2. CRAIG FOSS (National—Tukituki) Link to this
to the Minister of Finance
What reports has he received on the economy?
Hon BILL ENGLISH (Minister of Finance) Link to this
I have seen reports from the recent G20 meeting of Finance Ministers—that is, Finance Ministers of the 20 major economies in the world—who met over the weekend. The communiqué from that meeting noted that global economic recovery continues to advance, even though it is somewhat fragile and uneven. Growth has been strong in many emerging market economies, and New Zealand is benefiting from some of that, but the pace of activity remains modest in many advanced economies. The G20 Ministers noted that there are still significant downside risks, although they are different from country to country and region to region.
Given the significant impact of exchange rate movements on the New Zealand economy, what did the G20 Finance Ministers say about their approach to currency and monetary policy?
First of all, they reaffirmed their commitment to monetary policy that is appropriate to achieving price stability. Secondly, they were committed to the move towards more market-determined exchange rate systems that reflect underlying economic fundamentals rather than competitive devaluation of currencies, which do not reflect the underlying fundamentals. More broadly, they believe that the pursuit of structural reforms will help boost and sustain global demand, foster job creation, and increase growth potential. The Government is pursuing these kinds of measures including, as they suggest, clear, credible, ambitious, and growth-friendly, medium-term fiscal consolidation.
Following on from the G20 meeting, I saw reports quoting Australian Prime Minister Julia Gillard saying that many groups in Australia should continue to support the political consensus that has delivered 25 years of hard-won economic reform. She has said that this reform consensus is now under serious threat in Australia and that there is a risk of a return to economic populism. She guaranteed that her Government would continue with more market-based reform, including in areas such as health and education. Clearly, she was not influenced by what Phil Goff told her on his visit.
Hon David Cunliffe Link to this
Does he still agree with John Key that New Zealand has “the best monetary policy in the world”; if so, why since that date has the Governor of the Reserve Bank changed it to include the core assets ratio, the consideration of liquidity ratio, and a whole range of other tools that that Minister deemed completely unorthodox?
I agree with the Prime Minister’s view that New Zealand’s monetary policy framework is appropriate for our situation. We do not see significant reason for that to be changed. In particular, it is a bit odd to be hearing that a party that says it is worried about the cost of living is advocating monetary policy changes that would allow for significantly higher inflation.
Like Australia, for more than two decades New Zealand has enjoyed broad consensus on important issues like independent monetary policy, a simple and uniform GST system, an open and competitive economy, and a commitment to free trade. I notice that in Australia Mrs Gillard has talked about the prospects of “economic Hansonism” taking hold. In New Zealand this risk could easily be called “economic Goffism”.