ministry’s sector response to COVID-19 ...... 9 School attendance rates ...... 10 Māori and Pacific learning success ...... 11 Implementing changes from the NCEA review ...... 11 Measuring students’ learning and performance ...... 12 The modern learning environment ...... 13 Efforts to increase the supply of teachers ...... 13 Collective agreement with NZEI Te Riu Roa and the PPTA ...... 13 Settlement of pay equity claims ...... 13 Learning support services...... 13 Spot-checking early learning centres ...... 14 Addressing racism in schools ...... 14 Teaching New Zealand history in schools ...... 14 Reform of the vocational education system (RoVE) ...... 14 Asking parents for school donations ...... 15 Tomorrow’s Schools reforms ...... 15 We thank the teaching workforce for their work ...... 16 Education Review Office ...... 17 About the Education Review Office ...... 17 Financial and audit results ...... 17 2
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Effect of COVID-19 on learning ...... 18 How ERO reviews early learning centres and schools ...... 19 Measuring schools’ progress ...... 20 School attendance rates ...... 20 Māori and Pasifika learning ...... 20 Tertiary Education Commission ...... 22 About the Tertiary Education Commission ...... 22 Financial and audit results ...... 22 TEC’s response to COVID-19 ...... 23 Development of a new pastoral care code ...... 25 Apprenticeships ...... 25 Reform of the Vocational Education system (RoVE) ...... 25 Funding ESOL classes at private training establishments ...... 26 Pre-purchased language tuition money ...... 27 New Zealand Qualifications Authority ...... 28 About the New Zealand Qualifications Authority ...... 28 Financial performance and audit results ...... 28 Academic achievement affected by COVID-19 ...... 28 More online assessments ...... 29 Learning from 2020 ...... 29 Planned new NCEA numeracy and literacy standards ...... 30 Gap between NCEA Level 3 and University Entrance ...... 30 Other entities within the sector ...... 31 Education New Zealand ...... 31 Education Payroll Limited ...... 31 The Network for Learning Limited ...... 31 Appendix ...... 33
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Education sector annual reviews
Recommendation The Education and Workforce Committee has conducted the 2019/20 annual reviews of the following entities: • Ministry of Education • Education Review Office • Tertiary Education Commission • New Zealand Qualifications Authority • Education New Zealand • Education Payroll Limited • The Network for Learning Limited The committee recommends that the House take note of its report.
About our consideration and the structure of this report This year, we have decided to consider and report on the education sector as a whole, rather than reporting separately on each entity. We held hearings with the Minister of Education for an overarching discussion about issues in the sector, as well as with individual agencies. The various sections of this report cover the main points from those hearings.
In the Review of Standing Orders 2020,1 the Standing Orders Committee encouraged select committees to make overall sector reports, as well as their more traditional reporting on individual agencies. It also encouraged committees to invite Ministers to a hearing, to give evidence about the results of appropriations in the sectors they oversee.
The hope is that, over time, this form of scrutiny and reporting will make it easier for committees to comment on themes relating to an entire sector. They may be able to report on findings across a group of agencies, and on the sector-wide outcomes being achieved for New Zealand.
1 Standing Orders Committee, Review of Standing Orders 2020 (I.18A), July 2020, p. 43. 4
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Education sector overview
Overview of funding for the education sector During 2019/20 the estimated actual appropriations for the education sector were approximately $16.387 billion. This included:
• $12.956 billion for Vote Education • $3.395 billion for Vote Tertiary Education • $36 million for Vote Education Review Office. The July 2020 appropriations from the COVID-19 Response and Recovery Fund included approximately $100 million for Education and $15 million for Tertiary Education.
Different experiences of COVID-19 amongst schools The Minister said the level of preparedness for lockdown conditions varied amongst schools. Some schools already provided online learning and could easily adapt. Other schools needed to do a lot more before they were able to provide remote learning. The Ministry of Education accounted for this by sending out hard copy packs of learning materials to thousands of students across the country. There is still a stock of these packs in case schools need them in the future.
The ministry spoke about the Education Review Office’s (ERO) reports that outline the experiences of different schools during lockdowns. The ministry pointed out that ERO’s survey of students showed that teachers connecting with whānau improved students’ learning outcomes. These ERO reports also highlighted what worked well. If schools adopt these practices they will continue to improve.
Auckland schools have been more digitally prepared for the more recent lockdowns but there is still variability between schools. The ministry is arranging a meeting of all Auckland school principals to discuss what works well for remote schooling.
School attendance rates We heard that attendance rates vary over time and across New Zealand. The Minister said the downward trend in attendance rates is concerning. However, schools have experienced this before and successfully fixed the problem.
The Minister said attendance metrics need to measure the right thing. Using a survey of schools to measure how many half days students attend is a crude measure. The Minister assured us that work is being done to get better information on attendance. This was a priority for the Government during lockdown as it wanted to see how quickly attendance rates improved post-lockdown. A manual system was used to get this information.
The ministry said it has been working with schools to automate the collection of attendance data. We heard that more than 85 percent of schools’ attendance data is now automatically sent to the ministry. This allows for real-time data on attendance rates. The ministry is confident in this data as 85 percent is a nationally representative figure.
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We asked who is accountable for attendance rates, and how the problem will be fixed. The Minister said there is not one single point of accountability but he is always working with the ministry to improve attendance rates. Work has been done to assess whether the reorganisation of attendance services has produced the desired results. Schools are also accountable for the money they invest to improve attendance. We heard that an urgent response fund for schools was set up post-COVID-19. Schools can use this funding to run activities that encourage students to engage with school and attend regularly.
The Minister said that all governments have wrestled with whether prosecuting parents helps improve attendance. Prosecutions have not featured in this Government’s response to poor attendance. The Minister explained that many factors influence attendance. Socioeconomics are a big factor, he said. Communities and whānau play a big role in ensuring students attend school.
Addressing disparities for Māori and Pacific learners The Minister said that many things are being done to address this problem. They include:
• ensuring that the education system is culturally competent • making sure Māori and Pacific students attend regularly • addressing the socioeconomic disparities in New Zealand communities. The Minister explained that the food in schools programme has helped improve learning outcomes for students. He said students would stay home if they had no food to take to school. Providing lunches at school gets students into schools and engaging in their learning.
Ensuring teachers can adapt to the education system changes We expressed concern that the changes being made to the education system will place increased strain on teachers. The Minister assured us that the changes will be made gradually and teachers will be supported through the transition. He said that the ministry is also working with school leaders to ensure they can effectively manage teachers’ workloads.
The ministry said that the accord with the unions resulted in the setting up of an employee assistance helpline for teachers. However, not many teachers have used the service.
The ministry has set up a programme that allows teaching professionals to temporarily leave their school to work on the design of the curriculum changes. He said this input will ensure the ministry and the workforce fully understand how best to implement the changes.
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Measuring students’ progress We asked how the ministry measures students’ progress. The Minister explained that national studies, such as the NMSSA,2 provide reliable data on progress. The ministry is working with schools to help them effectively map progress.
The Minister acknowledged that New Zealand’s score on international tests such as PISA3 has fallen. However, he said it is important to separate out the actual scores from the relative scores. Other countries’ scores are improving, which exaggerates how much New Zealand’s results have deteriorated. The Minister said international experience and academic literature suggest it is best to focus on the whole curriculum rather than narrowing the focus to what is included in these tests. He said students will be more engaged in learning if they learn English, maths, and science within the broader context of the whole curriculum.
The Minister stated that PISA data shows that “socioeconomics plays a significant role in New Zealand’s educational decline. Our socioeconomic challenges in this area have been growing rather than diminishing”.
Learning Support Coordinators The learning support action plan aims to ensure students receive the right support at the right time. As part of this plan, Learning Support Coordinators (LSCs) have been placed in schools and kura. Coordinators work to build the capabilities of teachers to support their students’ learning, identify and plan for how to address students’ learning support needs, and engage parents in this work.
We heard that an induction programme has been provided to LSCs. However, COVID-19 disrupted some of this programme. The ministry explained that the first people to become LSCs have provided feedback on what works and what parts of the system need to change. This has resulted in a revised handbook for new LSCs.
The ministry said it is using a new operating model to manage learning support. The model involves LSCs identifying the need for support and managers from the ministry ensuring resources are available to provide the support. During 2021, Te Rito, a digital learning support register, will be made available. This will prevent LSCs from relying on spreadsheets to do their work.
The ministry explained that it is in the process of evaluating the progress of LSCs’ work. It is seeking feedback from parents and children. We intend to follow up on the success of the learning support action plan next year.
2 National Monitoring Study of Student Achievement. 3 Programme for International Student Assessment.
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Ministry of Education
About the ministry The Ministry of Education is the Government’s lead adviser on early childhood, primary, secondary, and tertiary education. Its goal is to shape an education system that delivers equitable and excellent outcomes for all children and young people.
The Secretary for Education is Iona Holsted, who was appointed in 2016. At the end of June 2020, the ministry had 3,486 full-time-equivalent staff working from different locations around New Zealand.
Financial results and audit opinion In 2019/20, the ministry’s departmental revenue was $2.76 billion, just 9 percent more than the $2.54 billion in the previous year. It had a net operating surplus of $103.3 million for the year.
The Auditor-General issued an unmodified audit opinion, but drew attention to uncertainties regarding the ministry’s provision for payroll non-compliance with the Holidays Act 2003, and the impact of COVID-19.
The Auditor-General rated the ministry’s management control environment, financial information systems and controls, and performance information and associated systems and controls as “good”. This is consistent with recent years.
The Auditor-General noted that the ministry’s use and application of strategic risk assessment is going well. Significant progress has been made towards resolving long- standing problems related to payroll and the Holidays Act remediation project.4 We note that the ministry is working to address these problems and we intend to monitor its progress over the coming year.
Impact of COVID-19 on the ministry’s work programme The first half of the ministry’s financial year, from July to December 2019, was focused on implementing existing strategies and plans. The second half was focused on responding to COVID-19. During the first half, the ministry made progress on implementing the education work programme. This involved working on the:
• ministry’s response to a review of the Tomorrow’s Schools system5 • reform of school property
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• changes to the National Certificate of Educational Achievement (NCEA) • reform of vocational education (RoVE) • Learning Support Action Plan • School Investment Package, set up to provide one-off funding for most state schools to accelerate property upgrade works. In response to COVID-19 lockdowns from March 2020, ministry staff were required to provide for and support remote learning and working, suspend and reschedule school construction projects, and develop COVID-19 support packages. This included $1.6 billion for trades and apprenticeships.
As part of the COVID-19 response the ministry also managed funding of $126 million, including:
• $65 million to enable distance teaching and learning during the temporary closure of early learning services and schools • $29 million for providing care to children of essential workers • $29 million to support the continuation of employment for casual workers and those who work in school boarding houses during the lockdown period.
Lessons from the ministry’s sector response to COVID-19 The COVID-19 lockdowns showed the ministry that it can make large changes in a very short period of time. Historically, changes to the education system have taken years to implement.
In the ministry’s view, the relationship between the ministry and schools and early learning centres improved during lockdowns. It said relationships are now more balanced, with both sides better respecting the role of the other. We were pleased to hear that trust has improved. Schools and centres are more willing to take on board the ministry’s advice.
During 2020 the ministry said it had to decide what changes would make a fundamental difference to learning. We heard that the ministry intends to continue to focus on making one or two changes that will make a big difference instead of trying to progress many things at once. It said that the success of a young person’s learning depends on their teacher’s ability to connect with their whānau and community. The ministry intends to focus on fostering these relationships.
International students The ministry explained that it has never collected data on the revenue and costs associated with international students attending New Zealand schools. In a normal year around 13,000 international students attend schools here. In 2020 this number was halved. A $20 million fund was made available to assist schools with this loss. We heard that the loss of international students only affected a minority of schools. The ministry will work directly with these schools to manage the ongoing situation. In July 2020 the Minister of Education announced a long-term recovery plan for the international education sector. It includes $51.6 million from the COVID-19 Response and
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Recovery Fund. The Minister expected that revenue loss in the 2020 school year would be around $600 million. He encouraged the sector to rebuild in a way that is less reliant on student mobility and more focused on online delivery for students.
At the end of 2020, a group of Auckland schools proposed that they run a managed isolation hotel. The hotel would host international students in managed isolation. We heard that the Government is still considering this proposal. The ministry indicated that the managed isolation and quarantine policy group at the Ministry of Business, Innovation and Employment would probably advise the Government on this matter.
School attendance rates New Zealand has 846,000 learners aged between 6 and 16. In its annual report for 2019/20 the ministry reported only 58 percent of learners attended school regularly (that is, they were present for more than 90 percent of available half-days). This result is based on data for the 2019 school year, and was down from 64 percent in 2018/19—based on data from the 2018 school year. The ministry’s goal for 2019/20 was 70 percent. We heard that for the 2020 school year regular attendance rates were 64 percent. The ministry said that poor attendance rates are particularly concerning in low-decile schools. We are concerned that irregular and moderate absence has increased since 2019.
We acknowledge that school attendance was disrupted by COVID-19 lockdowns. However, we were interested to learn that the lockdowns did not lead to more young people leaving school to go to work. The ministry said that schools need to identify young people leaving before they are 16 years old so that they can be connected with social support.
The ministry explained that it works with schools to improve attendance. Methods are tailored to each school and its community. We heard that this work was assisted by a $50 million package that focused on wellbeing and attendance. We were told that during 2020, $31 million has been spent on initiatives put forward by schools and early learning centres and has helped over 360,000 children.
The ministry said that schools should be places where young people want to go, and the community needs to encourage attendance. It said that the Education Review Office (ERO) asks what individual schools are doing to address problems such as attendance. ERO also publishes material explaining how a “good” school maintains high attendance rates. However, what works for one school may not work for another, so some schools still have attendance problems. We heard that the curriculum allows schools to make learning relevant to their students. This flexibility helps improve attendance rates because if students enjoy what they are learning they will want to attend.
The ministry focuses on chronically truant children. We were interested to hear that every school can identify at least one child that they have helped to attend more regularly. The ministry also said that the lunches in school programme, the changes to school donations, and students feeling a sense of belonging all contribute to increased attendance rates.
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Māori and Pacific learning success Te Hurihanganui is a pilot programme that is trying to better connect schools with six Māori communities to improve relationships, attendance, wellbeing, and learning outcomes. It is one of the main programmes under Ka Hikitia, the Māori education strategy. Te Hurihanganui aims to improve the achievement and wellbeing of Maōri learners and their whānau. It also supports the communities to work collectively to address racism and inequality.
The ministry emphasised that participation and learning outcomes for Māori attending a kura or wharekura6 are better than those attending other schools. It also said it is working to build more Pacific language in schools as it recognises that connection with identity, language, and culture is critical for Pacific learners’ success.
We heard that teachers are being supported to learn te reo and tikanga with the aim of helping to improve Māori achievement. The ministry works with Māori-medium national bodies to build productive relationships with iwi, hapu, and kura.
We asked whether there are any plans to help teachers from the Pacific to gain New Zealand qualifications. The ministry explained that registration of qualified teachers is carried out by the Teaching Council. We heard that it is always looking for ways to grow the number of Pacific teachers in New Zealand.
Implementing changes from the NCEA review During the 2020 Estimates hearing, the Minister acknowledged the need to re-consult about NCEA as the effects of COVID-19 will now influence the progress of that work.
Over the last term of Government, the ministry conducted a review of NCEA. It aimed to strengthen the NCEA qualification and improve how it serves students and teachers alike. The review was completed in 2019. The ministry is now in the implementation stage of the NCEA programme. It is changing what is included in NCEA, building social equity into it, and rebalancing the number of internal and external assessments. This stage is expected to take at least three years. We heard that the ministry is working to support teachers through the changes.
One change is to achievement standards, which describe what a student needs to know or be able to achieve. We heard that the standards in each subject have been rebuilt. There are now fewer standards, but each covers a broader range of knowledge and skills. We heard that the new standards will stay flexible to make sure that assessments are relevant to students.
We heard that the three levels of NCEA are designed to help students understand what they are interested in before specialising. This is why some previously separate subjects have been grouped in with others at level 1. For example, accounting is now part of the commerce subject.
6 Wharekura are kura kaupapa (Māori immersion schools) that include students of secondary school age.
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The ministry said that Māori performing arts will become recognised achievement standards. It is also improving accessibility to NCEA by making sure assessments do not exclude those with learning disabilities.
Another change is to the balance between internal and external assessments. We heard that there will be more external assessments as these bring rigour to the system and reduce teachers’ workload. External assessments do not have to be exams.
The changes to NCEA will include new literacy and numeracy standards. Students will be required to gain 20 specific literacy and numeracy credits. These credits will not contribute to the 60 credits required to gain each NCEA level. Students will be able to meet the standard whenever they are ready. We were pleased to hear that students who leave school with NCEA are required to gain their literacy and numeracy credentials.
Measuring students’ learning and performance We heard that three international studies measure students’ progress. The Programme for International Student Assessment (PISA) tests year 10 students’ reading, maths, and science abilities. The Trends in International Mathematics and Science Study (TIMSS) tests students’ mathematics and science knowledge. The International Literacy study covers year 5 students’ reading skills. And the National Monitoring Study of Student Achievement (NMSSA) assesses children’s progress against the curriculum levels.
Trends in the TIMSS and PISA results show New Zealand students’ performance is deteriorating relative to other countries in the OECD. TIMSS results show New Zealand students’ performance in maths and science has fallen. Of the 79 countries that participate in PISA, New Zealand was ranked 11th equal for reading, 12th for science and 27th for maths. This is New Zealand’s lowest score to date. However, the ministry said other countries’ scores have improved, pushing New Zealand down the ranking, which exaggerates the actual drop in New Zealand’s scores.
The ministry commented that schools measure progress to assess students’ learning. To ensure that their next act of teaching is the right one, teachers need to know what students have learnt. Schools use both quantitative and qualitative measures to assess students’ learning.
Measuring schools’ performance We heard that the ministry uses the NMSSA to identify whether the school system is working. We asked whether it would be worthwhile creating a system that compares different schools’ teaching performance. The ministry explained that Kāhui Ako, communities of learning, was set up to encourage teachers to work collaboratively to raise achievement. We heard that Kāhui Ako invests in teacher leadership and collaboration. It also makes school boards more accountable for the learning in their school.
The ministry said that it published the learning and teaching strategies of 50 schools where students were showing good progress. However, not every school has used this information to better their strategies. As part of the Tomorrow’s Schools reforms, the ministry is working on engaging more deeply and frequently with schools that need it. 12
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The modern learning environment The ministry has done some research on teacher practice in Innovative Learning Environments (ILEs). Two surveys were conducted across New Zealand and Australia. The first examined spatial design. The second examined how teachers transition to ILEs. The ministry commented that learning is primarily dependent on teachers using appropriate methods and connecting with their learners.
Efforts to increase the supply of teachers During 2019 the ministry funded three initiatives to increase the number of teachers in the workforce. It worked with the Tertiary Education Commission to increase the number of students enrolling in initial teacher education (ITE). There is a new pilot ITE programme that allows people to gain their teaching qualification whilst employed as a trainee teacher in a school. The ministry increased the funding rate for all schools providing places for those enrolled in ITE. It also ran advertising campaigns to attract teachers to New Zealand. Scholarships were made available to those wanting to study teaching, and refresher programmes for those returning to teaching.
The ministry maintains that there are enough teachers. COVID-19 resulted in fewer teachers leaving the profession and many qualified New Zealand teachers returning to the country. We heard that there may even be too many primary school teachers. However, New Zealand still needs more teachers who can teach STEM subjects (high school science, technology, engineering, and maths), and who can teach Māori language or in Māori. The ministry assured us that it continues the quest to grow the supply of teachers.
Collective agreement with NZEI Te Riu Roa and the PPTA In October 2019, the ministry signed an accord (collective agreement) with the New Zealand Educational Institute Te Riu Roa (NZEI) and the Post Primary Teachers' Association. The accord aims to resolve complex problems such as workload and the future education workforce. We heard that the accord is a new approach to resolving these problems and enables the ministry and unions to work collectively on them. At times, tensions are evident because of differing views. The accord has been helpful because unions can provide a steer on what changes would be supported by teachers. Teachers’ workload is raised in the accord but parties have not agreed how to progress it. However, NZEI has independently commissioned some work on how to address historic workload issues in the primary system.
Settlement of pay equity claims The ministry has reached a pay equity settlement for 22,000 teacher aides. It explained that the settlement took a long time as it was a new process. The process involved identifying points in the system where pay shifts could be justified. The ministry said it is working through 13 live pay equity claims. It will prioritise claims that affect the lowest paid employees.
Learning support services In 2019/20, 42,695 children and young people with extra learning needs received specialist learning support services. This compares with 41,733 the previous year. In 2019/20, the
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average waiting time for learning support was 104.2 days, against the budget standard of 70 days. We were interested to hear that the waiting time is currently about 78 days. We encourage the ministry to continue to work on reducing the waiting times for students seeking leaning support. We intend to monitor the ministry’s efforts.
Spot-checking early learning centres Each year the Ministry conducts a range of checks of early learning services. These checks can cover verification of policies and standards, complaint and incident assessments, funding audits, and full licence assessments. For the 2020 calendar year the ministry conducted 1,844 checks. This is fewer than in 2019 (when the ministry conducted 2,158 checks) as early learning services were closed during COVID-19 lockdown.
Addressing racism in schools We heard about the ministry’s #notpartofmyworld resource, to improve teachers’ cultural competency and help them eliminate racist practices in schools. More than 646 schools have signed up for the resource.
Teaching New Zealand history in schools In 2019, the Government announced that New Zealand histories will be part of the local curriculum in all schools and kura. The ministry is working with others to develop the content for this curriculum. It will be ready for schools in 2022.
The ministry said that the aim is to cover important concepts but allow room for learning to be tailored to schools’ local histories. Three big ideas have been developed:
• Māori history is the foundational and continuous history of Aotearoa New Zealand. • Colonisation and its consequences have been central to our history for the past 200 years and continues to influence all aspects of Aotearoa New Zealand society. • Aotearoa New Zealand’s history has been shaped by the exercise and effects of power. We heard that these ideas were drawn from expert groups, including the Royal Society of New Zealand—Te Apārangi, to try to encompass what is found throughout our history. We heard that the history of Te Tiriti o Waitangi and the Land Wars will be taught across all kura and schools. The ministry commented that it wants to hear from people about what should be covered. It assured us it has no interest in politicising the curriculum.
The ministry is working to build up a repository of content for teachers to use when teaching New Zealand histories. It is working with the National Library, Ngā Taonga Sound and Vision, Radio New Zealand, and TVNZ to understand what content they hold.
Reform of the vocational education system (RoVE) Changes to the vocational education system seek to create a unified system, fit for the future of work, and deliver skills that learners, employers, and communities need. We were interested to hear how the ministry is monitoring this reform.
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Establishment of Te Pūkenga Part of the reform is the creation of Te Pūkenga. Te Pūkenga combines 16 institutes of technology and polytechnics into one organisation. It has 15 subsidiary boards and one national council. The council is accountable to the ministry and oversees the establishment and initial work of Te Pūkenga.
Creation of new Workforce Development Councils Another big part of the reform is the creation of Workforce Development Councils (WDCs) to provide industry with leadership across vocational education and training.
When COVID-19 came to New Zealand the ministry decided to speed up the creation of the WDCs. This was to ensure a strong industry voice existed in what was predicted to be an unstable labour market. It also helped maintain the trust of employers and learners. The ministry said it has not uncovered any significant issues with the creation of the WDCs at a system level.
Asking parents for school donations From 2020, decile 1 to 7 schools could choose to receive $150 per student from the Government instead of asking parents for donations. We heard that due to COVID-19 it is difficult to measure the effects of this change. We would be interested to hear about the effects of this change over the coming year.
We note that the aim of the scheme is to help parents and schools. The scheme’s timing was helpful as schools were less able to fundraise during lockdowns. It allowed them to focus on teaching instead of trying to get additional funding from parents. It also relieved parents of the stress of being expected to donate.
The ministry has received anecdotal evidence about how schools used this funding. Helping to pay for uniforms, learning support, and teacher aides are a few examples of how schools used the money.
Tomorrow’s Schools reforms Tomorrow’s Schools is New Zealand’s system of school governance, management, and administration. In 2019 an independent taskforce concluded its review of the system and delivered its final report. The report highlights many of the system’s strengths and weaknesses. The Government released its response in November 2019. The response announced that the school system will be significantly reformed.
The ministry explained that the reform has been delayed by COVID-19. It will discuss some structural changes with staff in March 2021. It aims to have these changes in place between July and October 2021. We heard the Government is setting up a separate business unit within the ministry—tentatively named the Education Services Agency (ESA)—to provide more regional and local support for schools. We heard that the ministry will work with the sector to define the role of the ESA.
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We thank the teaching workforce for their work We would like to acknowledge the work of the teaching workforce during recent times. COVID-19 meant that teachers had to adapt and deliver learning in new ways, in difficult and unchartered circumstances. We commend them for their efforts and dedication.
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Education Review Office
About the Education Review Office The Education Review Office Te Tari Arotake Mātauranga (ERO) is the Government’s education evaluation agency. It was established as an independent public service department in 1989. The chief executive, who also acts as the Chief Review Officer, is Nicholas Pole.
ERO is required to review the performance and assess the quality of pre-tertiary education providers in relation to the educational services they provide. It has the following core functions:
• National evaluations—of system-level issues either requested by the Minister of Education or instigated by the Chief Review Officer. • Education evaluations—scheduled evaluations of schools, kura, kōhanga reo, and early learning services. • New school assurance reviews—to provide assurance to new school boards and their communities that the school has undertaken suitable administration processes and curriculum preparation. • Private school reviews—carried out under section 35I and Part 28 of the Education Act 1989. These focus on how well the school meets the criteria for registration. • Home-schooling reviews—of programmes for students exempt from enrolment at a registered school, undertaken in the context of section 21 and Part 28 of the Education Act 1989, and usually at the request of the Ministry of Education. • Special reviews—carried out where a matter needs to be reviewed and reported outside regular reviews. ERO is committed to ensuring schools and early learning centres offer high quality education. ERO has explored a more co-operative model of school reviews. It has focused on continuous school improvement, and supporting schools to self-assess their progress. It intends to move from one-off reviews to an ongoing relationship with schools to better manage improvement.
Financial and audit results Total revenue for 2019/20 was $32.923 million, about 12.58 percent more than the previous year, and slightly above budget. Its expenditure of $30.636 million was about 5 percent more than the previous year, and less than budgeted. As a result, ERO recorded a surplus of $2.287 million, compared with a budgeted surplus of $20,000.
The Auditor-General issued a non-standard audit opinion because, as a result of COVID-19, ERO was unable to report against one performance measure. The measure was: “Key audiences report that ERO’s national evaluations are informative and useful for identifying or planning improvement”. ERO did not survey early learning centres and schools about this measure as it would have been a burden for them whilst responding to COVID-19.
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The Auditor-General rated both ERO’s management control environment and its financial information systems and controls as “very good”, with no recommendations for improvement.
ERO’s performance information and associated systems and controls were rated “good”, with further improvements recommended, as follows:
• To better demonstrate how it achieves positive changes for learners, it should refine the measures used, and how they are presented in the annual report. • It should work to increase participation in the surveys used to measure its performance, to achieve a more representative sample.
Significant matters noted during audit In June 2020 ERO published a new Strategic Intentions document that included its proposed response to the Tomorrow’s Schools review. The Auditor-General recommends that ERO develop medium-term impact measures to support the strategic intentions in this document, and be clearer about how it will measure progress.
Effect of COVID-19 on learning ERO has released five reports, with advice to schools, about the experiences of different schools during lockdowns. We heard that the reports were informed by a survey of 15,000 students, interviews with schools, and responses from 1,400 teachers and most principals. The reports summarise the impact of COVID-19 on schools and provide advice on how to prepare for and deal with future lockdowns. The research identified three good things and three challenges associated with the COVID- 19 lockdowns. The three good things are: an increase in digital literacy and confidence using technology; an increase in whānau engagement in their tamariki’s learning; and an increase in student agency. Students have become more independent and take greater responsibility for their learning. The three challenges associated with lockdowns are: an increase in anxiety; disengagement; and gaps emerging in students’ knowledge. The research showed that students were more anxious towards the end of 2020 than directly after the long lockdown. This was particularly so for older high school students. ERO commented that this anxiety is an ongoing problem. Another challenge associated with lockdown is disengagement. Learning during the lockdowns varied dramatically between students. ERO said it is concerned that some students have become disengaged. The last challenge concerns gaps in students’ knowledge. The resources available to children to actively learn at home can affect the size and number of gaps in their knowledge. Schools did their best, but some students did not have an internet connection and technology that would have enabled them to flourish in the learning environment imposed on them by the lockdowns. ERO is continuing with this research and will publish more pieces to help the sector provide quality education experiences. Publishing information about what works gives schools the opportunity to learn from what other schools do. We heard that ERO completed a quick piece on high school students’ engagement. It explained that giving principals an
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explanation of what keeps students engaged empowers them to try new things at their school to see whether it works for them.
How ERO reviews early learning centres and schools We heard that ERO has changed how it reviews schools and early learning centres. It now uses a differentiated approach when assessing early learning centres. This means ERO assess how at risk the centre is of underperforming and schedules the date of the next review based on this. ERO focuses on the centres that are most likely to be underperforming.
Education reviews in the early childhood learning sector focus on:
• how services are contributing to children’s learning and development • whether or not services are providing a safe environment that promotes children’s safety and wellbeing • national evaluation topics. Also, ERO is now more focused on helping centres to continuously improve. ERO explained that it is developing self-progress reviews. These reviews help schools and centres identify where they are at, and how they can improve. ERO told us it is aware that, while most early learning centres are okay, they have not improved between reviews.
We questioned whether ERO was reviewing centres frequently enough to ensure improvement. ERO said it is using a lot more risk-profiling of early learning services. It is also working with groups and organisations in the early learning sector to ensure they understand expectations. This helps to ensure that centres meet performance expectations. ERO explained that it intends to visit centres that are doing well every three years. It expects them to independently work towards their goals using the plan they devised with ERO.
ERO has moved away from the episodic four-day visit to schools. It now works alongside schools, over a longer period of time, to ensure the school is performing well. ERO offers ongoing support to schools as they try to continuously improve. We heard that ERO still publishes its rating of where the school’s performance sits on the continuum from “needs development” to “strong”.
Why ERO uses this approach ERO’s approach to external evaluation of schools is designed to build schools’ internal evaluation capability. This contributes to a cycle of continuous improvement. The new approach provides schools with more intensive, consistent support. For schools that need it. ERO may be in contact every eight to ten weeks to help them work out what to do next.
Public reporting of schools’ performance We heard that ERO has consulted parents on what sort of reporting they need to understand a school’s performance. The chief review officer assured us that there will be public reporting on schools’ performance. ERO wants to provide reporting that is right for parents. It is considering how modern technology could be used to give both a surface level view of schools’ performance and more in-depth information.
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Measuring schools’ progress ERO and the Ministry of Education both provided similar answers when asked about this. Students’ progress can be seen as a reflection of the school’s progress. Both ERO and the ministry emphasised that schools assess students’ progress so they can work out what they need to do next to support students’ learning. ERO has done a lot of work to understand what school assessments are being used for and whether they are used effectively. It explained that assessments need to be used by teachers to understand where kids are at. ERO explained that data from NMSSA shows that even though New Zealand has robust assessment tools, the teacher’s ability to adapt their teaching to the needs of individual learners is the biggest challenge faced by the New Zealand education system.
School attendance rates ERO said that attendance is a concern—the general trend is not good. Understanding what causes low attendance rates is crucial to being able to address the problem. Some students miss school to take three-day weekend holidays. Other causes of low attendance are more complex, involving family problems, housing insecurity, and school phobia. We heard that attendance rates can be improved by schools. Schools that offer quality teaching and engaging environments have better attendance. When schools quickly follow up after students are recorded as absent, attendance rates improve. ERO mentioned that quality health and welfare support also improves attendance rates. The chief review officer said that in 2020 ERO published more information about how to address the attendance problem. It is currently undertaking more work to find out why students do not attend school. This research will help inform the sector about what is required to remedy the attendance problem.
Māori and Pasifika learning We heard that improving learning outcomes for Māori and Pasifika learners is one of ERO’s priorities. ERO starts by assessing the school to see whether there is a risk of poor learning outcomes for this group. It asks whether the school knows which students may be at risk of not succeeding. The chief review officer explained that ERO works with the school to make sure it is operating a culturally responsible programme. Schools need to create an environment that ensures Māori and Pasifika learners feel comfortable. Schools need to be places that these students want to be. ERO said that it takes a proactive approach to employing staff and te reo speakers. Staff move around within the organisation to provide better support to all types of schools.
Transition between kura kaupapa and English-medium schools Kura kaupapa Māori (commonly referred to as kura) are state schools where the teaching is in te reo Māori and based on Māori culture and values. ERO explained that when students start their learning at a kura the whole whānau is involved. Whānau tend to stay involved after experience with kura even if the student moves to an English-medium school. ERO documents the experiences of Māori who transition between kura to English-medium
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schools. This helps people understand the kind of support learners need when transitioning between different types of school.
Use of te reo in schools The Maihi Karauna strategy sets out a vison for te reo Māori in the future. It aims to increase the number of New Zealanders who value te reo as part of New Zealand’s national identity. It also aims to grow the number of New Zealanders speaking and using te reo. We heard that this strategy is positively affecting the number of students and teachers who use te reo. This is particularly obvious in secondary schools. Maihi Karauna is contributing to the number of secondary schools offering opportunities for bilingual learning.
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Tertiary Education Commission
About the Tertiary Education Commission The Tertiary Education Commission (TEC) works alongside the Ministry of Education to oversee the tertiary education and careers systems. Its statutory functions are to:
• give effect to the Tertiary Education Strategy by funding tertiary education organisations, growing their capability, and monitoring their performance • collect and provide information about study and work options • provide information and services to help career seekers prepare to move to work or further study • strengthen connections from education to employment • advise the Minister of Education about tertiary education organisations and sector performance, and on the operational effect of policy. The commission is governed by a board of commissioners appointed by the Minister of Education. It is chaired by Jenn Bestwick, who replaced Nigel Gould in February 2020. The commission’s chief executive has been Tim Fowler since 2013.
Financial and audit results TEC receives funding from the Crown through the Ministry of Education. TEC’s grant expenditure increased significantly in 2019/20. Its total expenditure is composed of grant and operating expenditure. TEC’s total revenue and expenses, for the year under review and the preceding year, are set out in the table below:
2019/20 2018/19 Increase Total revenue $4.497 billion $3.136 billion $1.361 billion (43 percent) Total expense $4.498 billion $3.132 billion $1.366 billion (44 percent) Total grants expense $4.421 billion $3.054 billion $1.367 billion (45 percent) Total operating $77.560 million $77.539 million $210,000 (0.03 percent) expense TEC’s operating deficit was $3.489 million, compared with a deficit of $2.414 million in 2018/19.
The COVID-19 pandemic had a $1.1 billion effect on TEC’s revenue and expenditure. TEC provided funding certainty to tertiary education organisations by funding them for the 2020 calendar year at the levels set out in their investment plans. The funding was not dependent on student numbers as it usually is. TEC’s revenue and expenditure increased by over $1.1 billion as a result. We understand that it will reduce by the same amount in 2020/21.
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The Auditor-General issued a modified audit opinion on TEC’s performance information. It was a modified opinion because TEC could not report on certain measures that required customers to complete a survey. The survey was unable to be completed due to the COVID- 19 pandemic.
The auditors assessed the commission’s management control environment and financial information systems and controls as “very good”. Its performance information and associated systems and controls were rated “good”. These results have not changed in over three years. The auditor recommended:
• that the commission develop additional performance measures that would show it is meeting its statutory functions • that targets set by the commission reflect prior performance and focus on improvement.
TEC’s response to COVID-19 The Government brought forward some funding and provided additional money as part of the COVID-19 Response and Recovery Fund. Some of the initiatives include:
• contingency funding of $412 million for employers to support apprentices • the Targeted Training and Apprenticeship fund of $160 million per year to cover the cost of free vocational training until 2022 • $230 million, to be spent over four years, to accelerate the establishment of the workforce development councils (WDCs) • $20 million to establish the Student Hardship Fund for 2020.
Student Hardship Fund The Student Hardship Fund was set up for students who could fall through the cracks of general COVID-19 financial support. It provided financial support and helped them stay connected with their education provider. We heard that students applied for this funding via their education provider.
The fund was distributed through all tertiary institutions including private training establishments and wānanga. Institutions assessed the need amongst their students, then applied to TEC. TEC distributed the fund until it ran out in October 2020.
We asked whether TEC had evaluated how effective the fund was. TEC explained that institutions reported that there was a high need for this funding. Paying for students’ accommodation during COVID-19 was provided as an example of how this fund was used.
Loss of international students TEC said that the effect of lost revenue from the lack of international students varies greatly between institutions. We heard that some institutions lost 6 percent of their total revenue. Others lost closer to 15 or 20 percent.
TEC said it is working closely with providers to understand the effects of there being fewer international students studying in New Zealand. We heard that international education is in a similar situation to the tourism sector: COVID-19 has caused a big disruption and the sectors
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need to re-think how they operate. TEC said that the Ministry of Education and Education New Zealand7 are leading this work. TEC is advising them. This work is ongoing.
Providers closing due to COVID-19 TEC said that two funded private tertiary education providers and two unfunded institutes closed as a consequence of COVID-19. All four had provided education to international students.
We heard that TEC does not believe that universities will be unable to operate due to the effects of COVID-19. However, private tertiary education providers could be at risk because they only teach in one or two specific fields.
Universities moving to online learning During lockdown, universities were not able to operate as usual and had to adapt to teaching online. TEC said that some universities were better prepared than others but all continued to meet the expected teaching and learning outcomes. We heard that some students found the new style of learning difficult.
The Ministry of Health and the Ministry of Education advised the sector about when it was safe for universities to start in-person tuition again. TEC said its board has received no reports of this process being overly long. However, it recognises that it could take a while for universities to readopt in-person teaching.
TEC understands that a lot of institutions are rethinking the way they deliver tuition. We heard that TEC is considering whether a mix of in-person and online learning is the best way forward in terms of money invested in institutions and meeting students’ needs.
Inability to influence decisions on grade adjustments During 2020 universities adjusted grades to account for academic and personal difficulties caused by COVID-19. We heard that TEC was not involved in the grade adjustment decisions made by universities. This is because universities are private entities. TEC commented that, because universities need to uphold their reputations, they make good judgement calls when it comes to giving grades.
The commission explained that universities have become more aware of, and have invested more in, the value of good pastoral care, health, and wellbeing. It said it has become obvious that these are a precondition for academic success. TEC said that universities consider health and wellbeing when they make decisions about exams and whether to teach in person.
Student accommodation We are aware of concerns surrounding some correspondence sent by accommodation providers during lockdown. The correspondence stated that accommodation fees would not be reduced because that funding was needed to pay academic staff. TEC said that
7 Education New Zealand is the Crown agency responsible for international education to benefit New Zealand. 24
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institutions are autonomous and decide for themselves how funding is allocated. It does not oversee this.
However, TEC was concerned by some mid-year communications about refunds that accommodation providers sent to students. It raised its concerns with the institutes concerned, despite not being mandated to monitor this.
Development of a new pastoral care code An interim code of practice for the pastoral care of domestic tertiary students was issued in 2019. It sets out what kind of pastoral care must be provided by institutions and student accommodation. Accommodation providers must support the safety and wellbeing of students and improve the consistency of standards in student accommodation. We heard that the New Zealand Qualifications Authority (NZQA), the Ministry of Education, and TEC are involved in developing a permanent code. They are liaising with individual organisations to understand what would work in practice.
We look forward to contributing to this work through this committee’s own inquiry into student accommodation.
Apprenticeships We were pleased to hear that more people are doing apprenticeships. The Targeted Training and Apprenticeship Fund ($160 million) allows learners to undertake vocational education and training for free from 1 July 2020 to 31 December 2022. We heard that the uptake of these fee-free apprenticeships has been high. TEC said that in December 2020 there were 99,000 apprentices. Many are in the construction sector.
Reform of the Vocational Education system (RoVE) We are interested in how the RoVE reforms are being monitored. We asked the Ministry of Education and TEC about this at their respective hearings. TEC said it is doing a significant amount of work on the RoVE programme. It is tracking the progress of the reform.
We heard that RoVE is still in the implementation stage. TEC is working with organisations including Te Pūkenga, the New Zealand Institute of Skills and Technology, to create appropriate ways to measure performance and outcomes. TEC said that Te Pūkenga has focused on finalising its executive leadership as it was only established in April 2020.
We heard that TEC is monitoring how Te Pūkenga spends its funding. Some of the money has been allocated to setting up Te Pūkenga’s operating model. Some has been allocated as working capital.
Student voice in the RoVE We heard that Te Pūkenga plans to hear from students to help inform its operating model. TEC is working with the Workforce Development Council interim Establishment Boards (iEBs), and established WDCs to influence their thinking on this matter. TEC said that it is important that different peoples’ perspectives are considered. They need to listen to people entering and leaving tertiary education, and to people who are informed about workforce demands and career paths.
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Managing subsidiary spending Te Pūkenga and TEC have entered into a single investment plan with the details of each subsidiary board’s investment plan beneath it. As Te Pūkenga has only recently been established TEC will monitor subsidiary investment.
Te Pūkenga is responsible for the money it spends and the money spent by subsidiaries. However, until Tē Pūkenga is fully set up, TEC is taking an active role in helping oversee finances.
TEC said that one of the objectives of the RoVE is to create a sustainable system within Te Pūkenga and all the subsidiaries. This is why it is appropriate for funds to move between subsidiaries. TEC explained that it has been providing oversight and advice on management of the subsidiary entities. Once Te Pūkenga is fully set up TEC will not be actively involved in its operations and finances. However, we heard that Te Pūkenga will always be accountable to TEC. This is because TEC has ultimate oversight over tertiary education. Next year we will be reviewing Te Pūkenga as part of our annual review function.
Centres of Vocational Excellence (CoVEs) Centres of vocational excellence (CoVEs) are part of the RoVE. CoVEs are designed to support the growth of vocational education. CoVE members will work together to define the specific functions of their CoVE. Each CoVE will operate as part of the vocational education system, working closely with WDCs, Regional Skills Leadership Groups, and Te Pūkenga.
We heard that two CoVEs have been set up. One is a construction CoVE based at the Manukau Institute of Technology. This CoVE has 42 members from the industry and education providers. The other is a food and fibre CoVE based at the Eastern Institute of Technology in Hawke’s Bay. We heard that this CoVE has over 60 stakeholders from across the sector. TEC is pleased by the broad range of stakeholders that are involved with CoVEs.
The CoVEs are setting up their programmes to ensure that qualifications, teaching practices, and learning provisions are fit for the future. We note with interest that TEC hopes to see the next round of CoVEs set up in the 2020/21 financial year. We will follow the implementation of CoVEs over the coming year.
Funding ESOL classes at private training establishments The Private Training Establishment (PTE) English for Speakers of Other Languages (ESOL) Provision Fund aims to:
• increase demand for English language training to be met by English language schools • help improve the employability of New Zealanders with English language needs. A total of $1.5 million of funding is available in the 2020/21 financial year for ESOL provision that is delivered during the same period.
We heard that if a PTE closes, its funding returns to TEC. TEC confirmed that, if a PTE closes, students who had paid for tuition would be refunded. We heard that NQZA is responsible for administering this.
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Pre-purchased language tuition money As a part of their residency requirements, some immigrants are required to pay English language tuition fees. This money goes into a fund that is administered by TEC on behalf of Immigration New Zealand. This fund pays for immigrants to attend English language courses. TEC explained that attendance is not compulsory. It said that some people view paying for the tuition as an “entry fee”, but not many people actively seek out the tuition once they have arrived in the country. We heard that it is a “massive task” to contact people and encourage them to attend the English language tuition which they are entitled to and have paid for.
TEC emphasised that it does everything it can to get people who have paid for tuition to attend. It uses the media targeted at migrants to advertise that new immigrants are entitled to English language tuition. It works with Immigration New Zealand and the Ministry of Business, Innovation and Employment (MBIE) to find the best way to contact people who are entitled to the tuition.
TEC said this fund contains around $20 million. We heard that TEC reports back to Immigration NZ regarding the amount of money left unspent. If the money has not been used after five years it is passed to MBIE.
Some of us believe that that this money should be allocated to English language schools around the country.
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New Zealand Qualifications Authority
About the New Zealand Qualifications Authority The New Zealand Qualifications Authority (NZQA) is a Crown entity monitored by the Ministry of Education. NZQA works to ensure that New Zealand qualifications are valued as credible and robust, both within New Zealand and around the world.
NZQA is responsible for:
• managing the New Zealand qualifications framework • administering the secondary school assessment system • recognising qualifications and setting standards for some specific unit standards. Grant Klinkum is the chief executive, and Neil Quigley is the acting chair of the board.
Financial performance and audit results In 2019/20, NZQA’s total revenue was $101.6 million and its total expenditure was $97.8 million. This resulted in a surplus of just under $3.9 million, nearly double the $1.9 million surplus from the previous financial year. NZQA revenue included Crown funding of just under $70 million, 77 percent of which was funding for secondary school assessments.
The Auditor-General rated as “very good” NZQA’s management control environment, and financial information and supporting systems and controls. NZQA’s performance information and supporting systems and controls was rated as “good”. The Auditor-General recommended that NZQA develop performance measures that better reflect its strategy and set more meaningful targets.
Academic achievement affected by COVID-19 Introduction of Learning Recognition credits In 2019/20, NZQA introduced Learning Recognition (LR) credits to acknowledge the learning disruption and challenges arising from COVID-19 and the lockdowns. This system allows students to accumulate one credit for every five credits achieved in level 2 or 3 of NCEA. NZQA said it believes the LR credits acknowledged the disruption felt by students in 2020.
NZQA told us that the provisional NCEA results for 2020 were similar or better than those for 2019. NZQA said it is working through the final results. However, it believes that without the LR credits, the University Entrance (UE) achievement rate would have “fallen off a cliff” by about 8 percent. Thousands of year 13 students would have been negatively affected. NZQA said that, without the LR credits, results in NCEA levels 2 and 3 each would have dropped by 4.5 percent, and level 1 would have dropped by 8 to 9 percent.
Academic effect of the lockdowns We asked NZQA how it will assess the academic effect of the lockdowns. NZQA acknowledged that more work is needed to understand how much learning actually took 28
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place in 2020. It said it plans to evaluate that with the Ministry of Education and is still analysing external assessment results.
We heard that the NZQA board had recently met and asked management to work with Universities New Zealand on a joint study. This aims to determine whether they can identify if, and where, tertiary learners are having problems as a result of disruptions in 2020.
More online assessments NZQA received $13.1 million in 2019/20 for the NCEA Online project. This project is designed to increase schools’ access to online and digital assessment of subjects. For example, in 2019 NZQA offered 35 digital exam sessions across 14 subjects; in 2020 it planned to offer 58 exam sessions across 21 subjects. We were informed that nearly two- thirds of all schools participated in NCEA Online in 2020; last year more than 22,000 students from 276 schools sat at least one digital exam, a 55 percent increase in students and a 41 percent increase in schools compared to 2019.
With the increased use of online examinations, we asked how the integrity and credibility of the testing was maintained to ensure that students could not “game” the system. We were told that all NCEA-regulated examinations, both written and online, are carried out and supervised on school grounds. There are no plans for students to do online exams at home.
Increasing the accessibility of online testing NZQA explained that it works to remove barriers to make online examinations accessible to all groups. It is pleased that Māori and Pasifika participation rates have continued to rise. The disparity between urban schools and rural schools in online assessments is not extreme despite challenges such as rural broadband.
NZQA has also focussed on Special Assessment Conditions (SACs) for otherwise capable students who may benefit from extra help in addressing various barriers to achievement in assessments. For example, it is exploring new technologies like “text to speech” programmes for those with visual impairments. NZQA is also exploring opportunities for a similar “text to speech” for te reo Māori learners and speakers. Both projects are in research and development phases and will be tested later in 2021. We look forward to hearing about the results of these initiatives.
Typing proficiency We were told that evidence suggests that most students prefer typing to writing because they can correct their essays more easily. However, typing classes are not mandatory. NZQA encourages online assessments only for those students who have been learning online; that way, their typing proficiency improves through practice.
Learning from 2020 During the hearing, NZQA mentioned studies to further learn about the after-effects of achievement in 2020—one with Universities New Zealand and one with the ministry. We asked when these will be completed, so that learning gaps can be identified and addressed before another school year has passed.
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NZQA explained that, regardless of when those studies are completed, it trusts schools and tertiary institutions to know what they should be doing. Also, we heard that the system is “calibrated” to be iterative. NZQA believes that schools are better prepared this year to deal with learning disruptions because of their experiences in 2020. NZQA stated that more students have devices, more homes have internet connections, and schools are more adaptable. It added that there are many steps in the qualifications system that are ready to adjust as needed.
We hope these measures will be effective but nevertheless look forward to the thorough and timely completion of the various reports. We request NZQA to forward them to us once released.
Planned new NCEA numeracy and literacy standards We heard about NZQA’s work with the ministry on new mandatory literacy and numeracy standards. We note that the new standards are planned for 2023 and NZQA will administer them. They will be a co-requisite of NCEA: to attain NCEA, students will have to attain these standards.
We were told the new standards will be linked to international adult literacy benchmarks, as well as to levels 4 and 5 of the New Zealand curriculum (which are usually achieved in Years 8 to 10—the years before NCEA).
Gap between NCEA Level 3 and University Entrance Students who want to go to university must attain UE. UE consists of:
• NCEA level 3 • 14 credits in each of three approved subjects • certain literacy and numeracy credits. We were concerned to learn that, in 2019, just under 30 percent of Māori students achieved UE compared with 55 percent of Pākehā. NZQA explained that over 30 percent of Māori attain NCEA level 3 but the programmes of study they are often enrolled in mean they are not as successful in UE. NZQA believes that learning programmes could be better structured for Māori and Pasifika students so that they can attain UE if they wish. It said it is working with schools to try to address this. It is mainly doing so by engaging with parents, sharing information, and encouraging parents to ask about their child’s year 13 study programme so that a UE award is an option.
We will continue to monitor NZQA’s efforts to encourage Māori and Pasifika UE achievement. We expect to see it continue to increase.
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Other entities within the sector
Our annual reviews of the following entities focused on examining written responses to a range of questions. We did not hold oral hearings. We have no matters of concern to bring to the attention of the House. We note that one other public entity in the education sector is Te Pukenga. Because it was only established in April 2020 we have not conducted an annual review of it for 2019/20. We will do so next year.
Education New Zealand Education New Zealand (ENZ) supports the growth of international education in New Zealand. It promotes New Zealand as a study destination for international students and supports the delivery of education services offshore. Grant McPherson is the chief executive and Steve Maharey is the board chair.
In 2019/20 ENZ’s total revenue was $36.090 million compared with $36.782 million in 2018/19. Its total expenditure was $35.726 million.
The Auditor-General issued a non-standard audit report to draw attention to the effects of COVID-19 on ENZ’s business and operations. The Auditor-General rated ENZ’s management control environment and financial information systems and controls, as “very good”. Its performance information and associated systems and controls were rated as “good”.
Education Payroll Limited Education Payroll Limited (EPL) manages the payment of New Zealand’s teachers and support staff. Arlene White is the chief executive and Sandi Beatie is the board chair.
In 2019/20 EPL’s total revenue was $29.640 million compared with $28.578 million in 2018/19. Its total expenditure was $27.722 million.
The Auditor-General issued a non-standard audit report. It was non-standard as it drew attention to the effects that COVID-19 had on EPL. The Auditor-General rated EPL’s management control environment as “very good”. Its financial information systems and controls, and performance information and associated systems and controls were rated as “good”.
The Network for Learning Limited The Network for Learning Limited (N4L) ensures all New Zealand schools and kura are connected to the internet through a safe network. Larrie Moore is the chief executive and Colin MacDonald is the board chair.
In 2019/20 N4L’s total revenue was $30.464 million, compared with $30.316 million in 2018/19. Its total expenditure was $29.945 million.
The Auditor-General’s audit report contained a paragraph drawing attention to the disclosures about the impact of COVID-19 on the company as set out in note 21 to the
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8 https://www.n4l.co.nz/wp-content/uploads/2020/11/Annual-Report-2020-FIN-LR-2.pdf
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Appendix
Committee procedure We met on 10 March 2021 to hear evidence from the Minister of Education.
We met five times between 10 February and 24 March 2021 to consider the annual reviews of entities in the education sector. We heard evidence from the Education Review Office, the Ministry of Education, the New Zealand Qualifications Authority, and the Tertiary Education Commission. We received advice from the Office of the Auditor-General.
Committee members Marja Lubeck (Chairperson) Chris Baillie Camilla Belich Hon Paul Goldsmith Jan Logie Jo Luxton Ibrahim Omer Angela Roberts Erica Stanford
Advice and evidence received We received the following documents as advice and evidence for these annual reviews. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Education Review Office).
Office of the Auditor-General (Briefing on the Ministry of Education).
Office of the Auditor-General (Briefing on the New Zealand Qualifications Authority).
Office of the Auditor-General (Briefing on the Tertiary Education Commission).
Education Review Office (Responses to written questions).
Ministry of Education (Responses to written questions).
New Zealand Qualifications Authority (Responses to written questions).
Tertiary Education Commission (Responses to written questions).
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2019/20 Annual review of the Climate Change Commission
Report of the Environment Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 What COVID-19 meant for the commission’s launch ...... 2 Financial performance and audit results ...... 2 Establishment of the Commission ...... 2 Release of the source data and modelling behind the advice ...... 3 The commission’s modelling ...... 3 Reaching net zero ...... 4 Electric vehicles ...... 4 Waste minimisation ...... 4 Offshore mitigation ...... 5 Engagement and relationship-building ...... 5 Relationship with ministries and government ...... 5 Community engagement ...... 5 Engagement with Māori ...... 6 The commission’s budget ...... 6 The role of the public sector ...... 6 Appendix ...... 7
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Climate Change Commission
Recommendation The Environment Committee has conducted the annual review of the Climate Change Commission for 2019/20, and recommends that the House take note of its report.
Introduction The Climate Change Commission was established in 2019 by an amendment to the Climate Change Response Act 2002.1 The Commission is an independent Crown entity. Its mandate is to provide expert, evidence-based advice on the actions New Zealand must take to achieve its climate goals and transition to a climate-resilient and low-emissions future.
The Commission also monitors and reviews the Government’s progress towards the emission reduction and adaptation goals.
We heard from Dr Rod Carr, the chair of the Climate Change Commission, and Jo Hendy, the chief executive. We welcomed Dr Carr to the role.
What COVID-19 meant for the commission’s launch We heard that the timing of the COVID-19 lockdown meant that the newly formed commission had to begin its key piece of work remotely. This resulted in a complete re-think of its engagement approach, which was brought online. COVID-19 also resulted in an amendment to the statutory deadlines the commission was working to.
Financial performance and audit results This was the Climate Change Commission’s first annual report. In 2019/20, the commission reported a net surplus of $1.1 million, largely due to COVID-19. The pandemic meant a hold on recruiting for senior positions ($0.8 million below budget), and delays or reprioritisation of various work programmes ($0.3 million below budget).
The Auditor-General issued a non-standard audit opinion, drawing attention to disclosures in the financial statements about the effects of the COVID-19 pandemic on the commission. The Auditor-General assessed the management control environment as “very good”, with no recommendations for improvement. He assessed the commission’s financial information and supporting systems and controls, and performance information and supporting systems and controls as “good”, with some improvements recommended.
Establishment of the Commission A feature of the year’s work was to establish the Climate Change Commission itself. This included establishing the board and appointing its chief executive and management team. As the commission was not established as a standalone entity until 9 December 2019, it did
1 The Climate Change Response (Zero Carbon) Amendment Act 2019. 2
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not have a statement of intent or statement of performance expectations for the period to 30 June 2020. Instead, the commission reported against its appropriation measures and a letter of expectations from the Minister.
Both appropriation measures were reported as “Partly achieved” as spending was restricted by COVID-19. The Minister’s letter sets out five expectations. Four were “Partly achieved” (mostly due to COVID-19) and one is described as “Delayed, but on track to achieve the Minister’s extended deadline” (31 May 2021).
We were told that, since its establishment, the commission had concentrated on building the infrastructure for an organisation that has wide-ranging technical capabilities. It also focused on developing the organisational culture, both around the board table and within the management team.
Release of the source data and modelling behind the advice The commission released its draft advice report in January 2021, along with an evidence report setting out the evidence used in developing its recommendations and advice.2 We were told this included the tools it used to inform its analysis; the analytical framework; emissions value and NZ Emissions Trading Scheme; and cost-effectiveness analysis. We were told that the commission has subsequently released additional data in different formats at a more detailed level on its website.3
Some of us raised concerns about the unreleased data and modelling, particularly the C- Plan model. The commission told us that it was working through an open source agreement and was not seeking to withhold the source code of the model. It was working with the contracted provider to meet specific licence and contract conditions so that the data could be released under a creative commons licence. In the meantime, the commission is holding workshops for those who want to understand the algorithms.
Some of us were concerned that stakeholders would find it difficult to provide a submission on the draft advice if the data and models were not available to test and examine. The commission said it was aware that the public would like to run the models themselves. This had prompted it to look into this issue. Some of us were disappointed that the commission could not confirm whether this data would be released before the extended submission deadline. We look forward to the prompt release of this data.
The commission’s modelling Some of us expressed concern that the commission’s modelling and estimates did not align with the previous New Zealand Institute for Economic Research (NZIER) model. The commission agreed that this was a legitimate area of enquiry, but explained that the NZIER model is an older model based on earlier costings of alternative and renewable technologies.
2 For more information about the Climate Change Commission’s evidence, see https://www.climatecommission.govt.nz/get-involved/our-advice-and-evidence/. 3 For more information about the Climate Change Commission’s further data and modelling, see https://www.climatecommission.govt.nz/get-involved/sharing-our-thinking/data-and-modelling/.
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The commission brought to our attention that its modelling uses cost pathways for different technologies instead of marginal abatement costs. It assured us that the model used had been internationally peer reviewed, so it could provide “some” degree of confidence. The model was also created by experts, including an individual who had worked on the NZIER model, and results were in line with other international projections.
The commission pointed to the United Kingdom, where earlier modelling about the cost to transform an economy from a fossil fuels high emitting economy to a low emissions renewable economy had assumed orders of greater magnitude than the current estimates. The commission also pointed to the UK and EU’s current modelling and said this is in the same order of magnitude as it is now estimating.
Some of us were disappointed that the commission led some of us to believe that the commission did not use marginal abatement costs, rather it used cost paths, when a search of the commission’s report appears to show numerous references to marginal abatement costs, and no references to cost paths.
Reaching net zero The Government has committed to reaching net zero emissions of long-lived gases by 2050, and reducing biogenic methane emissions by between 24 and 47 percent by 2050. The commission has proposed emissions budgets to ensure these targets are met. The commission explained that it had run different scenarios and looked at different ways of achieving the proposed emissions budgets. The commission indicated that the report it has released presents one pathway, to make the information accessible to the reader, but those budgets can be met in multiple ways.
Electric vehicles We were interested in the modelling about electric vehicles (EVs). Some of us expressed concern that, based on the current report, people could not make an assessment as to whether New Zealand should be subsidising EVs, or whether the ETS alone can reach New Zealand’s targets. The commission said that EVs are just one small part of a larger picture. That picture includes adopting other technologies and building an enduring carbon sink by expanding native forests, among other things.
Waste minimisation We sought information about the potential role waste minimisation, particularly food waste, can play in reducing methane emissions. The commission explained that a section in the advice report focuses on waste, with experts advising people to reduce, reuse, and recycle. The commission also recommends extending product stewardship arrangements, particularly by prioritising products that have high emissions at the end of their life.
Some of us are concerned that current waste-to-landfill arrangements are just “kicking the can down the road”. We asked whether the commission has modelled or considered waste to energy. It said it has thought about the interaction between waste streams and other parts of the energy system, having seen it done successfully in the Canterbury landfill. The commission indicated that this is something it could look at further, both during and after the consultation period. We hope the commission receives feedback on this matter.
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Offshore mitigation Offshore mitigation is about supporting other countries to reduce emissions and increase New Zealand’s contribution beyond what is possible domestically. The use of limited offshore mitigation is proposed by the commission as New Zealand’s commitments to reduce net emissions are not compatible with global efforts. We concur with the commission that offshore mitigation will be needed for New Zealand to meet its nationally determined contribution and future emissions targets to stay at net zero.
Engagement and relationship-building Relationship with ministries and government We recognise that the commission occupies a crucial place in the climate change infrastructure of government, and that fierce independence is critical.
We note that the Ministry for the Environment (MfE) is the monitoring agency. The commission recognises the importance of having a monitoring agency, and confirms that its relationship with MfE has been professional and continues to mature. Its chairperson observed that there were “natural tensions and constructive engagement” as the ministry and commission each form views about the other’s work.
In practice, the commission said, there are regular catch-ups between its senior leadership team and MfE to help strengthen this relationship. These meetings help to ensure that there is no duplication of work between the ministry and commission, and that data is shared.
We are satisfied that there is progress in the relationship between the commission and MfE, particularly with the development of a memorandum of understanding. We were informed that this memorandum extended to other ministries, including the Ministry of Business, Innovation and Employment, Ministry for Primary Industries, Ministry of Transport, and others who would like to engage with the commission.
Community engagement The commission told us that, before completing the draft advice report, it had consulted more than 700 individuals, small groups, and peak bodies through webinars and other group processes. Since releasing its advice as at 15 March 2021, the commission had received more than 1,650 submissions, numerous Official Information Act requests, and more than 2,000 people had attended webinars. The commission explained that it understands that engagement is not a “one shot all done”—it is about building relationships with communities as the commission’s partnering capability grows.
To allow for a whole system change, the commission is using numerous methods of engagement to engage with different stakeholders. It is developing a specific engagement strategy with the Ministry for Youth Development to connect with younger people. The commission has also established ways of collecting and disseminating information, including developing an online engagement platform.
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Engagement with Māori In its 2019/20 annual report, the commission states that it is committed to engaging with Māori to build meaningful and respectful relationships. It particularly wanted to invest in long- term, sustained engagement with Māori. We are pleased that the commission has created a specific engagement plan for Māori.
The commission said it recognises that Māori communities around the country are affected in different ways by transformation, transition, and change, so it is important to get engagement at the iwi and hapū level. The commission’s Māori capability team has gone into communities to talk with iwi and hapū in their own settings. We also heard about a recently launched pilot for an online engagement survey with hapū and whānau on the East Coast. This would make it easier for people who do not always engage with these processes to provide feedback and make their voices heard.
We were told that the commission is committed to applying a te ao Māori view to help ensure the effectiveness of climate action for the benefit of all New Zealanders.
The commission’s budget We acknowledged the public engagement work being done. Some of us question the adequacy of the commission’s “relatively small” budget compared with the staffing and resources needed to build relationships and engage effectively in different communities. We were informed that, with support from MfE as the monitoring agent, an independent report was commissioned from Martin Jenkins. It looked at the scope of work the commission is obliged to undertake, and what resourcing would be needed to discharge those obligations. This report has been made available to the Minister for Climate Change and is part of the budget process.
The commission advocates that it should be under a separate Vote. That would provide greater transparency about government spending, financial independence for the commission, and accountability. We acknowledged this point.
The role of the public sector We were interested in how new programmes of work introduced by the Government would contribute to the public sector being more environmentally efficient. The commission explained that, while particular emissions reductions may appear modest in their total volume, this is the case everywhere. The commission suggested that role modelling, using its procurement process to bring in new technology, and “learning by doing” are all things that governments can do to help the wider community and private sector become more environmentally efficient.
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Appendix
Committee procedure We met between 25 February and 25 March 2021 to consider the annual review of the Climate Change Commission. We heard evidence from the Climate Change Commission and received advice from the Office of the Auditor-General.
Committee members Hon Eugenie Sage (Chairperson) Rachel Brooking Tamati Coffey Simon Court Anahila Kanongata’a-Suisuiki Debbie Ngarewa-Packer Dr Deborah Russell Hon Scott Simpson Stuart Smith Tangi Utikere Angie Warren-Clark
Dr Liz Craig, Sarah Pallett, and Dr Duncan Webb participated in this annual review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Climate Change Commission).
Climate Change Commission (Responses to written questions).
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Report of the Environment Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial overview and COVID-19 stimulus package ...... 2 Results of the 2019/20 audit ...... 3 Areas that need improvement ...... 3 Elevating Treaty of Waitangi principles ...... 4 Effects of COVID-19...... 4 Jobs for Nature programme ...... 5 Responding to biodiversity challenges ...... 5 Predator control and eradication ...... 6 Climate Change Adaptation Action Plan...... 6 Sustainability initiatives ...... 7 Effects of climate change...... 7 Lake Ōhau fire ...... 8 Appendix ...... 9
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2019/20 ANNUAL REVIEW OF THE DEPARTMENT OF CONSERVATION
Department of Conservation
Recommendation The Environment Committee has conducted the annual review of the Department of Conservation for 2019/20, and recommends that the House take note of its report.
Introduction The Department of Conservation Te Papa Atawhai (DOC) was established by the Conservation Act 1987 to promote the conservation of New Zealand’s natural and historic resources. Its role is to care for New Zealand’s land, waters, native species, and heritage, and to tell the stories of New Zealand’s nature and history.
In 2019/20 DOC developed a new organisational strategy: “Te Kaupapa a Te Papa Atawhai—Papatūānuku Thrives”. Te Kaupapa is intended to provide direction for the department, driving its projects and programmes of work, showing what it stands for and explaining why its work matters.
DOC manages $7.4 billion in capital assets, of which more than 91 percent relates to conservation estate. The remaining assets include visitor assets such as tracks, huts, and structures used for conservation services.
The Director-General is Lou Sanson, who has been in the position since September 2013. As at 30 June 2020 DOC had 2,413 permanent, temporary, and fixed-term staff. The average age of staff is 44 years, and average length of service is 9.3 years. The gender balance for staff is 50 percent female, 49.6 percent male, and 0.2 percent gender diverse or unknown.
Financial overview and COVID-19 stimulus package DOC received $517.666 million in revenue in 2019/20, 5 percent more than the previous year’s total of $429.615 million. It spent $483.856 million, resulting in a surplus of $33.81 million. The previous year it spent $429.724 million and had a deficit of $109,000.
Since 2017, DOC has received funding increases to support progress towards its intermediate outcomes and stretch goals. In light of COVID-19 it received an economic stimulus package of $502 million as part of the Government’s Jobs for Nature package, to be applied to three major programmes over four years:
• supporting employment through environment projects—$200 million • enhancing biodiversity outcomes on public and private land—$154 million • pest management including advancing Predator Free New Zealand and working with iwi to prevent the collapse of North Island forests—$148 million.
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Results of the 2019/20 audit The Auditor-General issued a non-standard audit report, drawing attention to the effects of the COVID-19 pandemic on the department.
DOC’s financial information and supporting systems and controls were assessed as “good”. The audit noted that DOC has addressed some of the improvements recommended in 2018/19.
The Auditor-General assessed DOC’s performance information and supporting systems and controls as “good”, an upgrade from “needs improvement” in 2018/19. The audit found that performance information has been accurately reported for 2019/20. However, there is still room for DOC to improve its planning and performance information systems.
Areas that need improvement DOC’s management control environment was assessed as “needs improvement”. This remains the same as in the previous year. The auditors found that although DOC made progress during 2019/20 in addressing some of the recommended areas for improvement there is still more to be done.
Improving corporate services functions The audit highlighted that a wide range of corporate services functions need improvement. They include procurement practices and systems that are not fit for purpose. They need to evolve to match DOC’s increasing complexity and increased funding.
We asked what systems are not currently fit for purpose, and were told this was one focus for the Deputy Director-General (Corporate Services Group). The Deputy Director-General informed us that they are generally back office corporate systems like contract management and procurement. DOC is doing a complete refresh of its financial information system, and started a $62 million, five-year corporate services work programme in 2019/20. Progress to date includes the adoption of a digital strategy, significant improvements to capital management processes, and incremental process improvements in areas such as P-card and invoice processing. We were pleased to hear that progress is being made.
We were also pleased to hear that a central database for concessions and concessionaires had worked very effectively during the COVID-19 lockdown.1
Members emphasised the importance of adequate project delivery management and controls to ensure that the best use is made of the additional funding.
Improving performance reporting We discussed integrated data and the systems that DOC has in place to collect well integrated data. DOC has made improvements to the reliability of the data it gathers to inform its performance reporting. However, it is quite a manual process and DOC is aware that it could be done far more efficiently if automation was prioritised. The audit
1 If you want to interact with wildlife or use public conservation land for reasons other than personal recreation, such as running a business or activity, you must get permission from DOC in the form of a concession.
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recommended that DOC set a goal of implementing automated performance reporting by the 2022/23 financial year.
We asked whether this implementation would be manageable through its baseline funding, or whether a budget bid would be required. DOC said it is managing the project within baseline, through reprioritisation. It has examined its internal control framework and put in place mechanisms necessary to be safe and manage the organisation well. It hopes the automation and improvement of its financial management information systems will lift its audit rating.
We will monitor these areas with interest and look forward to following up at our next annual review.
Elevating Treaty of Waitangi principles Since 2019, DOC has been working to improve its relationship with tangata whenua.2 This area was highlighted as necessary to work on after the Ngāi Tai ki Tāmaki Tribal Trust v Minister of Conservation Supreme Court decision of 2018. It challenged DOC over the way it had given effect to Treaty principles in decision-making over tourism concessions.3
The decision issued a strong directive to DOC about its role as a Treaty partner. As a result of the case, DOC began re-examining its national park and general conservation policies. We are curious about the effect that the review of these policies will have on tourism. We asked what the future looks like for new and existing concessions. The Director-General confirmed that most current concessionaires will retain the concessions for the time being. However, some, like the decision to allow Fullers to develop a tourism operation on Motutapu Island, have been reversed. DOC is working through what the review will mean for concessions in future. It noted that the decisions it makes cannot be based on conservation principles alone; it has to consider the social and economic aspirations of iwi, hapū, and whānau as well.
Effects of COVID-19 Public conservation lands and waters play a significant part in New Zealand’s tourism sector. Although reductions in travel and visitor numbers have been positive for nature, they have had a negative effect on DOC’s financial position. The department has seen reductions in revenue from Crown concessions and tourism, as has the tourism sector as a whole.
The Director-General emphasised the positive effects on people’s wellbeing when they connect with nature. During the COVID-19 lockdown, connecting with nature was especially important to support wellbeing. The department developed a programme of work that could be adapted to the different alert levels, based on the Mental Health Foundation’s five ways to wellbeing. Based on this, it undertook a campaign titled “Let Nature In”.
2 In June 2019, DOC’s senior leadership team held its first meeting with iwi leaders. It considers this an important moment in the development of its relationship with Māori. The meeting identified pivotal values that will help inform DOC’s future work. 3 Ngāi Tai ki Tāmaki Tribal Trust v Minister of Conservation [2018] NZSC 122. 4
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We were pleased to hear that, even post-lockdown, New Zealanders continued to “fall in love with nature”. Mountain biking activity went up significantly, to the extent that some areas had some of their highest visitor numbers. Cycle tours in Twizel, Hokitika, and Greymouth reported an increase in numbers of up to 50 percent.
The Director-General noted any conservation site within three hours of a city saw record numbers. We asked what management tools DOC has used to mitigate any concerns from this increase in domestic visitors to popular sites. We heard that in the central North Island DOC has been working with Tūwharetoa to restrict car parking on the roads in Tongariro National Park. Access is being diverted to local businesses that shuttle visitors to the crossing sites in vans.
We heard that many New Zealanders are out and about, enjoying the conservation estate.
Jobs for Nature programme In May 2020, DOC received a $502 million economic stimulus package as part of the Government’s $1.245 billion Jobs for Nature programme. It aims to help revitalise communities through nature-based employment, and to stimulate the economy post COVID- 19. We heard about a project partnership with Ngāti Porou and Te Whānau-ā-Apanui to restore the Raukūmara forests of the East Coast and control pests in the Kaimai Mamaku Range. We heard that this is probably the most ambitious of the Jobs for Nature projects, and one the department is very proud of.
Responding to biodiversity challenges The biodiversity challenges faced by New Zealand are significant, yet New Zealand had not rewritten its biodiversity strategy since 2002. We were therefore pleased to hear that DOC has finalised the Aotearoa New Zealand Biodiversity Strategy—Te Mana o te Taiao. The strategy will provide long-term direction and short-term priorities for public and private entities working on biodiversity issues in Aotearoa. DOC has adopted an approach called He Awa Whiria to implement and understand the strategy. He Awa Whiria refers to braided rivers, which are made up of multiple, interconnecting channels of water that continually change shape.4
We understand that one of the department’s biggest challenges is to detect and accurately quantify biodiversity and its current state. This is important to establish a baseline against which progress can be measured. We asked about DOC’s current regime with existing data sets and what plans it has to improve the compatibility of data sets to gather good information. We heard that improvement in this area is needed from the whole natural resource sector: the Ministry for Primary Industries, Ministry for the Environment, and DOC. Different sources of information and a lack of consistency in monitoring approaches make it difficult to construct a clear national picture of the state of biodiversity. Some improvements are being made: DOC routinely collects data for many existing data sets, and analyses them
4 He Awa Whiria is explained on page 37 of Te Mana o te Taiao—Aotearoa New Zealand Biodiversity Strategy 2020.
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We note the importance of consistent time-series data to assess trends, and hope to see better curated, more consistent data shared across the sector in the years ahead.
Predator control and eradication DOC plays an important role in achieving the Predator Free 2050 goal, with two key programmes to control predators to support the restoration of New Zealand’s biodiversity: Predator Free 2050; and “Tiakina Ngā Manu” (Battle for our Birds). A highlight of the last year has been coming closer to the goal of 1 million hectares of sustained predator control. Sustained control buys native species time while eradication technologies are developed.
We discussed the Predator Free projects happening across the country. In the Wellington region, Predator Free Miramar and Capital Coast Kiwi are bringing together hundreds of people every weekend to focus on pest eradication and bringing back birds. In other parts, conserving kiwi is becoming more of a focus. About 30 residents of the Ōkārito forest area in the South Island are trying to make the area predator-free. In Tāmaki Makaurau over 2,000 people are involved in Predator Free Auckland, a huge community effort.
The current predator control approach on mainland New Zealand is the suppression of predator populations using traps or toxins. We are keenly interested in advances in technology that could enable a move beyond suppression using 1080 drops, to achieving the Predator Free 2050 goal across Aotearoa.
We were informed of innovations coming out of South Westland’s Perth Valley from Zero Invasive Predators Ltd (ZIP). ZIP is a research entity that was established to develop innovative technologies to help create large areas free of possums, rats, and stoats, and protect them from re-invasion. It operates a model called “Remove and Protect”.5 This approach is best suited to land areas bound by geographic barriers such as oceans, large rivers, and alpine tops, making them relatively easy to defend once predators have been removed.
In 2019, ZIP carried out an initial predator-removal operation using a modified application of aerial 1080. This succeeded in removing all stoats, and only a small number of possums and rats remained. In July 2020, follow-up actions removed the last possums, and there remain only a few rats. We were pleased to hear that native birds have begun to recover in the area. Native bird numbers are monitored using a trail camera network that was originally set up to detect predators at low density.
Climate Change Adaptation Action Plan In 2019/20 DOC published a five-year Climate Change Adaptation Action Plan (CCAAP), and a sustainability strategy to increase the resilience of wildlife and wild places to the impacts of climate change. The CCAAP outlines the actions DOC will take to reduce the risks posed by the changing climate between 2020/21 and 2024/25. Actions include shifting
5 About the Remove and Protect Model. 6
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towards an electric vehicle fleet, and working to better understand the department’s emissions and waste streams to inform the development of work practices that are more sustainable.
In the East Cape, DOC is working with Ngāti Porou and Te Whānau-a-Apanui on a large- scale forest restoration project in the Raukūmara Range. Together they are researching how forests can help in meeting New Zealand’s carbon commitment to reduce greenhouse gas emissions under the Paris Agreement. Trees absorb carbon dioxide, and convert the carbon component to sugars, which are solid forms of carbon, and release oxygen back to the atmosphere. We learnt that DOC is working with NIWA on a project involving carbon flux stations to monitor the exchange of CO2 between the atmosphere and pasture or forest.6 This will reveal important insights about the balance between photosynthesis during the day and respiration from the soil and plants at night. DOC hopes this research over the next five years will prove the value of ancient and exotic forest for New Zealand and its carbon sinks.
Sustainability initiatives We heard that, by June, carbon budgets will be assigned to all managers and DOC will have had its carbon baseline benchmarked by Toitū Envirocare (a subsidiary of the Crown research institute Manaaki Whenua—Landcare Research).
DOC’s vehicle fleet causes much of the department’s emissions. A year ago, the Director- General banned all purchases of internal combustion engines. DOC’s vehicle fleet is currently 25 percent electric or hybrid. By mid-2021, it hopes to replace 300 of its combustion engines with electric engines.
COVID-19 led to DOC’s air travel reducing by 40 percent. It has now made a permanent move to reduce travel budgets across each business unit by prioritising online meetings and collaboration in preference to travel. It is stopping all coal heating and moving to wood. It is also starting to test drones as a method for controlling wilding pines, chemicals, and predators. The Director-General is aiming for Te Papa Atawhai to be in the forefront of the Prime Minister’s goal for a carbon-zero public service.
Effects of climate change We heard that the effects of climate change are “really starting to ramp up”, with New Zealand witnessing a rainfall event each year in excess of 1 metre. In February 2020, Fiordland was hit by a weather bomb that saw 1 metre of rain in 60 hours. It caused damage to more than 78 tracks and resulted in the temporary closure of the Milford and Routeburn Great Walks. We heard that this was the second year in a row that New Zealand has had one of these heavy rain events. It resulted in $15 million of cost to the Te Ānau economy and $13 million in damage. The Director-General told us that a further event this year cannot be ruled out, as record sea temperatures in the Tasman mean storms pick up a lot of moisture.
6 The National Institute of Water and Atmospheric Research—Carbon Watch NZ | NIWA.
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Lake Ōhau fire
A fire at Lake Ōhau village on 6 October 2020 destroyed 48 buildings and 5,040 hectares of Crown pastoral and conservation land. It was the most expensive fire in New Zealand’s history, costing $35 million in property damage. In light of public comment about claims of DOC’s poor management of wilding vegetation on the affected land, we asked whether better management could have mitigated this fire. The Director-General told us that he had visited the source of the fire and did not believe the evidence supported suggestions that the land had been poorly managed.
DOC previously practised fire mitigation planning when it was the principal fire authority for the Mackenzie Basin. This responsibility now lies with Fire and Emergency New Zealand. The Director-General said that DOC is quite happy to help.
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Appendix
Committee procedure We met between 18 February and 25 March 2021 to consider the annual review of the Department of Conservation. We heard evidence from the Department of Conservation and received advice from the Office of the Auditor-General.
Committee members Hon Eugenie Sage (Chairperson) Rachel Brooking Tamati Coffey Simon Court Anahila Kanongata’a-Suisuiki Debbie Ngarewa-Packer Dr Deborah Russell Hon Scott Simpson Stuart Smith Tangi Utikere Angie Warren-Clark
Hon Jacqui Dean participated in some of this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Department of Conservation).
Department of Conservation (Responses to written questions).
Department of Conservation (PowerPoint presentation).
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Report of the Environment Committee
March 2021
Contents Recommendation ...... 2 About the Environmental Protection Authority ...... 2 Financial results and the 2019/20 audit ...... 2 Restricted funding is proving a challenge ...... 3 Responding to COVID-19 ...... 3 Hazardous substances ...... 4 Mātauranga framework ...... 5 Review of the Biosecurity Act 1993 ...... 5 Appendix ...... 6
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Environmental Protection Authority
Recommendation The Environment Committee has conducted the annual review of the Environmental Protection Authority for 2019/20, and recommends that the House take note of its report.
About the Environmental Protection Authority The Environmental Protection Authority (EPA) is New Zealand’s national environmental regulator. It is a Crown agent and was established under the Environmental Protection Authority Act 2011. The EPA is responsible for a range of environmental functions that have a national focus. Its main functions are to:
manage and monitor the use of chemical and hazardous substances (such as household chemicals and pesticides) regulate ozone-depleting substances and hazardous waste make decisions about introducing new organisms into the environment (such as beetles) administer and report on the New Zealand Emissions Trading Scheme (ETS) regulate marine activities in the Exclusive Economic Zone and Continental Shelf (EEZ) support applications under the Resource Management Act 1991 (RMA) for nationally significant projects (such as wind farms and major new roads). The EPA employs approximately 200 staff, compared with 165 staff five years ago.
We discussed the EPA’s 2019/20 annual report and financial audit with its chair, Julie Hardaker, and chief executive Dr Allan Freeth.
Financial results and the 2019/20 audit The EPA’s total revenue for 2019/20 was $29.610 million. It is funded by a mix of Crown revenue ($27.367 million) and third-party revenue from transactions such as cost-recovery fees and application fees ($2.243 million). Crown revenue was $1.850 million more than in 2018/19, and third-party revenue was $0.85 million less over the same period.
The table below summarises the EPA’s revenue and expenses in recent years:
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Summary of EPA revenue and expenses
2019/20 2018/19 Change
Revenue Crown $27.37 million $25.52 million $1.850 million (7.3% increase)
Revenue Other $2.24 million $3.04 million -$0.80 million (26.3% decrease)
Total revenue $29.61 million $28.56 million $1.06 million (3.7% increase)
Expenses $31.77 million $30.43 million $1.34 million (4.4% increase)
Revenue from sources other than the Crown includes application fees for new organisms and hazardous substances, and cost recovery fees for RMA and EEZ-related activities.
The EPA reported a net deficit of $2.157 million for the year. This was about 15 percent more than its deficit of $1.874 million in 2018/19, but less than its budgeted deficit of $3.37 million. The difference from budget was mainly because a number of projects were slowed or deferred in response to the COVID-19 lockdown.
The Auditor-General rated the EPA “very good” for its management control environment and its financial information and supporting systems controls, with no recommendations for improvement. The Auditor-General says that the EPA continues to improve its performance reporting framework, which he rates as “good”, with some improvements recommended.
Restricted funding is proving a challenge The chief executive told us that the EPA has been coming under increasing pressure as its functions have increased over the years without any substantive increase in baseline funding. In the past financial year it took on 12 additional staff to carry out increased responsibilities for fast-track consenting work under the RMA. It has managed to build its staff and capability over the years through productivity savings and reinvestment, but believes it has run out of room for further savings. It has been drawing down reserves to use for things such as IT programmes.
The EPA told us that, in view of the COVID-19 constraints, it could manage to achieve its work programme in the current financial year, 2020/21, with existing funding. However, it would be making a budget bid for increased funding in the next financial year to support increased compliance monitoring and enforcement functions.
Responding to COVID-19 The Auditor-General advises that COVID-19 has had minimal effect on the EPA’s operations so far. However, it is likely that the EPA will need to consider applications for the import of COVID-19 vaccines under the Hazardous Substances and New Organisms (HSNO) Act 1996. This would involve determining whether the proposed vaccine was a new organism to New Zealand. The EPA would need to consider whether there could be any significant
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COVID-19 vaccine We were told that the EPA has received only one application for a COVID-19 vaccine, from Pfizer. We heard about the process for vaccine approval and that the EPA’s responsibility is to determine whether the vaccine would introduce a new organism into New Zealand. If so, the vaccine would be regulated under the HSNO Act. The EPA’s decision-making committee which considered the Pfizer vaccine determined that the vaccine was not introducing a new organism.
Some of us asked why there were conflicting media reports regarding the number of COVID- 19 vaccine applications received by the EPA. We were told that it was a confusing area of law. It is up to applicants to take the risk of being denied approval. If they do not believe their vaccine would introduce a new organism, they do not have to have the EPA look at it. Three applicants have taken this position. The Ministry for Primary Industries is responsible for advising on biosecurity issues related to the vaccines.
ETS monitoring We asked about the EPA’s ability to effectively monitor the ETS during periods when staff were working remotely due to COVID-19. The EPA told us it was “very pleased” with the way the registry was managed during this period.
We heard that some participants in the ETS did not surrender their units in the required time frame due to COVID-19. However, the EPA arranged for the participants to apply for extensions.
Fast-track consenting One of the Government’s responses to COVID-19 was the COVID-19 Recovery (Fast-track Consenting) Act 2020. The purpose of the legislation is to fast-track eligible projects aimed at stimulating the economy. The EPA told us about its involvement in administering the new process for fast-track consenting of projects. The EPA supports the expert panels, assesses the applications, and administers the process from when the panels are appointed through to the final decision.
We asked about timing for fast-track consenting, and whether any improvements could be made to the eligibility and application criteria. We were told that the EPA has been “pretty pleased” with the process for fast-track consenting. One potential constraint is the availability of experts for the consenting panels. So far, the EPA has been able to resource the panels successfully.
Hazardous substances Chemical mapping project The EPA is developing a chemical map of New Zealand which classifies chemical substances in the New Zealand environment. This classification system is known as the
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Globally Harmonised System Version 7 and is an internationally agreed way of classifying chemicals.
We asked the EPA for an update on how the chemical mapping project is progressing. We heard that the chemical map is “information heavy” and one of the challenges for the EPA is getting base data and the information needed to develop the map. The EPA is talking to colleagues in Australia and Europe to try to source more data and to compare chemical use. The EPA’s chief scientist for the chemical map project is currently on secondment at the Ministry of Health in the COVID-19 response unit. Stage two of the map will be progressed once the chief scientist returns to the EPA.
PFOS-containing firefighting foams We sought an update on the use of firefighting foams, and were told that the EPA is working on a new group standard for them. We asked whether the EPA has “stepped up testing protocols”. We were told that it has, and that there is an increased awareness within the industry of the issues and each party’s responsibilities. The EPA told us it is complying with international conventions for firefighting foams and also for when the foams need to be phased out.
Mātauranga framework The EPA has developed the Mātauranga Framework to ensure that Māori knowledge and a Māori perspective is incorporated into its work. Mātauranga can be “described as a unique knowledge and understanding of Te Taiao – the natural environment”. The EPA aims to introduce the mātauranga framework into all of its decision-making committees.
The EPA is providing training to increase the confidence and understanding of the committees when examining mātauranga evidence. We heard that it has been challenging for Māori members of the decision-making committees to be the “only one to be looked at” when it comes to examining mātauranga evidence.
We asked how engagement with Māori and iwi communities is progressing. The EPA told us that it is working with its National Māori Network, Te Herenga, to engage with Māori communities and iwi so that the opportunities provided by the framework can be shared more widely. Te Herenga network is a forum for kaitiaki and resource managers to discuss environmental issues.
Review of the Biosecurity Act 1993 We asked the EPA about the forthcoming review of the Biosecurity Act 1993 and whether new organisms and hazardous substances should be regulated separately. We heard that it could be useful to bring together the various responsibilities as fragmentation across local authorities and government agencies can lead to gaps.
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Appendix
Committee procedure We met between 11 February and 25 March 2021 to consider the annual review of the Environmental Protection Authority. We heard evidence from the Environmental Protection Authority and received advice from the Office of the Auditor-General.
Committee members Hon Eugenie Sage (Chairperson) Rachel Brooking Tamati Coffey Simon Court Anahila Kanongata’a-Suisuiki Debbie Ngawera-Packer Dr Deborah Russell Hon Scott Simpson Stuart Smith Tangi Utikere Angie Warren-Clark
Hon Jacqui Dean and Dr Liz Craig participated in this annual review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Environmental Protection Authority).
Environmental Protection Authority (Responses to written questions).
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Report of the Environment Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial performance and audit report ...... 2 Unappropriated expenditure ...... 2 Resource management reform ...... 3 Waste management ...... 3 Hazardous waste ...... 4 Kerbside recycling ...... 4 Air pollution ...... 4 Freshwater management ...... 5 Climate change ...... 5 Gender and ethnicity ...... 6 COVID-19 response and recovery ...... 6 Jobs for Nature programme ...... 6 Appendix ...... 7
Hon Eugenie Sage Chairperson 307
2019/20 ANNUAL REVIEW OF THE MINISTRY FOR THE ENVIRONMENT
Ministry for the Environment
Recommendation The Environment Committee has conducted the annual review of the Ministry for the Environment for 2019/20, and recommends that the House take note of its report.
Introduction The Ministry for the Environment was established by the Environment Act 1986. It is the Government’s main adviser on environmental matters, including the operation of numerous Acts that affect the environment.
The ministry’s chief executive Vicky Robertson, has been in the role since April 2015. She was accompanied by many officials at our hearing. As at 30 June 2020 the ministry had 491.8 full time staff, a 32 percent increase compared to 371.6 in 2018/19. The average age of staff is 39 years, and their average length of service is 3.2 years.
Financial performance and audit report In 2019/20 the ministry reported total revenue of $95.535 million, a 23 percent increase from 2018/19. Expenditure was $91.69 million, 27 percent higher than in 2018/19. We noted that these increases were larger than in previous years, with the main areas of spending being:
• resource management law reform and policy advice • climate change policy advice • freshwater policy advice. Increased Crown revenue in 2019/20 was used for additional work on a waste levy and the establishment of the Climate Change Commission before it began operating as a separate entity. The Auditor-General rated the ministry’s management control environment, financial information systems and controls, and performance information and supporting systems and controls as “good”. The Auditor-General commented that the ministry’s Emissions Trading Scheme methodology and calculations are currently fit for purpose, but will need revision in future. The Auditor-General said they should be regularly reviewed, to ensure compliance with legislative and regulatory requirements.
Unappropriated expenditure The audit report noted that two breaches of appropriations occurred in Vote Environment.
One related to waste disposal levy payments made to territorial authorities ($3.114 million over the past five years), where certain prerequisites had not been met. The other concerned the timing of a payment for environmental legal assistance ($0.158 million).
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Any expenditure outside the authority given by Parliament is a matter for concern. We note that these breaches are to be validated under the Public Finance Act 1989, and explanations will be tabled in Parliament.
Resource management reform Wider reform of the resource management system is under way, following a report by the independent Resource Management Review Panel, led by Hon Tony Randerson QC.
Advancing this work is a key priority for the ministry. The Government recently announced that it intends to repeal the Resource Management Act 1991 (RMA), and replace it with three new pieces of legislation, in line with the review panel's recommendations.1 The new Acts would be:
• Natural and Built Environments Act (NBA), the core legislation to replace the RMA; it would govern land use and environmental regulation. • Strategic Planning Act, to provide for long-term regional spatial strategies and integrate functions under relevant legislation, including the new NBA and the Local Government Act 2002. • Climate Change Adaptation Act, specialist legislation to address complex legal and technical issues associated with coastal retreat and climate change adaptation. Some of us questioned whether the ministry has the capacity to undertake this substantial exercise. The ministry told us that, with its increased workforce and a two-year time frame, it is confident it can implement this programme of work. However, it will be ambitious and challenging. One of us believes the programme could be more ambitious.
We asked about the process for consultation with Māori in the resource management reform programme. The ministry said it is working with a collective of five prominent Māori organisations: Te Wai Māori; the Freshwater Iwi Leaders Group; the New Zealand Māori Council; Kāhui Wai Māori; and the Federation of Māori Authorities. They have come together to provide guidance on the repeal and replacement of the RMA. In addition, the ministry is consulting directly with Treaty of Waitangi post-settlement entities and will also undertake wider community-based consultation.
Waste management The ministry is leading work to change how New Zealand uses resources, and minimise the waste disposed to landfill. A key ministry initiative during 2019/20 was the expansion of the national waste disposal levy. Currently set at $10/tonne, the levy will increase incrementally over 2021–2024 to $60/tonne. The waste levy at present applies to municipal landfills, predominantly accepting household waste. The ministry proposes to extend the waste levy to include demolition and construction landfills.
1 Reforming the resource management system: Cabinet paper, February 2021, https://www.mfe.govt.nz/more/briefings-cabinet-papers-and-related-material-search/cabinet-papers/reforming- resource.
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We asked whether an increased waste levy will encourage behavioural change in reducing the amount of waste sent to landfill. The ministry said it is confident that an increase would send the correct price signals to encourage waste minimisation.
Some of us asked about the likely economic effects of extending the waste levy to demolition and construction material. The ministry said it has undertaken modelling on what the increase would add to the cost of building or demolishing a house. The Ministry told us it is its view that the estimated cost increases were not excessive. One of us disagreed.
Hazardous waste We asked about the treatment and management of hazardous waste, in particular, aluminium dross from the Tiwai Point smelter. Aluminium dross has been transported from various storage sites in Southland back to the smelter site, where it will be treated and eventually shipped offshore. The Crown provided $300,000 to Environment Southland in 2019/20 to assist in managing the dross. We asked about the contractual agreements for storage of this waste material, and the Crown’s potential liability when the smelter is decommissioned.
The ministry told us it is in negotiations with Rio Tinto concerning liability. One aspect to be agreed is the financial quantum of the liability. Another issue concerns the relocation of the aluminium dross. Rio Tinto accepts responsibility for remediation at the original storage sites, but legal liability at the new storage site is less clear and may require legal clarification.
Kerbside recycling The ministry has been working to standardise kerbside recycling. Domestic kerbside collections around New Zealand vary greatly. Adjacent local authorities often collect different materials in kerbside recycling collections, use different types of collection bins, and provide different types of residual rubbish collections.
The ministry commissioned WasteMINZ in 2019/20 to provide recommendations on opportunities to standardise domestic kerbside collections of waste in New Zealand. Any changes should aim to increase consistency, reduce confusion for householders, and reduce residual rubbish to landfill.2 The ministry is analysing the recommendations in the WasteMINZ report.
Air pollution We asked about the ministry’s work on small particulate matter in air pollution. We heard that during 2019/20 the ministry released a discussion document proposing amendments to the National Environmental Standards for Air Quality. It has consulted local government, industry, and iwi organisations. It is now waiting for additional information from the World Health Organization about its standards regarding small particulate matter. Once this is received, the ministry will proceed with advice to Ministers by late 2021 about possible amendments to the national standards.
2 WasteMINZ (2020), Recommendations for standardisation of kerbside collections in Aotearoa, https://www.mfe.govt.nz/publications/waste/recommendations-standardisation-of-kerbside-collections- aotearoa. 4
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Freshwater management During 2019/20 the ministry developed the Essential Freshwater policy package, which puts in place a framework and measures to clean up New Zealand’s waterways and ensure healthy freshwater resources within a generation. This joint programme with the Ministry for Primary Industries aims to make 90 percent of New Zealand’s lakes and rivers swimmable by 2040.
Implementation of the package is under way. It involves collaboration between central and local government, Māori, the primary sector, land users, and communities.
As part of the package the ministry progressed work on the Resource Management (National Environmental Standards for Freshwater) Regulations 2020, which came into effect in September 2020. The ministry was also involved in the cross-government Three Waters initiative and improvements to regulatory arrangements for Three Waters infrastructure.
Some of us had received feedback about negative effects of the freshwater regulations. One example involved a quarrying company that was unable to apply for a resource consent to expand its operations to an adjacent paddock it owned, because in winter the paddock became waterlogged. Under the new regulations the paddock could be defined as a wetland, and quarrying activity is prohibited. The ministry acknowledged the impact the new regulation is having on the minerals and aggregate sector, and said it is working on how to address those concerns.
Climate change The ministry is the lead agency for policy work on climate change mitigation and adaptation. It completed significant programmes of work in this area over 2019/20.
Highlights of the year include the following:
• Development of the Climate Change Response (Zero Carbon) Amendment Act 2019, including the establishment of the Climate Change Commission. • Enactment of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020. • Preparing New Zealand’s first national climate change risk assessment to help the Government identify where it needs to prioritise action. • Supporting negotiations on Article 6 of the Paris Agreement which led to the Government’s adoption of the Framework for International Carbon Market Cooperation. • Work on the first Emissions Reduction Plan to meet international and domestic emission reduction targets. • Work on the first National Adaptation Plan, which will be an all-of-government strategy and action plan, guiding action on climate change adaptation between 2022 and 2026. • Work on the establishment of the Primary Sector Climate Action Partnership (He Waka Eke Noa) aimed at reducing agricultural emissions.
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We were interested in the ministry’s assessment of the Climate Change Commission’s draft advice for consultation report, released in January 2021. In particular, we asked whether the ministry had reviewed the Commission’s carbon budget modelling and examined the abatement costs faced by greenhouse gas emitters.
The ministry responded that it, in association with Treasury, has a role in assessing the Commission’s recommendations. The ministry is currently reviewing the Commission’s draft report. However, the Ministry will only provide advice to the Government once the Commission has released its final report in May 2021.
Gender and ethnicity We noted that the ministry’s workforce gender balance is 62.3 percent female, 36.6 percent male, and 1.2 percent gender diverse or unknown. We asked what it is doing to increase workforce diversity and reduce an ethnic pay gap of 9.4 percent, as reported in responses to our written questions.
The ministry’s workforce is 7.4 percent Māori, and the ministry is working to improve its workforce diversity statistics. It plans to examine in detail the ethnic pay gap over the next year.
COVID-19 response and recovery The 2019/20 year has been fundamentally shaped by the global COVID-19 pandemic. The ministry has been part of the government response, including the passing of the COVID-19 Recovery (Fast-track Consenting) Act 2020 and leading the cross-agency Jobs for Nature programme. The ministry continues to advise on the recovery strategy for New Zealand to ensure it achieves longer-term priorities to improve environmental outcomes and transition to a low-emissions economy.
Jobs for Nature programme The ministry was allocated $433 million under the Jobs for Nature programme for environmental projects. As of January 2021, $239 million has been allocated to 46 projects. These projects will employ 2,800 FTEs over five years. The ministry plans to use the remaining money to fund community projects supporting freshwater reforms within the Essential Freshwater package.
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Appendix
Committee procedure We met between 25 February and 25 March 2021 to consider the annual review of the Ministry for the Environment. We heard evidence from the Ministry for the Environment and received advice from the Office of the Auditor-General.
Committee members Hon Eugenie Sage (Chairperson) Rachel Brooking Tamati Coffey Simon Court Anahila Kanongata’a-Suisuiki Debbie Ngawera-Packer Dr Deborah Russell Hon Scott Simpson Stuart Smith Tangi Utikere Angie Warren-Clark
Dr Liz Craig and Dr Duncan Webb participated in this annual review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Ministry for the Environment).
Ministry for the Environment (Responses to written questions).
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Report of the Environment Committee
March 2021
The Environment Committee has conducted the annual review of the Parliamentary Commissioner for the Environment for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Hon Eugenie Sage Chairperson 314
2019/20 Annual review of Predator Free 2050 Limited
Report of the Environment Committee
March 2021
Contents Recommendation ...... 2 About Predator Free 2050 Limited ...... 2 Financial results and 2019/20 audit ...... 2 Responding to COVID-19: the Jobs for Nature programme ...... 2 Overseeing the landscape projects ...... 3 Engagement with communities ...... 3 Gene editing and genome sequencing ...... 3 Appendix ...... 4
Hon Eugenie Sage Chairperson
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Predator Free 2050 Limited
Recommendation The Environment Committee has conducted the annual review of Predator Free 2050 Limited for 2019/20, and recommends that the House take note of its report.
About Predator Free 2050 Limited Predator Free 2050 Limited (PF2050) is a Crown-owned company formed in 2016 under Schedule 4A of the Public Finance Act 1989. Its purpose is to contribute to the Government’s goal of eradicating possums, stoats, and rats by 2050. The primary aims of PF2050 are to:
• invest in landscape-scale predator control and eradication • invest in breakthrough scientific research • raise funds for co-investment. We discussed PF2050’s 2019/20 annual report and financial audit with its chief executive, Abbie Reynolds, and director, Dr Warren Parker.
Financial results and 2019/20 audit PF2050 was funded with a multi-year appropriation of $23.3 million under Vote Conservation for the period 2016/17 to 2019/20, and $5.9 million per year for the period 2020/21 to 2022/23. PF2050 has also received:
• $19.5 million through the Provincial Growth Fund in 2018/19 • $76 million over four years through the Jobs for Nature programme in 2019/20. We are pleased to note that the Auditor-General’s audit raised no significant matters. The Auditor-General graded PF2050’s management control environment, financial information and supporting systems and controls, and performance information and supporting systems and controls as “good”.
Responding to COVID-19: the Jobs for Nature programme Jobs for Nature is a $1.245 billion programme that forms a part of the wider Government response to the COVID-19 pandemic. The $76 million that was allocated to PF2050 through Jobs for Nature will be used to co-invest in about 12 new landscape projects. PF2050 expects that at least 150 jobs will be created over the next 12 months.1
1 Pages 56 and 57 of Predator Free 2050 Limited’s annual report: https://www.parliament.nz/resource/en- NZ/PAP_104462/0c026091eaa4184366d50f67feeb5b7442c08e43. 2
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Overseeing the landscape projects We were interested to know how PF2050 has ensured that its co-funding is being spent effectively. PF2050 told us that each landscape project has a five-year plan, and measures against several milestones, which are monitored on a quarterly basis. Examples of milestones are biodiversity gain, contribution to regional development, and community support. We were informed that progress is reported to the Minister of Conservation, and that payments from PF2050 to the project leads are dependent on the milestones being achieved.
We asked PF2050 whether it identified any resourcing or skillsets needed to successfully administer the Jobs for Nature funding.
We heard that, although PF2050 felt it already had some of the capability needed, it has provided additional resourcing to its science team with the Jobs for Nature funding. It has also recruited four new project support managers who are responsible for contract management, milestone formulation, reporting, and ensuring financial accountability. PF2050 maintains that it is confident in its ability to administer its funding effectively.
Engagement with communities PF2050 told us that it is essential to build and sustain community support for a project, so it has to engage and consult with communities effectively about its work.
We were particularly interested to hear about PF2050’s first iwi-led project, Korehāhā Whakahau. PF2050 told us that Korehāhā Whakahau has a comprehensive engagement plan, and Ngāti Awa intends to “take the whole community” with it. Based in Whakatāne and led by Te Rūnanga o Ngāti Awa, the project aims to remove possums from 4,700 hectares of public, private, and Ngāti Awa-owned land.
PF2050 emphasised that community engagement is essential for a project like Korehāhā Whakahau. Because the project includes private and Māori-owned land, permission is needed from landowners, and agreement to the eradication methods that will be applied.
Gene editing and genome sequencing We asked whether PF2050 had changed its approach to gene editing and genome sequencing since its 2018/19 annual review. PF2050 explained that it has been funding predator genome sequencing for three years, and has maintained a consistent research strategy between 2017 and 2020. We were pleased to hear that the first full genome sequences for ship rats and stoats were produced in 2020.
We asked whether achieving a predator-free status by 2050 depends on scientific breakthroughs. PF2050 explained that there is a lot of international research under way into new gene technologies, and that it will need new tools and technologies for some aspects of its work. PF2050 also said that there are circumstances where the tools available are getting the job done. We heard that, on balance, PF2050 does not consider itself reliant on scientific breakthroughs to achieve its purpose.
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Appendix
Committee procedure We met between 11 February and 25 March 2021 to consider the annual review of Predator Free 2050 Limited. We heard evidence from Predator Free 2050 Limited and received advice from the Office of the Auditor-General.
Committee members Hon Eugenie Sage (Chairperson) Rachel Brooking Tamati Coffey Simon Court Anahila Kanongata’a-Suisuiki Debbie Ngarewa-Packer Dr Deborah Russell Hon Scott Simpson Stuart Smith Tangi Utikere Angie Warren-Clark
Hon Jacqui Dean participated in some of this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Predator Free 2050 Limited).
Predator Free 2050 Limited (Responses to written questions).
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2019/20 Annual review of the Ministry of Defence 2019/20 Annual review of the New Zealand Defence Force
Report of the Foreign Affairs, Defence and Trade Committee
March 2021
Contents Recommendation ...... 2 About the defence sector ...... 2 About the Ministry of Defence ...... 2 Financial performance and audit results ...... 2 About the New Zealand Defence Force ...... 3 Financial performance and audit results ...... 3 COVID-19 operations and disruptions ...... 4 Operation Protect ...... 4 Preparedness for multiple operations ...... 4 The current morale of service people ...... 5 Vaccinations for service people ...... 5 Major defence projects and acquisitions ...... 5 Recommendations from the Inquiry into Operation Burnham ...... 5 Operation Respect ...... 6 A diverse and inclusive defence sector ...... 7 Diverse recruitment ...... 7 Mixed representation ...... 8 NZDF’s base and housing infrastructure ...... 8 Housing for service people ...... 8 Changes in location and infrastructure needs at bases and camps ...... 9 Appendix ...... 10
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Ministry of Defence and New Zealand Defence Force
Recommendation The Foreign Affairs, Defence and Trade Committee has conducted the annual reviews of the Ministry of Defence and the New Zealand Defence Force for 2019/20, and recommends that the House take note of its report.
About the defence sector The Ministry of Defence and the New Zealand Defence Force (NZDF) work together closely to fulfil their respective roles and functions. Collectively we refer to them as “Defence” in this report. Our committee held a joint hearing with both Defence agencies, a practice that has occurred for a number of years. This allowed us to review the sector and its spending as a whole and to ask questions that are relevant to each or both agencies.
Andrew Bridgman is the Secretary of Defence. He is the principal civilian adviser to the Government on defence matters.
Air Marshal Kevin Short is the Chief of Defence Force. He is the principal adviser to the Government on military matters.
As a committee we would like to extend our gratitude and thanks to both leaders, and especially to all of the staff and service people who have worked in New Zealand and overseas to keep our country safe and secure through a year of challenges.
About the Ministry of Defence The Ministry of Defence is a civilian agency. Its purpose is to provide civilian advice to the Government about defence matters to make New Zealand safe and enhance the security of other nations. To carry out its role, the ministry:
• provides short and long-term advice about New Zealand’s defence interests and challenges • advises the Government on how the NZDF can meet current and possible future challenges • purchases major defence equipment for the NZDF to use • builds and maintains strong defence relationships internationally • provides advice about the NZDF’s performance, and the effectiveness of the overall defence system.
Financial performance and audit results In 2019/20, the ministry’s total revenue was $24.6 million. Its total expenses were $22.0 million. This resulted in a surplus of $2.6 million, compared with a surplus of $387,000 in 2018/19.
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The Auditor-General issued a non-standard audit report for the year ended 30 June 2020. He was satisfied that the information audited fairly reflected the ministry’s activities for the 2019/20 year and its financial position at the end of the year. However, COVID-19 has caused some disruptions to the delivery phase of some defence projects. These are largely as a result of travel restrictions and lockdown conditions in New Zealand and overseas where some of the projects are taking place. We note that, even in these circumstances, all projects remained within budget and to contractual specifications.
The Auditor-General assessed the ministry’s management control environment, and its financial information and supporting systems and controls as “very good”, with no improvements recommended. These results were unchanged from 2018/19.
The Auditor-General assessed the ministry’s performance information and supporting systems and controls as “good”. This grade was based on available information about a previous recommendation, which has since been implemented.
About the New Zealand Defence Force The NZDF is the only provider of armed forces to the New Zealand government. Its main responsibility is to have military capability ready for use when the government needs it. Under the Defence Act 1990, New Zealand’s armed forces are raised and maintained to:
• defend New Zealand and protect its interests • contribute forces under collective treaties, agreements, or arrangements • contribute forces to the United Nations (UN) or other organisations or states for operations in accordance with the principles of the UN’s Charter. The Defence Act also allows the armed forces to be made available to perform public services, including:
• providing search and rescue, and humanitarian support within New Zealand and the Pacific and Southern Oceans • supporting New Zealand’s research and science programme in Antarctica • responding to natural disasters and emergencies.
Financial performance and audit results In 2019/20, the NZDF’s total revenue was $3.021 billion. Its total expenses were $2.859 billion, resulting in a surplus of $161.4 million. This compares with revenue of $2.786 billion and a surplus of $36 million in 2018/19.
The Auditor-General issued a non-standard audit report for the year ended 30 June 2020. This is because of the effects of COVID-19 on the NZDF’s operations and on the valuation of its liabilities for veterans’ entitlements. However, he was satisfied that the information audited fairly reflected the NZDF’s activities for the 2019/20 year and its financial position at the end of the year.
The Auditor-General assessed the NZDF’s management control environment, financial information and supporting systems and controls, and performance information and
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2019/20 ANNUAL REVIEWS OF THE MINISTRY OF DEFENCE AND THE NZDF supporting systems and controls as “good”. These ratings remain unchanged from the previous year. We note that progress is being made in all of these areas and that previous recommendations are being followed through. Further recommendations have been made in regard to:
• establishing processes and management reporting to ensure electronic devices are up- to-date with anti-virus protections • improving how data about veterans is kept, including the establishment of a register of all veterans, their service, and their deployment. We hope to see further progress on previous recommendations in addition to these new recommendations by our next review.
COVID-19 operations and disruptions Operation Protect The NZDF is a significant player in the all-of-government response to the COVID-19 pandemic. Its primary involvement is called Operation Protect, in which it is tasked with the command and operation of managed isolation and quarantine facilities (MIQF). We heard that 1,136 NZDF personnel are currently supporting the operation. It is the largest deployment in more than 20 years. A number of service personnel are also working in strategic and operational roles throughout government agencies. Many others are supporting the response in planning, logistics, and decision making roles.We asked whether there had been discussions about officially recognising these service people. Defence said that it had not been discussed.
Preparedness for multiple operations Given the significant size of Operation Protect, we discussed whether the NZDF is prepared and capable of deploying to additional operations if necessary.
The Chief of Defence Force explained to us that the NZDF is expected to be ready for multiple deployments and carefully manages its workforce to this end. We heard that cyclone activity is high in the Pacific during this time of year. The NZDF has a cross-service capability that is ready for deployment in the case of a natural disaster. It was clarified that the NZDF is also prepared for a combat deployment if an unknown security issue arose, but a cyclone, tsunami, or earthquake is considered more likely.
New Zealand has two combat warships, the HMNZS Te Kaha and HMNZS Te Mana. Both have been undergoing a systems upgrade in Canada. We asked if it was possible to deploy either of the ships in the near future. We heard that Te Kaha returned to New Zealand in December 2020. It is undergoing trials, and conducting tests and training during 2021 to be prepared for full operational capabilities. We heard that some of the ship’s capabilities could be operational sooner if necessary. Te Mana has completed the physical systems upgrade and is undergoing tests and trials, and is due back in New Zealand in 2022.
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The current morale of service people We discussed the current state of morale amongst service people given the challenges of the year under review and those expected in the year ahead. We heard that Defence conducted a pulse survey and found that morale was not as high as it had thought. However, the information was collated after Operation Protect had begun. The results would have reflected uncertainty about how long the deployment would last. Individuals would have a number of natural concerns. There would also be concerns about what the deployment might mean for the progress of their trade and military skills training, and implications for their prospects and advancement.
Vaccinations for service people We asked whether service people would all agree to be inoculated, and whether declining a vaccination would have career implications. Defence said that it would be voluntary. However, as with all vaccinations, there was an expectation that service people would accept them. Service personnel may be required to deploy overseas on short notice. If they have not received a vaccination it would limit where they could work and their usefulness to the organisation. It was added that some exceptions are made for health reasons; pregnancy is one example.
New Zealand has a number of service people deployed overseas. We asked how they would be inoculated. Defence said it is working closely with the Ministry of Foreign Affairs and Trade to identify whether vaccines in those countries are available and suitable. The available vaccines may differ from those used in New Zealand, so it will take time to determine whether they are suitable. In cases where they are, service people will receive them. We heard that a small number of service people have already received inoculation with a vaccine different from the one currently used here.
Major defence projects and acquisitions We heard from Defence that 12 major capability projects are under way, with a combined cost of $5.61 billion. The projects are for capabilities in all domains—air, maritime, land, and information. We were advised that five of the projects experienced delays due to travel restrictions and lockdown conditions. We are pleased that even in these circumstances all projects have remained within budget and to contractual specifications.
Defence said that the same circumstances that caused delays for projects also provided opportunities for New Zealand based companies. One example of innovation is the assembly of a flight simulator for NH90 helicopters. NZDF personnel and Weta Workshop collaborated with overseas advisers to create it. Other delays were the result of border closures and difficulty accessing overseas specialists. We asked whether exemptions had been sought for them as critical workers. We heard that 20 contractors had come to New Zealand, but in some other cases the quarantine time was a stumbling block. Defence said it is managing to get specialists that it identifies as critical.
Recommendations from the Inquiry into Operation Burnham Operation Burnham was a military operation undertaken in Afghanistan by the New Zealand Defence Force and other nations’ forces operating as part of the International Security
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Assistance Force in 2010. A Government-commissioned independent inquiry into the operation took place resulting in a report containing four significant recommendations. We asked Defence to update us on how work on these recommendations is progressing. During our hearing we discussed three of these recommendations.
We heard that the ministry is leading work to review the NZDF’s organisational structure, record-keeping, and retrieval processes. To do this, it has established an expert review group with advisers from New Zealand, Australia, and the United Kingdom. The group’s work is well under way and a report is expected in mid-2021.
One of the recommendations is to establish an office of the Independent Inspector-General of Defence, to be located outside the NZDF organisational structure. The ministry is developing initial policy options and advice about what the independent office could look like and how it could be structured. In the first instance, this information would be provided to Ministers to make decisions about how to progress the work. We heard that this process is likely to take about two years. However, the secretary acknowledged that it is important for there to be clarity and certainty as soon as possible. The changes would likely require implementation through legislation.
We discussed the recent Defence Force Order about responses to civilian harm.1 We wanted to ensure that it provided clear guidelines around transparency and reporting requirements when civilian harm happens. We were informed that the intention of the order is to pull together information from a number of existing places into one document that clearly sets out when and how to report civilian harm.
We will request a further update on progress at our next hearing.
Operation Respect Operation Respect is a programme that aims to eliminate harmful and inappropriate behaviour, including sexual violence. It was launched in response to research showing persistent sexism and inappropriate behaviour in the NZDF.
In 2019, the Ministry of Defence commissioned an independent review of the NZDF’s progress with implementing its action plan for Operation Respect. The review’s findings were released in July 2020 and included 44 recommendations. We asked for an update on progress towards implementing these recommendations. The NZDF told us that it has achieved seven of the recommendations so far and that it has asked the Auditor-General to review the operation every two years to monitor and provide independent oversight of the NZDF’s progress. Quantitative information on progress will also be collated from service people.
The NZDF is currently considering how to implement an independent complaints channel or a defence “ombudsman” of sorts, to work through reported incidents. It told us that it wants to ensure that an independent process is in place, but it is also aware that some technical and possibly legal issues need to be considered. While technicalities are being sorted out,
1 Defence Force Order 35: New Zealand Defence Force Response to Civilian Harm. 6
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2019/20 ANNUAL REVIEWS OF THE MINISTRY OF DEFENCE AND THE NZDF they want to focus on what is available to help now. We heard that a safe-to-talk helpline will soon be available.
We heard that clear direction has been provided to NZDF’s leaders and managers about harmful behaviours. They have asked the leadership of all of their bases to develop an action plan highlighting their priorities for change and how to embed the requirements of the operation.
We will closely monitor the continued progress in future audits and seek updates from the Auditor-General about his reviews.
A diverse and inclusive defence sector We would like to acknowledge the Chief of Defence Force, Air Marshal Kevin Short, for his recent Rainbow Excellence Award for executive leadership. We are pleased that the NZDF leadership embraces and supports diversity and inclusion.
Diverse recruitment We asked the Defence agencies what is being done to foster equality, diversity, and inclusion. Some members were interested to hear what specifically they are doing for the recruitment and advancement of women, different ethnic groups, and disabled people.
The Ministry of Defence told us it is committed to diversity in the workplace. It said that women make up 55 percent of its workforce. But while 30 percent of the managers are women, most of the senior roles are held by men. We heard that because it is a small agency the disparity in roles distorts the average pay gap. But role to role, there is pay parity.
The ministry is also implementing a Māori engagement strategy to align with the Public Service Commission’s guidelines, which would involve recruitment practices and considering the Treaty of Waitangi in policy development.
Women make up 25 percent of the NZDF’s service people. On the civilian side of the force 46 percent are women, but they make up only 14 percent of the Army. We heard that a lot of the disproportion was related to the “combat trades”, which have lower numbers of women applying to join. For general trades, the proportion is much higher. We heard that in the last recruitment class of 120 people, 48 percent were women. We heard that there was effort to change, but it would take time to achieve diversity, especially in the senior ranks. The attrition rate is currently low, at 9.2 percent. On average, women serve for 7 years, while men serve for 10. The NZDF told us that it is thinking about how women can be enabled to serve for longer periods, which would create greater competition in those senior ranks. It added that policies, such as flexible work hours and the ability to work from home, need to be applied and are important to encourage longer service.
We also heard about Wahine Toa (strong women), a programme that aims to measure and report on gender equality and contribute to a range of initiatives to increase diversity.
We heard that progress is being made on diversity. Māori now make up about 17 percent of service personnel, while 5.5 percent are Pacific people and 2.7 percent are of Asian descent.
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We asked whether the push for recruitment to reflect the proportionalities of the general population would apply to all roles and military groups. We heard that there were no barriers that excluded women from any role. However, the choice is made by those applying, and it is easier to recruit diversely in some roles than others. The NZDF said it was using specific recruiting strategies and trying to encourage the success of women. It takes a number of years to develop senior leaders, so change would take time. But it aims to have women comprise at least 30 percent of its decision-making boards.
Mixed representation The United Nations Security Council Resolution 1325 reaffirms the important role of women in the work of peace and security efforts. It provides a number of operational mandates to ensure that women are involved. We asked what Defence is doing to meet these mandates.
The NZDF has made particular progress in recent years. We heard that it tries to deploy a mix of male and female staff in all positions when possible. However, women make up 25 percent of uniformed service people so meeting the mandates is often difficult. If they cannot be met, the reasons are stated.
We asked whether women are active in the design and planning stages of Defence policies and plans, particularly for Operation Burnham. We heard that women are involved, but more specific information did not appear to be available.
NZDF’s base and housing infrastructure Housing for service people We discussed the quality of housing that is available for service people and planned increases in the rentals charged for them.
The NZDF has until 2024 to lift the quality of its housing stock to meet the requirements set out in the Healthy Homes Guarantee Act 2017. We heard that work is under way to make the necessary improvements, but it will take the full three years. Most of the houses were built between 1940 and 1970 and require significant work or replacement. The NZDF expressed concern that some of the housing is on leased land. If there was a change to the desired use of that land it could significantly reduce housing availability.
We heard that increases in the rent for this housing would come into effect from 1 April 2021. Service people living in barracks will pay around 10 percent more, while those living in houses will pay about 25 percent more. These increases may occur while the current wage constraints are still in place.
We enquired about staggering the overall rent increase to allow time to adjust. We also asked whether the housing should be lifted up to standard before rents are raised. Defence told us that it has looked at alternative support options but does not have an alternative to implementing the overall increase. It explained that rentals are reduced from market values. Some of the considerations include the condition of a house, and the location, because personnel are required to live where they are needed. In Palmerston North the reduction below market rentals is about 17 percent. That figure is used as a benchmark for other locations. The reduction is greater in Auckland, and about 40 percent for people living in
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2019/20 ANNUAL REVIEWS OF THE MINISTRY OF DEFENCE AND THE NZDF barracks. Tax legislation allows this reduction without service people incurring tax liabilities. That tax exception is set through negotiation between the Commissioner of Inland Revenue and the Chief of Defence Force.
Changes in location and infrastructure needs at bases and camps We asked about infrastructure developments at military bases, and what programmes are under way. In response to our enquiry, Defence told us there has been no discussion about putting MIQFs on military bases.
The Ōhākea Infrastructure Programme has recently been approved and received initial funding, but is waiting for final capital funding. It will support a range of facilities to enable capabilities at the airbase such as new Boeing P8 Poseidon maritime patrol aircraft.
The Defence Estate Regeneration programme has a number of developments in preparation stages, including housing for service personnel. We also heard that horizontal infrastructure works are being discussed for the NZDF’s nine camps and bases, which all have infrastructure in urgent need of replacement due to age.
We asked whether there had been recent discussions about moving any existing bases. Defence said it was concluding a first principles review. The land and air footprint would remain largely unchanged. However, further work is continuing about accommodating the Navy, including future plans for Devonport and other areas.
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Appendix
Committee procedure We met on 17 February and 24 March 2021 to consider the annual reviews of the Ministry of Defence and the NZDF. We heard evidence from both entities and received advice from the Office of the Auditor-General.
Committee members Hon Jenny Salesa (Chairperson) Hon Gerry Brownlee Golriz Ghahraman Ingrid Leary Simon O'Connor Louisa Wall
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing paper, Ministry of Defence).
Ministry of Defence (Responses to written questions 1-127).
Ministry of Defence (Responses to post-hearing questions).
Office of the Auditor-General (Briefing paper, New Zealand Defence Force).
New Zealand Defence Force (Responses to written questions 1-127).
New Zealand Defence Force (Appendix).
New Zealand Defence Force (Responses to post-hearing questions).
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Report of the Foreign Affairs, Defence and Trade Committee
March 2021
Contents Recommendation ...... 2 About the Ministry of Foreign Affairs and Trade ...... 2 Financial performance and audit results ...... 2 Progress regarding COVID-19 vaccinations ...... 2 Working internationally to distribute vaccines ...... 3 Plans to support the supply of vaccines to the Pacific ...... 3 Supporting the Pacific more broadly ...... 4 The Pacific Islands Forum ...... 4 The treatment of the Uyghur people ...... 5 Relationship with people from the Hong Kong region ...... 5 Air New Zealand and the Saudi military ...... 6 Ongoing and developing trade issues ...... 6 Agricultural subsidy reforms and environmental chapters in trade ...... 6 Geographical indications ...... 7 Positive engagement with Washington ...... 7 United Nations Relief and Works Agency for Palestine Refugees ...... 7 Appendix ...... 9
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Ministry of Foreign Affairs and Trade
Recommendation The Foreign Affairs, Defence and Trade Committee has conducted the annual review of the Ministry of Foreign Affairs and Trade for 2019/20, and recommends that the House take note of its report.
About the Ministry of Foreign Affairs and Trade The Ministry of Foreign Affairs and Trade (MFAT) is responsible for promoting and protecting New Zealand’s interests overseas. By delivering its services, the ministry aims to make New Zealanders safer and more prosperous.
The ministry’s main functions include:
• advising the Government on foreign, trade, and development policy • being the Government’s international legal advisor and negotiator • delivering New Zealand’s Official Development Assistance • providing consular services to New Zealanders overseas • coordinating offshore emergency responses and approving all deployment of New Zealand Government personnel and assets in such responses. The ministry has 59 posts in 52 countries, with accreditations in an additional 100 countries.
Chris Seed is the ministry’s chief executive and Secretary of Foreign Affairs.
Financial performance and audit results In 2019/20, the ministry’s total revenue was $476 million. Its total expenses were $457 million, resulting in a surplus of $19 million. This compares with total revenue of $443 million, and total expenses of $446.2 million in 2018/19.
The Auditor-General issued a non-standard report, drawing attention to disclosures in the financial statements about the effects of the COVID-19 pandemic on the ministry. Additional work by the ministry included checking that internal controls were maintained during lockdowns, and assessing that additional uncertainties were reflected in the value of assets and liabilities.
The Auditor-General assessed the ministry’s management control environment, financial information and supporting systems and controls, and performance information and supporting systems and controls as “good”. These ratings were all unchanged from 2018/19.
Progress regarding COVID-19 vaccinations We sought various updates about arrangements for COVID-19 vaccinations, detailed below.
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Working internationally to distribute vaccines We discussed New Zealand’s stance on a proposed waiver of the international TRIPS Agreement covering intellectual property that would temporarily waive certain patent rights. The proposal by South Africa and India—and since co-sponsored by a number of other countries—would cover vaccines, syringes, masks, and a number of other products.1 The aim is to reduce barriers to the prevention, containment, and treatment of COVID-19 by waiving the normal tariffs—which can be as much as 20 or 30 percent—that apply to such goods.
The ministry explained that New Zealand is part of a group of World Trade Organization (WTO) member countries that are supportive of the waiver in principle. However, the waiver would need the consensus of all WTO members to come into effect. It emphasised that a waiver alone would not solve the COVID-19 problem. Transportation, manufacturing capacity, customs procedures, and export tariffs would still need to be addressed.
Some of us are disappointed that New Zealand is not a part of the group advocating for the waiver. Joining the sponsoring group might influence other WTO members to support the waiver, due to New Zealand’s international reputation.
Some of us were also concerned that delays to manufacturing vaccines may be contributing to the development of mutated strains of COVID-19. These members maintain that supplying vaccines quickly should be at the forefront of the ministry’s plans.
We heard that the ministry is working on establishing supply chains within the Asia-Pacific Economic Cooperation (APEC) forum. Lowering tariffs on vaccines, syringes, personal protective equipment, and cold storage containers is a significant part of this work. The ministry said that a large number of flights and shipping containers would be needed for transporting these goods around the region. The ministry mentioned that hosting APEC in 2021 will be an important forum for addressing these problems.
Plans to support the supply of vaccines to the Pacific We asked what was being done to support the vaccination plan for the Pacific and realm countries.2 We wanted assurance that supply would not be a barrier to receiving adequate vaccination in these countries.
The ministry said that getting vaccines in to the Pacific and realm countries is a priority and that it is significantly involved in the region’s vaccination plan. Also involved are Australia, the European Union, Japan, the World Health Organization, UNICEF, and Gavi—the Vaccine Alliance.
We were told that the Government has committed $75 million to fund vaccines for the realm countries, plus Samoa, Tonga, and Tuvalu. It expects the first vaccine rollouts to begin in 2021.
1 The co-sponsors are Kenya, Eswatini, Mozambique, Pakistan, Bolivia, Venezuela, Mongolia, Zimbabwe, Egypt, the African Group and the Least Developed Countries Group. 2 The Realm of New Zealand refers to the Cook Islands, Niue, Tokelau, and the Ross Dependency in Antarctica, for which the monarch of New Zealand functions as head of state.
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There has been weekly—sometimes daily—contact with the Pacific countries about vaccination plans and how New Zealand can help. Discussions have included vaccine preferences, rollout plans, and engaging with the New Zealand health system. The ministry said that it is the prerogative of those countries whether they would like New Zealand’s help but emphasised that it continues to engage with them.
We heard that vaccine infrastructure, internal transportation, and workforce capacity and capability are some problems the Pacific may face regarding vaccination rollouts. For example, Samoa is the only country that has ultra-cold storage facilities. The ministry is working to help make these facilities available in other countries. Bringing populations to a central location for vaccination is another solution that is being considered with countries that have small and isolated populations.
Supporting the Pacific more broadly In the 52nd Parliament, the Foreign Affairs, Defence and Trade Committee carried out an inquiry into New Zealand’s aid to the Pacific. The report made 15 recommendations to the Government.3 We asked what progress has been made on those recommendations.
We were pleased to hear that the ministry has started taking action on all of the recommendations. It referred particularly to increasing both transparency and communication.
We are concerned about stability in the Pacific, given many countries’ dependence on tourism. We noted that tourism income has been severely affected by COVID-19. In some countries GDP has declined by 15 to 20 percent. We asked how the ministry is supporting countries through this challenging time to ensure that the infrastructure underpinning their tourism industry remains secure. The ministry told us it provides budget support to some Pacific countries. This contributes to maintaining Government functions and supporting social services, such as hospitals and schools. International financial institutions and other countries also work with New Zealand in the Pacific to provide financial support to governments.
We reiterated that it is important to financially support the Pacific countries where New Zealand can, given the increasing level of indebtedness. Vulnerable people in these communities sometimes bear the worst consequences of economic and societal uncertainty, so supporting governments can help alleviate those harms.
The Pacific Islands Forum We are concerned that five member countries have withdrawn from the Pacific Islands Forum. The forum works to foster cooperation and development between the member countries. Following the withdrawal, it now has 13 members.
Palau, the Marshall Islands, the Federated States of Micronesia, Kiribati, and Nauru withdrew from the forum following the election of a new Secretary-General. The Micronesian
3 You can read the final report on the Parliament website here: https://www.parliament.nz/en/pb/sc/reports/document/SCR_99947/inquiry-into-new-zealands-aid-to-the- pacific. You can read the Government response here: https://www.parliament.nz/en/pb/papers- presented/current-papers/document/PAP_107981/government-response-to-the-report-of-the-foreign-affairs. 4
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countries withdrew due to a dispute over who should be elected. The ministry explained that the position is appointed based on merit, not convention, which is where the dispute lies.
The ministry told us that it has been talking to both the remaining and the previous forum countries about maintaining the prior membership. It explained that the forum benefits from having the Micronesian members involved, and said it would continue to discuss their re- joining.
We request that the ministry provide us with bi-monthly updates on this situation.
The treatment of the Uyghur people Some of us expressed concern about the treatment of the Uyghur people in China. We emphasised that the reported practices of systemic rape, organ harvesting, and modern slavery are unacceptable and do not align with New Zealand’s values.
We heard that the human rights situation in Xinjiang has been raised by New Zealand Ministers, including the Prime Minister, at least six times with Chinese counterparts since September 2018. The Prime Minister discussed it with both the President and Premier when she visited Beijing in 2019. Officials’ discussions have been more frequent, with at least 24 representations on this issue in the past 12 months. There have been ongoing discussions with the Chinese Government about having diplomatic staff visit Xinjiang. The ministry explained that it has made it clear to the Chinese Government that there is a significant body of information about activities that go on in Xinjiang—much of it in the public domain—that do not align with New Zealand values and that New Zealand would consider unacceptable.
We heard that the ministry has supported having the United Nations High Commissioner for Human Rights visit the region. It also had discussions with the Human Rights Council in 2020.
The United States recently introduced a Uyghur Human Rights Policy Act. The Act requires the President to submit annual reports to Congress identifying individuals and entities responsible for human rights violations relating to Uyghurs. It also allows the President to impose sanctions on individuals and entities identified in those reports. We asked whether the ministry has been doing any work on developing similar legislation. We were told that there has not been any proposed legislation.
Some of us acknowledge that similar legislation could be a tool to express New Zealand’s views about the oppression of Uyghurs.
Relationship with people from the Hong Kong region We note that the Government suspended its extradition treaty with Hong Kong in July 2020. The main reason for doing so was China passing national security legislation for Hong Kong which undermines the one country, two systems principle. We asked what has been done since and how this change affects people from Hong Kong living here.
The ministry told us that there will be a policy review of the New Zealand relationship with the region. However, it emphasised that the matters are not pressing given COVID-19 restrictions on international travel. Like all of New Zealand’s current visitors, people from
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Hong Kong continue to have their visas extended during the pandemic and will not be required to return home unless they wish to.
The ministry said that Immigration New Zealand has explained that, once travel restarts, Hong Kong citizens will have many options to pursue staying in New Zealand. We suggested that the ministry and Immigration should seek a solution that directly applies to the situation for Hong Kong citizens in New Zealand.
Air New Zealand and the Saudi military We asked what investigations were taking place into Air New Zealand’s possible provision of equipment to the Saudi military. We were particularly interested to know whether export permits had been sought and granted.
We were told that an investigation is considering whether or not the engine being repaired and supplied to the Saudi military from Air New Zealand constitutes a “controlled good”. Checking the engine characteristics, talking with the manufacturer and the Royal New Zealand Navy, and assessing the criteria listed on the ministry’s website will all be part of the process. The Crown Law Office will then be invited to peer review the determination. If the engine is determined to be a controlled good, an export permit would have been required.
The ministry has granted permits for goods supplied to the Saudi military twice before. Some of us said those occasions may be seen as implicitly supporting the Saudi regime.
The ministry emphasised that they were not implicitly supporting any regime. The previous permits were granted for non-lethal training equipment and computers, radios, and range- finding binoculars. They were granted in compliance with the New Zealand Export Controls Regime. At the time, the ministry assessed that the equipment would not contribute to any human rights abuses.
Ongoing and developing trade issues Agricultural subsidy reforms and environmental chapters in trade One of New Zealand’s trade focuses has been on implementing agricultural subsidy reforms in free-trade agreements. The ministry noted that progress has been minimal. International agricultural subsidy reform is important for New Zealand exporters looking for better market access in protected economies. Some governments protect domestic producers by subsidising them for the effects of things like poor weather or disruption in demand. This makes it more difficult for exporters who do not receive agricultural subsidies to enter protected economies. This is a prominent issue for New Zealand’s dairy exporters.
The ministry noted that COVID-19 might now be used as an excuse to increase protectionist measures. Export restrictions, new tariffs, and increased non-tariff barriers are some examples. It is also likely that there will be an expansion of agricultural subsidies.
Although success is difficult, the ministry said that it continues to promote an increase in free trade and upholding environmental standards.
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The ministry noted that New Zealand is a member of the Cairns Group. The group is a coalition of 19 agricultural exporting countries which advocate for the liberalisation of global trade in agricultural exports. It plans to introduce an initiative to the twelfth WTO ministerial conference in November 2021. The initiative would ask all economies to reduce their domestic agricultural support. New Zealand also has an initiative it plans to bring to APEC.
The effect on environmental standards The ministry emphasised that it continues to address the enforcement of environmental standards when negotiating free-trade agreements. However, other parties are often reluctant to apply any degree of legal enforceability to agreements. The rhetoric has been positive but the actions have not matched.
We acknowledge and encourage the work the ministry is doing in this space. We expressed concern for how New Zealand farmers are able to compete in foreign markets, when they are required to pay the costs of change to meet environmental standards while other countries subsidise those costs.
Geographical indications We asked how geographical indications (GIs) are being considered in New Zealand’s trade strategy and whether there is a plan to push for their use.
The ministry said that it has historically tended to oppose GIs. If they are included in trade agreements, New Zealand producers of similar products may have to alter established brands and product names. The EU has stated that New Zealand would have to agree to a GI regime in a potential future free-trade agreement. The ministry has pushed back saying that New Zealand would have to be offered a very high level of market access in response. No agreement regarding GIs has been reached in European negotiations.
Positive engagement with Washington We heard that early engagement with the Biden administration has been encouraging. President Biden has spoken with the Prime Minister, and the US Secretaries of State and Defence have had conversations with their counterparts here. The US Special Envoy for Climate has also spoken with New Zealand’s Minister for Climate Change.
United Nations Relief and Works Agency for Palestine Refugees New Zealand contributes funding to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). UNRWA is funded almost entirely by voluntary contributions from UN member states. Its services include education, healthcare, infrastructure, and emergency assistance, among others.
Some of us are concerned about some of the educational content being produced by UNRWA for Palestinian children. Some of the material contains violent content. Some members suggested that the Government consider withholding funding until a review of the content has been completed. We noted that other countries have withheld funding to UNRWA while investigations are under way.
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The ministry said that it has had direct conversations with UNRWA about the matters and will continue to monitor the situation. It will continue to provide the Government with advice and updates as the matters unfold.
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Appendix
Committee procedure We met on 25 February and 18 March 2021 to consider the annual review of the Ministry of Foreign Affairs and Trade. We heard evidence from the ministry and received advice from the Office of the Auditor-General.
Committee members Hon Jenny Salesa (Chairperson) Hon Gerry Brownlee Golriz Ghahraman Ingrid Leary Simon O’Connor Louisa Wall
Todd Muller participated in some of this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Ministry of Foreign Affairs and Trade).
Ministry of Foreign Affairs and Trade (Responses to written questions).
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Report of the Foreign Affairs, Defence and Trade Committee
March 2021
Contents Recommendation ...... 2 About the New Zealand Antarctic Institute ...... 2 Financial and service performance ...... 2 Redevelopment of Scott Base ...... 3 Aging infrastructure ...... 3 Plans for redevelopment ...... 3 Wellbeing considerations as part of the redevelopment ...... 4 Redevelopment of the Ross Island wind farm ...... 4 Partnerships for the Scott Base redevelopment...... 4 The effect of COVID-19 on Antarctica New Zealand ...... 5 COVID-19 developments in Antarctica ...... 5 The effect of COVID-19 on operations in New Zealand ...... 5 Appendix ...... 6
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The New Zealand Antarctic Institute
Recommendation The Foreign Affairs, Defence and Trade Committee has conducted the annual review of the New Zealand Antarctic Institute for 2019/20, and recommends that the House take note of its report.
About the New Zealand Antarctic Institute Antarctica New Zealand is the trading name of the New Zealand Antarctic Institute. Antarctica New Zealand is a Crown entity which is responsible for developing, managing, and carrying out the country’s activities in Antarctica and the Southern Ocean.
Antarctica New Zealand manages Scott Base, New Zealand’s Antarctic research station which supports a scientific presence in the region. It works with the Antarctic programmes of other countries to help improve scientific understanding of the region.
Antarctica New Zealand is based in Christchurch. Sir Brian Roche is the chairperson of the board and Sarah Williamson is the chief executive.
Financial and service performance Antarctica New Zealand receives most of its funding from the Crown. In 2019/20, 97 percent of its $26.4 million total revenue was Crown funded. This included $20.9 million (79 percent of total revenue) from Vote Foreign Affairs and Trade to manage and provide logistical support for New Zealand’s activities in the Antarctic. A further $4.7 million in grants revenue (18 percent of total revenue) comes from Vote Business, Science and Innovation as part of a multi-year programme to fund the Antarctic science platform.
Antarctica New Zealand’s total revenue and expenses, for the year under review and the preceding year, are set out in the table below:
2019/20 2018/19 Increase Revenue $26.4 million $25.5 million $900,000 (3.5 percent) Expenses $27.5 million $26.5 million $1.0 million (3.7 percent)
The Auditor-General issued a non-standard audit opinion, drawing attention to disclosures in the financial statements about the effects of the COVID-19 pandemic on Antarctica New Zealand.
In 2019/20 the Auditor-General assessed Antarctica New Zealand’s management control environment and financial information and supporting systems and controls as “very good”. He suggested minor improvements to the financial information and supporting systems and controls. Performance information and supporting systems and controls were assessed as
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“very good” with no recommended improvements. We note that this is an improvement on the “good” assessment received in 2018/19.
Redevelopment of Scott Base Aging infrastructure Scott Base is a vital piece of infrastructure for New Zealand’s Antarctic research. The base, which celebrated its 63rd birthday in 2020, provided 10,320 bed-nights in support of Antarctic research during the 2019/20 Antarctic season.1 Antarctica New Zealand told us that the age of Scott base is making it increasingly difficult to properly support research programmes. We heard that in the harsh environment reliable infrastructure is a priority, especially in the winter season when conditions limit the viability of resupply missions. We discussed an incident in 2018 when a 40,000 litre water tank failed, removing one- quarter of the base’s freshwater supply. We heard of a number of other problems with infrastructure at the base, including leaking roofs, struggling treatment plants for sewage and fresh water, and undercut walkways at risk of falling into the sea. Antarctica New Zealand pointed out that it is flying increasing numbers of tradespeople to Antarctica to maintain and repair the base. They are taking up placements at the expense of scientific researchers. We enquired how much longer the current facilities would be able to be used safely, given the deteriorating infrastructure. Antarctica New Zealand explained that the current facilities could continue to be used on an indefinite basis for as long as required. However, there are significant costs involved in maintaining the current infrastructure which is nearing the end of its serviceable life.
Plans for redevelopment Antarctica New Zealand informed us that plans for the redevelopment of Scott Base are well under way. We heard that over the past year representatives from five potential contractors visited the base to experience the environment and conditions first-hand to help inform their tender bids. Subsequently, Leighs Construction was identified as the lead contender and engaged on an early contractor basis.
We are interested in the timeframe for the redevelopment. Antarctica New Zealand told us that it is a 10 year programme with a projected move-in date of December 2027. We heard that due to the modular nature of the project the first three years of the build could be centred in New Zealand. The remainder of the work would take place in Antarctica.
We were interested in the cost of the redevelopment. Antarctica New Zealand told us that it and Treasury had worked out a projected cost of about $300 million. We noted that this is an increase from previous estimates and asked what the reasons for this are. We heard that part of it comes from the integration of the Ross Island Wind Farm redevelopment. But the main reason is because it is a complex project in an unusual environment and it has taken time to refine plans and designs to reach an accurate estimate. They added that they now
1 Antarctica New Zealand, 2019-20 Annual Report, page 5.
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have a better understanding of some of the costs such as transporting the modules, materials, and equipment to the site.
Wellbeing considerations as part of the redevelopment Some of us were curious about the extent to which the Government’s wellbeing imperatives are being taken into account through the tendering process. We were particularly curious how climate outcomes, iwi employment, and gender diversity are playing a role in the selection of a preferred contractor.
Antarctica New Zealand told us that the redevelopment of Scott Base would also see work on the renewal of the Ross Island wind farm, which would significantly reduce the environmental footprint of New Zealand’s Antarctic operations. We heard that Leighs Construction, as a recognised provider to the public sector, is required to be accredited in diversity issues and maintain a good relationship with Māori.
We also heard that the project has the potential to provide economic benefits to Canterbury. Building the prefabricated base modules in the region would give extended employment and training opportunities to a large number of Canterbury residents.
Redevelopment of the Ross Island wind farm We were interested in the redevelopment of the Ross Island wind farm, which provides power to Scott Base and the United States’ McMurdo Station. Antarctica New Zealand told us that if the wind farm is renewed at the same time as Scott Base it would result in 97 percent of its electricity needs being met by renewable sources.
We asked whether the wind farm renewal project needed to be completed at the same time as the redevelopment of the rest of the base. Antarctica New Zealand explained that renewing the wind farm at the same time as the base was the most efficient use of resources. Due to the isolation of the area, it is difficult and expensive to make heavy construction equipment available. Renewing the wind farm alongside the base would mean that much of the required equipment would already be present, leading to cost savings.
Antarctica New Zealand told us that the Ross Island wind farm is an important part of the close relationship between the New Zealand and American programmes in Antarctica. We heard that power generated by the wind farm is a tangible asset that New Zealand can contribute, helping to equalise the relationship between the two programmes.
Partnerships for the Scott Base redevelopment.
Commercial partnerships We were interested in the status of Antarctica New Zealand’s search for commercial sponsorships for the redevelopment of Scott Base.
We heard that the search has been unsuccessful. Antarctica New Zealand explained that the main factor dissuading potential corporate partners was the limited returns on offer. We heard that, due to the nature of Scott Base and the role of Antarctica New Zealand, common sponsorship opportunities such as naming rights or access to the base could not be provided. Antarctica New Zealand told us that this consequently made sponsorship unattractive for potential commercial partners. 4 341
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Antarctic research institutions We were curious to learn whether Antarctica New Zealand had explored requiring institutions using Scott Base to contribute more of the financial cost of their stay. It told us that under the current model Antarctica New Zealand is funded by the Government to cover the majority of the cost for providing logistical support to institutions conducting research in Antarctica. We heard that under this model these institutions contributed a small amount of the costs on a night-by-night basis.
We asked whether Antarctica New Zealand had considered offering limited commercial trips to Antarctica to help meet some of the costs for maintaining and redeveloping the base. We heard that this was a theoretical possibility, but it has decided against it. It explained that doing so would compromise the integrity of its aims and mission in Antarctica as a science support institute.
The effect of COVID-19 on Antarctica New Zealand COVID-19 developments in Antarctica Antarctica New Zealand told us that as the seriousness of the COVID-19 pandemic was becoming apparent it was in the process of transferring from the summer Antarctic research window to the winter caretaker period. Consequently, the Scott Base winter caretaker crew, who are typically amongst the most isolated people on earth, found themselves observing the global development of a pandemic culture from afar.
The effect of COVID-19 on operations in New Zealand We heard that Antarctica New Zealand was well placed to continue operations under pandemic conditions. The entity was able to transition its employees’ working arrangements easily as the COVID-19 alert levels changed. We heard that a consequence of actions taken during the pandemic has been an organisational culture shift. Changes made by Antarctica New Zealand as a consequence of this culture shift have included the introduction of flexible working arrangements, dress code changes, and remote participation in international forums.
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Appendix
Committee procedure We met on 11 and 25 March 2021 to consider the annual review of the New Zealand Antarctic Institute. We heard evidence from the institute and received advice from the Office of the Auditor-General.
Committee members Hon Jenny Salesa (Chairperson) Hon Gerry Brownlee Golriz Ghahraman Ingrid Leary Simon O’Connor Louisa Wall
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the New Zealand Antarctic Institute).
The New Zealand Antarctic Institute (Responses to written questions).
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Report of the Foreign Affairs, Defence and Trade Committee
March 2021
Contents Recommendation ...... 2 About the New Zealand Customs Service ...... 2 Financial performance ...... 2 World’s smartest border and potential improvements ...... 3 Collecting GST on imported goods...... 4 Staffing numbers and redeployment ...... 4 Staff morale and Customs’ vaccination programme ...... 5 Staff diversity ...... 6 Seizure of prohibited goods...... 6 Appendix ...... 7
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New Zealand Customs Service
Recommendation The Foreign Affairs, Defence and Trade Committee has conducted the annual review of the New Zealand Customs Service for 2019/20, and recommends that the House take note of its report.
About the New Zealand Customs Service Te Mana Ārai o Aotearoa, the New Zealand Customs Service (Customs) provides essential border services and infrastructure that protect New Zealand and advance its economy. It has four core functions:
• protecting New Zealand’s border (from illicit drugs, objectionable material, financial crime, and restricted firearms and other weapons) • promoting and facilitating secure and efficient trade to and from New Zealand • promoting and facilitating secure and efficient travel to and from New Zealand • collecting Crown revenue (from duties, taxes, levies, GST on imports, and fees). The COVID-19 pandemic placed unprecedented demands on Customs and saw it undertake new roles and responsibilities. These included redeploying staff to national contact tracing efforts, overseeing the maritime border, and supporting managed isolation and quarantine facilities.
We thanked Christine Stevenson, Comptroller of Customs, and all Customs staff for the important work they do, especially at the border, and at this time with COVID-19.
Financial performance In 2019/20, Customs’ total revenue was $187.7 million, a 6.7 percent decrease from its revenue of $201.3 million in 2018/19. Its total expenses were $211.9 million, resulting in a deficit of $24.2 million. This compares with a deficit of $3.7 million in 2018/19.
As a result of border closures due to the COVID-19 pandemic, Customs’ revenue was significantly affected by the slump in international travellers and disrupted trade flows. This substantially reduced the operational funding it collects from third party sources. Normally it receives about 60 percent of its departmental funding from third parties.1
Third party revenue for the year was $109.2 million, which was $22.2 million (16.9 percent) below budget. The Government provided an initial capital injection of $30 million to cover this funding shortfall. Customs will receive additional Crown funding of $84 million for the estimated shortfall in the 2020/21 financial year.
1 The main sources of third-party revenue are the border clearance levy, which recovers its costs in processing international travellers, and goods clearance fees, which cover costs for processing exports and imports. 2
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In 2019/20, Customs collected $15.1 billion in tax revenue—almost one-fifth (17.7 percent) of New Zealand’s core tax revenue. It collected $15.5 billion in 2018/19.
The Auditor-General assessed Customs’ management control environment, and financial information and supporting systems and controls as “very good”, with no recommended improvements. He assessed Customs’ performance information and supporting systems and controls as “good”, with some improvements recommended. These related to setting targets for Customs’ long-term strategic indicators, so readers of its Statement of Intent could better understand how it is performing.
The Auditor-General issued a non-standard audit report, because three stakeholder surveys could not be completed due to the COVID-19 pandemic.
World’s smartest border and potential improvements We asked Customs to elaborate on the Prime Minister’s call for the creation of the “world’s smartest border”. We also sought more information about its work at the border in using technology, and whether New Zealand could learn from border agencies in other jurisdictions.
Customs told us it was progressing several streams of work for the time when COVID-19 is under control enough so New Zealand can fully open its international borders.
One stream involves issues around developing a health passport or health visa, which many Governments may require for proof of vaccination before travellers are allowed entry.2 Customs has already updated the passenger arrival declaration card to include a number of questions about COVID-19 symptoms and vaccines. It has trialled a digital arrival card, and will move towards introducing it, most probably connected to vaccine certification.
We asked about discussions Customs has had with the New Zealand Police about using dogs in the detection of COVID-19 among arriving passengers. Customs told us that it was following the results of a trial by the Australian Border Force in the use of dogs to detect COVID-19 in people. It was also in contact with European counterparts who have been actively trialling in the field. We were encouraged to hear that New Zealand has an extensive dog breeding programme based at the Trentham police dog centre. Customs would like to see that continue, but said the use of dogs is likely to be one or two years away.
Another stream of work Customs told us about involves potential technological improvements to the airport SmartGates. Although the SmartGates are not being used under COVID-19, Customs mentioned that it could potentially do more with biometric technology, particularly facial recognition, in the future. We were interested to learn that Customs is also looking at the potential for screening technologies such as those used by the Ministry for
2 This stream of work is being progressed as a multi-agency response to COVID-19 as part of the Border Sector Working Group, which Customs chairs. The members of the Border Sector Working Group are Customs, the Ministry of Primary Industries, the Ministry of Health, Immigration New Zealand, the Ministry of Transport, Maritime New Zealand, the New Zealand Police, and the Ministry of Foreign Affairs and Trade. See Annual Report 2020, New Zealand Customs Service, p. 9, at https://www.customs.govt.nz/globalassets/documents/annual-report-2020/2020-annual-report.pdf.
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Primary Industries. They could be adapted to use Customs’ algorithms to look for drugs and also weapons.
Customs told us it is in regular contact with members of the Border Five (Australia, Canada, New Zealand, the United Kingdom, and the United States), as well as counterparts such as Singapore. They are observing a Secure Trade Lane trial that New Zealand has been working on with Australia.
Customs is also talking to the Panamanian customs service, as drugs coming out of South America are a particular concern. Similarly, Customs is doing some work with the Netherlands Government because a lot of MDMA is coming in from that country.
Collecting GST on imported goods We enquired about the collection of GST by Customs. We asked how reliant it is on the honesty of the declarations about the goods being imported, regarding their true value and whether they are complete items. As an example, we cited concerns from New Zealand importers of Canon camera products that some people might put fraudulent markings on the products they were importing to come in under the de minimis customs duty.
We were told that Customs’ role is to inform Inland Revenue of the goods that are cleared through the border, so that Inland Revenue can make judgments and assessments about the levels of compliance. It is for Inland Revenue to then interact with the e-commerce platforms or offshore suppliers as to whether the right amount of GST is being remitted to New Zealand.
Customs also conducts risk assessments where it thinks there is under-declaration of goods or the like. It notifies Inland Revenue if it thinks there are revenue issues for goods less than $1,000. If Customs thinks there have been mis-declarations for goods over $1,000, Customs will intercept, assess the value of the goods, and impose the appropriate charges. Customs also does spot audits. Its technology enables it to look for discrepancies in the data, such as volume and weight, or whether someone is a new importer.
Staffing numbers and redeployment As at June 2020 Customs had over 1,300 staff. It told us that they had taken on new responsibilities, including the operation of the maritime border order. This work aims to ensure that those coming into New Zealand by sea are compliant with New Zealand’s COVID-19 health and border restrictions. To support the maritime border order, Customs had increased staff numbers by 18 percent. It now has staff working at 13 seaports, from Ōpua in the north to Bluff in the south.
Customs told us that the customs role at airports is now quite different to what it was. Pre- COVID-19, 14.5 million international passengers arrived each year, of whom 96 percent arrived by air, with around 360 staff involved in their processing. In the year to June 2020 international passenger arrivals dropped by over a quarter (26 percent), following the near total closure of the border from March 2020.
In consequence, Customs has redeployed 190 airport staff to other work, including providing surge capacity for inspection roles at mail centres, contact tracing, assisting with managed 4
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The closure of the eGates and the focus on managing the health risks at the border has required all airport arrivals to be processed manually. Customs told us that this is very labour-intensive, requiring staff to escort arrivals through biosecurity, health checks, and transport to MIQ facilities.
Staff morale and Customs’ vaccination programme We asked how satisfied the staff have been with those redeployments. In particular, we asked what stresses they have been reporting—such as the stigma of working at the border—and what processes Customs has to support staff.
We were told that morale is very high and that “Customs people are pretty resilient”. Although it was quite a hard year for Customs staff overseas, information technology platforms like Zoom have become an important way of staying connected. Customs told us that it assesses people thoroughly before employing them, including the ability to withstand pressure, and it trains its people very well.
Customs acknowledged that the stigma of working at the border was real, citing examples of concern being expressed by churches and childcare centres. To address this, Christine Stevenson, Comptroller of Customs, and Dr Ashley Bloomfield, Director General of Health, had co-signed a letter that staff could give to families, landlords, or members of their community. The letter’s message was, “Actually, these people are keeping all of us safe. This is really hard work. These people are heroes. You shouldn’t be stigmatising them. You should be, frankly, thanking them.”
We also heard that Customs staff have been appreciative of the quality of personal protective equipment, the quality of the training, and the practices in place to keep them safe. Of the Customs staff who needed to be tested every fortnight, 100 percent have been. To date, no front-line Customs staff have tested positive for the virus.
We also asked Customs about vaccinations among staff, and the communications being used to encourage staff to have a vaccine.
We were told that Customs expects a good take-up of vaccines by staff. This would be especially important for the approximately 650 staff working at the absolute front line of COVID-19. These staff have, effectively, been working at level 4, because of their duties at the air border or maritime border.
Customs informed us that the first group of Customs people to be vaccinated would be those at Ports of Auckland on 22 February 2021, followed by Auckland International Airport staff on 24 February 2021.
Customs said a huge amount of communication was going out to staff about the vaccination programme through a range of channels. This would be bolstered by team leaders setting a good example by being vaccinated. While there could well be people who are hesitant to get vaccinated, Customs intends to give them as much information, and as much support, as
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Staff diversity As at June 2020 men made up 52 percent of Customs staff and women 48 percent. Most staff (60 percent) identified as European or NZ Pakeha, while 17 percent identified as Asian, 11 percent as Pacific peoples, and 10 percent as Māori. One fifth were classified as “Other”.
Customs told us that the gender pay gap average had dropped from around 14.7 percent in March 2018 to around 12.4 percent by June 2020.
We were interested to hear what Customs has done to ensure the diversity of staff, not only in its hiring practices but also in its executive and more senior roles. We also asked about its policies for disabled people.
Customs told us about several things it was doing to attract people from a range of backgrounds, and to help staff feel comfortable in the workplace. They included reaching out to Māori communities to promote Customs as a career, and ensuring that its advertising had nothing that could be off-putting to any particular group. It said that more women and people from a variety of ethnic backgrounds were moving into management roles. It pointed out that, for the first time in 181 years, Customs had equal representation of men and women on the executive board.
A Diversity and Inclusion Council has been established, made up of staff and chaired by a staff member, with representation from senior staff. This council had reviewed Customs’ recruitment policy and other internal policies. This had helped Customs get a good perspective on the impact of those policies on different groups, including people with disabilities.
Customs is also developing relationships with recruiters who specifically place disabled people into organisations. We heard that in 2019 it won an award from one of those recruiters for its work with a particular employee.
Customs said that probably the biggest thing it has done for disabled people was to introduce a flexible working policy from mid-2020. The new policy has meant that many more staff have been able to access flexible working. This is especially important for older members of the Customs workforce, where disabilities often start to manifest. Customs has 185 staff aged 60 or over. This represents 14 percent of its total workforce.
Seizure of prohibited goods At New Zealand’s domestic border, Customs seized around 1,800 kilograms and 488 litres of illicit drugs in the financial year ending June 2020. Working with international partners, Customs made 240 interceptions of illicit drugs offshore in the 2019/20 financial year, avoiding an estimated $569 million of economic and social harm to New Zealand.
Around 85,000 objectionable publications were seized. Customs detected the equivalent of NZ $7.6 million in undeclared currency and intercepted nearly 500 firearms and over 1,500 other weapons.
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Appendix
Committee procedure We met on 18 February and 18 March 2021 to consider the annual review of the New Zealand Customs Service. We heard evidence from the New Zealand Customs Service and received advice from the Office of the Auditor-General.
Committee members Hon Jenny Salesa (Chairperson) Hon Gerry Brownlee Golriz Ghahraman Ingrid Leary Simon O’Connor Louisa Wall
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the New Zealand Customs Service).
New Zealand Customs Service (Responses to written questions).
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Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About the Department of Internal Affairs ...... 2 Financial performance and audit results ...... 2 What COVID-19 has meant for the department ...... 2 Developments in the Office of Ethnic Communities ...... 3 Stable leadership and recruitment are a focus ...... 3 The Office of Ethnic Communities will transition into a ministry ...... 3 Community grants have grown in the past year ...... 4 Concerns about the timing of community hui ...... 4 National Party view ...... 4 Addressing online harm and digital inclusion during COVID-19 ...... 5 The Keep It Real Online campaign has been largely successful ...... 5 Online gambling is a pressing issue ...... 5 Improving digital inclusion is a goal ...... 5 National Party view ...... 6 Trialling the COVID-19 card ...... 6 Upgrades to the National Library and Archives are ongoing ...... 6 Collections management is an important process ...... 6 Valuation discrepancies with the National Archives and Alexander Turnbull Library ...... 7 Procurement procedures regarding royal commission inquiries ...... 7 Racing industry reforms ...... 8 Appendix ...... 9
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Recommendation The Governance and Administration Committee has conducted the annual review of the Department of Internal Affairs for 2019/20, and recommends that the House take note of its report.
About the Department of Internal Affairs The Department of Internal Affairs is a large government department with a wide range of functions. They include:
managing passports, and protecting the integrity of national identity information regulating activities across several sectors such as gambling, charities, and censorship working with ethnic communities to develop and maintain a sense of belonging in New Zealand supporting public and government inquiries and reviews providing leadership in the development and operation of digital government services collecting and preserving New Zealand’s documentary heritage and public records. Paul James is the chief executive of the department and the Government Chief Digital Officer.
Financial performance and audit results In 2019/20 the department’s total revenue was $501.9 million. Its total expenditure was $484.2 million, resulting in a surplus of $17.7 million. This compares with total revenue of $487.3 million and a surplus of $33.5 million in 2018/19.
The Auditor-General issued a non-standard audit opinion, drawing attention to disclosures in the financial statements about the effects of the COVID-19 pandemic on the department.
The Auditor-General assessed the department’s financial information and supporting systems and controls as “good” with some improvements recommended. This was reduced from “very good” in 2018/19. He assessed the department’s management control environment, and performance information and associated systems and controls as “good” with some improvements recommended.
What COVID-19 has meant for the department COVID-19 significantly affected the department’s workload. We heard that its priority was maintaining essential services such as:
issuing urgent passports to offshore New Zealanders
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publishing the Gazette to ensure Government business could continue supporting Ministers enabling remote working so the department could continue to function. COVID-19 also affected the department’s finances. In 2019/20 the COVID-19 Response and Recovery Fund (CRRF) set aside $50 billion. Vote Internal Affairs has been allocated an additional $139 million between 2019/20 and 2023/24 as a part of the CRRF. Vote Internal Affairs allocated about $47 million to six initiatives focused on digital skills ($4 million) and racing industry recovery ($41 million).
Third-party revenue (such as passport fees and non-casino gaming licences) comprised 37 percent of total revenue in 2019/20. Third-party revenue decreased by $36 million in 2019/20 compared to 2018/19, a very significant loss. This was largely due to the decrease in passport fees due to COVID-19 restrictions on travel.
Developments in the Office of Ethnic Communities The Office of Ethnic Communities is the Government’s principal adviser on ethnic diversity in New Zealand. Its main responsibilities are providing information to ethnic communities and supporting community development. We asked the chief executive if the office was underperforming, and if so, what he was doing to change this.
Stable leadership and recruitment are a focus We were told that the leadership model is one area being strengthened. The office has had frequent changes in leadership, causing instability. Consulting ethnic communities showed that permanent, stable leadership was a main concern people had with the office’s effectiveness. We heard that appointing people permanently into both leadership and policy roles has provided more stability to the office.
Recruitment from ethnic communities has been a positive development. We heard that 74 percent of the office’s 39 employees come from ethnic communities. Also, employing staff in communities where engagement was previously low has helped to build the profile of the office.
We heard that the office will continue to focus on employing people from the ethnic communities that they serve. A programme to recruit graduates from ethnic communities is one initiative. However, the department acknowledged that recruiting ethnically diverse people in more advanced roles will need to be improved.
The Office of Ethnic Communities will transition into a ministry The Prime Minister has stated that a new Ministry for Ethnic Communities will be created.1 This decision is in line with recommendation 30 of the Royal Commission of Inquiry into the Christchurch terror attacks.
1 You can read the Prime Minister’s statement here: https://www.beehive.govt.nz/speech/prime- minister%E2%80%99s-comments-royal-commission-inquiry-christchurch-terror-attack.
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We asked what this transition would involve for the office, and what changes would be made to its current structure. We heard that the ministry would operate as a departmental agency.2 This may include sharing premises or corporate financial services with a host agency, but it would not be answerable to the host agency. It would have its own chief executive and be accountable to a Minister for its own body of work. The chief executive of the Ministry of Ethnic Communities would be answerable to the Minister of Diversity, Inclusion and Ethnic Communities.
We asked what difference this transition would make to the office’s current work. The department said that promoting ethnic diversity across all government agencies would be one of its biggest programmes. Finding ways to accurately measure the growth of ethnic diversity and increasing engagement across agencies would be a large portion of the ministry’s work.
Community grants have grown in the past year Administering community grants to ethnic communities is a significant part of the office’s work. $4.2 million a year is made available through the Ethnic Communities Development Fund. The fund is used to support ethnic communities to grow their skills, promote cultural community events, and become established groups within society.
We heard that the number of applications for community grants has risen in the past year. A large part has come from communities that have not previously applied for funding. The department told us that more emerging ethnic communities have been applying for the fund. We heard that this shows positive growth both in emerging ethnic communities and in awareness that the fund exists.
Concerns about the timing of community hui We asked about recent criticism of the department’s timing of community hui about the Christchurch terror attacks. One particular concern was that it was conducted during culturally inappropriate times. We were told that the department faced administrative challenges in planning the community hui. It had tried to balance numerous factors including cultural practices, working hours, and a narrow consultation timeframe.
National Party view The National Party is deeply concerned that the Government’s plan for the creation of a Ministry for Ethnic Communities will not give the support needed for an uplift in services to those from our diverse cultural backgrounds. We are also concerned that the proposed model for the “ministry” will not have the “mana” or respect required for successful community buy-in as a government department. To many in New Zealand’s ethnic communities, the refusal by the Government to allow the new ministry to stand alone with its own corporate services and work with complete independence from the department (as is the case for the Ministry for Pacific Peoples and Ministry for Women) shows a distinct lack in cultural etiquette and amounts to a ministry in name only with no difference to actual work outcomes compared to the Office of Ethnic Communities.
2 A departmental agency is an operationally autonomous agency that shares certain facilities with a “host” agency and is legally considered part of its host agency. 4
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Addressing online harm and digital inclusion during COVID-19 The Keep It Real Online campaign has been largely successful Keeping children and young people safe on the internet is an ongoing goal of the department. In May 2020 the department launched the first phase of its Keep It Real Online campaign, which aimed to raise the awareness of parents and caregivers about potential internet harm. Online bullying, inappropriate content, pornography, and grooming were some of the issues addressed. A series of ads were launched via TV, radio, newspapers, social media, and on billboards about these risks. We heard that the campaign had already reached over 870,000 caregivers, and the videos had had more than 33 million views. The campaign saw a decline in searches for pornography on devices connected to school networks.
The department stressed that tackling online harm is a collaborative effort. It works closely with domestic and international organisations to identify, detect, and disrupt online harm.
Online gambling is a pressing issue We asked about trends in spending on online gambling, particularly during COVID-19 lockdowns.
We heard that online gambling declined significantly during lockdown, since there were very few sporting events people could bet on. However, there was a resurgence once sports and racing began to restart.
The department estimates that online gambling activity has doubled in the past year, although accurately tracking spending can be difficult. It told us that estimates of spending vary by up to about $100 million. The department works with Inland Revenue, banks, and industry stakeholders to try to track online gambling expenditure.
We heard that, because regulations are not consistent globally and many different jurisdictions are involved, minimising the harm of online gambling is a difficult problem to address. In the past year, New Zealanders have gambled online on over a thousand overseas websites. Some of those sites have reputable harm-minimisation provisions and some do not.
Improving digital inclusion is a goal Digital inclusion means ensuring that all New Zealanders can participate in the digital world. We heard that one in five New Zealanders are digitally excluded. The department observed that barriers to digital inclusion can be as wide-ranging as capability, trust, skill-sets, and confidence.
We were told that an action plan is being coordinated with the Ministry of Education, Ministry of Business, Innovation and Employment, and the Ministry of Social Development. Each agency plays a different role in the collective effort. Co-ordination, oversight, and leadership are this department’s responsibilities. Developing infrastructure and education for digital inclusion falls to the other agencies.
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National Party view The Government’s plans for digital inclusion are also significantly underwhelming at a time where many New Zealanders are unable to achieve appropriate connectivity for their businesses or their households. During the COVID-19 level 4 lockdown many families had to make the unacceptable choice of deciding between utilising their internet connection for their children’s education or to keep their jobs due to either inadequate network speeds or excessive pricing due to network congestion resulting from poor planning by the 2017-2020 Labour-led Government. Much more needs to be done to build a digitally inclusive New Zealand that benefits all in our economy.
Trialling the COVID-19 card The department worked with the Ministry of Health to develop a week-long trial of a COVID- 19 card in Rotorua. The card used Bluetooth to detect and record contacts with people nearby who also carried cards.
We asked about the department’s role and spending, and were told that it was mainly in charge of developing the proof-of-concept. Part of this phase involved hiring a communications company for marketing and public relations work at a cost of $47,000. We asked how this was spent and how it related to the trial. The department responded that the company was not involved in the 1,500 person card trial. It was paid for during the proof-of- concept phase. This included market research, communications, and media briefings for field trials, and project presentations for initial stakeholders, among other things.
The department told us that the trial was successful and it was pleased with the uptake. The trial had proved that the technology would work effectively. Community engagement to increase uptake would be the next step in the process.
Upgrades to the National Library and Archives are ongoing A project is under way called Tāhuhu: Preserving the Nation’s Memory. It includes the upgrade and construction of modern facilities across Archives New Zealand, the National Library of New Zealand, and Ngā Taonga Sound and Vision. We heard that the planning and analysis phase is complete. We asked whether the department has the capability to complete the programme. It believes that it does, and noted that it is receiving advice from independent organisations such as KPMG, Buddle Findlay, TwentyTwo, and Rawlinsons. In November 2020 the department undertook an independent review of the programme and is implementing the recommendations.
The cost of the programme overall for 2019/20 was $7.6 million. We also asked about the cost of the Archives Wellington development and the National Library alterations. The costs for these in 2019/20 were $3.038 million and $0.402 million, respectively.
Collections management is an important process We asked about the need for the National Library to rehome a large portion of its overseas published collection. We were told that collections management is an important part of the library’s work. It is an exercise for all national libraries globally.
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At its peak the library was receiving 80,000 to 90,000 requests a year for items in the overseas published collection. In 2019 that number was only 3,000. We heard it costs $1.5 million annually for the library to maintain this collection. The department believes this could be better used elsewhere. We were told that the library would still be able to facilitate access to the material without having to hold it themselves.
In comparison, the library’s Papers Past website had more than 50 million page views in the 2019/20 year. This is where digital versions of collections are accessed. We heard that the shift towards digital access is an important consideration in managing physical collections.
Valuation discrepancies with the National Archives and Alexander Turnbull Library Some of us expressed concern about the recent undervaluation of the National Archives and Alexander Turnbull Library. The two were undervalued by $45 million and $41 million respectively.
We were told that it can be difficult to get accurate valuations on collections. Some items are particularly unique and difficult to value. The department acknowledged that there had been errors in the information it had provided to the valuer. Some errors were due to COVID-19 pressures, but it accepted that the department was ultimately responsible.
Entering a five-year contract with a new valuer is one way the department hopes to improve the valuation process. Improving the systems used for providing information to the valuer will also increase accuracy. Enforcing these procedures across different business units in the department will be the next step in this work.
Procurement procedures regarding royal commission inquiries Royal commissions of inquiry are appointed by and report to the Governor-General. The inquiry report is also tabled in Parliament. The department funds these inquiries but is not responsible for them. Some of us asked about the difference in costs for the royal commission inquiries into the Christchurch mosque attacks and historical abuse in state care. Our attention was drawn to the disparity in office rental costs for the premises used by the inquiries. Rental costs for the ongoing historical abuse inquiry were $530,148, compared with $302,400 for the Christchurch inquiry.
We were told that the scale of the two inquiries was significantly different. At its peak the Christchurch inquiry needed 40 staff. In comparison, the historical abuse inquiry currently has 200 staff and may need more. A hearings facility was also built in Auckland for the historical abuse inquiry, which contributed significantly to costs.
Royal commissions have a degree of independence from the department, so the department does not inquire into all of their work. However, the chief executive reiterated that improvements were needed to formalise the rules around procurement, and ensure compliance with those rules. A memorandum of understanding has been created to make the expectations clear between both parties on procurement and finances.
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Racing industry reforms The Racing Industry Act 2020 largely came into force on 1 August 2020. The Act established a new structure for the industry; however, further work is required to fully operationalise it. The department is responsible for the implementation of these reforms.
We were told that this work is focused predominantly on finalising the appointments to the new TAB board; establishing the new Racing Integrity Board (RIB); and promulgating various regulations required under the Act which largely relate to funding distribution arrangements.
The intent is to complete the reforms as quickly as possible so that the Act is fully operational.
The Act also established a new integrity system, central to which is the RIB. The key principles and objectives for the RIB are to focus on promoting and ensuring compliance with high standards of animal welfare, integrity, and professionalism by participants in the racing industry. An establishment board is working to set up the RIB.
We were told that the department intends to have relevant reform regulations in place by 1 August 2021. We would like to be informed of progress in this reform area.
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Appendix
Committee procedure We met on 10 February and 24 March 2021 to consider the annual review of the Department of Internal Affairs. We heard evidence from the Department of Internal Affairs and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Melissa Lee participated in this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Department of Internal Affairs).
Department of Internal Affairs (Responses to written questions).
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2019/20 Annual review of the Department of the Prime Minister and Cabinet
Report of the Governance and Administration
Committee
March 2021
Contents Recommendation ...... 2 Introduction ...... 2 Financial performance and audit results ...... 2 COVID-19 was DPMC’s main focus in 2019/20 ...... 3 DPMC has reviewed its protocols for COVID-19 messaging on social media ...... 4 DPMC is conscious of current cybersecurity risks ...... 4 Reviews of the COVID-19 Group have identified important improvements ...... 5 New Zealand’s response model for ongoing, complex global events needs updating ...... 5 Hui on Christchurch mosque attacks identified important themes ...... 6 Partners attending ministerial meetings ...... 7 Appendix ...... 8
Barbara Kuriger Chairperson
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Department of the Prime Minister and Cabinet
Recommendation The Governance and Administration Committee has conducted the annual review of the Department of the Prime Minister and Cabinet for 2019/20, and recommends that the House take note of its report.
Introduction The purpose of the Department of the Prime Minister and Cabinet (DPMC) is an “ambitious, resilient and well-governed New Zealand”. DPMC describes its role as “committed to serve and willing to lead” the Government’s priorities of:
an economy that is growing and working for us all improving the wellbeing of New Zealanders and their families making New Zealand proud.1 The department has around 225 staff in Auckland, Wellington, and Christchurch. Its business units span several areas:
national security strategy, governance and engagement Government House policy advice Cabinet Office child wellbeing and poverty reduction Greater Christchurch (although the Greater Christchurch Group wound down during 2020) COVID-19 (the COVID-19 Group was formally established on 1 July 2020). In December 2019, the National Emergency Management Agency (NEMA) replaced the Ministry of Civil Defence and Emergency Management, which had been a business unit of DPMC. DPMC hosts NEMA as a departmental agency. NEMA had 74 staff as at 30 June 2020.
Financial performance and audit results The department’s total revenue and expenses, for the year under review and the preceding year, are set out in the table below:
2019/20 2018/19 Increase Revenue $78.6 million $65.8 million $12.8 million (19 percent) Expenses $67.9 million $60.1 million $7.8 million (13 percent)
1 Department of the Prime Minister and Cabinet, Annual Report 2019/20, p. 4. 2
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The Auditor-General issued a non-standard audit report. He was satisfied that the information he audited presented fairly DPMC’s activities for the year and its financial position at the end of the year. The report was non-standard because it included a paragraph that draws readers’ attention to the disclosures in the financial statements and performance information that outline the effect of the COVID-19 pandemic on DPMC. The Auditor-General rated as “very good” DPMC’s management control environment and its financial information and supporting systems and controls. He rated as “good” its performance information and supporting systems and controls, recommending some improvements in that area.
COVID-19 was DPMC’s main focus in 2019/20 DPMC has played a significant role in responding to COVID-19. We heard that the department began to coordinate the New Zealand response in January 2020. It activated a national security system and coordinated public sector chief executives through the Officials’ Committee for Domestic and External Security Coordination (ODESC). The department commented that the response itself was really provided by all-of-government supporting the Ministry of Health.
In the early weeks and months, we heard, over 600 personnel were involved with the government response. They came from government agencies and the private sector and had diverse skills and levels of seniority. DPMC coordinated and channelled this resource in accordance with ministerial direction. The National Crisis Management Centre, managed and maintained by NEMA, was also involved.
The department compared the structural, legal, and regulatory frameworks for COVID-19 with those set up during World War II. We heard that it took 12 months at the start of World War II to set up appropriate legal frameworks for war. In contrast, the department said, the COVID-19 framework was set up “in 12 weeks or 12 days”.
Cabinet meetings changed from being held in person to being held over split locations and meeting virtually. The department said that, “essentially, there was a new Cabinet committee created; it met daily”. This was the COVID-19 Ministerial Group.
We heard that New Zealand’s lack of emphasis on hierarchy and formality were helpful when things were moving at fast pace and with great complexity. For example, Ministers could talk directly with officials who may have been relatively junior but who were experts in a subject. They were able to exchange information with Ministers immediately, which helped in getting the best possible policy outcomes.
DPMC said that Cabinet still used correct processes during that busy time. Cabinet was informed by papers sponsored by Ministers. Departments advised Ministers, and Ministers took papers to the Cabinet committee for consideration, agreement, and recommendations. Departmental accountabilities were unchanged and followed appropriations.
The department said that processes reverted back to the status quo quite quickly after the first five or six months of the pandemic. However, we were interested to hear that working under the pandemic had broken down “silos”—it had allowed people at different levels of seniority and from many different agencies to work through problems together. We
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2019/20 ANNUAL REVIEW OF THE DEPARTMENT OF THE PRIME MINISTER AND CABINET encourage DPMC and other departments to keep working closely together as part of their usual business—not only in extraordinary circumstances.
We agree with the department’s comment that we will need to take lessons learnt from the COVID-19 response to use for future preparation.
DPMC has reviewed its protocols for COVID-19 messaging on social media The “Unite Against COVID-19” campaign is managed by the department’s COVID-19 Group. It was established at the start of the response.2 It gets its information from other agencies, notably public health information from the Ministry of Health and managed isolation and quarantine information from the Ministry of Business, Innovation and Employment (MBIE). A small group within the team focuses on social media.
In the August 2020 Auckland lockdown, a Facebook message was posted that incorrectly recommended that a wider group of Aucklanders get tested than the Ministry of Health was actually advising. We heard that DPMC closely examined what happened and made changes to ensure that its processes and systems draw on correct and proper information.
We also asked about a post about a recent community cluster that commented on individual cases. DPMC said, in that incident, the team was trying to diffuse the tension out of a particular string of comments on social media. However, instead of doing so through commentary or opinion, it should have used factual public health information. DPMC said it had not apologised to the individuals concerned. DPMC told us that it should not have commented on individual cases. DPMC has reviewed its protocols to make sure its policy about not commenting on individual cases is clear.
DPMC added that the team in question is only small—five or six people—and it has done “a really mighty job” over the past months, working many unsociable hours. DPMC regrets these two incidents but does not think they should blemish the team’s “outstanding” effort.
DPMC is conscious of current cybersecurity risks DPMC published its cybersecurity strategy in July 2019. Its vision is a New Zealand that is confident and secure in the digital world and thrives online.
Cybersecurity became more important with the increased use of communication platforms such as Zoom and Microsoft Teams. Early on in the pandemic, we heard, the department got advice from the Government Communications Security Bureau and the Government Chief Information Security Officer. Much of the advice was “just good basic hygiene”: installing updates and patches, not letting people in who you do not know, and checking who is present. Users should also think about IT security workforces.
The department commented that, although these platforms are revolutionary technology and they enable a huge amount to be done, their limitations have become evident. It is harder to pick up body language and other cues when you are not meeting in person.
2 In March and April 2020, Cabinet approved funding for Unite Against Covid-19. However, we note that DPMC did not hold the appropriation authority to commit to the expenditure. 4
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The department mentioned two recent cyber-attacks, at the New Zealand Stock Exchange and the Reserve Bank. It said these stories are reminders that information and communications technology comes at a cost: the cost of maintaining vigilance in cybersecurity, especially in critical infrastructure. DPMC’s role includes working with other agencies that are involved in cybersecurity and we heard that they are working to spread this message to other entities in the public service.
DPMC added that sometimes cybersecurity is breached by foreign State actors. It said New Zealand publicly attributes breaches when a State actor is found to be behind the attack. However, it said many recent breaches were committed by criminals that it described as “very sophisticated firms… entities trying to monetise bad computer hygiene”.
We encourage DPMC to continue to focus on the very important work of cybersecurity.
Reviews of the COVID-19 Group have identified important improvements The Covid-19 Group was formally established as a unit of DPMC on 1 July 2020. A current focus of DPMC is reviewing and adjusting the model in response to reviews led by Sir Brian Roche (May 2020) and Rebecca Kitteridge (October 2020).
We heard that, under normal circumstances, the lead agency (in this case, the Ministry of Health) leads everything and is supported by other agencies. However, the COVID-19 response was too big for any single lead agency, so the all-of-government group was set up to coordinate it. The purpose of the reviews was to test how that model was working.
We heard that the May 2020 review found that the model was working, but that at some point it would be appropriate to push accountabilities more clearly back to agencies. DPMC said that, soon after that review, MBIE took responsibility for managed isolation and quarantine.
The October 2020 review was commissioned because DPMC had found that the all-of- government group included many staff seconded from other agencies, some of whom were only staying for three months. This turnover affected the group’s knowledge and experience. The review recommended putting the group on a “firmer footing” to deal with this.
We also heard about some “quite rapid” reviews by the Auditor-General. He did one in 2020 on personal protective equipment. At the date of our hearing, he was doing reviews on how the system was set up and on vaccines. DPMC said it learns from these rapid reviews because feedback is prompt.
New Zealand’s response model for ongoing, complex global events needs updating Part of our discussion looked at the department’s suitability for dealing with different types of disaster. Some are one-off events—examples are the Whakaari / White Island eruption in December 2019, and the 2017 break in Auckland’s aviation fuel pipeline. In contrast, other disasters are (or could become) chronic and ongoing. COVID-19 is an example of that sort of crisis.
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DPMC told us that the response system dates back to the mid-1990s. It works by DPMC (as chair of ODESC) asking how the lead agency is managing and whether the issues are so complex that it needs help with some coordination.
DPMC believes that model is not suitable for ongoing, multifaceted, global events. It said it is keen to explore options for graduated responses, so that different forms of response could be available for different disasters.
The department told us about recent OECD work on government responses to COVID-19 around the world. The OECD found that “most, if not at all” governments needed to reshape their response because COVID-19 is so different from other issues.
We also heard that having to work closely together to respond to COVID-19 improved communications between New Zealand agencies. It has produced some “really strong relationships.” DPMC added that modern complexities mean that better communication between agencies is needed on policy issues. It expects the improved communication to stay. DPMC sees its role as to lead in this. It sees a need to keep the best of the system’s structure as well as the best of its informality.
Hui on Christchurch mosque attacks identified important themes In December 2020, the Royal Commission of Inquiry into the terrorist attack on Christchurch masjidain on 15 March 2019 presented its report. It made 44 recommendations. The Government agreed in principle to implement all 44 recommendations. DPMC’s National Security Group is coordinating the implementation.
Earlier in 2020, the National Security Group had published New Zealand's counter-terrorism strategy. That strategy focuses on reducing threats and building social cohesion while ensuring that systems and capabilities are in place to act early if needed. DPMC explained that the counter-terrorism strategy will continue to develop as it implements the Royal Commission’s recommendations.
The Government hosted 33 hui around the country, led by Hon Andrew Little, Lead Coordination Minister for the Government’s response to the Royal Commission, and Hon Priyanca Radhakrishnan, Minister of Diversity, Inclusion and Ethnic Communities. The hui began in Christchurch. They included Muslim and non-Muslim New Zealanders. Several of us attended some of these hui.
The department described some consistent themes that arose from the hui. One was the need for cultural competency in teachers and principals—the need to improve their ability to deal with students of different faiths and ethnicities. DPMC was surprised at the strength of this message. We heard that the Ministry of Education did not attend the first hui but, by the end, it was well represented.
Another theme related to the media portrayal of Islam, the Muslim community, and ethnic communities. Another was hate crime and hate speech. We also heard about interest in changing the Office of Ethnic Communities into a ministry. Communities were also keen to question Ministers about their responsibilities in implementing the recommendations.
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We note that some of these themes had not been a focus of the Royal Commission. However, we heard that the Government need not be bound by the inquiry’s parameters, and can take in the wider feedback from communities.
We heard that an advisory group is being set up to help implement the recommendations. At the date of our hearing in March 2021, nominations were about to open for members of the advisory group. It is expected to consist of about 30 people from a wide cross-section of society. The department wants youth to be over-represented on the group to help with some of the long-term “inter-generational” challenges that it hopes the group can address. DPMC expects the advisory group to be up and running by May 2021.
We look forward to hearing more about the department’s work in this area in future.
Partners attending ministerial meetings We asked whether the Secretary of Defence had raised a concern with the relevant policy advisory group advisor about the appropriateness of partners of Ministers attending ministerial meetings. The answer was “no”.
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Appendix
Committee procedure We met on 11 and 24 March 2021 to consider the annual review of the Department of the Prime Minister and Cabinet. We heard evidence from DPMC and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Department of the Prime Minister and Cabinet).
Department of the Prime Minister and Cabinet (Responses to written questions).
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Earthquake recovery sector annual reviews:
2019/20 Annual review of the Earthquake Commission 2019/20 Annual review of Southern Response Earthquake Services Limited 2019/20 Annual review of Ōtākaro Limited
Report of the Finance and Expenditure Committee
Fifty-third Parliament (Dr Duncan Webb, Chairperson) March 2021
Presented to the House of Representatives
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Contents Recommendation ...... 3 About our consideration and the structure of this report ...... 3 Earthquake recovery sector overview ...... 3 2019/20 Annual review of the Earthquake Commission ...... 4 About the Earthquake Commission ...... 4 Financial overview ...... 4 Audit opinion ...... 5 On-sold programme ...... 5 Public Inquiry into EQC ...... 6 Reopened claims ...... 6 Customer focus and satisfaction ...... 6 2019/20 Annual review of Southern Response Earthquake Services Limited ...... 7 About Southern Response Earthquake Services...... 7 Financial overview ...... 7 Results of the 2019/20 audit ...... 8 Class action against Southern Response ...... 8 Ōtākaro Limited ...... 9 About Ōtākaro ...... 9 Financial performance in 2019/20 ...... 9 Appendix ...... 10
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Earthquake recovery sector annual reviews
Recommendation The Finance and Expenditure Committee has conducted the 2019/20 annual reviews of the following entities: Earthquake Commission Southern Response Earthquake Services Limited Ōtākaro Limited The committee recommends that the House take note of its report.
About our consideration and the structure of this report This year, we have decided to consider and report on the earthquake recovery sector as a whole, rather than reporting separately on each entity. We held a joint hearing with the Earthquake Commission and Southern Response Earthquake Services Limited. The various sections of this report cover the main points from those hearings.
In the Review of Standing Orders 2020,1 the Standing Orders Committee encouraged select committees to make overall sector reports, as well as their more traditional reporting on individual agencies.
The hope is that, over time, this form of scrutiny and reporting will make it easier for committees to comment on themes relating to an entire sector. They may be able to report on findings across a group of agencies, and on the sector-wide outcomes being achieved for New Zealand.
Earthquake recovery sector overview We acknowledge the recent tenth anniversary of the 22 February 2011 Canterbury earthquakes, which took the lives of 185 people.
Relationship between the Earthquake Commission and Southern Response The Minister Responsible for the Earthquake Commission issued a ministerial direction on 1 November 2019 that expanded EQC’s role, allowing it to act as an agent for Southern Response for the settlement of outstanding claims. Southern Response continues to retain ultimate responsibility and liability for the settlement of its outstanding claims. The two organisations also have a co-location agreement.
We heard that the closer relationship has had several benefits, such as improving the claims settlement process, providing a more streamlined experience for customers, and helping inform potential responses to future events.
1 Standing Orders Committee, Review of Standing Orders 2020, (I.18A), July 2020, p. 43.
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2019/20 Annual review of the Earthquake Commission
About the Earthquake Commission The Earthquake Commission (EQC) is a Crown agency, as defined by the Crown Entities Act 2004. EQC was established to help New Zealanders with insurance in the event of a natural disaster or event. EQC seeks to be the world’s leading national insurance scheme for natural hazards. Its core functions under the Earthquake Commission Act 1993 are to:
administer insurance against natural disaster damage for New Zealand residential property owners collect premiums payable for insurance under the Act (via private insurers) administer the Natural Disaster Fund and protect its value, including investment of the funds obtain reinsurance facilitate research and education about matters relevant to natural disaster damage. Mary-Jane Daly is the chair of the board of EQC. EQC’s chief executive is Sid Miller.
Financial overview EQC receives its income from: EQC levies via private insurance premiums reinsurance recoveries, being reimbursements from reinsurers for EQC claim settlements investment income earned from the funds held in the Natural Disaster Fund pending payments on claims any payments made pursuant to the underwrite under section 16 of the EQC Act. EQC’s expenses are mainly for payments on claims and the purchase of reinsurance. At the end of the year, the surplus (if any) is added to the Natural Disaster Fund, from which claims are generally paid.
In 2019/20, EQC recorded a net deficit of $154.4 million, compared with a net surplus of $414.1 million in 2018/19. The net deficit has resulted in an increase in EQC’s negative equity to $689.7 million, compared with $535.3 million in 2018/19. EQC told us that the key factor determining when it will break even is the occurrence of natural disaster events.
Net premium revenue was $272 million in 2019/20 ($205.9 million in 2018/19), with an underwriting movement of $459.7 million ($165.7 million in 2018/19). The deficit from
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insurance activities was $187.7 million, compared with a surplus of $370.6 million the previous year.
EQC told us that the Government’s current review of the Earthquake Commission Act is considering the overall funding structure of the organisation.
Outstanding claims liability The outstanding claims liability (OCL) was valued at $1.26 billion as at 30 June 2020, a 14.5 percent increase from 2019 ($1.1 billion). The majority of the OCL, $981 million, is related to the Canterbury earthquake series, with the Kaikōura earthquake ($27 million) and other events ($18 million) comprising the remainder of the gross estimate. A risk margin of $239 million is also included.
The major component of the OCL relates to insurer finalisation ($445 million, compared with $125 million in 2019).
The overall gross OCL at 30 June 2020 for future re-opened claims is $209 million (compared with $341 million in 2019). The auditors advised us that the 39 percent reduction reflects the claims run-off.
Audit opinion As in previous years, the Auditor-General issued a non-standard audit report. The report was non-standard because of the disclosures made by EQC in the financial statements as well as the effect of the COVID-19 pandemic on EQC.
The Auditor-General rated EQC’s management control environment as “very good”, and its financial information and supporting systems and controls as “good”. The Auditor-General rated EQC’s performance information and supporting systems and controls as “needs improvement”.
The Auditor-General noted that although EQC has actively worked to link strategic outcomes to its strategic intentions, there are still no measures in its Statement of Intent that measure EQC’s contribution to its strategic outcomes to promote the social and economic wellbeing of New Zealanders. He advised that outcome reporting in EQC’s annual report is not clearly defined or described. He recommended that the Statement of Intent and the Statement of Performance Expectations be reviewed, and that the outcomes be reassessed.
The Auditor-General also identified an inability to satisfactorily assess the effectiveness of the IT general control environment for the Data Warehouse.
On-sold programme In August 2019 the Government announced a policy to allow owners of on-sold over-cap Canterbury properties to apply for an ex gratia payment to allow the homes to be repaired. The Minister Responsible for EQC issued a ministerial direction on 17 October 2019 that directs EQC to administer the programme. The on-sold programme is expected to cost $300 million and take three years to complete. EQC told us that the operation of the programme has been reviewed by KPMG, which made recommendations for improvement in areas like communication.
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As at the date of our hearing, we heard that EQC has settled nearly 500 claims through the programme, with over 900 claims still going through the settlement process. EQC said that approximately 3,700 cases are still being assessed as they do not include all the required information.
Public Inquiry into the Earthquake Commission In March 2020 the Public Inquiry into the Earthquake Commission made 70 recommendations, with 47 directed to EQC and 23 directed to the Government.2 In August 2020 the Government committed to implementing all of the recommendations. The Treasury is leading the Government’s response to the inquiry.
We heard that EQC has implemented new work programmes to respond to the recommendations, as well as supporting the Government’s response to recommendations about broader issues across the system. Twelve of the recommendations EQC is responsible for have been implemented, with the commencement of a new Insurer Response Model advancing “a significant proportion” of the recommendations.
Reopened claims EQC told us that all the claims that it is now dealing with are reopened claims, with about 18 percent of original claims being reopened. They explained that the majority of the reopened claims are related to unscoped damage, with some others relating to failed repairs.
Customer focus and satisfaction EQC acknowledged that it has not always had a strong customer focus. We heard that, to address this, it has established programmes to develop a culture that recognises that the organisation’s customers are affected not only financially by the claims, but also emotionally and personally. EQC told us the key initiative was to move to a case management approach that is more holistic, rather than focusing on process. EQC told us that 74 percent of customers were satisfied with the quality of service they received in 2020, compared to 49 percent in 2018.
We expressed concern that EQC’s performance targets around customer satisfaction are lower than we would have expected. EQC told us that the targets reflect the fact that customers have previous experiences that affect their overall satisfaction level. They said that in the longer term they would like to benchmark the organisation against broader financial services firms.
2 Report of the Public Inquiry into the Earthquake Commission, (H.2), March 2020. 6
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2019/20 Annual review of Southern Response Earthquake Services Limited
About Southern Response Earthquake Services Southern Response Earthquake Services is a Crown-owned company responsible for settling the claims of AMI policyholders for Canterbury earthquake damage that occurred before 5 April 2012. It is a limited liability company under the Companies Act 1993 and is subject to many of the provisions of the Crown Entities Act 2004. The Minister of Finance and the Minister Responsible for the Earthquake Commission are its shareholders.
Following a November 2019 ministerial direction, EQC took over as the claims management agency. Southern Response continues to bear responsibility for the ultimate settlement of claims and for any litigation, and provides technical support to EQC.
Southern Response is governed by a board of directors, chaired by Alister James. Casey Hurren was appointed general manager in December 2019, when Southern Response restructured following the agency agreement with EQC. Anthony Honeybone was the chief executive until December 2019.
Financial overview Southern Response recorded a net deficit of $42.3 million in 2019/20, compared with a $19.4 million net surplus in 2018/19. The Auditor-General considered that the going-concern assumption is appropriate, given the funding available under the Crown support deed.
Southern Response’s financial statements comprise insurance liabilities and support from the Crown.
As at 30 June 2020, the Crown had $806 million in paid-up shares, and Southern Response can access up to $179 million of additional capital under its Crown support deed—a total of $985 million. As at 30 June 2020, the liabilities of Southern Response exceeded its assets by $142 million. The directors have concluded that the going-concern assumption is appropriate, given the funding available under the Crown support deed. The Auditor-General has assessed this as being adequately disclosed in the financial statements.
On 26 September 2018, the Minister of Finance agreed to indemnify Southern Response against the costs, if any, of settling a representative action against it. The deed of indemnity was amended on 28 June 2019 to include any present or future proceeding for a housing claim against Southern Response that is agreed as covered by both the company and the Crown.
Outstanding claims liability The outstanding claims liability (OCL) decreased by a further $49 million in 2019/20, as outstanding claims continue to be finalised. This compares with a $185 million decrease in 2018/19. As at 30 June 2020, the OCL was $167.7 million.
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Results of the 2019/20 audit The Auditor-General assessed Southern Response’s management control environment as “very good” with no recommendations for improvement. Southern Response’s financial information and supporting systems and controls, and its performance information and supporting systems and controls, were rated as “good”, with some improvements recommended.
The Auditor-General recommended that Southern Response’s management continually review resourcing requirements to ensure appropriate segregation of duties.
The Auditor-General found that there is still need for a management-level review to ensure that the data being used by Southern Response’s actuarial specialists aligns to Southern Response’s internal management reporting.
Class action against Southern Response At the time of our hearing, the Ross v Southern Response Earthquake Services Ltd opt-out class action was before the High Court. The case was brought by policyholders with concerns about alleged underpayments for people who were paid a “buy another house” settlement before October 2014. In December 2020, the Minister Responsible for the Earthquake Commission announced a package for eligible policyholders who settled with Southern Response prior to October 2014. Southern Response told us it is committed to the Government’s objective of achieving a timely, fair, and enduring resolution of claims. It is currently establishing a unit to implement the package, which it believes will fix an inequity between customers who settled before October 2014 and those who settled after.
Other litigation Subsequent to 30 June 2020, the Court of Appeal found against Southern Response in Dodds v Southern Response Earthquake Services Ltd. The case was brought by policyholders who challenged Southern Response on only backdating settlements to 1 October 2014. Southern Response has paid the damages awarded to Mr and Mrs Dodds by the Court.
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2019/20 Annual review of Ōtākaro Limited
Our annual review of Ōtākaro Limited focused on examining written responses to a range of questions. We did not hold an oral hearing. We have no matters of concern to bring to the attention of the House.
About Ōtākaro Ōtākaro Limited is a Crown-owned company that was established in 2016 under Schedule 4A of the Public Finance Act. It took over some of the functions previously carried out by the Canterbury Earthquake Recovery Authority.
John Bridgman is the chief executive and Corinne Haines is the chairperson of Ōtākaro.
Financial performance in 2019/20 Ōtākaro recorded a net deficit of $40.9 million for the year under review (2018/19: $6.3 million). In 2019/20 Ōtākaro’s total revenue was $76.8 million, compared with $73.7 million in 2018/19. Total expenditure for the year was $117.6 million for the year, an increase of 46 percent from the previous year (2018/19: $80.4 million).
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Appendix
Committee procedure We met on 17 February and 24 March 2021 to consider the annual reviews of the Earthquake Commission, Southern Response Earthquake Services Limited, and Ōtākaro Limited.
We heard evidence from the Earthquake Commission and Southern Response Earthquake Services Limited, and received advice from the Office of the Auditor-General.
Committee members Dr Duncan Webb (Chairperson) Andrew Bayly Barbara Edmonds Ingrid Leary Anna Lorck Greg O'Connor Damien Smith Chlöe Swarbrick Helen White Nicola Willis Hon Michael Woodhouse
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Earthquake Commission and Southern Response)
Earthquake Commission (Responses to written questions)
Southern Response (Responses to written questions)
Ōtākaro (Responses to written questions)
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2019/20 Annual review of Fire and Emergency New Zealand
Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About Fire and Emergency New Zealand ...... 2 Financial performance and audit results ...... 2 What COVID-19 has meant for FENZ ...... 3 Tracking expenditure and keeping it under control ...... 3 Internal disciplines to keep expenditure under control ...... 3 Working on rural development has been a challenge ...... 4 Improvements to rural responses following the integration ...... 4 Engagement with the community ...... 5 Establishing local advisory committees is important ...... 5 FENZ is trying to build a positive culture ...... 6 Increasing workplace diversity is important for a positive culture ...... 6 Working with other organisations in the sector ...... 6 Appendix ...... 8
Barbara Kuriger Chairperson 378
2019/20 ANNUAL REVIEW OF FIRE AND EMERGENCY NEW ZEALAND
Fire and Emergency New Zealand
Recommendation The Governance and Administration Committee has conducted the annual review of Fire and Emergency New Zealand for 2019/20, and recommends that the House take note of its report.
About Fire and Emergency New Zealand Fire and Emergency New Zealand (FENZ) was established in 2017 by merging the National Rural Fire Authority and the New Zealand Fire Service. This year marks the third and final year of FENZ’s integration phase to combine the rural and urban services.
The main functions of FENZ are:
promoting fire safety providing fire prevention, response, and suppression services responding to incidents involving hazardous substances rescuing people trapped in transport or other incidents undertaking search and rescue operations. Additional functions include responding to medical emergencies; maritime incidents; weather events, natural hazard events, and disasters; and incidents where substances present a risk to people, property, or the environment.
As of 30 June 2020, there were 1,830 career firefighters and officers, 11,847 volunteer firefighters and staff, and 955 management and support staff. The chief executive of FENZ is Rhys Jones and the board chairperson is Hon Paul Swain. This will be Mr Swain’s last annual review as chairperson.
Financial performance and audit results In 2019/20, FENZ reported total revenue of $626 million and total expenditure of $599.5 million. This resulted in a surplus of $26.5 million. These results compare against total revenue in 2018/19 of $610.3 million, total expenditure of $576.3 million, and a surplus of $34 million.
The Auditor-General issued a non-standard audit opinion, drawing attention to disclosures in the financial statements about the effects of the COVID-19 pandemic on the organisation. The Auditor-General assessed FENZ’s management control environment as “very good”, with no recommendations for improvement. He assessed FENZ’s financial performance and supporting systems and controls, and its performance information and supporting systems and controls as “good”, with some recommendations for improvement.
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What COVID-19 has meant for FENZ COVID-19 has had a significant effect on FENZ’s workload. FENZ was also an important part of the all-of-government response to COVID-19. FENZ had to adapt a number of its services and operations due to COVID-19, such as:
holding risk-reduction and education campaigns mostly through social media making statutory and regulatory changes (in line with social distancing) to limit crews meeting to attend avoidable emergency incidents establishing a Service Delivery Coordination Centre to help keep the workforce safe. FENZ stated that COVID-19 affected core activities and administration. This included being unable to hold incident management training with various emergency service partners. It was also unable to achieve three service performance targets due to COVID-19.
FENZ stated that many of the initiatives, protocols, and coordination groups established for COVID-19 remain in place.
Tracking expenditure and keeping it under control On 1 July 2017 the Fire and Emergency New Zealand Act 2017 came into force. The Act created a single, unified fire services organisation for New Zealand called Fire and Emergency New Zealand.
We asked what costs have been associated with establishing the new organisation in the past three years. We noted that one of the proposed benefits of the merger was that $47.7 million worth of efficiencies would be achieved. We asked why this has not yet happened.
FENZ said it was noted in 2017 that $47.7 million of efficiencies would be an ambitious target. It quickly became clear that more investment in the organisation would be needed than originally thought. FENZ has continued to discuss costs and targets with the Government during the integration phase. It explained that one of the main legislative requirements was to provide a high standard of services to the communities that the organisation serves. It has tried to balance spending against this requirement, but it has resulted in more spending than originally planned.
We heard that FENZ has been encouraged to keep investing at a high level. A significant amount of investment went into Christchurch to finance the development of the fire service there. We heard that part of the Christchurch recovery programme involves redeveloping 13 fire stations, focusing on seismic upgrades. There has also been investment in developing the fire service in rural Canterbury, as well as across the country’s rural areas.
Some of us remain extremely concerned that FENZ has backed away from the original commitment of the $47 million efficiency expected in the merger.
Internal disciplines to keep expenditure under control We asked how FENZ manages its spending. We noted that levy income has steadily increased in recent years and hope that FENZ is working to manage this carefully. The Fire and Emergency Levy provides around 95 percent of the funding for FENZ’s operations.
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FENZ said it focuses on managing spending in three areas. It does so by:
prioritising capital expenditure based on need assessing the benefits of its investments reallocating costs across the organisation where possible and gradually reducing spending. Despite these measures, we note expenditure rose from $496 million in 2017/18 to $599.5 million in 2019/20. Some of us suggested that FENZ may be spending excessively, rather than managing costs and building facilities that are simply fit for purpose. This may align with FENZ’s desire to promote a new brand and instil a new culture.
FENZ reiterated that the previous funding infrastructure meant that a number of stations had been significantly underfunded. It told us that it aims to significantly invest in the organisation to be able to provide the standard of service needed from a national and unified fire service. It acknowledged that different people will have different judgements on how money should be spent, but it believes the level of investment is warranted.
Working on rural development has been a challenge We heard that bringing all 38 rural fire authorities together as one cohesive organisation has been one of the biggest challenges for FENZ. It has had to develop new relationships with each of its rural fire stations and work out how to incorporate them into a national framework.
Previously, each rural fire service had been tied to their territorial local authorities. This meant that there was a lack of consistency with how each individual organisation operated and was funded. For example, we heard that the ownership of fire trucks varied depending on the station. Trucks were owned by a mixture of either councils, incorporated societies, or individuals. Services received different levels of funding and some in smaller regions struggled significantly for infrastructure funding. FENZ noted that the capability of this country’s rural communities to be protected from potential fire threats is vital for New Zealand. Agriculture is a significant contributor to New Zealand’s GDP, so fire risks in rural areas could have very damaging consequences. We also noted that climate change could increase the potential of large-scale rural fires in the future.
Improvements to rural responses following the integration FENZ told us about improvements in the response to the Nelson fires in 2019 compared with the Port Hills fires in 2017. It said that the Nelson fires were the first large-scale test for the unified organisation. The Port Hills fires occurred in February 2017, before the integration. They burned through more than 1,600 hectares of land, destroyed 11 structures, and resulted in the death of one firefighter. FENZ noted that the coordination of the 36 agencies involved in the response was one of the main criticisms from this incident.
The Nelson fires burned through more than 2,300 hectares of land, including significant areas of pine plantation. FENZ explained that the general consensus about the response to the Nelson fires was that the organisation had handled it much better than the Port Hills response. FENZ noted that improvements can always be made. We hope that FENZ continues to improve its coordinated response to large-scale rural fires.
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We heard that providing a coordinated response to a particular emergency is a significant benefit to having a unified national fire service. Having a national model means that FENZ can draw on resources from a number of branches to respond quickly to an emerging situation. We heard that this is significantly easier than when there were 38 individual rural organisations.
Engagement with the community We heard that improving community engagement has been a goal for FENZ. However, we noted with interest that the score in the annual engagement survey of external stakeholders had dropped from 7.5 in 2018/19 to 6.4 in 2019/20. The target score for 2019/20 was 7.5. We asked why community engagement was the lowest it had been in a number of years.
FENZ said that the merger has meant it has had to establish new relationships. It acknowledged that building a strong relationship takes time. Many of the previous relationships between fire stations, territorial authorities, and local councils were long established. We heard that FENZ would rather take time to build lasting and effective relationships than rush through the motions to “tick boxes”. It reiterated that engaging with the rural sector has been a focus for the organisation and will take time to develop.
We heard that the Lake Ōhau fire in October 2020 presented an opportunity for FENZ to build community engagement. Following the fire, it sent scientists, fire engineers, and investigators to the community and has received a positive response from the community.
FENZ noted that it has to decide what to engage with and what not to regarding feedback from the community. It acknowledged that not everyone will always be pleased with every decision.
Establishing local advisory committees is important FENZ explained that one of its initiatives is establishing local advisory committees (LACs) in every local area. The first seven were established in 2019/20.1 We heard that the aim is to strengthen FENZ’s local relationships, ensure community needs are factored into planning and decision-making, and provide independent advice to FENZ. The committees will also be useful to help FENZ spread important information throughout the community. Each committee has been appointed for a three-year term.
Some of us are concerned that only seven committees have been established so far, four years after the legislation identifying the need for them was passed. We heard that FENZ has been taking a cautious approach to establishing the committees given that they are a completely new initiative. It wants to make sure that the model works effectively and successfully before setting up a large number of LACs around the country. Taking into account how many committees are needed and where they should be based has been another consideration that has gone into planning the LAC model.
1 They are located in the Chatham Islands, Hawke’s Bay, Marlborough, Northland, Otago, Tairāwhiti, and the West Coast.
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FENZ is trying to build a positive culture In 2019 an independent review by Judge Coral Shaw on FENZ’s workplace policies, procedures, and practices to address bullying and harassment was released. The report found that bullying and harassment was a feature of the FENZ workplace at all levels and across all regions. It made 33 recommendations to address these problems. We asked how those recommendations were being implemented.
We heard that action is being taken on all 33 recommendations. FENZ recognises that culture change will take time but reiterated that it remains committed to achieving it. It said that it wants to have a culture where no form of harassment is tolerated. It also wants to create a culture where people trust the complaints system and will use it if an incident does happen.
We heard that establishing a behaviour and conduct office has been an important initiative. Once fully operational, this office will be the central point for education, training, and guidance about promoting values-based behaviour. The office also manages the confidential complaints process. We heard that the office remains completely separate from the issue and the complainants involved. If a complaint is serious or sensitive, in many cases FENZ will get an independent lawyer to investigate the incident. We heard that it recognises the importance of ensuring that investigations into workplace complaints are independent and objective.
We asked whether there was a way for those who go through the complaints system to give feedback. FENZ maintained that confidentiality is important for having a trustworthy complaints process. It seeks general feedback on processes regularly, and those who have gone through the complaints process will be captured as part of that.
Increasing workplace diversity is important for a positive culture We asked how FENZ is increasing the diversity of its workforce. We noted that on some occasions firefighters need to enter people’s homes and that cultural sensitivity must be taken into consideration.
FENZ said that it is considerate of entering people’s homes when necessary. It acknowledged that appreciating different cultural practices is an important area it is working to address. We heard that it comes back to developing a culture of inclusion and respect within the organisation. It said that positive gains have been made in recruiting women over the past three years. We noted, however, that 94.3 percent of FENZ’s career firefighters are male, as are 60.5 percent of its management and support staff. FENZ said it will continue to work on increasing both ethnic and gender diversity in its workforce.
Working with other organisations in the sector We asked how FENZ works alongside other organisations in the emergency response sector, particularly the National Emergency Management Agency (NEMA). FENZ explained that NEMA is a similar organisation because it also has an emergency response requirement through legislation. It told us that the two executive leadership teams meet periodically and that the two organisations have working groups at both the operational and strategic levels.
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FENZ maintained that working with the various organisations in the sector is important for ensuring there is an effective response to any type of emergency event. FENZ has looked at how it works with the police, the ambulance services, and the defence services in providing that swift response. We were pleased to hear that the sector is working together to improve this country’s emergency responses and keep New Zealanders safe.
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Appendix
Committee procedure We met on 10 and 24 March 2021 to consider the annual review of Fire and Emergency New Zealand. We heard evidence from Fire and Emergency New Zealand and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Todd Muller participated in this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Fire and Emergency New Zealand).
Fire and Emergency New Zealand (Responses to written questions).
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2019/20 Annual review of the Government Communications Security Bureau
Report of the Intelligence and Security Committee
March 2021
The Intelligence and Security Committee has conducted the 2019/20 annual review of the performance and current operations of the Government Communications Security Bureau. The committee heard evidence in public from the Government Communications Security Bureau and received advice from the Office of the Auditor-General.
The committee recommends that the House take note of this report.
Rt Hon Jacinda Ardern Chairperson 386
2019/20 Annual review of the National Emergency Management Agency
Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About the National Emergency Management Agency ...... 2 Financial performance ...... 2 NEMA is the sector leader for emergency management ...... 2 NEMA has constantly been dealing with emergencies ...... 3 NEMA is a key part of the COVID-19 response ...... 3 The frequency of emergencies is increasing ...... 3 Knowledge should be transferred between emergencies ...... 4 NEMA alerts the public to emergencies...... 4 NEMA can tailor its messages to each emergency ...... 4 Coordination of Emergency Mobile Alerts could be better...... 5 Volunteers are an important part of emergency response ...... 5 Young people are important to spread information ...... 6 NEMA is investing in its planning teams ...... 6 Appendix ...... 7
Barbara Kuriger Chairperson 387
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National Emergency Management Agency
Recommendation The Governance and Administration Committee has conducted the annual review of the National Emergency Management Agency for 2019/20, and recommends that the House take note of its report.
About the National Emergency Management Agency The National Emergency Management Agency—Te Rākau Whakamarumaru (NEMA) is a departmental agency, hosted by the Department of the Prime Minister and Cabinet (DPMC). It was established on 1 December 2019 and replaced the Ministry of Civil Defence and Emergency Management. It is responsible to the Minister for Emergency Management.
NEMA’s role is to support communities to reduce the effects of emergencies and to better respond to, and recover from, emergencies when they happen. To fulfil this role, NEMA leads and coordinates the emergency management system.
As at 30 June 2020, NEMA had 74 staff. Most staff are based in Wellington. NEMA has stated that the number of staff will increase in 2020/21.
Financial performance In 2019/20 the Minister for Emergency Management (then Minister for Civil Defence) was responsible for nine appropriations within Vote Prime Minister and Cabinet, including $25.6 million for emergency management, $28.8 million for COVID-19 civil defence emergency management group welfare costs, and $10.8 million for local authority emergency expenses.
We note that $3.8 million of unappropriated expenditure was incurred for the appropriation COVID-19 civil defence emergency management welfare costs.
NEMA is the sector leader for emergency management The emergency management sector must respond to a broad range of emergencies, from small community fires to nationwide pandemics. NEMA said it cannot be the frontline for all emergencies. Instead, its role is to be the steward of the sector. It helps to lead and coordinate the response to emergencies. It also develops the capability and capacity of other players in the system.
NEMA has stated that the growing complexity of emergencies New Zealand has faced recently shows the need for the emergency management system to respond to a range of emergencies, and manage multiple emergencies at once.
We note that NEMA faces challenges in balancing its system leadership role with responding to emergencies. We heard that to help manage this NEMA is split into an emergency
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2019/20 ANNUAL REVIEW OF THE NATIONAL EMERGENCY MANAGEMENT AGENCY management side and a strategy enablement side. The aim of the structure is to enable non- emergency work streams to keep progressing during a specific emergency response.
We note that the Civil Defence Emergency Management (CDEM) Plan lists agencies that have certain roles in an emergency. We asked NEMA whether it found this limiting, given that in particular regions there may be agencies that do similar work and are better placed to assist.
We heard that NEMA is undertaking work on regulatory reform that includes refreshing the CDEM Plan. NEMA said this work gives it the opportunity to look at different parts of the system, and be more inclusive about community-led responses to emergencies.
NEMA has constantly been dealing with emergencies NEMA has said that since it was established it has been “in constant response and recovery mode”. Since December 2019, it has dealt with extreme weather conditions in Canterbury and the West Coast, the Whakaari / White Island eruption, droughts in the north of both the North and South Islands, COVID-19, and the March 2021 earthquakes and tsunami warnings along the east coast of the North Island.
NEMA has activated the National Crisis Management Centre four times, for a total of 147 days. The chief executive of NEMA said this was “unprecedented”.
We thank the agency for all of its hard work, particularly over this difficult year.
NEMA is a key part of the COVID-19 response From January 2020, NEMA was supporting the all-of-Government response to COVID-19. It activated the National Crisis Management Centre. It also provided advice to the Minister of Civil Defence to support the nationwide state of emergency. The state of emergency was declared on 25 March 2020 and extended six times. Although the National Crisis Management Centre was de-activated at the end of June 2020, NEMA continues to support the COVID-19 response.
NEMA used its emergency alert and communications tools and channels to support all-of- government messaging. It also worked closely with CDEM groups and others to support people who had welfare needs as a result of COVID-19.
The frequency of emergencies is increasing NEMA acknowledged that the frequency, duration, complexity, and socio-economic consequences of emergencies have increased. These emergencies also disproportionately affect some communities. NEMA said there is still a lot to be done to address vulnerabilities in the emergency management system.
We asked what NEMA is doing to prepare for the increased intensity and frequency of natural disasters. NEMA said its additional investment has allowed it to improve its planning function. It has invested in both general planning and hazard-specific planning. It wants to improve its own planning capability, but also support local-level planning.
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NEMA said it has set up its first in-house policy team. This has allowed it to give stronger policy advice to Government directly on emergency management, and also engage with other agencies’ policy advice on issues that relate to emergency management.
Knowledge should be transferred between emergencies Different agencies take the lead on different types of emergencies. We asked NEMA how to improve the transfer of knowledge and relationships built from one emergency to the next. For example, relationships built during the Pigeon Valley fires in the Nelson-Tasman region were not completely transferred into the COVID-19 situation. They took time to re-establish.
NEMA noted that the nationwide, acute, and enduring nature of COVID-19 has made it more complex than other emergencies. NEMA said it was therefore inevitable that systems and structures differed. However, it said it had learnt a lot from the COVID-19 experience and will take it forward into its processes and systems.
NEMA alerts the public to emergencies Emergency Mobile Alerts (EMAs) are messages about emergencies sent by authorised emergency agencies to capable mobile phones. The alerts are targeted to areas affected by serious hazards. They are sent when there is a serious threat to life, health, or property.
Getting these alerts out quickly in an emergency is crucial. We asked NEMA how it communicates those messages quickly, particularly when there are connectivity issues. NEMA said it relies on layers of different communication tools to reach everyone. Some people have a phone that will get an EMA; others will need a neighbour to knock on their door. Part of NEMA’s consistent public education messaging is that everyone should look after their community, so that everyone gets the message in an emergency.
NEMA discussed the large social media reach that it now gets with its alerts. It said there were 20 million impressions on social media during March’s earthquakes and tsunami warnings. However, it said it still needs to work to reach people who do not use social media, whether because of their demographic or where they live.
NEMA can tailor its messages to each emergency We asked how NEMA phrases its communication in a sudden life-endangering event, to be clear about the danger but avoid causing mass panic. NEMA said it has numerous pre- written messages that it tailors to different emergencies. It employs specialists who quickly examine messages to make sure they meet the specific needs of people who are at risk.
NEMA also emphasised the work it does in advance of events happening that helps to mitigate panic. Campaigns like “Long or Strong: Get Gone” socialise the actions people need to take in an emergency. NEMA said that it has brought forward earlier investment to run additional promotion of the message “Long or Strong: Get Gone”. This seeks to leverage off the heightened public awareness following the March earthquakes and tsunami warnings.
Numerous EMAs have been sent out over the past year. We asked whether NEMA was worried about people getting fatigued by the alerts coming through, and therefore would not take them as seriously. We also asked whether it is worried about the trivialisation of emergencies, such as through memes. 4
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NEMA said it is always concerned about people getting fatigued. It said if it warns people of a potential emergency and then it does not happen, it has to stretch further to sell the message next time. NEMA said its primary responsibility is life safety. Inherent in that is a precautionary approach to emergencies. It said its decisions are based on evidence, as well as experience and judgement. NEMA said it is not worried about the trivialisation of emergencies. It sees it as a good thing if people are paying attention and engaging on the topic.
Coordination of Emergency Mobile Alerts could be better We asked NEMA whether there are delays in receiving EMAs depending on which provider a person is with. People can receive alerts at different times.
NEMA acknowledged that there may have been confusion with the number of alerts that were sent during the March earthquakes and tsunami warnings. Twenty one alerts were issued: 3 by NEMA and 18 from CDEM groups at a regional level. They contained different messages. For example, NEMA sent a message to the coastal community telling them they needed to evacuate. CDEM groups may have sent messages to wider areas that were under beach and marine threat, rather than evacuation threat, to inform people of the situation.
NEMA acknowledged that if someone receives the second message but not the first, they may think there is a problem. NEMA said the technical aspects of the system work well, because information reaches people quickly. Its technical data showed between a 95.2 and 100 percent transmission success rate across New Zealand’s three major network providers for emergency messages sent regarding the March 2021 earthquakes. However, it said it needs to work on being clearer with its messaging. It will be testing this in an upcoming review.
Despite the potential confusion, NEMA said it was happy with the way the system worked during the March earthquakes and tsunami warnings. It estimates that messages reached over one million people, on about 70 percent of EMA-enabled phones.
We note that there can be more than one “event” that people need to be aware of over a short period of time. We are concerned people might read a message and think it relates to an earlier event, rather than a new one. NEMA said it looks at the language it uses each time there is an emergency, to see how it could be improved for next time. It also looks at how messages flow for multiple events, to see how that could be improved. These sorts of concerns will inform its review.
We would like to be informed of the outcome of the review and work in this area.
Volunteers are an important part of emergency response When emergencies occur, people want to help their communities. Although we deeply appreciate volunteers’ work in emergencies, this can sometimes present an extra risk. For example, people checking on neighbours in person during COVID-19 lockdowns can increase the risk of transmission of the virus. We asked for an update on the work NEMA is doing to best utilise spontaneous volunteers.
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NEMA said that spontaneous volunteers are an important part of the wider emergency management workforce because emergencies affect communities first and foremost. For this reason, it is important to enable communities to be involved in the response and recovery. NEMA said guidance was developed after the Canterbury earthquakes when it became aware of the importance of enabling spontaneous volunteers to be involved.
NEMA told us about community-led centres that are established in emergencies. It said it is important that the emergency management system does not exclude these centres. For example, we heard about the Pigeon Valley fires. The Government established a traditional civil defence centre, but the community wanted their own one. NEMA removed its civil defence centre and set up government services at the back of the community centre. This helped support the community to determine what was best for them.
NEMA said the Emergency Services Leadership Board is working on a volunteer strategy for both spontaneous and affiliated volunteers. It is working with other agencies on this. It wants consistency across the sector in terms of how different agencies engage with spontaneous volunteers.
Young people are important to spread information NEMA works to ensure that everybody has access to vital safety information before, during, and after emergencies. It said that using young people to carry messages into their whānau and communities is a longstanding and proven way of spreading important messages.
NEMA thinks it has more work to do in targeting messaging for all communities so that messages get to everyone. Part of that is working with culturally and linguistically diverse communities, so everyone can access and benefit from that information. We heard that NEMA is working with kura as part of its wider Māori work programme.
However, NEMA said it has to go beyond schools to ensure messages touch all communities. It said it would love to do more in public education, but thinks it does a good job with the resources it invests in currently.
NEMA is investing in its planning teams The Alpine Fault is a fault line that runs down almost the entire length of the South Island. The potential for earthquakes comes up in conversation frequently in Canterbury and other parts of the South Island. We asked whether any modelling or preparation had been done in relation to the fault.
NEMA told us it had recently invested in its planning teams, including growing its staff. Three years ago, the South Island Alpine Fault Framework for Emergency Response was developed to help with planning for emergencies across the South Island. NEMA said that it has generic high-level planning for different types of risks and hazards. However, NEMA is conscious that specific planning is needed for some hazards, such as the Alpine Fault. It said it has invested heavily in this and will continue to do so.
NEMA said a lot more is known now about the Alpine Fault. It is regularly working with GNS Science and noted that new research comes out regularly from universities about various hazards and risks, including the Alpine Fault. 6
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Appendix
Committee procedure We met on 11 and 24 March 2021 to consider the annual review of the National Emergency Management Agency. We heard evidence from the National Emergency Management Agency and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the National Emergency Management Agency).
DPMC and NEMA (Responses to written questions).
NEMA (Responses to post hearing questions).
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2019/20 Annual review of the New Zealand Security Intelligence Service
Report of the Intelligence and Security Committee
March 2021
The Intelligence and Security Committee has conducted the 2019/20 annual review of the performance and current operations of the New Zealand Security Intelligence Service. The committee heard evidence in public from the New Zealand Security Intelligence Service and received advice from the Office of the Auditor-General.
The committee recommends that the House take note of this report.
Rt Hon Jacinda Ardern Chairperson 394
2019/20 Annual review of the Office of the Clerk of the House of Representatives 2019/20 Annual review of the Parliamentary Service
Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About the Office of the Clerk and the Parliamentary Service ...... 2 Financial performance and audit results ...... 2 COVID-19 changed how Parliament could function ...... 3 The Service undertook a security review ...... 3 The Office and the Service provide training for new members ...... 4 Electorate office funding ...... 4 The Francis review recommendations are being progressed ...... 5 The Speaker was subject to a defamation case ...... 6 The plaintiff still has an employment claim against the Service ...... 11 Appendix ...... 12
Barbara Kuriger Chairperson 395
2019/20 ANNUAL REVIEW OF THE OFFICE OF THE CLERK AND THE PARLIAMENTARY SERVICE
Office of the Clerk of the House of Representatives and the Parliamentary Service
Recommendation The Governance and Administration Committee has conducted the annual reviews of the Office of the Clerk of the House of Representatives and the Parliamentary Service for 2019/20, and recommends that the House take note of its report.
About the Office of the Clerk and the Parliamentary Service The Office of the Clerk provides secretariat support to the House of Representatives and its select committees. It is also responsible for recording, broadcasting, and communicating parliamentary information and connecting the public to Parliament and its members. The Parliamentary Service provides members of Parliament with the services they need to engage effectively with their communities and together as a House of Representatives.
David Wilson is Clerk of the House of Representatives and the Office’s chief executive. Rafael Gonzalez-Montero is the Parliamentary Service’s chief executive.
The two agencies have presented a combined Parliamentary Sector annual report for 2019/20. We have therefore considered their annual reviews together.
Financial performance and audit results In 2019/20 the Office received revenue of $22.08 million and spent $20.43 million. Its surplus was $1.65 million. This is an increase from its surplus of $0.92 million in 2018/19. In 2019/20 the Service received $66.89 million of revenue. It spent $67.23 million. This resulted in a deficit of $0.34 million. In 2018/19, it had a surplus of $0.01 million.
The Auditor-General issued non-standard audit reports for the Office and the Service. He was satisfied that the information audited fairly reflected both agencies’ activities and financial position. The reports are non-standard because they draw the readers’ attention to the disclosures in the financial statements and performance information. They also outline the effects of COVID-19 on the agencies.
The Auditor-General rated the Office’s management control environment and financial information and supporting systems and controls as “very good”. There were no recommendations for improvement. The Office’s performance information and supporting systems and controls were rated “good”. The Auditor-General recommended improvements relating to the Office’s strategic objectives and supporting systems and procedures to ensure accurate reporting.
The Service’s management control environment was rated “very good”, with no recommendations for improvement.
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The Service’s financial information and supporting systems and controls and performance information and supporting systems and controls were rated “good”. The Auditor-General recommended improvements to both areas relating to key aspects such as reviewing employee entitlements, the Service’s policy for payments for hurt and humiliation, legal compliance and performance measures and objectives, including how they would be measured. The Auditor-General recommended that the Service’s legislative compliance survey be carried out as soon as possible. This annual survey was not completed in 2019/20.
COVID-19 changed how Parliament could function The COVID-19 lockdown changed how Parliament worked and functioned. The Office provided advice to the Business Committee on how the House and committees could operate with COVID-19 restrictions in place. Numerous steps were taken before the country went into lockdown on 25 March. They included making arrangements for remote select committee meetings, the relaxing of proxy voting limits, and the electronic lodging of papers, questions, and motions.
The Epidemic Response Committee was set up. This committee was able to scrutinise the Government on its COVID-19 response when the House could not sit. These meetings were the first select committee sessions to be televised. We heard that each meeting of the Epidemic Response Committee had about 200,000 views. The Clerk said this was extraordinary “for a select committee or probably any sitting of Parliament”.
The Speaker has stated that the Office and the Service both provided excellent service throughout COVID-19. We note that a number of the temporary solutions that were adopted to respond to COVID-19 have now been adopted permanently. For example, committees can now meet using videoconferencing technology at any time. The Parliamentary Sector annual report states that these changes “provide flexibility while COVID-19 remains a threat”.1 The changes also improve Parliament’s scrutiny and engagement functions.
The Service undertook a security review The Service began a security review at the end of 2019/20. Recommendations from the review are currently being implemented. They are expected to be mostly completed by June 2021. Part of the work was ensuring that every electorate and community office has appropriate physical security measures in place. We are pleased to hear that security is being improved in our electorate and community offices.
We note that members of Parliament can access more enhanced security when needed. However, staff in electorate or community offices do not have extra protection when they leave their office. These staff are public-facing and more identifiable in the age of social media. We asked whether more security for electorate office staff was being considered, for example in staff members’ homes.
The Service said that it had not considered security in staff members’ homes. However, staff are entitled to have duress alarms if they require one. The Service has begun providing
1 Parliamentary Sector Annual Report 2019/20, page 12.
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2019/20 ANNUAL REVIEW OF THE OFFICE OF THE CLERK AND THE PARLIAMENTARY SERVICE updated duress alarms across electorate offices. This is still a work in progress. We look forward to hearing more about this matter at our next annual review.
The Office and the Service provide training for new members We thanked the Office and the Service for their work on inducting new members following the 2020 election. We asked what they would change for the 2023 induction.
The Office said it surveys members during induction to see what went well and what could be done differently. We heard that members expressed a desire for ongoing training as well as the initial induction programme. The Office said it is aware it cannot give members all the information they need in the first two weeks. During the initial induction, it said, it tries to focus on the information members need to know immediately.
The Office said that training for select committee chairs and deputy chairs was currently running. There would also be a programme of ongoing development—for all members— running for the duration of the 53rd Parliament.
Electorate office funding The costs of renting and operating electorate and community offices are paid for out of party and member support funding. This funding is provided by the Parliamentary Service.
Some of us were concerned about the arrangements for the Petone electorate office in the Hutt South electorate. It was highlighted that some media reports have indicated that the Labour Party in Hutt South is charged $1,500 for the space by the landlord. It then rents the space to the local MP for $6,000. The Parliamentary Service covers that cost. Some of us are concerned that the Service is paying above what the landlord charges—although we acknowledge that $6,000 is below market rent for the area.
The Service said it had looked into this particular case. It decided that the arrangement was in the best interests of the taxpayer, because the payment was significantly below the market rate for the property. It said it looks at its policies and procedures when paying for electorate offices, but it does not have any visibility over what happens after it pays the rent.
Some of us asked whether this arrangement complies with clause 6 of the Speaker’s Directions, which requires entitlements and services to be used for parliamentary purposes. The Service said that, as far as it is aware, this arrangement does comply with the Speaker’s Directions. However, it said it would bring advice on this issue to the next Parliamentary Service Commission meeting. It believes the Parliamentary Service Commission is the appropriate forum to consider such advice because the concern relates to Speaker’s Directions rather than to rules created by the Parliamentary Service.
Some of us asked whether a current or previous member has declared a conflict of interest under clause 7 of the Speaker’s Directions in relation to the Hutt South electorate office arrangement. Clause 7 requires a member to disclose to the Parliamentary Service a connection to a related party. The Service, in a written response, identified that it held disclosures relating to the Hutt South electorate office in 2014, 2017, and 2020, and that disclosures prior to those periods were no longer held in accordance with the Service’s record management procedure. 4
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The Francis review recommendations are being progressed The review made recommendations to improve the culture at Parliament In November 2018, the Speaker announced an independent review into bullying and harassment at Parliament. He thought that changes were needed to ensure Parliament was a safe place to work. Debbie Francis undertook the review. Her report, the Francis report, was released on 21 May 2019. The review found that “bullying and harassment are systemic in the Parliamentary workplace”.2
The review made 85 recommendations. The Speaker has said he is pleased with the progress made by the Office, the Service, and the Department of Internal Affairs on the recommendations.
We were advised that 29 recommendations were implemented by the end of 2019/20. A further 9 were completed between June and November 2020. We heard that 31 other recommendations are in the process of being implemented. Despite this progress, the Service acknowledged that there is more work to do.
The Speaker said that, since the Francis report was released, some women have indicated they would like to formalise their complaints, either with the Parliamentary Service or the Police. He sees this as a good thing. He told us he is regularly approached by staff with positive comments about the improvements to safety at Parliament. However, he commented that it can take at least five years to properly institute cultural change in an organisation, especially one of this size.
Employment agreements have changed to better support staff The report made multiple recommendations about providing more support and protection for Parliamentary Service staff. The Service outlined changes made to staff employment agreements to help with this. For example, a code of conduct has been developed and a time-off-in-lieu (TOIL) system has been introduced.
Some Parliamentary Service staff are managed day-to-day by members. However, they are direct employees of the Service. “Triangular” relationship agreements have been made to better recognise the complexities in this relationship. The agreements set out each party’s responsibilities and give more protection to staff.
The agreements clearly acknowledge the code of conduct and the obligation to adhere to it. It is now made clear in new members’ induction that members may have personal exposure to claims from Parliamentary Service staff. If their behaviour is inappropriate, costs will not be covered.
The Parliamentary Service has also removed the “breakdown” clause from employment agreements. This means that, if a member of Parliament or a staff member wants to end the employment relationship, a normal employment process must take place. Performance expectations must be in place and time must be taken to work through any issues. If the issue cannot be resolved after this process, the employment can be terminated.
2 The Francis Report, page 7.
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We also heard that the type of event that can trigger a notice period for events-based staff has been narrowed. Previously, when there was an election, almost all member support staff would be put on notice and have to go through recruitment again. The Service said it had heard from staff that this created a power imbalance because they did not know whether they would keep their job at the end of the parliamentary term. The new process means the clause is only triggered if a member loses their seat or becomes a Minister.
We asked the Service what processes it pursues to relocate a staff member when they cannot continue with a particular job. The Service said it consults with staff and provides them the opportunity to give their feedback and see if a solution can be found. Any feedback is considered before a decision to pay redundancies. The Service said this process involves staff a lot more and shows them that the process is transparent.
Further work is still needed in this area The Speaker thinks Parliament is safer as a result of implementing the Francis review recommendations. Staff are better supported and members have more support and supervision. However, he acknowledged that there is still more work to do.
We asked the Speaker what recommendations in the Francis review are urgent over the next year. He said he wants almost all of the recommendations to be progressed by the end of 2021, when there will be a three-year review. He thinks the main outstanding matter is the appointment of a commissioner, who would have a role regarding members who had breached the code of conduct. He thinks it is vital to have an independent person who can report freely, so that members are held to account in a transparent way.
The Speaker was subject to a defamation case A complaint about sexual assault at Parliament was made in 2018 In 2018, the Service opened an investigation into sexual assault allegations against a man who worked at Parliament. The investigation was not into allegations of rape. An employment process was commenced. The initial investigation was closed before the Francis report was released.
The Francis review team heard about numerous alleged incidents involving sexual assaults at Parliament. Where appropriate, the team supported and encouraged complainants to take action with employers or the Police.
The chief executive said that in March 2019 he was asked by the complainant to reopen the case. The initial investigation had predated his appointment as chief executive. He sought legal advice about whether it would be appropriate to re-open the investigation. On 13 May 2019 he decided to formally do so.
We asked whether the chief executive had had a conversation with the Speaker about the case before he decided to reopen the case. The chief executive mentioned to the Speaker that there was an issue he had become aware of, and that he was thinking of reopening an investigation. This was on the basis of the “no surprises” policy, as well as there being a lot of interest in the Francis review.
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The Francis report was released on 21 May 2019. It brought to light numerous instances of sexual harassment and sexual assault at Parliament. Fourteen instances of sexual assault were reported in an online survey conducted by the review team, and five instances of sexual assault were disclosed in interviews with the review team.3 In Ms Francis’s view, three of the alleged assaults were extremely serious and some appeared to be part of a multi-year pattern of predatory behaviour.
The Speaker said her report was “shocking but not surprising”. He said it presented immediate issues to resolve.
The man’s employment was suspended from 22 May 2019 On 22 May 2019, the Parliamentary Service informed the man concerned that it had decided to re-open the case. He was suspended with pay that morning. We heard that the Service had received no new information when deciding to re-open the case. It said that it was acting on the complaint that had been formalised after the release of the Francis report.
After an investigation, the man’s employment ended in November 2019.
We heard that the case was reopened on the basis of one complaint. After reopening the case, the chief executive said he became aware of other complainants. However, they were not part of the re-investigation.
We note that the Service’s HR and legal advisers started preparing documentation before it decided to suspend the man. We asked what documentation was required if a decision had not been made. The chief executive said he had been receiving legal advice for some time about whether there were bases to reopen the investigation.
We heard that the basis for the man’s suspension was the reopening of the investigation. The chief executive said that one of the issues from the initial investigation was that the man and the complainant were still working together while it was being undertaken. The chief executive said he did not want that to happen again.
The Speaker’s comments were made while discussing the Francis report The Speaker told us he came to know about the complaint through the Francis report. On the morning of 22 May 2019, he said to Radio New Zealand that his impression was that a person was involved in three serious incidents. The Speaker said “we’re talking about serious sexual assault. Well that, for me, that’s rape.” He said he believed the man was still working at Parliament.
The Speaker told us that, when he made this allegedly defamatory comment, in the morning, he was not associating the word with any individual person. Later, in the afternoon, he commented that he was “satisfied that Parliamentary Service has removed a threat to the safety of women working in the Parliamentary complex”. When asked, the chief executive said it was coincidental that the man was stood down on the same day that the Speaker made his comments.
3 We note that there may be some overlap between these two figures, given the anonymous nature of the online survey.
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In January 2020, the man sued the Speaker for defamation over his comments on 22 May 2019. The man, now the plaintiff in the defamation case, sought $400,000 in damages, $50,000 in exemplary damages, and court costs.
We note that this is the first time a Speaker of the House has been sued for defamation. However, there have been several defamation cases involving Ministers.
The defamation case was settled in December 2020 The case was settled on 3 December 2020 following a mediation process. Responses to written parliamentary questions revealed that the plaintiff was paid $158,000 as an ex gratia payment, and an additional $175,642 was spent on the Speaker’s legal fees. We were told that no further money will be paid from this case.
We heard that the settlement includes confidentiality clauses. They bar the Speaker being able to talk about the settlement. However, there is an exception for parliamentary proceedings in both the House and select committees. The Speaker said he had insisted on this exception to ensure there was sufficient transparency. Some of us are confused by this clause, based on the view that the Speaker always has privilege related to comments made in the House and committees.
The Speaker said he does not intend to make a statement about the case in the House. He said he has apologised to the House through the committee (see below), in the expectation that his comments would be included in a report to the House. The comments could then be debated as part of the annual review debate.
The Speaker apologised to the plaintiff publicly in December 2020 After the settlement, the Speaker issued a media statement on 8 December 2020. This contained a public apology to the plaintiff for his actions. The Speaker said he had personally apologised to the plaintiff, and subsequently repeated his apology in writing.
At our hearing, the Speaker restated his apology to the plaintiff. He apologised for his misunderstanding which caused the plaintiff distress. The misunderstanding was that he had said the allegations associated with the plaintiff amounted to rape. The Speaker said his understanding of the definition of rape at the time was incorrect and the alleged conduct did not amount to rape.
The Speaker said he realised he had made a mistake “probably within 24 hours” of his comments. We asked why the Speaker did not try to clear up his mistake at the time. It is common for members to misspeak and clarify their comments later. The Speaker said that at that stage an employment process was under way, which he did not want to interfere with.
The media statement with the Speaker’s public apology was circulated to the press gallery on the first sitting day of Parliament after the case was settled. The Prime Minister received it at the same time.
The Speaker said he preferred to release his statement on a sitting day. He said that, because the first sitting day coincided with the release of the Royal Commission of Inquiry into the terrorist attack on Christchurch masjidain on 15 March 2019, he waited until the debate had concluded in the House before issuing the statement. The Speaker said he
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The Speaker also apologised to New Zealanders for his mistake As well as his apology to the plaintiff, the Speaker apologised to both the House and the New Zealand public for his mistake. He acknowledged that the money spent on the case could have been better spent elsewhere. The Speaker also apologised for creating a distraction and not getting on as quickly as possible with implementing the recommendations in the Francis report.
The Speaker commended the courage of those who contributed to the Francis review. He was sorry that his mistake diverted attention from their stories and the work to change the culture at Parliament.
The Speaker retains the confidence of the Prime Minister We asked the Speaker whether he had discussed this case with the Prime Minister. The Speaker said they had spoken once about it, within a day or two of his public apology. We asked whether that conversation touched on the Speaker’s appropriateness to continue in his role. The Speaker said it did not. He said he relied on the Prime Minister’s public statement, where she indicated that she had confidence in him.
The Speaker’s costs were covered because of his ministerial role
The Deputy Speaker decided that the Speaker’s costs would be covered Ministers can have their legal and other costs covered if they are acting inside their ministerial role. The Speaker is deemed the Minister responsible for the Parliamentary Service. For the Speaker’s costs to be covered in this case, a decision was required that he was acting in his ministerial role when he made the comments about the plaintiff.
The Deputy Speaker at the time, Hon Anne Tolley, was responsible for that decision. Her decision was based on the advice of the Solicitor-General. The Solicitor-General indicated that it would be appropriate for outside counsel to be retained for this case. Following that advice, Ms Tolley indemnified the Speaker for the cost of legal advice in defending the proceedings. Ms Tolley deferred making a decision about indemnifying him for any damages or legal costs that might be awarded against him.
Based on advice from the Clerk of the House and the chief executive of the Parliamentary Service,4 the Speaker formally removed himself from consideration of any settlement parameters. This had the effect of transferring his powers to the Deputy Speaker for these decisions. The Speaker confirmed that he and the Deputy Speaker did not discuss the settlement.
The Speaker told us that the Deputy Speaker did not have to make the decision. Instead, a Cabinet process could have been used, or a decision by the Attorney-General or the Leader of the House. However, the Speaker said he thought these processes would have given perceptions of political partisanship and were inappropriate given the independence of the
4 In accordance with section 33 of the Parliamentary Service Act 2000.
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We heard that Ms Tolley established the parameters for settlement negotiations in early September. The final amount of the settlement was signed off by Adrian Rurawhe, the Deputy Speaker of the 53rd Parliament, in December 2020.
Legal advice from Crown Law and independent lawyers was received We asked the chief executive whether he had sought legal advice about recommending that the Deputy Speaker sign off on the settlement amount. The chief executive said that, because there was no Deputy Speaker during the period between Parliaments, the advice from Crown Law came directly to him. Once Mr Rurawhe was appointed, he relayed Crown Law’s advice to him.
Some of us asked whether the Crown Law advice had considered whether the Speaker had acted outside the scope of his authority in making the comments that gave rise to the legal action. The chief executive said it had not. The advice from Crown Law was about whether the settlement would be economically viable for the Service. The advice was that it would be more economical for the claim to be settled, rather than to go through a court case.
We also heard that the Service sought independent legal advice. We were told that this advice focused on the process proposed by Crown Law. The advice did not consider whether the Speaker was acting within his authority when the comments were made.
Some of us think it is important that the Service investigated properly whether the Speaker was acting outside of the scope of his authority when making the comments he did. If he did, some of us think it should have considered whether liability should fall on him personally for settlement costs and legal costs. The Speaker said that Ms Tolley’s decision, made on the advice of the Solicitor-General, was about a total amount, covering both legal costs and the ex gratia payment.
Changes to the Speaker’s Directions did not affect the case In August 2020, changes to the Speaker’s Directions were announced. They came into force at the start of the 53rd Parliament. The Speaker’s Directions set out instructions about the services and support funding for members of Parliament and parliamentary parties.
One of the changes was that members of Parliament can now apply for a wider range of legal costs from their party leadership funding. The costs that could be covered include legal advice, legal representation, and awards of damages or costs for all types of civil legal action taken against members acting in their capacity as members of Parliament. The relevant party leader, the Speaker, and the chief executive of the Parliamentary Service must approve the payment of these costs from party funding.
There has been some confusion about whether these changes to the Speaker’s Directions affected whether the Speaker’s costs were covered in his defamation case. The Speaker told us that it had been incorrectly reported that these rules were changed to assist him with his case. He said this was not true. The changes do not apply retrospectively. They apply from the start of the 53rd Parliament. This means they do not affect the Speaker’s case. If
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The changes were made by the Parliamentary Service Commission. The Commission is a cross-party group of members that advises the Speaker about services for the House and members. Decisions almost always have unanimous support. The Speaker is the Chair of the Commission. However, we were told that Hon Gerry Brownlee chaired the meeting that discussed the changes to the funding of members’ legal costs. The Speaker said that, although the changes being discussed had no effect on his case, he wanted to avoid any perception of a conflict of interest. The changes were agreed unanimously.
The plaintiff still has an employment claim against the Service When the plaintiff’s employment ended with the Parliamentary Service, no further payment was made to him apart from what was required by his employment agreement. However, we heard that the plaintiff still has an employment claim open against the Parliamentary Service. This is separate to the defamation action against the Speaker.
We heard that the action began shortly after the plaintiff finished working at the Parliamentary Service in November 2019. We ascertained that the legal costs paid so far by the Service on this claim total about $37,500. This is on top of the amount spent on the Speaker’s defamation case. Some of us were surprised to hear that this might not be the end of the cost to the taxpayer from this incident.
We confirmed with the chief executive at our March annual review hearing that no more money had been spent on the case since our December hearing. However, mediation has taken place.
The Speaker received a written Parliamentary question which asked whether the Service expects to be able to settle the employment case with the plaintiff before it goes to court (although we note that, at present, no proceedings have been lodged). The Speaker’s answer was “no”. The chief executive confirmed that answer. In response to our committee’s questions, the chief executive said he is not willing to settle the dispute because he does not believe the Service did anything wrong in re-opening the investigation.
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Appendix
Committee procedure We met on 16 December 2020, 10 March, and 24 March 2021 to consider the annual review of the Office of the Clerk and the Parliamentary Service. We heard evidence from the Office of the Clerk, the Parliamentary Service, and the Speaker of the House of Representatives, Rt Hon Trevor Mallard. We received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Chris Bishop, Kieran McAnulty, Dr Duncan Webb, and Hon Michael Woodhouse participated in some of this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with transcripts of our hearings.
Office of the Auditor-General (Briefing paper, Office of the Clerk and the Parliamentary Service).
Office of the Clerk of the House of Representatives (Responses to written questions).
Parliamentary Service (Responses to written questions).
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2019/20 Annual review of the Office of Film and Literature Classification
Report of the Governance and Administration Committee
March 2021
The Governance and Administration Committee has conducted the annual review of the Office of Film and Literature Classification for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Barbara Kuriger Chairperson 407
2019/20 Annual review of the Office of the Ombudsman
Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About the Office of the Ombudsman ...... 2 Financial performance and audit results ...... 2 The effect of COVID-19 on workload has been significant ...... 2 Assessments of MIQ facilities and border restrictions are about fairness ...... 3 Unannounced inspections reduced in 2019/20 ...... 3 Structured response to growth in workload ...... 3 Diversity and outreach ...... 4 The role of the Ombudsman in the international Ombudsman community ...... 4 Checking in on progress made after reports ...... 4 Appendix ...... 6
Barbara Kuriger Chairperson 408
2019/20 ANNUAL REVIEW OF THE OFFICE OF THE OMBUDSMAN
Office of the Ombudsman
Recommendation The Governance and Administration Committee has conducted the annual review of the Office of the Ombudsman for 2019/20, and recommends that the House take note of its report.
About the Office of the Ombudsman The Office of the Ombudsman is an independent authority that works to ensure New Zealanders are treated fairly when they interact with Government. The Office handles complaints, and investigates, reviews, and inspects public sector agencies’ administrative conduct and decision-making.
The Office of the Ombudsman is an Officer of Parliament, independent of the Government. The Chief Ombudsman is Judge Peter Boshier, who has been in the role since December 2015.
As at 30 June 2020, the Office had 133 employees in Auckland, Christchurch, and Wellington. This was an increase from 93 staff the previous year. We discuss below the continuing growth in the Office’s workload and staffing.
Financial performance and audit results In 2019/20, the Office’s total revenue was $23.9 million, an increase of $5.3 million from $18.6 million in 2018/19. Total expenses also increased to $22.5 million from $17.7 million, and resulted in a surplus of $1.4 million.
The Auditor-General rated the Office’s management control environment as “very good”. It rated the Office’s financial information and supporting systems and controls, and its performance information and supporting systems and controls as “good”. These results were unchanged from the previous year.
The effect of COVID-19 on workload has been significant COVID-19 increased the Office’s workload considerably. During 2019/20 the Office received 466 COVID-19-related complaints and enquiries, in addition to normal work. We heard that work was able to continue under levels 3 and 4 due to the Ombudsman being well prepared. We were impressed to hear that the Ombudsman maintained a 99 percent clearance rate of complaints during levels 3 and 4.
Most complaints regarding COVID-19 decisions have been about border restrictions and managed isolation and quarantine (MIQ) requirements. The Ombudsman stated that these are important complaints for him to consider as they concern Government decisions to detain individuals. The Ombudsman also said that the surge in complaints about managed isolation is expected to peak later in 2021, increasing by as much as 30 to 50 percent.
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Assessments of MIQ facilities and border restrictions are about fairness We asked what sort of complaints the Office of the Ombudsman was receiving and how they were being dealt with. He told us that many of the complaints have involved a lot of emotion, rather than simply being about procedures. The rules about border restrictions and MIQ facilities are clear and strict, and we heard that people can find these decisions tough and would like a place to vent their frustrations. The Ombudsman told us that some people view his office as a place to do this. We learned that the Office’s powers of investigation into the conduct of agencies under the Ombudsmen Act 1975 is causing this spike in complaints, while its work on OIA issues (Official Information Act) remains steady.
The Ombudsman explained that when complaints about MIQ are raised, the key focus for his office is whether or not the process has been fair and reasonable. He noted that the situation is complicated because it is new and there are no precedents. He hopes to produce a thematic paper on the topic in the future. The Ombudsman said he has asked Immigration New Zealand to re-examine some of its areas of practice as a result of some of his office’s investigations into the processes.
Unannounced inspections reduced in 2019/20 In 2019/20, 84 places of detention were visited, including 59 formal inspections. This is an increase from 40 the previous year. Of the total, 36 percent were unannounced inspections, down from 90 percent the previous year, and not meeting the target of 60 percent.
We were told that the performance target had been increased to 60 percent in 2018/19 in a deliberate effort to increase the number of unannounced inspections over time. The internationally accepted standard is simply that at least one-third of inspections should be unannounced.
We asked what caused the reduction in the proportion of unannounced inspections and what effect it had on the ability of inspectors to reach their conclusions. We were informed that the overall reduction in unannounced inspections was due to the inclusion of aged care facility orientation visits and COVID-19 health and safety principles. In 2019/20 the Office completed the first year of a three-year work programme to set up inspections for privately run aged care facilities, which included 17 orientation visits. Although the Ombudsman was not intending to begin formal inspections until July 2021, specific inspections focused on COVID-19 were also carried out at six aged care facilities between April and June 2020, with a report produced in August.
All other COVID-19 focused inspections between April and June 2020, including of prisons and mental health facilities, were announced so that entry and exit procedures and use of personal protective equipment could be organised.
Structured response to growth in workload We asked how the Office of the Ombudsman is coping with the growth in its workload. The Office’s responsibilities have expanded, and it has increased its staffing to 133 from 93 the previous year. A further increase is planned, of 71 FTE staff over the three years 2020/21 to 2022/23. The Office’s revenue is expected to increase by $9.32 million to accommodate this.
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The Ombudsman told us that the growth reflects not only an increase in complaints answered, but in the provision of more proactive advice, training, and teaching on how good governance should work. He has tried to “stack” the Office at the front end, with a group focused on proactive interventions to improve system-wide performance. He also has an intake and early assistance team, which attempts to verify whether a complaint can be resolved within 14 days. The Ombudsman wants the Office to be able to resolve a complaint within 12 months, and avoid the backlog of complaints that has existed in the past. In addition, the Office is conscious that complaints about MIQ issues in particular are time- sensitive. The Ombudsman thinks he must act immediately in such cases.
Diversity and outreach We asked whether there is any demographic data about the people who make complaints to the Office, particularly by ethnicity. The Ombudsman said there is not. The Office receives complaints from a wide range of people, but does not know the exact ethnicity percentages. He expressed a desire to have this information.
We were told that the Office had been engaged in outreach to the Māori community over the past year, including setting up the Pūhara Mana Tangata advisory board and attending several regional hui about strengthening oversight of the system for children in care. A programme of engagement throughout the country is planned, with the aim of discovering what fairness is for Māori through a te ao Māori lens.
As part of his role as the independent monitoring mechanism for the Disability Convention, the Ombudsman has published a report on Making Disability Rights Real, Whakatūturu Ngā Tika. He has also begun work on a report about the experiences of disabled people during COVID-19.
The role of the Ombudsman in the international Ombudsman community We were interested to hear of the Ombudsman’s involvement with his international peers. New Zealand is a member of the International Ombudsman Institute, and the Ombudsman was recently re-elected President of the Asia-Pacific Ombudsman Region.
We heard that he hosted the Inaugural Pacific Ombudsman Leadership Forum in February 2020 and has maintained contact online through virtual forums since then. The Ombudsman has delivered virtual performance management workshops and a webinar on how he met his obligations under the Optional Protocol to the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (OPCAT) during the pandemic.
Checking in on progress made after reports We were interested in whether the Ombudsman follows up on the recommendations made to organisations, and whether there is a system for them to report back to his office. The Ombudsman said that in some cases he knows about progress because of actions taken by the organisation. In other cases, particularly with places of detention, his office revisits to see what changes have been made. Reports are then made and tabled in Parliament. These reports are often covered by the media, which provides public oversight and accountability.
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We were informed that another method of accountability is through the publication by the Office of the Ombudsman, in conjunction with the Public Service Commission, of statistics about compliance with the Official Information Act.
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Appendix
Committee procedure We met on 10 February and 24 March 2021 to consider the annual review of the Office of the Ombudsman. We heard evidence from the Office of the Ombudsman and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Office of the Ombudsman).
Office of the Ombudsman (Responses to written questions).
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2019/20 Annual review of the Pike River Recovery Agency
Report of the Finance and Expenditure Committee
March 2021
The Finance and Expenditure Committee has conducted the annual review of the Pike River Recovery Agency for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Dr Duncan Webb Chairperson 414
2019/20 Annual review of Statistics New Zealand
Report of the Governance and Administration Committee
March 2021
Contents Recommendation ...... 2 About Statistics New Zealand ...... 2 Financial performance and audit results ...... 2 Planning for Census 2023 ...... 2 Progress is “near enough to on track” ...... 2 Adjustments are being made to avoid problems from Census 2018 ...... 3 Working with Māori and Pasifika for a better Census 2023 ...... 3 How to improve responses from other under-represented communities ...... 3 Census 2023 will include questions relating to the rainbow community ...... 4 Responding to COVID-19 ...... 4 Working practices were adapted to allow social distancing ...... 4 Demand for statistics products increased ...... 4 Stats NZ has a strong focus on data security ...... 5 Appendix ...... 6
Barbara Kuriger Chairperson 415
2019/20 ANNUAL REVIEW OF STATISTICS NEW ZEALAND
Statistics New Zealand
Recommendation
The Governance and Administration Committee has conducted the annual review of Statistics New Zealand for 2019/20, and recommends that the House take note of its report.
About Statistics New Zealand Statistics New Zealand (Stats NZ) is the official data agency for New Zealand. It produces the majority of official statistics, administers the Statistics Act 1975, and leads the Official Statistics System. Stats NZ delivers statistics, data, advice, and insights to a broad customer base, including government entities and the general public.
In 2020, Stats NZ had four key short-term priorities:
providing core economic and social statistics meeting the need for data on the effects of COVID-19 preparing for the 2023 census working with Māori to address problems with the 2018 census. The Government Statistician and chief executive of Stats NZ is Mark Sowden.
Financial performance and audit results Total revenue for Stats NZ in 2019/20 was $156 million. This was $21 million less than revenue in 2018/19, which had been boosted by an insurance settlement. Stats NZ recorded a small surplus after expenses of $150 million, compared with $155 million in 2018/19. The Auditor-General issued a non-standard audit report to draw attention to the disclosures in the financial statements and performance information outlining the effects of COVID-19. The Auditor-General assessed the financial information and supporting systems and controls as “very good”. The Auditor-General assessed both the management control environment and the performance information and supporting systems and controls as “good”, recommending some improvements.
Planning for Census 2023 Progress is “near enough to on track” We asked how complications arising out of COVID-19 affected progress towards Census 2023. During the initial lockdown period (March to May 2020), Stats NZ was at the development phase of work on the census. Staff were able to work from home without significant disruption. Later alert level changes have caused some delays in field testing in the Waikato. Testing has continued with mail drops, but aspects that require face-to-face interaction, such as assisting members of the public in filling out forms, have been delayed.
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The Chief Statistician said that Stats NZ is “near enough to on track” and he is currently confident that the agency will be ready for Census 2023. Adjustments are being made to avoid problems from Census 2018 In the Estimates hearing for 2019/20, Stats NZ identified two major lessons from Census 2018: it was not easy enough for people to participate online, and households were not contacted soon enough to address problems they faced. Additionally, Stats NZ noted that while awareness of the census was high, the agency failed to turn that awareness into responses from some groups of the public. The census therefore needed to be supplemented with administrative data—data collected for other purposes. Even with this supplementary data, there was insufficient data to release iwi affiliation data in the official statistics.
To address some of these issues, Stats NZ has made a number of changes in the approach to collection for 2023. The number of collectors will increase to 4,500, compared to 1,800 in 2018. Paper forms will be delivered to 50 percent of households, compared to 3 percent in 2018. Where required, collectors will assist members of the public who have difficulty in filling out their forms.
Working with Māori and Pasifika for a better Census 2023 In October 2019, Stats NZ and the Data Iwi Leaders Group entered into the Mana Ōrite Relationship Agreement. The agreement sets out a commitment to work together through agreed relationship principles, on agreed goals and deliverables. A work programme supports this relationship; its aims are to:
examine and develop ways of addressing the disproportionate effects for iwi of 2018 Census results improve administrative data to ensure a sustainable and diversified flow of relevant iwi data for Māori develop a Māori governance proposal develop a scope of work proposal for potential te reo Māori specific datasets. Stats NZ has begun a co-design process with Māori, working with iwi leaders and Māori stakeholders to identify the barriers that result in low response rates to the census, and ways to overcome those barriers. Together, they are also working to see how existing Māori networks can improve response rates and provide support to Māori filling out the census. A similar approach will be taken with Pacific communities, with the Pacific Data Sovereignty Network and a range of community leaders, although this process is at an early stage. How to improve responses from other under-represented communities For communities that face barriers to census participation, Stats NZ is looking at a new model of community-led engagement. It is working with local representatives, influencers, and decision-makers to co-design ways to support engagement with the public. Initial trials of this process have begun in the Waikato region. Stats NZ also aims to recruit locals as collectors. In rural areas, collectors will be connected to the respondents, either by knowing them directly or through common contacts. Further,
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2019/20 ANNUAL REVIEW OF STATISTICS NEW ZEALAND local knowledge may be useful to find less common places of residence, such as cabins and sheds, and in understanding when the best time to contact respondents will be. We commend Stats NZ for this approach. We note that it will also be important for it to be aware of where geographical communities are not homogeneous. We note that Stats NZ has not built a strategy around migrant and refugee communities. It appears to be proposing recruitment based on locality, without targets for ethnic diversity or language. We hope to see more thought given to this before Census 2023. Census 2023 will include questions relating to the rainbow community We note that Stats NZ will include questions in Census 2023 about sex, gender identity, and sexual orientation. These questions will be similar to those used in the Household Economic Survey. Stats NZ is working with the rainbow community to ensure that respondents will be able to find a category that reflects their identity. We heard that public engagement has been high, with 1,400 responses to a recent discussion document.
Responding to COVID-19 Working practices were adapted to allow social distancing Like most employers, Stats NZ had to find ways to adapt in order to operate safely through various alert levels in response to the COVID-19 pandemic. A majority of staff were able to work from home, but Stats NZ made the decision to cease field work during levels 3 and 4. The agency used phone surveys to reach members of the public and interacted with businesses through email and text messaging. Additionally, some data was gathered through web-scraping (extracting data from websites); some data was sourced directly from large businesses, including supermarkets and banks; and cell phone data was obtained from telecommunications companies. We heard that Stats NZ was able to collect sufficient data to be able to produce statistics, but that costs increased during the period. In part this was because of the extra work involved in collecting the data. A number of staff were redeployed to the National Crisis Management Centre, both to support its COVID-19 information line and to assist with scenario planning and modelling. Demand for statistics products increased During the response to COVID-19, the Chief Statistician, as Government Chief Data Steward, took a leading role in coordinating the Government’s approach to obtaining data. Stats NZ was able to coordinate requests being sent out to the public and consolidate some of the surveys together to avoid asking the same questions. This was particularly useful for high-demand participants, such as iwi groups.
Demand for statistics increased, including for data on employment, trade, and border crossings. Cell phone data was used to produce weekly reports on population density, showing how the population was moving during the lockdown. Data on spending density gave an indication of how the economy was reopening.
Stats NZ developed the COVID-19 data portal, which initially provided near-real-time data on 40 key economic, health, and social indicators. It has since expanded to 160 indicators, as a way to put data in one place where the public can find it.
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Stats NZ has a strong focus on data security The Integrated Data Infrastructure database holds significant amounts of personal data from members of the public. The Chief Statistician assured us that Stats NZ treats this data with due care. It does regular penetration testing and security patches, and has a 24-hour security monitoring centre. Linked data is held offline, in a ring-fenced, secure environment, with access restricted to authorised staff. Stats NZ subscribes to the “Five Safes” framework for use of data. The framework says that research should be for the public good and not aim to identify individuals. Researchers should be accredited. Data must not be accessible online. Stats NZ reviews outputs before they are published to ensure there is no identifying information.
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Appendix
Committee procedure We met on 10 and 24 March 2021 to consider the annual review of Statistics New Zealand. We heard evidence from Statistics New Zealand and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on Statistics New Zealand).
Statistics New Zealand (Responses to written questions).
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2019/20 Annual review of the Public Service Commission
Report of the Governance and Administration Committee
March 2021
Contents About the Public Service Commission ...... 2 Financial performance and audit results ...... 2 Pay for public service chief executives has decreased ...... 2 There is increased focus on succession planning ...... 3 Public service chief executives now have system leadership roles...... 3 Redeployment of public service staff during COVID-19 was successful ...... 3 The Commissioner believes the managed isolation and quarantine system is sustainable 4 The PSC is increasing its use of digital services ...... 4 The Commissioner is focused on diversity and inclusion ...... 4 The Commissioner believes he followed a fair process during the Oranga Tamariki chief executive’s resignation ...... 4 The PSC contracts some corporate services due to its small size ...... 5 Appendix ...... 6
Barbara Kuriger Chairperson 421
2019/20 ANNUAL REVIEW OF THE PUBLIC SERVICE COMMISSION Public Service Commission
Recommendation The Governance and Administration Committee has conducted the annual review of the Public Service Commission for 2019/20, and recommends that the House take note of its report.
About the Public Service Commission The Public Service Commission (PSC) provides leadership and oversight of the public service to ensure the purpose of the Public Service Act 2020 is carried out. The Public Service Commissioner ensures that public service agencies work as one system to deliver better services and outcomes for the public.
In August 2020, the Public Service Act repealed and replaced the State Sector Act 1988. The new Act saw the commission’s name change from the State Services Commission to the Public Service Commission. The new Act provides a more flexible set of options for how the public service can organise itself to respond to specific priorities. It allows relevant government agencies to establish boards of chief executives to work on cross-portfolio issues. To help achieve this, it allows public servants to move between agencies more easily than under the previous Act.
The PSC has 142 staff. Peter Hughes is the Public Service Commissioner (previously the State Services Commissioner).
Financial performance and audit results Total revenue in 2019/20 was just over $48.2 million, a 4.5 percent increase from 2018/19’s $46.1 million. Total expenditure was $44.5 million. The Auditor-General noted that the PSC achieved 17 out of its 20 performance measures in 2019/20. The two measures not achieved were for trust in the public sector (79 percent, with the target being 80 percent) and the proportion of departments that are members of the Leadership Development Centre (97 percent, with the target being 100 percent). One measure was not applicable.1
The Auditor-General issued a non-standard audit report because it includes a paragraph that draws the reader’s attention to the disclosures in PSC’s financial statements and performance information about COVID-19 impact. He rated PSC’s management control environment and financial information and supporting systems and controls as “very good”. He rated PSC’s performance information and associated systems and controls as “good”.
Pay for public service chief executives has decreased We asked about trends in remuneration rates for public service chief executives. The Commissioner told us he had removed performance pay since taking up his role, which had
1 This performance measure was that the PSC, in partnership with the Ministry for Women, support all Public service agencies to publish their gender pay gap action plans before 31 December 2020. As the year under review ended on 30 June 2020, the measure was not applicable for the 2019/20 year. 2 422
2019/20 ANNUAL REVIEW OF THE PUBLIC SERVICE COMMISSION resulted in a net reduction in chief executives’ salaries. After the nationwide COVID-19 lockdown in 2020, all public service chief executives agreed to make a 20 percent salary sacrifice. However, even without this sacrifice, average chief executive remuneration has decreased by “several tens of thousands of dollars”.
The PSC told us that public service chief executives are generally paid 50–60 percent less than the equivalent-sized job in the private sector. This reflects the fact that many people consider it a privilege to perform such roles, which allow a significant opportunity to make a positive difference. We heard that the lower pay has not negatively affected the quality of chief executive applicants.
There is increased focus on succession planning We noted that the public service’s ability to refresh and bring in new talent is sometimes criticised. The Commissioner told us he takes a “hands on” approach to succession planning and looks closely at talent coming through the public service. In some cases, this includes looking at people in the NGO, local government, and private sectors. Before a chief executive role becomes vacant, the Commissioner identifies three potential candidates and then gauges the applications received against them. The PSC also works with senior leaders to build a pipeline of talent through activities like mentoring, training courses, and job shadowing.
Public service chief executives now have system leadership roles The Public Service Act, which came into force in mid-2020, enables public service chief executives to create cross-portfolio boards to look at issues that involve the work of multiple agencies. This means most chief executives have a “system leadership” role in addition to leading their agency. For example, one board of chief executives is responsible for the end- to-end management of New Zealand’s border. Previously, five different agencies had responsibility for different aspects of border management. The new Act provides tools to allow the agencies to work in a more joined-up way, which includes allowing staff to transfer more easily between agencies.
Redeployment of public service staff during COVID-19 was successful We discussed the pressure points for the public service caused by COVID-19. The Commissioner said he is really proud of the way the public service responded. He felt the public has seen the new Public Service Act working well, and noted that this is reflected in data the PSC has gathered about public trust and confidence. He noted that hundreds of staff were redeployed around the public sector to address the challenges COVID-19 presents. They included people from areas where the volume of work had reduced as a result of COVID-19, such as aviation security.
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The Commissioner believes the managed isolation and quarantine system is sustainable Some of us questioned whether the current system of using hotels as managed isolation and quarantine (MIQ) facilities is sustainable, given they are not purpose-built. Some of us felt that continuing with this system would lead to increased pressure on the public service, causing cracks to appear.
The Commissioner said he believes the MIQ system is transitioning, pointing to examples like the joined-up border board. He said that as more information has become available about COVID-19 the public service has learnt and adapted its systems.
The PSC is increasing its use of digital services We heard that digital technology is now the “big engine” of service delivery. The PSC has observed a big shift in the use of technology to deliver services in a more accessible way across the public service. This has allowed some processes to become more joined up. For example, new parents can use one website to register their baby, apply for their baby’s Inland Revenue Department number, and sign up for Best Start payments.
The Commissioner acknowledges that some services still need to be delivered face to face, for example in situations involving family violence. He said the public service aims to work more closely when providing these types of services.
The Commissioner is focused on diversity and inclusion The Commissioner said diversity and inclusion is a big focus for the PSC. Fifty percent of public service chief executives are now women. Moreover, in contrast with the past, when women tended to lead smaller agencies, they are now equally represented as chief executives in both large and small agencies.
However, the Commissioner said that more progress is needed with ethnic diversity. The PSC now has a specific focus on increasing the number of Māori and Pasifika chief executives. The Commissioner noted that the proportion of Asian chief executives is slightly below population level, whereas the number of Middle Eastern, Latin American, and African chief executives is slightly above population level.
The Commissioner believes he followed a fair process during the Oranga Tamariki chief executive’s resignation We discussed the recent resignation of Oranga Tamariki’s chief executive. Some of us asked whether the Commissioner believed the circumstances around her decision to resign after attracting negative media and public attention set a dangerous precedent. The Commissioner said that all chief executives attract negative media and political attention from time to time. He advises chief executives to manage not only their business, but also their context. In his view, there comes a point when it is not possible to make progress without basic support across the community. He said chief executives need to judge whether they can continue to do their jobs effectively during controversy, even if resigning may be
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“personally unfair”. The Commissioner commended the Oranga Tamariki’s chief executive’s decision to resign. He said it was “the right thing to do”.
We were told that the Commissioner had not made any interventions in this case or been involved in progressing work between the Minister and the chief executive. However, the PSC had been supporting the chief executive through the various reviews and inquiries that had focused on Oranga Tamariki for some time.
We asked whether the Commissioner felt that Oranga Tamariki’s former chief executive had been treated fairly in the lead-up to her resignation. The Commissioner said it would not be appropriate for him to comment on the actions of Ministers. He was confident that he treated her fairly throughout the process and supported her in it.
The PSC contracts some corporate services due to its small size In response to our written questions about expenditure on contractors,2 the PSC told us that it spent $85,252 with Cyber Toa Limited and $145,875 on contracting a Virtual Chief Information Security Officer. We heard the contractors provided services for PSC for between 12 and 18 months.
We asked for more context about why this money was spent. The PSC told us that, because it is a small organisation with a small corporate team, it is too small to have some full-time roles that would normally be found in a State sector agency. It said it contracted the information security officer because of a “growth hump” in that area.
2 Appendix A of Responses to written questions.
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Appendix
Committee procedure We met on 10 February and 24 March 2021 to consider the annual review of the Public Service Commission. We heard evidence from the Public Service Commission and received advice from the Office of the Auditor-General.
Committee members Barbara Kuriger (Chairperson) Rachel Boyack Naisi Chen Nicola Grigg Tangi Utikere
Hon Mark Mitchell participated in this review.
Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, www.parliament.nz, along with a transcript of our hearing.
Office of the Auditor-General (Briefing on the Public Service Commission).
Public Service Commission (Responses to written questions).
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2019/20 Annual review of the Tāmaki Redevelopment Company Limited
Report of the Finance and Expenditure Committee
March 2021
The Finance and Expenditure Committee has conducted the annual review of the Tāmaki Redevelopment Company Limited for 2019/20, and has no matters to bring to the attention of the House. The committee recommends that the House take note of its report.
Dr Duncan Webb Chairperson