CTU MEDIA RELEASE
12 September 2007

OCR carrying too large a burden - CTU

The Official Cash Rate should not have to be the main tool to address runaway house price inflation, the Council of Trade Unions told a select committee enquiry today.

The CTU made a number of suggestions about the operation of monetary policy including more explicit reference to the needs of the export sector and for the OCR decision to be made by a small number of people as is the case overseas rather than the Governor alone.

CTU Economist Peter Conway said that “the main focus of the CTU submission was on additional measures to address house price inflation. This included a more rigorous capital gains tax on investment properties, increasing housing supply and removing the ability to offset losses on investment properties against other income”.

“We also said how a continuing focus on improving productivity can take pressure off inflation. But the benefits of improved productivity must be shared with workers.”

“One of the drivers of house price inflation has been the extent to which people are encouraged to take on a high level of debt. We propose greater controls on bank lending practices, and bank’s pay systems and disciplinary processes that incentivise staff to maximise customer lending need to be addressed.”

“We recognise that any solution will have a downside.”

“But this should be considered alongside the damage being done now – thousands more New Zealanders every year being priced out of decent housing, manufacturers laying off workers due to the twin effect of interest and exchange rates, and a long run cycle where the currency appears to settle even at the bottom of the cycle at a higher level each time,” Peter Conway said.

ENDS

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