Parker David: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
[Sitting date: 17 October 2012. Volume:684;Page:5945. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The problem for the National Party is that its members have painted themselves into another corner. It is a dead end where they are. They accuse others of being snake oil merchants. We heard it again from Bill English. Well who are they accusing? The International Monetary Fund? The head of the International Monetary Fund Olivier Blanchard said: “Giving primacy to inflation targeting over other important aspects of economic management like your exchange rate is wrong.” That is what the IMF says. Who else are National members criticising? Nobel Laureate Joseph Stiglitz. Who else are they criticising? All of these other countries in the world that are doing better than New Zealand. Mr English New Zealand has a 30-year current account deficit. Under the settings that the National Government is fixated on retaining this year we have got the second-worst current account deficit in the developed world after Greece and next year we are the worst in the world. Two years later we are the worst in the world—the worst current account deficit in the world—because we do not cover the costs of our imports and interest from our exports. One of the reasons for that is we give primacy to inflation targeting in New Zealand by law under the Reserve Bank of New Zealand Act which this bill the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill attempts to fix. 
Inflation targeting is not an end in itself; it is meant to lead to a more stable and prosperous economy. If it is not if there are other aspects of our economic management that are being subjugated to the primacy of inflation targeting when they should have more weighting but cannot be given more weighting because of our law then the law needs to change. We should not be surprised that these things change over time. 
Of course when inflation targeting was introduced in the 1980s New Zealand had an entrenched inflation problem and I can see why the decision was made to give primacy to inflation targeting then. But it is not the current problem. If we look back through history we see something that another expert in monetary policy said to me recently—Jeffrey Frankel from Harvard University. He said two things that are common sense. First of all he said that no one system of monetary policy is right for every country in the world. Then he said that no one system of monetary policy is right for any country all of the time. 
We should not be surprised by those two propositions. Look at the history of the world. Until the Great Depression the gold standard worked pretty well. But we found then that in a downward spiral in a depression the gold standard works against the better interests of the economy because countries could not reinvigorate their own economy. So the world ditched the gold standard and they moved to Bretton Woods arrangements and under that we had capital controls we had relatively fixed exchange rates but we had control of our local economies. After a while under Bretton Woods we actually had stagflation. That system of monetary policy stopped working and so we moved on to monetary policy that focused initially on the supply of money. That stopped working and then we moved on to inflation targeting and that has stopped working. 
But even if you did not believe that it has stopped working when everyone is doing it most countries in the world are not and the few countries that are left doing it are being slaughtered by competitive devaluation in the countries that are pursuing a new route. 
Hon Member 
: That’s wrong. 
Hon DAVID PARKER 
: That is true. That is true. China holds its currency at a low level despite the largest trade surplus in the history of the world. 
Hon Bill English 
: It’s appreciating. 
Hon DAVID PARKER 
: It is appreciating a little. I agree it is appreciating. It is appreciating but it is still held at falsely low levels while ours is held at falsely high levels. 
We have got the Singaporeans managing their regime by moving to a moving range and they are doing better than we are. We have got Germany benefiting from a euro held falsely low because of problems in Greece and Portugal to the advantage of their exporters and that too is driving New Zealand’s currency high. We have got the Swiss printing money to manage their currency to a fixed amount and that is hurting New Zealand and we are ignoring it here. 
We face competitive devaluation abroad. We are not going to get out of the hole that this Government has got us into—a $10 billion deficit externally last year. That is $10 billion more of external debt into New Zealand and asset sales to foreigners. This cannot continue. It cannot be fixed by changes to the Reserve Bank alone but it is an important part of the cure. Why are the National Party members not willing to have a debate at select committee and to hear from the economists to hear from the manufacturers and to hear from the 160000—or their representatives—who have gone to Australia? One more thing; sit back. We have had the best terms of trade in a generation in New Zealand and not one current account surplus. Australia has had a minerals boom for a decade and they have not had one either. The emperor has no clothes; inflation targeting has passed its use-by date.