A bill that would have made the Reserve Bank extend its focus beyond controlling inflation to the exchange rate, export growth and jobs narrowly failed to pass its first reading in Parliament tonight.
The bill was sponsored by New Zealand First leader Winston Peters and supported by Labour and the Greens, but likened by Finance Minister Bill English to "snake oil.''
Mr Peters said the belief that inflation should always take precedence over other critical macro-economic factors was "not only absurd but it is reckless in the extreme for a nation like ours.''
Saying the Reserve Bank should focus on one objective was like saying you could have protein but not carbohydrates, he said.
New Zealand's was among the most volatile exchange rates in the world _ now at 83c against the US dollar _ and it put enormous strain on the tradeable sector, the engine room of the New Zealand economy where real wealth was created.
Mr Peters said when the Reserve Bank of New Zealand Act was past in 1989, it was necessary to lift the country out of the depths of economic despair by''conquering the greatest evil of all _ inflation.''
"They told us this would lead to a more efficient, more productive, more stable, more prosperous economy. We were all going to be better off.''
That was based on the belief that raising or lowering interest rates could create price stability without any long term costs at all.
They were wrong, he said.
The Reserve Bank of New Zealand (Amending Primary function of Bank) Amendment Bill said the primary function of the bill should be "to formulate and implement monetary policy directed to the economic objective of maintaining stability in the general level of prices, while maintaining an exchange rate that is conducive to real export growth and job creation.''
Finance Minister Bill English said the bill was "a variation of the monetary policy framework which happens to be one that can't work.''
The bill was based on the proposition that the Reserve Bank mechanism for changing interest rates could be used to lower or raise the exchange rate.
"That is simply not the case. You just cant do that,'' he said.
"It doesn't matter how you specify the monetary policy framework; the key to generating incomes and creating jobs is the competitiveness and productivity of our businesses. There is no free lunch.''
The Opposition was out of touch, Mr English said.
"Voters in New Zealand, Australia, Europe and the USA have never been more awake to snake oil than they are because they've learned the hard lesson.''
The lesson was that politicians who promise "free stuff'' in the end have to borrow the money for it and have to pay it back.
The bill was lost by 60 votes to 61.