Parker David: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeParker David: Questions for Oral Answer — Questions to Ministers[Sitting date: 07 May 2014. Volume:698;Page:17564. Text is incorporated into the Bound Volume.]5.Hon DAVID PARKER (Deputy Leader—Labour) to theMinister of Finance: Does he agree that the objective of the Reserve Bank in the Reserve Bank of New Zealand Act 1989 should be changed; if not why not?Hon BILL ENGLISH (Minister of Finance): No I do not. It has served New Zealand well through three significant recessions and a global financial crisis. The second reason is that going soft on inflation is worse for those at the bottom of the income range. Thirdly if we keep it in place it means you will not end up with silly policies like cutting people’s net pay by 15 percent with no effect on interest rates as the Labour Party proposes.Hon David Parker: Does he stand by his statement that Labour’s proposed changes to monetary policy are “nothing new” or does he stand by his other statement on the same day that Labour’s upgrade of monetary policy is risky because it is untried?Hon BILL ENGLISH: Yes I stand by those statements. There is nothing new about a policy that says that we will raise KiwiSaver contributions. If that is a big new idea well it is not that new. The risky bit is messing up the current monetary policy decision-making framework by basically taking it from the Reserve Bank and putting it in the office of the Minister of Finance.Tim Macindoe: Under the policy targets agreement the Minister signed with the new Reserve Bank Governor in 2012 what other objectives does the Reserve Bank have to consider in setting monetary policy in addition to price stability?Hon BILL ENGLISH: Interestingly the policy targets agreement that I signed with the new Governor in 2012 was very similar to the one drafted by the Minister of Finance under the Labour Government Dr Michael Cullen which says that in pursuing its price stability objective the bank—and it goes on a bit—shall have regard to the efficiency and soundness of the financial system and “seek to avoid unnecessary instability in output interest rates and the exchange rate.” That means that the Opposition’s view that the Reserve Bank Governor does not take account of things like the exchange rate or the impact on the current account is simply wrong. We have got an agreement that was actually largely written by the previous Government when we did have bipartisan agreement on these things.Hon David Parker: Why does he stand by his statement that no changes are needed to monetary policy settings given that New Zealand interest rates through the cycle are significantly higher than those in our competitor countries and we have not had a current account surplus for 40 years?Hon BILL ENGLISH: If the member wants to use interest rates and current account numbers as a measure of success then he should take account of this. Interest rates today are slightly higher than a 50-year low and they are half the level when the last Labour Government left office in 2008. The current account deficit is 3.5 percent—heading to 2.5 percent according to some forecasts. When that Government left office having tried all his theories it was 8 percent—the worst on record—for 3 years in a row. So all the problems are at least only half as bad as they were and getting better. We think that that is a recipe for sticking to the plan. Labour says that it is a crisis and that we should go back to making the same mistakes as last time.Hon David Parker: Is the reason our already overvalued exchange rate has increased recently even though dairy prices have fallen by 21 percent in 3 months due in part to the interest rate increases caused by out-of-control house prices in Auckland?Hon BILL ENGLISH: People can speculate on any reason they like why the exchange rate is higher but it does indicate that something is happening in this economy that is pretty important. Something is happening that is pretty important that is different from the analysis of the Opposition. The exchange rate has been at 80 percent - plus against the US dollar for a long time and last week we had record exports. No one would have predicted that 4 or 5 years ago nor would they have predicted that interest rates would have stayed at 50-year lows for 3 or 4 years. So it could well be that some long-term structural problems in the New Zealand economy are actually improving. I know that that is bad news for the Opposition but it is good news for New Zealanders.Hon David Parker: Is the Employers and Manufacturers Association wrong to say that our proposed monetary policy changes have merit is Westpac wrong to say that our policy is sensibly modest and is Brian Fallow of theNew Zealand Heraldwrong to say that our monetary policy looks good because it preserves the inflation control of the existing regime?Hon BILL ENGLISH: All those entities are in the same position as the Labour Party leader and the caucus and that is that as they ask questions about what it actually means like it is a proposition for a 15 percent pay cut for tens of thousands of low-income New Zealanders they too will change their minds. One has only got to see the comments made by the leader of the Labour Party to understand that he never read the policy before it was announced and he cannot answer basic questions like “By how much will New Zealanders’ pay be cut in order to try to keep interest rates down?”.Tim Macindoe: What reports has the Minister seen rejecting the idea of changing the Reserve Bank of New Zealand Act and particularly proposals to broaden its core focus away from price stability?Hon BILL ENGLISH: The Reserve Bank of New Zealand Act has been examined a number of times and so have the mechanisms of our monetary policy over the last 15 years. There was one such report in 2008 by Parliament’s Finance and Expenditure Committee which was helpfully chaired by the Labour Party’s most outstanding economic thinker in a generation Charles Chauvel! It made a number of important inclusions stressing that monetary policy remained the primary means of achieving low inflation and that New Zealand’s monetary policy approach is standard among small open developed economies. At the time the Minister of Finance for the Labour Government Michael Cullen sensibly agreed with the select committee and no major uncertainty was created through sophisticated globally-leading but inexplicable ideas.