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

I rise to speak briefly on the Reserve Bank. The reason why this is important is that the Reserve Bank gave a very important report to the Finance and Expenditure Committee last week about financial stability. The key point that it was making in its report was that the out-of-control housing market is threatening the financial stability of the financial sector and the banking sector in New Zealand. When I asked the Governor of the Reserve Bank directly whether the New Zealand economy had rebalanced, which the Government set itself as its top economic priority when it first came into office, the governor gave a very direct answer that the New Zealand economy has not rebalanced under this Government—that is, if you look at the relationship between the internationally competitive sector of our economy, or the tradable sector, versus the non-tradable sector, the non-tradable sector is once again growing dramatically. That means that our current account deficit is growing, as we spend a lot more than we earn. Eventually, as Treasury projects, it will increase our overseas debt very significantly. The key criterion that this Government set itself when it came into office was to return the economy back to balance between the tradable sector and the non-tradable sector, and what the Reserve Bank has been saying very clearly is that this has not happened.

This is very important for people to understand in Budget week. In Budget week the Minister of Finance will make a big deal about the fact that after borrowing around $40 billion, Bill English might stop borrowing money in the next couple of years—that is, return to a fiscal surplus. This does not mean that the country stops borrowing money. In fact, New Zealand is borrowing money hand over fist. We are currently running a current account deficit of 5 percent of GDP. This means that either we have to borrow 5 percent of GDP per year, which is about $10 billion, or we have to sell assets worth that much per year. And any country that persists in borrowing or in selling assets at that magnitude every year is a country that is on a path to a crisis. If you persist with a massive current account deficit like that, as this Government projects to do and as the Reserve Bank shows that we are projected to do, then you have not rebalanced your economy, and in the long run there will be a very significant adjustment.

The problem is that the Government has focused in its rhetoric purely on the fiscal surplus, which is significant and important—after borrowing about $40 billion, it is about time Bill English stopped borrowing so much money and putting future generations into debt. After borrowing that much money, it is time to go into a fiscal surplus. But the point is that the country as a whole has been thrown into a massive deficit as a result of the policies of this Government.

Bill English told us that he would fix this problem. In fact, he told us that it was his No. 1 economic priority to rebalance the New Zealand economy away from consumption and debt. In fact, he has done the exact opposite. What we are seeing in New Zealand now is that the tradable sector is shrinking and the non-tradable sector is growing. The result of that is that the current account deficit is growing, according to Treasury’s and the Reserve Bank’s projections.

Treasury’s projections are that the current account deficit will increase to about 6.5 percent of GDP. The Reserve Bank itself says that the current account deficit could increase even more than that as a result of the overvalued New Zealand dollar. Unfortunately, the Government will not do anything to intervene against the currency. We have seen that the Reserve Bank itself has recently told us, last week, that it is intervening against the New Zealand dollar to try to bring it down using its reserves. That is not likely to be very successful, because the quantum involved is pretty small, whereas what we are seeing with other central banks overseas is they are using very large amounts of recently created money, quantitative easing, in order to reduce the value of their currencies and make their tradable sector more competitive. In New Zealand our Government is not doing anything about the overvalued exchange rate, with the result that the tradable sector is suffering and the result that we are now running a very, very large current account deficit. It is the second-largest in the OECD—second only to Turkey—and is projected to increase.

If future generations want to have a country that is not owned from overseas, if future generations want to have a country that is not highly indebted, they will not simply be looking at the question of whether the Government is running a fiscal surplus, though that is significant. The much bigger question, the question that Bill English himself identified as the much bigger question, is what the balance is between the New Zealand economy as a whole and the rest of the world. On that question, what the Reserve Bank said very clearly is that rebalancing has failed. When I asked the Governor of the Reserve Bank what would happen if we continued down this path, he said ultimately there would be a correction that would be forced on us by our creditors and by the foreign currency markets. The choice before us is whether we make that adjustment ourselves or we leave it for someone else.

It is very disappointing to see the Green Party coming in here and trying to use the Reserve Bank Governor in that way. The Reserve Bank Governor has clearly said to the Green Party that its economic policy of printing money is not one to be favoured by this country going forward.

💬 Andrew Little: When did he say that?

At the select committee. If Mr Little was a member of the committee, he would know that. Mr Jones is a member of the committee. He is here, and he will be able to set Mr Little right. But the Labour-Green policy around economics, around printing money, just will not work. It is fairly rich for the Green Party to come into this Chamber tonight and talk about an economic policy that it believes is the right one when it is actually the last resort that any country in the world should want to undertake at this time.

It is also sad for the Labour-Greens Opposition that economic policy has been ceded from the Labour Party to the Green Party. The Opposition talks about issues such as the high New Zealand dollar. Well, the dollar is high, but that reflects the strength of the underlying value of the New Zealand economy. If you went out there and printed money, and if the Government of the day went out there and nationalised its power industries, you probably would end up with a 40c dollar, because the rest of the world would look upon the economic policies of this country as being substandard and not in the best interests of the country going forward. That is not rational economic planning.

This Government has made a very strong movement towards increasing the tradables sector of the New Zealand economy. The Green member, Russel Norman, in that last speech talked about a reduction in the tradable part of the economy. The Green member needs to put the facts on the table, because I would like to see the facts from the Green Party rather than just rhetoric. Can it actually put those facts on the table to show a reduction in the tradable economy under this Government? No, it cannot. The Green Party cannot produce the information that it uses for its rhetoric.

I do not know why a strong Labour Party, its history based in economic policy as well as social policy, would cede such an important part of its election planks to the Green Party; to the Green members who come into this Chamber and spurt facts and figures that they have no basis for, who talk about things around economic policy that the Reserve Bank Governor says it is not in the interests of New Zealand to continue with and that are not the policies that the New Zealand public wish to see. That will be the demise of the Opposition at the next election, those far-left economic policies that will not work.

On the contrary, this party, the National Party, is delivering strong economic policies that are in the best interests of New Zealanders going forward. There will be a strong Budget delivered this week that will show that. Compare that with our neighbours across the Ditch, who are going to deliver a very poor economic Budget tonight. That shows what happens when you get a left-wing Government running a country. The left wing does not understand the economy of this world. It does not understand how to run a domestic economy. The result—well, look at the result tonight. I say to the public of New Zealand: compare the Australian Budget tonight with the Budget that we will present on Thursday. Compare that, and it shows what will happen if you have got economic vandalism done by the left wing against good strong economic management by the right wing. That is the difference that New Zealanders will see this week. That is the difference that is out there. The political divide is quite easy to see.

The Labour Party gets very upset when we talk about the deficits that their colleagues and brothers in Australia will be presenting tonight. That is because the Labour Party understands that that is a direct reflection of what their policies would do.

💬 Dr Rajen Prasad: Oh, that’s rubbish.

That is not rubbish, it is the truth, and that is what happens when you have got left-wing policies. The Reserve Bank of New Zealand has a very important role in our economy, and the left wing takes a very dim view of that. They do not see the independence of that organisation. They do not support that organisation in giving it the tools to do what it needs to do. They are coming up with policies that are just not effective. This Government is delivering the right policies for New Zealand going forward. We are delivering that infrastructural investment that New Zealand needs, as well.

Report noted.

New Zealand Transport Agency