Labour plans to change the way we do monetary policy in New Zealand and the Green Party supports them fully. We’re now of a single mind on this.
Labour will move away from our reliance on a single, unelected person to set the Official Cash Rate — arguably one of the most important economic decisions there is. Having the Governor as the single decision-maker increases the risk of a bad decision. No other central bank in the developed world retains this vulnerability.
We’ve been proposing this uncontroversial reform since 2013 at a time when the Bank seemed to be struggling with its inflation forecasting and cash rate setting.
The Treasury has also quietly been pushing to reform the Bank’s governance model over this time. Despite growing pressure, then Finance Minister Bill English stubbornly stood by the antiquated reliance on a single decision-maker. English’s lack of policy nimbleness here is concerning. These reforms are hardly radical but the cost of getting it wrong comes with huge consequences for Kiwis. Keeping the cash rate one percent higher than it needs to be knocks 0.5%-1% off our national economic output and can put up to 30,000 New Zealanders out of work.
The one thing missing from Labour’s announcement today is a commitment to introduce deposit insurance to protect everyday people and their savings in the bank. Again, we’re the only developed country in the world to leave savers completely vulnerable to bank failure. The Green Party in government will ensure this oversight is fixed.