FCK: Why is Labour Going Against Its Own Inquiry?

A reader has kindly reminded FCK of Parliament’s Inquiry into the future mon­e­tary pol­icy frame­work, reported just over a year ago, when Labour had a major­ity on the Finance and Expen­di­ture Select Com­mit­tee. The report, writ­ten at the direc­tion of for­mer Min­is­ter of Finance Dr Cullen, was intended to re-enforce Labour’s com­mit­ment to bipar­ti­san sup­port for price sta­bil­ity and infla­tion tar­get­ing. Goff’s speech yes­ter­day repu­di­ated that commitment.

The key find­ings of the com­mit­tee were (empha­sis by FCK):

• con­firms the impor­tance of main­tain­ing price sta­bil­ity as a vital com­po­nent of a healthy and well per­form­ing economy.
• agrees that mon­e­tary pol­icy remains the pri­mary means for main­tain­ing price sta­bil­ity.
• acknowl­edges that the Pol­icy Tar­gets Agree­ment between the Min­is­ter of Finance and the Gov­er­nor of the Reserve Bank of New Zealand recog­nises the impor­tant role price sta­bil­ity plays in sup­port­ing the achieve­ment of wider eco­nomic and social objec­tives, and that it requires the Reserve Bank, in pur­su­ing its price sta­bil­ity objec­tive, to oper­ate mon­e­tary pol­icy in a man­ner that avoids unnec­es­sary insta­bil­ity in out­put, inter­est rates, and the exchange rate.
• acknowl­edges that New Zealand’s mon­e­tary pol­icy approach, empha­sis­ing cen­tral bank inde­pen­dence and infla­tion tar­get­ing, is stan­dard among, small, open, and devel­oped economies.
• acknowl­edges that New Zealand’s mon­e­tary pol­icy oper­ates in a sim­i­lar man­ner to coun­tries with wider man­dates, such as Aus­tralia and the United States.
• acknowl­edges that at times of strong infla­tion pres­sures, the costs of main­tain­ing price sta­bil­ity are often borne dis­pro­por­tion­ately by the export sector.
• acknowl­edges that a range of eco­nomic fac­tors and resource con­straints have con­tributed to recent infla­tion pres­sures and to how quickly mon­e­tary pol­icy has affected infla­tion outcomes.
• acknowl­edges that fac­tors other than mon­e­tary policy—such as sus­tained improve­ment in trend productivity—play a key role in less­en­ing the adjust­ments required to main­tain­ing low infla­tion over the medium term.
• believes that con­straints on the avail­abil­ity of nat­ural resources, par­tic­u­larly crude oil, are likely to be increas­ingly sig­nif­i­cant con­trib­u­tors to inflation.
• heard exten­sive evi­dence con­cern­ing sup­ple­men­tary sta­bil­i­sa­tion instru­ments, such as a mort­gage inter­est rate levy, an interest-linked sav­ings scheme, and other taxes that might com­ple­ment inter­est rates in man­ag­ing infla­tion, but did not find the argu­ments
  in their favour com­pelling enough to sup­port them being pur­sued fur­ther at this time.

What’s fas­ci­nat­ing is that Labour are now essen­tially repu­di­at­ing their own inquiry, or at least argu­ing that price sta­bil­ity has a much great affect on the export sec­tor and that it is incom­pat­i­ble with “wider eco­nomic and social objec­tives”. The ques­tion is, why? Charles Chau­vel should have enough of a back­ground in busi­ness (being a for­mer board mem­ber of Minter Elli­son Rudd Watts and Merid­ian Energy) to know that price sta­bil­ity is impor­tant to all sec­tors of the economy.

Update: The inquiry was not directly by Michael Cullen. Mea culpa.

Tagged as: Cullen, FCK, Michael Cullen, Phil Goff

Tagged as: Cullen • FCK • Michael Cullen • Phil Goff