National is promising to simplify the Reserve Bank’s (RBNZ) job if elected into government next year, so it only needs to target inflation when setting monetary policy.
National leader Christopher Luxon told Bloomberg he wants to remove the requirement for the central bank’s Monetary Policy Committee to target “maximum sustainable employment”.
The Labour-led Government created the RBNZ’s dual mandate in 2018, following a review of the Reserve Bank Act 1989.
Luxon also told Bloomberg the party is committed to removing a line from the Monetary Policy Committee’s remit, requiring it to “assess the effect of its monetary policy decisions on the Government’s policy to support more sustainable house prices”.
The Government made this change in February 2021. It arguably hasn’t altered the way the committee has set interest rates, but has seen it detail the impacts its moves have on house prices in more detail in its quarterly Monetary Policy Statements.
Asked to verify and elaborate on his comments to Bloomberg, Luxon told interest.co.nz, "The government should direct the Bank to go back to focussing on its core mission of price stability, like it did (with reasonable success) for most of the last 30 years.
"There’s been too much mission creep at the Bank, which is to be expected with the Government continually meddling with its objectives and trying to pass responsibility for its own failures onto the Bank.
"Giving the Bank multiple, potentially conflicting objectives makes it harder for the Bank to do its core job of controlling inflation, and harder for the Government and the public to hold the Bank to account.
"Things like removing the barriers to building houses, supporting businesses to create jobs, or ensuring the welfare system is focussed on getting into work are all issues for the Government to address, not monetary policy."
Luxon's comments come as National MPs have focused their energy this week in Parliament on attacking the Government over the rising cost of living.
Luxon's comments echo English's
Former National prime minister and finance minister Bill English, in a March 2021 interview with interest.co.nz, accused the RBNZ of overcooking its response to Covid-19 by loosening monetary policy too much.
“I’m not a fan of giving central banks several targets,” English said.
“It makes their job pretty difficult and it makes it harder to predict how they’ll behave… It sort of washes into the political issues when you’re dealing with inflation and employment and housing…
“Sometimes politicians can get a bit too reliant on central banks.
“There are some things they [central banks] can do, and some things they’ve done pretty well. Either they or the politicians are expecting them to achieve more and more objectives - whether it’s now moving into climate change - it creates uncertainty.”
95 Comments
Luxton, if you're at all reading, please for the love of God stop with this madness of trying to disincentivize housing and instead give us some incentives for investing in other asset classes!
An adjustment of the PIR rates will do more to help housing and our young than any Brightline test.
The next steps should be to reduce the target inflation range. The first step would be to reduce it to a range of 0-2% which was where it was initially set in the 1990s. Until that happens, we will continue to work within a 'funny money' policy that encourages investment in non productive financially leveraged assets.
KeithW
Until that happens, we will continue to work within a 'funny money' policy that encourages investment in non productive financially leveraged assets.
Spot on. But Luxon doesn't seem to get it by removing any focus on housing. If they revised the CPI accordingly, perhaps that would help.
The reason it is happening globally is because of the same funny money policies across the developed world and closed thinking among global central bank comrades who have all been taught to think the same way. My monetary focus going forward is on influencing the policy debate, recognising that all mainstream parties have contributed historically to where we are now. It was National who shifted from 0-2% to 0-3% in 1996, and it was Labour who much more recently included employment as another issue to be considered. I would hope that eventually all parties would see the fundamental flaws within funny money policies. Of course employment is vey important, but monetary policy is not the way to manage that.
KeithW
NZ imports immigrants like china imports raw materials. Iron ore, logs etc
There is no shortage of work in NZ. We are importing more and more workers from overseas. Skill shortage visas are basis of our immigration for decades. So why do we need employment as a basis for any monetary policy unless the were some vested interests.
There should be an inquiry into how this government plundered so much money on useless policies under the disgustle of covid. It's all my tax paid money and they have used to without any accountability. They should be help responsible and prosecuted if found to have wasted due to negligence.
The fundamental issue for our reliance on migration is the shift in focus among NZ employers from training workers to hiring pre-trained employees.
For example, despite what the industry wants everyone to believe, there is no shortage of Kiwis graduating with STEM degrees, especially T & E. Employers offering entry-level opportunities to graduates are a few large consulting firms.
Thanks to our broken migration policy, local grads also have to compete with experienced migrants desperate to get their foot in the door for these handful of opportunities.
Yeah, I think this is underestimated by people who haven’t been new entrants to the job market within the last decade or so. Employers are militant about experience over qualifications or potential. A lot of the time jobs just end up going to whoever is most willing to lie on their CV. HR people can never tell, since they don’t have any actual expertise in the industry. Destroying the HR industry would probably usher in a golden age of innovation and productivity…
Amen, I said the same last week. New Zealand needs an unemployment register, from which employers must select employees with skills sets closest to those they require. They should be forced to take on Kiwis apprentices and upskill them into roles. If they can prove, from stringent tests, that they are unable to find even one person with the potential to be upskilled into the roles they require, then they can apply to import one from overseas. It is far too easy and proof positive that there is no patriotism in New Zealand capital when they expend little to no effort improving the lot of unemployed Kiwis.
Good work. At least some common sense prevailing from someone who understands what the working class pay day to pay day survivor wants from the government.
The current government is all about hand waving gesture and hugs. But i need to feed my family and hugs don't put food on my table.
I want the costs to decrease so i can feed them well.
Really.. You think that's easy?
And you are telling me that what the government polices are doing to our lives is ok and we should just take it. I guess you are probably a spoilt child if a rich occupier. Never knows how poor survive and don't have much hours in a day after two jobs to do a third one.
Easy to talk than walk in the shoes of a hard ( including smart) working man and a father.
I know it's not easy: I've been poor more than once through my life, with family responsibilities no one else was going to step up to take care of. And in my 60+ years experience you'll wait forever in vain for any Govt to solve your difficulties.
You really need to do both - raise your topline income AND lower your costs, you need to see daylight between these numbers (family microeconomics are no different from any other business).
One day at a time until you can breathe enough to think about one week & then one month. Once you can see a further horizon you will see more opportunities.
The most important thing of all is having a partner who is fully committed to the same goals & strategy. I had that for quite a few years but then lost her along the way as we became more financially successful.
It's irksome that our education system is designed to churn out workers instead of people who are able to author themselves a successful work life including managing their financial affairs.
Sorry to hear your split. My partner and I worked out that a meal is as good as a feast so are making the most of our faculties while we have them, instead of retirement when all the bits stop working or fall off.
Pa1nter,
" instead of retirement when all the bits stop working or fall off." I still see red every time I see statements like this.
There are those who can't imagine not working and those who can. I am one of the latter. I thoroughly enjoyed what I did, but retired completely at 57-almost 20 years ago- and have never once regretted it. What I did for a living did not define me. The first thing we did was to move country, from Scotland to here and build a new life.
Of course, I accept that I was fortunate in being able to afford to retire early and many do not have that option.
"I guess you are probably a spoilt child if a rich occupier."
Hard to feel any sort of sympathy when this sort of garbage is posted on here. I would hazard a guess that most people posting on Interest.co.nz are or have been hard working men and women doing the best for their children.
This isn't the only time that things have been tough.
You can either listen to advice posted on here(which by and large is positive)and try and take things on board or continue to blame others for your own predicament.
Unfortunately having read a few of your posts I think it might be the latter.
“Why not look to raise your income or lower your costs”. Oh if only it was that easy 😂. Pretty brazen comment when you have no idea of any commenters actual situation. Along the same lines as “Stop buying coffee everyday and you to can afford an $900k house in Auckland”.
Well yeah, in essence, it's a fundamental of financial existence, ensure your incomings exceed your outgoings. If what you're doing isn't accomplishing that, then you will need to change one or many parts of your life.
The alternative is to complain and go backwards.
Ah yes, I'll stop buying the 30 coffees a day I don't buy. That'll make the difference.
Maybe the problem is that many in previously safe middle-class professions can no longer afford a house despite living on the bones of their arse for year after year?
Maybe the problem that's is actually that a generation of dickheads have priced shelter out of reach for many ordinary Kiwis?
Usually like your comments but I can’t agree with this. He should have invested in infrastructure after the GFC, govt should invest in the bad times and save in the good times. Now the govt are having to invest in a period of very low unemployment and overstimulate the economy. I really think that error from English was unforgivable.
All governments have been hamstrung by the Public Finance Act, which effectively forces them to run surpluses. We should be able to take on debt to build important infrastructure that will deliver long term payoff to justify the debt. Bernard Hickey did a good article on in :
https://thekaka.substack.com/p/an-intergenerational-wellbeing-crime
His rating went right down with me when he denied there was a housing crisis. Crisis I believe was either by Labour or MSM. I would have been comfortable with BE saying we have serious housing problem and we are addressing it as follows. Once you say there is no crisis you consequently don't have to say what needs to be done.
I feel this is one of the key areas that toppled the Nats. Not that Labour have done anything about it.
There is no one magic bullet for residential housing. There are at least five, each with varying percentages.
Key was substantially better than Clark, and infinitely better than Collins.
I see all the negatives of Clark in Ardern, with none of the positives. Ardern is nothing but unbridled irrational egotistical idealism, and that is the last thing you want in an MP, let alone a PM.
Key's legacy is a failed flag campaign. Ardern's legacy wont be anything more than her ability to generate a well choreographed media soundbite.
Yes I would like to see the Nats slash the staffing levels of all the agencies and hugely tighten their remit (last thing we want is for staff numbers to be slashed only for many of them to come back as contractors).
I understand there's about 40,000 public servants in Wellington. Assuming an average salary of 100k, cutting 10,000 of them would save the tax payer more than $1 billion per annum.
Easy as that. Sit back and watch those savings grow. Seek tomorrow.
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Good move by National. But CPI needs to be updated to include house prices and rents to a higher degree, maybe to the degree which they actually affect people, not some tiny percentage.
Luxon is on a roll here. I was listening to RNZ interview people about the Treaty of Waitangi and my god, Luxon was the best of them. He really seems to be in touch with the issues, or at least sounds like he does. Seems like National is swinging way left, while Labour swings way right.
What exactly did the safe pair of hands of National achieve in their last 9 year term? Or do you prefer Gov'ts that do nothing over ones that stuff things up. Why anyone would vote for National or Labour after the last two decades is beyond me....... Great that my property values have gone up, but infrastructure is fraying everywhere and inequality is growing. Different thinking is required.
On 20 Jul 21 Jennee Tilbury wrote an article headed “Grimes: Ditch the employment target, introduce a house price target” - see link below.
At the time I commented that Arthur Grimes had hit the nail on the head. Too much focus on employment & lack of focus on house prices has led to a well-being disaster. Renters are the big losers as they have been totally ignored by the government.
The current government has created many law changes that will continue to drive up rents and reduce rental supply. More renters will be forced to find alternative accommodation. Emergency accommodation will soon reach its limits in many cities. This will lead to greater misery & a worsening well-being disaster.
It is great that National is focussing on fixing the economy. They couldn’t do any worse than what this government has done with housing prices over the last 12 months. Now to cap it off Labour have requested a report which is due back this week to fix the mess that has been created. They are looking at rent caps or indexing rents.
https://www.interest.co.nz/news/111369/inflation-targeting-architect-ar…
"They couldn’t do any worse than what this government has done with housing prices over the last 12 months"
This is the same feeling, one had under National but look what happened. Jacinda Arden came to power and has done 10 Times more harm than National, so never underestimate this politicians.
The proposal to remove the employment mandate from RBNZ will only return things to where they were until a few years ago - when the current Govt changed RBNZ charter .
Do not recall sky falling ( " high mortgage interest rates, unemployment etc...") during the last term of National .
I think what we need to realise is that central banks have no desire to reign in inflation.
They will only do so if the political pressure becomes so extreme that they are forced to act - ie widespread revolt/social instability.
In the interim, they can run monetary policy with severely negative real interest rates…that takes from savers and protects the over leveraged. Remember Orr saying to banks to lend, lend, lend to avoid the country falling into a depression? Now those overleveraged who have saved us from a depression need to be protected by running negative real rates (about -5%!)
1000 times better thought process in comparison to queen Jacinda.
Employment is already at it's peak due to border closure, if RBNZ thinks it's because of them then it's wrong. Just because supply is less everybody has something to do, except those who don't want to work.
Inflation is the core issue and if RBNZ wants to get away by saying it's worldwide then at least they have to do something to control it. Now they can't say it's because of Saudi's petrol price or shipping cost of china increase, if this is the excuse then let Saudis and Chinese run the country.
“National commits to restoring inflation as the Reserve Bank's sole monetary policy target, removing the employment target and the requirement for the Bank to assess the impacts of policy changes on house prices”…..
An idea that is so bat s&*t crazy, it just may work 😂
Luxon must be being advised by someone who hasn't read anything on macro economics since the 2nd year of an economics degree that they only passed because their girlfriend was studying maths.
Whatever your political persuasion, there is general agreement that the main lever that the central bank has to manage inflation is the overnight cash rate - the OCR. There is also clear agreement that the OCR lever works primarily by influencing the demand side of the economy. The central bank pushes the OCR lever up and this generally reduces the disposable income of people with mortgages and reduces business confidence. This reduces aggregate demand in the economy (meaning less consumption), and this leads to less work to do - i.e. less employment and more competition for jobs (pushing wages down). Whether or not any of this actually reduces inflation is far less clear - it depends on whether the reductions in demand impact on the underlying causes of inflation. How much would the OCR have to go up to reduce the price of petrol or drive reductions in the price of the building materials sold by our favourite duopoly (Fletchers and Carters)?
Anyway, my point is that the central bank's 'dual mandate' is not two distinct targets - not two jobs that it has to find time to do. The dual mandate exists because, under current policy settings, the bank is charged with finding the sweet spot between maximum sustainable employment and inflation. If a National Government wants to take ownership of the employment target - and leave RNZ to fight inflation, we could potentially end up in a tug of war between the Govt trying to create jobs (I hope) and the bank pushing up rates to reduce jobs. At least that would be mildly amusing.
Overnight Cash Rate ? Thats pretty funny and kind of suits our fly by night government but its the Official Cash Rate and even this is a bit old school as I believe its name has changed to MPR. Nothing like worrying about the name of something more than actually doing the job.
Lol, love the headline... you mean getting the RBNZ to manage financial policies (only) like it was intended to from the start? hey, great idea..!
um, I actually think it was designed that way for a reason from the start...
why the RBNZ has to manage employment is beyond me - that is supposed the be the job of government - Labour has become a joke...
Problem is CPI measuring inflation is a dud statistic that is broken - so if your measuring performance against a poor KPI then it becomes meaningless....
While the Labour Party has done some hideously woke things in recent years, changing the RB focus to include employment is one of the things that the Labour Party got right.
As a society we need all (or nearly all) people to be productively employed, and also inflation to be under control.
Also, we need wages to increase in real terms over time in order to get it back in relativity with the cost of housing, and to compensate for the reduction in the real value of wages over the last 40 years.
There was a time when a single wage could support an entire family and only 1 of the two parents had to work outside of the home. We need to go back to enabling a parent to be at home with their children if they want, rather than both parents having to be at work just to keep their heads above the water.
Why should housing and land be so expensive in real terms that they cannot afford to have the section much bigger than the size of the house itself. Where will the children play?
Luxton is a clone of key , talks the same.
almost sounds the same, because he spent 6 months training with john key.
Maybe give David Seymour a vote, because he has been trying hard, its hard for small parties.
It may help keep both national and labour honest at the same time.
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