Reserve Bank of New Zealand Bill

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

💬 DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Reserve Bank of New Zealand Bill be now read a second time.

This is the second in the trilogy of Reserve Bank pieces of amendment legislation that have been worked on over the last 3½ or so years. To recap, for those who haven’t been following along at home closely, the first of those pieces of legislation was the one that modernised the objectives of the Reserve Bank. This was that they maintained their core objective of price stability, but we added to that the objective of achieving maximum sustainable employment—a very important shift to recognise those key indicators in our economy are all about the health of our economy. We also changed the decision-making processes around the monetary policy work of the bank to have a monetary policy committee, which is relevant to this bill, as I will talk about in a moment.

The third bill, which is beginning its work and we have released information about, is the deposit takers Act. That is a piece of legislation that will have some significant changes to the way that banks are regulated, but, in particular, it will introduce a deposit guarantee scheme to New Zealand, something that we have not ever had; something that is beyond time for us to have. That is in the future.

For today, we have the second, as I said, of the three pieces of legislation, and as much as anything I would describe this as the institutional Act. This is the Act that is about how the Reserve Bank operates in order to achieve its objectives in a modern way and creates a series of changes that I will work my way through.

Before I get too deeply into that, though, I do want to thank the Finance and Expenditure Committee for their hard work in putting this bill through. All members of the committee contributed, and while there were some issues on which there was not able to be found agreement, I think that, overall, the bill is improved for the work that the committee did as it worked through it.

As I said, primarily what this bill does is create institutional arrangements that give effect to the overarching purpose of the bank, and that is to promote wellbeing and a productive economy, as well as the specific economic financial policy and central bank objectives that the Reserve Bank contributes to. The bill ensures that the bank can operate efficiently and with legitimacy and will continue to do so into the future. At its core, it has a number of key provisions. The first of those is the establishment of a proper governance board for the bank and, as a result, the strengthening of its accountability. The change to this is significant. It fits with the change made in the monetary policy committee and in their role, and it makes it consistent with the way that Crown entities work in New Zealand and also the way that central banks and regulators tend to work around the world. As a result of this, the powers and responsibilities of the Reserve Bank, other than monetary policy, will now sit with the board rather than the governor alone. This is a shift, as I say, that’s consistent with what we’ve done with the monetary policy committee, to create a committee-based structure to move away from that single decision-maker model.

The kind of board arrangements we’re talking about are familiar in the sense that it looks like a Crown entity board but it is one that, obviously, has some differences to it. One of those differences—and it was the subject of discussion at the select committee—is around the membership of the governor of that board, and it is a pretty unique set of circumstances for a Reserve Bank Governor, or a central bank governor, and therefore that is reflected by the fact that they are actually a member of the board. This is, again, not unheard of, or not uncommon, in terms of other central banks around the world, to have the governor as a member of that governing board. I personally don’t think the way we run monetary policy, the way we run financial policy in New Zealand, would work if the governor was not a member of the board, but, correctly, the committee analysed this idea quite closely and came up with some provisions that support how the governor can fulfil that role.

Secondly, the bill reframes—and this is an important change—the financial policy objective of the Reserve Bank, and that is to protect and promote the stability of the New Zealand financial system. This is a clear mandate, and it’s one of the things that arose out of the consultation—and a great deal of consultation publicly was done on all three bits of this legislation—to give absolute clarity for the Reserve Bank to deliver on its role as New Zealand’s prudential regulator. It is consistent with best practice. It’s consistent with the guidance that the International Monetary Fund gave to the previous Government, actually, in 2017, when they did their assessment, and I do believe that clarity of that objective will be helpful to the bank into the future.

There has been some criticism of this aspect of it, because of where the concept of efficiency sits within what the bank does. The advice, again, internationally here, is that efficiency being in a primary objective like that is not necessarily normal—that efficiency is better delivered via the way in which the bank goes about its work. In particular, in the case of this, that will be the deposit takers bill, and then Act, and the various insurance and prudential work that the bank does. That’s where efficiency is best reflected. Having that clarity of objective of protecting and promoting the stability of the financial system, I believe, is the correct approach.

Other major and significant elements in the bill include the creation of a financial policy remit. So this is to mirror what we do on the monetary policy side. Everybody is familiar with the monetary policy remit, which, again, is a creature of the first piece of legislation we did last term. People previously called it the “Policy Targets Agreement”, but this is actually an understanding and agreement between the Minister of Finance and the bank about how they will operate.

When it comes to financial policy, rather than monetary policy, financial policy has grown in the bank’s responsibilities in a very ad hoc way. So monetary policy was the core of what the Reserve Bank does, and is still the core of what the Reserve Bank does, but iteratively over the 30 years that the Act has been in place, the bank has adopted a number of financial policy roles in our system. It is important that there is a very clear understanding between the Government of the day and the bank about how financial policy will be delivered, and that is what the remit is about. It is not a direction; it does not affect the bank’s ability to independently determine its strategic intentions and financial policy. However, just as they do with monetary policy, they need to have regard to the Government’s policy priorities and intentions. I think the remit will provide a great deal of certainty.

Another critical element that I want to mention here today is that the bill provides for statutory recognition of the Council of Financial Regulators. Again, this is something that is important, I think, for a proper functioning, coordinated financial system in New Zealand. The Council of Financial Regulators includes, obviously, the Reserve Bank but also the Financial Markets Authority, the Commerce Commission, and the Ministry of Business, Innovation and Employment in their regulatory role. Between those agencies, they play a critical role in making sure our financial system has integrity and has consistency, and I would like to see the Council of Financial Regulators play far more of a role in providing that coordination. What we do in this Act is ensure that they now have a statutory function for that coordination work that they do, and I think that will strengthen the financial system as well.

As I said, I’d like to thank the select committee for their work and Dr Webb for his chairing. I’d also like to thank the 21 submitters who took the time to submit on the bill. For some reason or other, the Reserve Bank Act doesn’t seem to make the headlines! I cannot understand why! It is something that I think we need to see more of in the news, but those 21 people have made a significant contribution to it, and as I say, some changes were made, including, as I mentioned earlier, that the governor becomes a member of the board. The Minister can direct the bank to maintain a minimum level of capital. The bank needs to request new functions before the Minister can direct the bank to perform those new functions. That’s an important part of maintaining the operational independence of the bank and that there is an ability to amend the monetary policy remit without an Order in Council. That was really an interesting change that the committee has made based on what’s actually occurred in the time since we created the initial monetary policy remit in legislation last term.

So I think this is a strong and important part of our framework of financial policy, backing up the monetary policy changes we’ve made. I think it will give the Reserve Bank the proper level of governance while maintaining its operational independence. I think it continues to respect the role of governor within a central bank and gives us now a clear framework for financial policy rather than the iterative way in which financial policy has found its way into the Reserve Bank’s mandate. I thank the committee again for their work. I look forward to further discussion on this in later stages of the bill, when we can get into the detail of a number of the changes, but I highly commend this bill to the House.

Thank you, Madam Speaker. I thank the Minister for his acknowledgment of the very good work that the Finance and Expenditure Committee has done generally, but particularly on this bill. And I want to join him in thanking the officials who work very hard to try and articulate the Government’s preferences and, in some cases I think, their own for improvements to the Reserve Bank Act; also, to the 21 submitters who made submissions on the bill.

This is quite technical but, I agree with the Minister, it is extremely important. Certainly, I think there are pieces of legislation where, when there are changes and reforms being made to them, it is desirable that that has bipartisan support across the aisle. I regret that National did not support at first reading this bill—and I’ll explain why and what’s happened since—and cannot at second reading.

One of the things I didn’t have the time or the opportunity to do prior to the first reading in, I think, December was to go back and have a look at the Hansard of the things that were being discussed when the Reserve Bank of New Zealand Bill was introduced some 32 or 33 years ago, because it’s quite illuminating to see what the objectives of the bill and the Act that has actually, I think, stood the test of time. When it was first introduced, it was moved by the Minister of Finance, the Hon David Caygill, in the fourth Labour Government. I’m just going to quote a bit from the Hansard, because I think it’s quite telling in respect of what the goals for the Act were and whether or not—I want to consider whether or not some of the changes that we’re making to the bill in this bill, the Act in this bill, are actually commensurate with those initial goals.

He said in his first reading, “It will place the Reserve Bank on a more independent basis to improve the credibility, consistency, and effectiveness of monetary policy.” He went on to say that it “places the bank on a more independent, but also more accountable, legislative basis” than it was at that time. He said, “The Reserve Bank is required to have regard to the efficiency and soundness of the financial system”—note the term “efficiency” was initially a goal of the legislation—“and to advise and consult the Government and others … Therefore, the bill provides that the bank can be diverted”. Oh, and then it went on to talk about clause 11 of that bill, which is about changes to and the degree to which the Government could direct the Reserve Bank in implementing other things apart from monetary policy.

But it was quite clear to the original architects of the legislation that if those changes were to take place, it had to have a level of parliamentary scrutiny. Mr Caygill said, “Therefore, the bill provides that the bank can be diverted from its price stability objective only by Order in Council”, which was the instrument that would have been used at that time. I think that’s quite telling.

He did go on, I think, to say, which is something quite interesting, and I’m not quite sure he’s right, but we’re going to find out in the future I think: “The continued maintenance of stable prices”—which is, effectively, inflation and one of the principal goals of the Reserve Bank—“will, in turn, enhance the Government’s ability to fight its other major economic problem—unemployment.” Now, that’s quite an interesting nexus. What Mr Caygill was saying, back in the late 1980s, was as long as we maintain price stability, we will maintain optimal employment levels. Now, as the Minister of Finance of today has just told us, part one of the trilogy was actually not to trust the process, but to provide this Government with an ability to add an extra task of the Reserve Bank, that is sustainable employment. Now, the original architects, basically, said that you maintain prices, and unemployment should be kept under control. Now, I’m not quite sure they were right, but I’m also not sure that specifically mandating the dual roles of price stability and maximising sustainable employment is actually achievable just by dint of remit.

So we opposed this bill in the first reading, regrettably. We were somewhat concerned that we didn’t have bipartisan support for such an important legislative thing, but we were certainly open to being able to be convinced to support it at remaining stages. The biggest concern we had was the reach of the Government into what was the independence of the Reserve Bank by some of the changes that were being made. And I regret to inform the House that rather than making changes in the bill to maintain the independence between the Government, having set its remits and its financial strategy and then leaving the Reserve Bank to do its job, something of the opposite has happened. Indeed, these changes were made after the submissions on the original bill had been heard. Officials, apparently of their own volition, but, I think, the quiet hand of the Minister of Finance, who decided that even the interference and the fingers in that he was seeking when the bill was introduced wasn’t quite enough, actually made more changes to quietly increase his influence over the ability of the Reserve Bank to do its job. It’s for that reason, rather than maintaining the independence that was initially foreseen by this Act, and, actually, that has stood the test of time, we are quietly eroding that independence.

I’ll give the House examples of those concerns. So the Minister has mentioned that the governor is now going to be a member of the board. Now, I’m not opposed to the strengthening of the governance provisions of the Act, but I am generally not a fan of executive members of boards in a commercial sense; certainly, not in this situation, because what it does then is it gives the Minister the quiet influence over the governance and—through the fact that the governor is a member of that governance board—some influence over the things that the governor should have sole prerogative to determine, not the least of which is interest rates, and monetary policy more generally. So we have a bill that, then, closed the independence gap and, then, closes it further after the submissions were heard. We are very concerned about that.

Now, I go back to the term “efficiency” that Mr Caygill referred to. I am quite surprised that the Government doesn’t see fit to maintain efficiency as a core function of the Reserve Bank. It kind of dismisses it as if to say, “Well, you know, because we have these other remits, efficiency isn’t necessary”. But, as I’ve just pointed out, the Reserve Bank must have regard to efficiency and soundness of the financial system. That was its basic premise. The officials told us that they were unable to provide a clear sort of definition of “efficiency”. Well, I’m sorry, pick up a dictionary. I don’t want to sound critical of officials, but it’s not that difficult to work out, and I don’t think it’s inconsistent with the other changes that we’re making to maintain efficiency in the banking system. So we oppose that change.

The third significant change that we oppose is the ability of the Minister to add functions. Now, firstly, we support the issue that if the bank comes and asks for more functions; that’s an appropriate response. Thirty years ago, when the Act was first passed, no one had heard of cryptocurrency. Now, the bank has the sole prerogative to print currency, but, actually, we now know that digital currencies are very much going to increasingly come into an aspect of our economy. If the bank went and requested that the Minister give them functions in order that they manage that, I think that’s appropriate. But he’s also, after the bill was considered, given himself the ability to issue a monetary policy committee remit, for example, at any time, whether or not any remit advice has been given. And that remit would not have the scrutiny of this House. We believe that was the original intention of any change to bank functions and we think that a disallowable instrument or some other Order in Council process that does bring it before the House is appropriate.

We will be moving motions, amendments to the bill in the committee of the whole House to the effect that it will improve, I think, the independence and objectivity of this Act. But I don’t hold my breath that they will be supported.

The question is that the motion be agreed to.

The Minister of Finance suggested that this was the second, or said it was the second, of a trilogy of pieces of legislation reforming the Reserve Bank. In that case, if it’s the second it’s either—perhaps it’s The Two Towers, could be The Empire Strikes Back, the more modern term might be Catching Fire, the second book and movie of The Hunger Games trilogy. I say that for a reason, to cast back to a book—The Two Towers—that was published in the 1950s; The Empire Strikes Back, of course, came out in the early 1980s, and Catching Fire in the 2010s. Things move along, things change, new things come along. In fact, that is what has happened with the Reserve Bank.

I want this House to cast its mind back—those of us who can—to the 1970s and early 1980s, and the spectre of rampant inflation; absolutely rampant inflation. It was the bogeyman of the age. Not only did we have rampant inflation in our economy here in New Zealand and elsewhere in the world but we had here in New Zealand, in particular in the early 1980s, a Prime Minister who was also the Minister of Finance at the time, had very direct control of the economy, and some extraordinary things like a wage and price freeze imposed overnight, and so on. It was a very different time, and there was a real need for reform. A real need for the sort of the reform that would give our institutions much more independence. That is the background that the Reserve Bank Act that we have had up until now was born out of. It did actually come into being much earlier, but there was substantial reform in the late 1980s.

In fact, in a very thoughtful—though, I think, mistaken—speech from Mr Woodhouse, he made substantive reference to the debate of the time about the need for independence in the Reserve Bank. But that Reserve Bank Act that was passed in the late 1980s has been in place for, I suppose, close on 40 years now with very little amendment since then, with some changes but not many. The world has moved on. The world has changed. If, in the 1980s, this House was legislating in the shadow of rampant inflation and of an interfering Prime Minister and Minister of Finance, in this decade we are legislating in the shadow of the global financial crisis—a crisis where banks ran amok; where the world teetered on a precipice and was only saved by the most massive Government intervention into economies. We are operating in a different context, in a context where we need to have a different relationship with our Reserve Bank, and that is the world we are operating in now. The pieces of legislation that—this trilogy of pieces of legislation is oriented at operating in this world; the world where we need that greater control.

So this piece of legislation does, in fact, modernise the relationship. It does change it. Now, Mr Woodhouse was very, very concerned that the independence of the Reserve Bank was going to be compromised. It is for this reason, he says, that the Opposition will not be joining in support of this bill. He is worried about the independence of the Reserve Bank. He feels that we are going to compromise it. However, I suggest that this is not a compromise; in fact, it is a changing of the relationship in a way that is appropriate for the times. In fact, there is still plenty of independence for the Reserve Bank. But what there is enabled by this is ways for the Minister of Finance and for the Reserve Bank to interact more, to do so by adding objectives to what the bank can do, to asking the bank to have a real position in terms of managing our economy that is not related solely to an inflation target, but instead ask the bank to have a more holistic approach to understanding how our economy works and how it might operate within that economy. So it is a closer relationship. But that, is at this time, a good thing—that is what we need in this current time.

Now, I do just want to address a couple of points there. In particular, Mr Woodhouse talked about some of the changes, but some of these changes, what they have done is they have ensured that the Reserve Bank has a real body of experts to draw on. The monetary policy committee gives the Reserve Bank more strength in its decision making around monetary policy. It would be a bold Minister of Finance indeed, or courageous Minister of Finance, who chose to try to interfere with what the monetary policy committee was doing. This legislation sets up a governance board, which has that financial stability responsibility. It would be a bold and courageous Minister of Finance who interfered with that body of experts. So I think that that collective decision-making enhances the standing of the Reserve Bank vis-à-vis the Minister of Finance.

I want to talk briefly about the financial policy objective, where, as Mr Woodhouse pointed out, it is no longer concerned with the efficiency of the banking system but we are now concerned with protecting and promoting the stability of the financial system. I suggest that, again, that is very, very important in the wake of the global financial crisis. It’s very important in this much more complex world we live in. It’s very important in this much more connected world we live in, this world where we do have cryptocurrencies. So that is one reason why we have gone to this move of promoting stability in the financial system. It doesn’t mean that efficiency will be ignored. The principles of efficiency will come through the deposit takers bill, through the Insurance (Prudential Supervision) Act, where, under those Acts and bills, the Reserve Bank will need to have regard for the principles of efficiency. So I think that’s a very important way of safeguarding efficiency.

Mr Woodhouse was concerned, I think, about the way that new functions could be ordered, could be added, to the bank. I was puzzled by this because in actual fact this is a way that the bank does preserve its independence. You see, the Minister can only add new functions to the Reserve Bank at the request of the bank. That reserves the independence of the bank itself. Now, of course, the Minister does have the ultimate power of legislating. That is what we have in this House, as we ought—as we ought. You see, our institutions are very, very important to us. They are part of our structure and the governance of our societies. We need our institutions to be independent, for our public servants to have the capacity to give independent advice for us, for the courts to operate independently from us, for the Reserve Bank to operate independently from us. But, ultimately, in this Chamber, we are the people who are responsible for governing this country, we are the people who are elected to do it, we are the people who retain that legislative power, and we are the people who are held accountable for it every three years—as it should be.

So, in fact, what you find in this bill is that it strikes a very nice balance. Between the independence of the Reserve Bank and the political accountability of this House for what actually happens in our country. So I think it’s a fine piece of legislation. It’s a very worthy second part of the trilogy. I’m sure—we’ll wait to see with bated breath, I’m sure we’ll all be waiting for the third and final instalment, as one always does for the third part of a trilogy. It’s an excellent bill, and I commend it to the House.

That speech is the first time since the Rt Hon Mike Moore left the House that I’ve heard a Labour member speak glowingly of the changes that were introduced to the New Zealand economy post-1984. And I congratulate the member—Dr Deborah Russell—for recognising that that was a good time, and I would suggest that she spends more time with her colleagues bringing them up to speed with exactly how important those reforms were.

As a consequence of that at the end of that period, the member was right, the then finance Minister, the Hon David Caygill, brought the Reserve Bank of New Zealand Act to the House. And it has endured since that time—some nearly 33 years—and done an extremely good job for New Zealand. The question that sits in my head is: what is broken about that that requires the law to change now? What is so all-important about this change that will make the banking system more secure in New Zealand, that will protect our monetary and fiscal systems, and that will ensure that there is an oversight on the monetary side of our economy away from a Minister? And I can’t see it.

So the idea that we are strengthening the Reserve Bank by removing the authority of the governor and placing that authority of an appointed board—a board appointed by the Government; a board appointed by the Minister—is somehow protecting, preserving, and enhancing the independence of the governor. Now, I think there are a number of little changes in here that the Finance and Expenditure Committee has sort of worked on, but, I think, underlying it all, they must themselves have wondered whether or not the purpose of the bill was truly to do that: provide for the enhanced independence of the governor. It’s not evident that the governor having to go to his board and go through the board process, where the great and good who are appointed by the Government of the day—in this case Minister Robertson—will tell him whether or not they are on the right track—that’s not an enhanced independence; that is enhanced oversight from the Government of the day, nothing surer than that.

And when you look through the various other parts of the bill, as I’m sure you have, there are aspects to this where there is a long verbiage in the preamble to the bill, the commentary, that is essentially not justifying anything, nor is it setting out a case for taking any particular kind of action. It’s one of those sort of situations where you’re left, when getting to the end of it, wondering exactly what the bill was setting out to do in the first place. And that leads you right back to the supposed purpose of the bill, which I’ve already explained can’t possibly be justified.

So the question that we’ve got is: if there was a need for a change to the Reserve Bank of New Zealand Act, then why wasn’t there a process for considering what that change might have been, or could be, or if it was necessarily that was not just something cooked up over in Treasury? Because I notice, sadly, that Treasury gets an enhanced role in the oversight of the Reserve Bank. My views on Treasury are very well known and very well stated. I think they are an organisation that has massively overinflated their own importance to the system. They are bookkeepers, and bookkeepers are no good at telling you how to run a business; bookkeepers simply tell you whether or not the ideas behind the business are producing good results.

So the Government in this bill is handing over a role for the bookkeepers to get alongside the bankers and tell them how they should be running their operation. Two extra layers of supervision being put on the Reserve Bank: firstly, the board, and secondly the Treasury’s new enhanced role. The question is, in my head, who was it inside the Reserve Bank organisation that annoyed the finance Minister so much that he felt he needed to bring in, under the guise of enhanced independence, this massive level of oversight? Maybe it is because in the last few years we’ve had an absolute runaway with housing prices. And the Government will be wanting to say, “Well, it’s largely due to low interest rates”, without recognising that when there is a shortage of supply, price rises. So rather than taking some responsibility for their own derelict action in creating opportunity for greater numbers of houses to be built, they simply want to change the law here and blame the Reserve Bank. That will be one of the things that comes out of this.

So we look forward to the committee stages of the bill, where we can—

💬 Hon Phil Twyford: Gerry, are you saying credit doesn’t matter?

I beg your pardon?

💬 Hon Phil Twyford: Are you saying the supply of credit doesn’t matter in housing?

No. Now, there you go. So there is a really interesting question put to me as an assertion—put to me as an assertion. He is asking me whether I disagree that the supply of credit has an effect on house price. Well, I tell you what, Madam Speaker, what Mr Twyford needs to understand—this is the architect of KiwiBuild, that magnificent failed programme!—is that supply drops price—supply drops price—and with the supply, there’s demand. And in that case, there will be an effect on interest rates. It is very, very simple; it is not hard to understand. Although, the four-year record of this Government, with regards to housing, would indicate that they’ve got no idea of how that system works. So, thank you for the question and, in that question, exposing what the real problem was behind getting the KiwiBuild programme off the ground!

So we look forward, in the committee stages of the bill—[Interruption]—No hang on. No, please, if you don’t mind. I hope you’re taking the next call, because I am just going to be riveted by every word that the member has to say—every word.

So we look forward, in the committee of the whole House stage, to hearing the explanations clause by clause, part by part, whichever way we decide to go, from the Minister, about how he sees this making such a huge difference to the arrangements that we’ve got at the present time. We’ll be trying to explain to him, through that process, how we think it is a massively significant change in the way the relationship works between the Minister of Finance and the bank—huge.

One question will, of course, be: how often will the board report to the Minister of Finance? No one over there seems to know, so that is something for them to think about over the next couple of weeks as we move towards that committee stage; I’ll bet that it is frequent. So rather than the discussions that might occur between the independent Governor of the Reserve Bank, there will now be the chairman of the board hauled into the Minister’s office to explain what is going on and to hear the Minister’s theories—

💬 Dr Duncan Webb: Oh, you’re making it up. Where are you getting that from?

—of what would be good to have happen. Now, Dr Webb over there, unfortunately—he’s a great guy, and I think he’s next up in the Labour Cabinet. My colleagues agree with me; they are all nodding their heads—oh, and so are his own colleagues; they’re very encouraging. Next up, and when he gets there, he will know that Ministers can have quite an influence on their departments, and this is changing the Reserve Bank into a department supervised by the Minister of Finance. It is, you would say, proved by the fact that my dear friends in Treasury now have a much-enhanced role in this particular structure—and that, I’m afraid, will not be good for this country.

Thank you for those words of endorsement, Mr Brownlee. I’m now going to leave for my office to look at situations vacant. Look, once again, an entirely negative view, which doesn’t reflect what actually went on in the Finance and Expenditure Committee.

As we’ve heard, this is a modernisation of our financial framework, and a really important one, and the references to the Lange years were, essentially, pointing out that what occurred there might have had its place then in terms of the Reserve Bank reforms and the inflation targets, but it has no place now. Inflation was absolutely the scourge of the economy. We know that something had to be done, and the great economic innovation of the time, of course, was inflation-target signalling to let the market know that the Government, with the Reserve Bank, was committed to lowering inflation and it would take the steps necessary, and that alone had a very significant effect. New Zealand, in fact, was the first country in the world to do that. In those other countries where inflation was rampant, that was adopted as well, and we can be very proud, in fact, of that.

But in the current economy, if anything, inflation is sticky—right? Inflation has been at the lower bounds of the inflation target for some time and, at the same time, we’re trying to balance a whole lot of other variables, including housing and employment, and to suggest that the Reserve Bank should simply have a single target in a complex and multifaceted economy, such as the one we have today, is to throw half the tools out of the tool box.

But my real point is this: it was a really useful select committee process. We did actually have a really good look at the bill and, I must say, the report—and you should give it a read, Mr Brownlee—is well worth a read, and we did actually identify some of the things. Given that the Reserve Bank Governor is to become a member of the board, we looked at some of those issues. We looked at the decision-making processes. We identified the risk of conflict of interest. It was already in there in a sense, but we thought it needed some strengthening, so we did exactly that, and we made sure that, obviously, the Reserve Bank Governor didn’t have any role to play in things like the appointment of a successor and things like that. We also had a look at a whole lot of other things.

We did touch on cryptocurrency. I suspect that cryptocurrency doesn’t meet the definition of “money” at the current time. It’s not legal tender. It can’t be used in transactions with Government to discharge a debt owed to the Government—a critical feature of any genuine legal tender money—but we know it’s there. We know that there’s a potential that it could have a distorting effect on the economy in years to come, so the bill is equipped to at least monitor that, if not to actually address the issues that may arise, because at the present time we don’t know exactly what they’ll be.

Now, Mr Bayly, in particular, on the committee took a very active role, and had discussions both in committee and outside of committee on a number of fronts. It’s true that it was signalled that if he was given his way on all of these things, we might have had the National Party’s support. But, I must say, obviously, on a bill that’s important—essentially, constitutionally important—it would be nice to have that support, but, essentially, those things would fundamentally change what the bill would do.

So in the minority view, you’ll see that, essentially, it was objected to that the Reserve Bank Governor could be on the board. Now, that collective decision-making and collective responsibility is a key aspect of this bill.

The reintroduction of the efficiency mandate was also asked for by the National Party, but the problem with the efficiency requirement of an efficient financial system is that despite the apparent clarity of the word, it’s not clear at all. To ask what is efficient—even economists don’t agree. They’ll be able to spit out four or five different definitions at a kind of first-year level. Whether it be Pareto efficiency or Kaldor-Hicks efficiency—all of these different kinds of efficiency—we can’t actually apply a standard if we don’t understand what it is, and “efficiency” is an unclear word. So whilst, obviously, we want a well-functioning and a stable financial system, which is the critical part of this bill, to simply throw in the word “efficiency” is just a sop to essentially Chicago school economic theory, and we’re not interested in doing that.

So, look, it’s a pity that we haven’t got the National Party onside. The ACT Party also expressed its reservations along a similar vein, but it is prepared to engage in an ongoing discussion in supporting this bill, as I understand it. So I look forward to hearing from them.

This is a really good bill, and another great piece in the reform of our monetary system which will put us on a great foundation for years to come. I commend it to the House.

Tēnā koe, Madam Speaker. The Green Party will be supporting this bill, continuing to support the bill at second reading. I’ve found the debate tonight actually quite interesting. I think that, although it sounds incredibly boring, monetary policy—and what does it have to do with anything, the Reserve Bank?—ultimately, the way that we approach our financial system has impacts on everyone in the country. Although, for many decades, it’s been treated as though it’s some value-free institution that must be tended to by absolute experts, the reality is that the financial system, just like our society, has the potential to affect everyone, and we need some sort of broad and democratic oversight over it. I just think that’s fundamental to a democratic society. Obviously, the financial system is one part of our economic system, which is just a subset of our society, which is entirely reliant on the ecosystem for its existence. That’s something that Green Party founder and first co-leader Jeanette Fitzsimons often spoke about, how you can’t balance the economy against society or the environment; fundamentally, the economy is a subset of society, which is a subset of the ecosystem.

Particularly as we face some of the bigger challenges, the biggest challenge—climate change—alongside a kind of crisis in inequality, which has been getting worse over the past few decades, due in large part to a certain economic policy dogma that needs to change, it is really important that we update the approach to the Reserve Bank and we make sure that it is fit for purpose. For a very, very long time, the Green Party was calling for broader governance, a more broad-based approach than just one single governor. Of course, even though prior to these changes it was the responsibility of the governor, in fact my understanding is that the way it was operating was more of a board approach, but what is really important is that we’re able to take into account different perspectives on how monetary policy and other policies impact different sectors of society and the economy. It’s important that you have those perspectives.

I wasn’t on the select committee, so I can’t comment on all of the submissions that were heard—that was my colleague Chlöe Swarbrick, who was sitting in the Finance and Expenditure Committee—but, basically, from my understanding of the report-back from the select committee and my discussions with her, this is still very much in line with Green Party policy and commentary for the last decade. We want the bank to be able to consider inflation, employment, external balance of trade issues, adoption of alternative targets for monetary policy, and looking at changes to encourage the financial sector to take responsible, long-term financial decisions and avoid excessive risk to economic stability.

I think, post - global financial crisis, one thing that has come out really clearly is that the financialisation of many developed economies has not been a good thing for most people. It’s been a great thing for people working in the finance sector, mostly, and when it’s run into problems, it’s been particularly bad for broader society as a whole and has relied on bailouts from Government and from democratic societies. So, I think, as we face this new reality post-COVID—still facing climate change, still trying to address inequality—it’s going to be particularly important that we take a new approach and a much more democratic approach to the institutions that govern the financial sector. We do want a stable financial system, but we don’t want the financial system, to be able to take over, create its own little reality over here that’s generating a lot of GDP and a lot of churn but no real value for society. And, definitely, the number of billionaires is not a sign of success of your society; it’s how many people you have living in poverty, or how few, preferably—how few people you have living in poverty, and how many people have enough to live a decent life, to make ends meet, and for us as a society to tackle our collective challenges like climate change.

That is another aspect which I think is really good about this bill, that the bank’s decision-making principles will include longer-term risks like climate change, and also expected to consider short- to medium-term impacts associated with climate change, as part of meeting its financial stability objectives.

Some of the other changes that have come about, not as a direct result of this bill but of the overall review of monetary policy and governance of the Reserve Bank, have been the requirements around deposit insurance. That was something the Green Party was campaigning on for quite a long time and was recently announced—really good outcome, I think. So, all in all, the Green Party is supportive.

First of all, it’s an absolute honour to be in the presence of the future finance Minister from the Labour Party tonight. I can see that coming. The Government has chosen to pursue these reforms without majority support. The relationship between the Reserve Bank and the finance Minister is critical to the functioning of a modern economy. The roll-back of independence of the Reserve Bank is extremely concerning for the functioning of the New Zealand economy and the sound economic consensus which has proven to be kept with low inflation and a stable operating environment for business.

Something’s been bugging me since our last Finance and Expenditure Committee meeting. I locked myself away in a room in a padded cell and then spoke to my advisers, and then to caucus, and we came up with the conclusion that this bill is out of step and that the finance Minister in this Government is determined to bring us back to the 1980s, to the Muldoon economic period. A diagram presented here, which, from my research over the last five days, has shown these are the new rules of Gotham City—this is the love child of Grant Robertson and James Shaw: Batman and Robin. And surely from the formation stage from inflation in the good old days to bullying the Reserve Bank into potential stagflation today, if it’s not Batman and Robin it’s, as my colleague would say, potentially the Sons of Anarchy.

Control of monetary policy, foreign direct investment, high borrowing, micro-management of the economy, it looks like as of tonight these are all going to be front-page issues that Mr Robertson wants to be our natural daily digest, and that’s not what a functioning, efficient economy and banking system should actually be promoting; it should be not seen but unheard. Any change to this monetary policy and foundation should reflect the broad consensus and not just that of one or two parties. It’s that important.

National and ACT have raised a limited number of important concerns with this bill, which have been ignored. No one’s come back to talk to us. We proposed solutions to a number of these issues through questions to Treasury, and I have to agree with my learned colleague who has said that they seem to operate in a way that is different to the way we normally operate in the real world. We think that they would significantly improve the bills acceptability to the key stakeholders and would better serve the current and any future finance Minister, because these things have to endure long before and after we’re gone.

We both consider that the removal of the efficiency elements from the revised financial stability objective is poorly supported by analysis and by policy analysis, and does not improve the Reserve Bank. We should be reinserting “efficiency”. And even the Bankers’ Association in a memo that I’ve received, whilst supportive of the Act and its micro-views, see this as a major concern. This would address the significant concern for us and for those who made public submissions.

Moving on to accountability, under the new arrangements the board takes on an executive role rather than acting in an oversight capacity, which is common with non-executive boards. So we question under the rules of Gotham City, the new rules, whether governance is actually at the forefront of what is being thought about. This is a fundamental change to the model of decision making in respect of prudential policy and oversight of deposit takers and insurers. The proposed model relies heavily on finding suitable candidates to operate at an executive level on the board, and these people are hard to find with global views and simultaneously being able to understand what’s going on in New York and Frankfurt. Given the important role that the Reserve Bank plays in setting the country’s economic settings, ACT considers that Parliament should have a greater degree of oversight over the monetary policy remit and funding agreement.

I’d like to put it on the record that all parliamentary oversight on this bill, at an MP level and at a select committee level, will evaporate, and that is a very serious issue that we need to talk about at the committee stage. Such oversight need not impinge on the ultimate power of the finance Minister in issuing remit, we’re not against that. But we acknowledge that the cross-party interest in the central bank’s monetary policy objectives needs to be refined. Similarly, ACT considers that the Minister of Finance and the Reserve Bank should both have the ability to initiate changes to the functions of the Reserve Bank. However, in this bill, this may only occur upon request of the Reserve Bank, but is subject to agreement by the Minister of Finance. In our view, that changes its function. It should be subject to some oversight by Parliament, that such occurs with an Order in Council is also a confirmable instrument.

ACT also considers that the proposed measures which were introduced during the select committee process have not been publicly consulted on, and something of this magnitude should have a second round of public consultation. To enable the Minister of Finance to manage the fiscal risk to the Crown associated with the Reserve Bank’s activities, we think it falls short of what the Minister would require to properly manage the risks to the Crown’s financial position.

Modern monetary theory, which seems to be upon us, tells us that it is possible for central banks now, like the Reserve Bank of New Zealand (RBNZ), to print money indefinitely with little consequence. RBNZ money printing has seen house price inflation rising 20 percent in a year. It supported the Government borrowing to spend money it does not have, and net Government debt relies on interest rates falling, yet the Minister expects them to be raised, in a recent statement in the press at the weekend, peaking at $180 billion in 2025.

This bill is out of step from this Government, and the finance Minister, who is determined to bring us back to an era where him and Mr Shaw decided that they would change the model to go beyond the business cycle management to looking at a remit that would place some emphasis and heavy scrutiny on the board of the Reserve Bank, and it is fundamentally different to what is anticipated. So, tonight, we’d like—the ACT Party—to put on the record where we think the thought process is coming from, and we look forward to the committee stage for working out the mechanics and the details. We would really love to see some conservative policy-making being reinjected back into this, and even though we supported this at the first stage, after hearing what we’ve heard, and after hearing and reading what we’ve seen in the press recently, we will be opposing the bill at this reading.

Thank you, Madam Speaker. It’s my pleasure to be able to take a short call on the Reserve Bank of New Zealand Bill. I find it quite interesting that the previous member referred to the diagram on page 3 of the Reserve Bank bill, the commentary back from the select committee, as Gotham City. Well, number two of the Batman movie series is around Batman Returns and it talks about Catwoman and the process where Catwoman, Michelle Pfeiffer, passes away in it, and it talks about nine lives. Well, the interesting thing is that part of this commentary on the bill and National’s complaint in their minority view is around that Parliament should have a greater degree of oversight over the monetary policy remits; it shouldn’t impinge on the ultimate power of the Minister of Finance. Well, the other side of the House had nine years to make those changes. This legislation has been 30 years. It needed a review and so we’ve reviewed it and I’d like to thank the officials from both Treasury and the Parliamentary Counsel Office for a lot of their advice during the bill. So I just find a little bit of irony talking about Gotham City, nine lives, and nine years where people could have done something but they didn’t.

So I will go back to that diagram that’s on page 3 of the commentary. It sets out really carefully what the changes are in the bill that the select committee, by majority, are asking Parliament to consider. We put in the diagram because it was—based on what was previously done in 1989, some of the Hansard wasn’t that fulsome around why some of the changes were made, so that diagram sets out three particular things: when the bill was introduced; what’s currently in the bill, which is that the governor has the single decision-making power; and then when the bill was introduced—this particular bill was introduced. Now, the Minister recommended there be a board that was a non-executive governance board, and it recommends the governor appointments. Now, what the select committee is now recommending is that you still have that board but, actually, that the governor, the chief executive, should actually be a board member. That goes back to, during the debate in the select committee, two really key things for this side of the House. One, is around coordination and two, is around cooperation. So the reason for the majority recommendation around the lack of coordination is because—between the bank’s monetary statement in the financial policy the bill didn’t include an explicit mechanism for it. So that’s why the select committee on this side of the House, by majority, suggested that we increase that—so why we include that.

But also there is commentary that National talked about around the efficiency principle. The chair of the Finance and Expenditure Committee, Dr Duncan Webb, who did a great job chairing, I must say, touched on it briefly around the efficiency principle and around that, basically, it’s such a subject of principle based on this particular proposed bill. So what this side of the House has suggested is that you don’t include it. We had a really good debate in the select committee around why you wouldn’t include it. And so it came down to, for us, that when, in 1989, the Reserve Bank bill was going through the House, there was nothing in Hansard on the intended meaning of “efficiency”, but that’s because back in the 1980s, this particular Act was really narrow. It was on the financial stability; the role was narrower. It was limited to the registration of banks. That’s why we have this bill coming to the House—because we’ve needed to extend it. It’s now doing a prudential role around insurance. It still has the bank regulatory powers. But we’ve seen that in the last 30 years it needed to be updated.

So we haven’t included the efficiency principle. We agreed, by majority, that it shouldn’t be in there and, actually, that the upcoming deposit takers bill, which the Finance and Expenditure Committee chair did touch on, is proposed to have some similar discussion as part of that particular bill, which is the trilogy. So my challenge really to the other side of the House is that, you know, Batman Returns had his Catwoman with nine lives; let’s have a think about what the trilogy is with the deposit takers bill and including the efficiency principle. I commend this bill to the House.

This debate is interrupted and is set down for resumption next sitting day. The House stands adjourned until 2 p.m. tomorrow.

Debate interrupted.

The House adjourned at 9.57 p.m.