Twyford PhilHon PHIL TWYFORD (Minister of Housing and Urban Development): The coalition agreement that forms the platform for this Government an agreement between the Labour Party and New Zealand First has both parties committing to review and reform the Reserve Bank of New Zealand Act and this is the next chapter in the great modernisation and reform project that is this Government.In our first 100 days we announced the terms of reference for a review of the Reserve Bank Act to move New Zealand to a modern monetary policy that meets the needs of the 21st century economy. It's disappointing that the National Party is not supporting the bill at this stage but I'm glad to see that there's obviously constructive dialogue between the shadow finance spokesperson and finance Minister Grant Robertson and I hope that that dialogue will continue.This bill legislates for changes stemming from phase one of the review of the Reserve Bank Act. They're focused on modernising New Zealand's monetary policy framework. The bill delivers on this with two measures: one is amending the objectives of monetary policy to require consideration of maximum sustainable employment alongside price stability; and secondly by instituting the monetary policy committee to take decisions on monetary policy. It's our view that monetary and financial policy should promote the prosperity and well-being of the people of New Zealand and contribute to a sustainable and productive economy. Included in our changes on this to section 1A we'll have the Act now beginning: The purpose of this Act is to promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy."We continue to recognise the important role of stabilisation in the bank's mandate and the important contribution the bank makes in that respect to the whole economy. But we're giving the Reserve Bank a dual mandate to both maintain price stability over the medium term and support maximum sustainable employment. What this means is that the bank will take employment outcomes into account when it reviews monetary policy. We're not setting an unemployment or employment target for the Reserve Bank but they can make sure that they're keeping employment outcomes front and centre when they are making monetary policy decisions.Why is this important? Well employment is a proxy for the real economy. Inflation control is of course important but it's no longer the bogey the all-consuming preoccupation that it was in the 1980s when the Reserve Bank Act came into effect. The bigger challenge now both here and around the world includes managing demand in the economy investment productivity and real-world outcomes like jobs. That's why we are making this change.New Zealand will not be the only country with a legislated dual mandate. Australia and the United States already have legislated mandates for employment alongside price stability while other inflation-targeting countries tend to require consideration of real economy factors through secondary agreements such as what New Zealand has with the policy target agreements. Economies with legislated dual mandates have succeeded in controlling inflation over the many years while also taking into account their employment objectives. I want to point out the contradiction that was very evident in Amy Adams' contribution. She says "Well they're doing it anyway. They're already taking into account employment objectives." and then in the same breath she says that making it an objective will create confusion. Well you can't really have it both ways.Secondly the monetary policy committee which is the other main provision in the bill changes the way that specific operational objectives of the monetary policy are set. The bill legislates to create a committee for monetary policy decisions—that is the official cash rate decisions—rather than just having them be the responsibility of the governor. Now in practice the Reserve Bank's decision-making practices for monetary policy have adapted to reflect this already with an internal governing committee collectively making decisions on monetary policy; however the Reserve Bank Act has not been updated accordingly. We're doing that with this bill and also legislating so that a minority of members on the monetary policy committee are external members so that they bring in outside expertise and world view to monetary policy decisions. The members will be appointed by the Minister on the recommendation of the Reserve Bank board and this means that there are appointed on merit and due to their abilities and knowledge rather than being pure political appointments.I want to recognise the role of finance Minister Grant Robertson in leading this work and also the contribution of other Labour colleagues over the last few years in developing this policy. I also want to give special mention to the advocacy of the Rt Hon Winston Peters on monetary reform over a very long period of time and also recognise the fact that the Green Party the confidence and supply partners of this Government have long advocated for monetary policy reform. This has been a priority for all three parties that make up and support this Government.I look forward to phase two of the monetary policy review which will look at among other things macro-prudential tools which as has been demonstrated over the last couple of years can be powerful tools in helping to manage demand in the housing market. I think the effect of financial flows in housing markets and asset bubbles has been a somewhat neglected area of concern and policy debate as we grapple with the effects of the housing crisis in this country. I look forward to the consideration of phase two of the review in looking at macro-prudential tools and how they might help us in the future.These changes highlight the importance of monetary policy as a tool to support the real productive economy. Our concern with the productive economy is something that marks this Government out as different from the kind of Government we've had in recent years in this country. Our thinking on this has been evolving in recent years and will now be recognised in New Zealand law by adding employment outcomes alongside price stability as a dual mandate for the Reserve Bank."