Seymour David: Motions — Reserve Bank—Ratification of Funding AgreementText is incorporated into the Bound VolumeSeymour David: Motions — Reserve Bank—Ratification of Funding Agreement[Sitting date: 04 June 2015. Volume:706;Page:4353. Text is incorporated into the Bound Volume.]DAVID SEYMOUR (Leader—ACT): I rise on behalf of the ACT Party in support of this motion. An honourable former member of this House once told me to come and listen through the debate so that I can respond to earlier speakers. I have to say I feel that Fletcher Tabuteau has let me down in that regard. But in all seriousness we should pay tribute to him for standing up and making a contribution to what is a very serious public policy debate that we do get to address only once every 5 years. You will forgive me Mr Deputy Speaker if I at the very least respond to some of the remarks made by other members whether or not you were attempting to rein them in from going off topic at the time—Mr DEPUTY SPEAKER: Order! It would be unfair to leave the member without me interjecting bearing in mind I interjected on everybody else. They are not the rules of the Speaker; they are the rules of the House. It is a very narrow motion. If the member wants to debate the issues such as the other members have there is the general debate to do that in and there are other opportunities to be able to do that. This particular debate is around a motion about the funding for the next 5 years. That is all it is.DAVID SEYMOUR: Understood.Mr DEPUTY SPEAKER: I have not yet sat a member down; other Speakers have.DAVID SEYMOUR: When we look at the agreement it is interesting to note that the annual funding allowance rises by approximately 0.75 percent each year—less than the current target band for the Reserve Bank. What an incentive that is for the efficient running of the bank. I think that when the House debates a motion as to whether or not we should be funding the bank and at what level it is worth paying tribute to the institution and its governing legislation. We have heard some criticism of the way that it operates. I think we should be clear that around the world tributes have been paid to our model again and again. The Bank of Canada is modelled upon our bank. The first Reserve Bank Governor to operate under this Act Don Brash was called the central banker of the year by The Economist magazine. He was also noted at length in the autobiography of Milton Friedman who won his Nobel Prize for his work on monetary policy. So although the world admires so much of this bank whose funding we are debating today there is still some confusion about what it can achieve back home.In response to earlier calls that perhaps its funding should be higher so it could do more I would say that there are fundamental limits to what it can achieve. For example there has been confusion around whether or not the Reserve Bank should have a mandate of trying to control the exchange rate inside or outside current legislation. I think it is important that the House is clear on our understanding that it is not possible—by printing money faster or slower—to change the real exchange rate. The Reserve Bank might well change the nominal exchange rate but domestic inflation will mean that that nominal exchange rate change is meaningless to those who would purchase New Zealand goods offshore.There are those who say that the Reserve Bank should have more tools and that perhaps that would be a cause for greater funding as raised by other members. However we know that economic stimulus is not something that central banks can do in the long term. Indeed monetary policy can achieve but one objective and that is price stability and certainty for people who wish to save and invest in a country such as New Zealand. That is an objective that is well worth funding thoroughly and something that I completely support today.Central banks that do have divergent objectives—or more tools as some members have mentioned—create terrible perverse incentives and actually it would be bad expenditure to give the bank more money to do such things because they lead to broader economic instability. For example the Federal Reserve the central bank of the United States has multiple and conflicting objectives such as controlling employment. By reducing the price of cash in the early 2000s it has increased the value of long-term durable assets—i.e. houses—and that led to a mortgage bubble that sunk the world into global turmoil from which we are still recovering.It would not be wise to give the Reserve Bank additional objectives other than price stability and financial stability. None the less as Grant Robertson noted it is being forced into a position where it feels it must act on the Auckland housing market. It was the contention of the member that actually the bank should be funded at a greater rate in order that it should play that role. I would respond to the member by saying that in actual fact when you are in a hole you should stop digging. We clearly have a regulatory failure. We have evidence from around the world that it is the price elasticity of supply of housing in markets such as Auckland—those that take on prescriptive and constraining land use regulation—that led to inelastic supply speculative investment and a redirection of resources out of the other sectors of the economy for which the Reserve Bank would prefer I suspect to lower the interest rate and into the housing market.So rather than going further and further down the track of having a Reserve Bank funded to use “more tools” to intervene further and faster into the housing market we should be taking up the cudgel and fixing the regulatory environment and therefore the price elasticity of supply in that market. Was it not ironic that Russel Norman decided to go into the issue of how cities should grow? He said that the only way to get supply was to build more apartments. I feel it should be put on record in the House that he misrepresented the governor and he also misrepresented his own party’s position because—I will finish this thought in two seconds—only weeks earlier one of his own colleagues had said that an expansion of the city at the fringes would be so rapid in its effect on supply that it would collapse the Auckland house price market.It also was referenced that perhaps the Reserve Bank with more tools and greater funding could do something to help with diversifying the economy which would help the tradable sector and boost exports. I think that when we fund this bank we should consider the effects of our current monetary policy settings in our current bank on what exactly has been the history of the tradable sector in New Zealand. From 1988—the year before the current Reserve Bank of New Zealand Act—right through to 1999 and resuming from 2001 through to 2004 the merchandise exports of goods and services exceeded imports for New Zealand.Anybody who says that the Reserve Bank should be playing in that particular sandpit is not cognisant of the facts. But what happened next? Again we could either be funding the Reserve Bank to use more tools and do more things or we could monitor other aspects of our behaviour when we prioritise funding. What happened from 2005 on was an explosion of Government expenditure which put the brakes on the tradable sector put pressure on the Reserve Bank and ultimately put us into a tradable goods deficit in New Zealand.Todd Barclay: A lolly scramble.DAVID SEYMOUR: It was—it was very much a lolly scramble.Mr DEPUTY SPEAKER: Back to the motion.DAVID SEYMOUR: The motion is about funding a Reserve Bank with very robust policy settings—a bank that is facing some other external challenges that would be better addressed through other policy settings. With that in mind I would like to support this motion as one that funds the Reserve Bank for its proper purpose and I refute the idea that the Reserve Bank should be pursuing multiple and divergent objectives with greater funding because those of us who have studied the history of monetary policy in the New Zealand economy know that that would be a great disservice to all New Zealanders. Thank you.Motion agreed to.