Smith Lockwood: Motions — Reserve Bank Funding Agreement—Ratification 
Smith Lockwood: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:627;Page:21815] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 National will support this motion. As the Minister has pointed out this funding agreement really simply specifies the amount of the bank’s income that can be applied in meeting its operating expenses. It is interesting that the Minister has given a whole range of reasons why the amount of the bank’s income applied to its operating expenses has to increase in round figures by 33 percent because over recent years it has been roughly $30 million a year. 
Hon Dr Michael Cullen 
: $33 million. 
Dr the Hon LOCKWOOD SMITH 
: Well $33 million—so it is more like a 30 percent increase. 
Hon Dr Michael Cullen 
: No its about a 20 percent increase actually—six on 33. 
Dr the Hon LOCKWOOD SMITH 
: Well if we take off some of the bits and pieces it is still a huge increase. I guess it is typical of what has happened under this Labour Government. The bureaucracy and the cost of administering the Government operations in this country have ballooned under Michael Cullen’s stewardship as Treasurer in this Labour Government—and the Reserve Bank is no different. 
It is interesting to go back over history a bit—and I might have the figures wrong; I am sure the Treasurer will correct me if I am wrong. In 1990 the amount applied to operational expenditure was about $45 million in round figures. Under Don Brash’s stewardship as Governor of the Reserve Bank that figure was brought down to just over $30 million. In fact I think that at one stage it was brought down to $30 million and it probably went up in the previous 5-year period to $33 million. But for it to now go back up to just under $40 million is unfortunate because it is all hard-earned income of this country going into operational expenditure of the wider Government sector. As we look to the future I think that the cost of this administration should be very carefully examined in the next funding agreement. 
One has to ask whether Dr Alan Bollard has been as successful in keeping operational expenditure as efficient as Dr Don Brash was because as I said Dr Brash brought the operational expenditure down from about $45 million to just over $30 million. 
I do accept that some of the increased cost is necessary. I think that some of the systems upgrades the Minister just spoke of are needed and there is no question that there are some regulatory issues that have to be addressed. We can only question whether we needed the extent of the increase but despite concern about the size of the increase National will support the motion. 
We do so because it is important that there is bipartisan support for the work of our central bank the Reserve Bank. National totally supports and endorses the Reserve Bank of New Zealand Act and this debate is an opportunity to reflect just on how important that is. The formulation of monetary policy and the pursuit of price stability is critically important to our economy. I think the reforms of the Labour Government in the 1980s and the National Government in the 1990s brought inflation under control for the first time for many years in this country and in the preceding years the devastation caused by high inflation was only too apparent. 
It is interesting that during the stewardship of Dr Don Brash—who now leads the National Opposition and has brought it back into genuine contention with the Government in recent weeks—inflation was brought down from 18 percent in the late 1980s to average just over 1 percent in the second half of the 1990s. That is a tremendous achievement. 
 Interest rates during that same time period floating mortgage rates and variable first mortgage housing rates came down from around 15 percent to just under 7 percent during the 1990s. That made housing more affordable to so many New Zealand families. So I think the record of Dr Brash as Governor of the Reserve Bank has been quite outstanding. When the current Labour Government commissioned the Svensson report on the Reserve Bank of New Zealand it was interesting what Professor Svensson had to say about the workings of the Reserve Bank of New Zealand. He spoke of the extraordinary qualities—in fact his language was “the exceptional qualities”—of the then governor Dr Don Brash. 
Darren Hughes 
: Did you read it? 
Dr the Hon LOCKWOOD SMITH 
: I am quoting Professor Svensson from the Svensson report. He said: “Another governor may not cope as well with the pressure criticism and even abuse that seems to go with the territory and may in difficult times and under high pressure lose confidence and let policy go awry in a number of different ways.” It is interesting that the qualities that Dr Brash showed as Governor of the Reserve Bank for those years he has shown in great abundance as Leader of the Opposition as he has focused on policy to bring National into very strong contention with this Labour Government today. 
It is also interesting to reflect on what Dr Michael Cullen had to say about Dr Brash the day Dr Brash announced that he was actually standing for the National Party. This is what Dr Cullen had to say on 26 April 2002: “The Reserve Bank Governor Don Brash has been a leading central banker recognised around the world for his commitment to price stability.” It is interesting how Dr Cullen now seeks to criticise Dr Brash but of course it does not carry much weight because everyone in New Zealand knows the tremendous job that Don Brash did as Governor of the Reserve Bank. 
It is also fascinating to see now what the OECD is saying about what this Labour Government is doing to the inflation challenge in this country right now. The OECD in its most recent report following seven increases in interest rates over the last 18 months said that the Government’s fiscal policy has complicated the job of the Reserve Bank of New Zealand. That is what the OECD is saying: that this Labour Government has complicated the job of the Reserve Bank of New Zealand. 
There members have it—a chance to reflect on the work of the Reserve Bank of New Zealand—a tremendous achievement under the governorship of Dr Don Brash. He brought down the operating costs of the bank during his tenure as governor. Under this Labour Government and Dr Michael Cullen’s tenure as Treasurer the cost of administration is going back up again as we are seeing right across the whole area of Government administration in this country. All I can say is that help is on its way. A National Government will bring the spiralling costs of the public sector back under control when elected. 
It is frightening to reflect that here in this City of Wellington a very high percentage of the office accommodation space in this city today is now occupied by Government bureaucrats instead of the private sector. That is a bad omen for the future of New Zealand but help is on its way because a National Government will turn around that burgeoning bureaucracy of which this increase in costs of operating the central bank is just one indicator of something that is out of control under Labour. 
Debate interrupted.