Parker David: International Finance Agreements Amendment Bill — Second Reading 
Text is incorporated into the Bound Volume 
Parker David: International Finance Agreements Amendment Bill — Second Reading 
[Sitting date: 25 September 2012. Volume:684;Page:5616. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 Thank— 
Hon Member 
: I think that’s a very good call Mr Speaker. 
Hon DAVID PARKER 
: Ha ha! Thank you for your tolerance Mr Speaker and my whip. I rise to speak in support of the IMF legislation. There are a couple of points to be made. First of all what is happening here is that because of the change in the relative wealth of nations the split of the payment that is made to the IMF that goes to support countries in trouble is changing because the relative weight of different countries has changed. China is a bigger part of the world economy and New Zealand is a smaller part of the world economy. It is a sad reflection on New Zealand’s relative lack of growth compared with other parts of the world over recent decades that our share of world output has dropped. That is not just because of changing population trends; it is because we have not performed as well as some other countries. On the one hand the allocation of the amount to be spent by the IMF is changing in a way that decreases New Zealand’s share of it as the other countries’ share increases but on the other hand the total amount of the pool that is able to be spent through the IMF is growing so the net effect for New Zealand cost-wise is that we pay a smaller percentage of a larger amount which works out to be about the same as it was previously. So there is not a great additional cost to the New Zealand taxpayer as a consequence of this. 
It is notable that New Zealand generally does support the work of the International Monetary Fund and I think that would cause me to reflect on the fact that the International Monetary Fund Chief Economist Olivier Blanchard thinks that monetary policy that focuses on inflation targeting to the detriment of other aspects of economic management is past its use-by date. So although I am supporting this bill the International Finance Agreements Amendment Bill I would note that the current Government the National-led Government is a bit selective as to the advice it takes from the International Monetary Fund. 
The IMF thinks that New Zealand’s economy would be improved if we had broader targets for the Reserve Bank so that instead of putting the primacy of control of inflation ahead of all other matters of economic management it would have a broader set of objectives including the health of our export sector and our exchange rate. Why is that important? That is important for New Zealand because unless we address some of these fundamentals New Zealand is going to do next year and in the next decade what it has done in the last three decades which is import more than we export or to be more specific not cover the cost of our imports and interest from the value of our exports. 
In every year New Zealand does that it runs a current account deficit or a balance of payments deficit. That external deficit hole as it is sometimes called can be plugged in only two ways either through borrowing more money from overseas or by selling assets that were previously New Zealand - owned to a foreign buyer. New Zealand has been doing that now consistently for over three decades and as a consequence our net international liabilities have grown. Unless New Zealand has an exchange rate that reflects the fundamentals of our economy we will not be able to overcome that current account deficit and we will continue to get poorer as our net international liabilities grow every year. 
Treasury’s projections on behalf of the Government in the latest Budget have New Zealand’s net international liabilities growing to negative 80 percent of GDP over the forecast period ending in 2016. Those net international liabilities are already high by international standards. Indeed you would have to say that they are at European levels and they are set to get worse. So in order for that not to happen New Zealand would have to earn more in its exports relative to its imports and interest costs and in order to do that we need a few changes. The IMF says we should be introducing a capital gains tax. The Government rejects that advice. The IMF like the OECD and Treasury and the Reserve Bank and just about every other Western Government thinks it is a good idea because then people will invest on the basis of the profitability of an enterprise rather than on a tax bias that lies in favour currently of certain classes of investment. That acts to the detriment of our productive export sector because too much money goes into land-based purchases and not enough money into export-related businesses be they services or manufacturing exports. Those businesses suffer as a consequence of the bias which puts too much emphasis on other parts of the economy. 
The IMF also says that inflation targeting has been exposed by the global financial crisis as being wrong or inadequate and thinks that broader targets are needed for countries. Instead of just focusing on the control of inflation other matters of economic management are important. Steven Joyce on the other side has insulted people who have been pursuing this alternative viewpoint recently be they manufacturers or politicians. He has accused them of voodoo economics and of being snake oil merchants but of course you cannot accuse the head of the IMF Olivier Blanchard of that nor various Nobel Laureates who think that inflation targeting has run its course. I met recently with a number of these economists overseas including a renowned expert in monetary policy Jeffrey Frankel at Harvard. He made a couple statements to me that I found to be common sense to be honest. He said that no one system of monetary policy is right for all countries of the world—that is obvious—and that no one system of monetary policy is right for any one country all of the time. Again that seems a pretty common-sense thing to say.  
If you look back at the history of the world we have actually gone in the last century through a number of iterations in monetary policy. Until the Great Depression and World War II we had the gold standard which was the way in which monetary policy was effectively controlled. That ran out of time. You know it stopped working properly and so post - World War II and the Great Depression we had Bretton Woods and we introduced a different form of control that focused on exchange rates and had capital movement controls as part of it. That stopped working and as a consequence the world moved on and it tried to control monetary policy mainly through controlling the supply of money. That ran out of rope and then the world moved on to inflation targeting.  
Inflation targeting when introduced in New Zealand was probably appropriate. We had entrenched inflation under Muldoon. We had real problems in the economy and the Government needed to focus on the control of inflation being the primary problem. So the Reserve Bank was charged with fixing that problem and it was told that the primary aim was the control of inflation and that other things like the exchange rate were subsidiary. Now that has run out of rope. It is no longer necessary. In fact it is hurting New Zealand to give primacy to inflation targeting over other aspects of management of the economy.  
There is no doubt that the Reserve Bank would make different choices if its objectives were broader than giving primacy to inflation targeting. If other matters of economic management were given equal weighting including the health of our export sector and our ability to earn enough in our exports so that we did not have a current account deficit well you know New Zealand would be better off with the Reserve Bank using the tools at its disposal differently. So that is one of the lines of advice that we are having from the International Monetary Fund that is being ignored by this Government.  
I want to say one further thing about this legislation and that is that although Labour will be supporting this bill we would prefer that the ability to make future changes to the ratios or the amount that is committed to be contributed by New Zealand to the International Monetary Fund is by way of statute which comes before this Parliament rather than by way of statutory regulation as is proposed by this legislation. Until now any time there has been an amendment to the articles of the International Monetary Fund that New Zealand has agreed to it has had to come before this Parliament and the Minister of Finance has had to justify to this Parliament why that should happen. It has consequences for New Zealand in a monetary sense and those consequences should be brought before Parliament so that Parliament has the opportunity to vote it up or down. In reality it is very unlikely that Parliament will vote it down unless the agreement that the Minister has entered into is wrong. The Minister will have the Treasury benches and so will have the Government’s votes to vote it through anyway if he has convinced his own Cabinet and caucus that that is the thing to do.  
So what is wrong with it having transparency around these issues and requiring these amendments to come before Parliament? They do not happen every year. If this was just an administrative thing that happened every year well yeah do it by way of statutory regulation but it is not. In fact I think the number of times that this legislation has been amended since it came into force just after Bretton Woods—because the International Monetary Fund was formed after Bretton Woods—is only about four or five times so it is not like once-a-decade legislation is too much for this Parliament to cope with. We oppose the regulation-making power.