Robertson GrantRESERVE BANK OF NEW ZEALAND (MONETARY POLICY) AMENDMENT BILLFirst ReadingHon GRANT ROBERTSON (Minister of Finance): I move That the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by Monday 3 December 2018. This bill follows from phase one of the review of the Reserve Bank of New Zealand Act. Phase one of the review focused on modernising New Zealand's monetary policy framework which this bill delivers on by amending the objectives of monetary policy to require consideration of maximum sustainable employment alongside price stability in monetary policy decision-making and instituting a monetary policy committee to take decisions on monetary policy.The genesis of this bill is some 30 years in the making. In fact it was around 29 years ago in December 1989 that the Reserve Bank legislation passed. A lot has happened in the world since 1989 and if we do think back to that time many great events were occurring in the world. Seinfeld premiered on television. The Berlin Wall fell. Ronald Reagan was finishing his eight years as President of the United States. Tim Berners-Lee produced the first design for a World Wide Web and in that year the very first internet connection came into New Zealand—through of all places the University of Waikato. I say that respectfully of course. In New Zealand David Lange had resigned as Prime Minister and I was just finishing high school in Dunedin. In fact I was here—my very first ever visit to Parliament was the day David Lange resigned in 1989.Hon Ruth Dyson: Kieran wasn't even in primary school.Hon GRANT ROBERTSON: And Kieran McAnulty wasn't born. So it was a long time ago and it is timely after all of those 29 years to take another look at the Reserve Bank legislation. We do not do so lightly. It is a very important part of our financial framework in New Zealand but after 30 years with much change it is time to make sure that we create a resilient and sustainable and productive economy and make sure that every part of our apparatus fits with that. New Zealanders' well-being is at the heart of this reform. The Government wants monetary policy to contribute to the shared prosperity of all New Zealanders. Together the changes in this bill represent a significant step in the development of our monetary policy framework. We will retain the operational independence of the Reserve Bank and continue the bank's role in maintaining price stability but we are strengthening the bank's decision-making structures and ensuring transparency going forward.In April 2017 I outlined our policy to modernise and reform the Reserve Bank legislation. This process has been clearly signalled. The policy included the two major changes to the monetary policy framework that we are looking at today: the broadening of the legislative objective from focusing only on price stability to focusing on employment and ensuring that the decision-making process of the bank is modernised so that there is a committee including external appointees who will have responsibility for setting monetary policy.We follow this in the coalition agreement between the New Zealand Labour Party and New Zealand First to commit to review and reform the Reserve Bank legislation and today is phase one of that commitment being honoured.One of the very first announcements I made as a Minister less than two weeks after being sworn in was the terms of reference for our review. Those terms of reference split the review into two phases. Phase one is what we deliver on today. Phase two will consider the framework for financial stability to ensure that the Act is fit for purpose and aligned with what the Government considers will provide a strong flexible and enduring regulatory framework that enjoys broad public and industry support. Phase one of the review was led by Treasury who have been working closely with the Reserve Bank. An independent expert advisory panel was also established to provide advice to me on potential changes to the Act. The panel members Suzanne Snively Dr Girol Karacaoglu and Dr Malcolm Edey all put tremendous effort into this and I thank them for it.The key changes in this bill can be split into three main areas. The first of those is a change to section 1A of the Act: the purpose statement. We believe that this section of the Act should explicitly recognise the purpose of the Act and the bank's monetary and financial policy functions to be to promote the prosperity and well-being of the people of New Zealand and to contribute to a sustainable and productive economy. The changes to this section included in the bill make it clear to the public that monetary and financial policy are not ends in themselves but a means to support the living standards of New Zealand and New Zealanders. Section 1A will now begin with the words The purpose of this Act is to promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy". I am very pleased that we are making such a change.The second part is the change to monetary policy objectives. The current monetary policy framework with its single price stability objective has by and large served New Zealand well over 30 years. It was put in place at the end of an extended period of high inflation which reduced the competitiveness of New Zealand's exporters and created a drag on the New Zealand economy. It has been instrumental in reducing inflation and keeping it low over the past three decades. This has been crucial for supporting the well-being of New Zealanders and the Government remains committed to ensuring that monetary policy continues to deliver low and stable average rates of inflation over time. However as I have said the Act is almost 30 years old and there have been changes in the way the global economy the financial system and monetary policy operate since the Act's introduction.On the one hand the bank has for many years in accordance with successive policy targets agreements practised flexible inflation targeting which while focused on achieving a medium-term inflation target also requires the bank to take account of the impacts of monetary policy on the real economy. On the other hand the post - global financial crisis era has taught us new lessons—or in fact reminded us of old ones. Over the last 10 years the global economy has experienced an extended period of weak inflation pressures while some other countries have experienced persistent high unemployment and low economic growth. Monetary policy has generally been the first port of call for policy makers to assist in bringing employment levels back to long-term sustainable levels and we have been reminded that in the face of large negative economic shocks the real economy and in particular the ability of individuals to find work is an important target for monetary policy as is price stability.While the New Zealand economy has grown strongly over recent years and monetary policy has supported economic growth the Government is keen to ensure that we learn the lessons from across the world about what kind of framework we need for the long term. This bill recognises the stabilisation role for monetary policy by giving the Reserve Bank a dual mandate to both maintain price stability over the medium term and support maximum sustainable employment. This specification seeks to ensure that monetary policy makes an appropriate contribution to supporting employment. In doing so we recognise that prices will always be subject to temporary fluctuations which it doesn't make sense to try and eliminate but what we are trying to do is seek to ensure price stability over the medium term. Monetary policy's role is to assist the economy to adjust to periods of economic slack or exuberance and that is when unemployment or economic activity is above or below its sustainable level. We believe these changes to the objectives will make a difference in terms of how we include all aspects of the economy within monetary policy.In addition to that we are changing the way that the decisions are made. We are creating a monetary policy committee that will make the decisions on monetary policy for the bank. This moves us on from the approach taken in 1989 where the Governor of the Reserve Bank had the sole responsibility for both monetary policy decisions and implementation. It is time to move forward from that in line with international practice and make sure that we have the right people in the room at the right time making the decisions. Under this legislation the monetary policy committee will have between five and seven members—a majority will be internal members from the bank including the governor the deputy governor and one or two other staff members; the balance of the committee will be external members appointed from outside the bank. They will bring different viewpoints to the decision-making process and introduce challenge and promote the inclusion of diverse views. We will appoint those committee members in the same way in which in the board currently appoints the governor which is a dual-veto system between myself as the Minister and the board. There will also be a Treasury observer available.The legislation also includes the accountability arrangements through the remit that will replace the policy targets agreement and the charter which will set the operational details for accountability transparency and decision making of the monetary policy committee. I believe that these changes represent steps forward in transparency and decision making on monetary policy. The committee will be required to publish a summary record of each of its meetings and the bank will publish reports on monetary policy at least four times a year. These are changes to a significant piece of legislation in New Zealand's history. We do not take them lightly. We look forward to the contribution that will come from the select committee in debating these and I commend this bill to the House."