Reserve Bank of New Zealand (Monetary Policy) Amendment Bill

Thank you, Madam Deputy Speaker. I’m sorry, it will be a bit of an anticlimax after the last speech, but I shall endeavour to do something useful.

💬 Kieran McAnulty: Back yourself.

Ha, ha! Thank you, Kieran—that’s kind of you, Mr McAnulty. Thank you.

It’s a pleasure to speak—well, I don’t know whether it is, actually—on the third reading of the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill, and in the words of Dinah Washington, “What a Diff’rence a Day Makes”. Actually, that kind of sums up my attitude to this bill, because you can do what you like with monetary policy, but monetary policy can only manage us—well, it should only manage us—in a stable manner that continues, I guess, to be the voice of reason when all else fails. And, of course, with monetary matters, all else fails us quite frequently, and so I think it’s hugely important, the monetary policy stuff, not so much for what we do with it but for what it does for us.

This bill makes some changes that you could see as progressive, you could see as destabilising, and you could see as slightly worrying, and I probably see them as slightly worrying. I think that when there’s opportunity for political interference in matters of State, or monetary policy, or whatever you like to say, then it could be of concern. The speech of Grant Robertson earlier on kind of reminded me of a former Labour leader of Britain—I don’t think anyone in the House will remember; you won’t even remember that, Paul Eagle—Harold Wilson, who said, “I’m an optimist, but an optimist who always takes a raincoat.” I guess that summed up, I thought, Grant Robertson’s speech, really: he might be an optimist, but he always wants to take his raincoat with him just in case.

The issue I want to talk about, really, is, I guess, where they’ve got to with this bill in respect of what I’d call governance by committee. The board is, effectively, appointed by the finance Minister; some members of that committee are now appointed by the finance Minister as well. So, effectively, the finance Minister has a degree of control over the Reserve Bank, which wasn’t the case under the old system.

Under the old system, there was a board, who then appointed a Reserve Bank manager, or “governor” as he or she was known. In recent times, of course, that governor has tended to use a committee of their own to manage the monetary policy; so I guess you could argue—and I’m sure the finance Minister would—that, from that perspective, all he’s done is change the structure to put in place a formal committee, whereas in former days the committee wasn’t formalised. And I’m not sure whether that’s a good or a bad thing. I don’t have a strong view on it—I do think that it’s probably a bad thing—but what I do have a strong view on is where we get to the point of there being the potential for political interference in the stability of the Reserve Bank’s monetary policy decisions.

Stability’s an issue. The independence also is an issue, and the third thing that I’m particularly concerned about is that, with an enlarged group managing, effectively, the decisions of the Reserve Bank, the degree of security around that group must surely be of concern. We’ve seen already, in the last 12 months, where, effectively, leaks from the Reserve Bank have triggered some, I guess, pretty interesting reaction from the international markets. The decisions that the Reserve Bank makes are hugely critical to our place in the international markets and to our international monetary policy relationships, and so security of the decisions that that committee makes is hugely important. I think that’s one of the concerns I have with it.

I think that this bill is of concern to us. One of the speakers earlier made the point that we may well not change it were we to become the Government. Well, he was optimistic we would become the Government—“When we become the Government,” he said. That’s a matter for future debate, but I guess that I don’t think we should be playing with something that is, frankly, not broken. So we’re not supporting this bill—probably unusual, but, none the less, that’s the position we’ve taken.

Thank you, Madam Deputy Speaker. I rise to take a very short call on this, the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill. We’ve thrashed this out in select committee for quite some time, the Finance and Expenditure Committee. We’ve all put our five cents into this. All of the officials have inputted it into it. The submissions have come in. We’ve been ably chaired by Michael Wood MP, who’s been guiding us through this piece of legislation.

We, as the Government, have always the ability to modify legislation for the benefit of New Zealanders, and that’s exactly what we’re doing in this particular policy. I’m particularly impressed with the dual mandate, which the Opposition have always had a problem with. They think that monetary policy should always be around a strictly monetary policy. We’ve actually incorporated this dual mandate in here to ensure that we’re looking at price stability over the medium term but also supporting maximum sustainable employment.

This here is a fine piece of legislation. It’s been through the checks and balances of the Finance and Expenditure Committee, and I commend this bill to the House.

This is normally a split call, if the ACT person goes for it.

💬 David Seymour: Madam Deputy Speaker.

So I am going to award a five-minute call to ACT.

Thank you, Madam Deputy Speaker. I’ve been called many things in this House, but never “the ACT person”. It is a new description, but I’m glad that I could be here in time to oppose this Reserve Bank Act amendment bill.

I’m not sure that the gravity and importance of this bill has received anything like the coverage and the attention that it deserves. I think it would be fair to say that of all the legislation that has gone through this House this year, it has been one of the lowest-profile pieces of legislation, publicly, that we’ve seen. And yet the importance of it is difficult to overstate.

This is a Pacific paradise: a country at the edge of the earth that led the world in making first-class public policy; a country that faced a problem—that whenever an election was coming along, Muldoon would come along too, and he’d say “Heh heh heh” and he’d pump up the money supply and give everybody the short-term sugar hit of free and cheap money to guarantee his own re-election. That was one of the economic follies that brought this country to its knees, and the response to that from ACT’s founder, Sir Roger Douglas, was to lead the world and later be copied by many other countries in creating, in this Pacific paradise, a truly independent Reserve Bank where it was politically impossible for the Government of the day to intervene, for their own narrow political gain, in the money supply that every New Zealander depends on.

This was a time when New Zealanders around the world could be proud of what our public policy was achieving; when The Economist magazine called the then governor, Don Brash, the world’s best central banker. That is the legacy that is being erased by this bill tonight: the legacy of a Pacific paradise, proud and free, leading the world in public policy.

That’s what’s at stake tonight. And with what are we replacing that independent Reserve Bank Governor who offered price stability in spite of the wishes of the politicians of the day? Well, this bill means that the decision about how fast or slow to print money, how fast or slow to run those printing presses by setting the official cash rate, will not be set by one individual at arm’s length from the Government and accountable on pain of losing his or her job for failing to give New Zealanders stable prices year in year out—no, no, no. Under this bill, a committee of people appointed by the Government of the day—not by the board of the Reserve Bank but directly appointed by the Minister of Finance—are going to make a decision not based on price stability but instead are going to make a decision based on short-term employment and economic activity.

Let me wind this up for you with the following question. Let’s say you are on this decision-making committee and an appointee of a Labour Party or, for that matter, a National Party Minister of Finance—

💬 DEPUTY SPEAKER: You’re not talking about me, I hope.

No, no, no. Well, you are in this debate too, surely. You can think about this. If you found yourself in that position, what would a person do if they genuinely believed that the re-election of the current Government was for the best of the country and boosting employment in the short run was going to help secure that election? Would they run the printing presses faster and destroy price stability in this country? I think this is not only a naive bill; it is a truly evil bill. I oppose it strongly. Thank you, Madam Deputy Speaker.

I am still not convinced that this bill is necessary. The wheel has been spinning well. It is absolutely unnecessary at best, and, at worst—well, you’ve just heard the worst scenario from the speaker before me, David Seymour.

There are two prongs to this. The first is what Mr Seymour has just alluded to: the political interference of the process. The Minister of Finance will argue that is not the case but, unfortunately, the perception is reality. Perception, in the market place, is what counts. A perception that there is Government interference in the monetary policy is not a good thing for the economy of New Zealand and therefore the outcome for all New Zealanders. So I totally agree with the previous speaker and Mr McKelvie before me highlighting the issue around political interference and the appointment by the Minister of Finance.

The most important point—for me, at least—is the dual task given to the Governor of the Reserve Bank. Mr Coffey just earlier talked about maximum sustainable employment as being one of the targets, and it’s explicit in the bill, but he didn’t tell us how that was to occur. He didn’t tell us how the Governor of the Reserve Bank was supposed to maintain maximum sustainable employment, and I would say that it’s not able to. The Governor of the Reserve Bank and the Reserve Bank are not able to do anything to ensure maximum sustainable employment.

The Reserve Bank Governor has only a limited number of tools, the main one being setting the official cash rate (OCR), the interest rates. The Minister, even in the chair at the committee stage, could not tell us how the Governor of the Reserve Bank was going to use it, and what tools to implement to maximise sustainable employment. In fact, he said, “I don’t know. It’s the committee’s prerogative. It’s up to them. I sort of set the framework and it’s for the committee, with the Governor of the Reserve Bank, to work it out and to give priority.” We’ve displayed and we’ve clearly enunciated the conflict that arises vis-à-vis the employment rate and inflation rate: both can go up, both can go down at the same time, and they can go against each other as well.

So, as I say, the Minister has sort of abdicated his responsibility and has not explained why he’s put employment in. Why maximum sustainable employment? He may as well have said GDP per capita. That would have been more useful and more measurable for every New Zealander. But he didn’t; he chose employment. Of course, the Governor of the Reserve Bank cannot control GDP per capita, just as he can’t control maximum sustainable employment. Of course, he considers employment. He considers employment when he’s setting the rate of interest, because he has to understand the rate of activity in the economy. He has to understand how fast inflation or the perception of rising prices is out there. Employment is just one measure that one would look at. There are a whole lot of other measures that the governor would look at when considering the OCR rate setting—for example, immigration.

Now, we’ve seen immigration being maintained at relatively high levels. The Governor of the Reserve Bank has continually, for months and, in fact, years—for years—expected immigration to come off quite aggressively in their projections, but we know that it hasn’t taken place. But, again, my point is that the governor cannot control immigration but must consider it, just as he cannot control confidence levels in the economy—confidence levels and business people’s attitude to taking on another employee—but he must consider it.

Surpluses—we don’t set the Governor of the Reserve Bank surplus targets, but he must consider them. There are a whole lot of things the Governor of the Reserve Bank considers: asset prices, the levels of leverage in the banking system, household debt, inflation, imported inflation, tradable inflation—all of these things the Governor of the Reserve Bank considers when setting the OCR, which is a tool that does directly affect inflation. That has been his target for years and, in my view, that is what he or she should continue to focus on, because it can be controlled by the OCR, which affects the yield curve, which affects expectations, which, of course, is what inflation is. It’s just people’s expectations of where prices go, including the price of labour.

But I come back to my point: there is absolutely nothing that the Governor of the Reserve Bank can do to effect maximum sustainable employment. In fact, price stability—another mandate in the Reserve Bank of New Zealand Act—in the medium term has also been really difficult for the governor to manage, but he introduced tools such as the loan-to-value ratio. He was also considering leverage related to income levels of individuals but disregarded that tool that could have been available, thankfully.

But I come back to the main point: this bill is absolutely unnecessary. It focuses on the political interference—reality or perceived—in the process of setting the policy statements, and, of course, the target of maximum sustainable employment is outside of the Reserve Bank Governor’s control. I submit that they should continue to focus on the inflation rate, and that is why we will be—and I’m not going to waste this House’s time by continuing for no purpose at all, because I think I’ve made my point very, very, very clear.

The good people of Wairarapa do not like people that drone on, so this is a marvellous bill and I commend it to the House.