Robertson GrantRESERVE BANK OF NEW ZEALAND (MONETARY POLICY) AMENDMENT BILLSecond ReadingHon GRANT ROBERTSON (Minister of Finance): I move That the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill be now read a second time. At the outset I would like to thank the Finance and Expenditure Committee for its consideration of this important bill and acknowledge the contribution of all members of that committee on the bill especially the wise leadership of my colleague Michael Wood in fostering the bill and the consensus that built around the bill in shepherding it through the House. I'm very grateful for the work of the select committee.The select committee have suggested some minor changes which I am happy to endorse in particular the changing of the commencement date which will allow the main provisions of the bill the commencement to occur by the earlier date of 1 April 2018 or by an Order in Council. This is done so that the first official cash rate decision made by the monetary policy committee that will be established under this bill will coincide with a Monetary Policy Statement which will make the process a lot more efficient and effective.The second change that the select committee has agreed upon is to recommend that the Reserve Bank be required to undertake public consultation on key issues relating to a replacement charter alongside the consultation on its remit. Those are two new terms for the Act the remit being the replacement for what used to be called the policy targets agreement—essentially the agreement between the Reserve Bank and the Minister of Finance around what the focus of the bank will be; the charter is the document that governs matters relating to the monetary policy committee in terms of their accountability and decision-making procedures and transparency. I agree with the select committee that it is indeed a subject that members of the public may well have some interest in—certainly in other jurisdictions where the monetary policy committees exist. The rules around how members of that committee will behave how much we as members of the public will know about what happens inside the monetary policy committee and the way the decisions are made are topics that I recognise are of interest to members of the public—perhaps not all members of the public but those who are interested in monetary policy and so therefore—Hon Phil Twyford: Who's not?Hon GRANT ROBERTSON: Well that's right. Phil Twyford's been a late convert in life to the importance of monetary policy and I'm sure he may well have some views on the charter. But certainly—Hon Amy Adams: Treasury are his best mates.Hon GRANT ROBERTSON: That's right. He's got a lot of views on what they say about monetary policy. That's correct Amy Adams. So we look forward to those amendments from the committee being taken forward in the further stages of this bill.To recap in terms of why the Government has undertaken this piece of legislation it is important that we maintain the independence of our Reserve Bank in making monetary policy decisions. We don't need to go that far back in New Zealand's history to find Ministers of Finance who may have had more of an interventionist streak when it came to that kind of activity. That period of time through the early 1980s was one that drove a lot of change in New Zealand and one of those changes was the Reserve Bank of New Zealand Act. That level of strategy independence is important. What we are trying to do with this legislation however is say that monetary policy itself is extremely significant in the operation of the overall economy. And while we all want a focus on price stability on making sure that inflation is kept under control we also have to recognise the role that monetary policy decisions have in the other parts of the economy. That's what has led this Government to propose a dual mandate that includes the phrase maximum sustainable employment" because in the end that is a proxy for the productive part of the economy. That is a proxy for saying "We want to make sure that when decisions are being made about monetary policy we take into account the impact of that on employment—on the productive part of the economy."Now this is not new in the world. Both Australia and the United States have mandates that are beyond just price stability and I would note some of the concerns that have been raised in the committee process that this would somehow make decision making difficult or that it would muddy the waters. The opposite is true. It will in fact create a fuller picture of the impact of the decision around monetary policy and in particular the official cash rate. So we are standing by this. There has been some criticism of it by some of the submitters to the committee but we believe very strongly that the dual mandate will work for New Zealand over the long term.In regard to that it's very important to note that people have asked the question "Well how would this affect a particular decision about interest rates today?" That's not why we're making the policy. It's not about a specific moment in history right now. It's about having the most robust and fulsome set of considerations around where monetary policy should end up and where the official cash rate should end up. It is being made for the long term not for the immediate term.The other critical change that is important is that we are changing the purpose of the Act to reflect the fact that monetary policy has a wider role in particular in promoting the prosperity and well-being of the people of New Zealand and contributing to a sustainable and a productive economy. That now exists as section 1A of the Act and makes clear that monetary policy's role is beyond the scope that some may have seen in the past.In addition the other significant change as members will be aware is the establishment of a monetary policy committee moving us away from the single decision maker model through the Reserve Bank Governor. We were in 1989 one of the first countries out of the blocks for the more independent style of monetary policy making and we put in place a single decision maker. The rest of the world has effectively moved beyond that now to the notion of a committee—a committee that not only includes members of the Reserve Bank staff but also brings in external perspectives. Right around the world the evidence is that better decision-making occurs when more voices are at the table representative of the wider New Zealand economy.I want to be absolutely clear that what the bill does is establish a monetary policy committee with the majority of members from inside the bank. So to that extent the decision-making majority power continues to rest with the bank. It is my intention that I appoint three external members which means once this legislation passes there will be four internal members.Now again there was some criticism at the committee that we are employing what is called the "double veto" provision when it comes to the appointment of those members of the committee. What that means is that I must act on a recommendation of the board of the Reserve Bank for who those members are. However in the case of the internal members the legislation states that the governor and the deputy governor will be members and that two other members will come from the staff of the bank. Those then get proposed through the board and to me. The same process applies with the external members. They still have independence in the decisions that they make but when it comes to appointing a committee we want to make sure that everybody is appointed on the same basis. It can only be done by effectively mutual agreement between the Minister of Finance and the board of the Reserve Bank and that process I think is a robust one and I'm sure it will mean that we get good quality people who are coming on board.This will also make for I believe a more transparent decision-making process. As I mentioned before we have the charter. That charter we hope will include—and we've already stated it will include—items such as the fact that minutes of the monetary policy committee will be published. This is the same as is done in other jurisdictions—for instance the Bank of England—and it provides more confidence for particularly the business community about understanding where the committee's coming from looking for trends and issues that the committee is interested in.To be absolutely clear the Governor of the Reserve Bank will be the chair of the monetary policy committee and the sole spokesperson for the decisions of the committee. That is important so that there is only one voice speaking on the decision but as I say minutes will be published that will enable people to be able to see where they're coming from.The other issue around the membership of that monetary policy committee that raised some attention is the proposal to include a Treasury observer—not a full member of the committee but somebody from Treasury who is present during the deliberations of the committee. Again this is a model familiar to the Bank of England and other jurisdictions as well. It enables monetary policy and the fiscal policy of the Government to be closer together so that where there are questions or issues about fiscal policy there's somebody in the room who can contribute that as well as being able to provide the advice that Treasury can around their own macroeconomic forecasting. The Reserve Bank has already been trialling working with Treasury in this way and I understand that both parties believe that this is a positive addition to the process.The only other issue that I want to deal with that was raised at the committee is the question of the remit—this is the new instrument that will replace the policy targets agreement. Again this is the subject of a negotiation between the Minister of Finance and the Reserve Bank monetary policy committee. We've had to tweak the process because it's now a committee not just an individual in the Governor and the Minister of Finance but it is still a very similar process where we agree on the goals but the actual decision making remains the independent prerogative of the Reserve Bank.So I am very proud to commend this legislation to the House. It represents a significant shift in ensuring that monetary policy contributes to the overall economic and well-being outcomes of our country. It is part of the framework that is our economy and therefore having it have a mandate not just for price stability but also for maximum sustainable employment is exactly in line I believe with what makes up the well-being of our people: the fact that they can do good and dignified work."