1. JOHN KEY (National—Helensville) Link to this
to the Minister of Finance
Does he agree with the Reserve Bank’s interpretation of the policy targets agreement as “requiring CPI inflation to be comfortably within the 1 to 3 percent target band over the second half of a 3-year forecasting horizon.”; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
That interpretation is, in my view, consistent with the medium-term focus of the policy targets agreement.
Does the Minister not think that that makes a mockery of the policy targets agreement, if adherence to the agreement is defined not by what actually takes place, but rather by the Reserve Bank’s own forecast of what might take place; and, therefore, it does not actually matter whether inflation ever really gets between 1 and 3 percent, all that matters is that the bank forecasts that one day it will?
Hon Dr MICHAEL CULLEN Link to this
That is particularly silly. If the member would care to ask Dr Brash, under Dr Brash a policy targets agreement of 0 to 2 percent was interpreted as meaning 0.5 percent every quarter, which is utterly impossible. What the Reserve Bank does is to project out, all else being equal, what the inflation rate will be, and therefore it judges what monetary policy reaction it needs to have to bring back inflation within the target range.
Shane JonesHas the Minister seen any reports of alternate fiscal settings that would make the job of the Reserve Bank more difficult?
Hon Dr MICHAEL CULLEN Link to this
I have seen reports that advocate a net injection of up to $11.5 billion per annum of spending power into the economy, notwithstanding the current macroeconomic climate. I suggest that Mr Key talk to Dr Brash about the implications of that for monetary policy.
Rt Hon Winston Peters Link to this
I ask the Minister, while we are talking about making a mockery of the policy targets agreement, who was it who between December 1994 and December 1996, as Governor of the Reserve Bank, had the policy targets agreement outside the band in 8 of the 12 months, and is he now leader of the National Party?
Madam SPEAKERHon Dr MICHAEL CULLEN Link to this
Over that period of 2 years the policy targets agreement was breached eight times out of 12.
Does the Minister concede that changes he made to the policy targets agreement in 2002 have played a part in raising inflation expectations, and will he be giving any considerations to calls made in the recent macroeconomic policy forum, organised by both the Reserve Bank and Treasury, to replace the inflation target band with a point target, and to put decisions about monetary policy into the hands of a committee, as is done in the UK and the US ?
Hon Dr MICHAEL CULLEN Link to this
On the first point, all the countries that I know of that have a point target have a tolerance band around the point target, because nobody can possibly predict 0.5 percent exactly by managing monetary policy, or indeed any other policy that is available to anybody, anywhere around the world. Should one set up a committee? I suppose it will be the National Party’s economic policy in most areas to set up a committee.
If the Reserve Bank raises interest rates tomorrow, does the Minister accept that this will probably lead to a higher exchange rate and further Uridashi issuance; in which case will he send more officials to Japan to tell them that New Zealand is once again a lousy investment destination; urge the Reserve Bank to intervene; continue to talk down the currency, as he has since 47c; or order another supplementary stabilisation instruments report; or is it now the case that, having once asserted that he was not without options when it came to the exchange rate, he is rapidly finding that, in fact, he is?
Hon Dr MICHAEL CULLEN Link to this
I think that was succinct for that member. What I will certainly not do is feed extra billions of dollars of spending power into the economy—as that member proposes, thinking it will have no effect on monetary policy.
Does the Minister stand by the comments he made to Bloomberg a couple of weeks ago when he said: “I won’t say what I expected because, well, I’m not allowed to, but the general consensus is that rates will not be raised … I think that’s really what the bank was saying.”; does he now think that his “wink wink, nudge nudge” comments about interest rates not going up are pretty foolish, given that 100 percent of the market is now pricing in a chance of a rate rise before the end of the year, and does he think he would have been just a little bit wiser to stop at the point where he said: “I am not allowed to …”?
Hon Dr MICHAEL CULLEN Link to this
Interestingly enough, the most recent survey showed that the expectations around a rate rise went from 19 percent, at the time I made that statement, to about 62 percent—but unlike the member, I do not tell the Governor of the Reserve Bank what to do.
Hon Dr MICHAEL CULLEN Link to this
I raise a point of order, Madam Speaker. The member has a habit of little preliminary remarks—
Hon Dr MICHAEL CULLEN Link to this
—when he asks a question—[ Interruption]—and that, Madam Speaker, is a privilege he has yet to earn.
The member does editorialise. We all fall into habits, I know, so in future the member will please just ask the question. Thank you.
Hon Trevor Mallard Link to this
I raise a point of order, Madam Speaker. During the last point of order John Key, inter alia, yelled out very loudly while Dr Cullen was making the point of order. I think that you have ruled on that matter on a number of occasions, and I wonder when it is going to be enforced.
It is a good point, actually. Many members intervened at that point. If it happens again, then the entire number of persons who intervened will leave the Chamber, and we will get through question time then.
Hon Harry Duynhoven Link to this
I raise a point of order, Madam Speaker. During the course of last week I was removed, having come into the House during what later proved to be not a point of order. But I thought it was a speech when I came in, because it was so long. I interjected as the member sat down and was then removed from the House, yet after a blatant outburst like that, members are still here.
Ron MarkI raise a point of order, Madam Speaker. I do not mean to challenge you, and please forgive me if it sounds like that but on 10 October you—[ Interruption] It is a point of order, Madam Speaker—
Dr Richard WorthOn 10 October Nandor Tanczos rose to take a point of order, and was immediately warned by you—before he had said anything else—“This better be a point of order.” On 17 October I started a point of order, and you warned me: “This better be succinct.”, or “Make your point of order succinct.” I would like to know why there is one standard for the minor or alternative parties in this House, and blatantly and flagrantly different standards for the National Party.
No. The member has a very good point. Those members, then, who intervened on Dr Cullen’s point of order will please identify themselves and leave the Chamber. The member is quite right; I do give leniency. Obviously it is being abused. I now must enforce rigidly, because it is the only way to be fair.
Rt Hon Winston Peters Link to this
I raise a point of order, Madam Speaker. You asked those members who had intervened, when Mr Mark was on his feet, to leave the Chamber. Mr Worth did. Another member is sitting over there who knows full well what he said. He said: “What year?”. I ask Mr Roy to honour what the Speaker has asked him to do.
I raise a point of order, Madam Speaker. Can I just point out to you that now that Dr Cullen would like to have me treat him like a nice soft cuddly bear without any kinds of interjections, maybe he would like to give the same respect back to me, in his answers.
Does the Minister stand by his other comment on the possibility of interest rate rises—that “I think that what Alan was saying was ‘I haven’t got my finger on the trigger, but don’t forget that there is a gun in the drawer.’ ”; and when it goes off, will he accept that not only is the gun fully loaded but that the safety catch has been flicked off, and yet again the only role he will play in this vignette is that he will be the person who will be shooting himself in the foot?
Hon Dr MICHAEL CULLEN Link to this
The gun referred to, of course, is in the hands of Dr Bollard, not myself.