Prebble Richard: Questions for Oral Answer — Questions to Ministers 
Prebble Richard: Questions for Oral Answer — Questions to Ministers 
[Volume:614;Page:10278] 
6. Hon RICHARD PREBBLE (Leader—ACT) 
 to the  
Minister of Finance 
: What has been the response from the Reserve Bank and the Treasury to his request for a report on ways to curb the rising dollar and can he state which specific options he sees as open to the Government to lower the New Zealand dollar? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Work is being done and no. 
Hon Richard Prebble 
: Is the Minister concerned about the effect on his own credibility of his musing publicly that he has options for lowering the dollar when a recent survey of business leaders by the  
New Zealand Herald 
 states that 87 percent of them do not believe there is any method open to him unless he is going to be another Muldoon? 
Hon Dr MICHAEL CULLEN 
: No. 
Dr Don Brash 
: How does his reconcile his comment to  
The Economist 
 magazine 2 months ago: “There are no effective policy instruments” to address the high level of the New Zealand dollar with his recent comment that he is “not without options in this regard”? 
Hon Dr MICHAEL CULLEN 
: Because it is always possible to come up with other policy instruments. 
Rt Hon Winston Peters 
: Would the Minister admit that a dramatic cut in immigration is one of those policy instruments in respect of a reduction in inflation and therefore enabling the Reserve Bank governor to lower rather than increase interest rates; and why is he not prepared to take some action given the dramatic damage done to so many New Zealand exporters in the last 2 years? 
Hon Dr MICHAEL CULLEN 
: It is hard to see that a cut in New Zealand’s immigration will make the United States dollar rise. 
Rod Donald 
: Does the Minister agree that the value of the New Zealand dollar would drop if the Reserve Bank lowered interest rates but that it is unlikely to do so because of the risk of further fuelling the property boom and would he consider introducing a capital gains tax on all but the family home in order to get the balance right between speculative and productive investment as well as getting the dollar down to sustainable levels? 
Hon Dr MICHAEL CULLEN 
: On the last point no and with the time taken to do it by then probably the dollar would be coming back down in any case. It would be a classic case probably of pro-cyclical policies and would be counterproductive in terms of New Zealand’s general economic position. On the other matters with regard to the position we are in I think the fundamental driver in the situation is the fall in the United States dollar. Clearly no policy instruments in New Zealand will have any effect on the United States dollar at all. 
Dr Don Brash 
: Following Reserve Bank governor Alan Bollard’s comments last week: “There is no free lunch.” and that that there are “quite big problems around most forms of currency intervention” can we conclude that he would not take any of the unspecified options to curb the rise in the exchange rate unless there is severe disruption in the market; if not why not? 
Hon Dr MICHAEL CULLEN 
: I agree with Dr Bollard as I very often do. There is no free lunch and the lack of a free lunch and the totally hands-off approach is the distress now being suffered by the tradable sector. 
Rt Hon Winston Peters 
: Why is the Minister arguing now that the interest rate set by the Governor of the Reserve Bank has no effect at all on the New Zealand currency? 
Hon Dr MICHAEL CULLEN 
: I am not arguing that. But what I would argue—and I think our own experience over the last nearly 20 years demonstrates—is that interest rate increases may or may not lead to a rise in the New Zealand dollar in the same way that interest rate falls may or may not lead to a fall in the New Zealand dollar. It depends what the market perception is of the result of those movements in interest rates. If the perception is that an increase in the level of interest rates makes us more attractive then the New Zealand dollar will rise. If the perception is that the economy is going to slow rapidly then the economy could well fall as a consequence. 
Hon Richard Prebble 
: Why will the Minister of Finance not just admit to the House that any of the options that could lower the dollar can only do so by doing great damage to the New Zealand economy—and that would be a helpful statement—or alternatively that he does believe that he and he alone knows some options that will do it and given the damage that the rise of the dollar is doing to the export sector does he not think he has an obligation to this House to tell us what those options are or admit that he has made a fool of himself? 
Hon Dr MICHAEL CULLEN 
: I notice that many other countries similar to ourselves do intervene—notably Australia. That has a modest moderating effect on their volatility at best. 
Dr Don Brash 
: A few moments ago the Minister seemed to imply that a hands-off approach on the currency had significant disadvantages; can he give us advice on what precisely he has in mind as the alternative to that hands-off approach? 
Hon Dr MICHAEL CULLEN 
: No. What I said to the member is that there is no free lunch in any policy approach in those areas. That is the hard truth about exchange rate movements.