David Seymour, who could become Associate Finance Minister once the new government is formed, is talking tough on making the Reserve Bank (RBNZ) operate similarly to the way it did in the 1990s.
Not only does the Act leader want to scrap the RBNZ’s employment target, but he wants to get rid of its Monetary Policy Committee (MPC), lower the RBNZ’s inflation target, and reduce the flexibility it has around how quickly it meets this target.
“It’s about accountability,” Seymour told the Herald, arguing that giving the RBNZ a more focused job description would make it easier to hold it to account.
A more prescriptive remit would also give the Finance Minister grounds to remove an underperforming governor and put pressure on the Government to do its bit to help the RBNZ meet its target.
Before the election, Act and National campaigned on removing the MPC’s “maximum sustainable employment” target, requiring it to only focus on maintaining price stability.
Their view might not bode well with New Zealand First, whose support they might require to form a Government.
NZ First was part of the Labour-led Government that introduced the employment target in 2019.
In 2012, its leader Winston Peters went so far as to call the RBNZ’s focus on inflation “myopic”, introducing a members’ bill aimed at requiring the bank to also consider economic growth, export growth, the value of the dollar, and employment.
Coming back to Seymour, before the October 14 election he also said it was insufficient for the MPC to be allowed to meet its inflation target in the “medium term”.
He believed a more specific timeframe (which he couldn’t pinpoint) should be stipulated in its remit, even if this prompted the RBNZ to change the official cash rate (OCR) more aggressively.
Speaking to the Herald on Wednesday, Seymour elaborated on his thinking.
He said that if he had his way, he would also get rid of the MPC, once again putting the onus on the governor to set monetary policy.
While the governor would draw on the expertise and research of RBNZ staff, as they did before the committee was introduced in 2019, they would be personally responsible for the consequences of their decision-making.
Seymour believed it was difficult to hold a committee to account. He recognised that firing all seven MPC members for failing to meet their targets would be destabilising, for example.
“If you say a large group is responsible, you’re really saying no one is responsible,” he said.
While Seymour last year railed against Finance Minister Grant Robertson reappointing Adrian Orr to another five-year term as governor, calling Orr “indulgent and unfocused”, he told the Herald getting results was imperative “ahead of any personality issues”.
“If Adrian achieves the result, then, fantastic,” he said.
“If he doesn’t, the natural consequence is, you need to review that position.”
Seymour also said he was keen to lower and narrow the annual consumers price index (CPI) inflation target range from 1-3 per cent to 0-2 per cent. This was the target range initially established in 1990.
Reducing inflation to around 1 per cent, from the 5.6 per cent level it sat at in the September quarter, would require more aggressive OCR hikes.
This would further hamper the abilities of indebted households and businesses to spend and invest, reducing demand in the economy and creating job losses.
The requirement would also put pressure on the Government to cut spending - a concept that’s central to the libertarian philosophy underpinning Act.
So how would Seymour’s idea fly with the RBNZ?
The bank shared its view on how the Government should set the MPC’s remit during a routine five-yearly review that concluded this year. Getting rid of the MPC and the employment target weren’t options under the review.
The RBNZ suggested the remit could specify that the MPC should prioritise achieving price stability above maximum sustainable employment.
This would provide more clarity, but it could also reduce the MPC’s ability to use its discretion if trade-offs arose between the two objectives.
Robertson decided against introducing a hierarchy of objectives.
The RBNZ also recommended keeping the requirement for the MPC to meet its targets in the “medium term” - advice Robertson listened to.
It noted it takes time for OCR changes to take effect. For example, people only experience higher/lower interest rates when they come to refix their debt.
Seymour recognised the lags inherent in monetary policymaking, assuring he wouldn’t want to give the RBNZ an unrealistic or impractical timeframe to meet its target.
However, he was adamant the bank’s targets had to be more “specific, measurable and timely”.
The role Seymour will play in the next Government is yet to be determined.
The final election result will be known on November 3 - next Friday - once special votes are counted, but it is unclear how long it will take to form a Government thereafter.
National Party leader Christopher Luxon has committed to making Nicola Willis Finance Minister.
Willis last year said she was “appalled” Robertson reappointed Orr as governor without first completing an independent review of the RBNZ’s performance.
This month she told the Herald she would commission an external review of the RBNZ.
She said she would be able to work alongside Orr, as they’re both “professionals” and she respects the RBNZ’s independence from the Government.
Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.