Cunliffe David: Reports — Complaint Regarding the Medicines Regulations 1984—Consideration of Report of Regulations Review Committee Briefing from the New Zealand Baha’i Community—Consideration of Report of Foreign Affairs Defence and Trade Committee Report from the Parliamentary Commissioner for the Environment on Change in the High Country: Environmental Stewardship and Tenure Review and Related Briefing—Consideration of Report of Primary Production Committee Reserve Bank of New Zealand’s Financial Stability Report November 2009—Consideration of Report of Finance and Expenditure Committee 
Cunliffe David: Reports — Complaint Regarding the Medicines Regulations 1984—Consideration of Report of Regulations Review Committee Briefing from the New Zealand Baha’i Community—Consideration of Report of Foreign Affairs Defence and Trade Committee Report from the Parliamentary Commissioner for the Environment on Change in the High Country: Environmental Stewardship and Tenure Review and Related Briefing—Consideration of Report of Primary Production Committee Reserve Bank of New Zealand’s Financial Stability Report November 2009—Consideration of Report of Finance and Expenditure Committee 
[Volume:659;Page:8436] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I would like to compliment the member who has just resumed his seat Dr Russel Norman on a very insightful speech. I remark to the House: who would have guessed that we would be here on a Wednesday evening almost in the dead of the evening debating somewhat uncharacteristically the presentation of a select committee report to the House because we are a little short of members’ bills. 
In this space we just happen to have tripped across something that is actually truly remarkable. My colleague and friend Russel Norman said that there is a quiet revolution going on and so there is. It is a revolution that has lined up an intriguing cast of characters. We have the Governor of the Reserve Bank and his staff who are straining at the leash of convention to do what they know to be right in the midst of a world environment that is changing. We have Her Majesty’s loyal Opposition which has just ended 20 years of consensus on a monetary framework that no longer works. And we have a Minister of Finance and a Prime Minister who have openly declared that nothing can be done even though their loyal civil servants are already busy doing it. That is a truly spectacular turn of events. 
For the ladies and gentlemen who might be listening in I want to unpick a little bit of that background in “plain English” and try to make it understandable because whether or not we know it we are actually watching history being made before our eyes in a really fundamental way. Firstly what are the problems we are seeking to solve? What is wrong with the old consensus? There are basically two things. 
The first is that the people who make stuff sell stuff and export stuff that allows us to enjoy the standard of living we do and to which we aspire are being creamed by the system as it stands. They are being creamed because they cannot plan a business at the start of the year at 50c kiwi against the US dollar wind up at the end of the year at 80c and still be running the same business model. It would be somewhat less bad if the exchange rate was steady and high but for it to be high and volatile is a nightmare combination for Kiwi businesses. It means that New Zealand workers are losing their jobs it means that New Zealand entrepreneurs are being denied fair profits it means that our Inland Revenue Department is losing revenue and it means that the Government’s options are being constrained. We all lose. 
All sides of this House ought to be united in saying that this is not good for any of us. If New Zealand which is a great producer of protein and a few other things wants to stride the world stage then we have to fix this because we have to export to prosper and we are killing our exporters. We are killing our productive economy with exchange rates that are too high and too volatile. 
The second problem is that we have all suffered from the housing bubble where too much domestic capital is being sucked into the property sector because of preferential tax treatment and because Kiwis look a little bit askance at other forms of personal investment. Some people were burnt in the 1987 stock market crash. Some people invested in Hanover Finance and a few other finance companies—more fool them—and they have been burnt by the non-bank finance sector really badly. People do not know what else to invest in other than their homes. The problem with that is we spend all our money bidding up each other’s house prices and mortgages and our businesses our entrepreneurs—and we would expect the National members to be arguing this but they are not—are starved of the capital they need to grow their businesses so that we can improve our current account. 
OK—those are the problems. How do we fix them? Well the first recognition is that it is bunkum to say that nothing can be done. If nothing can be done then we may as well join John Key and Bill English and beg for statehood of Australia. If we want to be proud New Zealanders and to have a country in which smart kids can grow up and get good jobs we need to grasp this issue with both hands believe in ourselves and back ourselves. 
As my colleague Dr Norman has said the problem is complex but it is not hopeless. We know that there is a complex feedback effect between high real interest rates that suck in the hot money of the carry trade through the banking system which has made billions out of it and has forgotten to pay a bit of tax—but hey what is a couple of billion between friends? Those banks have essentially funnelled that carry trade money into our property market accentuating the problem that it is nearly all going on housing. So the first step is recognition of the problem and belief in ourselves. The  
Financial Stability Report 
—this eminently conservative document I am holding—has recognised the problem and the report of the Finance and Expenditure Committee of Parliament which we are debating tonight has picked up those problems front and centre. 
The Reserve Bank has gone further. The bank has stuck its neck out and said we need to have a mix of new prudential policy evolved monetary policy and new tax policy to fix it. The Governor of the Reserve Bank is saying what the Minister of Finance is not prepared perhaps not courageous enough to say. The Governor of the Reserve Bank is saying that we need a capital gains tax. Of course Labour’s position is that we oppose having a capital gains tax on the family home but we are willing to talk about options to end the preferential treatment of real estate. 
The Governor of the Reserve Bank has gone further. He has said that the Reserve Bank will move on broader monetary and prudential policy evolution in concert with the new global consensus—the new global consensus. Post - Basel II post - global financial crisis post-Davos and post-G20 central banks and economic policy makers around the world know what Bill English apparently does not. They know that the old framework is so so 2007. It is so pre-global financial crisis. You know it is so pre-Paula Bennett. Bill English has not woken up to smell the coffee and everybody else around Wellington is wondering why not and asking what is wrong with him. 
What is wrong with the Government that it cannot see the obvious when it is in front of its face? I hope that the Government members are just a little bit embarrassed because it has taken the Leader of the Opposition along with our colleagues in the Green Party—and I might say ACT whose members have been pretty useful about drawing attention to the shortcomings of the current situation—to take a stand and say that we need to do something. There is no perfect answer. There is no monopoly on truth but we have to ask the hard questions. 
I turn to the report—and you know it is wonderful. Let me read a couple of quotes: “The governor briefed us”—“us” being the Finance and Expenditure Committee—“on the introduction of prudential liquidity policy”—a new prudential liquidity policy—“by the Reserve Bank noting that there is ‘a zone in between prudential policy and monetary policy’.” It talks about the authority of section 68 of the Reserve Bank of New Zealand Act which allows it to “[lean] against” the housing boom and develop a “monetary policy objective that supports both macro and prudential policy tools.” The Governor of the Reserve Bank is evolving policy that supports both macro and prudential policy tools. 
For mum and dad at home this is probably not the time to go into the detail but that is about how banks are allowed to re-lend the stuff they borrow what capital adequacy ratios for different classes of assets there are and how that changes across the business cycle. To be really crude about it when a market is running hot we tighten up the lending constraints so that the banks cannot lend as much so easily and when the market is down we loosen them off so that the banks can lend more providing a buffer for the real economy. The best part is that the buffer also acts against the carry trade—the hot money that provides that complex interaction that kind of makes it really hard in an open small economy to run a sensible monetary policy. 
Why is it that the currency of little old New Zealand the kiwi dollar is the second most highly traded currency per capita anywhere in the world? Is it because we are so intelligent? No. Is it because we are so good-looking? No. Is it because we have such a well-run economy? No. It is because we are a speculator’s dream and it is killing us. We are a speculator’s dream because we have a Government that is so pure so hands-off that our currency is a one-way bet for speculators. 
Here is the irony: the last time the Reserve Bank actually played in foreign exchange markets it made a profit of $600 million and the cheque could not have come at a better time for Bill English. Here is the ultimate irony: the Reserve Bank is moving the Opposition is moving and Treasury is moving. It made nearly $1 billion from the last time it intervened but the Minister of Finance is wedded to an old orthodoxy that no longer exists. Would someone shake Bill English and tell him it is the 21st century. 
Motion agreed to.