3. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Does he stand by his reported statement that there is “nothing the Government could do about the exchange rate in the short term”; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
As I have said all along, there is no silver bullet. However, unlike the member, I am prepared to consider ideas that may help the productive sector.
Why is it that less than 2 months ago the Minister reappointed Dr Bollard, praised his stewardship of monetary policy, and signed, with Dr Bollard, an unchanged policy targets agreement when he is now saying that he is willing to entertain new ideas; why did he not put them in the agreement then?
Hon Dr MICHAEL CULLEN Link to this
First of all, I have confidence in Dr Bollard’s operation. Secondly, of course, the policy targets agreement is within the framework of the Reserve Bank of New Zealand Act. Given that the Finance and Expenditure Committee was just beginning to undertake an inquiry into the operation of monetary policy, it seemed a particularly inappropriate time to change the policy targets agreement, as the Opposition, which loves to say that it wants to be consulted, has the opportunity to be consulted and to participate in that select committee inquiry.
Hon Mark GoscheHon Dr MICHAEL CULLEN Link to this
I have seen numerous reports of Mr English suggesting that the only solution is to cut Government spending. I have also seen reports of most of his colleagues calling for greater spending on their pet projects—most recently, just today, from Dr Jackie Blue, who called for extra spending by the Ministry of Women’s Affairs. I am sure that that would be a magnificent answer to the problems of monetary policy operation!
Heather RoyWhat responsibility does the Minister believe that he and Dr Bollard should accept for interest rates hitting double figures, for the dollar being about to breach US80c, and for the Reserve Bank having blown over $100 million of taxpayers’ money in a foolish attempt to outplay the market?
Hon Dr MICHAEL CULLEN Link to this
On the last point, I make the comment that the Reserve Bank is a long-term player in the market—unlike some people—and not a short-term player, and therefore it is most unlikely that it would actually lose money over the longer term. The second point I think I need to make to the member, the House, and the country is that the primary thing that has been happening in recent months is that the US dollar has been going down. It may come as a shock to members of this House, but no operation of fiscal or monetary policy in New Zealand will lift the United States dollar.
R Doug WoolertonDoes the Minister agree that section 12 was actually inserted as a safeguard that could be utilised when facing a particular economic crisis, and given that fact would it not be preferable to avoid such a crisis by having the safeguard built into the primary function of the bank?
Hon Dr MICHAEL CULLEN Link to this
I think the problem with setting multiple targets into the primary function of the bank is that, inherently, the bank cannot simultaneously achieve all those primary targets. If one wishes to have accountability for the operation of monetary policy by the governor, he or she has to be held accountable against an achievable target—not a multiplicity of targets, which would probably mean that all would be missed simultaneously.
If, as Dr Cullen says, one of the major influences on the high New Zealand dollar is the weakness of the US dollar, just what intervention did he have in mind when yesterday he raised the possibility that he might invoke section 12, override the Governor of the Reserve Bank, and take action himself?
Hon Dr MICHAEL CULLEN Link to this
One always has to be very precise. I did not raise the possibility of using section 12; I did not rule out the use of section 12. That is not the same thing.
Why is it that after spending 6 months saying that monetary policy did not work and floating four unsuccessful ideas for attacking house values, the Minister signed a policy target agreement with no change and reappointed the governor, and then, within 6 weeks of doing that, came along to Parliament and said that section 12 is there and could be used, and he is too scared to do anything in case the select committee does not like it?
Hon Dr MICHAEL CULLEN Link to this
What a silly remark that last one was! On the one hand, National members keep saying they want to be consulted, but when there is a prospect of being consulted they say that the Minister is afraid to act. Just which leg is that member standing on? Every time he makes a statement in public or private, he has two positions in a single sentence—every time. And that is why he reduced the National Party to its lowest-ever vote in 2002—because the public saw through it.
Which of the ideas that the Minister has floated should the markets and the people of New Zealand take seriously: the mortgage interest levy, the capital gains tax, the ring-fencing of investment losses on housing, the select committee inquiry, or, now, the use of section 12, whereby he would effectively take control of monetary policy; and as he has not followed through on any of these ideas, what credibility does he think he has on monetary policy?
Hon Dr MICHAEL CULLEN Link to this
Firstly, I have never floated the idea of a capital gains tax. The only person in this House in recent times who has floated that idea, apart from the Green Party, is in fact Dr Brash, who was a long-time supporter of a general capital gains tax. Secondly, the mortgage interest-rate levy is ruled out. Thirdly, the select committee inquiry is in fact under way. The member may have had a hissy fit, thrown his toys out of the cot, and stamped out of the committee room, but the other people on that select committee are participating in the select committee inquiry. Fourthly, the markets need to be aware, as the governor keeps pointing out, that in fact there are a range of mechanisms, and section 12 is one of those. Finally, as a number of external market commentators have pointed out, the New Zealand dollar can go a long way down from where it is now.
Now that Dr Cullen has raised the possibility of invoking section 12, does he now not believe he is obliged to create some certainty by either stating that he certainly will not use it, or by making clear what conditions would apply that would mean he did use it?
Hon Dr MICHAEL CULLEN Link to this
It is those who are making money out of speculating on New Zealand’s currency who want certainty. It is not my job or that of the governor to create that certainty for them, as the governor himself has pointed out on a number of occasions. If the member wants to come into this House and be the spokesperson for international money market speculators against the New Zealand productive sector, then, finally, we have found common ground between Mr Key and Mr English.
So is it the case now that the Minister is simply speculating about section 12 as part of his little game of trying to scare someone in the markets, as he tried several times in respect of housing; and when will he learn the lesson that every time he has tried that, the dollar has gone up—it has reached record levels today after his comments yesterday—so why does he not just stop and give exporters a break?
Hon Dr MICHAEL CULLEN Link to this
Finally, we have managed to get “Mr Angry” on the side of the exporters instead of the financial market speculators, for once. I will take the member through it again: section 12 exists in the Reserve Bank of New Zealand Act. It is not an idea floated by me. It is not an idea, and no Government should tell the financial market speculators when it might use such a provision. Mrs Watanabe, the mythical investor, a Japanese housewife, needs to know that that is what the Reserve Bank of New Zealand Act says.