3. Rt Hon WINSTON PETERS (Leader—NZ First) Link to this
to the Minister of Finance
What is the Government planning to do to combat the continuing rise of the Kiwi dollar, which is hurting exporters and companies competing with imports, especially in the wake of it reaching a post-float high of just over US79c overnight?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
The Government is acutely aware of the pain the high dollar is causing to much of the exporting sector. Although there are no short-term fixes, we are committed to removing the imbalances facing the economy by increasing savings and continuing to run a tight fiscal policy to support monetary policy.
Rt Hon Winston Peters Link to this
Is he concerned that in fewer than 6 years our dollar has almost doubled in value, from US40c to now close to US80c, and does he think that broadening the primary functions of the Reserve Bank, as stipulated in the Reserve Bank of New Zealand Act, to include other critical macroeconomic factors such as the rate of growth, export growth, the value of the dollar, and employment as well as price stability would help to steady our economy?
Hon Dr MICHAEL CULLEN Link to this
The position is slightly larger than the member indicates. In fact, the New Zealand dollar hit a bottom of just under US38c, and is now at more than double that level. However, of course, at US38c it was also grossly undervalued at that time. I can say that where I would differ from the member, probably, is that although I fully welcome any inquiry into these matters looking at options, as long as the Governor of the Reserve Bank has essentially one arrow, it is hard to hit many targets.
Charles ChauvelWhat recent reports has the Minister seen on the importance of maintaining fiscal discipline for the New Zealand economy?
Hon Dr MICHAEL CULLEN Link to this
Just yesterday I received a report from Standard and Poor’s confirming our current credit rating, which praised the Government’s “strong fiscal position and conservative macroeconomic management” and warned against any outbreak of fiscal profligacy, because it is only that strong fiscal position that is offsetting a credit downgrade in the current account position we are in at the moment.
John KeyWhy, in March of this year, did the Minister of Finance tell his Cabinet colleagues that if they spent more than they had set aside “they risked an interest rate response from the Reserve Bank” and “the exchange rate staying higher for longer”, only for them to then go on and spend an additional $600 million more than they had allocated; and is it about now that the Minister will get up and apologise to the homeowners and exporters of New Zealand for that?
Hon Dr MICHAEL CULLEN Link to this
I think it is a bit rich for the member to pre-empt his colleague’s question No. 8, which is on precisely the same point, but then he does tend to bounce from one cloud to another, as Mr English said in the North and South magazine.
Hon Dr MICHAEL CULLEN Link to this
He did. But in fact, if the member cares to look at the numbers—and I will deal with this more clearly in the answer to Mr English’s question—he will see that that increase in expenditure was offset by increased revenue. So the fiscal position out-turn was the same.
Rt Hon Winston Peters Link to this
When the Minister referred to the Governor of the Reserve Bank having only one arrow, was he telling the House that the two policy targets agreements of 1996 and 1999 have been totally ignored by the Reserve Bank governor, and that that in itself is a reason to now dramatically amend the Reserve Bank of New Zealand Act so that the governor acts in the interests of New Zealand’s economy and exporters rather than in the interests of foreign currency dealers?
Hon Dr MICHAEL CULLEN Link to this
Nearly all central banks around the world have one primary instrument, which is some form of manipulation of the core interest rate. In using that instrument, they have to determine what their objective is. The objective of seeking price stability, which orthodox theory tells us is the most important objective, will often run counter to an objective around foreign exchange management. The one central bank I am aware of whose primary target is related to the exchange rate is the Singaporean central bank. That has behind it some hundreds of billions of dollars of effective power for intervention.
Jeanette Fitzsimons Link to this
If the dollar does fall to nearer to US60c, where it needs to be for the survival of our exporters, and if that is taken in combination with the 50 percent increase in crude oil prices since January, what effect will the resulting fuel prices have on the Government’s biggest new road-building spree in New Zealand’s history and what effect will it have on the ability of motorists and freight companies to use all those new roads?
Hon Dr MICHAEL CULLEN Link to this
I think that the member has finally joined the ranks of economists: for every silver lining, she finds a cloud. It is absolutely true that if the exchange rate adjusts in order to help the position of exporters, then that will obviously place upwards pressure on the cost of petrol and other imported goods. Unfortunately, in economics one cannot have it all ways at once.
Rt Hon Winston Peters Link to this
Is it a fact now that the Government’s view of the Reserve Bank of New Zealand Act and its workings and its problematical shift in respect of the currency is the very same as the National Party’s, so that in short we have the two old parties in this Parliament refusing to act for an export-dependent nation but rather acting for the paper-shufflers of Queen Street and abroad in international financial circles?
Hon Dr MICHAEL CULLEN Link to this
I think that the member underestimates himself. He has been around long enough to know there are three old parties at least within this Parliament, not simply two. But there has been a degree of bipartisan consensus around the Reserve Bank of New Zealand Act since it was passed in 1989. I should point out that under section 12 of the Act, the Government does have the power to issue an Order in Council to suspend the current policy targets agreement and to suspend the primary objective element of the Act.
Rt Hon Winston Peters Link to this
I raise a point of order, Madam Speaker. I acknowledge what the Minister of Finance said, and I tell him that he is invited to our 14th birthday tomorrow.
Madam SPEAKER