An Economy With The Hand Brake On

Speech by Rt Hon Winston Peters,
NZ First Leader and Northland Member of Parliament,
The Autolodge Motor Inn,
393 Devon Street East,
New Plymouth,
Tuesday 4 July, 2017, 10am.

AN ECONOMY WITH THE HAND BRAKE ON

 

Fundamental to a successful economy – and thriving regions over the long term - is an appropriate exchange rate. 

The exchange rate is crucial because it impacts the economy in a myriad of ways - even if that impact is not immediately obvious.

Yet for years even the Reserve Bank has been acknowledging that New Zealand has an overvalued exchange rate.

What is going on?

The basic issue is that is the Reserve Bank is handicapped with an out of date Act.

The current Reserve Bank Act was passed in 1989. A vastly different economic and financial age.

Remember 2008 and the Global Financial Crisis (GFC)? 

Since then, as central banks around the world responded to the crisis, we have been in an era of unprecedented low interest rates and deflation.

But the NZ Reserve Bank Act is locked in the past, with a fixation on inflation.

The consequences of a persistently overvalued dollar have been deeply damaging to New Zealand.

Business investment and export growth has been stifled.

The rebalancing of the NZ economy towards greater investment and jobs in internationally competitive industries simply has not happened.

So we are making no meaningful progress towards the goal of increasing exports as a percentage of GDP.
The export-orientated regions from Northland to Southland have suffered particularly badly.

These regions have been punished because the Reserve Bank has been trying to curb the Auckland Housing Bubble through interest rate policy and this has pushed up the exchange rate.

And the NZ dollar has been turned into a bonanza for financial speculators and traders.

Despite the relatively small size of our economy the NZ dollar is one of the most heavily traded international currencies.

We need an exchange rate that serves real economic goals like strong and growing regional exports, not to enrich currency traders and financial wheeler-dealers

New Zealand First has been consistently calling for an overhaul of the Reserve Bank Act to make it fit for purpose for the era of ultra low interest rates.

The Reserve Bank needs a new mandate to deal with challenges facing the New Zealand economy – today.

As a small open economy New Zealand is dependent on a competitive exchange rate. We do not have that.

The result is a persistent and chronic balance of payments deficit – and this shows that the New Zealand dollar does not reflect the underlying economic reality.

In the year ended March 2017 the balance of payments deficit was $8 billion and there is no prospect in sight of achieving balance.

To put it bluntly, NZ is not paying its way.

Every year we are just falling deeper into debt to the rest of the world – a debt that now stands at $155 billion.

Risks abound in the global economy and New Zealand is highly exposed and vulnerable to any volatility. 

That is why NZ First is committed to reforming the Reserve Bank Act as a vital step in safeguarding our economic future – and the future heath of regional New Zealand.

NZ First has prepared legislation to bring the Reserve Bank Act up to date.  Specifically, the Bank’s outdated focus on inflation must be ditched.

NZ’s draft Bill amends the Reserve Bank Act to ensure that the role of the Reserve Bank is broadened to include not just control of inflation but also critical macro-economic factors such as the rate of growth, export growth, the value of the dollar, and employment.

Predictably, as in so many areas where urgent reform is needed, we received no support from the National Government when we introduced our draft bill reforming the Reserve Bank Act into Parliament.