Donald Rod: Motions — Reserve Bank Funding Agreement—Ratification 
Donald Rod: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:616;Page:12404] 
ROD DONALD (Co-Leader—Green) 
: 
 The Green Party supports the motion. We support the new funding agreement between the Minister of Finance and the Reserve Bank and we support the Reserve Bank taking an active role in getting the exchange rate of New Zealand’s dollar down to a realistic level. I said at the time of the announcement of this initiative that although it may have only a small influence on the value of the dollar it was an important signal to the financial markets that the Reserve Bank was no longer prepared to sacrifice exporters tourism operators and domestic manufacturers to the foreign exchange speculators who are here to make a quick buck. I have to say that I was right. Immediately following the announcement the exchange rate of the New Zealand dollar dropped by several cents against both the US dollar and the trade-weighted index. In fact it immediately dropped by 2c against the US dollar and within 3 days had dropped by 3.5c against the US dollar. It went down by 3c against the trade-weighted index over the same period. What is more the New Zealand dollar is still below the level that it was at the day before this announcement was made—that is down by 2c on the US dollar and it has not risen in the intervening period above the level it was at on the day before the announcement. It is down by 2.5c against the trade-weighted index and again it has not risen above the level that it was at before the announcement was made. 
So why on earth is National opposing this initiative? I am not suggesting that John Key read my speech but he was right to say that we the members of the Green Party are asking in this House why National is not supporting hard-working Kiwi business people why it wants farmers to earn less and why it wants local manufacturers to be put out of business because of cheap imports. Those are all questions that the National Party has to answer but in my opinion it certainly has not done so satisfactorily. Perhaps National will shortly roll out the former Governor of the Reserve Bank who will give the king hit and provide us with all the information that we need to know. The best that John Key could manage was his statement at the time when he said that currency intervention is not dissimilar to tinsel on a Christmas tree: it looks nice and makes everyone feel better but it achieves very little. Clearly he was wrong. Maybe that is because the spotlight was on that Christmas tree and the tinsel was reflecting across the markets and around the world. However the fact is that even the signal that this change would take place and that the Reserve Bank was prepared to make a currency intervention has had a beneficial effect on the New Zealand exchange rate. 
However I think the biggest irony in National’s opposition to the Reserve Bank intervening in the foreign exchange market—in addition to the one Dr Cullen pointed out that National will vote against this measure but is not committed to getting rid of it if National ever becomes the Government—is that the initiative was begun when one Dr Don Brash was the Governor of the Reserve Bank. That was revealed during the Finance and Expenditure Committee’s hearing on the Monetary Policy Statement where Alan Bollard said that Dr Brash was the chief executive of the Reserve Bank when a small study group was sent around the world about 3½ years ago to look at ways to intervene in the currency market. National cannot have it both ways. Either Dr Brash when he was Governor of the Reserve Bank backed doing something about this or he did not. If Dr Brash did back it 3½ years ago when he sent a study team overseas and then made it a priority in the annual report of the Reserve Bank why is the party that he leads now coming out against taking this initiative? 
Nor can the Labour Government have it both ways. This intervention while a worthy one and one that we support is too little and too late. Foreign speculators are still exploiting New Zealand’s vulnerable economy. The New Zealand dollar is still overvalued. At the moment it is worth 65c against the US dollar and on a trade-weighted basis. That is too high for our exporters our domestic manufacturers and our tourist operators. As Mr Peters said—and for once I have to agree with him—they will continue to suffer until the Reserve Bank significantly reduces the official cash rate to bring New Zealand in line with other economies. However the Reserve Bank will not do that until Dr Cullen takes a range of initiatives to take the heat out of the domestic economy. 
We do not have a two-speed economy as some people say. I believe we have a schizophrenic economy because while the speculative sector is growing the productive sector is shrinking. It is time for the Government to tackle that. The indicators that are coming through do not look very good. The February import figures that came out last week show that New Zealand had its worst February trade deficit in our history at $3.492 billion. That is an awfully large trade deficit; it is a massive trade deficit. It is not just a trade deficit as a result of imports growing faster than exports. For 2 years in a row we have had the unprecedented situation of export returns shrinking—down 6.5 percent for the year to February 2003 and down a further 6.3 percent for the year to February 2004. That represents a loss of $4 billion in exports over that 2-year period—or I should say a $4 billion drop in exports. The total drop is more than that but if one compares February 2004 at $28.5 billion with February 2002 at $32.6 billion one can see the impact that the high dollar has had on the New Zealand economy. To shave a bit off the top as the Reserve Bank will now have permission to do will not be enough to get our dollar’s exchange rate down to the level it needs to be at in order to bring exports back up to where they should be and to even start without the handicap of the high exchange rate for the dollar to try to get New Zealand back into a trade surplus situation. 
But it is not just the export sector that has been hit hard by the way the economy is currently being managed. The other big issue that came up when the Monetary Policy Statement was tabled was New Zealand’s negative savings rate. That issue was swamped by all the flurry around the Reserve Bank saying that it is prepared to intervene with the exchange rate. But I want to bring us back to some of the points that the Reserve Bank made. Alan Bollard’s Monetary Policy Statement contained serious warnings about the fragility of the New Zealand economy and in particular that household spending is now expected to exceed income by 11 percent from the beginning of this month. That is an extraordinary situation for this country to be in. We have gone from minus 6 percent in terms of household savings to minus 11 percent. 
The Greens would tell Dr Cullen that it is time to take some steps and the first one should be to look at introducing a capital gains tax on properties other than the family home. That would help to deflate the property boom but more important it would give the Reserve Bank the flexibility it needs to drop the official cash rate. The exchange rate of the dollar would immediately drop as speculative capital went elsewhere. Dr Cullen should also be introducing serious tax incentives to encourage people to save for their own retirement. That would take money out of consumer spending and put it into savings and therefore investment. I do not mind whether Dr Cullen wants to shift the “Ts” and the “Es” in terms of what is taxed and exempt which would have that impact nor do I mind whether he extends across the board the 6 percent savings incentive that exists for people earning over $60000 but he needs to do something. 
Dr Cullen also needs to bring in tighter controls on foreign investment both to limit speculation on property and focus the inflow of foreign capital on new productive investment. He should be looking at reorienting our economy towards self-reliance so that we boost the import substitution sector—in other words encourage Buy New Zealand Made so that we are less vulnerable to the fluctuations of the international marketplace. And quite frankly I will say another unpopular thing: he should be looking at an across-the-board tariff on imports. New Zealand’s balance of payments situation is sick and it will only get worse. Whether one looks at the Reserve Bank or the Budget Policy Statement one sees our balance of payments is getting worse. 
Dr Cullen and other parties may find those proposals unpalatable but I ask them to come up with alternatives that will get the exchange rate of the New Zealand dollar down and take our economy towards self-reliance and sustainability.