Parliament urgently debates Reserve Bank dual mandate repeal

Legislation to scrap the Reserve Bank's employment mandate is being rushed through Parliament under urgency, with the opposition decrying it as "pointless" and a backward step.

The bill, being passed under urgency through all stages, is the first piece of legislation for the new government.

It would remove the Reserve Bank's dual-mandate, meaning it would no longer be required to push for maximum sustainable employment levels across the country.

This would leave it able to focus solely on its other mandate of keeping inflation in the target range of between 1 and 3 percent: avoiding the dangers of deflation where costs go down, while keeping costs from rising too steeply.

Labour had brought the dual mandate in after campaigning on it in 2017, saying a focus on employment would contribute to the overall health of the economy. National and ACT campaigned this year on returning to the single target, saying this would keep it focused on inflation.

The RBNZ late last month kept the official cash rate at 5.5 percent, and warned cuts to the rate were unlikely before 2025. A high official cash rate like this puts pressure on banks to increase costs for mortgages with the aim of encouraging people to spend less - thereby reducing pressure on the economy and keeping cost inflation down.

The motion for urgency means the bill - along with the repeal of Fair Pay Agreements and the Clean Car Discount - would continue to be progressed for extra hours each night and morning this week, and they will not be referred to select committee.

'Inflation is our enemy' - National

Finance Minister Nicola Willis called the dual mandate an experiment and "one of the greatest stains on the outgoing government", saying it had allowed inflation to remain out of the target range for over two and a half years.

"Inflation is our enemy. It is our economic enemy ... and we cannot have good employment outcomes, we cannot have a good economy unless we get inflation under control."

She said inflation in recent years had been "consistently above" the inflation target, and she believed having a dual mandate clouded the Bank's focus on price stability.

She referred to a letter from Reserve Bank governor Adrian Orr which said the Bank was supportive of the move.

"He says the intended focus is consistent with the views we expressed in our recent monetary policy committee remit review, published in June 2023".

She quoted the Reserve Bank saying that prioritising the inflation objective "'will assist the credibility of the inflation target', because let's face it while the Labour government were in charge the credibility of that target was eroded".

Back to 1989 at warp speed - Labour

Labour's Finance spokesperson Robertson said the move was shortsighted and would be taking New Zealand's settings back "at warp speed" to 1989 when the Reserve Bank Act was first introduced.

"I was in seventh form, Ronald Reagan was still in the White House, the Berlin wall was coming down, a thing called the World Wide Web was in Tim Berners-Lee's mind," he said.

He said the 1989 Act had at that time been world-leading - a response to the actions of National Prime Minister Robert Muldoon, which led to the Reserve Bank asking overseas ambassadors to draw down on foreign currency - but when the second mandate was added 30 years later that was no longer the case.

Removing the dual mandate would not do what National claimed it would do, he said, and Labour was disappointed it was not being referred to a select committee where it would be subject to public consultation.

He compared the economic performance of dual-mandate countries Australia and New Zealand - where inflation peaked at 7.2 and 7.8 percent - with the UK and its single mandate, where inflation reached 11.1 percent.

The dual mandate was not a choice between two things, he said, it was a balance meant to deliver on a sustainable and expanding economy.

Pointless virtue signalling - Greens

Green Party Finance spokesperson Chloe Swarbrick called the bill out as "empty virtue signalling" and a waste of time.

She said it would make "absolutely no difference whatsoever" to inflation, that it was unnecessary to change the law to achieve National's aim, and the government still seemed to want the Reserve Bank's monetary policy committee to have regard to maximum sustainable employment anyway.

She pointed to a hearing with Orr at the Select Committee last year, when he said the dual mandate had not made any discernible difference to their monetary policy decision making, and "we haven't come across any tradeoffs of employment versus inflation, there is no conflict".

Treasury's regulatory impact statement pointed out its preference was for only a new remit to be issued, she said.

"Basically that the government cannot achieve its commitment - which is relatively nonsensical in the first place - unless it passes this legislation, but it can achieve the ends that it is trying to achieve without the means of needing this legislation.

"The question really remains what the point is of this law that we are now debating in the House tonight and we will spend hours working through and wasting time on."

Government has one job on monetary policy - ACT

ACT leader David Seymour harked back to the collapse of the Roman empire, saying the government's only job when it came to monetary policy: Price stability.

After attacking Swarbrick and Robertson's speeches, he said when governments printed too much money there was political and economic instability, and the same thing happened after the Covid-19 period.

"What I do know is that the Roman empire collapsed in part because of hyperinflation and debasement of its currency. We know that some of the most horrific events of the 20th century were in part precipitated by hyperinflation across Europe," he said.

"What we know on this side of the House is that government has one simple job when it comes to monetary policy and that is to maintain price stability, it's to give the people reassurance that a dollar in your pocket this year will be worth a dollar next year."

He said the latest episode in that history was Robertson printing "far too much money" and telling the Reserve Bank it did not need to maintain price stability.

"What New Zealanders saw all up and down the country was they saw the value of their savings and their wages eroding, they saw people getting stupendously wealthy with a massive increase in house prices through the Covid period.

"All of a sudden people realised that if the government couldn't look after the value of a dollar in their pocket, it couldn't do much else."

A quick note of support - NZ First

NZ First's Jenny Marcroft had a much shorter speech, likely aimed at progressing the bill as quickly as possible.

"It is a pleasure to be back in this house and I'd like to first congratulate you on your appointment Madam Deputy Speaker. I'd like to speak on behalf of New Zealand First in support of the Reserve Bank of New Zealand (Economic Objective) Amendment Bill. And on that note I commend it to the House," she said.

'To pay back a few billionaires' - Te Pāti Māori

Te Pāti Māori co-leader Rawiri Waititi said the bill was the first evidence of a government that was anchored by its coalition agreements, and the policy would make it harder for families to put food on the table, which he said was the exact opposite of what the new government had promised.

He said the change to a dual mandate had been long overdue, and it would take New Zealand backwards.

"Get our country back on track? This change takes us back to 1992 ... it is no longer 1992 for goodness sake," he said, "we must shape legislation that ensures decision-making has outcomes positive for all communities - not just a few rich that fund those in government benches.

He pointed to Māori unemployment double that of the general statistic, and said it was often Māori and Pacific Islanders who were having to work multiple jobs just to scrape by - and this change would have particular consequences for them.

"Where is the modelling? Where is the evidence that this repeal will have the material effect on inflation that members opposite believe will appear?

"It is one thing to argue the cost and benefits of legislation, it is another thing to merely repeal it to pay back a few billionaires who will do well under neoliberal economics."