Reserve Bank of New Zealand Amendment Bill

At first examination, the title of the bill looks reasonable. Quite clearly, this legislation amends the Reserve Bank of New Zealand Act, which is the principal Act. So at first sight the title looks reasonable. However, this House has come to expect, in terms of titles, rather more than just that type of bland amendment title. We all know that legislation that amends one Act is called an amendment bill, and that when it amends more than one Act it is usually referred to as a reform bill. The problem with those bland titles, though, is that they do not help anyone who is subsequently trying to find legislation in our statutes.

This title does not give any guidance as to the issues covered in this legislation. It would be instructional to look at exactly what the bill covers, to see whether the title gives any inkling of that. When we do that, we note that Part 1 contains amendments to the composition of the board of directors of the Reserve Bank. In fact, the governor will no longer be the chair of the board, and the deputy governor will be removed from the board. That is quite a significant change to our Reserve Bank legislation. So it would have made sense to include in the title some reference to the fact that the bill amends the composition of the membership of the board of the Reserve Bank. It would have made some sense to do that.

Another thing that this legislation does is to impose some constraints on the use of the words “bank”, “banker”, and “banking”. Yet the bland title of this bill gives no inkling that this is the legislation that people should look at if they are interested in the constraints around the words “bank”, “banker”, and “banking”. Members may say that that is being a bit pedantic, and that we do not really need to mention those things in the title. But if we look at other legislation, we see that the way that income tax amendment bills refer to the issues covered in a particular amendment has been very helpful. That has become a very helpful practice, enabling members, when they are interested in pursuing a particular issue, to find the appropriate piece of legislation because its title covers the issues.

So it would have made some sense if the Government had actually given the bill the title: “The Reserve Bank of New Zealand (Membership of the Board and Restricted Banking Terms) Amendment Bill”, because we would have had, at a glance, knowledge of what is in the bill. That does matter, because when members of this Parliament go and look on the wall outside this debating chamber, seeking to quickly find the statutes covering certain issues, if the titles do not cover what is in the Acts it is very hard to find the right Act. I think the Government should give some thought to changing the title of this bill, to make it clearer exactly what the bill covers. Those using our statutes would then be guided more accurately as to exactly what is covered.

If there were only minor issues in the bill, maybe it would not matter what the title is, but I think that the membership of the board of the Reserve Bank is actually a really important issue, and is one that is worthy of mention in the title. The bill covers some things that maybe are not as critically important and are more technical in nature. Maybe those things do not need to be covered in the title, but I believe that a major change to the membership of the board of the Reserve Bank is worthy of mention. One does not remove the governor as chair and remove the deputy governor altogether from the board of directors of the bank, without that being a major change. What is more, if we are to put constraints around the use of terms like “bank”, “banker”, and “banking”, that will have a major impact on our building societies and on a number of our financial services institutions, and that should be mentioned in the title.

The ACT party rises to speak on this bill, but then, we are in favour of capitalism. Indeed, we think this bill should be entitled the “Triumph of Capitalism Bill”, or perhaps it could be called the “Unlimited Global Economy Bill”. We are thinking of moving such an amendment, because the Green Party supports this bill—and does that not show that the bill should be called the “Triumph of Capitalism Bill”? When even the red Greens are in favour of an independent Reserve Bank—

💬 Ian Ewen-Street: There must be some mistake!

The member calls out to me that there must be a mistake. No, I am delighted to hear that the Green Party is now in favour of capitalism. I welcome them to that, but I would hate it if they voted for capitalism by mistake. We would hate that, would we not? That would upset us.

💬 Ian Ewen-Street: I had better just check on it!

The Green Party now tells me that it wants to check on this bill. Let me just refer the Greens—because I always thought they were opposed to global capitalism—to one measure in the bill, for example.

As the commentary on the bill states, there are provisions “designed to cater for a variety of different payment systems, including CLS (Continuous Linked Settlement) Bank International. In foreign exchange transactions, a bank may pay out in the currency it has sold but not receive the currency it has purchased,”. Anything more like global capitalism than that would be hard to find, would it not?

💬 Rodney Hide: One couldn’t do that on a skateboard.

No, most certainly not. But there would not be another Parliament in the OECD where capitalism is as rampant and as successful as it is in this one. As the leader of the party that has always been unabashedly in favour of capitalism and of the global economy, I welcome the Greens to us. If they have carefully studied this bill, there is hope for us yet.

There is the New Zealand First Party, which says it puts New Zealand ahead of everything, but the New Zealand First members are to vote for this bill. I can remember when Mr Peters thought the Reserve Bank was a plot by Ruth Richardson. Clearly, he has changed his mind. I have never known what Peter Dunne thought about the Reserve Bank, because he talks in pompous platitudes. But it is delightful to know that he, too, is in favour of capitalism.

💬 Rodney Hide: Even the National Party.

That is good! Even the National Party is in favour of it. That could be due to the influence of Mr Brash; he has joined National. Mr Brash has always been a capitalist, and he has been a banker from way back. But it is nice to see that the Labour Party is in favour of capitalism, too. Labour members used to say that having an independent Reserve Bank was a plot by Roger Douglas and Ruth Richardson. There used to be a sort of Social Credit streak in the Labour Party—[Interruption] yes, let us talk about our loss of sovereignty—and it is nice to see that that has been removed.

So I think we should change the title to the “Triumph of Capitalism Bill”, just so that the Greens, New Zealand First, and—

💬 Jim Peters: Progressive capitalism.

I am delighted to hear that, because that is exactly what the ACT party says. Capitalism is progressive, and the New Zealand First Party has grasped that. Is that not wonderful? But I do think we should change the name of the bill. I wonder whether the Minister in the chair, the Hon Chris Carter, would be prepared to move that amendment to the title himself, so that when he goes to the Labour Party conference people will realise there is no doubt about it—that Labour was warned by the ACT party that it was voting for capitalism and for a global economy, and that it has managed to persuade the whole Committee to do so.

I am trying to be as generous as I can, because I think that is a wonderful achievement. I hope that the members of the Green Party—who, until now, have voted solidly for this bill—will recognise what this bill is about, now that they have been told by the ACT party. We would recognise capitalism if we saw it, would we not? If anybody knows a piece of capitalism, it is the ACT party. There is no doubt about it; this bill is pure capitalism—an independent Reserve Bank that is set up to have international settlements, and to promote global capitalism. The only thing that would be better than this bill would be to have no Reserve Bank, at all—that is what the ACT party really wants. But this is a good, good step towards that. I do not want the Greens to say later that they were tricked into voting for global capitalism and a global economy. There is no doubt about the fact that that is what this bill is all about, and the Greens are voting for it.

I intend to take a short call on the title. We have just heard from the Hon Richard Prebble, who said that this bill should be known as the “Triumph of Capitalism Bill”. I would argue that it should be known as the “Last Bastion of Capitalism Bill”, and not necessarily as a triumph of capitalism. The Reserve Bank legislation is one of the few things introduced in the late 1980s and carried through the 1990s that has remained under the Labour Government.

When we look at accident compensation, we see that as soon as Labour members managed to get their little grubby hands on it, it was changed. It was renationalised. Accident compensation was not left alone, as the Reserve Bank has been—that would not have had its own title, as the Reserve Bank has here. That was the first thing Labour did. Let us look at the labour markets. What do we hear now, emanating out of the trade unions? A nasty little backroom deal has been done, whereby the Government is to support a minimum of 4 weeks’ paid holiday. Because the Prime Minister went up and down the country and told everybody that she would not support 4 weeks’ paid holiday—and, more important, told business she would not support it—in this the forty-seventh Parliament, she has thought of a crafty way of introducing it in the forty-eighth Parliament. That is what she is to do; that is what is happening in the labour market. I could go on about taxes for ever—so much so that it would bore Mr Cosgrove. I could talk about taxes, because that is what is happening in the rest of the market.

So, with regard to the Reserve Bank, I am not surprised that the title of this bill is very simply the Reserve Bank of New Zealand Amendment Bill. The Government does not want to frighten the horses. It does not want to frighten the business community, because that is happening everywhere else. So the Government does not want to frighten the business community with the Reserve Bank bill. Therefore, this bill should not really be seen as a triumph for capitalism. If it was a triumph, then all the other things that are required to make a highly effective market operate—an efficient labour market, insurance market, and human and financial capital market—would be required, and that is not taking place here. So I do not think that the title should be dressed up to make the bill appear to be smarter than it is.

I do think it would be a nice touch if the title reflected the work of the past Governor of the Reserve Bank. He was appointed by none other than Margaret Wilson when she was on the board of the Reserve Bank, back in 1987. She was part of a select group that selected Don Brash to be Governor of the Reserve Bank. He shepherded that organisation for 14 years through some very heady times, and what a wonderful job he did. He was commended fully in the report that was undertaken on the Reserve Bank, yet I do not see any mention of credit being given where credit is due. I would have thought that the words “The Labour Government Would Like to Thank Dr Donald Brash for Being a Wonderful Governor of the Reserve Bank” could be put in the title. New Zealanders would then be able to remember the great name of that fine New Zealander Don Brash for ever more, without having to look at a $10, a $5, or a $20 bill, because they would see his name in the title of this legislation, as well.

I do not want to take any more of the House’s time, except to say that a far more inventive name for this bill could be thought of. We will be proposing something far more inventive, and more reflective of the true history of our Reserve Bank, by including the name of its former Governor, Dr Donald Brash, somewhere in the title.

I—

💬 Jill Pettis: ACT usually praises people before it shoots them.

They know how to do it in the Labour Party, do they not? The Government’s attitude is to shoot them all—shoot the farmers, the producers, and everyone who is successful. We have heard that tonight from—what is her name? It is Jill Pettis, or something.

I think it is a great thing for this Parliament that, after the hard years spent in getting inflation down, the Minister of Finance can bring an amendment to the Reserve Bank of New Zealand Act—which is a far-reaching and a very important Act in our financial structure—and have unanimous agreement. We have the Greens supporting global capitalism—[Interruption] Dr Cullen says we should not tell them that. We have New Zealand First supporting inflation targeting. I think that is because Dr Michael Cullen has been largely sensible on monetary matters, but it also reflects the impact of Dr Don Brash, first as Governor of the Reserve Bank, and now as a member of this Parliament.

Dr Brash’s contribution in the Finance and Expenditure Committee is noticeable with regard to this bill. Let us just think about it. He has convinced Winston Peters and Rod Donald to support this bill. I know Clayton Cosgrove, the chair of the committee, may have gone back to the caucus and said it was him who did that. But the members of that committee all know that it was Dr Donald T Brash, whose name is still on every bill in the country—and the Minister of Finance is checking that, but Alan Bollard has not got around to signing bills yet—who convinced members of the sanity and the sensible nature of this bill. Is that right, Minister?

💬 Hon Dr Michael Cullen: Lots of people.

Lots of people. He has convinced this whole Parliament that the Reserve Bank of New Zealand Act—which was very controversial in its day—is not something that we should mess with, but rather, that we should amend in order to make it better.

I think that is a huge achievement for this Parliament. It is a huge achievement for the political parties, and for New Zealand. It is a huge plus for us, in terms of our economic management. I, too, would like to congratulate the Greens on realising that global capitalism is a reality, and that what we should do is facilitate the movement of money, goods, and services, exactly as this bill does.

We are debating the title, and we could call the bill the “Donald Brash Comes to Parliament and Sorts Us All Out Bill”. We could call it the “Greens Embrace Global Capitalism Bill”. We could call it the “Winston Peters Calms Down, Smells the Coffee, and Understands a Little Bit About Monetary Policy Bill”. We could call it the “Michael Cullen Agrees With Roger Douglas and Ruth Richardson Bill”.

💬 Hon Dr Michael Cullen: I supported his Act in the first place.

I know. When Donald Brash was governor, I remember Michael Cullen saying very warm and supportive things at every opportunity about the governor’s wise decisions at the time. He was never once critical of him. He never once said Mr Brash might be getting a bit tough. No, Michael Cullen’s memory of that period is fading fast, but I remember him being fully supportive of monetary policy.

I think we can do better with this bill. I make a plea to the Minister of Finance to look around and say who should be chairing the Finance and Expenditure Committee. I say that it should be Don Brash, not Clayton Cosgrove.

I briefly acknowledge Mr Hide’s comments, and thank him for those. This is an area where great attempts have been made over the years to achieve a high level of, first of all, bipartisanship, and then—at a somewhat lower level of human existence—multi-partisanship in support of this legislation. I want to pay particular tribute tonight to someone whom I do not think the member mentioned. David Caygill was the person who was really responsible for the passage of the original legislation, rather than Roger Douglas, and I think that needs to be put clearly on the record.

Dr Brash was the inaugural governor under the Reserve Bank of New Zealand Act. By and large, every effort has been made to maintain a bipartisan approach as far as possible. There were previously some instances where there were things I disagreed with, particularly with regard to some rather strange creature called the monetary conditions index, but Dr Brash saw the light on that eventually, and we reverted to standard international practice. The reality is, of course, that however well monetary policy is managed, we are not going to avoid some difficulties, particularly in the exchange rate area. We are seeing that in New Zealand at the present time, where circumstances outside our control are holding the exchange rate up above the level that the tradable sector would like, but the strength of the domestic economy has actually reduced the amount of room for manoeuvre in terms of the operation of monetary policy. We saw that effect occurring at times in the mid-1990s, as well, and that makes life difficult in terms of the overall objectives.

This bill is amending legislation. It is not insignificant; it does a number of quite important things.

💬 Rodney Hide: Uninsignificant?

No, that would be a horrible word, which I hope I did not use. It would be not insignificant—which is very much a historian’s way of phrasing life; it covers one’s tracks in terms of possible criticism further down. It is an area where I think we have been in advance of the world at times, though I think we are probably pretty much up with the play at the present time in terms of monetary policy.

I particularly recognise the work done by the Finance and Expenditure Committee, which I think came to grips well with the issue of the vexed question of the use of terms “bank” and “banking”, and so on. It is important not to get overly restrictive and to make life impossible for non-banking financial institutions, but, equally, it is important to make sure that financial institutions, which are not banks, are not holding themselves out to be banks as far as the public perceptions are concerned. So I look forward to the passage of the legislation.

It is possible that with an IMF visit coming up, in terms of financial institutions and a related practices review, we may want to discuss some of the results of that, when it is completed, with parties in the House. I suspect that the IMF will be raising some issues about some of our oversight mechanisms within New Zealand, but we can certainly stand up in international company in terms of much of what goes in on those areas, and of the history, continuity, and degree of consensus that we have achieved in New Zealand in those areas, as opposed to some countries.

I want to thank the Hon Dr Michael Cullen for his words on the Reserve Bank of New Zealand Amendment Bill, and also for the history lesson. It is always nice for a young guy like myself—not the youngest in Parliament, I say as I look at Darren Hughes, but I like to consider myself young, even at 28—

💬 Jim Peters: Sort of young.

That is right. It is very good to get a little bit of a history lesson—[Interruption] I thank Mr Hughes. It is always good to get a bit of a history lesson from a true historian about the Reserve Bank of New Zealand Amendment Bill that sets the record straight, as far as David Caygill starting off the legislation. It is good that he can put Rodney Hide and other people right.

I want to talk about the response to the recommendations in the 2001 independent review of the operation of monetary policy in New Zealand by Professor Lars Svensson regarding the management of the Reserve Bank, but, before I do that, Richard Prebble and Rodney Hide were talking about renaming the bill. As everybody knows, New Zealand First supports the Reserve Bank of New Zealand Amendment Bill in its current form, so we would not support a change of name, but one thing the Reserve Bank does need to take action on—an issue that is a passion of mine—is that New Zealanders increase their exports. I know that ensuring that exporters do better, that our exports are increased, and that we see more exporting and less importing is a passion for a lot of people. Obviously, in New Zealand First we believe that that would put this country on track to true wealth. If the Reserve Bank were to refocus a little more—and I will stay on this for a very short moment only—and were to encourage exports and help exporters in a large way, we could call this bill the “Encouraging of Exporters Bill”.

Dr the Hon Lockwood Smith: “Encourage Exporters”.

We could call it the “Encourage Exporters Bill”. Getting back to the bill, Lars Svensson suggested that the governor should be removed from the position of the chairperson of the board of directors. He also suggested that the removal of the deputy governor from the board would be good. I can live with the argument that the balance between the board’s independence and its access to the information is necessary to enable effective monitoring, which can be best achieved by retaining the governor on the board. He also suggested that the board chairperson be required to be a non-executive director.

Another suggestion, which I want to go through quickly, was to require the board to report annually on the performance of the bank and the governor, which would raise the visibility of the board and strengthen the accountability of the bank. I, and New Zealand First, say that that is all good and we support it. It is something that New Zealand First will be saying “Yes” to. We can do all of that, but if we still do not look at the issues facing New Zealand and the Reserve Bank, such as the one I was talking about when I was saying that we should change the name of the bill to the “Encouraging Exporters Bill”, we miss the point. It is always good to come back—

💬 Rodney Hide: Who missed the point?

New Zealand. [Interruption] No, New Zealand First does not miss the point. We are trying to make a point.

We can remove the governor from the position of the chairperson of the board of directors, we can remove the deputy governor from the board—as we will do—we can require the chairperson of the board to be a non-executive director, we can require the board to report annually, etc. We can do all of that, but we need to encourage our exporters and to look at other ways.

Clause 1 agreed to.

The commencement date was originally scheduled for September last year, and we are now being asked to amend that. We have no alternative other than to amend it, because September last year has already passed. However, it is a serious matter that this bill has taken as long as it has to get to the House.

In a sense, the bill had its origins in the 1999 Labour Party manifesto. In that policy manifesto, the Labour Party promised to undertake a comprehensive review of the way monetary policy was conducted at that time and during the 1990s. In due course, the newly elected Government appointed an internationally regarded expert, Professor Lars Svensson, to look at the Reserve Bank. That was done during the middle of the year 2000. Mr Svensson came to New Zealand in November 2000 and reported in February 2001. It is now August 2003. What is surprising about the gap of more than 2 years since February 2001 is that there was essentially no disagreement about how to react to Professor Svensson’s recommendations. The Reserve Bank made some recommendations, Treasury made some recommendations, and the Minister reached a judgment. The Minister discussed the conclusions with other parties in Parliament, other parties in Parliament agreed with the Minister’s judgment, and the matter was then agreed across the board. But, even then, we had longer to wait.

The bill was, I think, introduced in April 2002—when a previous person was the incumbent governor. I was certainly happy to support it at that point, and I am happy to support it now, but it is a pity that a further 16 months have gone by since the bill was introduced. The only good thing about that is it has enabled the Reserve Bank to add into the bill further material that deals in particular with the Continuous Linked Settlement bank that Mr Prebble commented on in his speech. It has been fortunate indeed that that issue can be dealt with in the bill, because it is important that the issue is dealt with.

As I mentioned during the second reading debate, the Continuous Linked Settlement bank, was set up to deal with a very important risk involved in foreign exchange transactions across time zones. That risk first became evident in 1974 when a German bank, Herrstatt Bank, failed, and for the last 29 years—nearly 29 years, anyway—the world has wondered how to deal with Herrstatt risk. New Zealand clearly recognised the need to deal with Herrstatt risk some years back, but until the Continuous Linked Settlement bank was up and running it was not possible for us to deal with it. But then, alas, we discovered we were not able to join the bank because of a deficiency in our law, and we were bound to wait until the law was amended.

I regret it has taken us as long as it has to get the amendment to this legislation into the Committee of the whole House. I very much hope that once the Committee stage is through, we will have an opportunity of getting the bill to the third reading and having the royal assent just as quickly as possible. Quite frankly, there is an urgent need to deal with the matters in this amendment, and until they are dealt with the New Zealand banking system will be under greater risk than it need be.

One of the other features of this bill is that, as we have recognised previously, it takes the governor out of the chair of the bank’s board. That is an unusual feature internationally. Internationally, governors of central banks are, I think, universally also the chairpersons. Alan Greenspan is not the governor of the Federal Reserve Board; he is its chairman.

Clause 2 agreed to.

The question was put that the amendments set out on Supplementary Order Paper 99 in the name of the Hon Dr Michael Cullen to Part 1 be agreed to.

Amendments agreed to, and Part 1 as amended agreed to.

Part 2 New Parts VB and VC inserted in principal Act

The question was put that the amendments set out on Supplementary Order Paper 99 in the name of the Hon Dr Michael Cullen to Part 2 be agreed to.

Amendments agreed to, and Part 2 as amended agreed to.

Part 3 agreed to.

Schedules

The question was put that the amendments set out on Supplementary Order Paper 99 in the name of the Hon Dr Michael Cullen to schedule 1 be agreed to.

Amendments agreed to, and schedules as amended agreed to.

Bill reported with amendment.