10. RODNEY HIDE (Leader—ACT) Link to this
to the Minister of Finance
Is he satisfied with the performance of Reserve Bank governor Alan Bollard; if so, why?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Yes; he has had continued support from the board of the Reserve Bank, as well as from myself. He has provided much useful advice on monetary policy and has undertaken a major upgrade of the bank’s prudential supervisory role, an often forgotten part of the bank’s functions.
Does the Minister support 100 percent the independence of the Reserve Bank governor, when it is more than likely he will hike interest rates come Thursday, and therefore precipitate a recession heading into an election year, in order to get the economy and inflation back under control?
Hon Dr MICHAEL CULLEN Link to this
I fully support the independence of the Reserve Bank governor. Unlike that member and any number of other members, I do not predict what the governor is going to do or comment on what he has done after he has done it.
Madam SPEAKERIs this a supplementary question? Please be seated for a second. I am not sure whether this affects just me today, but there is a tremendous amount of traffic around the Chamber. From my point of view, that makes it very difficult to know who wishes to speak, and at what time members wish to speak. I know there is business to conduct, but I ask members to please take it outside the Chamber.
R Doug WoolertonIs the Minister prepared to look at constructive enhancements to the Reserve Bank of New Zealand Act such as those being promoted by New Zealand First, which are designed to help the governor to do a more effective job?
Hon Dr MICHAEL CULLEN Link to this
I am sure the member means to help. The question, of course, is whether those proposals would actually be any help.
Will the Minister consider doing the one thing that could assist the New Zealand economy and New Zealanders to get through the next 12 months without a recession, which is to cancel the forecast election-year spend-up, with $2 billion-plus of unallocated spending, which Treasury estimates to be a 1.7 percent fiscal stimulus; and will the Minister consider putting his own fiscal house in order, to assist monetary policy?
Hon Dr MICHAEL CULLEN Link to this
Let us first of all take the year just finished. In that year we have probably taken over $4 billion of demand out of the economy through the combination of both the cash surplus of over $2 billion and a contribution to the Superannuation Fund of over $2 billion. That is over $4 billion taken out of the economy, soaking out demand. It is true that the forecast reduction of demand by Government action in the next year will not be as high as that, but it was not forecast to be as high a year ago, either.
Hon Dr MICHAEL CULLEN Link to this
It is still forecast to be positive. If Dr Lockwood Smith is now saying that National policy is to cut that $2 billion fiscal allowance out, I invite him to explain how Vote Health will supply the same services with no increase in money, despite increasing costs and despite increasing wages and salaries for doctors, nurses, and others; how schools are not going to charge very much more for fees for their students if they get no increase in their operating grants and teachers get no increase in their salaries; how it will be explained to superannuitants that they will not get any increase in New Zealand superannuation over that period; and how indeed all the elements of Government that depend upon high staffing levels, such as the police, corrections, and many others are not going to cut their staff numbers because they have no money to pay for additional salaries.
Dr the Hon Lockwood Smith Link to this
If the Minister is satisfied, as he has just said, with the performance of Dr Bollard, why has he continually undermined Dr Bollard through his fruitless talk of supplementary instruments and the possibility of unilaterally changing the policy targets agreement by using section 12 of the Reserve Bank of New Zealand Act, and have his rather pointless musings not in fact made Dr Bollard’s job a bit harder?
Hon Dr MICHAEL CULLEN Link to this
It is wonderful to have the chance to respond to that member. The supplementary stabilisation instruments were suggested by Dr Bollard.
Is the House to conclude that this Labour Government puts its election-year spend-up ahead of the medium and long-term success of the New Zealand economy; and that it will see productive New Zealanders driven to the wall because the Government itself will not put its own spending in order and reduce that fiscal stimulus, to assist in monetary policy and indeed to help Dr Alan Bollard to do his job, rather than have him do it all on the basis of interest rates?
Hon Dr MICHAEL CULLEN Link to this
Let me try to run through this again for the benefit of the member, and indeed of many other members. The only reason the fiscal impulse looks large is that fiscal policy has been so contractionary over the last 2 to 3 years, soaking out billions of dollars every year in demand from the economy. That is the sum of the money going into the cash surplus plus the money going into the Superannuation Fund, which does not feed directly into demand. The only alternative I am aware of is that the members opposite are promising more money for almost every category of spending plus $2.5 billion a year of tax cuts, and are saying that that is a tighter fiscal policy than the current policy. That is a triumph of ideology over reality.