Debate on Crown Entities, Public Organisations, and State Enterprises — Reserve Bank of New Zealand

The commitment that the Governor of the Reserve Bank, Dr Alan Bollard, makes to New Zealanders in his 2004-05 annual report is that, as New Zealand’s central bank, the Reserve Bank will do everything in its power to build national and international confidence by promoting the maintenance of a sound and efficient financial system. Yet yesterday a survey by Bloomberg News found that the New Zealand dollar has just been named the worst performer out of 16 major currencies. ANZ National Bank chief economist, Cameron Bagrie, adds further gloom to doom by stating that people were finding investment opportunities elsewhere and by forecasting the New Zealand dollar would hit below US50c in 2007.

So let us add it up: the Reserve Bank wants to promote a sound and efficient financial system; the New Zealand dollar has been named the worst performer; and, to top it all off, the UMR Insight research omnibus survey has identified that the unfavourable rating for the Reserve Bank has increased to 14 percent, and 38 percent of all who were surveyed were unsure about or had never heard of the Reserve Bank. One of the key reasons given for the unfavourable stakes was “thinking that the Reserve Bank is out of touch with the people, and a general dislike for the policies”. In plain numbers, the majority—52 percent—of those surveyed either had never heard of the bank or gave it an unfavourable rating. It is a bit like, if we do not know where we are going, any road will get us there. As the Government draws up the road map for the Reserve Bank, this is an indication that it has lost its economic way.

One of the comments that absolutely struck home from the UMR Insight survey was the following comment describing the Reserve Bank as being out of touch with the people because it is “concerned only with inflation, much too narrow, concerned with GDP, should be concerned with quality of life, should go and measure qualitative rather than quantity.” These are serious issues. They are issues of major concern to all members of this House. What is more, they are issues of absolute priority to all people of this nation. As if it could not get any worse, in the Reserve Bank’s annual report, under “Change with the times”, the Reserve Bank states it will “strive to inspire public confidence”, yet there is nothing in that report that goes anywhere near responding to the criticism described in the UMR Insight research.

We are at a critical turning point. We can choose whether to fail or to survive in measuring the economic accomplishment of the nation. The Māori Party is here to tell the nation that GDP will never be enough in making positive advancement as a nation—advancement that is comprehensive, sustainable, and inclusive. All that GDP has ever intended to do, and can do, is to report on activity, not progress. The Māori Party is committed to a new ideal, the genuine progress index, which is an innovative new way of sustaining all aspects of our wealth—human and other—through investment. If the Reserve Bank really wants to change with the times it needs to rethink development and prove that economists can be in touch with reality.

Basically, the genuine progress index tracks all flows of income that are not in the cash economy—the widest range of measures that affect the health of the economy. The genuine progress index offers us an exciting alternative to account for the whole value of human, social, and natural capital, alongside standard measures. With the conventional measurement of GDP the assumption is always that more is better. With the genuine progress index we realise the assessment is always value-based, and indeed, as in the case of pollution, ill health, crime, and clear-felled forests, it may be that less is best.

Tangata whenua have always understood that social, economic, and environmental prosperity is inextricably linked. In caring for the health of our environment, as well as caring for our physical and spiritual health, we can achieve an indicator of net advancement and progress—an indicator that expresses the values of Aotearoa, including kaupapa Māori, and an indicator that is based on the concept that if we preserve and protect our social and environmental assets, we will ensure a rich legacy is left for our descendants.

Our history and our language of communication is embellished with constant reference to sustainable development. The proverb “Toitū te marae a Tāne, toitū te marae a Tangaroa, toitū te iwi.”, [As long as the realms of Tāne and Tangaroa remain, so will the people.] emphasises the interdependence people have with natural resources to ensure well-being. Long-term prosperity is dependent on the land and all natural things, the protection of the realm of the seas and oceans, and the strengthening of the people. The Māori Party will put on record its commitment to measuring quality along with quantity, to strive for a quality of life that is good for the economy, and to measure real and genuine progress. Not to do so would be to perpetuate financial insecurity, a deteriorating environment, rising crime and sentencing rates, increasing poverty, and continuing inequalities.

💬 Hon Dr Michael Cullen: I raise a point of order, Madam Chairperson. I am sorry to interrupt the member, but this is quite an important point in a debate of this sort. Because it is a time-limited debate, the time allocated is proportional to the size of parties. My understanding is that the Māori Party is entitled to only one 5-minute call in the debate, so if the member continues to have an additional call he is in fact taking time allocated to another party and subtracting from that party’s entitlement. This is not an open-ended debate where the member can take further calls, in that regard. I am sorry to interrupt the member, but that is actually quite an important point.

That is fine. Thank you, Madam Chairperson.

On historical principle I have a great deal of sympathy with some of what the member was saying towards the latter part of his discussion—that is, that GDP is not a measure of everything in our society. Indeed, I think that those people who tend to talk as if GDP per capita is the only thing that is important are missing many, many points. They are missing, first of all, the point that GDP per capita in itself is not necessarily a very good measure of relative material standards of living, because it takes no account of a whole range of costs that may go into that element. For example, it is often said that when one goes to the UK £1 is worth $3, but for many things one buys one might as well regard £1 as equal to $1 in terms of what it actually buys, such as a cup of coffee or something in a restaurant. The second thing is that GDP cannot possibly measure a whole range of issues around quality of life and style of life, and it is often a poor proxy—except in very broad senses—around a range of social indicators, such as life expectancy, housing quality, etc.

However, it is also true to say that over the broad span, GDP is a measure of the standard of living, as long as the argument is not pressed too far. Our standard of living today is immensely higher than it was 100 or 200 years ago, and our GDP per capita is immensely higher than it was then. In traditional, pre-European Māori society, life expectancy was barely 30 years. That has been well demonstrated by the analysis of remaining skeletal evidence. Now, of course, life expectancy for Māori is less than it should be because it is less than the general average of the population, but it is more than twice what it was under a traditional society, and clearly, on many other social indices, similar points could be made.

Coming back to the subject of the Reserve Bank, I think it is important to recognise that that bank has, to some extent, a limited brief. First of all, it is there to manage the financial system, which is not the same as to give the value of the dollar. It is to ensure that the financial system is operating in a prudential fashion. That banks are not likely to fail, for example, is the most obvious measure of a secure financial system.

The Reserve Bank’s second role, and the one most seen in the public arena, is to try to manage monetary policy to underpin low inflation. I am sure the member does not want to go back to the days of high inflation, which erratically redistributed wealth and income, and which led to enormous uncertainty in many ways. At the moment our inflation rate is something above that target rate—which is another reason why tax cuts are a silly idea at the present time. But, more important than that, the bank at the moment is in what is called a tightening cycle. It has been raising interest rates.

Not unnaturally, people do not like increases in interest rates. It is not the job of the Reserve Bank to be popular. It is not going out there like Westpac, the BNZ, or Kiwibank to try to find out whether people like its services, because it is a regulator and it is a moderator of interest rates. Those are not two key functions that are necessarily designed to make the Reserve Bank popular. I have always said that the most important reason for giving central banks independence to raise and lower interest rates—apart from the fact that Ministers of Finance do not like doing the election years—is to ask: “Why the hell should the Minister of Finance take the blame, and leave it off for reserve banks, anyway, around the world?”, which my good friend Gordon Brown saw instantly as a very good reason for giving the Bank of England operational independence in that matter, when Labour became the Government in the UK in 1997.

The Reserve Bank’s job is also not to try to make the New Zealand dollar higher. Yes, the New Zealand dollar in one sense has been underperforming in recent times, if we mean by that that the dollar has fallen. But the dollar falling has been good news in recent times for exporters—not bad news. I do wish that our media would stop reporting the dollar as though it were some kind of representation of the male physiognomy; “up” is not good and “down” is not necessarily bad, when it comes to the level of the New Zealand dollar. But if we watch television every night, we know that it talks as though the New Zealand dollar did well on the days it went up, or did badly on the days it went down. But if one were an exporter selling manufactured goods to Australia when the dollar was worth over A90c, one was hoping the dollar would have a bad day—and one wanted a lot of bad days in a row—in order to be able to make some profit on one’s bottom line.

So it is not the job of New Zealand’s Reserve Bank to prop the exchange rate above the rate that is represented either by the market or by the equilibrium rate. In a small economy, the real problem is that the New Zealand dollar will be a volatile currency, because it has low liquidity in terms of international exposure.

Report noted.

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