Treasury Advice To Government Lacks Courage
A Treasury paper, released under the Official Information Act, shows our Finance Minister asked for advice on whether the Bank should be allowed to buy up billions of dollars of Government debt on the primary market.
Currently the Reserve Bank buys up bonds on the secondary market with Treasury bonds sold first to selected banks, who on-sell to investors, and the Reserve Bank buys the bonds from the investors. The investors make a tidy profit, at the Governments expense.
According to Don Richards, National Spokesperson for Positive Money NZ, "Buying up bonds on the primary market would cut out the middlemen. The Reserve Bank would buy the bonds directly from Treasury with no mark-up and no debt to burden future generations."
"According to the OIA release," he states, "Treasury thought this was a bad idea, warning the move would risk long term damage to the reputation of New Zealand’s public finances. According to Treasury, this bad reputation might make it difficult for the Government to borrow in the future."
"This is disappointing," Richards continues, "because the Japanese Central Bank has been buying up Japan's treasury bonds for the last ten years and they have no trouble borrowing from international banks. The Chinese Government has been directly funding its economy for over a decade, and their economy is booming."
"In our view," he says, "the real issue is that international banks are scared New Zealand will cease to borrow from them so heavily. Surely we can't allow Treasury's fear of upsetting the banks to consign future generations to exorbitant debt levels while allowing essential infrastructure and services to go unfunded."
"The first Labour Government," Richards concludes, "showed immense courage during the Great Depression by using the Reserve Bank balance sheet (which Treasury objects to) to fund infrastructure projects and build tens of thousands of State Houses. This got us out of the depression sooner than most other countries and enabled New Zealand to set up a Welfare State that became the envy of the world."
Our Labour government needs to show a similar amount of courage as the thinking that got us into trouble is not the thinking that will get us out.
About Positive Money
Positive Money NZ is an independent, non-profit group advocating for monetary reform in New Zealand. Our patron is Bryan Gould and we are part of a global movement of organisations, the International Movement for Monetary Reform, campaigning to change the way money is created so that money serves society.