Goldsmith PaulHon PAUL GOLDSMITH (National): Thank you Madam Assistant Speaker. It's nice to hear a New Zealand First MP speaking so well of the Reserve Bank and what an important institution it is and how much they support it. I do recall that member or one of his colleagues—I can't remember which one it was—referring to the Reserve Bank of New Zealand as the foreign-owned bank" at one point when they were on their usual anti-bank diatribe. But what we're talking about here is the proposal to meddle with or change the arrangements around the independent Reserve Bank of New Zealand which has served us well over time.Now previous Government members are right to say that the world will not come to an end with the passing of this legislation. There are other countries in the world that have variations of the dual mandate that is being proposed here—so not just looking at inflation but looking at maximum sustainable growth—but we don't think it is justified as a change. That is primarily because the Reserve Bank institutions in New Zealand which have focused primarily on price stability—that is doing away with inflation—have served this country very well.Just go back to the 1970s and 1980s in New Zealand and the fundamentals of the economy haven't changed contrary to what a previous speaker said. There is a law of supply and demand and if there is too much money in the system you get inflation. We had big inflation in the 1970s and 1980s and it was used as a political tool by a series of Ministers of Finance to ramp up inflation prior to an election in order to give the impression of growth in the short term and the country suffered as a result in the year after an election. This happened time and time again and that led to New Zealand being one of the first in the world to have an independent Reserve Bank focused solely on inflation.Since that period in the late 1980s there was a painful transition away from hugely high interest rates. Younger people tuning into this debate will find it hard to believe that people were paying interest rates on their loans of around 20 percent at the peak of that inflationary period and yes houses were cheaper but you had to pay colossal interest rates and service those loans somehow. That made it very difficult particularly for that older generation of savers who had their savings say locked up in post office savings accounts for 30 years at 3 percent. Their savings were eaten away—stolen really—by rapid inflation during that period. So since then we've had a long period of price stability—relative price stability. There was a bit of a spike in inflation at the end of the last Labour Government when Michael Cullen let rip with Government spending in an unsustainable manner. Putting that to one side the economy has been pretty strong—Mark Patterson: Nine surpluses in a row.Hon PAUL GOLDSMITH: Eight actually. The last year wasn't a surplus and they bequeathed a long list of deficits that we had to turn around.Anyway what we're talking about here then is: what is the benefit of adding another mandate to the Reserve Bank so as to say "Not only do you look at inflation but you have to have equal weight to maximum sustainable employment."? You might say "Oh this all sounds very good—why not? What's wrong with that?" But the complication is of course that there are times when you can have high inflation and low employment and then the bank has to decide which of the two is most important. People can work their way through it but I think it is a perfect example of the biggest problem that this Government faces—that is it seems to think that saying that you want something is all you need to do. So the Prime Minister stands up and says she wants maximum sustainable employment and that this law codifies it she wants to do away with child poverty she wants to reduce the numbers of young people not in education or employment—she wants to do all these sorts of things but it's what you do that counts not what you say or what you put into legislation that says you want to do things. It's what you do that counts.There is clear evidence that monetary policy—which is what the bank deals with the levers that it has to pull in terms of the interest rates that it sets—can definitely influence inflation but in terms of employment there is little evidence that it can have a major impact on employment over the long term. You can have a short-term little fiddle with it by jigging things around but over the long term it has no clear impact. The thing that does impact maximum sustainable employment is all the other areas of microeconomic policy which is around how the economy is run. So during the previous period of Government we had the view that the thing to do was to provide stable predictable and financially sustainable Government so that everybody knew where they were. They had confidence to invest and it was that investment that led to jobs and new opportunities.People only get employment opportunities if somebody somewhere takes a risk and puts their money into starting a new business buying a new plant or hiring a new person—taking a risk. They're more likely to do that if they feel confident and they're more likely to feel confident if they have a clear sense of where the Government's going and they can predict where it's heading. That's why there is such an absence of business confidence at the moment even though the economy's basic fundamentals remain sound. That is because so many people are looking at this Government and are not quite sure what's going on: are they going to have to pay a capital gains tax next year? It's a big deal but they don't know. Is their business going to be part of the next industry that the Prime Minister decides that she needs to give a speech somewhere and is going to chop it off at the knees like she did with oil and gas? Are they involved in mining on the West Coast where the Greens want to stop all mining on 85 percent of the West Coast? All that uncertainty adds up to a lack of investment and that flows through to fewer jobs.The basic policies that lead to maximum sustainable employment are not things that the Reserve Bank has control over; it's about whether you have policies that welcome foreign investment coming into the country for example. I've talked about the importance of investment. If we rely purely on domestic savings well that's fine but we'll grow quite slowly because there isn't much in the way of domestic savings. So if we want to grow faster we need to import capital like we have done for the whole 180 years of our history. But this Government's put the sign up saying "Clear off if you're a foreigner because we don't want you buying anything"—more or less—"involving any land."Dr Duncan Webb: Oh that's not true. You were there in select committee.Hon PAUL GOLDSMITH: Well it's basically the case and so that's slowing down investment. Then we want to be opening export markets. Well that requires actually travelling overseas and making a bit of an effort. None of the Ministers have been very keen on that and when they have managed to rouse themselves to go overseas David Parker can't even get a meeting with the—ASSISTANT SPEAKER (Poto Williams): Order! Order! We are just kind of traversing a little far from the brief.Hon PAUL GOLDSMITH: Well apologies Madam Assistant Speaker but I was trying to give the context of the things that do actually influence maximum sustainable employment which is increasing investment. It's building access to export markets it's focusing on skills and not wasting all your money on free fees. It's about investing in quality infrastructure which makes sense and not sort of ideologically driven stuff like slow trams to the airport. It's about actually using the natural resources that we have as a country not saying that you can't do anything anywhere and it's about having a good clear innovation policy.So if a Government's undermining many of those things—I'm not saying that everything this Government is doing is wrong. It's not. I'm sure there are some good things it's doing but it's not enough to say that we're just going to pass a law saying that the Reserve Bank is going to be focused on maximum sustainable employment and then all the other policies that they're actually carrying out themselves are putting that at threat because they're ill-considered and ill-thought-through. That doesn't lead to an overall piece of legislation that we're thrilled about. So for that reason we oppose this legislation."