Parker David: Debate on Crown Entities Public Organisations and State Enterprises — In CommitteeText is incorporated into the Bound VolumeParker David: Debate on Crown Entities Public Organisations and State Enterprises — In Committee[Sitting date: 17 June 2014. Volume:699;Page:18536. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Deputy Leader—Labour):I rise to take a call in this debate. I want to reflect on the mandate of the Reserve Bank and why in the view of the Labour Party we should as a Parliament update it to cater for the challenges of today. New Zealand has not had a current account surplus for 40 years. For 40 years we have run a current account deficit.Hon Steven Joyce: Ha ha!Hon DAVID PARKER: Whenever I say that for some reason Mr Joyce finds it funny. He seems to think that getting back to about minus 3 percent of GDP as a current account deficit is the best that it can ever get. It is the best that it will ever get under the National Government because on these big calls National is always a follower; it is never a leader. It was not a National Government that introduced the Reserve Bank of New Zealand Act in the first place. It was not a National Government that introduced the Cullen fund. National members opposed it—in fact they called it a dog—but now they say it is good. It was not a National Government that introduced KiwiSaver.These long-term changes that make New Zealand a better place are generally brought about by the Labour Party. The last time New Zealand had a current account deficit we had terms of trade that were good. But do you know what? They were not quite as good as the terms of trade that we have just had. So in comparison with 40 years ago when we had terms of trade this good New Zealand had a 2 percent current account surplus and we still have a deficit that is around 3 percent. It might get a wee bit under 3 percent by the time it starts going out again but then it is going to go back out to over 3 percent.Every year that New Zealand has a current account deficit it plugs the gap in one of two ways and generally a combination of both. It either borrows more money from overseas lenders or it sells assets that were previously New Zealand - owned to overseas owners. As a consequence the burden on New Zealand’s economy to pay interest or dividend flows to those overseas lenders and owners grows every year.Of course the control of inflation is important. Prior to our announcements there was concern amongst some of the bank economists and academic economists that we were going to lose that grounding—the target to control inflation. But we have not done that. We have not done that.Hon Steven Joyce: No that won’t change.Hon DAVID PARKER: Mr Joyce chortles away there on the other side but he is a man of so little vision that he does not get the subtlety of any policy. He thinks the way to go about policy is to employ more than 50 spin doctors at the Ministry of Business Innovation and Employment. That is his view of policy. The reality is that we can cause the Reserve Bank to approach monetary policy in a way that best achieves external balance over the cycle and so that is what we have said it should do. If we do that we will also get the Reserve Bank encouraging better policy outcomes from the Government.We know that the reason interest rates are going up at the moment is that we have got enormous house price inflation in Auckland at a time when general price inflation is low. The failure of Government policy around housing is responsible for those interest rates going up higher than they would otherwise need to go. Part of that imbalance in the economy is caused by biases in our tax system—notably the absence of a capital gains tax taxing speculative property purchases.The National Party rattles on that we have already got a capital gains tax. That is not true. We do tax as income some traders in property but the vast majority of investors in property who buy a property and then sell it at a profit do not pay any tax on their economic gains. The IMF the OECD Treasury and the Reserve Bank all agree that these cause imbalances. One of the reasons why the Government gets away with not doing anything to address this—which is plainly in the interests of the economy even if it is not in the interests of the minority of New Zealanders for whom this National Government plainly governs and whose interests it prefers—is that the Reserve Bank is never under its current mandate really strongly incentivised to say “Well look if you don’t introduce a capital gains tax we are going to have to push up interest rates.”That is effectively the trade-off that we have in New Zealand at the moment and yet that is not exposed under current settings. So the changes that we propose to monetary policy would be one of the ways that New Zealand could keep its interest rates lower for longer. We have interest rates that throughout the economic cycle are higher than those of other countries. I am not talking about the variation within an economic cycle the timing of which will be different in New Zealand compared with overseas countries; I am talking about overall New Zealand interest rates being about 1.5 to 2 percent higher than they are in Australia. The difference in respect of some other countries is even higher. We will not get over our current account deficit and we will not be able to increase our wages in New Zealand and grow our export economy unless we address these problems.