Reserve Bank of New Zealand (Monetary Policy) Amendment Bill

I move, That the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill be now read a third time.

I’d like to thank all members who have contributed to this bill at all stages, including the select committee chaired by the excellent Michael Wood and all the members of the Finance and Expenditure Committee, for the hard work that they did in progressing this legislation to this point.

I also want to make a special mention to the officials from Treasury and the staff from the Reserve Bank who have worked behind the scenes on this. This is an area of policy where for, by and large, 30 years not a lot has changed, and so it has been a significant amount of work for the officials from Treasury and the staff from the bank and I want to put on record my appreciation for the work that they have done in this particular piece of legislation.

This is, from our perspective, a significant moment because it is the first of two phases of reform and modernisation of the Reserve Bank Act and, indeed, of the way we approach monetary policy in New Zealand. I am going to mainly talk today about the two significant changes: that of the introduction of a dual mandate for the bank to maintain price stability but also to support maximum sustainable employment and, then, secondly, the change in the decision-making process on monetary policy with the establishment of a monetary policy committee and the various processes that flow from that, including the creation of a remit and charter.

Before I do that, though, I want to mention the change that we’re making to the purpose of the Act, which hasn’t had as much attention as we’ve gone through the other stages in the House. I want to read that out for the benefit of the House. The change that we’re making is so that the purpose statement begins with “The purpose of this Act is to promote the prosperity and well-being of New Zealanders, and contribute to a sustainable and productive economy,”. That is the core purpose, in my view, of all of the different parts of the apparatus of our economy, and while monetary policy is set independently by the Reserve Bank, that purpose statement should draw together why we have a Reserve Bank and then the tasks that it has in order to influence those objectives. That change recognises that monetary policy does indeed have a significant impact on the real economy and on the lives of ordinary New Zealanders. By somehow or other divorcing it from our overall economic apparatus seems to me to be wrong, and so the purpose statement does draw that back together and it makes clear to New Zealanders that monetary policy contributes meaningfully to those wider objectives around prosperity and well-being and the sustainability and productivity of our economy.

So after that change to the purpose statement, the main change we are passing through this bill is the amendment around section 8 of the Act, and this is the change to the mandate. I want to make clear that throughout this process, the commitment we had to price stability and for that being a key focus of the work of the Reserve Bank remains.

I am just old enough to remember the days in New Zealand of double-digit inflation and the impact that that can have on working people. It is something that causes huge difficulty in the lives of ordinary people, and you can only look to examples around the world subsequent to that period of time in New Zealand where we can see that impact, so controlling and managing inflation remains absolutely critical. It is equally critical that we have a measure within the mandate of the bank for the real economy, and that has been chosen to be maximum sustainable employment. We believe that together these objectives represent a balance of what it means to make good monetary policy, and to see that monetary policy in the context not only of the economy of today but of the future.

I want to note that the creation of this mandate is not new in the world. The United States has it, Australia has a mixed mandate, and other countries have beyond just the words around price stability in their legislation. But what it represents is a modernisation and, indeed, a reflection—as we have heard in other stages of this debate—of, in fact, the factors that the bank takes into account when it’s making its decisions anyway.

We believe that it is right that in making those decisions we are explicit in the Act on the way the bank actually operates and what it actually puts into its decisions. So if it’s good enough for the bank to take into account aspects within the real economy, then having them within the objectives should be no trouble at all and, in fact, is a positive development to provide that clarity around the role of monetary policy in the wider economy. It is a change. It is a significant change, but it is one that has been well signalled and understood and I believe will stand us in good stead in years to come.

The other significant change that we are making is obviously around the way in which monetary policy decisions are made. At the moment, the Reserve Bank Governor has the sole responsibility for taking decisions on monetary policy. Over the last 30 years since the legislation was passed in New Zealand, other countries have taken different approaches, and it is time for New Zealand to catch up and understand that, in fact, having a monetary policy committee will make for better decisions. In fact, I believe that the previous Governor of the Reserve Bank and the current governor both have been operating models where they have been more consensual about the way in which decisions are made on this. This, again, is reflecting that reality and making it transparent, which I think members of the public have a right to see.

So the monetary policy committee will have the governor at its head, but it will include a majority of members from the Reserve Bank. It will include the deputy governor and two other internal members and three external members. The proportions there can change. It has to be between five and seven members. I’ve been very clear that is my intention that I will be appointing three members to be external members and that we will have the four members from the bank.

The process for appointing those members is actually the same process by which we appoint the Governor of the Reserve Bank, in that it’s on recommendation from the board to the Minister, who makes the final decision. It is, effectively, what’s called the double veto. It’s an opportunity for the board and the Minister to be in that decision-making process together. That is important.

Nothing here compromises the ability of the bank to make independent decisions. This is simply about making sure there are more voices at the table that reflect the wider New Zealand economy. The governor of the bank will chair that committee and, I’m sure, will continue to be a critical part of all of those decisions.

There will be a Treasury observer at the monetary policy committee. That person does not have the right to vote on any decisions within the process, but it does provide an important link with the fiscal policy of the day to the monetary policy decisions. Again, the current Reserve Bank Governor has been experimenting with this, and I think it’s an approach that’s appreciated and not new in the world either—it’s undertaken by the Bank of England—and we think will do a lot to bring together those aspects that are important to our economy.

The other parts of the legislation deal with how we will now put in place monetary policy. The policy targets agreement that’s previously been signed between the governor of the bank and the Minister of Finance is now replaced with a remit to acknowledge the fact that we’ve moved to a committee-based process. It is important to note that what is in the remit in terms of the way in which monetary policy will be put in place has to be consistent with the economic objectives of the Act. It must still require a medium-term price stability objective and how this should be achieved, in addition to the new objective of supporting maximum sustainable employment. The remit is an important part of this process. It provides a new, formal role for the advice of the bank in setting operational objectives. Prior to me as Minister, or whoever succeeds me in years to come, issuing a remit, the bank is required to provide advice, and that advice and public consultation about it will be published. So there is a level of transparency there.

We also in this bill put out the process of a charter. That’ll, effectively, be the rules that govern the way that that monetary policy committee works. We would expect the publication of minutes from that so that people can see the decisions and how they’ve been come to and the way in which accountability, transparency, and decision making will take place. These are, and this is, an important process to creation of the charter, and that is set in motion by this bill.

I am very proud of this legislation. It represents the modernising of our monetary policy, phase one. Phase two: we are under way now with consultation around other aspects of the bank’s work. But this marks an important stage in the evolution of our monetary policy so that it will play its part in contributing to the overall economic apparatus. It has represented some significant work. There is broad consensus about it in the community, and I commend the legislation to the House.

Madam Assistant Speaker, thank you. We come this afternoon to the third and final reading of the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill. In the spirit of Christmas, I just want to acknowledge that it’s the Minister’s first piece of legislation that he will have passed as the Minister of Finance, and that’s always a big occasion for a Minister, so I certainly want to acknowledge that.

While I’m in a generous frame of mind, I will also just sort of comment on the timing of the bill going through the House, because it has been quite a quick process. We’ve moved quite quickly through the readings of the legislation, but I know that the Minister wanted to make sure the rules were very clear heading into the next Monetary Policy Statement. So for the side of the House, we acknowledge that it’s useful for the Reserve Bank, going into next year’s Monetary Policy Statements, to know exactly what the framing is for that.

So that’s the bouquets; now on to the brickbats. This isn’t a piece of legislation that this side of the House can support. We made it very clear to the Minister that we wanted to see if we could find constructive middle grounds, because I do think something as important as the Reserve Bank legislation, the rules under which our monetary policy is conducted, should actually be bipartisan, enduring frameworks. I mentioned in the my last contribution on this bill at an earlier reading the words of Sir Michael Cullen, who actually made the point himself of how important it is that something like the Reserve Bank legislation should be progressed with bipartisan support, because it does need to be enduring and stable. This bill doesn’t do that. It doesn’t have that support, and I think, therefore, there is an enduring question over the very enduring nature of these reforms.

The Minister, in his third reading contribution, referenced the purpose of the legislation, and that’s something I wanted to turn to as well, because the purpose as amended by this legislation into the Act does include a new framing, which, actually, oddly enough, this side of the House thinks is quite a useful representation. Our concern is that that purpose isn’t then given effect to in the rest of the bill. So the purpose, as the Minister noted, talks about the reason for the legislation being to promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy—well, all good stuff. We think that’s a very useful framing, and yet, if that is the Minister’s intention, if he was truly concerned about reforming the Reserve Bank legislation to contribute to a prosperous and successful and productive New Zealand economy, why has none of that been picked up in the economic objectives, which is where the rubber hits the road in this legislation?

The economic objectives—for those playing along at home—is, fundamentally, the mandate. So when we talk about this new dual mandate, it is the economic objectives that set that. That is the riding instructions to the Reserve Bank—this is what we, the Parliament of New Zealand, want you to achieve. Now, you would think what we want the Reserve Bank to achieve should be pretty similar to the purpose of the legislation, but, unfortunately, not. All the mandate, or the economic objectives, asks the bank to do is not to concern itself with prosperity and well-being of New Zealanders and a successful and productive economy—no, no. Instead, it pulls out simply one aspect that goes into that basket of economic objectives and says, “Just focus on employment.” I think that is at the nub of our concern on this part of the legislation—that while the bill and the Minister have talked a good game in the purpose clause, with framing that we support, none of that has been followed through. So, again, we’re seeing more big, good-sounding words from this Government, but the action being a very, very different story.

The Minister, in his contribution today, also tried to tell this House that, actually, lots of countries have this sort of dual mandate; we’re not unusual at all. Actually, he left the House with quite an, I think, incorrect understanding of that position, because while it’s true to say that some other countries don’t have a singular mandate, I can tell you that most countries where they have other parts of their mandate don’t simply pick out one piece of the economic puzzle. They include a range of things to get that whole flavour of what economic prosperity, well-being, and a productive and successful economy looks like.

The Australian mandate, which the Minister referenced, is a very good example. It talks specifically about the prosperity of Australians and raising the economic success of that country. They haven’t just picked out one single thing and said, “While we say we care about the whole economy and prosperity, only turn your mind to employment.” Therein lies the real nub of the problem. I mean, the bank has told us on many occasions that they already consider the wider economic situation, and yet the legislation tells them to stop doing that and look at employment—that’s the one to care about. And that’s why we certainly can’t be supporting the legislation.

The other part of great concern—and, again, I have to reference the Minister’s contribution, because he said the bank will continue to make its decisions independently. Well, unfortunately, that’s simply not the case. What the Minister is doing through this legislation seriously erodes the real independence of the bank, because now, of course, you have the Minister not only determining who the governor and the deputy governors are who make up the majority the committee—not only does the Minister effectively appoint the board of the Reserve Bank; the Minister will now also appoint all the remaining members of the monetary policy committee, and those members face the Minister’s pleasure as a determinant of whether they stay in their jobs. So I’m sorry, but nobody can tell this side of the House that that isn’t going to see the Reserve Bank much more closely tethered to the political whims of the Government.

I don’t care which Government or what sort of Government we have in New Zealand; the Reserve Bank should be free to act independently, to criticise the Government of the day, and to disagree with Treasury. I can tell you now—mark my words—you’ll suddenly see the Reserve Bank being far more in lock step with Treasury. That’s what this legislation will do. Not only are you going to have the Secretary to the Treasury sitting in the meetings, undoubtedly directing the debate and ensuring that the Reserve Bank pulls in the same direction; you are going to see a lot less of the Reserve Bank coming out and disagreeing with the Government, calling the Government out on bad economic policy, and calling Treasury out on pandering to the Government, and that, I have no doubt, is what this legislation is really designed to do.

There was no problem here for the Government to fix. No one in New Zealand was calling out for an overhaul of the Reserve Bank legislation. Be under no doubt: this is about the Labour-led Government exerting control over one of the few truly independent economic organisations in this country to reduce the risk of the Reserve Bank calling them out for poor, badly formed, negative policies that are going to hurt the New Zealand economy. I have no doubt at all that that is what we’re going to see happen. [Interruption] While we’re hearing all sorts of blowhards over there blowing hard, the reality is exactly that.

Now, the Minister said that this has widespread support in the community. He clearly hasn’t read the submissions to the Finance and Expenditure Committee, because the submissions to the select committee were very clear that they didn’t support the dual mandate and they were worried about the lack of independence of the Reserve Bank board. So for Mr Jones, who wants to barrack and prevaricate and shoot off from the lip on something he knows absolutely nothing about, which is like most of his portfolios, the submissions to the select committee made it clear that they do not like this legislation. There is no problem that needs to be solved here, and the Minister, in saying it had widespread support, shows how out of touch he is.

A year into the term and we’re seeing the sort of arrogance and belief that only those people sitting over there know anything about what needs to happen. It should deeply worry this country. What I’m deeply worried about this afternoon is that we’re seeing the eroding of a central plank of the New Zealand system, as we’re going to continue to see, because this Government doesn’t want to be held to account. Instead, they want to neuter the very organisations whose job it is to hold them to account. We don’t support it, and I will not be voting in favour of this legislation.

I’m very pleased to stand in support of the bill at this, its third reading, but I have to say, after that last address, I’m a little bit confused. You see, throughout the course of the debate that’s proceeded through the House, the main objection that the National Party has fired away at this bill is that it would be too hard to have a dual mandate. It would be too hard for the Reserve Bank and the highly qualified men and women who make it up to consider two things at any one time! Yet what we had from Amy Adams and her comments today was a suggestion, actually, that there isn’t enough in there. Actually, we if we go to the purpose of the bill, her main criticism of it is that we don’t have an expansive enough approach to the factors that we are going to be asking the Reserve Bank to consider.

One of the things that I think has been very difficult for the Government to grapple with in terms of its engagement with the Opposition on this bill is what it is that they actually want. So my question for Amy Adams is: if she supports the purpose of the bill but she is critical that the subsequent provisions do not include enough factors from the purpose statement of the bill, where was the Supplementary Order Paper statement on the Table during the committee of the whole House stage? What actually are the factors in the purpose that are missing that she would like to see in there? We haven’t heard a single constructive critique that actually gives us some direction on that from the National Party. In fact, what we have had from the National Party on this bill is absolute Chicken Little catastrophism, and that came through very strongly in the absurd statements that we heard today and throughout the course of this debate about Reserve Bank independence.

The fact of the matter—and this is reflected very clearly in virtually all of the submissions that the Finance and Expenditure Committee heard—is that this is a moderate and balanced piece of legislation that seeks to strike a good balance in terms of ensuring that we have the ongoing objective of price stability while ensuring that the real economy concerns, particularly around sustaining employment, are considered by the Reserve Bank. Members who are familiar with the operations of the Reserve Bank will actually know that the key changes, which are formalised and put in legislation in a transparent fashion through the course of this bill, are things that the Reserve Bank is actually moving on already.

So what this bill does is confirm that we will have a monetary policy committee. This is a good idea, because what we know is that in all institutional settings, it is better to have a number of people feeding in with different perspectives before you make major decisions than to leave all the power in one person’s hand. In an informal way, the Reserve Bank confirmed to us at the Finance and Expenditure Committee that this is, in fact, the way that they have been informally operating for a number of years, so doesn’t it make sense to actually have legislation that (a) reflects that, and (b) actually sets that up in a transparent fashion?

In the same sense, we have had policy targets agreements under this Government, and also the Government of 1999 to 2008, which asked the Reserve Bank to consider the factor of maximum sustainable employment. That’s because on this side of the House, we actually do believe that that is one of the most important things in our economic architecture. It is not the contention of members on this side of the House that the Reserve Bank has sole preserve over determining the rate of employment within the economy. Clearly, that is a function of a number of economic factors. But what we do know—what we do know—is that the Reserve Bank, at the extreme ends of the economic cycle, does have the power to influence that. Why else was it that after the global financial crisis, the Reserve Bank dramatically cut interest rates? It was because they wanted to stimulate aggregate demand in the economy to try and keep growth going and to try and keep employment going.

So the changes that are made in the course of this bill are moderate and they are balanced. This bill preserves Reserve Bank operational independence, and there is not a single serious non-partisan, independent commentator that the Opposition can cite who says anything other than that. One of the messages I have for the Opposition in the course of this bill is that they can’t just sort of stand up and say “It has to be bipartisan or you shouldn’t be doing it.” when they don’t actually engage in the debate in a constructive and informed way, and simply act as a block. As I say, there’s not a single independent, non-partisan commentator who actually seriously contends that Reserve Bank operational independence is changed through the course of this legislation. The monetary policy committee still has a complete remit—a complete remit—to set the official cash rate and make the other important decisions that it has to make. People like Adrian Orr, the Governor of the Reserve Bank, are not shrinking violets, and the suggestion that we just heard in the speech from Amy Adams that somehow they are going to be cowed and not carry out their duties independently is simply absurd.

Once again, this is a moderate and a balanced piece of legislation. It is in the mainstream of legislation for central banks around the world. It makes the operations of the Reserve Bank more transparent to the people of New Zealand and to this Parliament, and for all of those reasons I commend it to the House. Thank you, Mr Assistant Speaker.

I rise to oppose this legislation. The previous speaker, Michael Wood, said that there’s nothing to see here, nothing to worry about; it’s all standard stuff and the Opposition should be supporting it. I suppose what we would be saying is that the Government has not made a case for change, and that was the strong feedback of most of the submissions. The strongest feedback in most of the submissions was that New Zealand’s monetary policy has been performing very well for the last 25 to 30 years and we are now still enjoying a strong economy, which had massive momentum after a number of years of expansion and growth and stable currency, a stable dollar not being eaten away by inflation, and incredibly strong employment growth.

So we had 245,000 jobs created in the last two years—245,000 jobs created in this economy in the past two years. Now, the Minister over there, Shane Jones, says he’s going to create 4,000 with $3 billion in spending, but, of course, we haven’t drilled down into the details about exactly what those jobs are. But that’s all by the by.

Now, what we can say about this bill is that it is at the behest of one Winston Raymond Peters, and it has been his focus and absolute obsession over many years in politics to change and attack the Reserve Bank. If you go back to his speeches—and I encourage anybody listening into this debate to go back and have a look at the sorts of things that he predicted—we have had the accusation, or claim, from the Government today that the National Party is being alarmist and Chicken Little about these things. Well, just have a look at the sorts of things that Mr Peters said about the Reserve Bank in the mid-1990s. He blamed it for everything. He blamed it for high unemployment, for doom and gloom in the economy, and suggested it needed radical change. Of course, then he became the Treasurer of the country in 1996 after doing a deal with the National Party, and his changes were just slightly increasing the band from 0 to 2 percent, I think, to 3 percent. So, after all the tub-thumping, he just slightly expanded the band within which the Reserve Bank should be targeting.

Now, he’s back on his bugbear and implying that there’s something wrong with the way that the Reserve Bank operates in New Zealand, and has brought about this change. Two elements: there being a committee and, yep, you’re quite right, it won’t be the end of the world, but we don’t see any strong case for it and, in fact, we worry about the potential politicisation of the decision making, but the real thing is around this introduction of the bank having two goals. For the last 25 years it’s been focused solely on inflation—keeping that low so that people can make long-term decisions and have a sense that the currency is solid and we’re not going to inflate our way out of problems and you’re not going to find that the savings that you have have been eaten away by inflation—and that’s been very successful.

Now, the suggestion is that we focus also on stable employment, and the point I’d make is that there’s no evidence to show that monetary policy—which is the control of interest rates that are charged by the Government—can have a long-term effect on employment. There’s no question that it can have a short-term effect, and that’s why it used to be used prior to elections back in the 1970s and early 1980s in New Zealand, but there’s no evidence that it has a long-term impact. The things that do make an impact on employment are the basics of good economic policy, which is what we saw in New Zealand over a long period of time. It’s about ensuring that there’s plenty of money coming in for investment, because where do you get a job? Well, you might spend millions of dollars of taxpayers’ money to create a job, as Mr Jones is good at, but most jobs are created by individuals—private sector businesses—deciding to invest some money and hire a person, build new plant, start a new business, take a new risk. All those investment decisions are what drive real employment growth, and Government can influence that by making either positive or negative impacts on those investment decisions.

So if you’re dangling the prospect of a capital gains tax, for example, then people are probably less likely to make an investment decision. If there’s a whole lot of uncertainty around how Government acts, such as was introduced with its oil and gas decision, then people are less likely to make investments. So the point is that this piece of legislation here is all about trying to increase employment, and I’m making the simple point that, actually, this is not going to increase employment. It’s the basic Government policies around investment that make a difference to employment in New Zealand, and also around skills. So you’re going to get employment growth if you have a good generation of New Zealanders coming through with the right skills that we need, which is why it’s so disappointing that this Government has decided to waste about $2.6 billion of the tertiary budget on free fees to people who are already going to university, and so we haven’t got any more extra people. So that is not going to lead to further employment.

Then another way you’re going to get more employment is to enable New Zealanders to have greater access to the resources of this country in order to make a living. And this Government, of course, with oil and gas—New Zealand is so rich, apparently, that we don’t have to look for oil and gas. There are only two countries in the world who think that they’re that rich that they don’t have to even look for it, and that’s New Zealand and France. Of course, you might have noticed that the French have got a few issues at the moment, like they’re good at rioting, but they’ve got nuclear energy and they don’t have much oil and gas. So New Zealand and France are the only countries in the world who think they are so rich that they don’t have to look for oil and gas.

ASSISTANT SPEAKER (Adrian Rurawhe): Interesting as that is, you might want to come back to the bill.

Well, the point I’m making is that if you want to create jobs—sustainable jobs and employment—you don’t turn to monetary policy and the Reserve Bank; you do basic things in Government that lead to jobs and investment.

Then the next thing is around infrastructure—you invest and continue to invest in infrastructure. Again, I look at what the Government’s doing and I scratch my head and I think to myself that instead of building roads to Northland, which will actually grow the economy and create jobs in Northland—much more than Shane Jones’s stuff—we’re going to spend it all on a slow tram down Dominion Road that nobody can make any sense of. So that’s another one. Then, if you want to have more jobs and employment, you look for export markets. That involves actually having to go overseas and talk to other nations, and we didn’t do any of that. As a result of that, we haven’t got much hope of an upgrade to the Chinese free-trade agreement.

Finally, if you want to grow jobs, then you make investments in technology and the knowledge-based economy, and we haven’t seen much of that. In fact, if you look at the universities budget, for example, they’ve got less money per student than they’ve had in the past, coming from Government. So how we’re going to get a knowledge economy growing out of that, I’m darned if I know.

So this piece of legislation—it’s not the end of the world. The world will not collapse. We’re not claiming to be Chicken Little here, but what we’re saying is that it is a perfect example of a Government that focuses on everything else apart from what is actually important in terms of growing this economy and providing the opportunities for New Zealanders and their families to get ahead—and we do that. New Zealanders have the opportunity to provide for themselves and their families and to make a contribution in this country and to live a good quality life in this country, if they have a strong economy, and that’s based on those sorts of things: enabling investment, delivering good quality skills, having access to natural resources, building quality infrastructure that actually makes a difference, expanding our export markets, and making real investment in a knowledge-based economy. Those are the things that lead to full and strong employment such as we’ve seen over the past few years, not mucking around with the monetary policy and the organisation of the Reserve Bank. On that basis, I oppose this bill.

As befits this bill, this contribution will be based on the dictum that less is more. I follow the presentation by the list member of Epsom, Paul Goldsmith, who has overlooked the fact that we won the election. We—as a part of enjoying the spoils of electoral victory—are changing, in this important fashion, the mandate of the Reserve Bank of New Zealand. We campaigned on it. We articulated our perspectives before the electorate, and they blessed this side of the House—such prescience across the maraes, the courtyards, the villages; indeed, the four winds of Aotearoa.

The changes are not to be feared. They bring us into international best practice area. This is not a journey into the unknown; this is to link-up a progressive, far-sighted Government passing legislation that shows a great similarity to other reserve banks and their mandates, which have moved away from this bare, sparse, barren approach reflective of Don Brash’s stewardship of said bank. That is why we have introduced—and we will be most certainly voting for it—a dual mandate, and that’s to ensure that when decisions are made, the impact on the employment labour market is equally as important as the interests of the moneylenders in the fiscal temples that pass for corporate New Zealand.

We campaigned to change it, and we are now at the final hurdle—otherwise known as the third reading speeches—before such changes come to pass. I’ll make a prediction: the other side of the House, despite all their lamenting, will not change it back, partly because they won’t have the opportunity in the foreseeable future. But, look, I don’t want to get petty about this. There is an opportunity. It would spoil the occasion as we prepare for one of our members to move into life outside of politics, which is an improvement for qualities of the House that I currently enjoy.

So we will be voting for this. There will be the ability for Treasury to have a non-voting member on the committee. Despite the fearmongering and pretty tedious speeches from the other side of the House, our party has not a sliver of doubt this is the way forward. Thank you very much.

It’s my pleasure to take a brief contribution in which National will oppose the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill, but can I first of all the breach the Standing Orders very slightly and acknowledge the distinguished guests in the gallery today. I never thought I’d see that crowd coming to hear my contribution on the Reserve Bank of New Zealand Act!

My first point would be to correct the Hon Shane Jones, the “First Citizen of the Provinces”. New Zealand First didn’t campaign on this amendment to the Reserve Bank Act. The Rt Hon Winston Peters has campaigned relentlessly to change the Reserve Bank Act and bring in a dual mandate which was controlling inflation and the exchange rate. That, obviously, got lost in the coalition agreements. This is sort of a hybrid arrangement which brings in, now, a dual mandate on inflation.

💬 Hon Shane Jones: Detail—detail.

Well, it is detail. I accept that, the Hon Shane Jones—it is detail. It’s detail I’d have expected the member to know if he claimed he campaigned on it.

Be that as it may, the first point I’d make about this—and the very reason that National will oppose the amendment to the Reserve Bank Act—is there are two sayings that spring to mind “If it ain’t broke, don’t fix it”, and “If this is the answer, then what is the question?”. I want to take an opportunity here to congratulate the Labour Government—the Labour Government of 1984 to 1990—and the fact that they brought in the Reserve Bank Act 29 years ago. It’s dated 1989. The independence of the Reserve Bank has served this country magnificently well now for almost 30 years.

I did not see any reason that was given to me while I attended every one of the Finance and Expenditure Committee hearings as to why we need to change the Reserve Bank Act. It is about the potential to introduce political influence, and that will ruin the independence of the Reserve Bank. Grant Robertson has given us a promise here today that he won’t see any political influence coming here, but then he points out that he alone has the ability to appoint members of the monetary policy committee. He alone has the ability in this legislation to set the remit of the monetary policy committee. Now, Mr Robertson might come to the House and give assurances that he, as Minister of Finance, won’t politicise the decision making of the Reserve Bank, but he cannot talk for any future Minister of Finance. So I think today we’re going down a very dangerous track.

National will oppose the legislation. There is no need to change the Reserve Bank Act—it has served this country well. In establishing today, in this legislation, a dual mandate of controlling inflation and keeping an eye on what is termed maximum sustainable employment, we are in danger of compromising the very focus of the Reserve Bank Act and the Reserve Bank Governor, and his role of controlling inflation. When you get two mandates to follow, inevitably there will be a time in the future when there must be a compromise between those two mandates.

I can conclude with this comment: even when they were before the select committee, no one could explain to me what maximum sustainable employment meant. I raised that question with the Minister during the committee stage in this House. He attempted to explain it. I couldn’t understand it, and I suspect that by the time the Minister himself sat down, he had no idea what he had just told the committee of the whole House.

I think this legislation is totally unnecessary. It is dangerous. It will be opposed by the National Party, but it will fulfil yet another argument advanced by the Rt Hon Winston Peters in the coalition discussions after the election of 2017. The score is, I would say again, New Zealand First one, Labour nil, or to put it another way—because this has been a long argument between Treasury and the Reserve Bank—it’s Treasury one, Reserve Bank nil. Thank you very much, Mr Assistant Speaker.

Thank you, Mr Assistant Speaker. It’s a pleasure to rise in support of this bill, which is part of a framework of revisions that this Government is committed to making to the way that economic policy is set for New Zealand to reflect the realities of the 21st century but also to reflect a more nuanced, useful way of reviewing our economy and how well we’re doing as a country.

As others have mentioned, the current Reserve Bank Act is almost 30 years old now, so we did need a review. The Government announced last year that there would be a review of the Reserve Bank Act in two parts. This bill reflects the first part of that review. It seeks to, as a starting point, change or to expand the breadth of the purpose of monetary policy that’s set by the Reserve Bank to include maximum sustainable employment. It’s almost surprising that that wasn’t a part of the purpose of our monetary policy. This bill, of course, retains what was previously the sole purpose of the Reserve Bank’s monetary policy setting or sole consideration which was price stabilisation. That is, of course, very important. It’s really important to consumers, it’s important to business people, and it’s actually most important to lower socio-economic communities that inflation is controlled and is stabilised. That is an important purpose of the Reserve Bank’s work that is being retained. But the purpose has expanded to include sustainable employment because we recognise that, actually, well-being should include not only employment but actually quality employment that is sustainable.

That fits really well with the rest of the work that this Government is committed to, including the work we’re doing on the well-being indicators and the well-being Budget that was introduced as well. Other jurisdictions have both explored and introduced these types of measures, including what’s being proposed and adopted through this bill in terms of sustainable employment, which is to say that the well-being of an economy shouldn’t be limited to myopic focuses like price stabilisation—that we need to look at what is, in fact, in the interests of having a stable economy across the board, and that includes quality employment. So we’re doing that. We’re introducing that as part of, actually, a big revision and an update of our economic focus but also law.

The second big change, or much needed change, that’s being recognised and adopted by this bill is something that, actually, the Reserve Bank had already been doing by way of practice, which is to make its decisions by way of a committee. So what’s called a monetary policy committee is being adopted. It will be a committee of five members to seven members, with two external members at any given time. That is to recognise that, actually, evidence shows committees make better decisions than individuals because they bring a diversity of perspectives, of expertise, and points of view that get tested through participation of a group—of a diverse group. So that is a welcome change, and, as I say, it’s actually something that the Reserve Bank has already been practising itself, because as it has developed as an institution, it has recognised that this is best-practice decision-making. So we’re reflecting that.

I just wanted to point out a couple of parts of the bill that no one else has picked up on, as such. I remembered these bits being pointed out by my colleague, Green Party MP Chlöe Swarbrick, who’s particularly interested in public participation in politics—that is to say that in schedule 3, clause 3(2) of new schedule 2 she found actually requires that the committee develop a process for advice from the public on policy that it adopts, which is to say that we’re lifting the lid a little bit on a part of our policy-making process, or type of policy, monetary policy, that’s probably a bit of a mystery to the public. But this requirement for further consultation, or consultation at all, is lifting the lid on that.

There’s also a requirement that this bill produces that the bank must publish its proposed policy online on its website, which will create a far bigger level of transparency and, through that, accountability, because, as we know, when policy is made in secret and without consultation there’s very little by way of accountability—especially policy that is usually considered so complex as monetary policy.

Those are two further welcome and much more modern changes to our monetary policy that are coming in through this bill. So I happily commend the bill to the House. Thank you.

It’s pleasure to be talking to the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill, although it is a disappointing day for the financial arrangements in New Zealand, particularly with regard to the Reserve Bank of New Zealand. The structural arrangements at the moment are cherished and cited as world-leading practice around the world. This is because the bank is known to have a very clear mandate, it is highly professional, and it also lacks any degree of political interference in its decision making. These changes are not warranted, they’re not required, nor have they been requested. They certainly haven’t been requested by the Reserve Bank. In fact, they’ve been brought about by a Minister who’s a soft touch, who’s chosen as one of his key planks to cut away at the very independence of the Reserve Bank.

As my colleagues have highlighted, these changes are significant. As we all know, the Reserve Bank sets the official cash rate—the OCR—which has a direct bearing on interest rates, which, in turn, have a direct bearing on foreign exchange rates. The financial consequences of these decisions regarding monetary policy are incredibly significant. It affects what New Zealanders pay when they borrow money from banks, it affects what businesses pay when they borrow money from banks, and it also affects what people pay when they want to buy foreign currency.

I think the thing about these changes is that there are three real issues for me: one is the issue of now having a dual mandate, the second is the politicisation of the appointment process for the members of the board and the monetary policy committee (MPC) itself, and the third is the issue around transparency of decision making.

My colleagues have talked at length about the dual mandate, but it does create a potential for conflict. What happens when we’re in recessionary times and a political ruling party is under pressure? Do they want the bank to have a greater focus on reducing unemployment or increasing inflation to help grow the economy? Conversely, in growth periods, the reverse will be true. Under these new arrangements, the finance Minister now has the ability to influence indirectly the results of the monetary policy decisions by specifying what they want in the remit that he or she puts forward to the bank.

I just want to turn to the second issue around the politicisation of the appointment of members of the board and the MPC. We have new arrangements. What happens now, under these new arrangements, is that the Minister appoints the members of the board. He or she will appoint those people that he or she is most comfortable with. The board then recommends to the Minister who should be appointed to the monetary policy committee. The Minister then has the right to appoint those people whom he or she chooses to the monetary policy committee, and they have long terms—periods of four to five years. So the best analogy is Donald Trump appointing the last member to the Supreme Court as a bench member. That is what is going to happen with the Reserve Bank—whoever is the finance Minister has the right, effectively, to determine who sits on the board but, much more importantly, who sits on the monetary policy committee. That is the real issue around the lack of independence. I think the thing about boards is the need to have diversity of thinking and to have people who are challenging on that. Under these arrangements, there is the potential for members to be appointed because they have the same aligned process or concept or mind-set as the Minister, and I think that is totally wrong.

The other issue I just want to talk about is this issue around transparency of decision making. We’ve had this issue around how monetary policy decisions are to be disseminated, and this is yet to be determined because it’s not specified in the bill. But what we heard at the select committee is somewhat alarming because consideration is going to be given to who should make the pronouncements around what are the monetary policy changes—i.e., is the OCR going to be changed or not? The question is whether, in fact, the decision-making process and the decision-voting process will be made public.

I’m particularly perturbed about this, because foreign currency dealers spend a lot of time analysing where the Reserve Bank is going to go with its OCR because it has such a significant impact on interest rates and foreign exchange rates. There is a certain naivety to think that we’re going to have all the decision making of those members displayed for everyone to see because, if it is a split decision, with maybe the casting vote of the governor, that will show to people that there is likely to be a change, maybe, in the OCR announcement after that. That will drive markets, and that is totally wrong because at the moment, we have one person—the governor—making the pronouncement, which is totally appropriate, and it’s carefully controlled so that we do not see people in the market taking advantage of this type of situation.

I think this also opens up the possibility of those members of the MPC actually being lobbied, and I think all those issues strike at the core of why this is such a bad bill. It strikes at the core of the loss of the independence of the Reserve Bank, which, at the moment, is one of the best in the world, and this is a shame on this Minister who’s pushing through these changes.

It’s an absolute delight to rise and speak to the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill this afternoon. I know it was well publicised that I would be giving my remarks on this bill at about this time, so I’m really pleased to see that there’s been a lot of interest in the delivery that I’m about to give! So thank you, all.

What the Minister of Finance has tried to do here is relatively simple, and the amendments that we’re making by way of this legislation are three-part, and these have been traversed in some detail by speakers previous to me. Basically, we’re amending the objectives of the Act, and that is to give greater clarity to what the role of the Reserve Bank is when it comes to developing monetary policy. We’ve heard extensive debate this afternoon about the dual mandate in terms of monetary policy objectives by way of both price stability and ensuring maximum sustainable employment, and, third, the establishment of the monetary policy committee.

Before I turn to the nuances, I guess, of each of those amendments, I think it’s timely to reflect upon what the role of monetary policy is in New Zealand. The reality is that monetary policy affects every single New Zealander—every single consumer, every single worker, every single employer in our country. Monetary policy, in its evolution and development, affects investment decisions right through to the cost of bread and butter. But as this bill has traversed our Finance and Expenditure Committee, I’ve been struck by the words of the founder of Ford Motors Co. It was Henry Ford who said, “It is well enough that people of the nation do not understand our banking and our monetary system, for if they did, I believe”—he said—“there would be a revolution before tomorrow morning.” As we have covered off aspects of what is required to be considered by the bank in developing our monetary policy, I think I’ve come to share Henry Ford’s view.

Debate interrupted.