2. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Does he agree with the Christchurch Press that “Suggestions of tampering with monetary policy are a sideshow designed to distract attention from areas that really need it.”; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
No, I do not support the implicit advocacy for a capital gains tax on housing in the Press editorial. I notice the one area where there is some significant possibility of consensus is in tax changes made in 1991 by the National Government, which has almost certainly led to tax advantaging for investment in housing. And, like Mr English, the also fails to spell out what Government spending should be savagely cut.
Does the Minister still agree with the findings and recommendations of an independent review of the operation of monetary policy that he commissioned in 2000, conducted by Professor Lars Svensson, one of the world’s leading authorities on monetary policy, that concluded that no significant change could or should be made to New Zealand’s monetary policy framework?
Hon Dr MICHAEL CULLEN Link to this
I think, in the light of the fact that we are now into the—I think—third economic cycle since the Reserve Bank Act was passed, that in each cycle we have seen the period of time at which the exchange rate has remained very high to be much longer, with consequentially more damage each time to the exporting sector. It is useful for the Finance and Expenditure Committee to examine the basis of monetary policy and to make recommendations. I think we should never be afraid of ideas.
Charles ChauvelHon Dr MICHAEL CULLEN Link to this
No, I do not see announcements such as that by my colleague the Minister of Health yesterday to deliver fairer pay for aged-care workers as doling out largesse. They will not improve productivity in the health sector. The problem those opposite have is to front up on what Government spending they would actually cut, not least because core Crown expenses are currently 33 percent of GDP—exactly the same as in 1999.
Does the Minister recall that the Reserve Bank and Treasury took part in the supplementary stabilisation review just last year, and the general conclusion of that review by more world experts on monetary policy was that the New Zealand framework approximated world’s best practice?
Hon Dr MICHAEL CULLEN Link to this
I am aware that, as a consequence of that review, and after I mentioned the possibility of a broader consensus of a select committee, Mr Key wrote to me seeking talks. I am aware that those talks were held between myself, Mr Mallard, Mr Key, and Mr English, and I am aware that Mr English sabotaged those discussions.
Why does the Minister not stop trying to distract anyone with proposed changes to the monetary policy framework, which, even if they were of value, could not apply in this cycle, and get on with the business of explaining to New Zealanders why they should pay higher interest rates because of his fiscal policies, given that, presumably, he thinks it is worthwhile that New Zealanders pay higher interest rates because of his fiscal policies?
Hon Dr MICHAEL CULLEN Link to this
I remind the member that when the issue of ownership policy has come up, Mr English has said that there is nothing wrong with monetary policy and that all Dr Bollard needed to do was lift interest rates earlier and higher than he did.
Does the Minister intend to continue his fascination with what he believes are comments that I have made about economic policy—much as I regard that as a compliment—and when will he start explaining to this House and to the country his own policies; why is he so anxious to avoid doing this and to not take opportunities, such as through the questions I am asking him, to explain to the people of New Zealand why he is planning $4 billion of new spending, as a result of which they will have to pay higher interest rates?
Hon Dr MICHAEL CULLEN Link to this
As I pointed out to the member, the member has called for higher interest rates than we have at the present time as an answer to monetary policy. Secondly, I point out to the member that his estimate of $4 billion includes $2 billion for changes to the corporate tax rate, which his party has argued should have been done although, in fact, the corporate tax rate was last cut in 1988 and remained entirely unchanged throughout the last National Government.
Can the Minister confirm his view that he is the only person, in thinking about economic policy, who believes that the Government’s planned spending surge over the next 2 years will have no impact on inflation; and why is it that he is right and everyone else is wrong?
Hon Dr MICHAEL CULLEN Link to this
No, I am clearly not the only person who believes that, because the member’s leader only last year said there was room for $11 billion a year of tax cuts. Over 2 years that is $22 billion a year of fiscal expansion.
R Doug WoolertonDoes the Minister agree that parliamentary consensus seems to be rallying around giving our Reserve Bank more tools to control the direction of our economy, and that National’s suggestion of adopting a common currency with Australia would not provide a panacea for our economy—rather, it would be a huge step in the wrong direction?
Hon Dr MICHAEL CULLEN Link to this
Indeed. Almost every commentary has rejected the idea of a common currency, not least because, of course, nobody in Australia is talking about a common currency. Australia is putting forward that it would be very kind to allow us to use its currency if we were silly enough to give up our own currency. Mr Key favours that policy; I do not favour that policy for New Zealand.