KEY POINTS:
Parliament's finance and expenditure committee has recommended the monetary policy framework be left as it is and does not believe the Reserve Bank should be given any extra tools to fight inflation.
In the middle of last year the select committee embarked on an inquiry into the framework amid concerns that relying on the official cash rate alone was inflicting too much damage on exporters, via its effect on the exchange rate.
Its report, tabled yesterday, broadly endorses the status quo as far as the Reserve Bank goes, but concludes broader economic policy needs to focus more on alleviating the factors constraining the rate at which the economy can grow without inflation - such as lifting productivity and making better use of increasingly scarce resources such as oil.
It does not recommend any change to the Reserve Bank Act or to the inflation target band or any other provisions of the policy targets agreement, with New Zealand First alone dissenting.
It says that in practice monetary policy operates much as in countries whose central banks have wider mandates, such as Australia and the United States. It supports keeping the governor as the sole final decision-maker, rather than having a committee decide interest rates.
Nor does it find the evidence in favour of additional instruments, such as a mortgage interest levy or an interest-linked savings scheme, compelling enough to warrant pursuing them.
The committee is split on the issue of changing the tax treatment of housing.
Only the Greens back a capital gains tax on housing (apart from the family home). The majority goes no further than recommending the Government investigate the tax system to ensure it is "neutral and not biased towards some forms of investment".
The National Party opposes any change to the law on taxing capital gains.
The committee recommends streamlining regulations and planning laws relating to the provision of housing, and investigating the extent of land banking.
Much of the report relates to the proposition that "monetary policy needs mates". It emphasises the need for Government policy generally to put a high priority on raising New Zealand's productivity performance.
For example, it should ensure that "neither immigration policy nor inadequate infrastructure act as constraints on non-inflationary growth".
Reflecting the views of the Greens, supported by the parliamentary commissioner for the environment, Jan Wright, it talks of the need to alleviate the structural inflation pressure that arises from running up against scarcity of natural resources.
Greens co-leader Jeanette Fitzsimons said if inflation was a matter of too much money chasing too few goods, monetary policy could deal only with the "too much money" side. "It's the 'too few goods' part that is causing problems now," she said.
The report says: "Inflationary pressures have in the past been seen as cyclical and Reserve Bank tools are suitable for dealing with short-term pressures.
"[But] inflationary pressure from resource depletion is a permanent effect and recent struggles of the bank to control inflation are evidence that the official cash rate does not control rising prices caused by shortages of energy, water, land and other resources or sinks."
Overall, the report concludes that monetary policy has largely done its job of delivering low inflation.
But the country's long-run economic performance is less encouraging.
National's finance spokesman, Bill English, said it was a long-winded inquiry that had not produced anything much.
"We said from the outset there was no compelling evidence for change."
Conclusions
* The finance select committee has given a big tick to the monetary policy arrangements.
* The key to having more growth without inflation is to lift productivity, it says.
* But there is no silver bullet. Implications for productivity should be a continual yardstick Government policy moves are measured against.
* And it acknowledges that productivity includes the efficiency with which natural resources are used - not just labour and capital.
