7 October 2012

Greens offer suite of measures to address high kiwi dollar

The Green Party today proposed a suite of measures that would help rebalance the economy onto a more productive footing by taking upward pressure off the high New Zealand dollar.

“New Zealand is experiencing a rapid hollowing out of its productive sector with the artificially high exchange rate causing the loss of thousands of jobs in our tradable sector and hundreds of skilled workers to leave for Australia each week,” ,” Green Party Co-leader Dr Russel Norman said today.

“The National Government promised a rebalancing of the New Zealand economy. Instead, under their watch, the New Zealand dollar has reached record high levels, tens-of-thousands of jobs have been lost in the manufacturing sector, the current account deficit is widening, and overseas debt is increasing.

“Long-term damage is being done to the New Zealand economy due to National’s inaction.

“Since the Global Financial Crisis, our major trading partners have engaged in large scale measures that have devalued their currencies. Our productive sector has been the first casualty and, along with it, any chance of securing our long-term prosperity.

“The UK, USA, Japan, and the European Union have deserted traditional monetary policy tools in favour of successive rounds of quantitative easing.

“New Zealand can no longer afford to be a pacifist in a currency war,” Dr Norman said.

Bernard Doyle, a spokesperson from Australasian broking house JB Were, recently said that the Reserve Bank should intervene to drop the value of the kiwi dollar. New Zealand’s Reserve Bank is one of the few central banks running relatively orthodox monetary policy – “a rarity in the global economy with positive interest rates and no policy on quantitative easing”. In a world where the major central banks are breaking all the rules, Doyle argues that our position is no longer serving us well.

“Our Government needs to be rolling up its sleeves and implementing practical monetary and industry policy solutions that work,” Dr Norman said.

“The Global Financial Crisis has changed all the rules and National’s doctrinaire approach is no longer serving our economy well.

“We’d like to start a mature discussion about how we can prosper in this new trading environment.”

The Green Party’s proposals for addressing the high dollar include the following measures:

1.     A broader mandate for the Reserve Bank to enable a lower Official Cash Rate (OCR) and new tools for managing asset bubbles;

2.     A comprehensive capital gains tax (excluding the family home); and

3.     Quantitative Easing (QE) in the form of the Reserve Bank purchasing Government earthquake recovery bonds to pay for the government’s costs in the rebuild of Christchurch and, separately, refilling the Natural Disaster Fund.
 
“We’re proposing a suite of measures which, in combination, will work to lower our high exchange rate and help restore our productive sector,” Dr Norman said.
 
“A capital gains tax moves much needed capital from speculative investment in property into the productive sector. Lower demand for home mortgage borrowing, partly funded from overseas, will ease upward pressure on the exchange rate.
 
“A broader mandate for the Reserve Bank will empower them to use the monetary policy tools available to them to manage the economy in a smarter, more sophisticated way addressing the high exchange rate and high unemployment rate along with securing price stability.
 
“The Reserve Bank would likely have lowered the OCR in September if it had a broader mandate than price stability. A lower OCR would have reduced pressure on the exchange rate.
 
“Finally, we propose the Reserve Bank purchase, in a staged way, earthquake recovery bonds to fund the rebuild of Christchurch and overseas assets to rebuild the Natural Disaster Fund more quickly. Both measures will have an immediate downward impact on our exchange rate.
 
“Buying Christchurch earthquake recovery bonds will reduce the need for the Government to borrow offshore. Currently, about 60 percent of all Government borrowing is from offshore.
 
“Buying overseas assets to restore the EQC’s Natural Disaster Fund will prepare us better for any future natural disasters.
“The National Government raised the EQC levy in February raising yearly revenues from $86 to $260 million. Treasury advises that the new levy rate will rebuild the Fund to its pre-earthquake level of $6 billion in about 30 years.

“We need to speed up the rebuilding of the Natural Disaster Fund to get New Zealand’s safety net back in place. The Fund’s holding offshore assets will limit the risks to domestic price stability while placing downward pressure on the New Zealand dollar,” said Dr Norman.
 
The New Zealand dollar is the tenth most traded currency in the world, completely out of step with our position as the world’s 64th largest economy. Speculation in the New Zealand dollar creates short-term uncertainty and is costly for our exporters to manage.
 
“Anything the Government can do to dampen speculation in our exchange rate will help those in the real economy, producing goods and services, thrive again,” Dr Norman said.
 
“Our suite of measures will make the New Zealand dollar less attractive to currency speculators.
 
“It’s better that we begin to manage our currency down rather than wait for the inevitable sudden correction and the severe shock to the economy that will entail,” Dr Norman said.
 
Dr Norman stressed the importance of the Government working alongside our manufacturers and exporters to address our biggest economic challenges.
 
“In a country as small as New Zealand, the state is always going to need to play a dynamic role in our successful economic development.
 
“National’s hands-off approach to economic management has clearly passed its use-by date, leaving our exporters struggling and huge numbers of people out of work.
 
“The now weekly loss of 100 skilled workers to Australia should be a wake-up call to John Key that his policies are failing this country and stifling our potential.
 
“We can manage our economy more smartly but we have to start that discussion today,” Dr Norman said.

ENDS

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