International Finance Agreements Amendment Bill

Just before I address clause 4, I have to record my surprise at the Greens voting against this—are the Greens voting against this legislation as a whole?

💬 Eugenie Sage: Yes.

You know, in an international world, where we rely upon international organisations like the IMF to make the world a better place, I am surprised that the Greens are voting against this legislation, the International Finance Agreements Amendment Bill. In fact, I have to say that I regard that as fringe behaviour. I really do. I am surprised that the Greens are not supporting what is a key international institution. Not all of the advice that the IMF has given over the years to developing countries as to how they should conduct their affairs has been correct—I am not saying that. I can see why the Greens would be critical of some of the advice that was given to developing countries, you know, for a Government to move out of all provision, etc., and some of the advice that was given to Russia, for example, as it came out of Communism was terrible advice and led to the rise of oligarchs in a way that would have been avoided had the transition to democracy been better. But to say that the IMF should not be able to change its percentage contributions in respect of these important funds that are increasingly coming from developing countries, like China, which have emerged as economic powerhouses, and not to update the IMF legislation to reflect that change, I think, is wrong and fringe.

Having said that, I shall deal with clause 4. I have an amendment before the Committee to delete this clause, and I want to explain why. The legislation that this bill updates was originally passed in 1961. Since then, there have been a number of amendments to the International Finance Agreements Act when the articles of the IMF have changed, but they are not so onerous as to not have been within the ability of this Parliament to consider and debate on their merits. Since the Act originally came into force in 1961, articles of the IMF have been changed on only four occasions before this. That was in 1968, 1976, 1992, and 1998, plus there is this change. Those changes can have significant long-term effects. I understand that even if the legislation does not come before Parliament, the effect of the Government, which has authority to represent us at IMF meetings, agreeing to a change in quota—or even if it disagreed and the requisite number of members did agree to a change—is that New Zealand is bound to go along with it, unless it pulls out of the IMF. I understand that. But I do not think that means that these changes, when they are coming about, should not be debated by this Parliament. I think one of the reasons that is important is that—for the very reasons that we have heard in this debate—Governments can be selective about the advice that they take from the IMF, and we actually do not get all that many occasions to debate the inconsistency of positions taken and why it is that a Government might be taking this bit of advice but not pursuing a capital gains tax or not pursuing changes to monetary policy, etc. So I think that these sorts of debates are useful and important in Parliament.

That is why we in the Labour Party think that when our arrangements with the IMF are changed in this fashion, they should be debated in Parliament. They are not normally urgent. It is not like we have to disrupt urgent business and go into consideration of the IMF changes; we can put it on the Order Paper and consider it when the Government has a bit of time. That is evidenced by the fact that these changes—sorry, there are two sets of changes here, one of which relates to an agreement in 2008 at the IMF and the other to one in 2010. Here we are 5 years later just putting those into effect in legislation, or getting close to finalising it. It is not like this has to be done in a rush, which disrupts normal parliamentary business. But it should have parliamentary scrutiny and it should, in accordance with due process, come before us.

Clause 4 says that in the future it does not have to come before us. We are going to abandon the practice that we have had since 1961, which is, whenever there is a significant change to our arrangements with the IMF, Parliament gets a chance to debate it. Well, all of a sudden the Government says: “Well, we don’t need to do that in the future. The Government will just give effect to that by way of Order in Council.” So the scrutiny that we have at the select committee and the discussions that we have in this Parliament will not be necessary in the future; the Government will just do it all by Order in Council, and we will not have the opportunity to debate it. I think that is wrong. The Labour Party thinks that is wrong. We do not think that schedules 1, 2, 3 and 7 of the principal Act, schedules 1 and 2 of the International Finance Agreements Amendment Act 1966, or schedule 2 of the amendment Act—none of those schedules—ought to be able to be amended by way of Order in Council.

Just to put that into perspective as to what the financial consequences of these changes can be, currently New Zealand has to pay up 25 percent of its commitment to the IMF in paid-up capital to the IMF, and the IMF uses that for various things. In addition, we can have capital called up from us, up to the total of our quota, and there are other related lending arrangements, where, when the IMF calls on us to make good on our promise to help other countries by lending direct to countries that need a hand for a while, we have to do that within a set period. If that amount changes dramatically, that does have dollar consequences for our country. Indeed, when changes are made to increase the amount in the IMF fund but New Zealand’s total commitment does not go up, that causes us to reflect on the fact that, relative to the size of the world economy, we have not been growing; we have actually been getting a smaller share of the total world economy, rather than a greater one. That in itself is something that should cause us in New Zealand to reflect on whether we have our economic settings right.

For those reasons, the Labour Party is proposing an amendment to this clause. We are actually proposing that this clause not proceed. The provisions of the amendment bill set out in the schedules would still have effect, so we are not frustrating the intent of the legislation. We are just saying that if it needs to be changed again in the future, it should come to Parliament to do that, rather than it being done by statutory regulation.

I call the Hon David—David Cunliffe.

It was going to be one David or another.

The CHAIRPERSON (Lindsay Tisch): Three Davids.

Almost certainly—in triplicate. I rise to support the amendment proposed by my honourable colleague David Parker to remove the right for the executive by Order in Council to pass amendments to our contribution. One has only to go to the total liabilities, which total NZ$1.8 billion, in terms of New Zealand’s liabilities to the IMF to understand that this is a serious matter that requires proper parliamentary scrutiny. There has been a tendency for the Government to dispose of little matters like parliamentary scrutiny—to shuffle things through the Cabinet process—as is proposed in clause 4 of this International Finance Agreements Amendment Bill. This clause is fundamentally unnecessary. It is inappropriate given the size of our liabilities and it is inappropriate given the international importance of the institution that we are talking about, the International Monetary Fund.

In that regard, may I provide some context, which I am sure my colleagues will have noted in their earlier contributions, but, as this is my first opportunity, I wish to raise it now. That is to note that the IMF has fulfilled its role not only as a lender of last resort to developing and distressed economies but also as a contributor of record to international economic debate. What has been remarkable is the way the nature of the IMF’s advice has changed during the last decade in the run-up to, during, and in the wake of the global financial crisis. I can do no better than to point to this book—which has been provided by my colleague David Parker—In the Wake of the Crisis, which is edited by Olivier Blanchard, the chief economist of the IMF. I refer also to two IMF working papers, which I will later seek leave to table—one on growth forecasts and fiscal multipliers and one on the basic mechanisms and appropriate policies for dealing with the global financial crisis.

What is remarkable about these papers is that the IMF has shifted its views. The IMF is now saying that too much austerity prolongs recession and will inhibit the global recovery from the global financial crisis. In other words, its traditional mantra of “Cut costs, run surpluses” has been rescinded. And what it explicitly recognises is that fiscal parameters must be seen in relation to what economists call the output gap. Is there sufficient spending power, sufficient demand in the economy, from mums and dads, from private businesses, and from the Government to keep everybody working and paying taxes and to keep the ball rolling, as it were? What the IMF argues cogently in this paper is that if there is insufficient demand because Governments retrench too quickly, that can become a self-fulfilling prophecy. Governments get less tax revenue, because there is less economic activity, and they then run bigger deficits and fail to make their fiscal targets. They chase their own cuts down a fiscal drainpipe, and that is—

💬 John Hayes: It’s not happening here. It’s not happening here, David.

The financial genius in the back row is saying that it is not happening here, but, in fact, it is, because the Government’s revenue targets have reduced over the last year and it has had to increase revenue through a new fuel tax, a fuel excise. Even so, the Government is only just, if at all, going to meet its surplus target for 2014-15. And you will notice that both Mr English and Mr Key are backing off their earlier categorical language about that. They are finding out, if you like, the hard way what the IMF has been saying to the world in these papers: do not cut your own throat. The job of a Government is not just to balance its own books; the job of a modern Government is to balance its country’s books, to provide jobs, and to provide turnover to ensure that the economy is healthy, that it can balance its external accounts, and that it has an appropriate monetary policy.

If I might turn to this contribution by the IMF chief economist, he has said: “We have moved from a one-target, one-instrument world to one where there are many targets and many instruments.” Well, why has nobody told the Governor of the New Zealand Reserve Bank? Mr Wheeler’s early comments, much as we respect the independence of his office, I have to say, sound like he is going back to Reaganomics. We need a modern monetary policy, and the IMF is telling us that a multi-policy, multi-target, multi-instrument framework is best practice, not the single focus on inflation with the single tool of the official cash rate.

Finally, in that regard, I would note that history is repeating itself all over again. We have flagging productivity growth, high unemployment, and a runaway property market. And what is the Government’s monetary policy response? One day we will do nothing; another day we might raise the official cash rate. But there is nothing that is sector specific, no use of macro-prudential tools like loan-to-value ratios or reserve asset ratios, nothing that shows that it is learning the lessons published by the IMF, but it is happy to rescind the right of this Parliament to comment on a billion dollars plus in financial liability to the same organisation. How is that right?

Support Mr Parker’s amendment, remove clause 4, maintain the right of this Parliament to oversight on our liabilities to the IMF, give the people of New Zealand the opportunity to hear why we do it in the first place, and make sure that we are a proper global citizen. We are fortunate that the IMF has changed its tune, that it is playing a role in fundamentally shifting the international economic debate from 1980s monetarist orthodoxy—high-class neo-liberalism, if you like—to something that is a little more balanced. That is not to say that the IMF has gone to finishing school with Karl Marx—that ain’t gonna happen—but at least it is more moderate than it was. So, in conclusion, support Mr Parker’s amendment, strike clause 4, maintain oversight of our contributions to the IMF, and take seriously the billion-dollar liability—it is almost as big as the Government has spent on South Canterbury Finance.

Thank you for the opportunity to speak on clause 4 of the International Finance Agreements Amendment Bill. I wish to speak, of course, to Mr Parker’s amendment and to take up his position—or his concern, at least—on the Greens’ position on this. I want really to just raise the question and invite a contribution from the Green Party, because this is an important issue. The debate we are having, it seems to me, is about some really big economic issues that are affecting the world. The way in which the IMF provides advice and who takes it is stuff that has been canvassed in the Committee stage, as well as how we as a country respond to that advice. We talked about whether a capital gains tax is useful or not; I did in a previous contribution. Mr Hayes interjected that he thought it was not. And the debate has gone on. The National Party, notably, has not contributed much to this debate either, and I find that concerning.

I am enjoying, I guess, at the same time, the contributions of my colleagues. David Cunliffe and David Parker have both explained why this legislation is important, but also why clause 4 should be taken out of the legislation, because it fails to allow in the future for proper parliamentary scrutiny of changes. David Parker briefly covered those times when the Articles of Agreement of the International Monetary Fund have been amended. I actually have in front of me the schedule of all of the significant changes in the history of the IMF that might fall under that. In 1968 we see that the articles of agreement were repealed. It was not then until 1976 that the articles of agreement were updated again. That is an 8-year gap. Only once in 8 years did our Parliament get to debate the Articles of Agreement of the International Monetary Fund.

Those articles of agreement stayed in place from 1976 to 1992, and it was not then until 1992, I imagine, that this Parliament debated again whether they should be changed, where New Zealand stood on international aid and development aid, how the world’s economy should be encouraged or not in line with IMF advice, where New Zealand stood, what New Zealand’s contribution should be, and whether we were in agreement with the expectations on us for contributions for helping stressed or developing countries to improve their economies, to stabilise them, and to make sure they were growing in a sustainable fashion. And then after 1992 the next time the articles of agreement came up was in 1998. So there was a 6-year gap. That is two terms of Parliament—and for some of these it is longer—where these issues have not been debated. So, once again, from 1998 we are now through to 2013. That is a huge gap. That is a huge period of time that has elapsed when we did not have the opportunity to discuss these articles of agreement and how Parliament should handle them, and now we are proposing to not have this debate at all. It certainly cannot be said that this debate happens too often, so I am concerned that parties in this Parliament are not taking the opportunity, when the last time they had it was in 1998.

We are talking about $1.8 billion of New Zealand funds, and it seems to me that when the National Party contribution to this debate is limited to Mr Hayes’ insights around the capital gains tax, that is not a full debate on the issue—with all due respect to Mr Hayes. And when we do not hear anything from the Greens about international economic issues in a debate that we have not had since 1998—in fact, if I am right, that presumably means the Greens have not contributed to this debate ever—we do not know where they stand on this, other than that they oppose it in general. Perhaps, if they were uncomfortable with the removal of this parliamentary scrutiny, they could have moved an amendment, the same as my colleague Mr Parker has moved, to say that they think these issues should be debated in Parliament, because they are important issues, which affect significant amounts of money, but also because this is a matter of principle.

This is a matter of principle as to whether New Zealand chooses to participate in the economic efforts to underpin the world economy, and whether it chooses to do that in a timely fashion—this legislation, I will remind the Committee, is being rushed through now because it was not looking like being ready in time, and suddenly it has come back on the Order Paper to get it pushed through Parliament—or whether New Zealand is going to drag its heels. Where New Zealand sits in the international community, it seems to me, is an important point to be debating. I hope that the challenge that I have issued will be taken up by members opposite and hopefully also by the Green Party, to outline their positions in respect of this bill, in respect of taxpayers’ money—the $1.8 billion that New Zealand commits to world development—and whether, for the Green Party, it thinks that supporting developed countries out of poverty is a priority or not. Is that the point of principle that is being debated here? The National Party, it seems to me, does generally support these things. We have supported it in a bilateral fashion, but we differ here, of course, on whether these things should be passed by Order in Council or whether they should receive the full parliamentary scrutiny.

So Mr Parker’s amendment would make sure that Parliament did debate these issues when they come up every 13 years, or every 20 years, or every 6 years—I think that is the shortest gap. It would make sure that we do have that debate. I think that it, therefore, is a very important amendment, and I would urge all members of this Committee to support it. I urge those members of the National Party opposite to examine their consciences, to see whether they really believe that parliamentary scrutiny should be applied to this legislation, or whether they are comfortable with a backroom deal being done on economic matters where the world is concerned. I suspect that if members opposite do examine their consciences, they may realise that the way this legislation is worded could be improved by simply adopting Mr Parker’s amendment that we remove clause 4 from the legislation, and simply bring this debate back to the House when it next comes up. That may be in 10 years’ time; it may be in 15 years’ time. Then we will see what spread we have in Parliament and what the different parties represented here think on these issues. As I made the point, the Greens were not here to have a debate the last time these issues were debated. They did not exist as a political party in the parliamentary realm—

💬 Holly Walker: Jeanette and Rod were here.

Elected in what year?

💬 Holly Walker: 1997.

In 1997 the Greens were first represented?

💬 Holly Walker: Jeanette and Rod were both in here.

We shall examine the Hansard to see what the contributions were there and whether the Greens have updated their thinking since then. I think it is an important thing to be debating in this Chamber. This is a huge commitment from New Zealand. It is a matter of principle and it is a large amount of money, so it is worthy of the time of this House, even if we, by and large, agree on the principles, and even if across the House we agree on the principles of engaging in the IMF’s business and the principle of supporting and stabilising the world’s economy.

So with that, I recommend Mr Parker’s amendment to the Committee and urge all members to examine their consciences, to participate in this debate, and to make sure that we have some robust legislation that enables the proper scrutiny of these matters in our House in years to come.

I move, That the question be now put.

This typescript amendment lodged by my colleague Mr Parker is a very important one. We do not often debate constitutional principles in this Chamber, and certainly outside of it. We understand, most of us who are here, our role as parliamentarians, which is to pass laws and provide some scrutiny and oversight of the Government of the day when it is putting up laws, and, to some extent, to initiate laws ourselves. But when we are faced with a proposed law such as this, which takes away the scrutiny of Parliament, then we have to tread and approach it extraordinarily cautiously, more so when it is about the international obligations that we enter into. All of the international agreements that we enter into, if they have any force either internationally or locally, must come to this House for ratification. That is standard international law. So it defies explanation when we see in this legislation an agreement that, admittedly, we all already have entered into, but an agreement that, if the Government of the day wishes to amend it or wishes to agree to amend it in the international forum in which it operates, should not come back to this House. There is no explanation, nor could there be, for that course of action. So Mr Parker’s amendment is absolutely crucial when it comes to constitutional principles and the way we operate.

We do not have the checks and balances that many other countries—many other members of the IMF—have. We do not have a second House to keep the executive in check. We do not have court oversight—Supreme Court or Court of Appeal or High Court oversight—of the law-making functions of this Parliament. That is the Westminster way. That is the Westminster system, and, subject to what the current lengthy constitutional review might come up with, it is unlikely that that would change. So the only check and balance that we have on the power of the executive and what it does in the name of all New Zealanders, whether locally or on the international stage, is what happens in this Parliament. It is the ability for parliamentarians of whatever colour, of whatever origin, of whatever part of the country to come together, whether in this House or in the select committees, to provide oversight and scrutiny of what the executive or any member of it has done, or is doing, or has agreed to—in this case, in the very important international forum of the IMF.

When the legislation says that the Government of the day, can by Order in Council, agree to, register, and record amendments to the important documents that make up our membership of the IMF—the fund agreement, the bank agreement, the text of the corporation agreement, and the text of the convention—when you start getting down to that end, where things in any other context and in any other forum would require ratification or validation by this Parliament, then it is time to stop where we are and take a step back. For that reason, Labour is saying that this is a step too far by the executive. When it comes to putting in the hands of the executive the power to make these changes—without the scrutiny and oversight of Parliament, without the ability for this Parliament and members of it to debate it, to come up with alternatives, and to challenge unwise steps—then that is bordering on, if not indeed usurping, the power of this Parliament, and certainly the members in it.

So we say boldly and unequivocally that clause 4, which is amending section 10 of the International Finance Agreements Act 1961, is simply a step too far. It should not proceed at all, and doing that does not compromise the real objective of this bill, which is to allow the changes that have been agreed to so far to proceed and to have the approval of this Committee. But the idea that upon approving recently—when I say recently, I mean in the last 5 years, of course—agreed changes to the IMF statutes and the IMF texts, to say that having agreed on that we should then give carte blanche power to the executive to agree to changes—

I move, That the question be now put.

We have a typescript amendment in the name of the Hon David Parker to delete clause 4. This is out of order as a direct negative of the question, and the proper course of action in this case is for the party to vote against clause 4. This is covered by McGee on page 217 and Speakers’ rulings 59/6 and 115/6.