Editorial: Timid reaction to taskforce on investment

Justice Minister Simon Power said we need to build opportunities for people to invest and to invest safely. Photo / Mark Mitchell

We need to build opportunities for people to invest and to invest safely, said Justice Minister Simon Power in his response to the Capital Market Development Taskforce report. That was a statement of the obvious, given the shortage of high-quality investment opportunities, which, among other things, has promoted an unhealthy zeal for the housing market. The Government should, therefore, be seizing every chance to ensure such investments are available. Regrettably, it has chosen, instead, to replicate the timidity evident in its recent tax reform proposals.

A core taskforce recommendation was that the Government should sell off minority stakes in state-owned enterprises. This would provide mum-and-dad investors with the sort of investment that proved hugely popular when the likes of Vector, Contact Energy and Auckland International Airport were fully or partly floated. It would also provide a major boost to the New Zealand stock exchange, which has suffered from a large number of delistings over the past few years.

The Government's policy is not to sell any state-owned company in this term of Parliament. That, obviously, precludes immediate action. But it did not mean that it could not applaud the concept in principle, point to its widespread and successful use in the likes of Australia and Britain, and indicate that it would be part of the National Party's platform for next year's general election. At some stage, a policy on asset sales will have to be enunciated. This was surely the opportunity for a bold statement of purpose in keeping with the party's philosophical underpinning.

The unwillingness to court controversy means that, while the Government makes all the right sounds about the taskforce's recommendations and concerns about rebuilding investor trust in capital markets, its response contains nothing that will promote substantial change. Nor will anything happen swiftly. Even some of the most obvious reforms will be the subject of a discussion document. These include spelling out explicitly the duties that fund managers owe individual investors, and the standardising of periodic statements to managed fund investors. So apparent are the problems of disclosure and transparency that surely the only opposition to change in this area will come from myopic industry players.

The merging of the different regulatory functions of the stock exchange, the Companies Office and the Securities Commission to form a single market regulator also gets the discussion-document treatment. That is more understandable, given the complexities of creating a new market conduct watchdog. But the considerable pluses of greater effectiveness, reduced duplication and the eradication of conflict of interest mean the step should not be delayed unnecessarily.

Over the past few days, the Government has been happy to talk about the potential for New Zealand to become an Asia-Pacific financial services hub for international managed funds. This was the last of the taskforce's 60 recommendations. An implementation plan will be put to the Cabinet by May 31. If it proves feasible, it will be a welcome development. Its significance should not be overstated, however. Nor should the challenges of attracting managed funds be underestimated. Certainly, the taskforce provided far more important suggestions for directly improving New Zealanders' financial wellbeing and providing funding for company expansion.

The Government has broadly accepted its analysis and prescription. It has not explicitly ruled out any of the taskforce's major recommendations. But, given the scale of the problem, a bold and forceful response was required. By that measure, the Government has been found wanting.