8. R DOUG WOOLERTON (NZ First) Link to this
to the Minister of Finance
What recent reports has he received regarding an accepted consensus on monetary policy in New Zealand?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I think the conventional consensus, since certainly the passing of the 1989 legislation, is that the monetary policy framework does not have an impact on long-run growth. As I commented last Thursday, I am concerned that this view probably no longer holds in New Zealand, because of the way in which monetary policy has interacted with the exchange rate and confidence in the exporting sector.
Does the Minister agree with the reported comment of the New Zealand Exchange Chief Executive, Mark Weldon, that New Zealand should move from a strict inflation-targeting regime to a framework that targets long-run price stability and output, to ensure that exporters are not damaged by the fight against inflation?
Hon Dr MICHAEL CULLEN Link to this
No, I probably would not agree with that view, but I accept that the views expressed by Mr Weldon are well-thought-out. Indeed, his submission to the Finance and Expenditure Committee was one of a number of submissions that people put considerable effort into. Clearly, it is useful for the committee to engage with those submitters and report back to the House. I regret the fact that Mr English continues to regard this as some kind of useless exercise.
Hon Mark GoscheHon Dr MICHAEL CULLEN Link to this
I have seen two quite conflicting reports. The first states that the Governor of the Reserve Bank should not have increased interest rates on the last two occasions. The second states that the Government “has been saying too much and not doing enough”. These conflicting reports came, firstly, from John Key, and, secondly, from Bill English, who, as always, disagree on monetary and fiscal policies.
Hon Bill EnglishFor how much longer does the Minister of Finance intend to keep suggesting that he might change monetary policy, only to have every suggestion he makes be knocked over by the Prime Minister, and still believe that he can be credible?
Hon Dr MICHAEL CULLEN Link to this
The member is actually quite wrong on that. The difference between him and me on it is quite simple: we both probably support the general framework of monetary policy, but I am willing to discuss ideas about how its operation can be improved. He seems to think that the last word on all of this was spoken sometime in the mid-1980s, and nothing has changed since then. Well, life has moved on, I say to Mr English.
What support has the Minister seen for moves to address the issues relating to our monetary policy, including that a single focus on price stability has the effect of crippling the export sector on which New Zealand depends; and does the Minister agree that it is time for some rational debate on our monetary policy framework, such as that sought by New Zealand First when we attempted to table our Reserve Bank (Amending Primary Function of Bank) Amendment Bill, a move that was blocked by the National Party?
Hon Dr MICHAEL CULLEN Link to this
All rational suggestions from New Zealand First are welcomed and should be broadly debated. My own view remains that a single focus on price stability is probably still preferable, because when there are multiple objectives the bank is placed in the position of deciding from time to time which objective it is trying to meet, and that can lead to quite confused accountabilities.
Can the Minister confirm that the real reason he keeps raising issues about monetary policy is that he realises that New Zealand households are facing among the highest interest rates in the developed world and, with the dropping dollar, reduced purchasing power, and that is bad news for the Labour Government, which has mismanaged growth, and he is trying to find some way of blaming someone else for it?
Hon Dr MICHAEL CULLEN Link to this
No. What the member should perhaps realise is the fact that interest rates have had to be ratcheted up so high for so long a period, and the exchange rate has been so high for so long a period, might raise some interesting questions about the operation of monetary policy, and that an intelligent, open-minded person would not be afraid of discussing them. Welcome to the world of intelligent, rational debate, I say to Mr English.