Bayly Andrew; Robertson GrantANDREW BAYLY (National—Port Waikato): Thank you Mr Speaker. I'm looking forward to engaging with the Minister of Finance over this bill. It's a very important bill the Reserve Bank of New Zealand Bill. We're talking about fundamental changes here and there are a number of questions we'd like to ask him. I think the biggest issue about this bill is the issue about: what is the systemic failure that's taken place for the Reserve Bank that actually requires these changes to the bank's structure? We've already had one bill passed through this House a while ago and this is the second and there's another one to follow as well.In the commentary here it says the Government's intention is to modernise monetary and financial stability policy frameworks [to] support good economic management and reflect the changing environment in which New Zealanders live and work." So I think the first point is I'd like the Minister to explain why there's such a radical need for a change and what has taken place that we can look at and consider. The public who might be tuning into this debate will say "Well why do we need to have more of these structural changes to the Reserve Bank?" So that's probably the first question I'd like to put to the Minister and hopefully there's going to be a pretty interactive process Minister.Hon GRANT ROBERTSON (Minister of Finance): Thank you Madam Chair and I thank the member for his question. Obviously we're looking here at Part 1 and in particular I presume the question relates primarily to the "Purposes" clause clause 3. This is the third as the member has indicated in a trilogy of bills on the Reserve Bank. The first of those was the one that altered the objectives of monetary policy to include maximum sustainable employment and change the decision-making process for that to a committee-based process in line with best practice around the world. These next two bills were also part of the review process and I guess that's my starting point to answer the member's question—that after 30-odd years of operation of the Reserve Bank we felt that it was timely to undertake a review. A lot has changed in monetary policy since that time.When we come to the details on this bill it's particularly apposite for the role that the Reserve Bank plays in financial policy. If we do go back to 1989 when I was in the seventh form—Mr Bayly was no doubt sort of trekking around London bars or something like that at the time—the bank didn't have the roles around financial policy and financial stability that it now has. As I've traversed in earlier readings of this bill that role in financial policy financial stability has evolved in really an ad hoc way with different matters added to it.So this second of the three bills is what we call the institutional bill. This is setting the Reserve Bank up to be a fit for purpose organisation for the jobs that we ask it to do both in terms of monetary policy—and we've dealt with some of that in the first bill but there's a little bit in here—and then in this bill really particularly around that question of its role in terms of financial stability. As part of that the purposes of the Act then should reflect effectively modern best practice about how we describe what the role of the Reserve Bank Act is. So obviously in this case it's to provide for the continuation of what the bank does but also to "promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy." and here what we're getting right in the right order is the cascade of what we want. So this is the highest-level statement about what we want the bank to contribute to and then we work through how it does that in the operative bits of the Act and also in other elements of what the bank does. So it's prudential regulations or wherever else it might express what it wants—so it's setting up a high-level purpose about the place of the Reserve Bank within that broader monetary and financial policy role that it plays.The second thing I would say around the whole question of the timing is that when we went out to stakeholders—and we basically did three full rounds of consultation around these different changes we made—we did find most stakeholders were looking for ways of improving the operations of their interaction with the Reserve Bank as well as more clarity about aspects of the role. Then finally thirdly if we look again at that international best practice—in particular the role of the board which we'll come to in Part 2 of the bill—it's really important to make sure that we've got effectively a modern governance structure and I think the board structure that we're putting in place does that. So effectively it's an exercise in modernisation an exercise in clarity and I think it's one that will serve New Zealand well.ANDREW BAYLY (National—Port Waikato): Thank you Madam Speaker. Thank you for the commentary Minister. So there hasn't been any failure that we could look at? What the Minister's saying is the Government has had a view that it just needs to modernise it after 30 years but can he point to any systemic issues with the bank that we should have regard for? People listening to this debate might think "Wow this Reserve Bank hasn't been operating well and we need to set some real specific changes." because what I hear is an argument that yes we need to keep changing but actually the Reserve Bank model adopted in New Zealand actually has been a framework that many central banks around the world have actually emulated and actually believe is a fantastic structure. So again just the same question: why?Hon GRANT ROBERTSON (Minister of Finance): By and large I do think that the Reserve Bank Act has served New Zealand well. I think it's really important to understand what this particular bill is about in the context of the other two bits of legislation so I would regard both of them as being more operative and go more to the question that the member has asked. In the case of the bill we've already passed which is now within the Act it was the fact that it is our view that the objectives that the bank had were too narrow in terms of just being about price stability and actually we needed to look at maximum sustainable employment. We believe that was because you know we don't make specific monetary policy decisions over here but what we do do is set the framework for those decisions and we felt just as the United States Federal Reserve has that a broader set of objectives was important. So that's a change brought on by whether or not we thought it was operating in the best interests of New Zealanders.The next bill that's currently being drafted and we've consulted on and announced the policy decisions on is called the Deposit Takers Act. To give one example within that we're looking at the introduction of a deposit insurance scheme which I do believe is a significant gap in New Zealand's system—not having a deposit insurance scheme within the mandate of the Reserve Bank. So they're examples for the member.That's not what this bill's about. This bill is the institutional arrangements and so it is by its very nature much more a modernisation exercise to help facilitate what would be the more systemic changes and issues that the member's talking about. So we're both—he and I—quite confined about what we can talk about but I have given him that explanation by way of explaining why Part 1 of the bill does what it does.ANDREW BAYLY (National—Port Waikato): OK so I understand what he's referring to. You gave us some examples Minister about operational changes and I accept that but the purpose of this bill is actually to use your term talking about institutional arrangements. So again I can understand why the Minister or the Government want to change some of the operational aspects but what this bill is about is quite substantial governance arrangements and that is the core question I'm trying to drive at. What has been the failure or systemic failure even at the Reserve Bank level that has led to poor policy outcomes or poor implementation that leads to a massive overhaul as set out in this bill?Hon GRANT ROBERTSON (Minister of Finance): I'm at risk of repeating myself here but this is about making sure we have the best-practice fit for purpose modern form of governance for the bank. In 1989 decisions were made about having a single decision maker on virtually everything that the bank did. The member is correct in saying that other jurisdictions around the world looked at what we did and took many aspects of what we did but you will struggle hard now to find anywhere in the world where a central bank operates entirely on that single decision maker model. So it's a matter of the fact that in 30 years the way we do this—the way we govern what we do—has changed. We've had significant experience in New Zealand through the Crown entities on how best to see a board like this run and that's what we'll cover when we move into Part 2 of the bill.We have made sure that it's fit for purpose for the bank and so therefore for the things like I know the member will raise around for instance the role of the governor on the board it is different from Crown entities. That's I think fair enough when you're dealing with a particular institution but we've certainly learnt a lot of lessons. So the member is fishing for some radical issue with the structure of the bank; that's not the case. It's about: here's how we've changed the operations of the bank and therefore here's how we can change the structure to match those operations and modernise it because a lot has happened in 30 years about the way that we run Crown entities."