GCSB and New Zealander's communications
The push to scrap the current restriction on the GCSB intercepting New Zealanders' private communications will be controversial.
Sir Michael told a press conference that such co-operation between the two intelligence agencies was the intent of the current law.
A lack of clarity about what the law permits and recent high-profile controversies meant the GCSB had taken an overly conservative approach - which could lead valuable lines of investigation been dropped, and ultimately put New Zealanders' safety at risk.
"We are not proposing a vast extension of power...it is a clarification...the Government is, in effect, is almost placed in a position of failing in its duty to protect the lives of New Zealanders, because the legislation is simply not clear enough," Sir Michael said.
The various pieces of legislation covering the agencies required "the wisdom of at least half a dozen Solomons", he said, and was "sort of a double-humped ass".
The report gave the example of a New Zealander held hostage overseas. The best way to locate them could be to track their cellphone, but at present the GCSB cannot easily do so under its reading of the law.
Sir Michael said cases where the GCSB could need to monitor Kiwis in New Zealand could include people planning a terrorist act, or those involved in very serious crime like paedophilia.
Asked why the SIS could not deal with such cases, he said they often would not have the technology or capability as the GCSB.
The distinction between the two agencies was now more about that technological capability, rather than any foreign or domestic mandate, he said.
"SIS basically has the old fashioned tools, and GCSB has the modern tools. And it's really a question of, can you use Snicko and Hawke Eye, or can't you, in order to establish whether there was a no ball," Sir Michael said.
Future reviews will be carried out every five to seven years. Dame Patsy and Sir Michael said it would be likely that in the future a full merger between the agencies could be considered.
They did not make such a recommendation because it was not part of the mandate set by the Government.
The proposed purpose of the new single piece of legislation would be to "protect New Zealand as an open, democratic society".
New safeguards
Under the single piece of legislation proposed, all of the agencies' activities would require some form of authorisation. A three-tiered system was recommended, with higher level of scrutiny for activity that is more intrusive or targets New Zealanders.
# Tier 1 - would require a warrant approved by the Attorney-General and a judicial commissioner. Such sign-off would be required for activities that would otherwise be unlawful and target a New Zealand citizen, permanent resident or organisation.
# Tier 2 - would require a warrant issued by the Attorney-General. Activity that would otherwise be unlawful, but not targeted at New Zealanders or New Zealand organisations.
# Tier 3 - the lowest level, would need a policy statement issued by the Minister responsible for the agencies after referral to the Inspector-General.
Currently warrants are approved by the Minister in Charge of SIS and GCSB.
Under the new regime and before green-lighting a proposal, the Attorney-General and judicial commissioner would need to be satisfied of a range of conditions. Tier 1 or Tier 2 conditions could be granted "to test, maintain or develop capabilities or train employees for the purpose of performing the agency's functions".
Asked how happy New Zealanders would be to be "guinea pigs" for staff training, Sir Michael said there would be clear and stringent internal protocols.
"Most of the training is not done within the context of New Zealand. I don't want to comment further than that."
The tiered process could override the authorisation process if there is an imminent threat to the life or safety of any person, or a delay in obtaining the information is likely to seriously prejudice national security.
The Chief Commissioner of Intelligence Warrants would be notified immediately in such cases, and the Attorney-General and Commissioner would consider an application after the fact, and order any intelligence to be destroyed if the application is declined.
Other new safeguards include allowing non-New Zealanders to complain to the Inspector-General of Intelligence and Security, and expanding the size of the Intelligence and Security Committee of Parliament to a maximum of seven members.
The committee would also be able to call for reports from the Inspector-General of Intelligence and Security.
Countering foreign terrorist fighters legislation
The review backed the extension of the Countering Foreign Terrorist Fighters legislation, which is due to expire on March 31 next year.
That law, which was rushed through Parliament, gave the SIS greater powers of surveillance. Today's review recommended an additional safeguard, in that any decision by the Minister of Internal Affairs to cancel a passport should be reviewed by a judicial commissioner.
Mass surveillance
The review acknowledged increasing concern about the privacy of New Zealanders and the intelligence agencies' compliance with the law and the prospect of mass surveillance, particularly in the wake of Edward Snowden's information leaks.
"There has been considerable debate in the media about whether the GCSB conducts 'mass surveillance' of New Zealanders. Having spent some months learning about the agencies' operations in detail, we have concluded that this is not the case," the report found.
The GCSB conservatively estimates that more than 1 billion communications take place each day on commercial satellites that are visible from Waihope station.
"We were told the proportion of those 1 billion communications that are actually intercepted equates to roughly one half of a bucket of water out of an Olympic-sized pool."
Foreign partners
Any access to intelligence held by a foreign partner should still require the appropriate level of authorisation, the report recommended, in order to stop agencies using foreign partners to collect information they could not lawfully obtain themselves.
The report found that, of all the security leads the SIS investigates, about half are received from foreign intelligence partners.
New Zealand gained considerably more from its international intelligence partnerships that it provides in return, the report stated. For example, for every intelligence report the SIS provides to a foreign partner, it gets back 170.
Political reaction
The report released today had been received by members of the Intelligence and Security Committee, a statutory panel including Labour Party leader Andrew Little.
Prime Minister John Key has said he will be trying to get bipartisan support from Labour for changes to the intelligence services in the wake of a review.
Mr Little told the Herald that the committee met yesterday and members wanted to clarify whether the GCSB was picking up powers it didn't previously have.
That remained somewhat uncertain, Mr Little said. Another area of concern was a proposal to give the intelligence agencies access to other government databases, such as those maintained by Customs, Immigration and Police.
"I have indicated that is an area that is an issue for us...but we have said to the Government that we will cooperate on trying to get the best possible legislation, but there needs to be good public debate.
"The report has some sensible recommendations in terms of having consistency in legislation and avoiding contradictions between the agencies' powers. The idea of an over-arching national security objective by which the agencies' powers are judged is a good one."
Mr Key, also the Minister of National Security and Intelligence, has welcomed the report. New legislation could be put forward by July, although not all the proposals would necessarily be adopted and the public could have a say through select committee.
The recommendation to allow the GCSB to spy on Kiwis was a technical extension of its powers, but not an extension if the two agencies' powers were viewed together.
"The reason why the reviewers are recommending this is, while it would be possible for the SIS to do it in their own name, they would have to develop a lot more capability...but it is in a very narrow set of circumstances with a very increased level of oversight."
The Prime Minister said other countries had merged their intelligence agencies, but he didn't want to take that step, partly because it was felt Labour would be unlikely to support it.
He believed most New Zealanders would look to the Government to get the balance right between keeping them safe, and inevitable trade-offs with privacy and human rights.
Green Party co-leader Metiria Turei slammed the report's recommendations as representing "the most significant erosion of New Zealanders' right to privacy in modern times".
"Moving New Zealand to an American style culture of fear and spying is not going to keep us safer. Expanding the ability of the state to spy on its citizens makes us all less free and less safe."
United Future leader Peter Dunne said he supported the general move to include more safeguards, but that shouldn't come at the price of increasing the opportunities for surveillance.
He did not agree that allowing the GCSB to spy on New Zealanders was a clarification of existing powers.
"I think it is an extension in terms of the level of surveillance. I think that there is clarification about the application of the rules."
He said that, given the recommended changes, in his view there should instead be one intelligence organisation, that could then be "fine tuned" and "thinned down".
