KEY POINTS:
A suggestion from former Governor Don Brash that the Reserve Bank be given the power to raise and lower the excise tax on petrol seems to have fallen on stony ground.
In an opinion piece in yesterday's Herald, Brash put forward the idea as a means by which
the bank could restrain household spending, and so lean against inflation, without putting upward pressure on the exchange rate the way raising interest rates does.
Cars are more common than mortgages and petrol price rises hit households faster than interest rate hikes do.
New Zealand has seven vehicles for every 10 people, whereas only one household in three has a mortgage and most of that debt is at fixed rates.
Parliament's finance and expenditure select committee is in the midst of an inquiry into this issue.
It has received submissions on a broadly similar idea - giving the governor the ability to vary the rate of GST.
An earlier suggestion from officials of a reversible mortgage interest levy failed to achieve broad political support.
Its chairman, Charles Chauvel, said he doubted the committee would call on Brash to elaborate on his suggestion.
"Certainly the committee will consider the merits of that idea. I think the general view though, and certainly my own view, is that it is better to leave the taxation power with a body that can be voted in and out."
Although the power to raise and lower taxes is one of Parliament's most fundamental and cherished rights, Brash's proposal would not involve a net tax increase over time.
The money raised by an increase in the petrol excise would not go into general Government revenue but would be held by the bank and used to fund excise reductions at opportune times later in the cycle.
However Viv Hall, professor of economics at Victoria University and a former chairman of the Reserve Bank board, does not believe giving the bank any cyclical related fiscal instruments to wield would be helpful.
When petrol prices went up and down they acted as a signal to people to buy more or less of it, he said. Messing around with those prices would muffle the signal.
And he noted the principle, enshrined in the Public Finance Act, that there should be a "reasonable degree of predictability" about the level and stability of tax rates.
Professor Laurence Ball of Johns Hopkins University, who spent some time in New Zealand as the Reserve Bank's guest during Brash's term, suggested delegating to the bank some limited control over tax rates on the grounds that they work faster (once the legislature has agreed them) than conventional monetary policy can.
Chauvel said some economists might see the need to go through a parliamentary process as an inconvenience. "But I think there are some real constitutional dangers in taking the taxing power away."