Norman Russel: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Norman Russel: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
[Sitting date: 17 October 2012. Volume:684;Page:5948. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill which is looking at changing some of the monetary policy settings for New Zealand. The reason why this debate is important is that the greatest challenge facing the New Zealand economy at the moment is the external imbalances. 
What the Government is either oblivious to or is trying to downplay is the fact that New Zealand is currently running a 5 percent of GDP current account deficit—5 percent or $10 billion a year. Under the Reserve Bank projections it is expected to increase to closer to 7 percent. This is a major problem for New Zealand and the reason it is a problem is that there are only two ways to pay for a current account deficit. The first is to borrow more money and New Zealand already has a very large problem with overseas debt and the second is to sell more assets. 
As people who have followed the debate in New Zealand will know we have sold off large numbers of New Zealand assets into foreign ownership over the last 25 years in order to cover a chronic current account deficit. If we do not deal with the current account deficit then fundamentally we will undermine our long-term prosperity because we will rack up more and more international debt and we will have to service that debt and we will sell off more and more of our assets into overseas ownership—both the land and the companies—and we will lose the profits from those companies overseas. 
We know when we speak to actual exporters that one of the major problems that they face is around the dollar. This is both in the farming sector—the most recent Rabobank survey found that the overvalued exchange rate was a problem—and it is also across the board in manufacturing where we have lost 40000 jobs in the 4 years to June 2012. 
The overvalued dollar is driven in large part but only in part by the monetary policy that New Zealand has run for the last 20 years and that effectively has been a high exchange rate and a high interest rate policy. In the current context where other countries are involved in competitive devaluations that has created an enormous problem for New Zealand that has exacerbated the pre-existing current account deficits. That is why it is so essential that we do something about it. 
We have heard from the Government that what people who want a lower exchange rate want is to increase the price of flat-screen TVs and this is clearly the Government’s populist appeal I guess against changing monetary policy settings. The thing is that if we do not deal with our current account deficit we have a long-term economic problem where we increase debt and we lose ownership of the New Zealand economy. 
So when the Government makes short-term appeals and says to people: “Oh the Government will keep a high exchange rate. Sure we will have to fund everything through borrowed money but your flat-screen TVs will be cheap.” that is the Government’s economic strategy and that is the Government’s political strategy. It wants to be popular by having a high New Zealand dollar so that imports are cheap. This has been the Government’s argument time and again around monetary policy. But we should be clear. Sure imports will be cheaper in the short term but the way we will pay for those imports is to borrow more from overseas. 
Remember that our net debt is now at 75 percent of GDP or $150 billion. So we will pay for these imports by borrowing or by selling more assets. That is the Government’s economic strategy. It is not a sustainable long-term future for New Zealand. That is why we need to intervene on monetary policy to bring the value of the dollar to a lower level so that our exporters can survive and compete from overseas just like our trading nations are doing. 
The Green Party has put forward various proposals around that. Some of them are very much in line with the bill that we have here today which is about changing some of the policy settings in terms of the Reserve Bank of New Zealand Act. The International Monetary Fund in 2010 put out a paper about rethinking monetary policy. One of the key recommendations of that is that in small open economies the central bank should target not just inflation but also the exchange rate. The reason it said that is that it recognises that small open economies like ours are vulnerable to overvalued exchange rates that undermine the tradable sector and result in dramatic imbalances building up very quickly. That is why other small open economies like Switzerland are intervening to bring down their dollar. 
This bill is a sensible bill. The Government is completely out of line with international best practice in supporting completely out-of-date monetary policy. It is time to move on. Thank you.