Reserve Bank of New Zealand Bill

I present to the House a legislative statement on the Reserve Bank of New Zealand Bill.

Legislative statement published under the authority of the House.

I move, That the Reserve Bank of New Zealand Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

This is the second of the trilogy of Reserve Bank bills that this Government has brought in the past and will bring in the future to this House. For those who haven’t been following along closely at home, the first of these bills, which became an Act, was the one that changed the objectives of the Reserve Bank to focus not just on price stability, as important as that is, but also on the concept of maximum sustainable employment. That first bill also changed the decision-making process of the Reserve Bank from the single decision-maker model of the governor making monetary policy decisions to a monetary policy committee. And that particular process has been in operation for a couple of years now and is working very well.

The second part of the Reserve Bank review was to look at other matters, in particular matters to do with financial stability, policy, other organisational matters, and the regulatory framework for banks and other deposit takers. Such was the volume of work created by this review that it required not one but two further bills to be able to capture what has been done in the Reserve Bank Act review.

So today I introduced the bill that is essentially about the institutional arrangements that will govern the Reserve Bank from here. Shortly into the new year, we will introduce the third bill known as the Deposit Takers Bill. That particular piece of legislation will look at the way in which we regulate banks, what the regulatory perimeter is for them, how we work with other deposit takers, and, importantly, it will also introduce a deposit insurance scheme—but that is for another day.

What is in front of us today is, essentially, a piece of work to put in place better governance arrangements for the bank and a better process around it at achieving its financial stability objectives. What most people, if they are thinking about the Reserve Bank, think of is the official cash rate, which is the manifestation of its monetary policy role. We have a monetary policy remit—it used to be called the policy targets agreement—which is negotiated between the Government and the Reserve Bank to govern that work.

But what’s happened over the 30-odd years that the Reserve Bank Act has been in place is that more and more tasks have been given to the Reserve Bank and they, broadly speaking, fit under the heading of financial policy—

💬 Hon Michael Woodhouse: By that Minister.

Some by me, Mr Woodhouse, that’s true, but, in fact, some by Ministers such as Bill English and others as well. So this role of how they regulate, for example, the insurance industry, how they achieve their financial policy and stability roles has in fact—actually, certainly up until now—been shared across the House. Perhaps Mr Woodhouse might have something different to say in a minute.

That area of work—[Interruption] Oh, that’s true—has not been governed by the same kind of rules that govern monetary policy. So this bill is an opportunity to do that. Firstly, as I say, it’s about strengthening the role of the board. The board of the Reserve Bank is going to take on a role more similar to what you see in other Crown entities. So it will have a greater level of responsibility for making sure that the bank is achieving the objectives in the Act. This has been welcomed by the Reserve Bank, and, indeed, by those who do follow this closely, as giving a greater level of assurance around what governance means—still always protecting the operational independence of the bank, but making sure that the board plays an important role in governance.

The second significant thing being done in this bit of legislation is the creation of a financial policy remit—and, as I said, we have one of those for monetary policy. Now, the companion on the other side is a set of criteria, an agreement between the Government of the day and the Reserve Bank on how they will go about their work when it comes to financial stability. And, obviously, this is a topic that’s been in the news a little bit lately, because one of the core elements that is often discussed when it comes to financial stability is the issue of the housing market. Clearly, within the work that the Reserve Bank does, it already considers those issues, and those, again, who follow closely, read the Financial Stability Report that the Reserve Bank puts out, will notice that it is the bit of their work that is really about whether or not our financial system is robust, what are the risks to it, and how do we manage those risks. And so we will now have a financial policy remit that sets out the matters that the board has to have regard to given its role now in monitoring that work.

The other area that this piece of legislation covers that is extremely significant, in my view, is legislative statutory recognition for the Council of Financial Regulators. I acknowledge my ministerial colleague the Hon Kris Faafoi in this regard, who, when he held the portfolio around commerce, did a great deal of work to lift the role of the Council of Financial Regulators—that group, its two major participants are the Reserve Bank and the FMA, the Financial Markets Authority. This is the opportunity for us to ensure that the regulatory work we do is coordinated.

While that might not sound that significant, it has been extremely significant. In, for example, the work that was done in response to what happened in Australia with their royal commission on banking, we were able to bring those ideas over and bring the Reserve Bank and the FMA together to be able to work on those matters. So the Council of Financial Regulators has existed for some time. What this bill does is actually give them statutory recognition, give them more ability to be able to work across the system, get cooperation, make sure our regulation is actually fit for purpose, and ensure that they work closely with other regulatory authorities, such as the Commerce Commission and so on.

There are some other matters in the bill that are tidy-ups of the regulatory roles that the bank has, giving them adequate recognition. We’ve had a bit of a piecemeal approach, over the last couple of decades, of adding bits and pieces. This brings them all together in one place.

This kind of work around financial stability is very important to New Zealanders’ lives. It is very important to their wellbeing. All of us entrust the money that we have to institutions to look after. We need to know that those institutions are working in a framework that prioritises the wellbeing of our people, but also their security and their stability when it comes to financial services. So this is something that matters to people’s lives.

In the last term of Parliament, in Cabinet, from time to time, we found ourselves discussing some institutions who were struggling. And when we talked about those, it was really important to remember the individuals, the whānau, who have money in a financial institution. They need to know that that is being secured and supported. That is primarily what this bill is about. It is about setting the framework for that, having an arrangement between the Government and the Reserve Bank to make sure that those systems are developed well.

So I commend this bill to the House. I invite members to read the statement, to work their way through the technicalities of it. But I believe it is a good bill. I look forward to the select committee’s consideration of it.

Thank you, Madam Speaker. It’s a pleasure to be talking on this Reserve Bank of New Zealand Bill 2020. With an institution like the Reserve Bank—which, as the Minister of Finance just identified, plays a crucial part in managing monetary policy in New Zealand—I think it’s particularly important that decisions to change the institutional arrangements, or, in fact, even the remit around the Reserve Bank, should go through a process of consultation with all parties to this House. I think it’s very disappointing that this is the second in two pieces of legislation—and, as the Minister said, we’re about to get a third, in due course—which contain changes that have not been agreed by the Opposition. Just to put on record, we will be opposing these changes.

The context for that is the first round of changes that the Minister imposed on this House in the 52nd Parliament—back in 2018—was one which, first of all, gave the bank a dual mandate and added to the existing and long-held view that the bank was principally there to manage price stability—in other words, keeping inflation low, between 1 and 3 percent, over the medium term. The change added the dual mandate—the second mandate—around maximum sustainable employment.

As an Opposition, we expressed our displeasure and disagreement with that approach and noted at the time that we thought there would be potential that there would be a conflict, depending on the economic circumstances. I don’t think, given the life of time since 2018, we have actually achieved much from the dual mandate, and others would argue even more strongly against that move. So that was what was put forward at the time, and there were a couple of other changes that were proposed. I think the most disappointing thing was it wasn’t done with the blessing of the whole House.

Of course, the first step in the change of the governance structure was the incorporation, or establishment, of the monetary policy committee (MPC), which has now been in operation for a couple of years. At the time, we were concerned that that had the potential to be full of appointees—political hacks, ex - political hacks, and people who would not bring the sufficient expertise to that role. Now, I’m not casting aspersions on any of the members of the current monetary policy committee, but this second bill is the ongoing corporatisation of the Reserve Bank. I use the word “corporatisation” because we are now going to end up with three levels. We’re now going to end up with a fully fledged board, which will have its own riding instructions issued by the Minister of Finance and will be appointed by the Minister of Finance. We still have a governor who is appointed by the Minister of Finance. And we still have this relatively new creation called the monetary policy committee, appointed—not all the members, but most of the members—by the Minister of Finance.

I noted in the speech from the Minister earlier that he talked about the importance of independence. Well, I think we are seriously diverging from that concept. I know from wider conversations that we’ve been having in very recent times—the last couple of weeks, where it’s been suggested that we may need to be clear about our instructions to the Reserve Bank—someone has claimed that I, personally, was imposing on the independence of the Reserve Bank, and went so far as to call me “Muldoon-like”. I would suggest to you that if you ever want to be Muldoon-like and you want to have control of the Reserve Bank, just have a Minister of Finance who appoints the board, appoints the governor, and appoints the monetary policy committee. That’s the problem with this bill. It’s not a good put.

We should not be debating this in the House, and we should not be debating it in select committee, because this is the type of thing which spans multiple Governments, over much time, and should involve all of us in this House in making sure we get the right outcome. But here we have a Government who has got outright control of this House, who’s going to ram through this legislation like they did last time. I think this is something that’s cutting to the core of how we manage the financial system in New Zealand, and I think it’s wrong—I think it’s wrong. That’s my first principal concern, and I’ve only got four minutes, so I’m going to have to leave some of this to my good colleagues here.

The other side of this is there is a move in terms of the overarching new financial stability objective. Previously—or currently, until this bill is rammed through the House by the Parliament—the objective was to protect and promote the stability of New Zealand’s financial system. Now there is a new clause, and it’s quite nuanced wording, but it now moves to a new objective around efficiency, and that replaces the existing requirement to have regard for the efficiency and soundness of the financial system. We are now at an issue that talks about efficiency, which means something quite different from what is in the current wording. Efficiency should be a critical consideration of the Reserve Bank, but this change is quite significant in terms of what it means for the governor, for the monetary policy committee, and also, essentially, at a board level. I think this is something we need to understand more from the people behind the bill and the officials who have written the bill, because, unfortunately, we haven’t had a briefing on it, but it does have potentially quite wide-ranging implications.

The last thing I’m going to talk about—because I’ve been talking about this issue in the last couple of weeks—is that in the current situation, where we’ve got a significant level of liquidity going into the banking market, I have been promoting that it may be appropriate for the Minister to write a letter of intent to the Reserve Bank Governor under section 68(b) of the existing Reserve Bank of New Zealand Act. So I find it slightly perverse that one of the things in this bill is that that option, which is sitting latent in the existing legislation, is now being turned, in this current bill, into a requirement. Even though the Minister was, only a matter of a few days ago, saying we shouldn’t be doing that and it’s wrong and we’re interfering, we now have, in this bill, provision for the Minister of Finance—yet again another level of interference. This is a requirement; it’s not optional, as currently section 68(b) is. The Minister is required to send to the governor the financial policy remit.

I just think that’s a wonderful contradiction—and a perverse outcome, given where we’ve been over the last couple of weeks—that here we are with the Minister at one stage saying we’re full of independence and we want to protect all that, and here they are taking the very clause that could have been a way for their finance Minister to influence the direction of the Reserve Bank from time to time and enshrining it in legislation as a requirement. I just think that is a wonderful piece of inventive thinking by the Minister of how to achieve something and call it something different.

💬 Todd Muller: Sleight of hand.

Sleight of hand, my learned colleague tells me beside me, and I think it is.

We will be opposing this bill on the principal grounds that it’s blurring the level of accountability between the Minister of Finance and section 68(b); of the blurring of the lines of accountability between the governor, the MPC, and the board; of the increased Treasury influence—and I’m sure my other colleagues are going to pick up on it—and of this new financial stability objective, particularly around the efficiency. It is going to be a very interesting select committee.

Thank you, Madam Speaker. I should start by saying this is the first time that I’ve spoken in the House while you’ve been in the Chair, and it’s a delight to see you there. I’m sure you will guide us with wisdom and insight in your role as Speaker.

I’ve been trying to think about what exactly the objections from the previous speaker, Andrew Bayly, were to this bill. If I can summarise it in the nutshell, the objections raised by the previous speaker seemed to be that the Government is going to govern.

💬 Kieran McAnulty: That’s right.

That’s right. It’s a very curious concept—that the Government would actually govern. He was concerned that perhaps this particular bill was not—first of all, he was concerned that it was not going to be subject to consultation, and then he had some concerns about how the board was going to be appointed, and so on. I just want to address that quite clearly. This bill is going to a full select committee process. It will be examined thoroughly in the select committee process, and I’m sure that the Finance and Expenditure Committee will do an excellent job.

💬 Kieran McAnulty: Top committee.

Top committee, especially with its new chair, Dr Duncan Webb. So I think it will do a great job and, of course, it will be subject to the full debate in the House. So there is plenty of opportunity for discussion on this bill, and improvement if needed. So that’s the first point: there is a full parliamentary process going on with this bill, which is fantastic.

The second thing that I wish to raise is just to think about what has happened with the Reserve Bank over a few years. Of course, part of what was brought in with the monetary policy, and the reason why we had the Reserve Bank taking up the role of implementing monetary policy and having quite a lot of independence from central government, was because of the monster of inflation, which was rampant. It was rampant when the Reserve Bank was given real powers to control monetary policy and inflation. But I’m just going to say that the monster of inflation has largely been slain, so monetary policy has been very, very effective.

But there are other matters that the Reserve Bank is concerned with—in particular, it is concerned with the stability of our financial systems. So what this bill does is actually creates the capacity for the Reserve Bank to increase its insight over the financial system, to engage in better regulation, but it also increases the political accountability around the Reserve Bank—in particular, the Minister of Finance, who sets the financial remit, is subject to elections every three years, is subject to scrutiny in the House, is subject to the select committee process, and is subject to all the processes that this House has to hold people accountable for the policies that they set. So it actually increases—it increases—the accountability of what happens over at the Reserve Bank—it increases the accountability because of the scrutiny of this House.

So I think, again, there’s work to—obviously, the bill needs to go through its select committee process, but this seems to me to be a good outcome from this bill as it goes through. So I’m going to invite the Opposition to recognise that the Government does get to govern, but to engage in the process of the select committee, to engage, to raise their objections there, to make the alternative suggestions, and that, after all, is what the discussion in this House is all about. I’m sure that they will have some excellent input to make in the very full process of scrutiny that is to come.

Congratulations on your appointment, Madam Assistant Speaker Salesa. It’s nice to see you in the Chair.

Last year—no; actually, halfway through this year—I gave a speech that caused quite some chagrin across the House, when I described the Prime Minister as like Rob Muldoon with slogans and kindness, and I stood by those comments in the face of that criticism because of what I believed was the creeping executive fiat that’s been going on over the last 10 months that looks very much like a Muldoonist approach. Then, Dr Deborah Russell absolutely nailed home the confirmation that this Government looks, acts, and sounds exactly like a Government of the 1970s and 1980s. She said that our primary objective is that there is a Government that is going to govern, and then she says that this will increase political accountability. Well, actually, it won’t. It might increase accountability, but it reduces independence, and in the post-Muldoon period, the passage of the Reserve Bank Act was designed as a handbrake on executive fiat by maintaining and protecting the independence between the Government—

💬 Hon Gerry Brownlee: Who brought that Act in? Labour.

Labour did. That very fine fourth Labour Government that they will never talk about—never once will they even mention it. The best Labour Government this country’s ever had, and they don’t want to talk about it.

But the Reserve Bank of New Zealand Act 1989 did exactly what this bill is attempting to undermine: it maintained the important independence between the executive and the Reserve Bank by setting a set of criteria that the Reserve Bank is bound by law to follow, without fear or favour. There’s no doubt that there has been some tinkering at the edges, and in my interjection to the Minister of Finance, where I said that most of it was being done by him, he acknowledged that.

But he also said, “Oh well, Bill English did a little bit of that as well.”, and I think that’s worth deconstructing, because some of the things that the previous Minister—sorry, two Ministers of Finance ago—did were designed to meet the goals of the Reserve Bank Act in the financial remit, and that is to improve financial stability and manage any risks to the economy—for example, the deposit guarantee scheme, the insurance schemes that the Reserve Bank now follow, all were consistent with the mandate that the Reserve Bank had and the requirements that the Government set for it. What they didn’t do was change that mandate, and the first thing this Government did was throw the responsibility for maximum employment on to the banking system—on to the Reserve Bank.

I’ve got this picture in my head of Adrian Orr as the classic one-man band, with the trombone under one arm, with accordion under the other, and with the tambourines between the knees.

💬 Hon Gerry Brownlee: They tried to give him housing. What did he do with that?

Well, we’ll come to housing, Mr Brownlee. That’s a very good point, and, actually, that’s not the picture I have any more, because Minister Robertson didn’t like the tune that Mr Orr was playing. He didn’t like the tempo and he didn’t like the fact that he couldn’t change the tune. So now I’ve got a picture of a puppet—a marionette—and Robertson’s on one end and poor old Adrian Orr’s bouncing along in the wake of these things that the Minister doesn’t like.

Now, when it comes to housing, there is a problem. It is a problem of the Government’s making, and that’s exactly what the Reserve Bank Governor pointed out in his reply to the Minister on 24 November. Now, the Minister wrote to Adrian Orr—actually, under pressure from the shadow Treasurer, Andrew Bayly, who pointed out, quite rightly, that, actually, if you wanted to pull a string, the Minister of Finance had one under section 68B of the Reserve Bank Act. What was really interesting about that was if you look at the remit of the monetary policy committee, when it talks about price stability, the Government—and this was written by the previous Government—requires the Reserve Bank to discount events that only have transitory effects on inflation, setting policy with a medium-term orientation. What that means is that the Government has given up on any kind of short-term control of house price inflation. In the remit, we’re now going to add house prices—not just inflation generally, but house price inflation—so I wonder what happens when the price of bananas goes up, or the price of fish or the price of fruit and vege.

Whatever the Government doesn’t like, it, effectively, is going to tinker with the Reserve Bank Act and throw the responsibility of the things that this Government has on to the Reserve Bank. That is entirely against the principles of the Reserve Bank of New Zealand Act 1989, and, as Mr Bayly pointed out, there is far, far less independence than was envisaged when that Act was passed 31 years ago.

Dr Russell talks about strengthening—and the Minister mentioned this, as well—the role of the board. But who appoints the board? Who appoints the governor? Who appoints the monetary policy committee? Every element of independence by the Reserve Bank—

💬 Hon Gerry Brownlee: Gone.

—is now being undermined, and could well be gone in the future, Mr Brownlee. That is the opposite of what we need. Actually, Dr Russell talks about—I was gobsmacked at this—the monster. She said, “The monster of inflation has largely been slayed.”, as if it is a creature that cannot rise again—that it’s gone for all time. Well, in the 1980s, during the fourth Labour Government, I was working for a retail bank in New Zealand, in the mortgage department, giving out mortgages in the Hutt Valley. The A rate for the best mortgages was 19.5 percent and the B rate was 20.5 percent, and people were still picking up mortgages because they knew house price inflation was going to mean that that investment was worthwhile.

We don’t have that now; in fact, we have the house price inflation, but we don’t have the interest rate inflation. That is not to say that with the level of quantitative easing that is being employed by the Reserve Bank right now to stimulate the economy, inflation is not a monster that cannot rise again. It absolutely can, and I have confidence that the Reserve Bank knows much, much more about those risks than the Government does, because if the former chair of the Finance and Expenditure Committee believes that the inflation monster is dead and buried for ever—and that’s the level of financial acumen from a former senior lecturer in accounting—then I’m afraid we’ve got a problem in terms of the financial literacy of the Government.

She aspires to ministry. She’s probably—well, there’s no “probably” about it. She has a far better pedigree than the current Minister of Finance has when it comes to understanding financial matters—

💬 Hon Gerry Brownlee: Who’s that?

—Dr Russell—but what staggers me is, despite that, she still believes that inflation has been defeated, as if that’s it. It lurks like a virus, and it can come back if we don’t take the sorts of prevention measures—how about some social distancing, or some economic distancing then, between the Government and the Reserve Bank of New Zealand? There’s no masks, there’s no social distancing, there’s no COVID Act here for the Reserve Bank. They’re at risk, and the virus of inflation will come back if the sorts of interventions, interferences, and a lack of separation is allowed to continue.

This is a slow creep towards a very, very poor situation—a dangerous situation, dare I say it—and it saddens me that we cannot support the bill. Reserve Bank bills should be bipartisan, but at least at the first reading, it’s not going to be possible. So when we go to select committee and when we hear from submitters, I think there is a very good opportunity to make this bill better than when it came in, and we will certainly keep an open mind about whether or not those changes are sufficiently robust to maintain the independence of the Reserve Bank in order that we can support it. The last thing we want is the marionette master continuing to tinker, and a future Government having to undo that, because what worries me is that by then, a significant amount of damage could be done to our banking system and to our monetary policy framework. I hope that’s not the case.

Kia ora e te Mana Whakawā. There were some great things that came out of 1989, and the Reserve Bank of New Zealand Act was one of them. So was When the Cat’s Away. Now, When the Cat’s Away remains a great band and great music; the Reserve Bank of New Zealand Act, however, has not aged quite as well.

💬 Hon Michael Woodhouse: That’s not what the Minister’s statement says!

The member over there still is standing up with 1989 thinking, with a single-target Reserve Bank.

Now, the independence of the Reserve Bank was the huge leap forward made, and we all know that New Zealand was ahead of the world in that. Our economists are still regarded as world leading in terms of identifying inflation targeting as a robust and effective economic tool. But times do move on, and, whilst that was a great innovation then, it doesn’t mean there are not still better ways to do it—still better ways to manage money supply and to supervise our financial institutions in a way which is good for the New Zealand economy—and no more so than now, when we have extremely volatile international and local financial conditions and the Reserve Bank has at its disposal a range of tools. The question is: how should it use those tools? Should it use them in some kind of economic isolation, or should it use them taking into account the conditions on the ground, informed by what’s going on around them, including what’s going on in fiscal policy as well?

We only have to look at what’s happening to our economy to know that there is no one single tool that can be used—that there are a range of tools, both monetary and fiscal, and it’s no good using one out of coordination and out of sync with the other. What this piece of legislation does is it improves the governance of the Reserve Bank so that it’s not a single Reserve Bank Governor making decisions but that it’s made in a way which is, frankly, widely recognised as having a higher-quality decision-making process, with a group of people with a range of skills and backgrounds, so that we come with a higher-quality decision that doesn’t ignore the wider ramifications of what’s going on.

The Reserve Bank is not an island—we know that; we’ve seen that. The Reserve Bank must have a relationship with Government, but it must, at the same time, maintain its independence. So having those lines of communication which are transparent and robust, like the remit, is really important so that clear, legitimate interactions can be had, but the ultimate decision-making has to be left in the hands of the Reserve Bank and outside of political interference. This bill strikes the right balance. It’s the next step forward on a road which is to strengthen our financial system so that we’re protecting the assets and positions of all New Zealanders and, in accordance with the remit as it stands, reducing inequality. This is a good, strong, robust move forward for the Reserve Bank. I commend it to the House.

Tēnā koe, Mr Speaker. The Green Party is supporting this bill. Indeed, some of the reforms that it’s proposing are things that the Green Party has long advocated for, in particular the shift to a broader range of people in the board being responsible for some of the decisions as opposed to just the one single Governor of the Reserve Bank—although I know in practice they have been operating that way for a while.

I guess I wanted to just step back for a moment and just talk about monetary policy and fiscal policy, which sound really quite boring and technocratic, probably, to many people, but, ultimately, the decisions that we make around these—it’s really important that we understand that it’s not a purely technocratic thing, monetary policy, and neither is fiscal policy. Ultimately, they reflect the values and priorities of a society, and they are tools with which we can work together for the benefit of all of us or we could, you know—I think in the 1980s and early 1990s, the view was that somehow this was a value-free, technocratic approach that was superior and going to lead to the perfect functioning of the economic machine. But the economy isn’t a thing separate to us; we are the economy. The economy is what we do. It’s the goods and services we pay each other for, and, in fact, we do a lot more than just the economy. A lot of the things in our society that enable us to have an economy or a market where services and goods are traded commercially are things that are unpaid and the things we do for the value of it. So we can’t pretend that there’s some ideal technocratic solution that is fully independent of politics, because politics is how we work together to make decisions that affect us all collectively.

So I think it is appropriate that there is a broader mandate and that we look beyond really just purely narrow goals, because one of the things that I think was overlooked in the economic revolution of the 1980s and 1990s was how some of these decisions that were done supposedly for the good of the economy weren’t actually that good for everyone, and they entrenched a certain amount of inequality, including here in Aotearoa New Zealand, in the name of a GDP growth rate that was seen as success. I think most of us would agree that extreme inequality of wealth and income is not a good thing, and it’s not something that we support, and that, ultimately, whether Government’s making decisions about how we budget, how we spend money, laws and regulations that influence how people live their lives, or whether it’s the Reserve Bank making decisions around interest rates, all of these things will have some impact on people in our society, and it’s important that they are democratically accountable and that we recognise and are explicit about the values that are underlying those decisions.

The Green Party has for a very long time advocated for a different approach to economics that isn’t just solely focused on GDP, because GDP doesn’t measure a lot of the things that we value in life and it doesn’t measure all of the costs, necessarily, as costs. Things can increase GDP that are increasing inequality or increasing pollution, things that we actually don’t want more of. So looking beyond that really narrow, technocratic vision, I think, is going to be valuable. Of course, there is a case for having strong institutions and making sure that they are transparent and accountable, and a certain amount of independence, but, yeah, just recognising that, ultimately, nothing is free from politics, because politics is the way that we make decisions about the things that we value.

Thank you, Mr Speaker. I rise to speak on behalf of the ACT Party. We’d like to propose some positive solutions around the bill. This bill introduced by the Government and the Minister will provide an updated focus on reform and transparency and overall governance, and we think accountability arrangements of the central banks are clearly defined. We think it has a lot to recommend to it—ACT wants to support it in its first reading—but there are some points we’d like to make.

Through policy that the prosperity and financial wellbeing of all New Zealanders, there are some gaps in the system and this needs to be reviewed with the bill. Its main focus at the moment sees the maintenance of price stability supporting maximum sustainable employment and inflation management. But the banks’ challenge will be to contribute dynamically to a future-focused economy which is productive, with transparency—but there is an element of modernisation, we believe, that needs to happen in these challenging times. The institution is nearly 100 years old, and ACT wants to see and to promote an even more stable, well-governed, and managed financial stability at a micro level from New Zealand. So there are five points we’d like the Minister to review, and these are ones that we see in the bill probably haven’t got world-class benchmarks and are a concern to our country.

ACT believes, on payment systems and cyber-security, that there’s a critical role here in the payment system to be played. We need a Government structure which actually will improve our cyber-resilience and ensure that outages that occurred recently with the payment system, and at the New Zealand Stock Exchange (NZX), won’t ever occur again. We’re not convinced that there is a world-class solution in place there, and certainly it seems to be by consultation to information management companies. So there are significant challenges to deliver on that task. Realistically, given the breadth of the Reserve Bank’s responsibilities for management payments system within New Zealand’s largest clearing system—which is bigger than the NZX trade in the financial markets—and managing the distribution of cash, and managing foreign reserves, we’ve got a simple question: we ask how a single governance board or a committee can have all those skills and capacity to do this. And I want to focus on monetary and prudential policy. So we believe there’s work to be done in that area, to separate and define that constructively so the risks are taken out.

So the Reserve Bank of New Zealand (RBNZ) consultative process needs to be modern, relevant, and bulletproof to maintain confidence. The second area we’d like to bring forward is an area that has been neglected, and it’s the difference between banking and non-bank lending. Banks have performed well in this period, and done well. We want to ensure and include the system in a wider financial system—and it’s not just that banks are good for everything, which seems to be the RBNZ’s approach, and everything else is bad—banks have ample funds, liquidity, strong balance sheets, and total access to the RBNZ’s programmes. We’d like it to be considered that it would be more equitable, as well, to provide for less well-off, underserviced communities—like the Māori community and the Pasifika community—which banks won’t service, and communities should be able to have access to fair financial products.

So ACT wants to propose that the financial policy remit will also enable the Government to ensure the prudential regulation does not disadvantage locally owned institutions and prevent the ongoing decline of the New Zealand financial sector, particularly its mutual and credit union sectors—and those are the people that would normally bank the poorest members of the community. At the moment, those organisations don’t have the same access to liquidity and to the long-term funding programmes, and we think that that playing field needs to be levelled. And even though in the reports, the monetary stability report, it looks like it’s the long end of the tail, it’s actually really important in terms of the community. So we’d like that to be taken into consideration and addressed and solved. So we think this deserves to be canvassed at the select committee.

Also, in terms of modern technology and peer-to-peer lending, in terms of institutions like Harmoney, we need to also incorporate into this bill the facilitation process for modern technology, and for future practices that we can’t envisage yet, but certainly will be happening in the next 10 years.

Point number three is around the monetary policy committee. We believe in transparency and accountability in decision making at the ACT Party, and we’d like to see more transparency around the decision making and the decisions and the names of the members of that committee. They should be totally responsible and on the record as a committee, as individual members, for the decisions they make. So instead of a monetary stability report which says the committee agreed on this, every single individual should have their names and a tick beside it on what they actually decided, because we don’t want to encourage groupthink, and we want to have a difference of opinion and skill sets on that committee.

Point number four is around monetary policy and prudential supervision. One of the things that I think the bill is ignoring is there are learnings for New Zealand to take the approach that the English and Australians have done to prudential supervision and create either a separate organisation as supervisor, or a separate committee with independent members to ensure there is the appropriate focus. By doing that for monetary policy but not prudential regulation, is the Minister, effectively, saying one is more important than other—we’d like that question answered—and, if so, isn’t that a backward step?

Finally, on house price inflation, ACT’s position that the RBNZ should take housing costs into account when making decisions would be welcome during its decision-making policy and processes. We also note from today’s release of the November 2020 monetary stability report that there is a concern that increases in highly leveraged borrowing, if continued, could lead to emerging risks to financial stability longer term. So we encourage the monetary policy committee to reflect on this area of policy, and we would like to see a risk management framework around that which improves governance, transparency, and actually delivers the objectives of the RBNZ.

So, in conclusion, ACT supports the reading of the bill at this first series, but we believe there’s work to be done. Thank you, Mr Speaker.

In 2008, we had a global financial crisis, which took all our attention around monetary issues. Before that time, Reserve Bank Governors and central bankers were really not that well known—they certainly weren’t the rock stars they’ve become today. Essentially, the world looked at what had happened when the derivative market collapsed with the house of cards effect around the world, and so at a meeting in Switzerland the powers that be, essentially, pointed to their reserve bank governance and said, “Save us.” And as a result, monetary policy, which in the past was ever-present but not seen as the panacea, became just that. So things like the Reserve Bank of New Zealand Bill, which we’re looking at now, and Reserve Bank Governors all of a sudden were given a power and a remit that they really hadn’t had previously. So that’s why, when we come to looking at a Reserve Bank bill like we’re looking at today, it becomes so essential.

A little history lesson: many won’t realise that the Reserve Bank used to be a Government department, and we had a Prime Minister—a well-known Prime Minister, Rob Muldoon—who, essentially, took over the running of the Reserve Bank and set all the policy directly. It wasn’t even policy; it was orders—and as a result, the country nearly went broke. So that’s why we have a Reserve Bank of New Zealand Act, which must be constantly updated, because, as a result of the reliance on central bankers now to keep the monetary flow going, we have to have good regulation behind it. And that’s, essentially, what this bill is about, and why it’s essential that we do take it through its various parts and get it through select committee and the committee of the whole House to make sure it is what it needs to be, because this is a very important piece of legislation in ensuring the financial stability of New Zealand. For that matter, I have no hesitation in commending it to the House.

The Hon Gerry Brownlee—five minutes.

That speech, I think, was a little sad, because it’s sort of suggesting that there has been no history to this particular bill or its predecessor, which is still operational, which is the 1989 Act.

No one could forget the confusion that existed in New Zealand after the 1984 election, and the decision by the Government of the day to devalue the New Zealand dollar, the refusal by the incumbent Prime Minister, at that stage, to do it, and the powerlessness of any of the bureaucracy to be able to act in the best interests of New Zealand at that time. That’s why, over a period of years, a Labour Government did consider what would be the best arrangements for the Reserve Bank, what would be the best arrangements for monetary policy in New Zealand, and came up with this Act. I think it’s worth noting that for all of those 31 years since that time, this has been a success.

Alongside the passing of this Act, there was also the floating of the New Zealand dollar, so that we did not have a finance Minister able to go on to television and dictate to the nation what the value of our dollar would be against other exchanges. We know that the crisis of 1984 cost this country hundreds of millions of dollars because of that intransigence.

So a bill like this is extremely important. But we are not going to support a bill that, effectively, on the one hand, gives us the sort of sheep’s view of it, all nice, fluffy, and woolly, but underneath is, in fact, just a wolf dressed up. Because if you look at what the roles of the Minister are, it’s abundantly clear that the independence of the Reserve Bank substantially disappears with the passing of this bill. It’s the Minister who appoints the governor. It’s the Minister who appoints the monetary policy committee. It’s the Minister who sets out the financial policy remit. It’s the Minister who sets out the monetary policy remit. It’s the Minister who appoints the board of the Reserve Bank, and it’s the Minister who does all the unappointing of all of those positions as well.

So what happens if there is a board that doesn’t agree with a Minister? Then I think you see recourse to what is in this bill, and most people won’t have got to it just yet, clause 121, an “Order providing a different economic objective or objectives”. Well, this may well be described as the Muldoon clause, because this is where the Minister himself can decide on a different course from what the monetary policy committee might have decided, the governor might have decided, and the board might have decided by simply issuing a new set of objectives, which, as it makes clear here, state what the board, what the monetary policy committee, what the governor, and what, effectively, the Reserve Bank must deliver.

So I listened carefully to the speech just delivered before, and anyone could think from that speech that this policy only dated back to 2008, the global financial crisis. It doesn’t; it goes right back to the 1980s in this country, and it served us very, very well as a response, no question.

💬 Hon David Parker: He said that.

Did he say that? Well, it was confused by his concern that not enough New Zealanders, or not enough people throughout the world, knew who Reserve Bank governors were. Well, I could just about list for him all of the New Zealand Reserve Bank Governors back to that time. And, of course, also—a point of order, Mr Speaker. I seek leave for an extension of time to further discuss this particular bill.

💬 DEPUTY SPEAKER: I’ll put the leave, the House can decide. Leave is sought for that purpose. Is there any objection? There is objection.

There you go. So there is confirmation that I’m on the right track. This is a removal of the independence of the Reserve Bank bill, no question about that.

It is also a bill that reinstates the capacity for the finance Minister to direct the Reserve Bank, on particular policy issues. They are the very things that the Reserve Bank Act, in the first place, was passed for. It’s well known that the monetary system, the financial status of the country, rolls on well past any one Government—and for that reason there should’ve been a great deal more consultation over this.

I think the speech from the ACT member was extremely valuable because it pointed out things that we will discuss in the select committee. We look forward to that process, but will not be supporting this bill.

Far from being a dictatorial bill, this is one that’s very modernised. You can see it in many indicators in the Reserve Bank of New Zealand Bill, one of which is, of course, the movement from a single person to a board. It’s a very different approach which actually balances the independence of the Reserve Bank of New Zealand with the actual true and important role of the Minister. In this, you have a bill that’s modernised in its approach in several significant ways. The first is that it is absolutely a response to the lessons learnt by past mistakes. It will provide a board structure from a single decision maker. It will add an overarching objective that is financial stability, and actually talk to values and politics and put them in the right places. It will provide a remit to the Minister as to what is required when setting and implementing a strategy to meet that objective. That is hardly dictatorial. It will support the structure by redirecting operational independence. It balances it by accountability. Thank you.

This bill, in the current context, simply adds to the Government’s confused messaging regarding monetary policy. Various speakers in this debate have reminded us about the 1980s and the context in which an independent Reserve Bank was born. I’m reminded by my colleague Simeon Brown that, of course, he wasn’t even born when that happened. It is instructive to recall the context in which the Reserve Bank has had its powers developed, but it’s also very significant that we look at the more recent history, and that’s what I intend to do in this contribution.

As the Minister of Finance, the Hon Grant Robertson, outlined at the outset, this is one of three bills relating to the institutional arrangements of the Reserve Bank of New Zealand that this Government has introduced. Of course, in passing any legislation of this sort, the balance that is required to be struck is that between democratic oversight of the Reserve Bank’s functions and the need for its operational independence. The very fact that we are standing here debating the frameworks in which the Reserve Bank makes its operational decisions underscores the fact that this Parliament has an incredibly significant role in setting the institutional frameworks for the Reserve Bank, and that those are distinct from operational decisions. And, of course, this is important, because the very cute conceit that the Minister of Finance has tried to run in more recent weeks is that somehow any gesture towards actually thinking about what the Reserve Bank does is somehow Muldoonist and interventionist. I would put to you that the very fact we are debating the frameworks in which the Reserve Bank operates makes it very clear that, in fact, these sorts of debates can be had.

In 2018, we had the first step away from the formal independence, with the introduction of the maximum sustainable employment goal and the creation of the monetary policy committee (MPC). Concerns about that were well canvassed at the time, and there are commentators today who would put to you that that extension of the goal around maximum sustainable employment has potentially contributed to some of the issues we’re seeing in the housing market now.

But this bill, in particular, looks at the governance and accountability arrangements. Our main concerns are about the blurring of the lines between the governor, the monetary policy committee, and the board. And, of course, we need to be very clear: this new board that’s being introduced isn’t some completely independent entity; the board members are to be appointed by the Minister. Now, we are very hopeful, on this side of the House, that the Minister of Finance will be very careful with who he appoints to that board and the way in which those appointments are made. But, of course, it would be very wrong for us not to raise the risk that those appointments could become incredibly political, and could thus erode—

💬 Hon David Parker: You mean like Don Brash? Dr Brash—

—the independence of the Reserve Bank. It is vital that we note this because it is quite a shift in structure, and I don’t see—

💬 Hon David Parker: —the man who was governor and negotiated a place on the National Party list.

—in this bill as it currently sits—and you’re welcome to point the measures out to me, the Hon David Parker, that provide safeguards that would ensure that there wouldn’t be politicisation in the appointment of that board.

Now, the second issue that we see, and that we are concerned about in this bill, relates to the financial policy remit issued by the Minister of Finance. Again, the financial policy remit being issued—this is something that has not existed previously in the way that the bank operates, and it does provide potentially for a much larger influence. The bill, in many ways, actually increases Treasury influence, and, of course, Treasury is the department that operates at the behest of the Minister of Finance, reports to him, and goes to him for their daily bread—with all respect to Treasury advisers reading the Hansard. So Treasury will now have a much-expanded role with regard to the Reserve Bank; it’s both an observer on the monetary policy committee and it’s a formal monitor of its duties—a formal role as a monitor. So, again, we raise our concern about the influence that Treasury will have on the independent way in which that group of people are able to make decisions and the potential for this, again, to be an arm through which the Minister influences the decision making of the Reserve Bank.

Coming back to the new financial stability objective to protect and promote the stability of New Zealand’s financial system, that replaces the existing requirement to take regard of the efficiency and soundness of the financial system. So this is a significant change. To remove that language around efficiency does change the framework within which the Reserve Bank is making decisions.

But, as I said earlier, a key concern that we have, apart from these three levels of decision-making accountability—governor, MPC, board—and the potential for interference, is the context in which all of this is happening. I want to put on the Hansard the record of what we have been seeing in recent weeks in relation to the conduct of the Reserve Bank and the Minister of Finance’s influence on it, because it is absolutely pivotal to the way in which this bill will operate. So just a few weeks ago, Andrew Bayly, National’s spokesperson, said that he was concerned about the Reserve Bank’s funding-for-lending programme—$28 billion to be pumped into the economy in order to keep things going—and he said, “Well, wouldn’t it be better if that went towards productive uses rather than simply into housing?”, and he gave some example of where that had been the case offshore. The Minister could suggest this through a letter of expectation. Now, what we then had was this huge overreaction from the Prime Minister, saying that that was Muldoonist, which it strikes me as very relevant to this debate, because here we are changing the very institutional settings in which the Reserve Bank operates, allowing the Minister of Finance to appoint a new board, to change its remit, and to change the way it operates, and yet the National Party, through suggesting a letter of expectation, are somehow the ones that are encroaching on independence.

So then what we had from Grant Robertson, the Minister of Finance, was that, actually, this all got a bit embarrassing for him, because, as members of this House know, house price inflation in New Zealand is completely out of control, and so he wrote to the Reserve Bank Governor and he said that he was looking at the remit of the monetary policy committee and that he would be making a suggestion around change, specifically to b(ii), which at the moment requires the Reserve Bank to avoid unnecessary instability in output interest rate and exchange rate. Now, there is a lot of debate in the financial community about what this part of the remit actually means in effect at all as it is. So when the Minister of Finance suggested, “Well, let’s add into this house prices”, there really is a question about what effect that would have at all. So then we had the slightly unedifying situation in which the Reserve Bank Governor then shoots back a letter in which he politely highlights that, in fact, it is the Government, through its regulatory and fiscal settings, that has the most influence on house prices—that, actually, if we were to look at the underlying issues with land constraint in the Resource Management Act, then that would be a better way of addressing these issues.

Now, we’re yet to hear the final say from the Reserve Bank on the suggestion from the Minister of Finance. We’re yet to see where the Minister of Finance will land on any final changes. The reason that I put all of this on the record of the Hansard is that here we are in 2020 making significant changes to the governance arrangements of the Reserve Bank, and we are doing so in the context of a tit-for-tat, back and forth letter exchange between the Minister of Finance and the governor about the very core purpose role and functions of the Reserve Bank in relation to, arguably, New Zealand’s most significant current public policy challenge: that of house price inflation. So is it any wonder that in that context, members on this side of the House think that we need to be both careful and judicious, and consider very deeply the potential that these changes have to allow the Minister to further encroach on the independence of the Reserve Bank?

So this bill in its current context adds to the Government’s confused messages regarding monetary policy. It proposes fundamental changes to institutional arrangements, and we in the National Party will be listening very hard indeed in the select committee, because we believe that the independence of the Reserve Bank is critical.

I wasn’t going to take a call on this, but I do find it a little bit galling to be lectured on political independence of the Reserve Bank by the National Party. I’m going to read an extract of a speech by the then Governor of the Reserve Bank, Dr Don Brash, who’s a great fan of Friedrich Hayek. In 1996, he gave a speech about labour market policy. Now, the labour market by that time had been quite deregulated in New Zealand, and he said—this is as Governor of the Reserve Bank—“The deregulation is not complete. The Act provides for certain minimum entitlements that must be observed and employment contracts, including a minimum wage, minimum holiday entitlements, parental leave and equal pay for men and women.” He was a man who, as Governor of the Reserve Bank, had a very extreme view of deregulation of the labour market and pushed it as Governor of the Reserve Bank, and then, whilst Governor of the Reserve Bank, in what should be one of the most apolitical roles of any role appointed by Governments, he negotiated a position on the National Party list whilst he was Governor of the Reserve Bank, and did not resign from the position of Governor of the Reserve Bank until his position on the National Party list in the 2002 election was secured. It’s for that reason that I won’t put up with being lectured on the importance of political neutrality and freedom from interference from politicians by the National Party.

The question is that the motion—

💬 David Seymour: Mr Speaker?

Is it a point of order?

💬 David Seymour: No, I’m calling.

No, there are no more calls left.

💬 David Seymour: No, Mr Speaker, there’s a speech 12; anyone can call for it.

No.

💬 David Seymour: Yes, they can—they absolutely can.

I’m sorry. No, my ruling is, according to the Business—I’ll stand up. The ruling from the Business Committee sets out the order of speeches. The only call that was not taken was by the Māori Party. The decision of the Business Committee is, when the Māori Party do not take their call, it reverts to the Labour Party, OK? So we have had all calls.

💬 David Seymour: Point of order. There may be some confusion. As I understand it, David Parker had taken speech 11. There are 12 calls available. Now, you are correct that the Business Committee does give an indication of calls. However, frequently in this House, a person stands up and takes a call who may not be in order to speak according to the Business Committee’s guidance, and you as the Chair have absolute discretion to call somebody. Now, of course, also, you have a role under the Standing Orders to ensure that people are heard and that there is as much debate as possible. If I as a member seek a call that is available in a debate, then it’s not clear why you wouldn’t call me to facilitate further debate.

I’m going to make another ruling. I’m going to rule now on what Mr Seymour has said, that there was some confusion over whether or not the ninth call was fully taken. When Helen White took the call, there were 10 minutes on the clock—I made that a 10-minute call—so by my calculation, there’s a five-minute call left, if someone would like to take it.

Thank you, Mr Speaker, and I greatly appreciate your willingness to be involved in a discussion with the officials, and I thank the Deputy Clerk of the House for talking to you about the ruling and for allowing me to take this call. I certainly hadn’t intended to speak in this debate.

I think the ACT Party member Damien Smith made a very fine speech presenting, I thought, actually, the most thoughtful contribution in the debate, and the contribution that was most tightly focused upon the content of the legislation that is before the House, and it was acknowledged by other members what a good contribution Damien Smith made. However, I can’t say the same for the contribution by David Parker.

Now, we could all point to the considerable irony of the National Party talking about the many errors, evils, and ills of Sir Robert Muldoon’s governance of the Reserve Bank and the rather unseemly transition of power that occurred shortly after I celebrated my first birthday, in the later weeks of July 1984. But the way that David Parker chose to stand up and impugn Don Brash, a guy who has done a lot for this country in many different fields, and to attack his opponents in the National Party who sit in this House today via somebody who is no longer a member of Parliament, unable to defend himself, I thought, was very unfair, and, frankly, it reflected more on the character of David Parker than it does on the character of Don Brash. Thank you, Mr Speaker.

The question is, That the Reserve Bank of New Zealand Bill be considered by the Finance and Expenditure Committee.

Motion agreed to.

Bill referred to the Finance and Expenditure Committee.