English Bill: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
English Bill: Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill — First Reading 
[Sitting date: 17 October 2012. Volume:684;Page:5943. Text is incorporated into the Bound Volume.] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I rise to oppose the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill. I suppose that the first point I would make is that the rhetoric of the member Winston Peters is somewhat extravagant compared with the content of the bill. We heard a lot about shibboleths ideology extreme monetarism— 
Rt Hon Winston Peters 
: No that’s not how you say it. 
Hon BILL ENGLISH 
: I have got a lisp. You would think from that— 
Hon John Banks 
: Fabian socialism. 
Hon BILL ENGLISH 
: Socialism? 
Hon John Banks 
: Fabian socialism. 
Hon BILL ENGLISH 
: Fabian socialist—no that was not used actually but it could have been. The member used quite extravagant rhetoric which would lead you to believe that what was proposed in this bill was some radically new vision of monetary policy but of course it was not actually. It was not. This bill represents a variation on the monetary policy framework that just happens to be one that cannot work. But it is not something completely different. 
I will just read out for the benefit of the House what the member is actually proposing: “The new section 8 provides that the primary function of the Reserve Bank is to formulate”—this is in the clause by clause analysis—“and implement monetary policy directed to the economic objective of maintaining stability in the general level of prices …”. So for all his abuse about inflation targeting actually this bill includes inflation targeting and that just simply reflects— 
Hon John Banks 
: He hasn’t read the bill. 
Hon BILL ENGLISH 
: Well it is possible he has not read it. Then it says: “while maintaining an exchange rate that is conducive to real export growth and job creation.” That is the other objective. So in the first place we are not talking here about some radically different view. We are actually talking here about a proposition that somehow you can use the Reserve Bank interest rate mechanism to lower the exchange rate or I presume raise it if he thought that was conducive. That is simply not the case. You just cannot do that—you just cannot do that. 
What we did hear from the member proposing this bill alongside the extravagant rhetoric was the illusion he has long held out to audiences around the country for over 30 years. It is that there is some kind of free lunch to be had if only the mandarins in the Reserve Bank would decide to grow the economy that somehow growth will just magically appear that growth in the economy does not depend on how well you run your business does not depend on how skilled the workforce is that you work with on the shop floor and does not depend on the state of the markets to which you are selling and that growth in the economy depends on the Governor of the Reserve Bank choosing it. The Greens suffer from the same illusion and both of them have taken over what used to be some common sense in the Labour Party and have now turned it into a bunch of illusionists as well—that there is a free lunch to be had if only the Governor of the Reserve Bank would decide— 
Phil Twyford 
: Tired old orthodoxies. 
Hon BILL ENGLISH 
: Oh tired old orthodoxy! Well it happens to be the orthodoxy that has come from 30 years of inflation targeting across the Western World. That is where it comes from. 
Phil Twyford 
: Wake up. You’ve been left behind. 
Hon BILL ENGLISH 
: Oh left behind? Well at least the former member for Tauranga has come up with a proposition. The Labour Party has not. The Labour Party has just said: “There is a free lunch to be had but we are not going to tell you how you can get it for free.” Winston Peters has said: “There is a free lunch to be had and how you get it is that you target the exchange rate as well as inflation.” Well at least he has put up a proposition. I would agree with that but it happens to be a proposition that does not work. That is the point. It just happens to be a proposition that does not work. 
In fact one thing has become reasonably clear. If you look at how Reserve Bank monetary policy frameworks are specified around the world you will find that they all amount to inflation targeting. The Federal Reserve’s mandate is written a bit differently from ours. The Reserve Bank of Australia’s framework is written a bit differently from ours. But what is pretty clear is that all governors of reserve banks make similar types of decisions for similar reasons. What every governor of any of those reserve banks will tell you is that they cannot substitute monetary policy decisions for real effects in the economy—that is if your economy is getting less competitive nothing the Reserve Bank does can change that; if your economy is getting more competitive nothing the Reserve Bank can do will change that. 
That is the illusion that is embodied in this legislation—that somehow the way the Reserve Bank makes its decisions about interest rates is going to have an impact on how skilled a workforce is or that somehow the way the Governor of the Reserve Bank makes this decision about interest rates is going to make the genetic stock of New Zealand’s farming capacity a higher quality. Well it will not. It does not matter how you specify the monetary policy framework. The key to generating incomes and creating jobs is the competitiveness and the productivity of our businesses. There is no free lunch and that is where the Opposition parties have got out of touch not just with the analysis but also with public opinion. 
Voters in New Zealand Australia Europe and the USA have never been more awake to snake oil than they are now. They have never been more awake to snake oil than they are now because they have learnt the hard lesson and the hard lesson of the developed world is that politicians who promised you free stuff in the end had to borrow the money for it. Eventually they have borrowed too much and you have to pay it back and the public understand that. They also understand that when people come along saying that we have got to print money and that that is the way out they know that that spells future danger and they know that you do that in only extreme circumstances. When someone comes along and tells you that they are going to set the exchange rate that is a gambler in the casino of international markets and that is what this bill is about. This bill is about saying the New Zealand taxpayer via the Reserve Bank should start gambling in the casino of international financial markets. I thought that that was what Winston Peters was against not what he was for. If he is trying to force the exchange rate down do his voters Labour voters and Green voters understand that that means forcing their standard of living down and their cost of living up? I thought that is what they were against. 
So the bill is not the radical revolution it is made out to be. It is simply a way of operating monetary policy that cannot work. It operates against the interests of the supporters of the parties proposing it which tells me that they just do not understand this bill. They just do not understand what they are advocating. We understand. It will not work. Inflation targeting is a well-established method right across the developed world that has had at least 30 years of testing and trial. We support the current regime and that is why we are voting against this bill.