Cunliffe David: Reports — Reserve Bank of New Zealand’s Financial Stability Report May 2010—Consideration of Report of Finance and Expenditure Committee 
Cunliffe David: Reports — Reserve Bank of New Zealand’s Financial Stability Report May 2010—Consideration of Report of Finance and Expenditure Committee 
[Volume:665;Page:13045] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I join with the member who has just resumed his seat Craig Foss in welcoming this opportunity—quite a rare opportunity—to take the House’s time to note the Reserve Bank of New Zealand’s financial stability report and indeed the report of the Finance and Expenditure Committee. There are several reasons for doing that. 
The first is of course that the public normally sees this House in full debate whether it be in question time in the general debate or in debates on members’ bills as earlier tonight. They do not often have the opportunity to see the House in its less combative moments. It is in select committees that a lot of the work goes on in the background where a lot of the time we join together to tease out evidence that is presented at the committees. This report from the Finance and Expenditure Committee tonight is really interesting because it shows 100 percent consensus. It is reported by the agreement of all the members around the table: the Labour members and the National members and the Green member the ACT member and the Maori Party member. We all reached a consensus on what we thought of the material in this report on financial stability. As the previous speaker said it is important it affects our whole country and it affects us for the longer term. 
That brings me to the second point. I ask members whether it is not important and good that we have an independent central bank that draws upon the evidence and presents it in an apolitical way to a select committee the public and the banking system so that we can get the view of if you like the technicians in the trade and what the data is saying with the politics taken out of it. That is helpful. It gives this House some things it can reflect on as we go through the headline conclusions in this report because we know they are in a sense more objective than some of the stuff we hear across the Chamber. 
What does the report say? Its first point is that although the global recovery has progressed over the past 6 months it remains patchy and fragile in many economies. It mentions the problems in Greece and it then goes on to talk about the problems that remain in the New Zealand economy. It notes that the first one is that the private sector in New Zealand remains heavily indebted creating continuing vulnerability in the financial system. It is very important that the report singles out the private sector because the overwhelming majority of New Zealand’s national debt is private debt not public debt. It is not a matter of the Government spending willy-nilly beyond its means; it is one of New Zealanders having borrowed principally on international markets through the banking system to invest in their home mortgages. 
Over the last few years it has been a national pastime a sort of sport in Auckland at least where people now grab the property pages of the newspaper to discover how successful they have been at bidding up each others’ house prices and feel richer as a result. Then they go out and spend a bit of their money racking up some credit card debt. The net result is that New Zealand has become more indebted to overseas lenders. 
Secondly the capital that that behaviour brought into New Zealand has flowed to the housing sector and not to productive businesses. That is why principally we have a very weak and shallow recovery going on with very low wage growth and very little employment growth. It is in that context that I would like to agree with the Minister of Finance when he said it was “bumpy” which was a bit of a euphemism. “Bumpy” means that we can hardly tell whether the economy is going up or down. I disagree with the Prime Minister who called it an aggressive recovery. The only people feeling aggressive are the Kiwis at the supermarket checkouts whose housekeeping budget will not stretch to cover the trolley full of groceries. 
The report states that rebalancing the domestic economy towards higher national savings and less reliance on external financing is important. In that regard the report does not add but I would add that getting the savings rate up is absolutely crucial. It is with some pride that we look back on the time of the previous Government and the introduction of KiwiSaver which was the biggest and most successful savings plan in New Zealand’s history. It is with regret that we note that the current Government has cut by half the contribution level and employer subsidy for that scheme and that not only has that left New Zealanders worse off because they do not have as rich a savings vehicle but also it has depleted the rate of savings increase that was coming from KiwiSaver. 
We note again with regret that in Budget 2009 the Government’s principal action was to defer pre-funding the New Zealand Superannuation Fund and that is important because it was another principal tool for lifting our aggregate national savings rate. By deferring pre-funding we have reduced the inflow of funds into our largest collective savings vehicle. We did so at a time when the markets were down and we have therefore missed out on some of the capital gain surprisingly enough as the markets have recovered but the Superannuation Fund was short of that additional capital that would have assisted it. 
Coming through from the report is a lack of—but I will put it more charitably as a need for—a comprehensive economic plan to address the structural imbalance. If listeners out there do not believe me perhaps we could quote the words of the Governor of the Reserve Bank that independent authority who testified to the committee. He stated: “Despite the improvement in the current account deficit”—people have imported less because they have been poorer in the recession—“the Governor stressed that the structural imbalances in the economy require continued attention. Specifically the Governor said that a focus is needed on changing motivational levers away from consumption and back into production to help to reduce New Zealand’s high private-sector debt”. If that sounds familiar that is because it is exactly what we have been talking about but do not take it from me or the Labour Party; that was the Governor of the Reserve Bank saying that New Zealand needs a plan to rebalance the economy. I add the implication that if we already had a plan he would not be saying that and therefore we can conclude that the Government does not have a plan. 
Labour does have a plan and it has recently been released in our  
Blueprint for Monetary Policy Reform 
 which of course bears upon the material in this financial stability review. We would firstly retain the independent full-service central bank and we would retain the current inflation target. We would however amend the Reserve Bank of New Zealand Act and the policy targets agreement to broaden the objectives of the Act to include growth in employment and the economic well-being of New Zealanders and in so doing mirror more closely the structure of our nearest trading partner and most important neighbour with the  
Blueprint for the Australian Central Bank 
. 
Secondly we would explicitly recognise what this report refers to in terms of the Basel Committee on Banking Supervision and the G-20 movement in explicitly recognising the role of the new core assets ratio which is strengthening the balance sheets of our banking system and we would recognise the counter-cyclical role of what they call macroprudential policy—that kind of stuff—in the Reserve Bank of New Zealand Act itself. It is a surprise to us that the Government has not moved in that direction. It seems to be only the Beehive that has not recognised the movement that is going on all around the world as a result of the global financial crisis. It is going on in the G-20 in the Federal Reserve System in the US even in the Bank of England certainly in the Bank of Japan and in the Reserve Bank of New Zealand but it is not going on in the Beehive. It is also true that Labour would explore other complementary monetary tools and I suspect that my colleague the Hon David Parker will elaborate on those when he takes a call. 
It is important that we reflect finally on the record of the previous Labour Government on fiscal responsibility. We hear every day from the Minister of Finance in question time a mirage that somehow the previous Government was imprudent— 
Hon Dr Nick Smith 
: Reckless! 
Hon DAVID CUNLIFFE 
: Yes. I ask the member how that squares with the fact that under Labour gross debt was cut in half net debt was cut to zero and the incoming National Government inherited net debt of only 5 percent of GDP—only 5 percent. It is now over 20 percent I recall. This Government has taken the economy in the wrong direction just as National did the last time it was in Government. As I have already mentioned the Government has put off pre-funding superannuation which puts an additional cost on our children. That is not fiscally responsible; it is not fair to the next generation. The Government borrowed for tax cuts. It borrowed for tax cuts because it did not keep its promise to be fiscally neutral in Budget 2010 and it gave one-third of those tax cuts to the top 5 percent of earners. 
Finally Opposition members do not need the Government to lecture us about fiscal responsibility and financial stability because Labour’s record stands up for itself.