Goff’s announcement will split the business vote predicts the Productive Economy Council

The Productive Economy council welcomes Labour’s announced intention to create a monetary policy environment that better supports exporters.

With every political party angling for the populist vote, it’s highly encouraging to see Phil Goff today staking out a position that will provoke serious debate on how we grow the economy. Those businesses that design, make, employ and export real things will love this announcement, says Pellett, the spokesperson for the Productive Economy Council.

Labour’s Spokesperson for Economic Development, David Parker, signaled earlier this week Labour’s proposed changes to Monetary Policy and the critical role of the new tools it envisaged in re-balancing the economy. Parker told the Manufacturers and Exporters Association that “the Reserve Bank Act needs to be clarified to ensure the bank can use such tools primarily for the purpose of supporting Monetary Policy,” that “Labour will make that change,” and that “the change would cause the Reserve Bank to use prudential ratios, rather than rely solely on interest rates”.

Goff’s speech today to Federated Farmers points out that New Zealand is unusual internationally in having a single policy goal for the Reserve Bank. Australia’s Reserve Bank Act requires the bank to aim for a stable currency, full employment, and the economic prosperity and welfare of the people of Australia. Who could argue with those goals?

“Our own analysis has shown having price stability as the only goal and varying interest rates as the only tool in achieving price stability has led New Zealand exporters into recession long before the global financial crisis,” says Pellett.

We fully support Goff’s desire to give the Reserve Bank a broader set of goals and tools. The use of a capital adequacy ratio, for example, will slow down the creation of debt during inflationary cycles, improve savings returns for local savers and avoid excessive spikes in the exchange rates.

“We have been ill-served by politicians over the years, either not seeing the issues clearly, or putting short-term electoral self-interest ahead of the country’s need for them to make the hard decisions. Labour seems now to have got the message that you cannot have a healthy economy and, by extension, a prosperous future unless that economy is balanced, with no one portion being excessively penalised at the expense of another,” says Pellett.

There are many policy options that could be looked at once we get past the dual myths of 'We Have Best Practice' and 'There Is No Alternative', says Pellett, but the fact that Labour has moved past them, saying they don’t support the accord on monetary policy, and is now proposing viable options is a monumental step in the right direction.

“The measures suggested by Labour will not, by themselves, create a productive economy, but they will go some way towards helping create an environment in which the productive economy has a chance to grow the export dollars that underpin the economic well-being of everyone in this country. If Labour stands resolute on monetary policy reform we see the potential for a significant shift in support and that will make for some very interesting debate in the business community,” says Pellett.

ENDS

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