Reserve Bank of New Zealand (Economic Objective) Amendment Bill

We come now to the resumption of the Address in Reply debate—sorry, the Reserve Bank of New Zealand (Economic Objective) Amendment Bill. Is some honourable member taking a call? Oh, sorry. The Hon Barbara Edmonds.

Thank you very much, Mr Speaker. Sorry about that. You can understand with the noise as people are leaving the Chamber, it’s possibly—

💬 SPEAKER: I agree with you; it’s very inconsiderate—very inconsiderate—and your time will start from now.

Thank you, Mr Speaker. It has been a very interesting 24 hours in the House since it went into urgency.

💬 SPEAKER: Sorry, can I just interrupt the member, and she will be able to start again. Members who are leaving the House, leave as quietly as possible and don’t engage in discussions on the way out the door. So would members, please, in an orderly fashion, resume seats or quietly leave the House. One more time—the Hon Barbara Edmonds.

Thank you, Mr Speaker. Thank you very much for the opportunity to stand and to be able to take a call on the Reserve Bank bill that’s currently before the House. It’s been an interesting 24 hours under urgency that we’ve had in the House. It’s also been incredibly disappointing for a number of members here in the Opposition, who, because we did not have a select committee process, did table a number of amendments to try and be able to provide the robust analysis of the bill, given that we couldn’t have a select committee, we couldn’t call for submissions. We also had members from this side of the House who had actually proactively contacted other people who had submitted on the previous bill when it was changed in 2019 and then enacted in 2021, asking those submitters whether they had any particular responses to the current mandate by the Government to, basically, remove the dual mandate and to return to one mandate, which us on this side of the House believe takes us back to 1989.

It takes us back to 1989, which is a time where for some of us on this side of the House, we were probably just in primary school. Dead Poets Society was released, I understand, that movie. Ghostbusters II was also released at that time. And there’s a lot of ghost-bustering and myth-bustering that we’ve been having to do over this side of the House in the last 24 hours to be able to provide some scrutiny and accountability and to hold this Government to account. One of the biggest mythbusters and ghostbusters that we’ve had to try and really push from this Minister of Finance is actually asking the Minister what evidence base does she have or does she hold in order to make such a change? We had absolutely no response to that. She could not provide evidence of the advice that she had received from her officials to absolutely and emphatically support her view that the Reserve Bank mandate should go back to one mandate, which is in relation to price stability.

The Minister at the time also referenced a letter that she had received from the Reserve Bank Governor which apparently supports her view, or the Reserve Bank Governor will work towards supporting the view, of going back to one mandate. But a number of our members on the Opposition had asked a very clear question and asked the Minister to table, then, her letter to the Reserve Bank Governor. We’d asked for that letter because what we want to know is, actually, what did she ask the Reserve Bank Governor? Because, actually, as the Minister was—she was a member of the Finance and Expenditure Committee, and a number of times we had the Reserve Bank Governor, Adrian Orr, come to our select committee and confirm that, even though there were two mandates, in practice, there was a form of hierarchy and the remit which then follows on from the objectives of the Act also reaffirms that there was, in some form, a hierarchy. However, the Reserve Bank Governor also confirmed that he could work within the two mandates.

So we go back to the evidence base, and, again, there was no evidence-based policy, and that is incredibly disappointing from this side of the House because if we look at, actually, what is the evidence that we have on hand, the evidence shows that there is no relationship between a country’s inflation trajectory and its central bank mandate over the past two years. I’ve talked in the House early in the committee stage around some of the Treasury reports that were part of the regulatory impact statement which actually set out that there are really quite global issues at hand and that stability is needed. That confirmed that inflation has been a global challenge, which means that what we should do, then, is look to the evidence about how New Zealand compares and our experience against other wealthy OECD countries. On the logic of this new Government, which, again, was not evidence-based, but on their logic, inflation, therefore, should be higher in countries with a dual mandate central bank, and therefore lower in countries with a single mandate central bank. Unfortunately—unfortunately—the evidence stacks up that for this new Government no such relationship exists.

So, again, we’ve heard time and time again in the last 24 hours, this side of the House questioning the Minister: show us how this single mandate central bank will bring down inflation. But, you know, you look at New Zealand and Australia, we both have a central bank with dual mandates—inflation peaked at 7.2 percent and 7.8 percent for Australia. But in the UK, which has a central bank with a primary price stability mandate, inflation peaked at 11.1 percent. I want to address something that the Minister had said in the House during question time: she said that inflation was around 4.4 percent. That is actually the amount that it has dropped, so it’s still high. They have one mandate, and their inflation rate is still high. In the eurozone, which has a central bank with a primary price stability mandate, it peaked at 10.6 percent, and in Sweden, which has a central bank with a primary price stability mandate, it peaked at 12.3 percent. So, additionally, almost all wealthy OECD economies have experienced a similar inflationary trajectory, regardless of the central banks’ monetary policy mandate.

The question this then begs for us is: so what is the relationship between the speed at which central banks have responded to rising inflation, and their monetary policy mandate? We found the evidence—and The Reserve Bank is only second to the Norwegian central bank in hiking interest rates in 2021. I know this is perhaps a lot of technical jargon and a lot of interest rates and a lot of macro- and microeconomics for 3 o’clock in the House, but the reason why I bring this up is because the Government, time and time again, over the course of the last four weeks, has been saying they want to do evidence-based policy. This is clearly not evidence-based policy, because the Minister failed to prove to the House that she had the evidence to back that if you went down to a single mandate, it provides a laser-sharp focus on inflation without basically showing how the inflation is going to change, because, actually, again, look to Australia, look to New Zealand, where we have a dual mandate, we have seen that inflation is lower compared to those that have had one mandate.

But a number of times in the House—and this is the reason why I’m quite disappointed—last week, I spoke here about the vision that was lacking in the Speech from the Throne and from this Government. But, actually, it’s been really, really clear what the vision is for this Government, and it’s been really clear in the last 24 hours, given that this is their very first bill that they put on the table. This is the very first bill that they decide to put under urgency, not calling for submissions, not allowing the Opposition to scrutinise it through a select committee process. It shows that their vision is not for workers, because both this bill and the very next bill that is on the Order Paper, which looks to repeal fair pay agreements—and there were hundreds of people outside today who were protesting that—show that the vision of this Government is not to support workers and that, actually, by changing those economic parameters, by having one mandate, it doesn’t matter for them how much official cash rate (OCR) rates hike, it doesn’t matter the job losses, which I find incredibly contradictory, to which the Minister of Social Development just stood up and answered a question in the House about. I find it incredibly contradictory that we’re not going to pay attention to trying to keep a maximum sustainable employment for the people of New Zealand.

Again, there are going to be remits that come from this but as we showed through the committee of the whole House stage, it didn’t matter how much we were trying to get that assurance of flexibility, there wasn’t any flexibility, because you go back to the one mandate, and very much the evidence-appointed policy, or the most recent case that you can think of is you go back to 2014 when the Reserve Bank Governor had the one mandate and even though inflation was relatively low in comparison to what we have today at 3.5 percent inflation, that Reserve Bank Governor still decided to increase the OCR at a time when unemployment was over 5 percent. You can understand what happens after that. Basically, it’s going to be the working people—those who are going to be unemployed—that are going to be paying for this policy change.

It gives me a great disheartenment to stand here in the House today to, basically, once again understand that the vision of this new Government is not to support workers, is not to support those who are employed in salary and wages—and, again, the next bill that’s coming through the House, again under urgency, with no ability to be able to scrutinise it with the public, once again shows how deaf that side of the House is to the hundreds of people who stood outside and protested, who were workers. That’s exactly what this bill does. This says to those workers, “You are no longer important, it’s just about increasing the interest rates, and we don’t care for you.”

I support the Reserve Bank of New Zealand (Economic Objective) Amendment Bill because it is time to bring back aspiration, bring back confidence, and bring back economic stability. It’s time to strengthen our economy and reduce the cost of living, and it’s time to get on top of inflation.

This bill is the first step towards reducing the cost of living crisis for hard-working New Zealanders. On this side of the House, we care about the fact that people are struggling, we care that businesses are struggling, and we care about our damaged economy. Because we care and because we want to support hard-working New Zealanders to get ahead, we are going to repair this economy. Let’s give some optimism to businesses. Let’s put some confidence back in our primary sector, with our farmers and our growers, so we can create employment and opportunity, so we can bring down inflation, so we can provide relief for many families out there struggling, who are wondering how they’re going to pay their grocery bill, their rent, their mortgage, their petrol for the week.

This struggle is real, and this Government is getting real by focusing the Reserve Bank solely on controlling inflation. Our economy is driven by agriculture, but our farmers are dealing with the highest inflation in 40 years. Our food producers and exporters are facing tough times. They aren’t growing and creating the jobs that we so desperately need. Without aspiration, without confidence, and without the wheels moving in our economy, we are letting down the people of our country. This bill is a move to a better future for many Kiwis who are doing it tough.

This bill is a solid start to tackling inflation and reducing the cost of living for everyday Kiwis and businesses. I commend this bill to the House.

Thank you, Madam Speaker. To allow the Reserve Bank of New Zealand to fully focus on achieving and maintaining price stability in our economy, this bill removes the maximum sustainable employment objectives. This move was strongly campaigned on during our most recent general election, and because we sit on this side of the House, one could say that the majority of those who voted agreed with the move.

This bill is the first order of business for this National-led coalition Government and demonstrates the importance and priority we place on getting our economy under control. This bill provides the much-needed relief to all from the cost of living pressures each and every one of us are exposed to—and when I say each and every one of us, I mean just that. I don’t buy into the rhetoric that exudes out of the Opposition members conveying that this bill will result in worse outcomes for Māori and Pasifika communities. I don’t see it as a cause of mass unemployment like they say. In fact, I strongly believe that this bill will deliver exactly the opposite.

Businesses have struggled right throughout this high inflation era, with numerous having to cut jobs or, even worse, close down completely, all due to the challenging economic climate that has existed over at least the last few years. No one wants to see this outcome, especially when these unemployed people still have to pay their bills. Abating the escalation of food prices, petrol prices, insurance costs, rates, rents, or even the very heavy burden of increasing interest rates for home mortgages is so critical in easing the challenges for hard-working Kiwis right across the whole of our country.

Persistently high inflation is the tyranny of any country. We must do all we can to get inflation under control. It makes absolute sense for the Reserve Bank to have one focus and one focus only. By returning to a single objective, the task of the monetary policy committee is clearer, it is simpler, and therefore more likely to be met. Having a single mandate also allows it to be more easily determined when the monetary policy committee has, or indeed has not, fulfilled its primary function. Let’s get it so that the Reserve Bank of New Zealand has a singular clarity of purpose—a purpose that will ultimately deliver far better outcomes than what we’re currently experiencing, a purpose that will drive a strong economy, a purpose that will ease the cost of living, and a purpose that will deliver the future we all aspire to.

I stand and speak to this item with hope, enthusiasm, and optimism, and it gives me great pleasure to commend this bill to the House.

There has been a lot of talk about this bill over the hours that this bill has been rushed through, and there have been a number of questions that have been put up. But I return to some comments I made in I think it was the first reading of this bill last night, which was that this is the first piece of legislation that this Government has brought to this House as part of a package of three bills that the Government is bringing to pass under urgency, which, in many ways, is symbolic and defines the kinds of priorities that this Government is putting forward.

In this bill, we see a Government that is removing the focus on jobs. The second piece of legislation we’re about to move on will see a Government that is removing the focus on the wages of ordinary New Zealanders, and, to complete their trifecta of things they are undoing, after that we’ll see a Government that is removing the focus on real action on climate. So what we’re seeing is that we have a Government that does not want to focus on people, their wages, their job security, and making sure we are securing our future through real climate action.

I compare that to what our Government did in our 100-day plan, the first package of legislation that we brought to this House. We brought in a healthy homes guarantee, we brought in a winter energy payment, we brought in a Best Start payment, and we extended paid parental leave. In this package of repeals that we are seeing from the current Government, what we are seeing is a Government that only wants to take New Zealand backwards, a Government that has no vision, and a Government that certainly does not have a focus on jobs or wages or climate action. That is writ large for the New Zealand public to see.

Now, one of the things with this bill that we’ve seen is that the Minister of Finance knows that this is not actually going to achieve that much. So when I hear some of those new members of Parliament saying that this is how they’re going to crack down on inflation, they’re going to be sorely let down. Although I think there have been a lot of promises made—and during the course of this debate, the Minister of Finance, at one point, did say that she was going to eliminate inflation, and we might set that as a KPI for the success of this Government, since it’s been claimed in the House—the reality is, and all the experts agree, that this amendment bill will do nothing to help with the cost of living.

In the latest forecasts, the Reserve Bank expects inflation to fall within the target range of 1 to 3 percent within the third quarter of 2024. What we are doing here—the legislation we are passing—is not going to materially change that. It will not make a difference as inflation is falling anyway. But what we have seen the Minister of Finance do in this House during question time is say it’s going to fall faster. So we will be tracking that, and we will be holding the Minister of Finance to those promises she has made in this House, because there is not a single piece of evidence that supports that that is the case.

The Minister of Finance was given three options by her officials for how she could reduce the mandate. We don’t agree with what they wanted to do, but to go back to that single mandate, they could introduce this legislation—the route they’ve chosen to go down—they could have issued a monetary policy remit only, and Treasury gave the advice that this would be the most expedient way to do it; or she could have temporarily suspended the objective and she could have achieved it through an Order in Council. The Minister and the Government chose to do it by virtue-signalling legislation that is not going to achieve a thing. The only thing it is achieving is showing New Zealanders where its priorities are and where they aren’t, and they are certainly not with job creation. They are certainly not with creating higher wages for workers in New Zealand. What we are seeing is a Government that is turning its back on those things as a focus on something that it sees as a responsible Government should put in place.

When the bill was introduced by the Hon Grant Robertson to give the Reserve Bank a dual mandate, it was seen as a modernisation of our monetary policy. What we have here before us is a Government that is celebrating the great step backwards and that wants to go back before the 1990s to take New Zealand backwards and certainly to remove any kind of focus on jobs and wages.

I am pleased to be speaking again on the third reading of this bill. I could speak at length about the benefits of this bill, but I’m not going to. The affirmative points have been plentiful, and all I need to say is that I commend this bill to the House.

This first piece of legislation that the Government has brought to the House has gone through under urgency, with no opportunity for submissions. However, as people who have sat through the committee stage will know, I have heard from a number of people about this bill. So I’m going to take this opportunity now to read what they have written to me into the record as their submissions on this bill.

So coming from Greg Presland, he says, “I wish to make a submission on the Reserve Bank amendment bill. If this Government is determined to do something about the cost of living, then this is the worst possible thing it could do. The result of any change will be to increase unemployment and also increase interest rates as the Reserve Bank operates single-mindedly to decrease inflation. Both of these things will make matters worse for ordinary Kiwis. For those who are made unemployed, their quality of life will be dramatically affected. For those whose businesses depend on their clientele having jobs so that they can continue to buy things from those businesses, their profitability will be affected. And for those of us who have mortgages, we will need to pay more to predominantly overseas-owned banks as interest rates increase. Please urge the Government not to do this.” That was the first one.

From Raema Inglis, an accountant, who wrote to me about this bill and had some views on it. She says, “I believe the Reserve Bank should keep a maximum sustainable employment as something to consider, alongside inflation, when setting monetary policy. The aim to have low levels of unemployment is the best use of this country’s resources—its people. Having inflation as the Reserve Bank’s only monetary policy does a disservice to every person who would become unemployed. It has debilitating effects on those marginalised and vulnerable sectors of society, including disabled, Māori, Pasifika, and young people. High unemployment is an old-fashioned idea that should be left in the 1990s, when we saw severe economic hardship in many of our communities. No one wants to return to those days. A visionary Government would recognise the importance of maximum sustainable employment. I encourage this Government to include not only inflation but also maximum sustainable employment when setting monetary policy.” That was from Raema Inglis.

From Margot Govers, also an accountant—actually, I know a few accountants. She says, “I’m writing to you to encourage you to speak out against the Reserve Bank of New Zealand (Economic Objective) Amendment Bill. I am particularly concerned about the Government’s decision to remove the dual mandates of controlling inflation whilst also ensuring a maximum sustainable level of employment. To have a fair and just society, everyone should have the opportunity to work and support themselves and their families. This gives them dignity or mana, not to have to rely on Government handouts to survive. When the Reserve Bank has to only consider inflationary measures, and, because of their measures, people lose their jobs, not only do they suffer, so do we as a society. Society is a group of people working and living together. With high unemployment, not only are those who are unemployed unable to support themselves but the rest of society has a bigger burden to support them. I think removing the dual mandate is short-sighted. Having a mandate to look at both price stability and maximum employment will better lead to long-term growth and a more macroeconomic outlook for New Zealand.”

From Josh, he says, “I firmly believe workers should not be thrown on the scrap heap in an effort to get inflation down. New Zealand has had close to full employment for the last few years—thank you, Labour—and has made our economy and society stronger, avoiding the dislocation seen in other parts of the world. Repealing this incentivises the Reserve Bank to drive interest rates even higher, risking the livelihood of employees and business owners in the process. The side effects of high unemployment are also too great to bear: worsened mental health, less money to go around the economy and stimulate growth, and a greater sense of alienation from society.”

The last one, from Dr Sarah Paterson-Hamlin: “It has come to my attention that there is an intention to return to a single imperative for the Reserve Bank to reduce inflation, and that reducing unemployment no longer will be part of their remit. I am extremely concerned with this regressive action. If COVID-19 demonstrated anything, it is that prioritising human beings over the economy is not only the ethical choice but, in the end, also the best economical choice. I have been unemployed, and I’ve worked with tāngata whaikaha—disabled people—who have been unemployed, and I can tell you that the emotional toll is enormous. The loneliness associated with it has been proven to reduce health outcomes and life expectancy—see, for example, Holly Walker’s writing and research on this. Even if we were to cynically look at human beings as only economic units, then, still, reducing their functionality and working years by subjecting them to the soul-crushing reality of unemployment is a poor economic choice. I would argue, however, that to treat people as economic units rather than individuals with souls and hopes and dreams and history and whānau is morally bereft.”

That is some evidence and submissions that people said to me about this bill—submissions that that side of the House did not want to hear. That side of the House even tried to get rid of the most basic forms of evidence we get on bills from Government departments. “No RISes”, they said—“We won’t have RISes.”—but the Treasury got one through.

The Treasury put in a regulatory impact statement (RIS) on this bill. Interestingly, Jonathan Milne at Newsroom wrote about this regulatory impact statement, and he said it’s something that Sir Humphrey Appleby would be proud of. The reason is that the language in this regulatory impact statement very carefully said to the Government, “Do not do this—do not do this.” If you want to prioritise price stability over maximum sustainable employment, he says to use the remit process. There is no need to change the legislation.

In fact, Jonathan Milne provides some interpretations of the language in the regulatory impact statement. Here’s what the Treasury says: that is important not to change the law but to use the remit processes. The RIS says, “the Treasury puts significant weight on the value of a stable and enduring legislative regime for the Reserve Bank, which supports public and market confidence in the independence of the institution.” In other words, says Jonathan Milne—interpreting for us—“Don’t mess with an institution we’ve spent years building.”

In another place in the regulatory impact statement, the RIS says that making this change through the mechanism of a law change and amending the Act “could be seen as reducing future barriers to legislative change”—fine words from Sir Humphrey Appleby. Interpreting that, Milne says, “Once you’ve started messing with the law, every bloody politician will want to have a go.”—keep the law stable is the real meaning there.

Another thing that Jonathan Milne picks out of the regulatory impact statement—he says, “The Reserve Bank’s statutory framework is of considerable interest to market participants, and changes to it—or the use of some options—may trigger market concern.” Milne’s interpretation of that: “Run for the hills!”

In fact, going through the regulatory impact statement and looking at the options analysis summary, on the last page of it, shows quite clearly that the best option would be to issue a new monetary policy committee remit. That is the best option, and it is clearly the best option by some margin over changing the law, but this Government nevertheless chose to do it. As one of their very first actions into Government, it chose to do something that was completely unnecessary and to do something that was not the best option available to it.

So what does that tell us about them? It tells us of this Government that not only do they want to do something that’s completely unnecessary, they do something that is harmful to workers, that is harmful to full employment in this economy, and coupled with the next piece of legislation that is coming to this House, where they intend to repeal fair pay agreements, all we can say is that this Government despises workers.

What a shame it is to have a Government that like on the Treasury benches, where they will not care for low-wage workers, where they will not ensure that people have access to employment, and where they will not look after ordinary New Zealanders. It is an elitist and out-of-touch Government not guided by evidence at all. This is a shameful bill, and it is their very first piece of legislation.

Thank you very much, Madam Speaker. It’s a pleasure to rise and speak in the very final speech on this bill before it will pass into law. I could take a lot of time to speak on this, but I won’t. I’ve had a chance to speak yesterday on it in some detail. But I’m just going to make a very brief riposte to what we just heard. This bill is actually about fixing the economy, which is what we went into the election on and what people voted for the coalition Government to do. This is about helping all New Zealanders, particularly poor New Zealanders who inflation hits the hardest, and it’s the thief in the pocket. We’re here to fix that, to make sure we can look after New Zealanders. That’s what this bill is about. I’m proud to be a part of a Government that is going to deliver on its election promises and fix this economy for all New Zealanders. I commend this bill to the House.

Bill read a third time.