National's finance spokeswoman Nicola Willis claims both she and Adrian Orr are "professionals", and it's important they conduct their duties well. Photo / Marty Melville
National's finance spokeswoman Nicola Willis claims both she and Adrian Orr are "professionals", and it's important they conduct their duties well. Photo / Marty Melville
OPINION
National’s Nicola Willis may find she has something in common with Winston Peters, should she become finance minister following the election.
Willis would likely find herself having to tone down her commentary, much like Peters did when he was foreign affairs minister in the last Government.
When in opposition,one can huff and puff to draw attention to the Government’s failings. But when you’re a minister, words have real-life implications.
Willis knows this, which is why she softened her language slightly when she talked to the Herald earlier this week about whether she would be able to work alongside Reserve Bank (RBNZ) Governor Adrian Orr, after having a number of abrasive engagements with him during Finance and Expenditure Committee meetings, and saying she was “appalled” Orr was reappointed without the bank’s performance first being reviewed.
“I’m a professional, Adrian Orr is a professional, and it’s actually important both of us conduct our professional duties well,” Willis told the Herald earlier this week, stressing she respected the RBNZ’s independence from the Government.
Willis has committed to requiring the RBNZ’s Monetary Policy Committee to once again only target inflation, not inflation and employment. She’s also said she would commission an independent review of the RBNZ’s actions over the past few years if elected to govern.
It’s unlikely either of these actions would be explosive – either from an economic/financial markets perspective or from the perspective of RBNZ observers keen to watch a bit of drama unfold.
Why? Many of the RBNZ’s shortcomings are known and were traversed in a review the RBNZ carried out on its policymaking during the pandemic.
Furthermore, Willis would need to meet a high bar to legally justify dismissing Orr. She would undermine her own credibility if she were seen to undermine the RBNZ’s independence from the Government.
Under the Reserve Bank Act, the finance minister can (with or without the advice of the RBNZ board) advise the Governor-General to remove the RBNZ governor from office if there is a “just cause”.
The legislation lists several “just causes”, including, “misconduct, inability to perform the functions of office, and neglect of duty”, and “failure to adequately perform or exercise the functions of powers as chairperson of the MPC”.
Orr could argue he’s part of both the Monetary Policy Committee and a global community of central bankers that have failed to contain inflation.
As for his conduct, Orr is known to get defensive when challenged, and evasive when asked to discuss controversial issues that might highlight the RBNZ’s shortcomings.
Indeed, a restructure at the RBNZ saw a raft of the organisation’s most senior staff leave – disgruntled – in late 2021.
Yet for all the criticism levelled at Orr, there doesn’t seem to have been a smoking gun that might legally justify his dismissal.
Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell
Sure, one could argue Grant Robertson shouldn’t have reappointed Orr to the role of governor for another five years. But it would be another thing entirely to try to fire him without a rock-solid legal argument.
Willis would be cognisant of how this would create instability and erode investors’ confidence in New Zealand.
As for her plan to ditch the Monetary Policy Committee’s employment target, it’s unclear whether this would change its decision-making.
The target is flexible, and it isn’t clear the committee would’ve made different decisions if it only had to target inflation in recent years.
Beyond making the legislative change required to get rid of the dual mandate, a few key appointments Willis would need to make might reveal the direction she wished the RBNZ to move in.
Firstly, it would be interesting to see who she would task with reviewing the RBNZ and what the terms of reference for the review were.
Secondly, Willis would need to make two new appointments to the Monetary Policy Committee (on the recommendation of the RBNZ board), as two external members’ terms expire on March 31 and June 30.
Finally, RBNZ board chairman Neil Quigley’s term expires on June 30, so Willis would need to make a call on who filled this very powerful position.
Quigley has found himself in the news recently over controversy around whether monetary policy researchers were disqualified from joining the Monetary Policy Committee, due to the RBNZ board taking a very risk-averse approach towards managing conflicts of interest.
He was also scrutinised for working closely with National, as the vice-chancellor of the University of Waikato, on its proposal to set up a medical school at the university.
Coming back to Willis, any other major revamps she wished to undertake at the RBNZ would require legislative change.
Over the past six years, the Government, Treasury and RBNZ have worked on significant actions to reform the Reserve Bank Act.
Work is still underway to set up a deposit insurance regime and bed in new systems and processes that would be used in the event of a deposit taker folding.
Meanwhile, the RBNZ is reviewing the amount of capital insurers need to hold, as banks progressively (and begrudgingly) beef up their capital to meet the regulator’s requirements.
There’s been a lot of change at the RBNZ. If finance minister, Willis would be well served waiting for the findings of what would hopefully be a robust and apolitical review of the bank before trying to shake things up.
In the meantime, she could examine National’s policies to ensure they don’t hinder the RBNZ’s inflation fight.
Jenée 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.
