Winston Peters has learnt his lesson about monetary policy and the NZ$, he says; So what would he do differently now than when Treasurer?

By Alex Tarrant

"What are you doing about monetary policy and the high New Zealand dollar," is the favourite catch cry from opposition members of Parliament’s Finance and Expenditure Select Committee these days.

But they don’t like being reminded they were once in a position to make the changes to monetary policy they are calling for now, or that in fact they had tried to make changes already.

So it was between Finance Minister Bill English and former Treasurer Winston Peters in yesterday’s proceedings.

And we found that Peters had learnt his lesson when it came to what needed to be changed so that monetary policy in New Zealand could contribute to a lower currency.

Alter the overriding Reserve Bank Act itself, don't just fiddle around with the Policy Targets Agreement, the former Treasurer said.

He should know about these things.

It was Peters who managed to get the words "the Reserve Bank shall formulate and implement monetary policy with the intention of maintaining a stable general level of prices, so that monetary policy can make its maximum contribution to sustainable economic growth, employment and development opportunities within the New Zealand economy." into the 1996 PTA signed on his behalf by Finance Minister Bill Birch, and Reserve Bank Governor Don Brash. (Peters got his signature on the PTA when it was revised again in 1997.

Lessons learnt

“When are you going to do something about it?” Peters demanded of English during the Select Committee meeting yesterday, referring to the high currency.

English reminded Peters that the New Zealand First leader had had some opportunities himself as Treasurer between 1996 and 1998 while being "an influential coalition partner in a series of governments.”

“I think we might both say that, while it’s easy to say you can manage the exchange rate, when it comes to actually making some policy choices that are intended to give you the exchange rate you want, it’s actually pretty difficult to do," English said.

Not to be out-politicked on the point, Peters responded:

“You would have said the lesson is to change the [Reserve Bank] Act, not to tinker around with the Policy Targets Agreement, where the Governor can carry on as before. You need to change the Act. That’s the lesson that we learnt," Peters said.

“I changed the Policy Targets Agreement, and we changed the [inflation target] band out to three, whereupon a previous governor, namely a former leader of the National Party I might add...this man, 27 out of 36 months had been outside the 0-2% band, and he spent the next three years inside the old 0-2 band when it was 0-3.

“Now you see what happens when a Governor can pervert the intention of a political...arrangement. So the Act has to be changed, do you not think, if you want to change the level of the currency now?” Peters said.

English did not agree with that.

“Because I haven’t seen a plausible case about what you would change the Act to. When I listen to these arguments...some of it is about fighting the last war.

“Some of the arguments I hear make it sound as if the Reserve Bank is sticking interest rates up, that’s driving the exchange rate up, because he’s [the Governor] trying to get on top of house prices," English said.

“Well that was happening in 06-07, but that’s actually not the war we’ve got now. The war we’ve got now is probably as much – the risks are pretty balanced between deflation and inflation," he said.

Migration and Auckland house prices

Having made his point on the need to change Reserve Bank Act, not just the Policy Targets Agreement, Peters turned to the effect of immigration on Auckland house prices.

His point: That the majority of immigrants coming into the country to replace those leaving for Australia were heading for Auckland, and demanding to buy houses, pushing up prices.

"The people you’ve got coming to replace them are coming in, 60% are coming to Auckland, all needing housing now. Why didn’t you address that?" Peters asked of English's recently announced housing affordability policy.

“Why did you call that elephant in the room and not mention immigration at all, in respect to Auckland, in terms of the housing demand?"

English said it was right to point out migration to Auckland was a factor that influenced the housing market there.

“But we’ve got a broad enough range of a policy front on housing affordability as it is, without opening up a whole immigration debate," he said.

“As you know the stuff we’ve talked about has all been about the supply side. So we can argue about how to limit or control demand, for instance by limiting the number of migrants who go to Auckland.

“Whatever the result of that policy, we still want more flexible supply. So we made a priority out of that side of the equation. That’s not to say there are other parts of the demand side that isn’t relevant. It is, but we have the opportunity now to have a good look at the supply side, before there’s a lot of pressure on the market," English said.

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