Gordon Campbell | Parliament TV | Parliament Today | Video | Questions Of the Day | Search


The Paradox Of New Zealand’s Monetary System

Media Release
21 March 2002

Speech by Rt Hon Winston Peters, Bay Subaru Official Opening, Bay Subaru-Fiat, 398 Cameron Road, Tauranga, 6pm 21 March 2002

The Paradox Of New Zealand’s Monetary System

Recently a Wellington couple on their way to Tauranga for a holiday had to stop and ask for directions. They asked a man walking on the side of the road where the road to Tauranga was. “You’re there already!” came the reply.

The Wellington couple couldn’t believe they had found Tauranga—they thought they had taken a wrong turn and had ended up in Hamilton; since they last visited Tauranga 10 years ago. The town had grown so much they couldn’t recognise the place.

Soon Tauranga will have a population of over 100,000. It’s already the 6th largest city in New Zealand, and will soon replace Dunedin as the 5th.

Tauranga could do better, however. In many ways Tauranga has done well despite the efforts of those in Wellington. It’s done well despite burdening regulations, high tax, hands-off attitudes from the capital. It’s done well despite policies that have pushed up the exchange rate artificially over the past decade and a half.

There is one part of economic policy which has consistently stonewalled New Zealand and Tauranga’s development.

It oftentimes seems that Dr Brash is more important than the Minister of Finance.

For the past decade there has been operating in this country; the ‘Brash Paradox’ :
“How do you get economic growth? By attacking inflation. So how do you attack inflation? by attacking economic growth”

That is a vicious circle.

The Brash Paradox has cost this country dearly. It says that inflationary pressure, whether real or not, is far more important than economic growth.
Let us look at what has happened even very recently. Even before September 11 we were seeing a major worldwide economic slow-down. Did the Reserve bank cut interest rates? No, they kept them up in case of an economic recovery.

New Zealand was just the second country in the world to push interest rates up since September 11th—the first being Sweden on Tuesday night.

Now things in the world are starting to look up, but only very slowly. Instead of helping the system along, or leaving the interest rate where it is to give certainty and an incentive for investment, Dr Brash could not wait to push interest rates up, just in case you were thinking of expanding the economy.

It seems to me that there is something wrong with a reserve bank for which the answer always seems to be to push interest rates up.

Even by Dr Brash’s own predictions things are still fragile. We are only expecting growth between 2 and 3% over the next 3 years. Inflationary pressures are not even strong—inflation is expected to actually fall over the next 3 years and beyond.

So why have we seen the increase—which even that Wellington daily, hardly a Keynesian bastion, the Dominion has rubbished?

You knew something was wrong when the Minister of Finance and the Opposition spokesman didn’t support the rise; unions and employers didn’t support the rise; and business and the media didn’t support the rise in interest rates.

In fact the only person to publicly come out and praise the rise in interest rates was the well known Zoologist Rodney Hide.

Enough said!

So why does this matter? Why have I chosen this, the opening of Subaru Tauranga to make these comments?

Because it is small and medium sized businesses which are hit hardest. A raise in interest rates directly affects economic growth and job creation because it immediately imposes an extra cost on capital and finance for expansion.

Because of these increases the cost of doing business increases. Mortgage rates immediately increase and, to use Dr Brash’s comments: “economic growth is cooled down”

Businesses like this one which were either considering expanding or taking on more staff are forced to abandon those plans.

When New Zealand First was in government we made it a priority to change the policy targets agreement with the Governor of the Reserve Bank. We broadened the target inflation rate from 0-2% to 0-3%. Now this agreement needs to be changed again to include the requirement for long-term growth over short term inflationary considerations.

Surely, to so needlessly put the brakes on the economy in order to protect New Zealand from the inflationary paper-tiger which may or may not even exist at the present moment is counter productive.


© Scoop Media

Parliament Headlines | Politics Headlines | Regional Headlines


Also, Loan Interest: Productivity Commission On Tertiary Education

Key recommendations include better quality control; making it easier for students to transfer between courses; abolishing University Entrance; enabling tertiary institutions to own and control their assets; making it easier for new providers to enter the system; and facilitating more and faster innovation by tertiary education providers... More>>


Higher Payments: Wellington Regional Council Becomes A Living Wage Employer

Councillor Sue Kedgley said she was delighted that the Wellington Regional Council unanimously adopted her motion to become a Living Wage employer, making it the first regional council in New Zealand to do so. More>>


Scoop Images:
Dame Patsy Reddy Sworn In As Governor-General

This morning Dame Patsy Reddy was sworn in as the New Zealand Realm’s 21st Governor-General. The ceremony began with a pōwhiri to welcome Dame Patsy and her husband Sir David Gascoigne to Parliament. More>>


Ruataniwha: DOC, Hawke's Bay Council Developer Take Supreme Court Appeal

The Department of Conservation and Hawke's Bay Regional Investment Company (HBRIC) are appealing to the Supreme Court over a conservation land swap which the Court of Appeal halted. More>>


With NZ's Marama Davidson: Women’s Flotilla Leaves Sicily – Heading For Gaza

Women representing 13 countries spanning five continents began their journey yesterday on Zaytouna-Oliva to the shores of Gaza, which has been under blockade since 2007. On board are a Nobel Peace Laureate, three parliamentarians, a decorated US diplomat, journalists, an Olympic athlete, and a physician. A list of the women with their background can be found here. More>>

Gordon Campbell: On The Key Style Of Crisis Management

At Monday’s post Cabinet press conference Key was in his finest wide- eyed “Problem? What problem?” mode. No, there wasn’t really a problem that top MPI officials had been at odds with each other over the meaning of the fisheries policy and how that policy should be pursued... More>>


Mt Roskill: Greens Will Not Stand In Likely Post-Goff By-Election

“The Green Party’s priority is changing the Government in 2017, and as part of that we’ve decided that we won’t stand a candidate in the probable Mt Roskill by-election... This decision shows the Memorandum of Understanding between Labour and the Green Party is working." More>>


Get More From Scoop



Search Scoop  
Powered by Vodafone
NZ independent news