Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill

I move, That the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. In 1989 when Parliament passed the Reserve Bank of New Zealand Act, it was hailed as a watershed moment in New Zealand’s political and economic history. In fact, it represented a major ideological shift in the way monetary policy is implemented.

💬 Paul Goldsmith: Thank goodness for that.

Not only did it result in a new interest rates - centred framework but also the Reserve Bank was given full operational independence from the Government for the first time—and if anybody says “Thank goodness for that.”, well, if his predecessors had not unleashed the dogs of inflation, so bad were they that the overnight rate, at three times the lending rate, went past 1,100 percent on 3 different nights. The proponents argued that this was a fundamental step change necessary to lift New Zealand out of the depths of social—

💬 Paul Goldsmith: It took you a whole minute to come up with that.

—no, this was when you were running around in school pants—and economic despair by conquering the greatest evil of all: inflation. In fact, controlling inflation became an end in itself. They told us this would lead to a more efficient, more productive, more stable, and more prosperous economy. We were all going to be better off. They based this on the belief that raising or lowering interest rates can create price stability without any long-term costs, and all but a few of us believed it. The fact is that they were wrong, and 23 years later we are grappling with the consequences.

The purpose of this bill, therefore, is to challenge those failed monetarist ideas. The belief that inflation should always take precedence over other critical macroeconomic factors is not only absurd but also reckless in the extreme for a nation like ours. The biggest side effect of all has been a high and volatile exchange rate—the most volatile in the world. We are seeing it right now. The dollar is at US83c and climbing. This has put enormous strain on the tradable sector, the engine room of the New Zealand economy where real wealth—and I emphasis that: real wealth—is created. Since 2008 a total of 40,000 jobs—where people are concerned, the human factor, and families as well—have been lost in the manufacturing sector alone. On average that is almost 100 per week—not foreigners and aliens, but New Zealanders and New Zealand jobs being lost—and those numbers continue to increase. In the last month there were 100 jobs lost at Tīwai Point, 120 redundancies at Solid Energy’s Huntly East mine, and up to 100 job losses at the Kawerau mill, not to mention the 400 jobs on the line at Spring Creek—

💬 Hon John Banks: How will this bill help it?

—or the many other foreclosures and redundancies that go unreported in the news media. It is great to see someone has turned up at last to hear an economic lesson he should have learnt a long time ago, when he used to say that he represented provincial New Zealand. Some of us remember the facts; some do not, of course. Meanwhile, the latest Statistics New Zealand data confirms that the real economy is still not recovering from the economic downturn of 2007. There those members were, boasting just 2 months ago about the outcome of the latest figures. That was a blip and we are back going down again. The Manufacturers and Exporters Association estimates that the overvalued dollar has cost the sector up to $10 billion over the past 3½ years—$10 billion. Ten billion dollars; 40,000 jobs.

💬 Maggie Barry: How many?

Again, for the horticulturalist—$10 billion; 40,000 jobs. And I tell you, if you are in the kiwifruit industry and in horticulture, or in the flower industry, all this is crippling and damaging.

We can no longer continue to ignore the cost. It is enormous. The context is the global financial crisis, which has had a profound effect. The recession it has triggered with the collapse of US financiers and bankers Lehman Brothers and Merrill Lynch and others is still with us, and the consequences of the financial and economic crisis are still being felt. You know, I would not laugh, when the fact is that very soon those members are going to be gone. I would not giggle about that, because I know what the polls are saying, and it is goodnight nurse for you. The global economic crisis is not over, and, indeed, the end is not yet what they would be getting when they get into their private moments.

💬 Hon John Banks: How will printing more money help?

I did not talk about printing money at all. I have not said that and it is not in the speech, either. Indeed, the end is not yet in sight. China’s prodigious growth is slowing. Europe is in the grip of crisis. In the US, the recovery is faltering. Internationally, there is a pervasive air of uncertainty. Under these conditions, a persistently overvalued exchange rate is destructive. All around the world central banks are actively intervening to trade against their own currencies. Governments from the UK to the US, to Japan, and to Switzerland, Singapore, Taiwan, and Malaysia are all using competitive devaluation as a tool of monetary policy, so why are we not? Or is it that Mr Carter and Mr Banks are smarter than the Chinese and the Malaysians and the Singaporeans and the Taiwanese? Do they think they are smarter than these people, because their economies are going that way and ours is going that way? The high dollar is crippling New Zealand’s international competitiveness at a time when the competition is intensifying.

We have entered a new economic era in the belief that central banks should focus on only one goal. It is pure outdated ideology. Our exporters do not live in the world of economic theory. They are in the world of harsh economic reality, and one day soon they will wake up around this country to just who it is that is their financial oppressor. Inflation is important, but it is not everything, particularly at a time when inflationary pressures are historically low. Mind you, they are not as low as when I was the Treasurer, when they were the lowest since 1975. That is our record. What is theirs? Since 1975 it was the lowest in those 3 years. Our priority must be the productive economy—exports, economic growth, employment, and jobs. After all, the tradable sector is where real wealth and jobs are created. This has to be the focus of monetary policy in 2012, so why is it not? Now just about everyone, from the IMF to the Governor of the Reserve Bank, acknowledges the problem and concedes we have a seriously overvalued dollar.

💬 Hon Dr Nick Smith: No, they don’t.

Oh yes, he did. You see, that is Nick Smith. So blind is he to his ideology, his ears are not even open. Yes, the IMF and the governor did say that. All manner of people—Blanchard, Stiglitz—are saying it. Lee Kuan Yew says it. [Interruption] No, no, Nick Smith, from the badlands of the top of the South Island, knows better. How arrogant can you get? Back in March the Reserve Bank warned the dollar was too high. It said this was preventing the rebalancing of the economic growth of this country 6 months ago. Now it is soaring past US80c, US83c, with no signs of falling. It has reached the point where many financial analysts say it is no longer a question of if, but when, New Zealand reaches dollar for dollar parity with the US. Oh, that will give those members a jolt, and they will still come out with their measly excuses that “We cannot do anything.” That would be disastrous. So why are they not taking action?

When the dollar was at US76c in 2007, the bank took action resulting not only in a lower dollar but also a $411 million profit. That is a fact. This demonstrated back then that the Reserve Bank does have the ability to act when the dollar is overvalued. It has had a foreign exchange intervention policy since 2004. Section 16 of the Act provides for the bank to deal in that fashion. Section 17 provides for the authority of the Minister of Finance to direct the Reserve Bank governor, like the Chancellor of the Exchequer directs the equivalent English bank. They do it, but, no, no, no, Mr Carter and Mr Nick Smith are smarter. Thus, the legal framework for intervention already exists in the principal Act. What is holding them back? Well, Mr English could do something tomorrow, if he would, but he will not, unless this bill gets through.

💬 Hon John Banks: Oh, that’s not much likely.

Oh, it will be a fact one day—maybe not today, because of the narrow, blind ideology of people like Mr Banks, whose political career is so successful that his party is going to oblivion and he can hold any caucus in a telephone booth. Around about then I would think “My policy is a bit out of date.”, would you not? I would. I would think “My policy is a bit of a problem. I can’t fill a telephone booth.” [Interruption] Oh, no, New Zealand First packs halls all over this country. That is a sign of consumer demand. That is a sign of market share. It is a sign that our policies on monetary policy are relevant and people are wanting them. I might say, as the Bible says, the numbers are growing and they are becoming legion, and one day those members will be gone.

The time for dithering, delay, and indecision over the exchange rate has to end now. It could pass tonight. It could become the fact very, very shortly, but all we are asking for is all sides of the House to give it a select committee hearing. Let all New Zealanders have their say—those for and against. It is called democracy, and why would the Government be against that, unless it is too scared to have its shibboleths exposed to the light of day?

I rise to oppose the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill. I suppose that the first point I would make is that the rhetoric of the member Winston Peters is somewhat extravagant compared with the content of the bill. We heard a lot about shibboleths, ideology, extreme monetarism—

💬 Rt Hon Winston Peters: No, that’s not how you say it.

I have got a lisp. You would think from that—

💬 Hon John Banks: Fabian socialism.

Socialism?

💬 Hon John Banks: Fabian socialism.

Fabian socialist—no, that was not used, actually, but it could have been. The member used quite extravagant rhetoric, which would lead you to believe that what was proposed in this bill was some radically new vision of monetary policy, but, of course, it was not, actually. It was not. This bill represents a variation on the monetary policy framework that just happens to be one that cannot work. But it is not something completely different.

I will just read out for the benefit of the House what the member is actually proposing: “The new section 8 provides that the primary function of the Reserve Bank is to formulate”—this is in the clause by clause analysis—“and implement monetary policy directed to the economic objective of maintaining stability in the general level of prices …”. So for all his abuse about inflation targeting, actually, this bill includes inflation targeting, and that just simply reflects—

💬 Hon John Banks: He hasn’t read the bill.

Well, it is possible he has not read it. Then it says: “while maintaining an exchange rate that is conducive to real export growth and job creation.” That is the other objective. So in the first place we are not talking here about some radically different view. We are actually talking here about a proposition that somehow you can use the Reserve Bank interest rate mechanism to lower the exchange rate, or, I presume, raise it, if he thought that was conducive. That is simply not the case. You just cannot do that—you just cannot do that.

What we did hear from the member proposing this bill, alongside the extravagant rhetoric, was the illusion he has long held out to audiences around the country for over 30 years. It is that there is some kind of free lunch to be had, if only the mandarins in the Reserve Bank would decide to grow the economy, that somehow growth will just magically appear, that growth in the economy does not depend on how well you run your business, does not depend on how skilled the workforce is that you work with on the shop floor, and does not depend on the state of the markets to which you are selling, and that growth in the economy depends on the Governor of the Reserve Bank choosing it. The Greens suffer from the same illusion, and both of them have taken over what used to be some common sense in the Labour Party, and have now turned it into a bunch of illusionists as well—that there is a free lunch to be had, if only the Governor of the Reserve Bank would decide—

💬 Phil Twyford: Tired old orthodoxies.

Oh, tired old orthodoxy! Well, it happens to be the orthodoxy that has come from 30 years of inflation targeting across the Western World. That is where it comes from.

💬 Phil Twyford: Wake up. You’ve been left behind.

Oh, left behind? Well, at least the former member for Tauranga has come up with a proposition. The Labour Party has not. The Labour Party has just said: “There is a free lunch to be had, but we are not going to tell you how you can get it for free.” Winston Peters has said: “There is a free lunch to be had, and how you get it is that you target the exchange rate as well as inflation.” Well, at least he has put up a proposition. I would agree with that, but it happens to be a proposition that does not work. That is the point. It just happens to be a proposition that does not work.

In fact, one thing has become reasonably clear. If you look at how Reserve Bank monetary policy frameworks are specified around the world, you will find that they all amount to inflation targeting. The Federal Reserve’s mandate is written a bit differently from ours. The Reserve Bank of Australia’s framework is written a bit differently from ours. But what is pretty clear is that all governors of reserve banks make similar types of decisions for similar reasons. What every governor of any of those reserve banks will tell you is that they cannot substitute monetary policy decisions for real effects in the economy—that is, if your economy is getting less competitive, nothing the Reserve Bank does can change that; if your economy is getting more competitive, nothing the Reserve Bank can do will change that.

That is the illusion that is embodied in this legislation—that somehow the way the Reserve Bank makes its decisions about interest rates is going to have an impact on how skilled a workforce is, or that somehow the way the Governor of the Reserve Bank makes this decision about interest rates is going to make the genetic stock of New Zealand’s farming capacity a higher quality. Well, it will not. It does not matter how you specify the monetary policy framework. The key to generating incomes and creating jobs is the competitiveness and the productivity of our businesses. There is no free lunch, and that is where the Opposition parties have got out of touch not just with the analysis but also with public opinion.

Voters in New Zealand, Australia, Europe, and the USA have never been more awake to snake oil than they are now. They have never been more awake to snake oil than they are now, because they have learnt the hard lesson, and the hard lesson of the developed world is that politicians who promised you free stuff in the end had to borrow the money for it. Eventually they have borrowed too much, and you have to pay it back, and the public understand that. They also understand that when people come along saying that we have got to print money and that that is the way out, they know that that spells future danger, and they know that you do that in only extreme circumstances. When someone comes along and tells you that they are going to set the exchange rate, that is a gambler in the casino of international markets, and that is what this bill is about. This bill is about saying the New Zealand taxpayer, via the Reserve Bank, should start gambling in the casino of international financial markets. I thought that that was what Winston Peters was against, not what he was for. If he is trying to force the exchange rate down, do his voters, Labour voters, and Green voters understand that that means forcing their standard of living down and their cost of living up? I thought that is what they were against.

So the bill is not the radical revolution it is made out to be. It is simply a way of operating monetary policy that cannot work. It operates against the interests of the supporters of the parties proposing it, which tells me that they just do not understand this bill. They just do not understand what they are advocating. We understand. It will not work. Inflation targeting is a well-established method right across the developed world that has had at least 30 years of testing and trial. We support the current regime, and that is why we are voting against this bill.

The problem for the National Party is that its members have painted themselves into another corner. It is a dead end where they are. They accuse others of being snake oil merchants. We heard it again from Bill English. Well, who are they accusing? The International Monetary Fund? The head of the International Monetary Fund, Olivier Blanchard, said: “Giving primacy to inflation targeting over other important aspects of economic management, like your exchange rate, is wrong.” That is what the IMF says. Who else are National members criticising? Nobel Laureate Joseph Stiglitz. Who else are they criticising? All of these other countries in the world that are doing better than New Zealand. Mr English, New Zealand has a 30-year current account deficit. Under the settings that the National Government is fixated on retaining, this year we have got the second-worst current account deficit in the developed world after Greece, and next year we are the worst in the world. Two years later, we are the worst in the world—the worst current account deficit in the world—because we do not cover the costs of our imports and interest from our exports. One of the reasons for that is we give primacy to inflation targeting in New Zealand, by law, under the Reserve Bank of New Zealand Act, which this bill, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, attempts to fix.

Inflation targeting is not an end in itself; it is meant to lead to a more stable and prosperous economy. If it is not, if there are other aspects of our economic management that are being subjugated to the primacy of inflation targeting, when they should have more weighting but cannot be given more weighting because of our law, then the law needs to change. We should not be surprised that these things change over time.

Of course, when inflation targeting was introduced in the 1980s New Zealand had an entrenched inflation problem, and I can see why the decision was made to give primacy to inflation targeting then. But it is not the current problem. If we look back through history, we see something that another expert in monetary policy said to me recently—Jeffrey Frankel from Harvard University. He said two things that are common sense. First of all, he said that no one system of monetary policy is right for every country in the world. Then he said that no one system of monetary policy is right for any country all of the time.

We should not be surprised by those two propositions. Look at the history of the world. Until the Great Depression the gold standard worked pretty well. But we found then that in a downward spiral in a depression, the gold standard works against the better interests of the economy, because countries could not reinvigorate their own economy. So the world ditched the gold standard and they moved to Bretton Woods arrangements, and under that we had capital controls, we had relatively fixed exchange rates, but we had control of our local economies. After a while under Bretton Woods, we actually had stagflation. That system of monetary policy stopped working and so we moved on to monetary policy that focused initially on the supply of money. That stopped working, and then we moved on to inflation targeting, and that has stopped working.

But even if you did not believe that it has stopped working, when everyone is doing it, most countries in the world are not, and the few countries that are left doing it are being slaughtered by competitive devaluation in the countries that are pursuing a new route.

💬 Hon Member: That’s wrong.

That is true. That is true. China holds its currency at a low level despite the largest trade surplus in the history of the world.

💬 Hon Bill English: It’s appreciating.

It is appreciating a little. I agree it is appreciating. It is appreciating, but it is still held at falsely low levels while ours is held at falsely high levels.

We have got the Singaporeans managing their regime by moving to a moving range, and they are doing better than we are. We have got Germany benefiting from a euro held falsely low because of problems in Greece and Portugal, to the advantage of their exporters, and that too is driving New Zealand’s currency high. We have got the Swiss printing money to manage their currency to a fixed amount, and that is hurting New Zealand, and we are ignoring it here.

We face competitive devaluation abroad. We are not going to get out of the hole that this Government has got us into—a $10 billion deficit externally last year. That is $10 billion more of external debt into New Zealand, and asset sales to foreigners. This cannot continue. It cannot be fixed by changes to the Reserve Bank alone, but it is an important part of the cure. Why are the National Party members not willing to have a debate at select committee and to hear from the economists, to hear from the manufacturers, and to hear from the 160,000—or their representatives—who have gone to Australia? One more thing; sit back. We have had the best terms of trade in a generation in New Zealand, and not one current account surplus. Australia has had a minerals boom for a decade, and they have not had one either. The emperor has no clothes; inflation targeting has passed its use-by date.

The people of Epsom will be saying “Thank God we voted for Banksie.” The coalition of losers are on that side of the House in Parliament tonight. The “Parachute Man”, David Parker, has just given his dissertation on the monetary policy we can expect if those rabbits get in charge of the Treasury lettuces. His proposition is that we wind up the printing machines, because printing money is the answer. We should wind up the printing machines. And who supports those members? Who are the coalition of losers? There is Winston and his cronies, and there are these dudes over here. The old fogies and the young dudes in the Green Party—they are all lining up after this bill, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill.

If that approach worked, if it could work, Greece would not be in trouble today, Spain would not be suffering today, Italy would be going—[Interruption]

💬 Mr DEPUTY SPEAKER: Order! I do not want to interrupt the member on his feet, but we are now in a barrage situation. I just ask members to keep interjections rare and reasonable. That was inappropriate.

At least we have seen—

💬 Brendan Horan: I raise a point of order, Mr Speaker. I was just trying to help him with his—

💬 Mr DEPUTY SPEAKER: Order! That is not a point of order.

At least we have one of the coalition of losers getting up on his hind legs in Parliament tonight and proposing a bill—

💬 Hon David Cunliffe: I raise a point of order, Mr Speaker. You are well acquainted with the rules requiring members to describe each other by their proper and correct names and parties. I did not question whether the phrase “the honourable John Banks” was an oxymoron, and I do not appreciate—

💬 Mr DEPUTY SPEAKER: Order! The member has just destroyed his own point of order, and I would ask him to take a seat. Let us have a little decorum. I think the point is that all members are honourable members, and sometimes I wonder a little bit about that. Let us prove that that is the case.

Creating wealth takes hard work and diligence. You cannot do it by printing money, and this proposition is about printing money. The Reserve Bank faces a fundamental trade-off. It can run the printing presses faster or it can slow them down. We can have an economy that creates investment growth, jobs, and wealth, or we can have the coalition over there, which believes that printing money is the answer to New Zealand’s problems and those in the rest of the world.

The Labour Party spokesman for finance matters, the “Parachute Man”, who was parachuted into my electorate to take me out and got 500 votes, says that he has recently spoken to “Joe Stiligitzy”, and now he wants to play God with the economy. He is taking his advice from “Joe Stiligitzy”. “Joe Stiligitzy” would have no idea in the context of the New Zealand economy.

The old dudes and young fogies in the Greens heard about making money years ago. Their idea of making money is making it up on The Terrace at Treasury. The Green Party believes that the mandarins in Treasury are fruits, but they are not fruit loops; the Greens are the fruit loops, because they are going to line up behind the bill from the—what is that party—New Zealand First. It would not be “New Zealand First”; it would be “New Zealand Last” if we went with this proposition, went up to The Terrace, and got Treasury, the mandarins up there—not fruit loops, the Greens are that—to print more money. It might do something for the dollar, but it would not do anything for inflation. It would not do anything for the cost of food, it would not do anything for the cost of petrol, it would not do anything for the cost of technology, and it would not do anything for your farmers, Mr Deputy Speaker, in the bottom of the South Island, except raise the cost on everything they use, on their enterprise, and on their farm, to make money. Higher prices will leave exporters—

💬 Rt Hon Winston Peters: I raise a point of order, Mr Speaker. I am delighted—first of all, you cannot use the word “your”, because that is bringing you into the debate—but I am glad he has got his memory back.

💬 Mr DEPUTY SPEAKER: I am sorry, I did not hear the member. I did not hear the point of order, but the point about including the Speaker is noted.

What is noted is that the people of Epsom said no to these people—no to these people. They said no to Labour, they said no to New Zealand First, and they said no to the old fogies and young dudes of the Green Party because the people of Epsom are good judges of character. And they said no to the Labour Party spokesman on finance matters because he wants Treasury to print more money to raise inflation, to raise costs, and to lower jobs and opportunity for New Zealand.

ACT believes that a dollar today should be worth a dollar tomorrow. This party, the ACT Party, believes that a dollar today should be worth a dollar tomorrow. New Zealand First says that a dollar today could be anything tomorrow, but this will help the exchange rate. It might do something for the exchange rate. It will do nothing for inflation. It will do nothing for costs. It will do nothing for jobs. It will do nothing for opportunity. It will do nothing for business. It will do nothing for the New Zealand economy.

Higher prices will leave exporters no better off, because consumers will be worse off. I did not have to go to Harvard University to talk to “Joe Stiligitzy”. Did the member get parachuted into Harvard University from the Labour Party aeroplane that it used to parachute him into Epsom? The people of Epsom say his ideas on the economy are wacky, like the leader of New Zealand First and like the old fogies and young dudes in the Green Party. Their monetary policy is wacky. That is why the people of Epsom said “Banksie, on balance, you. We don’t want them.”

I raise a point of order, Mr Speaker. The previous speaker, the Hon John Banks, made a statement that was misleading the House.

That is not a point of order; that is a debating point. [Interruption] Order! I am on my feet.

I rise to speak on the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, which is looking at changing some of the monetary policy settings for New Zealand. The reason why this debate is important is that the greatest challenge facing the New Zealand economy at the moment is the external imbalances.

What the Government is either oblivious to or is trying to downplay is the fact that New Zealand is currently running a 5 percent of GDP current account deficit—5 percent, or $10 billion a year. Under the Reserve Bank projections it is expected to increase to closer to 7 percent. This is a major problem for New Zealand, and the reason it is a problem is that there are only two ways to pay for a current account deficit. The first is to borrow more money, and New Zealand already has a very large problem with overseas debt, and the second is to sell more assets.

As people who have followed the debate in New Zealand will know, we have sold off large numbers of New Zealand assets into foreign ownership over the last 25 years in order to cover a chronic current account deficit. If we do not deal with the current account deficit, then, fundamentally, we will undermine our long-term prosperity because we will rack up more and more international debt, and we will have to service that debt, and we will sell off more and more of our assets into overseas ownership—both the land and the companies—and we will lose the profits from those companies overseas.

We know, when we speak to actual exporters, that one of the major problems that they face is around the dollar. This is both in the farming sector—the most recent Rabobank survey found that the overvalued exchange rate was a problem—and it is also across the board in manufacturing, where we have lost 40,000 jobs in the 4 years to June 2012.

The overvalued dollar is driven in large part, but only in part, by the monetary policy that New Zealand has run for the last 20 years, and that, effectively, has been a high exchange rate and a high interest rate policy. In the current context, where other countries are involved in competitive devaluations, that has created an enormous problem for New Zealand that has exacerbated the pre-existing current account deficits. That is why it is so essential that we do something about it.

We have heard from the Government that what people who want a lower exchange rate want is to increase the price of flat-screen TVs, and this is clearly the Government’s populist appeal, I guess, against changing monetary policy settings. The thing is that if we do not deal with our current account deficit, we have a long-term economic problem where we increase debt and we lose ownership of the New Zealand economy.

So when the Government makes short-term appeals and says to people: “Oh, the Government will keep a high exchange rate. Sure we will have to fund everything through borrowed money, but your flat-screen TVs will be cheap.”, that is the Government’s economic strategy, and that is the Government’s political strategy. It wants to be popular by having a high New Zealand dollar, so that imports are cheap. This has been the Government’s argument time and again around monetary policy. But we should be clear. Sure, imports will be cheaper in the short term, but the way we will pay for those imports is to borrow more from overseas.

Remember that our net debt is now at 75 percent of GDP, or $150 billion. So we will pay for these imports by borrowing or by selling more assets. That is the Government’s economic strategy. It is not a sustainable, long-term future for New Zealand. That is why we need to intervene on monetary policy, to bring the value of the dollar to a lower level so that our exporters can survive and compete from overseas, just like our trading nations are doing.

The Green Party has put forward various proposals around that. Some of them are very much in line with the bill that we have here today, which is about changing some of the policy settings in terms of the Reserve Bank of New Zealand Act. The International Monetary Fund in 2010 put out a paper about rethinking monetary policy. One of the key recommendations of that is that in small, open economies the central bank should target not just inflation but also the exchange rate. The reason it said that is that it recognises that small, open economies like ours are vulnerable to overvalued exchange rates that undermine the tradable sector and result in dramatic imbalances building up very quickly. That is why other small, open economies, like Switzerland, are intervening to bring down their dollar.

This bill is a sensible bill. The Government is completely out of line with international best practice in supporting completely out-of-date monetary policy. It is time to move on. Thank you.

I rise to support the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill. It is really interesting that we have this bill as a member’s bill, because this is one of the bills that will be remembered as a turning of the course of economic history in this country. It may not get up, but the debate is showing already that the old orthodoxy is crumbling. John Banks—and the word “Banks” does not mean he is an ATM, even though you wonder—said that he wants “investment, growth, and jobs”. Is not that what we all want? Is not that what we all want? All around this House, we want investment, growth, and jobs. The question is, on the facts, is the current Reserve Bank of New Zealand Act delivering? The answer is patently no. Here is what it has delivered. It has been extremely successful at inflation control, and in the last 2 weeks we have had the new data—0.8 percent inflation this year; 0.8 percent. It is well below the new target the Government has brought in of 2 percent. It is even below the bottom end of the range of 1.3 percent. We have overdosed on inflation control.

Meanwhile, what is going on in the real economy? Well, let us take the financial economy. The ratio of New Zealand dollars being traded to our actual external trade and investment flows is 400:1 More dollars are speculated in the Kiwi dollar in a day than it takes to finance our trade in and out for a year. Is it any wonder, when we are a speculator’s plaything, that our exchange rate is climbing and climbing and climbing? It is 83c, 84c against the US dollar, and it is 73-odd cents on the trade-weighted index, and it is killing our exporters. There have been 40,000 manufacturing jobs gone since 2008, when this Government took office—40,000 manufacturing jobs. They are high-value manufacturing jobs. Nobody has told Bill English and Steven Joyce. Today Bill English stood in this House, and virtually misled the House. I say “virtually” because he was using different statistics. He said that there is no crisis in manufacturing. Well, here are the facts. Simply transformed manufacturing export value declined 14 percent in the last 4 years, and elaborately transformed by over 10 percent. It is on its way down—that is in real terms. In real terms, it is sliding and the jobs are going. That is not an accident. It is a direct function of the settings of current policy. If we want to change the outcome, we change the policy.

This is actually a moderate bill. This bill just says to change the objectives of the Act. It says nothing about quantitative easing. That is a complete straw man argument by John Banks. It is not Labour’s policy to have mandated quantitative easing. That is a matter for the Reserve Bank’s good judgment. It is good enough for the United States, it is good enough the United Kingdom, it is good enough for the financially literate Swiss Government, it is good enough for half of Europe, and it is good enough for Asia. Well, who knows whether it is the right thing for New Zealand, but we say leave it to the qualified experts. But do not rule it out, National, just because it is not part of your ideology or your orthodoxy. Do not hamstring the bank and do not tie the bank to a set of objectives that belong to the days of the credit bubble before the great global financial crisis, in a different world.

I do not know who it was who said “A reasonable person, when confronted with new information, changes their mind. What do you do?”. The world has changed. The bubble has burst. We do not have an inflation problem. Inflation is below the target range. We have an employment problem. We have the world’s second-highest current account deficit—by next year, the highest current account deficit—in the world. That is a crisis. That will take a coordinated policy response, and changing the Reserve Bank has got to be part of that response, because when David Parker and I tour around manufacturing and exporting businesses, as Andrew Little and others of our colleagues have done, every time—every time—they tell us: “For God’s sake, the exchange rate is killing us. Help us to earn a decent day’s wage. Help us to take New Zealand forward. Give us a level playing field. Please, change the Reserve Bank of New Zealand Act.” This bill does.

The last speaker in the debate right now, David Cunliffe, said a reasonable person when presented with new information would change his mind. It reminded me of seeing Mr Cunliffe on television last night. You know who it was who said that? It was his leader, David Shearer. But would Mr Cunliffe, on TV3 news last night, stand up and back his leader, and say that he supported him and agreed with him? Not at all. When presented with new information, he did not change his mind. He scurried back to the same place that all those plotting against the leader on the Labour side scurry to.

You see, the problem we have—and I rise to oppose this legislation, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill—is that whilst Labour, the Greens, and New Zealand First are trying to talk down our economy, and promote money printing and more taxes, this National Government is getting on with the job of responsibly managing the country’s finances and helping build a more competitive economy and a more productive economy.

Mr Cunliffe said investment, growth, and jobs—that is what they are all about. Well, guess what? The economy grew by 2.6 percent over the last year. It is one of the fastest rates of growth in the OECD in that period of time. That is growth. Labour would love to get rid of that. The Opposition parties do not like hearing this, but the simple facts are 2.6 percent growth, and interest rates and inflation are the lowest they have been for some time. A family with a $200,000 mortgage is now saving $200 a week in interest costs alone, compared with 2008 when we came into Government.

The Opposition parties want to sweep that aside and have got all sorts of new ideas about how we can fix some of these problems. Mr Parker said earlier that 30 years of policy to keep inflation low has been working. Now he wants to chuck it out so inflation rates will go up again. He liked it for 30 years, but now in Opposition he has changed his mind and does not want it any more.

We heard about growth in jobs. Well, here are the cold, hard facts. New jobs are being created in New Zealand. Almost 60,000 more New Zealanders have jobs now than 2 years ago, and our manufacturing sector is actually growing. What did we see last weekend? We saw a rushed summit of political parties from the Opposition—some of their friends in the union movement came in to fill a few seats. There were more seats empty than there were full at that meeting—a crisis we had in manufacturing. We have not heard anything about it this week, have we, after that? Not one question in the House. In fact, the first question in the House about jobs and growth in jobs came from the Government to our Minister.

Our public finances are improving. The deficit has halved over the past year, so we can return to surplus sooner. This is something that the Opposition, the Labour Party, has all of a sudden adopted. Yes, it wants to get back to a surplus now, as well. The bill before us would put these things at rest. It would send inflation and interest rates soaring, and there is absolutely no reason for it.

As for the latest idea from our opponents the Greens, who seem to be leading the Opposition on the other side of the House, printing money can only be described as wacky. What would this mean? Let us think about a year or two from now, if New Zealanders were unfortunate enough to have a change of Government. We would see the Greens printing money, Labour spending money, and Winston denying any knowledge of it—and good on him for that. If I were him, I would keep well away from that other lot as well. You see, if printing money was a way to fix problems in the economy, I say to the Greens, photocopying carbon credits is going to fix climate change as well. It is absolutely wacky.

Our economy is not in crisis. Mr Parker raised the example of a couple of countries in the world. Let us look at those. Let us look at a couple of these examples—Japan and Switzerland. The Reserve Bank published a paper earlier this year that looked at intervention by the banks of Japan and Switzerland, and the relevance of that to New Zealand. It noted that the currency intervention in 2008 has largely resulted in financial losses for both the Swiss National Bank and the Bank of Japan, and they have been ineffective at lowering their currencies. Since 2008 the Swiss franc has actually appreciated by 27 percent against the euro, and by 15 percent against the US dollar. Since 2008 the Japanese yen has appreciated 29 percent against the US dollar and 37 percent against the European currency.

Thank goodness we have a National Government that is focusing on what is important. Thank goodness we are working hard under disciplined conditions to get this economy back on track. And thank goodness we are not supporting this legislation, because the cost to New Zealanders of inflation that would run away in higher interest rates would be devastating. Thank you.

I would like to bring this debate back to reality, having heard an incredible amount of rubbish from National members in the preceding speeches where they have spoken about money being printed and all sorts of other fantasies, just to try to put the people of New Zealand off the fact that a review of the Reserve Bank of New Zealand Act is overdue after 30 years—and we have got two Ministers now leaving—

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

After 30 years the old, tired, worn out National Party cannot even let the New Zealand people, New Zealanders, come to a select committee of this Parliament—organisations, manufacturers, exporters, farmers, all sorts of parts of our economic sector—and put their views about how our economy can better perform with the Reserve Bank of New Zealand Act being reviewed, so that the Reserve Bank is not concentrating on only inflation.

This economy is not just about keeping inflation between 1 and 3 percent. That is what this National Government would have us believe. That is its sole way of controlling the economy, it would seem, rather than, like most other countries in the world, looking at other mechanisms that the Reserve Bank could act under, which would help control our exchange rate, would help keep a lid on our exchange rate, help perhaps push our currency down a bit, and help make our exports more competitive on the global market. But does this National Government want that? Not on your life. New Zealanders out there listening to this on Parliament TV and radio world: listen to this. You are being led—

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

Sorry. The people of New Zealand are being led by a National Government that does not want to review the Reserve Bank, after 30 years of the current Reserve Bank of New Zealand Act being in place, and does not want to give this economy a chance for a review.

The Manufacturers and Exporters Association has estimated that because of the high value of the New Zealand dollar, manufacturing exports have lost $10 billion in the last 3½ years under a National Government. That is an appalling, appalling figure. The International Monetary Fund itself, which our Minister of Finance said were basically snake-oil merchants—he said anyone suggesting some of these things are snake-oil merchants—estimates that the New Zealand dollar is 15 percent overvalued. This is causing serious harm to the tradable sector. Many exporters are going out of business or being forced to scale back their operations, and the result is economic malaise characterised by low growth and high unemployment.

Forty thousand manufacturing jobs in the last 3 years have been lost. Unemployment under this National Government has gone from about 5 percent and is heading towards 7 percent. That is not a good direction for unemployment to be going in, and if you are then not even prepared to look at all the different mechanisms to perhaps help keep employment in this country, then you really are emus and ostriches with your heads in the sand. We are seeing Tīwai Point in Bluff, we are seeing Huntly East coal mine, we are seeing the Kawerau mill, and we are seeing many, many other major industries in this country laying off people, left, right, and centre, many of which are in the very National Party electorates of this country.

The people of New Zealand need to get on to their local MPs, get on to their National MPs in the rural provinces, in the towns of this country, out there in the working provinces of this country, and tell their local MPs to get in behind a review of the Reserve Bank of New Zealand Act, because at the very least this bill, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, which the Rt Hon Winston Peters has brought to this House, will at least explore avenues to make this economy more competitive. If we do not do this, we basically consign this economy to continue as it is.

New Zealand is the one country in the world at the moment out on a limb, with totally different policies to many of our other major trading partners. Why would we follow along similar lines to this, in a situation where the New Zealand economy is in dire straits and where unemployment is also increasing? I urge all parties to give this bill a chance, let it go to a select committee, and let New Zealanders have a say on it.

I have listened to this debate with great interest, and I thought the statement that the previous speaker, Andrew Williams, made about setting the record straight was an apt one. I think it is time that the House actually had a look at some facts, rather than concentrating on the sort of rhetoric that we have heard in this debate to date. Let me point out a couple of those facts for the House. I see that the Deputy Leader of the House is smiling. Well, I hope that by the end of her—

💬 Hon Anne Tolley: I’m always smiling.

She has a sunny disposition, just like the junior Minister over there, Simon Bridges, but there we go. Let us hope that they are still smiling at the end of the debate.

On 19 September during question time, in response to a primary question from the Rt Hon Winston Peters, the Prime Minister said this: “Interestingly enough, also, that member will know that, because he was part of a Government that had Charles Chauvel chair the Finance and Expenditure Committee in 2008, and what that select committee found was the following. It found that New Zealand’s monetary policy approach is now standard among small, open, developed economies, and is regarded as ‘world’s best practice.’ ” The Prime Minister repeated the burden of that statement on 26 September, in response to questions from Dr Russel Norman. He said that I had “chaired the Finance and Expenditure Committee as part of the”—quote unquote—“old Government in 2008, and what it found was we had world’s best practice”.

As seems to be the case time and time again, John Key had not read his papers, because what actually happened in respect of that committee is as follows. We heard 92 submissions from a number of distinguished experts in this field from Germany, Australia, New Zealand, and other countries. We received very good advice, I think, from Treasury. We had independent advisers, including Dr Stephen Grenville and Dr Dean Parham from the Australian Productivity Commission. What is most interesting is the composition of the committee, because we produced a unanimous report. I want to remind the House who was on that committee. Although I chaired it, there was the Hon Bill English, there was Craig Foss, there was Hone Harawira, there was Rodney Hide from the ACT Party—

💬 Hon Members: Who?

Ah, yes, we remember him well. Dr the Rt Hon Lockwood Smith was the deputy chairperson, we had Chris Tremain, and we had representatives from the Greens, United Future, and New Zealand First. That was a committee from across Parliament, and it carefully considered the evidence. And quite contrary to the claims of the Prime Minister in question time last month, this was the key finding of that committee—I am going to read it in full—“While monetary policy has largely succeeded in delivering low inflation despite challenges, the long-run economic performance remains less encouraging. GDP growth per capita has not been strong enough to close the gap with other OECD countries; the stock of capital equipment per worker remains low; and the country’s export performance appears disappointing. It is also a concern that recent imbalances in the economy at present have manifest in a high exchange rate.”

That is the so-called ringing endorsement that the Prime Minister’s speech-writers and note-takers told him was what we had said in our report on monetary policy. But never mind that. We know he never reads anything, and we know he does not have his hand on the tiller; he simply does what his advisers say and reads out what they suggest he reads.

Those are the problems that need to be addressed. Those are the sorts of problems that sending this bill, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, to a select committee would allow to be debated. They are issues that need to be confronted and that are facing us in our economy at the moment. That is why we support sending this rather modest bill—it is the sort of bill that would put in place, for example, the Singaporean approach in the New Zealand economy—to the Finance and Expenditure Committee for careful submission. That is what this legislation deserves, not the sterile ideological rhetoric that we have heard tonight from Bill English, even though he sat on the committee and joined in the endorsement that I read out, and from Todd McClay, John Banks, and others.

I want to commend the Rt Hon Winston Peters for his initiative in introducing this bill. I am proud as a Labour member to stand with my colleagues, with the Greens, with Mana, and with others in supporting this very sensible bill.

I welcome the opportunity to make a contribution in this debate, because the differing views on this bill, the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, really do identify the difference between the rational, sensible economic policies of this Government compared with the voodoo economics and the snake oil that we hear from parties opposite. It is, firstly, fascinating to hear the Labour Party say that these are the new ideas—the new ideas for taking the New Zealand economy forward. Well, they are not very new. I heard them in 1990 when I arrived at this Parliament as a young pup. I heard them regurgitated again by Winston Peters in 1996. I heard them again in 2002. These are old, tired ideas that have little relevance to the challenges that face New Zealand today.

I actually want to recall what occurred in 1996, so that people can understand the level of snake oil that is going on in this debate. People will recall that in 1996 Winston Peters campaigned on changes—these very same changes—to the Reserve Bank of New Zealand Act. When he became the Treasurer in 1996, he sat down with the Governor of the Reserve Bank—a very well-known person, Dr Don Brash. And do you know what Winston Peters said about these changes to the Reserve Bank of New Zealand Act when he became the Treasurer in 1996?

💬 Michael Woodhouse: What did he say?

He said: “Well, now I’m actually the Treasurer, that was all just political sales stuff to get me some votes. You don’t really think I believe in any of this stuff? Don, just carry on with the sensible monetary policy that has been practised for the last 6 years.” And so we did.

It was very telling, on the Finance and Expenditure Committee, to hear that well-respected Governor of the Reserve Bank, Alan Bollard, only a few weeks ago. There was a universal respect around the select committee table for the job that Alan Bollard has done for New Zealand, and, equally, there were unanimous congratulations for the significant appointment that Alan Bollard has as the new executive director of the APEC Secretariat in the Asia-Pacific region. I would point out that Alan Bollard was not an appointment of this Government. In fact, he was appointed to that role as Governor of the Reserve Bank by the previous Labour Government.

I think it is particularly significant when you have retiring people making their comments. I would note that some of the very best speeches that we hear in this Parliament are from retiring members. People say things as they are, not trying to please any particular audiences. We put to Dr Bollard whether the Reserve Bank of New Zealand Act that we currently have is fit for purpose and whether changes like those proposed in this bill would in fact have either a significant effect on the exchange rate or help New Zealand with its challenge of jobs. Dr Bollard was absolutely plain and frank in his advice to all members of the select committee, and that was that proposed changes of this sort to the Reserve Bank of New Zealand Act would make no material difference—no material difference—and that the Reserve Bank of New Zealand Act, even post - global financial crisis, was fit for purpose. He advised all parties—all parties in this Parliament—against the sort of bill that we now have before us.

You see, what really worried me over the adjournment was the claim by the Green Party that somehow you could solve New Zealand’s problems by just printing money—by just printing money. Do they really think New Zealanders just came down in the last shower? Next minute they will be telling us that there is a money tree down by the library, next to the parliamentary buildings. That is the extent of the integrity of this bill. It is rubbish. The House should reject it.

Of course, what Dr Bollard said was that it was “a moot point”. So Nick Smith’s memory is not even accurate. This is the master of voodoo and snake oil. Back in 1990 he did not mind Winston Peters coming down to Richmond to pack the hall when he was a new candidate in the Tasman electorate, because he could not fill a telephone booth. Oh no, it was good policy then. “Oh yes, Winston, come down and help out”—just like Tony Ryall up there in Whakatāne, who could not get a telephone booth full. Oh no, everything that Winston Peters was saying then was great stuff. So you can tell how much credibility they might have.

You see, Nick Smith cannot even get history right. Back in 1996 we changed the policy targets again when I became the Treasurer, but then his future leader, Brash, totally ignored what we set out to do, and that is why the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill is here today.

You know, they are saying that you can have only one target. It is like saying that it is either protein or carbohydrate. That is just ridiculous. It is stupid. It is not intellectual. It is voodoo. It is snake oil, and that is what that man is a master of—although he should take more of it, because it might help his appearance. It is certainly absurd to suggest that a country’s economic policy should rest on one single objective. That is nonsense. It should rest on a Reserve Bank Act geared to deliver jobs, growth, exports, and price stability, and a hope in the future, and keep young people living in our own country. We are stuck in a 1980s time warp. All obsessions are dangerous, and what you have heard from the far side of the House tonight has been that sort of déjà vu.

I want to thank all those from the various parties—the Greens and the Labour Party—who have got up and supported this legislation. Anyone could have presented it, but the fact is that the debate has arrived. This is a sea change day, and they are going to find out very shortly—very shortly—what it means, when they are back there, out of the ministerial cars, where they belong, bumping up and down the streets in taxis.

The Manufacturers and Exporters Association says the loss of $10 million from the last 3 years does not concern the National Party. There are 40,000 jobs lost, real human circumstances—that does not include the spouses, it does not include grandad or the kids—and no, the National Party could not give a darn. National gets up and puts up a straw man, and then thinks it is intellectually honest in knocking it over.

Here is the truth: what is not working is the current Reserve Bank of New Zealand Act. Everybody can see it. New Zealand companies are going to the wall. Others are on the brink of closing. Hundreds of jobs are being lost every week. Productive capacity is shrinking. Our international indebtedness deepens as our export growth is held back, and up gets the Minister of Finance, who I think has borrowed more money in his time than all the other finance Ministers in the past all together. That is what he has done. It is absolutely astonishing. He is heading for $78 billion of borrowings, and he has got the arrogance to get up here as a paragon of economic virtue. Everything he has touched—it is the Midas touch in reverse—has turned to rubbish. And then he talks about interest rates. Well, we have got New Zealanders out there paying three and four times what they pay in Europe.

💬 Hon Dr Nick Smith: Lowest rates in 40 years.

Did you see that? He cannot even see that it is a comparative measure. What is the comparison between us and the UK, us and the USA, us and Europe? Well, it is three to four times. That is the difference.

💬 Hon Dr Nick Smith: We’re in better shape.

Oh, we are in better shape. Oh, you are in better shape than Greece—just. Are you in better shape than Scandinavia? Oh, a deafening silence. Are you in better shape than Singapore? No—a deafening silence. Are you in better shape than Taiwan? A deafening silence. Not a mutter, not a murmur, not a sensible syllable or sound. They compare themselves with the bottom league and say “Look how good we are doing”, while we belong to a country that once dreamt to be at the top of the league. Twice in our great history we made it, and soon, with a new Government, we are going to make it again.

A party vote was called for on the question that the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill be now read a first time.

Order! Members, you know that when there is a vote being taken it is to be heard in silence, because any comment at all can be seen as intimidation, and it can ultimately lead to a breach of privilege of the House.