Special report: Why NZ needs a bipartisan grand coalition for economic reform, not tweaks to the RBNZ Act

Watch video on YouTube here. Watch video on our video page here. Bernard Hickey delivers a special report on Labour's decision to abandon 20 years of political consensus on monetary policy and start a debate on other ways to manage interest rates, exchange rates and the economy. Labour leader Phil Goff isn't suggesting any hard solutions yet but Prime Minister John Key has already brushed aside the attempt to have a debate about monetary policy, saying Labour just wants higher taxes. But there should be a debate as the current setup doesn't appear to be working for exporters who face a higher currency whenever the OCR is lifted to cool down the housing market.

There are various additional tools that could be used besides the Official Cash Rate, including new rules on capital adequacy for bank lending, new rules on banks' loan to value ratios, a mortgage interest levy, an adjustable GST and further use of the Reserve Bank's new Core Funding Ratio. The Reserve Bank could also manage the exchange rate or target other variables besides inflation, including GDP growth or unemployment. But my view is Labour and National should get together to build a grand coalition on structural reform that includes a broader, flatter tax system that encourages investment in exporting and discourages investment in housing. National and Labour could concede to each other taxes on property and a higher GST. Tinkering with the act or trying new tools won't work. We need significant structural reform to rebalance the economy and it will only happen with a bold and bipartisan approach.