Adams AmyHon AMY ADAMS (National—Selwyn): Thank you Mr Assistant Speaker. Obviously I'm coming down to take a call in this second reading of the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill and I want to start by of course just getting on the record what a critical economic foundation stone the Reserve Bank is in our policy and our economic framework. It is because it is such a critical piece of our infrastructure and our legislative framing that it's certainly the view of this side of the House that changes to what has been an incredibly successful structure for the bank over many many years need to be approached very cautiously and I would argue ideally with bipartisan support. The Reserve Bank like many of our institutions needs to have a framework that is enduring that is long serving and that has broad buy-in and support. And when we are passing changes to the legislative framework of that organisation certainly without bipartisan support across the major parties in this Parliament certainly against the views of many of the submitters who submitted to the Finance and Expenditure Committee and I would argue without any clear evidence of a problem that we're trying to solve then you've got to ask why we're doing it. That is why the National Party is opposing the second reading of this legislation.Now we've heard from the Minister of Finance fundamentally what the changes are in this piece of legislation and some of them as I indicated in my first reading speech the National Party finds no real issue with and we have tried to be as constructive on the select committee around those as we can. But there are two areas where we have real concern where I don't think that the Government has set out its case at all where I don't think the Government has taken on board the very strong views of submitters and where certainly we continue to have quite some concern. The first of those is around this dual mandate. For a long time the Reserve Bank has functioned very clearly under the understanding that its primary goal is in maintaining price stability. Not to bore the House but any economic text will go through and talk very clearly about the importance of price stability and the role of monetary policy in maintaining the stability of our economy and through that the wealth prosperity and well-being of our citizens.Interestingly there have been three reviews of our monetary policy system and settings since 2000 and every one of those reviews has actually found that the current structure the one the Minister wants to amend is world leading. Well it's certainly world's best practice; I'm not going to say we're better than everyone else but we're certainly demonstrating best practice so I would argue that the bar is incredibly high to justify now why we want to change it. Now everyone in front of the select committee from the officials to the Reserve Bank themselves has said that the bank already considers a much wider range of economic considerations than just price stability. Everybody agrees that; I don't think the Government disputes it. So it's simply not right to say that the bank should be considering other economic criteria. They already do. But what you've heard from the Minister is simply him saying Well we know there's a range of people who disagree with the change but we believe in it." Well I'm sorry Mr Robertson but that is not making a case simply saying that others are wrong and we think we're right. When you have a world best-practice framework when you have a system that has delivered a very solid and stable economy over many years and across many Governments—this is not a red-blue discussion—and when you have a system that already takes into consideration a wide range of economic criteria why are we changing it? Submitters to the committee have made it very clear that this is a solution looking for a problem. Time and again we asked at select committee "What is the problem we're trying to address? What is the situation where the officials don't think—or the Government doesn't think—that wider economic conditions have properly been considered?" and no one has been able to identify one. I want to indicate something else that is concerning to me about this dual mandate. The Minister has made a change in the purpose section of the Act which actually we support. It talks about the role of monetary policy in creating economic prosperity and stability and lifting the outcomes for New Zealanders and I think that's a good statement—it captures that full picture of what it's all about. But then in the economic objectives which is where the rubber hits the road he has forgone all of that wider basket of considerations and said "It's just about price stability and maximum sustainable employment." Even if you look at the Minister's own expert advisory group they recommended that the Minister not do this that they not be on level footing that actually price stability should still be the primary consideration while making allowance for and giving effect to maximum sustainable employment. So certainly we can put wording in there which suggests that you must turn your mind to that and we would have no issue with that but they haven't done that. They've said one is just as important as the other. What's worse is that officials made it very clear to the select committee that the Minister—because we were asking "What happens if they're in conflict? You've got two different objectives. They're on level footing legally. What happens if they were to pull a governor in different directions?" The officials made it clear that the Minister through the remit could now effectively set the priority between those two things. So we could have a situation where price stability becomes a secondary consideration which would fly in the face of all sensible conventional wisdom. I just want to turn a little bit to what submitters have said around this. The New Zealand Initiative have made it very clear that the Government has failed to do anything to make the case that monetary policy implementation as it currently exists has failed to properly take into account employment and output. You've got Business New Zealand saying the bill is largely a solution looking for a problem and that this dual mandate muddies the water. You've got the ASB Bank recommending again as we do that price stability objectives should be given precedence over employment. From the regulatory impact statement itself a majority of stakeholder feedback received through the Treasury process was of the view that the current legislative framework for monetary policy was working well. So in the face of all of this I say again to the Government: what is the problem you're trying to solve? It's not a case of a harmless change that may or may not be needed. You are messing with a core foundation of our system and you're doing it at a time when we know the system has served us very very well. In fact there is a real risk. There is a real risk that you get a situation where a governor or a Reserve Bank could absolutely be motivated to have the economy running hotter than would otherwise be the case to ensure that there is a continued stimulation or expansionary set of conditions to maximise employment. That is a risk because we know that if you allow the economy to run hotter than it otherwise should over the long term that is much worse for the economy you're dealing with. So we are setting up this perverse incentive where a governor could allow inflation to run on more than he otherwise might—"he" of course as it has been. Even in the last Monetary Policy Statement it's interesting to see that we've got a Reserve Bank Governor who himself is signalling in his forecasts that he sees inflation being above the 2 percent mid-range point and yet not moving the official cash rate. So you do start to wonder what sort of influence that dual mandate is having. The second issue that I want to raise because it's equally of concern to this side of the House is the question of what does look I'm sorry to say like an increasing politicisation of the Reserve Bank. We have now a serious threat to the independence of a crucial institution.Hon Andrew Little: What rubbish!Hon AMY ADAMS: Members across the House may well want to scoff—they may well want to scoff—because it suits their objective but let's be clear. We've got the Reserve Bank Governor just in the last few days himself saying that independence is critical to the Reserve Bank saying that operational independence is critical for a central bank and anything that feels like it might threaten that will be strongly defended. What we have in this bill is a monetary policy committee that I feel won't give us true diversity of thought and the advantages of group decision-making because they're all apples from the same tree. They will all be appointed by the Minister of Finance and the governor will be appointed by the Minister of Finance and the board will be appointed by the Minister of Finance and they'll act in accordance with the remit set by the Minister of Finance. We have a very real risk that we will get thought capture coming from a Minister of Finance who can put in place a framework which will last five years and ensure that their views are maintained. A final point that I want to make in my last few seconds: this issue of a Treasury observer sitting on the Reserve Bank monetary policy committee is deeply worrying. There is no evidence that there is currently a problem of information flowing between No. 1 and No. 2; Treasury officials admitted that. There is no evidence that somehow the Reserve Bank don't know what the Government is doing and we will now have a senior—in fact the most senior—Treasury official who is bound to uphold and advance Government policy in the room participating in the discussions and I have no doubt seeking to influence to ensure that the Reserve Bank instead of being an official independent monitor of what's going on toes the Government line. I think that is deeply worrying. There is no case for this legislation. There is no problem to solve and this weakens our structures."