Smith Lockwood: Reserve Bank of New Zealand Amendment Bill — Second Reading 
Smith Lockwood: Reserve Bank of New Zealand Amendment Bill — Second Reading 
[Volume:610;Page:7609] 
Dr the Hon LOCKWOOD SMITH (NZ National—Rodney) 
: 
 As tonight we debate this bill it is fair to reflect on the remarkable political achievement that this bill and the principal Act that it amends represents. I am one of the few members of this Parliament who were here in this very House in 1985 when inflation was running at 15 to 16 percent. I was here in 1987— 
Hon Pete Hodgson 
: Did you vote for it? 
Dr the Hon LOCKWOOD SMITH 
: Yes I did. I was here in June 1987 when inflation hit 18.9 percent. Admittedly GST had just been brought in and that added perhaps unfairly to the level of inflation. But what was happening then was that the wealth of ordinary New Zealanders was being eroded week by week—almost day by day—when there was that level of inflation. That had to change and in many ways New Zealand led the world with central bank legislation the only focus of which was controlling inflation. It is fair to say that the Labour Party introduced the Reserve Bank of New Zealand Act in 1989— 
Rodney Hide 
: It was a different Labour Party. 
Dr the Hon LOCKWOOD SMITH 
: —and it is true as my good friend Rodney Hide points out that it was a different Labour Party. One could well question in this Parliament today whether had this legislation not been in place today this Labour Party on the benches opposite would have had the economic vision to have introduced this kind of legislation—the original Reserve Bank of New Zealand Act of 1989. Would it have been prepared to do that today? Not on your life! This Prime Minister is driven by opinion polls and focus groups and focus groups would not have indicated that New Zealand should bring in world-leading legislation to give the central bank of this country that single focus of controlling inflation. It was interesting that not long after this legislation came in the National Party was elected to govern this country. During difficult times we maintained the focus of the Reserve Bank on that primary target of controlling inflation. I think it is fair to say that in the early days the inflation target for the governor that outstanding New Zealander and world-renowned in fact central bank governor Don Brash had a target of 0 to 2 percent. 
Rodney Hide 
: Unlike that third-rate history professor that they have got as finance Minister now. 
Dr the Hon LOCKWOOD SMITH 
: I will not comment on what Mr Hide just said. I do not have to; I think that history speaks for itself. But towards the end of our term in office we extended that range—the policy agreement’s target for controlling inflation—to a 0 to 3 percent range. 
It was interesting that following the 1999 election—and I do not know exactly what was going on behind those closed doors—the new Labour-Alliance Government commissioned a review of the Reserve Bank of New Zealand Act. It commissioned another internationally renowned expert Lars Svensson to do a review of the operation of monetary policy in New Zealand. It was fascinating that despite the bit of agitation going on within that Labour-Alliance Government—which may have been driven more by Jim Anderton of the Alliance or the extreme left; I do not know—against the Reserve Bank of New Zealand Act the Government commissioned this review. What did Lars Svensson say in his report? He said that monetary policy in New Zealand was currently entirely consistent with the best international practice of flexible inflation targeting with a medium-term inflation target that avoided unnecessary variability in output interest rates and the exchange rate. 
That is not a bad commendation of the operation of monetary policy in New Zealand headed by my colleague Don Brash. One could hardly get a better report. In fact Lars Svensson recommended that maybe the target should have been amended to provide a specific medium-term target of 1.5 percent instead of the range of 0 to 3 percent. To make it absolutely specific over the medium term the target should have been 1.5 percent. Anyhow in the final analysis this Labour Government changed the policy targets agreement to shift the target to 1 to 3 percent. It could be argued in many ways that that was a victory for what had been carried on in this country since 1989 because there is not a huge difference between the ranges of 0 to 3 and 1 to 3 percent. So this legislation that we will pass tonight does not change any of the fundamentals of monetary policy in this country and that is hugely important. 
I certainly take pride in the fact that my colleague Don Brash was the Governor of the Reserve Bank right through that period. They were difficult times. Being governor today is not such a difficult thing because inflationary expectations are way down. Inflationary expectations in the mid-1980s were such that business people expected in the next year that the dollar would be 15 percent less than it was in the current year. Consumers expected prices to be 15 percent higher than they were in the current year. There is a huge difference today. People do not expect that today and one of the greatest challenges in monetary policy is countering those expectations. I salute Don Brash for having the courage to stick to an extraordinarily difficult challenge through the late 1980s and the 1990s to make sure that New Zealand’s inflationary expectations were brought down to a level by which those involved in productive industries in this country—as compared with speculation—could start to prosper. 
This legislation changes some of the governance arrangements for the Reserve Bank and we totally support those changes. I am sure that the former governor has already told the House tonight that he supports the fact that the governor should not be the chairperson of the board of directors and that the deputy-governor should not be on the board. That has already been covered this evening and we are all totally supportive of that. As my friend Rodney Hide has mentioned it is quite remarkable to have such consistency of opinion in this Parliament. 
In my remaining minutes I want to point out that this legislation as it came into this Parliament showed one of the failings of this Labour-Progressive—what is it called—New Zealand coalition— 
Rodney Hide 
: Labour-Progressive-Green. 
Dr the Hon LOCKWOOD SMITH 
: No the Greens are sitting on the wrong side for that I tell Mr Hide. I think it is the Labour-Progressive coalition or something. As it introduced this bill it sought to control the credit unions in this country and the building societies. This Government cannot help itself; it wants to control everything. It is bringing in more and more regulation into this country’s economy and it is bringing more and more taxation by stealth into this economy. More and more it is trying to control what happens in this economy and I detest that with a passion. I stand for economic freedom and liberty in this country. 
With this legislation the Government tried to stop credit unions and building societies from being able to talk about the fact that they were involved in banking. If we look at this bill we see that what was brought in when Labour introduced it was a restriction on the use of the words “bank” “banker” and “banking”. That was the main controversy the Finance and Expenditure Committee had to sort out. Finally with guidance from people like my friend Rodney Hide my National colleague Don Brash and myself on the select committee we convinced the Labour Government that that was not very smart. Credit unions and building societies are involved in banking. It is only fair that they can talk about what they do and so as this bill is reported back members will see that instead of restriction on the use of the words “bank” “banker” and “banking” there are limits on the use of restricted words in name or title. 
The select committee finally convinced the Labour Government to allow credit unions building societies and people involved in banking to talk about that fact and even in their trademarks to use the words. But if institutions are not banks and use the word “bank” in a trademark they must associate with it a disclaimer so that everyone who hears their advertisements on radio or sees their advertisements in print can hear or see that they are not banks. There is a difference. Banks have certain prudential requirements and certain controls over what they can do for good reason whereas building societies credit unions and other financial service institutions do not have those same disciplines over them and therefore do not offer the people of our country the same protections. There is nothing wrong with their talking about what they do. They do bank and they do provide banking services but they are not registered banks. 
Finally I say that this legislation as reported back from the select committee is sensible in the way it handles those terms—thanks to the work of the Opposition. It shows that the Government has a bit to learn yet on the restrictive legislation it seeks to introduce into this country.