Smith Lockwood: Motions — Reserve Bank Funding Agreement—Ratification 
Smith Lockwood: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:647;Page:16655] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This Government motion is not a highly controversial matter but the appropriate funding of the Reserve Bank is something that this Parliament should take seriously. It is ultimately this Parliament’s responsibility to ratify the agreement that the Minister of Finance has just mentioned. That agreement was provided for under the Reserve Bank of New Zealand Act whereby the bank is able to retain each year as agreed with the Minister of Finance the amount of its gross earnings. This Parliament quite properly has the ultimate decision whether to ratify that agreement. So we do have the power to not ratify it because after all expenditure of public moneys is something that is the preserve of this Parliament not the Government. So it is an important responsibility that Parliament has to decide whether to ratify this increased expenditure. 
What I think is important in a debate such as this is that these things are as transparent as possible because obviously the Reserve Bank needs the funding to carry out its legislated functions and no one in this Parliament would say the bank should not be able to retain that level of funding from its gross earnings. But I think what would be a little more helpful would be had the Minister explained a little more about why there has been such a big increase over recent years. Now Dr Cullen mentioned that the actual dollar amounts that the variation to the funding agreement provides for is a relatively small number of dollars in 2008-09 and 2009-10; when I say “relatively small” the increase I think in 2008-09 is about a 5.6 percent increase and a 9 percent increase in 2009-10. 
The $2 million or $3 million involved in that does not sound a huge amount of additional money to carry out the new roles that the Minister has just mentioned. For example he mentioned that the licensing and prudential supervision of non-bank deposit takers would be a new function for the Reserve Bank as is the licensing and prudential supervision of insurance companies. Obviously that will require more funding but to me what is interesting as we look back over the current agreement that we are looking to amend tonight is that in fact the Reserve Bank has been receiving quite significant increases in funding anyhow. I draw the House’s attention to the 2006-07 financial year; according to the information I have the agreed amount of money that the Reserve Bank was able to retain in the 2006-07 year was $34 million. The agreed amount that is put before this Parliament tonight to ratify for the 2009-10 year is $46.9 million. Now that difference over a period of just 4 years is a 38 percent increase in the amount of gross income the Reserve Bank is able to retain. 
One has to ask oneself whether a 38 percent increase is reasonable. Admittedly the 2006-07 year for some reason or other was a year of lower retained income—the year before was $39 million. Be that as it may as I understand it in 2006-07 the agreed amount was $34 million. Do the new responsibilities around non-bank deposit takers and insurance companies justify that kind of increase—38 percent—in retained income in just 4 years? I think we deserve a little more explanation as to why there is quite such a big increase because when it is not explained to the House more clearly why that level of increase has occurred it invites suspicion. 
Let me explain why it invites suspicion. In the last 12 months the Reserve Bank took a sort of swing into the area of currency trading and at one stage there I think when the New Zealand - US exchange rate hit about US75c from memory or somewhere around there the Reserve Bank suddenly launched into—naturally it would not have announced it previously—quite a significant foray into foreign exchange trading. Some people have said the bank used a peashooter against the currency traders because international currency trading is a massive amount of money transacted each day and the amount of retained earnings the Reserve Bank has to play that game is pretty limited; and what is more the Reserve Bank intervened at about US75c and the currency immediately proceeded to climb to over US80c. 
Of course the Reserve Bank at that stage on paper would have lost significant money. The question that it would have been helpful to have an answer to had Dr Cullen made it clear to Parliament tonight—maybe the next Government member could do this—is whether the Reserve Bank has lost any significant money on its currency trading escapades. To the uninitiated like me because I am no expert in this field of currency trading one could suggest that OK it intervened in the markets at about 75c it lost on paper as the currency climbed to 80c—damn near US81c—but since then the New Zealand dollar against US currency has receded somewhat. What is it back to today? 
Tim Groser 
: 74c. 
Dr the Hon LOCKWOOD SMITH 
: It is at 74c or 75c today. On paper it could be suggested that if it is back to the level the Reserve Bank intervened at maybe it should now on paper not have lost money. But in this game the question is: did the bank make plays to minimise its losses if the currency went up? Is it in fact in a loss position even though the currency has come back to where it is? We do not know. 
The reason why I raise it is that the amount of increase in funding that the Minister has agreed to with the governor under section 61(5)(9) of the Reserve Bank of New Zealand Act—that level of funding he is asking this Parliament to ratify this evening—is not a small increase over 4 years. Remember that the Minister said that normally these agreements are for 5 years—and the current agreement is being varied now and that is what we are seeking to ratify tonight—but for the last 5 years going through to the 2009-10 year in 2005-06 it was $39 million then it dropped to $34 million in 2006-07 then it went up to $41 million in 2007-08 $41 million in 2008-09 and $43 million in 2009-10. 
Compared with the 2006-07 year that is a 38 percent increase in funding we are now asked to ratify this evening. I put it to members that given the existing functions of the Reserve Bank including the prudential supervision of our banking system given all the activities that the Reserve Bank has and add to those functions the licensing and prudential supervision of the non-bank deposit takers and the licensing and prudential supervision of the insurance companies—on that latter one there are not a lot of insurance companies—we have to ask the question: do those two extensions in function of the Reserve Bank justify in 4 years a 38 percent increase in the amount of its income the Reserve Bank is allowed to keep? 
That is what I think has not been so well explained to Parliament this evening. It invites speculation that maybe there is a bit more to this than the Parliament has been made aware of. I see Clayton Cosgrove who has all sorts of problems within his own Immigration New Zealand. If he focused a bit more on the functionality of his own department instead of claiming that he is not accountable for the shambles in that department New Zealand might be better off. I can assure him the public thinks he is accountable. Any Ministers who think they are not accountable for their departments have a lesson coming. 
All I say with respect to this motion in front of the Parliament tonight is that National obviously will not oppose it but it would be helpful if the Government could assure us that a 38 percent increase in 4 years can be justified just by those two extensions of the responsibilities of the Reserve Bank. It seems quite a large increase given just those two extensions of responsibility. Could someone from the Government explain whether there is anything else involved whether the foray into currency trading has anything to do with it because the Reserve Bank has the authority to go on doing that. I think we need to be satisfied that we have heard the full explanation as to why we have to ratify this evening this significant increase in the amount of income that the Reserve Bank is able to retain.