New thinking on monetary policy welcome
“We welcome the new thinking on monetary policy and the exchange rate from Labour. It is long overdue”, says CTU economist Bill Rosenberg, commenting on Labour’s release of its monetary policy.
“We support Labour’s proposal that New Zealand should join countries including Australia, Canada and the US in having broader objectives for the Reserve Bank. The objectives should include the exchange rate, employment and a sound economy. The Reserve Bank also needs a broader range of policies to use to achieve those objectives. Reducing the need to raise interest rates will be very helpful in bringing the exchange rate to a more realistic level. In addition to Labour’s new policy to use Kiwisaver contributions as a demand management tool, it is important that the Reserve Bank consider other policies being used increasingly internationally to manage capital flows into the country, and to target areas of price increases such as housing rather than damaging growth in the whole economy.
These policies need to be accompanied by supportive Government action such as to provide low cost good quality housing aimed at first home buyers and providing a better deal for the increasing numbers of people who rent. A capital gains tax would also help.
“We also welcome Labour’s support for making Kiwisaver compulsory. We advocate moving to 6 percent employer contributions, 2 percent from employees and 2 percent from the government, with provision for continuing government contributions for people out of paid work such as caring for children. We recognise however that these contributions may be difficult for people on low incomes and advocate an increase in the minimum wage at the time when it is brought in, to ensure low paid workers can afford to save for their retirement.
Rosenberg says that criticisms of the scheme as being hard on low income workers can be met in a variety of ways such as a rise in the minimum wage, availability of exemptions or a progressive, scaled approach to increases in contributions if called for by the Reserve Bank. He points out that high interest rates also impact on low income workers. The solution is to deal with low income.
“This needs to be seen in a broader context. Labour and the Greens are committing to a range of policies that would help low income workers such as much more effective collective bargaining, a higher minimum wage, and support for the Living Wage for government workers. Their industry policies are likely to encourage the establishment of better jobs, and if their policies manage down the exchange rate, that will help too.”
These policies contrast with the current Government which raised GST, which hits low income households hardest, and cut taxes for high income earners much more than for low income workers. Its income tax changes increased the difference in take home pay between a person on $30,000 a year and someone on $150,000 by over $135 a week.