Reserve Bank of New Zealand (Economic Objective) Amendment Bill

Members, the House is in committee on the Reserve Bank of New Zealand (Economic Objective) Amendment Bill. I would start by reminding members that the wording of the closure motion has changed in this Parliament. The new wording is “That debate on this question now close.” I refer members to Standing Order 137(1). Members, we come first to Part 1.

I seek leave for all provisions to be taken as one question.

Leave is sought for that purpose. Is there any objection? There is objection. So this is the debate on Part 1. This is the debate on clause 4, “Amendment to Reserve Bank of New Zealand objectives”. The question is that Part 1 stand part.

Thank you, Madam Chair. I was just checking to see if the Minister wanted to take the opportunity to introduce this particular part to the House. I’ve got a number of questions for the Minister around why this particular part has come in front of us. The first of those I want to deal with is the question of whether or not there have been, in the time that the dual mandate has been in place, any times at which the Reserve Bank’s focus on reducing inflation has in any way been impacted by the fact that there is a dual mandate. Because consistently, in the time that I was the Minister of Finance and the time in which the Governor of the Reserve Bank has been in place, he has stated repeatedly that the Reserve Bank has focused squarely on inflation and that they don’t feel that at any point they have been compromised in that focus.

The member is bringing a bill to the House. It’s a serious matter. It’s a matter of changing a law, a law that is a significant part of our economic framework, that is arguably part of our constitutional framework—hasn’t gone off to a select committee, hasn’t had the ability to be scrutinised. And here we are because the Minister believes that somehow or other the Reserve Bank’s focus on inflation has been diluted by the fact that we were asking them to also have a focus on supporting maximum sustainable employment.

So my first question for the Minister is: what advice, if any, has she received that there was less of a focus on inflation because of the dual mandate in the time that it has been in place?

I have said that I’ve been very much looking forward to this committee of the whole House stage to put a few questions to the Minister. So I’d just like to back up those sentiments from the former Minister because, as we’ve well canvassed—and, actually, as is reflected in the monetary policy remit review from June 2023—it’s pretty clear in black and white from the Reserve Bank of New Zealand that there hadn’t been any meaningful impact or other decisions that would have been made had they not had that dual mandate and solely the focus on price stability. So I just really wanted to reiterate that call for the Minister to put forward any evidence that she may have seen that this did, in fact, impact their decision making in a way that they undertook different decisions than those that they did take if they did not have that dual mandate in the first place.

Secondarily, or a second question to put forward to the Minister, because as is canvassed in the regulatory impact statement, there are a number of different options before her—I believe three that her officials considered—and there are a number of pluses and minuses on page 7, for those who may be following along at home. I wanted to ask the Minister if she meaningfully explored any of those other options, particularly on the monetary policy committee (MPC) remit only, or the Order in Council, but particularly on the remit, given that that seemed to be the advice of officials in the consensus that they all came to.

So the first question was on the impact on decision making of that dual mandate. The second is on whether the Minister considered meaningfully any of the other alternative routes so that we wouldn’t have to spend a few hours in the House tonight going through this legislative amendment.

The third is what all of this actually means for the remit in general for the MPC. Throughout the last term in the Finance and Expenditure Committee, we spent a lot of time on particularly the remit and the remit’s focus on sustainable house prices and the kind of ambiguity of that. So I just wanted to ask the Minister whether she had any consideration of—given the kind of sole focus that she seems to have on price stability alone—whether she intends to also drop that focus on sustainable house prices or insert any other variables. Because I’ve at least heard it alluded to that there’s the intention to still have some form of consideration to maximum sustainable employment, but it’s not yet clear how that would take form.

As I’ve alluded to before, we haven’t had a select committee stage in this bill, but I have heard from a number of people, so I do want to bring some of those letters to the House so that they at least inform the discussions as we go through this part of the bill.

The first one is from Clare Hargrave, and she writes to me: “I understand the Reserve Bank of New Zealand (Economic Objective) Amendment Bill is going through all stages in the House today, which is unfortunate because such an important move must be discussed widely and carefully.” I am looking forward to hearing what the Minister says about this. She says, “I strongly oppose the bill to remove maximum sustainable employment as an essential consideration for the Reserve Bank when setting monetary policy. It may be considered that high unemployment is useful to keep inflation down, but it is self-defeating in that high unemployment is bound to lead to increased expenditure on jobseeker benefits, greater inequality and poverty, with all its attendant damage, particularly to children’s development as productive members of society. The short-term objective of higher unemployment may have an economic effect, but the long-term damage to society must result in a weaker economy, particularly in reduced productivity.”

She goes on to say, “Inter-generational benefit dependence is damaging as it reduces access to education at tertiary level. An educated population is a public good in every respect, and anything that reduces that is damaging to society.” She finishes off by saying, “New Zealand is not a business aiming to sustain high profits to the owners and shareholders but a society whose aim should be to sustain a high standard of public benefit to all its members while retaining a healthy economy.”

Just for context, this is someone I know in West Auckland. We were talking about this, and I invited her to write to me about it, and I did want to share this with the committee, and I will share some other letters in due course. But because we didn’t have a select committee process, I think it is important to discuss some of these views from ordinary New Zealanders who are concerned about this bill. Thank you.

Well, look, I’d say to the member’s constituent that I share her desire to see high employment, and have received advice that the pre-condition for that to occur is price stability, which is the objective of this bill. Not only do I share that objective from the member’s constituent but I too abhor unnecessary dependence, and I would point to the fact that the previous Government managed the singular achievement of increasing dramatically the number of people on a jobseeker benefit even while unemployment fell. I would invite the member herself to explain that phenomenon to her constituents.

The member prior to her asked why it is that we are amending the Act and whether we gave consideration to a change to the remit only. I would note that without amending the Act, the monetary policy committee (MPC) would still be required to have regard to maximum sustainable employment. So that would not achieve the objectives that we have, which is a single focus on price stability. And as I’ve noted to the House previously, we have received advice that there is value in amending the Act to signal a greater focus on price stability than that which could be achieved through a new remit alone. I’d also note the Reserve Bank’s findings in its review last year, in which it said that a prioritisation of objectives was preferable. We believe that by having this single objective, we achieve that prioritisation in the clearest way possible, and that we provide benefits in clarifying not only how the MPC operates but we signal a greater focus on price stability for the future, because circumstances could arise in which the objectives conflict, and we wish to be clear about our priority on price stability.

Point of order. Well, Mr Chair, I’ll take it as a call, but I also will come back to this matter. I asked very clearly to the member Nicola Willis whether she had received any advice that at any point while the dual mandate has been in place, this compromised the Reserve Bank’s focus on inflation. I asked that question in my first call and I ask that question again now of the Minister. It’s an important point, because the Minister has spent a significant amount of time in this debate telling us that we need to be crystal clear and laser-focused on inflation, and what we’ve heard consistently from the Reserve Bank Governor over the time that the dual mandate has been in place is that it has not caused him, or the monetary policy committee, or the Reserve Bank in general to take their eye off the ball of inflation.

So I ask the Minister again, directly: has she had any advice that the dual mandate has caused the Reserve Bank to compromise its focus on inflation? I will sit down now, and I would like to hear an answer.

Thank you, Mr Chairman. One of the issues that I would like some information and some answers from the Minister in the chair on is what advice she’s had around international best practice. The Minister has talked about price stability being the pre-condition for high employment, but she hasn’t addressed those questions that colleagues in the Chamber have been asking about the advice she’d got around that.

So I’d like to extend that to what advice she took around which other countries are doing it. There’s a small number of central banks that have price stability as their sole mandate and focus and their sole economic objective. But a larger number have a dual mandate that equally weights price stability and employment objectives. Of course, this includes the US Federal Reserve. My colleague the Hon Grant Robertson talked about the way in which they’re seeing very much those things that need to go together in that way.

But the other thing that I’d like to ask the Minister is: if she didn’t look at the dual mandate, did she ask for any advice around having employment as a secondary objective within the legislation so that it wouldn’t be that we’re just giving up on a focus on jobs and wages for ordinary New Zealanders and retreating and being a bit of an outlier of the economies that we’d usually compare ourselves with? So did she seek that advice on international best practice, and, specifically, whether she sought advice on having the secondary objective—if she was intent in this ceremonial act of repealing this piece of legislation solely because it had been enacted by a previous Government, whether she’d sought advice around the secondary objective?

Thank you, Mr Chair. Appreciate the Minister’s answer to one of the three questions that I put just there before, but I would really appreciate her responses to those other two questions. Because I totally appreciate—as she herself alluded to—that the remit review in June 2023 spoke to the need for prioritisation of explicitly that dual mandate and particularly the foreshadowing or the primacy of the price stability focus. But again, my point was that that could be achieved through a change to the remit, as again was recommended by her officials.

I also am left with the question of if the factual mandate is to be removed from the legislation, how then is she to put forward the mandate to the Reserve Bank of New Zealand (RBNZ)? Is she going to include some form of consideration for maximum sustainable employment or employment in general? Is she going to retain that remit which currently has a focus also on house price sustainability? Is there going to be a hierarchy therein? Because these are all still questions that are yet to be answered because we haven’t had the opportunity to go through a robust select committee process on this.

So I appreciate that the Minister alluded to an answer around whether she considered the monetary policy committee remit avenue as was recommended by officials, but we’re still left really wanting for answers to those two questions of what the remit in general she intends to have contained, whether there will be any reference there to maximum sustainable employment or employment in general, whether there will be other variables in there, such as, for example, sustainable house prices presently in there.

💬 Hon David Seymour: Why is the member asking this?

CHLÖE SWARBRICK: You’ll have your turn, David. And also whether there will be any consideration of or any further outlining of the evidence that she has on whether there has been any meaningful impact on decision making by the RBNZ and the monetary policy committee.

In answer to the member’s question: yes, I did receive advice that the dual mandate could affect monetary policy decisions, and in particular—as I have stressed—this is not just about the decisions the Reserve Bank makes but also the interpretation of those decisions. The Reserve Bank itself has supported the intention of clarifying its focus on inflation. And a further note that it is possible that some market participants will see the return to a single mandate as strengthening the Reserve Bank’s focus on price stability that, in turn, will lead to an adjustment in their inflation expectations, which have a direct impact on actual rates of inflation.

Point of order first, Mr Chair. I’m very well aware, having sat in the chair that the Minister is now in, that one of the issues in the debates on the committee of the whole House is the question of new material and non-repetition. When a Minister fails to answer a direct question twice—in the case that’s just occurred—

💬 Hon Nicola Willis: How many times you did that to me!

CHAIRPERSON (Greg O’Connor): The point of order will be heard in silence.

I want to be assured that coming back to material that the Minister has failed to answer is not considered by you as a presiding officer as repetition, because the changes that were made to the Standing Orders to change this whole process of the committee of the whole House—our Government worked extremely hard on actually answering questions, and I’d like some assurance that that is going to occur now.

CHAIRPERSON (Greg O’Connor): Thank you. I’ll treat that as a point of order; however, that is something for the Chair to decide. If the Minister in the chair does choose not to direct or respond to the questions, that may well be something that we take into account were we to receive a closure motion.

Having asked the Minister twice now whether or not she received advice that, when the dual mandate was actually in place, that took the Reserve Bank focus away from inflation, and her not to have answered that question twice, it is clear that what we all know in this House is what the Reserve Bank Governor has said publicly, which is that it didn’t. They knew that their job right now, with inflation spiking all over the world, was to bring it down, and it did not impact on them.

When the Minister spoke before, she used the words “could” and “would be possible that it might happen”. That’s not, Mr Chair, with respect, what I asked. What I asked was whether or not the Minister had been advised that there had been some kind of impact, and the answer is no. And that’s the fallacy that this part of the bill is built upon. I’ll give the Minister a chance now to answer another question, and that is whether or not she believes the Reserve Bank, in doing their job on monetary policy, should give consideration to the impact of monetary policy on employment.

Earlier in the debate, Chlöe Swarbrick said that she thought that the Minister had said that she thought employment should be part of the consideration; I’m not sure I actually heard that, so I would like a clarification from the Minister as to whether or not she believes that there should be any consideration whatsoever of employment. We get the fact that the Minister doesn’t want maximum sustainable employment to be one of the objectives. She’s provided no evidence as to why that’s a problem. In fact, she’s refused to answer the question twice now of whether or not there is any evidence that it was a problem. So we can take from that that there is no evidence to back it up.

So, then, let’s move to the next stage of this, which is whether or not employment should be considered at all. Now, I have to say that it would be a radical departure from monetary policy pretty much anywhere in the world to not consider employment at all. I get it; some people have this within their objective, like the Federal Reserve, like the Reserve Bank of Australia. Others have to refer to it: the Bank of Canada, the Bank of England. They don’t have it directly in there, but they still think about employment, and we are moving into very, very dangerous territory if the position of the Minister is that employment, and the consideration of employment, has no role whatsoever, because that then will take us to the example that I gave in the second reading debate of when, in 2013 and 2014, we had a Reserve Bank Governor with the single mandate who simply believed that it was time for him to start lifting the official cash rate even though unemployment was up over 5 percent at the time.

So I invite the Minister again, in light of the ruling the from the Chair, to answer the question of whether or not there is any actual evidence to back this bill up. It’s not a “could”, it’s not a “possible”; it’s whether or not it did do anything to way the Reserve Bank worked on inflation.

Then, secondly, I’d like to know whether the Minister believes the Reserve Bank should be taking account of matters to do with employment, unemployment, or maximum sustainable employment when it is making its decisions.

Members, the time has come for me to leave the Chair. The committee will resume at 9 a.m. tomorrow.

Sitting suspended from 10 p.m. to 9 a.m. (Wednesday)