Election 2020: Social Credit Party on its Reserve Bank plan and Covid-19 's 'sweeping away of taboos on economic management'

Chris Leitch: 'There have been roughly 100 parties that have started up in New Zealand and have disappeared, and yet Social Credit is still there.' Photo / Tania Whyte

A party that was once the country's third biggest but drew fewer than 1000 votes last election says Covid-19 means its radical monetary policy is needed more than ever.

The Social Credit Party got 21 per cent of the vote in 1981, and has contested every election since 1953, including 2017, when it won just 806 votes.

Undeterred, it's standing 23 candidates this election and has taken out full-page newspaper adverts, promoting its policies as a way to turbo-charge the country's recovery.

"You have economists now coming out and talking about the very stuff Social Credit has been talking about for so many years, and that we had been rubbished about for so many years," said the party's leader and Whangarei-based ballroom dancing teacher Chris Leitch.

The NZ Democratic Party for Social Credit's platform centres around the Reserve Bank, which has recently increased quantitative easing (QE), a tool central banks use to inject cash into the economy when other measures - like cutting interest rates - reach their limit.

QE is now the Reserve Bank's primary tool for keeping rates down. The bank creates the funds to buy government bonds on the secondary (commercial) market. This puts cash into the financial system.

Read More

• Election 2020: Brian Fallow: National's spending plan is just incredible - literally - NZ Heral...
• Brian Fallow: Covid-19's cost - looking for clues in the job numbers - NZ Herald
• Brian Fallow: Back to normal isn't enough - NZ Herald
• Covid 19 coronavirus: Brian Fallow: Four vital elements to lift spending out of lockdown - NZ H...

In August, the RBNZ expanded its QE programme to up to $100 billion. That money currently stays on the balance sheet as a debt to be repaid.

Social Credit wants the RBNZ to buy newly issued government bonds directly, rather than existing bonds from banks.

This would create $20b of debt-free money every year, it says, which can fund infrastructure, environmental and social investment, and its other policies including maximum payment of $20 for all doctor and dentist visits, free public transport and no tax on the first $20,000 of income, and 20 per cent tax on the next $20,000.

Many economists believe such an approach would have a dramatic and negative impact on financial markets, by pushing up interest rates and badly rattling investor confidence.

Social Credit argues that the Covid crisis means "the previous taboos on economic management have been swept away", and it would cut the creation of money by commercial banks to ensure inflation doesn't get out of hand.

The private banks' involvement in the current QE system will see them pocket an $11b profit over the next three years, said Leitch.

"Whereas, if the Reserve Bank was buying those government bonds directly, that would be $11b that would be able to go into a whole lot of other things that New Zealanders need."

Brad Olsen, a senior economist at Infometrics, said there was some divergence of opinion among economists about whether NZ could or should finance ballooning debt by having the RBNZ buy government bonds directly - but that debate was around a limited period of time.

"In the short term, there's an argument that can be made - I'm personally not convinced - but longer-term, I think you would be generating more inflation, people would be paying higher costs with less purchasing power, and that would be a road I don't think New Zealand wants to go down.

"There is a reason that we don't just make up money all the time, and that's because it generally does lead to inflation."

Covid-19 had led to more discussion about whether governments need to repay all debts, Olsen said, but he believed debt needed to be repaid, to allow markets to function.

It's extremely unlikely Social Credit will get into Parliament this election, but Leitch said membership had grown recently, and the party could still have influence through the discussion of its ideas.

Members and supporters provided the fundraising to keep that mission going.

"There's no war chest. The party over the years has simply had to go out there and graft to raise the money that's needed to operate," said Leitch, who has been leader for three years.

"There have been roughly 100 parties that have started up in New Zealand and have disappeared, and yet Social Credit is still there."