Robertson GrantRESERVE BANK OF NEW ZEALAND (MONETARY POLICY) AMENDMENT BILLThird ReadingHon GRANT ROBERTSON (Minister of Finance): I move That the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill be now read a third time.I'd like to thank all members who have contributed to this bill at all stages including the select committee chaired by the excellent Michael Wood and all the members of the Finance and Expenditure Committee for the hard work that they did in progressing this legislation to this point. I also want to make a special mention to the officials from Treasury and the staff from the Reserve Bank who have worked behind the scenes on this. This is an area of policy where for by and large 30 years not a lot has changed and so it has been a significant amount of work for the officials from Treasury and the staff from the bank and I want to put on record my appreciation for the work that they have done in this particular piece of legislation.This is from our perspective a significant moment because it is the first of two phases of reform and modernisation of the Reserve Bank Act and indeed of the way we approach monetary policy in New Zealand. I am going to mainly talk today about the two significant changes: that of the introduction of a dual mandate for the bank to maintain price stability but also to support maximum sustainable employment and then secondly the change in the decision-making process on monetary policy with the establishment of a monetary policy committee and the various processes that flow from that including the creation of a remit and charter.Before I do that though I want to mention the change that we're making to the purpose of the Act which hasn't had as much attention as we've gone through the other stages in the House. I want to read that out for the benefit of the House. The change that we're making is so that the purpose statement begins with The purpose of this Act is to promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy". That is the core purpose in my view of all of the different parts of the apparatus of our economy and while monetary policy is set independently by the Reserve Bank that purpose statement should draw together why we have a Reserve Bank and then the tasks that it has in order to influence those objectives. That change recognises that monetary policy does indeed have a significant impact on the real economy and on the lives of ordinary New Zealanders. By somehow or other divorcing it from our overall economic apparatus seems to me to be wrong and so the purpose statement does draw that back together and it makes clear to New Zealanders that monetary policy contributes meaningfully to those wider objectives around prosperity and well-being and the sustainability and productivity of our economy.So after that change to the purpose statement the main change we are passing through this bill is the amendment around section 8 of the Act and this is the change to the mandate. I want to make clear that throughout this process the commitment we had to price stability and for that being a key focus of the work of the Reserve Bank remains.I am just old enough to remember the days in New Zealand of double-digit inflation and the impact that that can have on working people. It is something that causes huge difficulty in the lives of ordinary people and you can only look to examples around the world subsequent to that period of time in New Zealand where we can see that impact so controlling and managing inflation remains absolutely critical. It is equally critical that we have a measure within the mandate of the bank for the real economy and that has been chosen to be maximum sustainable employment. We believe that together these objectives represent a balance of what it means to make good monetary policy and to see that monetary policy in the context not only of the economy of today but of the future.I want to note that the creation of this mandate is not new in the world. The United States has it Australia has a mixed mandate and other countries have beyond just the words around price stability in their legislation. But what it represents is a modernisation and indeed a reflection—as we have heard in other stages of this debate—of in fact the factors that the bank takes into account when it's making its decisions anyway.We believe that it is right that in making those decisions we are explicit in the Act on the way the bank actually operates and what it actually puts into its decisions. So if it's good enough for the bank to take into account aspects within the real economy then having them within the objectives should be no trouble at all and in fact is a positive development to provide that clarity around the role of monetary policy in the wider economy. It is a change. It is a significant change but it is one that has been well signalled and understood and I believe will stand us in good stead in years to come.The other significant change that we are making is obviously around the way in which monetary policy decisions are made. At the moment the Reserve Bank Governor has the sole responsibility for taking decisions on monetary policy. Over the last 30 years since the legislation was passed in New Zealand other countries have taken different approaches and it is time for New Zealand to catch up and understand that in fact having a monetary policy committee will make for better decisions. In fact I believe that the previous Governor of the Reserve Bank and the current governor both have been operating models where they have been more consensual about the way in which decisions are made on this. This again is reflecting that reality and making it transparent which I think members of the public have a right to see.So the monetary policy committee will have the governor at its head but it will include a majority of members from the Reserve Bank. It will include the deputy governor and two other internal members and three external members. The proportions there can change. It has to be between five and seven members. I've been very clear that is my intention that I will be appointing three members to be external members and that we will have the four members from the bank.The process for appointing those members is actually the same process by which we appoint the Governor of the Reserve Bank in that it's on recommendation from the board to the Minister who makes the final decision. It is effectively what's called the double veto. It's an opportunity for the board and the Minister to be in that decision-making process together. That is important. Nothing here compromises the ability of the bank to make independent decisions. This is simply about making sure there are more voices at the table that reflect the wider New Zealand economy. The governor of the bank will chair that committee and I'm sure will continue to be a critical part of all of those decisions.There will be a Treasury observer at the monetary policy committee. That person does not have the right to vote on any decisions within the process but it does provide an important link with the fiscal policy of the day to the monetary policy decisions. Again the current Reserve Bank Governor has been experimenting with this and I think it's an approach that's appreciated and not new in the world either—it's undertaken by the Bank of England—and we think will do a lot to bring together those aspects that are important to our economy.The other parts of the legislation deal with how we will now put in place monetary policy. The policy targets agreement that's previously been signed between the governor of the bank and the Minister of Finance is now replaced with a remit to acknowledge the fact that we've moved to a committee-based process. It is important to note that what is in the remit in terms of the way in which monetary policy will be put in place has to be consistent with the economic objectives of the Act. It must still require a medium-term price stability objective and how this should be achieved in addition to the new objective of supporting maximum sustainable employment. The remit is an important part of this process. It provides a new formal role for the advice of the bank in setting operational objectives. Prior to me as Minister or whoever succeeds me in years to come issuing a remit the bank is required to provide advice and that advice and public consultation about it will be published. So there is a level of transparency there. We also in this bill put out the process of a charter. That'll effectively be the rules that govern the way that that monetary policy committee works. We would expect the publication of minutes from that so that people can see the decisions and how they've been come to and the way in which accountability transparency and decision making will take place. These are and this is an important process to creation of the charter and that is set in motion by this bill. I am very proud of this legislation. It represents the modernising of our monetary policy phase one. Phase two: we are under way now with consultation around other aspects of the bank's work. But this marks an important stage in the evolution of our monetary policy so that it will play its part in contributing to the overall economic apparatus. It has represented some significant work. There is broad consensus about it in the community and I commend the legislation to the House."