Hansard and Journals
International Finance Agreements Amendment Bill — Second Reading
[Sitting date: 25 September 2012. Volume:684;Page:5615. Text is incorporated into the Bound Volume.]
International Finance Agreements Amendment Bill
Hon Dr JONATHAN COLEMAN (Associate Minister of Finance) on behalf of the Minister of Finance: I move, That the International Finance Agreements Amendment Bill be now read a second time. Following the first reading the bill was examined by the Finance and Expenditure Committee, which recommended that it be passed with no amendments. The bill will amend the International Finance Agreements Act 1961. That Act allows the Government of New Zealand to meet its obligations as a member of various financial institutions, including the International Monetary Fund, the World Bank, and the Asian Development Bank. This bill updates the principal Act so that New Zealand legislation takes account of changes the IMF has made to its Articles of Agreement. These changes were agreed to by the IMF governors in 2008 and 2010.
As the Minister of Finance stated in his first reading speech, New Zealand sees clear value in being a contributing member of the IMF. As a small, open economy we benefit heavily from a stable and prosperous global economy. The IMF supports this by providing a global safety net, which can mitigate the effects of financial crises, and helping to support trade and economic activity. The financial commitments that we have made to the IMF are effectively premiums to an insurance policy against damage to our economy from an unstable world. Contributing to the IMF and global financial stability is also important for New Zealand’s international reputation. Supporting the IMF in the work it does places New Zealand alongside countries that we often benchmark ourselves with internationally.
The changes to the articles of agreement reflected in this bill are part of a series of governance reforms that the IMF has been undertaking over the past few years. The reforms are designed to enhance the IMF’s legitimacy and effectiveness by ensuring that members’ voting shares and representation reflect their relative economic weight in the global economy. In addition, the IMF has linked the reforms that are incorporated into this bill to quota changes, to improve the representation of emerging markets at the IMF, taking account of their increased role in the world economy. The Government reforms also facilitate an agreed change in the membership of the IMF’s executive board. Once these new rules come into effect, the five largest IMF members will no longer be able to appoint an executive director, meaning that there will now be an all-elected board.
In addition to updating the principal Act to take account of the IMF reforms, this bill also updates New Zealand legislation by repealing some now redundant legislation. The bill also creates a regulation-making power in the principal Act so that future updates to the articles can be made by regulation. This power will simplify the process by which New Zealand meets its international obligations. For those members who may wish to query the regulation-making power, I would like to note that the Regulations Review Committee advised that the committee was not concerned about the proposed regulation-making power, on the basis that New Zealand is bound by changes to the articles of agreement once they come into effect, whether or not we have incorporated those changes into domestic law. Furthermore, any regulations made under the regulation-making power are also subject to disallowance under the Regulations (Disallowance) Act.
Overall, passing this bill will signal New Zealand’s support for reform, additional resourcing, and better legitimacy in an important international financial institution. I commend this bill to the House.
Hon Member: I think that’s a very good call, Mr Speaker.
Hon DAVID PARKER: Ha, ha! Thank you for your tolerance, Mr Speaker, and my whip. I rise to speak in support of the IMF legislation. There are a couple of points to be made. First of all, what is happening here is that because of the change in the relative wealth of nations, the split of the payment that is made to the IMF that goes to support countries in trouble is changing, because the relative weight of different countries has changed. China is a bigger part of the world economy, and New Zealand is a smaller part of the world economy. It is a sad reflection on New Zealand’s relative lack of growth compared with other parts of the world over recent decades that our share of world output has dropped. That is not just because of changing population trends; it is because we have not performed as well as some other countries. On the one hand the allocation of the amount to be spent by the IMF is changing in a way that decreases New Zealand’s share of it as the other countries’ share increases, but on the other hand the total amount of the pool that is able to be spent through the IMF is growing, so the net effect for New Zealand cost-wise is that we pay a smaller percentage of a larger amount, which works out to be about the same as it was previously. So there is not a great additional cost to the New Zealand taxpayer as a consequence of this.
It is notable that New Zealand generally does support the work of the International Monetary Fund, and I think that would cause me to reflect on the fact that the International Monetary Fund Chief Economist, Olivier Blanchard, thinks that monetary policy that focuses on inflation targeting to the detriment of other aspects of economic management is past its use-by date. So although I am supporting this bill, the International Finance Agreements Amendment Bill, I would note that the current Government, the National-led Government, is a bit selective as to the advice it takes from the International Monetary Fund.
The IMF thinks that New Zealand’s economy would be improved if we had broader targets for the Reserve Bank, so that instead of putting the primacy of control of inflation ahead of all other matters of economic management, it would have a broader set of objectives, including the health of our export sector and our exchange rate. Why is that important? That is important for New Zealand because unless we address some of these fundamentals, New Zealand is going to do next year and in the next decade what it has done in the last three decades, which is import more than we export, or, to be more specific, not cover the cost of our imports and interest from the value of our exports.
In every year New Zealand does that, it runs a current account deficit or a balance of payments deficit. That external deficit hole, as it is sometimes called, can be plugged in only two ways, either through borrowing more money from overseas or by selling assets that were previously New Zealand - owned to a foreign buyer. New Zealand has been doing that now consistently for over three decades and, as a consequence, our net international liabilities have grown. Unless New Zealand has an exchange rate that reflects the fundamentals of our economy, we will not be able to overcome that current account deficit, and we will continue to get poorer as our net international liabilities grow every year.
Treasury’s projections on behalf of the Government in the latest Budget have New Zealand’s net international liabilities growing to negative 80 percent of GDP over the forecast period ending in 2016. Those net international liabilities are already high by international standards. Indeed, you would have to say that they are at European levels, and they are set to get worse. So in order for that not to happen, New Zealand would have to earn more in its exports relative to its imports and interest costs, and in order to do that we need a few changes. The IMF says we should be introducing a capital gains tax. The Government rejects that advice. The IMF, like the OECD and Treasury and the Reserve Bank and just about every other Western Government, thinks it is a good idea, because then people will invest on the basis of the profitability of an enterprise, rather than on a tax bias that lies in favour, currently, of certain classes of investment. That acts to the detriment of our productive export sector, because too much money goes into land-based purchases and not enough money into export-related businesses, be they services or manufacturing exports. Those businesses suffer as a consequence of the bias, which puts too much emphasis on other parts of the economy.
The IMF also says that inflation targeting has been exposed by the global financial crisis as being wrong or inadequate, and thinks that broader targets are needed for countries. Instead of just focusing on the control of inflation, other matters of economic management are important. Steven Joyce on the other side has insulted people who have been pursuing this alternative viewpoint recently, be they manufacturers or politicians. He has accused them of voodoo economics and of being snake oil merchants, but, of course, you cannot accuse the head of the IMF, Olivier Blanchard, of that, nor various Nobel Laureates who think that inflation targeting has run its course. I met recently with a number of these economists overseas, including a renowned expert in monetary policy, Jeffrey Frankel, at Harvard. He made a couple statements to me that I found to be common sense, to be honest. He said that no one system of monetary policy is right for all countries of the world—that is obvious—and that no one system of monetary policy is right for any one country all of the time. Again, that seems a pretty common-sense thing to say.
If you look back at the history of the world, we have actually gone in the last century through a number of iterations in monetary policy. Until the Great Depression and World War II we had the gold standard, which was the way in which monetary policy was effectively controlled. That ran out of time. You know, it stopped working properly, and so post - World War II and the Great Depression we had Bretton Woods, and we introduced a different form of control that focused on exchange rates and had capital movement controls as part of it. That stopped working and, as a consequence, the world moved on and it tried to control monetary policy mainly through controlling the supply of money. That ran out of rope, and then the world moved on to inflation targeting.
Inflation targeting, when introduced in New Zealand, was probably appropriate. We had entrenched inflation under Muldoon. We had real problems in the economy and the Government needed to focus on the control of inflation being the primary problem. So the Reserve Bank was charged with fixing that problem, and it was told that the primary aim was the control of inflation and that other things like the exchange rate were subsidiary. Now that has run out of rope. It is no longer necessary. In fact, it is hurting New Zealand to give primacy to inflation targeting over other aspects of management of the economy.
There is no doubt that the Reserve Bank would make different choices if its objectives were broader than giving primacy to inflation targeting. If other matters of economic management were given equal weighting, including the health of our export sector and our ability to earn enough in our exports so that we did not have a current account deficit, well, you know, New Zealand would be better off with the Reserve Bank using the tools at its disposal differently. So that is one of the lines of advice that we are having from the International Monetary Fund that is being ignored by this Government.
I want to say one further thing about this legislation, and that is that although Labour will be supporting this bill, we would prefer that the ability to make future changes to the ratios or the amount that is committed to be contributed by New Zealand to the International Monetary Fund is by way of statute, which comes before this Parliament, rather than by way of statutory regulation, as is proposed by this legislation. Until now, any time there has been an amendment to the articles of the International Monetary Fund that New Zealand has agreed to, it has had to come before this Parliament and the Minister of Finance has had to justify to this Parliament why that should happen. It has consequences for New Zealand in a monetary sense, and those consequences should be brought before Parliament so that Parliament has the opportunity to vote it up or down. In reality, it is very unlikely that Parliament will vote it down, unless the agreement that the Minister has entered into is wrong. The Minister will have the Treasury benches and so will have the Government’s votes to vote it through anyway, if he has convinced his own Cabinet and caucus that that is the thing to do.
So what is wrong with it having transparency around these issues and requiring these amendments to come before Parliament? They do not happen every year. If this was just an administrative thing that happened every year, well, yeah, do it by way of statutory regulation, but it is not. In fact, I think the number of times that this legislation has been amended since it came into force just after Bretton Woods—because the International Monetary Fund was formed after Bretton Woods—is only about four or five times, so it is not like once-a-decade legislation is too much for this Parliament to cope with. We oppose the regulation-making power.
TODD McCLAY (National—Rotorua) : It is a pleasure to speak on this bill, the International Finance Agreements Amendment Bill. I want to make a couple of points as to why this is important, and then I will touch on the issue raised by the last speaker, Mr Parker, around whether regulation-seeking powers should be in place or not.
The bill itself amends the International Finance Agreements Act of 1961. That Act of Parliament allows the Government to meet its obligations as a member of various financial institutions, and in this case we are talking about the IMF—the International Monetary Fund. What that means is that New Zealand is a part-owner of that fund—it is a part-owner of that bank. The bank does very important work around the world, and during the last few years, as the global financial crisis has affected many countries, not only New Zealand—and thank goodness we have got the Government we have to help shepherd us through these difficult times—but in many other parts of the world—[Interruption] People watching television cannot see, but heads were vigorously nodding up and down on the other side of the House then! In many parts of the world they have not been so fortunate, and the IMF has had to step up and provide important funding and financial instruments to other Governments to keep them going, to keep them working.
New Zealand has not had to request anything like that because of the sound financial management of our Minister of Finance and the stewardship of our Prime Minister. However, as a part-owner of the bank we have obligations to that bank and, therefore, to other countries of the world. Therefore, within that, what this piece of legislation does is recognise a change that has been made in the terms of ownership—if we would call it that—of the IMF. It is a way that New Zealand recognises that and it enters into force.
Mr Parker said that these issues should always come before the House, but in effect it happens anyway. What happens is the Government is part of the negotiating process, it is agreed by all IMF members, and when it is signed by all those members—New Zealand has signed it—and when it is ratified by a certain number or percentage of those members, then the new agreement enters into force anyway, and the obligation is upon us.
So, actually, what has happened here is that the Government has negotiated. It has negotiated through the ministries it has that represent us overseas. An agreement has been reached between all of the countries, and in this instance it is to share out that ownership, or the obligation to provide funding by way of loans to the IMF to on-loan to countries that have issues in their economies. It is shared out more fairly and more equally, and in this New Zealand has its ownership, its part to play. So whether or not this was to come before the House, the agreement enters into force and obligation is forced upon New Zealand. We canvassed the issue widely with advisers and others in the Finance and Expenditure Committee, but reached the conclusion that the most appropriate way to deal with this was for it to be done in the way this bill now proposes. And, of course, it is up to Governments and Cabinets to decide what is in the best interests of New Zealand.
We will be able to delve into this in much greater detail in the Committee stage, but I commend the bill as it stands to the House.
Hon DAVID CUNLIFFE (Labour—New Lynn) : I rise to take a call on the International Finance Agreements Amendment Bill to reiterate the comments made by my colleague David Parker that Labour supports this bill. It supports the ratification of the changes to the Articles of Agreement of the International Monetary Fund. It does not, however, support the change that would allow future updates to the articles to be made by regulation. The reasons for that are quite simple: that our commitments to the IMF and its special drawing rights are very substantial in terms of their fiscal implications; and that this is a core part of the international financial institutional structure, and it requires the consideration of this House should significant changes be made to its Articles of Agreement.
Having noted those formalities, I wish to concentrate the bulk of my remarks on the contribution to economic debate currently being sponsored by the IMF, because the IMF has become a voice of reason at a time of great turmoil in international economic debate. Members will know that the former director-general Dominique Strauss-Kahn had quite a reputation. He had quite a reputation—
Chris Hipkins: Not necessarily in a good way.
Hon DAVID CUNLIFFE: —for a number of things, but one of the best things—perhaps the best thing that he had a reputation for—was for thinking a little differently about some of the dogmas of economics that had been the hallmark of the IMF for decades until his tenure. That may have ruffled a few feathers—who knows, it may even have contributed to his downfall—but let us not ignore the huge change in what the world’s probably leading classic financial institution has been telling us. For years, since the mid-1970s and the oil shocks and the rise of neo-liberalism, the International Monetary Fund was a champion of monetarism, of light-handed regulation, of fiscal rectitude, of balanced budgets, and of a very, very conservative style of economic management. It represented, par excellence, the economic orthodoxies of the 1970s, 1980s, and 1990s. It was the gold standard for conservative economics. It was famous for imposing its view of the world on struggling Third World countries, forcing, for example, massive fiscal consolidations, massive cuts to State sectors, massive lay-offs, massive economic contractions, in order to achieve fiscal targets.
Hon David Parker: Russian oligarchs.
Hon DAVID CUNLIFFE: Russian oligarchs spring to mind, and Central American banana republics crashing and burning, to name a few.
Times have changed. The old orthodoxies, the Washington Consensus, have been swept away by a little something that the National Government does not seem to have noticed—unless it wants an excuse—and it is called the global financial crisis. One of the things that it swept away was the so-called Washington Consensus on monetary policy. The idea was that the only thing that mattered, and it may have made sense immediately post the oil shocks of the 1970s, was price stability and the control of inflation—that somehow price stability, according to the then IMF, equalled financial stability, and that financial stability equalled economic stability, and economic stability equalled social stability. If you controlled inflation, all the rest would take care of itself, said Milton Friedman and the Chicago school acolytes. And then in 2008, the immense asset bubble built up by shonky real estate loans, magnified a 100-fold or a 1000-fold by derivatives like collateralised debt obligations and other things that were supposed to spread risk, but actually magnified it, and all of the orthodoxies about lowering interest rates that Mr Bernanke and Mr Greenspan had been following in the US were swept away.
The IMF, to its credit, had the courage to say “We were wrong; we were wrong.” There is an old saying that only a fool, when confronted by new information, refuses to change their mind. To the IMF’s credit, it did, and Mr Strauss-Kahn deserves some credit, as does his successor, Christine Lagarde, for having the courage to say times have changed. What does it mean for us? Well, is it not interesting that New Zealand and the shared history between both sides of the House was the poster child for the IMF prescription of the 1980s—Rogernomics and then the shiraz full-bodied version, Ruth Richardson, were the most extreme and pure form of neo-classical economics and neo-liberal politics almost anywhere in the world. It was IMF textbook. And where are we now?
Hon David Parker: And then Don Brash took over—
Hon DAVID CUNLIFFE: And then Don Brash, who was the ultra-orthodox Governor of the Reserve Bank, took over the National Party, and it has never recovered.
Hon David Parker: Then ACT.
Hon DAVID CUNLIFFE: And then ACT. So while the doyens of this world view have moved further to the right across the New Zealand political spectrum—I think Don Brash flirted with Labour youth when he was a pimply teenager or something—
Hon David Parker: Oh, don’t tell me that.
Hon DAVID CUNLIFFE: No, no; I’m sorry. But some people dry out so far that it becomes almost laughable. But the point is this, and it is a very serious point: what was once absolutely mainstream has now been stranded like a fish on a receding riverbank, flapping around, gasping for air. That is what is left of the monetarist consensus. And almost the only people who still believe in it are the New Zealand National Party, and the ACT Party. The IMF does not believe it. Olivier Blanchard, their chief economist, whom my colleague Mr Parker has just been to visit, does not believe it, and he has just co-authored a book about why it no longer applies. It builds on a whole lot of other literature, including Kahneman and Tversky, and Rogoff and Reinhart with This Time is Different, which is a history of 300 years of financial crises. This time is different, they said, and every time a bubble bursts a society takes a decade to work its way out of the heap of bad debt. In those circumstances, institutions like the IMF become very important.
What has the IMF said of New Zealand? What advice have we received from the IMF?
Hon David Parker: CGT.
Hon DAVID CUNLIFFE: Well, let us just note. My colleague Mr Parker is getting, rightly, excited by this, because we part-time economists think this is pretty juicy stuff. Let us first note what it has said is wrong. Is it our huge public debt? No. Does it think we have a public debt problem? No. Why? Because our public debt is less than a quarter of the OECD average. We do not, by relative terms, have a significant public debt problem. That does not mean we do not want value for money; we do. But the issue is not that. The issue, according to the IMF, is that we have two key problems: a lack of private savings and too much private debt, and an under-diversified, commodity-driven, low-value export profile that is getting the country further and further behind the guard. And what is the National Government doing about those two key problems? Nothing. Would it support a strong savings policy that would build our savings up? Would it support a capital gains tax that would help us to save in real assets? No. Would it support monetary reform that would help our exporters close the current account deficit? No. Would it take any of the advice of the International Monetary Fund about how to fix the New Zealand economy?
Hon Members: No.
Hon DAVID CUNLIFFE: Why, then, is it paying the bill? If it is not listening to the doctor, why is it paying the tab? Why are we here, saying that we agree to pay the tab, when the New Zealand Government is not listening to the answer? The answer is clear: New Zealand needs a change of direction. The old orthodoxies are not working. But do not take the Labour Opposition’s word for it. Talk to the Spring Creek miners, talk to the guys laid off at Nuplex Industries this week, and talk to the guys and girls laid off at Tīwai Point or Norske Skog. Talk to the people all around the country whose livelihoods are drying up and whose children are at the departure gates. Then ask yourself: is it not time we listened to the IMF?
Dr RUSSEL NORMAN (Co-Leader—Green) : I rise on behalf of the Green Party to speak on the International Finance Agreements Amendment Bill. This is a relatively small bill, but it has some interesting dimensions to it, particularly in relation to the International Monetary Fund.
The Greens will not be supporting this bill, for the simple reason that we do not agree with the regulation-making powers that are contained within this bill. If New Zealand as a country is to agree to changes to the voting rights at the International Monetary Fund, then we believe that it should come back to the New Zealand Parliament, rather than simply being a regulation enacted by the executive. We think that is a fundamental principle.
David Bennett: What have you actually achieved while you’ve been in Parliament, Russel?
Dr RUSSEL NORMAN: I hear the heckling there from whoever it is from Hamilton, who has no idea about this bill or pretty much anything else.
What this bill does around the regulation-making powers is to make sure that the New Zealand Government does not have to come to this House to seek changes to the agreements around the IMF. We think that is wrong. But I think the bigger picture here is that there is a global shift in terms of the policy agreements and arrangements around monetary policy, fiscal policy, and other policy, which the New Zealand Government is completely missing. There is actually a very significant shift in what is the global consensus, and, unfortunately, the New Zealand Government is missing the boat. It feels like the New Zealand National Party can stand up against the whole world in holding on to an outdated monetary policy framework, so it thinks it can take on the whole world. Even while the IMF and others are embracing alternative kinds of policies, the New Zealand National Government thinks it can take on the entire world and somehow beat it when it comes to currency. But, of course, you cannot do that. What the IMF and others are saying is that we need to change the framework.
I think it is important to look at the last report on New Zealand from the IMF, which was released in June. I would not expect anyone in the National Party to have read it. What this says, if you read it, is that New Zealand has some vulnerabilities and some external liabilities risks. It says that “New Zealand’s large net liabilities present a risk.”, and “the current account deficit is projected to increase over the medium term”. Of course, we have seen this in the last current account deficit figures, where the current account deficit is heading towards 5 percent. The report says further: “To contain this increase and limit a further buildup of foreign liabilities over the longer term, the New Zealand dollar would need to be weaker than its current level.”
That was back in June. Of course, since then the New Zealand dollar has appreciated. We are now in the situation where New Zealand businesses in the tradable sector—those that are exporting or competing with imports—are screaming out for the New Zealand Government to break with its orthodox position where it thinks it can take on the whole world, and to do something to bring down the value of the New Zealand dollar. The IMF, of course, has warned us that if we continue with a strong dollar, it will have very detrimental effects on the tradable sector in New Zealand, and it will have very detrimental effects on the current account deficit and our net external liabilities.
We have actually seen that happen already, since this report came out. So in this respect the IMF’s report was quite prescient. It identified one of the key problems with the New Zealand economy, in terms of the level of the exchange rate, and it identified that it needed to come down. Instead, it has appreciated. Having just tonight been talking to some of New Zealand’s large exporters, what they tell me is that they can maybe survive at the current level of the dollar, but were it to increase any further, large numbers of exporters—even more, further exporters—would be driven out of business. Yet the Government does nothing.
The whole world is devaluing its currencies. All of our major trading partners are adopting policies to devalue their currencies, but somehow the New Zealand Government thinks that it can stand up like King Canute and hold back the ocean, that somehow New Zealand can stand against the world and not do anything while all of our trading partners are devaluing their currencies, and that somehow the New Zealand tradable sector can simply stand there and survive.
Well, the Government should talk to real people for a change. If it talked to real people who are actually involved in the business of exporting or competing with imports, what it would find is that those real people—manufacturers and others—are having real trouble because of the current policy settings, meaning that the New Zealand dollar is too high.
So while the National Party lives in the neoclassical economic bubble, where the economy is doing extremely well in theory, in practice, of course, the New Zealand economy is doing very, very poorly.
David Bennett: What have you done in your time, Russel, here?
Dr RUSSEL NORMAN: The National Party rabble whom people may hear gabbling away in the background, who simply have no idea about economic policy or what is going on in the real world, can yell as much as they want and try to shut down the voices that are saying that we need to take action. Of course, the reality is that they can sit there and watch the economy get destroyed, but the Green Party will not support that.
The other element that I think has been interesting, in terms of the development of the thinking at the IMF, is around green economics. For those of you who read a publication that is put out by the IMF, Finance and Development, it put out an issue a few months ago called “Going Green”, which is looking very much at investment in, basically, mostly renewable energy. The argument it makes is that in spite of the global financial crisis, there has been a huge boom in investment in renewable energy and, in fact, it has continued to grow, even in spite of the pressure that has been on the sector. When you look at the statistics it is putting out, we are seeing a dramatic increase in the amount of annual investment, from about $7 billion a year back in 2002 to well over $150 billion a year now. So there is very significant growth in investment going into renewable energy. That is what the IMF is reporting.
The reason why this is very significant for New Zealand is that one of the strategic advantages New Zealand has is in the renewable energy field, because of our background, particularly in hydro but also our emerging technological advances in geothermal. And this is a sector where our State-owned enterprises have some real expertise and ability to excel. Unfortunately, the Government is selling them into foreign ownership—or is planning to, or would like to sell them into foreign ownership—right at the moment that those State-owned enterprises can take advantage of this global boom in renewable energy investment.
We need, as a society and as an international community, to have a boom in investment in clean technologies and renewable energy, because it is only if we have that that we stand a chance of reducing our greenhouse emissions and surviving through this period of anthropogenic or human-caused climate change. So the IMF, I think, not only is playing a valuable role in challenging the, if you like, monetarist consensus or neoclassical consensus in economics, which has dominated the economics field now for decades, but also is challenging the consensus in terms of the environment, around showing that green investment and green economics is one of the most rapidly growing sectors internationally. And it is saying to people like the New Zealand Government, which, unfortunately, is deaf to it, that this is one of the great opportunities, as well as one of the great adaptations, if you like, of the economic system, because it is only by having this level of investment into the renewable energy sector that we can have the kind of transition—
David Bennett: Tell us about the carbon price, Russel.
Dr RUSSEL NORMAN: —to sustainability. Once again, the National backbench members start shouting out because they have no idea about green economics or the IMF, or they do not read any of the publications coming out from the IMF. That is why all they can do is sit there and shout abuse from the back of the Chamber, which is pretty standard in this Parliament. We have the National MP from Hamilton, David someone or other, who shouts abuse pretty much in every debate in this House when anyone tries to make a rational argument, and in the background you will be able to hear him shouting—
Maggie Barry: Well, you’re not giving a rational argument.
Dr RUSSEL NORMAN: Oh, Maggie Barry has joined in as well. She is also very good at shouting abuse. But, of course, the National Party does not want to engage in the real arguments. The real arguments are about changing the neoclassical consensus in economics and embracing the turn towards green economics and the green economic opportunities for New Zealand. That is a future focus for our country.
If we embrace those things, which you can read about in the IMF reports, then that is a positive future for our country. It is a pity that the National Party wears such blinkers that it cannot see that the world is changing.
Maggie Barry: Go back to Australia.
Dr RUSSEL NORMAN: And Maggie Barry yells out “Go back to Australia.”, because she abuses people who are migrants. That is what you get from the National Party. Maggie Barry says “Go back to Australia.”, because she abuses people who are migrants. That is the level of debate from the National Party. Instead of debating the issues, this is what we get day in and day out on the Finance and Expenditure Committee from the abusive National Party. They hate migrants. They hate anyone who is different. They do not like it. Well, I tell you: you need to embrace the future because it is going to be diverse and it is going to be green, so get used to it.
DAVID BENNETT (National—Hamilton East) : That was a pathetic speech from—I do not know who it was—somebody in the Green Party. He mentioned the green economy. I would like Russel Norman to talk about the price of carbon and how the New Zealand economy would have done so well with the price of carbon. He will not answer that question, will he, because he knows the price of carbon is going down to a dollar, and that is effectively what is happening in the world.
The Green Party talked about our trading partners devaluing their currencies. Well, I look forward to the Green Party submitting evidence of our trading partners devaluing their currencies, because I have not seen any. I do not see the Australian economy devaluing its currency. That is the voodoo economics that you get from the Green Party. It has no idea of what it is talking about. It comes into this House and it can only do personal attacks to get its arguments across. It is completely unfair to this Parliament that the Green Party engages in that.
The Labour Party, on the other side—we had a problem there; we did not know who to believe. Was it Parker or Cunliffe—David Parker or David Cunliffe? Who is the finance spokesperson for the Labour Party? It certainly is David Parker, but I think David Cunliffe was going in there and saying “I know better than David Parker today.” There are cracks within its finance team that are huge. It is a shame for the Labour Party, because it is a fine party of tradition. It is sad to see the Labour Party not being able to put its economic policy together and to have a cohesive approach to it. That is a bit of a shame for New Zealand politics. It means that we have to have the Green Party come in with its madness to fill in the gap.
The Labour Party talks the rhetoric. It says all these things about having a productive economy, and at the same time it wants to put a capital gains tax on the most productive parts of our economy. The things do not add up. The New Zealand economy is in the best shape of many of the Western economies in the world. That is why our dollar is valued so high. It is because New Zealand is seen as having a strong economy. It is seen as having strong economic management from its Government, and it is seen as having as strong fundamentals as other Western countries can have at the moment. Those are good things. The Labour Party and the Green Party talk about this rhetoric to change it. It is rubbish. Do not believe it. You have got the best you can get. We are delivering. This International Finance Agreements Amendment Bill is part of that.
ANDREW WILLIAMS (NZ First) : I rise to take a call on the International Finance Agreements Amendment Bill. I would like to bring it back to what we are here for this evening in the House, the subject of the bill rather than the petty politics and slanging that we have heard in the last 5 to 10 minutes.
This is a bill that basically brings New Zealand into line with other IMF members around the world, many of which have already voted in regards to this type of legislation within their own jurisdictions. It says in the bill that “the shareholding (quota share) of many IMF members has not kept pace with the members’ relative positions in the world economy, and many fast-growing emerging market countries have become substantially under-represented.” at the IMF. As we heard earlier in the evening, there are situations such as those where China has grown substantially and other economies have not performed in the same way, and where the IMF has not realigned its various quota shares in line with the size of those different economies.
In terms of this particular legislation it says that an “Order in Council will be made when three-fifths of the IMF members”—being 85 percent of the members of the IMF—“have accepted the changes” in accordance with this. Therefore, once 85 percent of the members of the IMF have accepted this, it will be enacted through our legislation. This basically is bringing New Zealand into line with international best practice in terms of the IMF. We are a strong supporter of the IMF and we have been a longstanding member of the IMF. The New Zealand Crown, the New Zealand Government, and our jurisdiction here are best represented on the IMF by paying our fair share into the IMF fund and being a good partner of the IMF in that respect.
But it is interesting that although this National Government is very much wanting to see this legislation go through—and New Zealand First supports the legislation—on the other hand the Government likes to be very selective as to what it picks and chooses from the IMF. Where in recent weeks and in recent months the IMF has made comment and is on record as saying that the New Zealand dollar is overvalued and the New Zealand dollar should be at a lower level—and where other eminent financial institutions around the world similarly have made similar comment that the New Zealand dollar is overvalued—it is interesting that the blinkers go up from the National Government and it does not want to hear those sorts of things from the IMF. But that is a fact. The IMF has said that we are something in the order of, I think it is, 10 percent or 15 percent, at least, overvalued in terms of our New Zealand dollar.
In that respect, of course, New Zealand First is trying to address that situation. Again, the National Government does not want to look at it, but the Rt Hon Winston Peters does have a member’s bill, which is entitled the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, which is basically intended to review the Reserve Bank so that its sole purpose—
Mr DEPUTY SPEAKER: Order! The member cannot talk about another bill that is on the Order Paper. You can talk only about the bill that is currently before us.
ANDREW WILLIAMS: Yes, I agree, but what I am saying is that the IMF has said that the New Zealand dollar is overvalued. I am talking about the New Zealand dollar. One way that the New Zealand dollar could be reduced, in terms of meeting what the IMF has recommended as well, would be the member’s bill that serves to change the Reserve Bank of New Zealand Act to allow for more than just inflation to be taken into account when the Reserve Bank is setting its parameters.
So in that respect we do have to be cognisant of the fact that the IMF is a very eminent financial institution around the world. We are about to move this particular Government bill through in support of the IMF, but on the other hand we just seem to find within Government circles that it does not want to listen to other very sage and good advice from the IMF that the New Zealand dollar needs addressing.
This week we are seeing more and more and more people losing their jobs in New Zealand. Today we had the miners coming to Parliament. In Huntly, 63 miners are losing their jobs, and several hundred down on the West Coast are losing their jobs. This all comes back to New Zealand’s position in the world in terms of our monetary position, much of it reflecting back on the high value of the New Zealand dollar and our exporters being able to compete on world markets, being able to export their coal and export their products, and export all sorts of other goods from New Zealand. Again, it is reflective of a situation New Zealand is finding itself in increasingly where we are uncompetitive because we have a very high dollar, which is increasing all the time. The way things are going we will be seeing almost parity with the US dollar in the coming year.
I can recall back in 1979-80 when the New Zealand dollar was worth more than the US dollar. I remember the time when the New Zealand dollar first went under the US dollar and shudders went around, and we thought this was terrible that the New Zealand dollar was going to be worth less than the US dollar. However, in those days we sold our lamb and butter and primary products basically only to the UK, and that was it. We did not have to compete on world markets. Today we have to compete on world markets against very, very aggressive competitors, and the New Zealand dollar, as a result, is at a very, very high level and making it more and more difficult for our exporters to compete.
In terms of this, the IMF has got a lot of wisdom and a lot of advice. We hope that the New Zealand Government, in putting this bill through in the future—when it finally does become law—will take on board that with this legislation goes responsibilities towards the IMF. Perhaps, when the representatives of the IMF come to New Zealand and they sit down with the Minister of Finance, when they sit down with our Reserve Bank, and when they sit down with our Treasury people they will actually listen. Perhaps they will listen to the IMF, because we do not sign up to these things just for the sake of signing a bill and signing a piece of paper just to be part of the club. We do actually sign up to these things in order to also get international advice on where we stand in the international financial community. In that respect, New Zealand First will support this bill, but, certainly, there is a long way to go for this New Zealand Government to reflect the fact that New Zealand is in dire financial straits and that we have to start listening to some of the people like the IMF on the world stage.
JOHN HAYES (National—Wairarapa) : I need to say to Andrew Williams, the last speaker, that, in fact, New Zealand is not in dire straits, and he could start by looking at the difference in the unemployment rates between here and Spain, for example. I have got to say to him that he knows nothing about exchange rates. The reason the US dollar has depreciated vis-à-vis the New Zealand dollar is that the Americans have been printing dollar notes. That is their problem; it is not our problem. I think he should go and look at a statement that came out today from Business New Zealand that was talking about the importance of our not fiddling with the exchange rates. It was an article talking about the cross rates between the New Zealand dollar and the Australian dollar, where we have a 25 percent margin, and most of our exports go to Australia. I wish that you would go and learn something about economics, because you should not be talking to the community here in New Zealand as you are.
But let me come back to the International Finance Agreements Amendment Bill. This Government believes it is really important to be an active participant in the international system. Whether it is by being an active member of multilateral organisations like the United Nations and like the Pacific Islands Forum, or economic organisations such as the IMF, we need to be internationally engaged. Why? Because we are a small, open economy. We benefit considerably from a stable global economy. Our commitments to the IMF are a bit like paying your earthquake premiums. I am trying to put it in words that you might understand. They are effectively like paying a premium on an insurance policy against damage to our economy from an unstable world. Contributing to the IMF and global financial stability are also necessary for New Zealand’s international reputation. I thoroughly support this bill and commend it to the House.
Hon SHANE JONES (Labour) : Tēnā koe, Mr Deputy Speaker. Let me note that I heard this evening a commentary provided by you and Mr Clayton Cosgrove about a rugby game in Dunedin. In the unlikely event that you are not made the future Speaker, you may have a career in Dunedin narrating rugby. There were some fine players, however, in the team, not the least of which was the Richie McCaw of New Zealand’s Parliamentary Rugby Team politics, Mr Damien O’Connor.
Anyhow, let me come back to this bill, the International Finance Agreements Amendment Bill. Labour supports this bill, but beneath the words of this bill, really, is a debate that is gathering traction, and it is a debate about monetarism. It is a debate about the orthodoxy that has prevailed in New Zealand since the mid to late 1980s. It was pushed as a consequence of Thatcherism and Reaganomics. It took root here. It found institutional expression in our Reserve Bank and it is now the subject of a very public tussle between the two teams that will lead the next Government.
I have no compunction whatsoever, unlike our colleagues from the Greens, in supporting this piece of legislation, because I feel you cannot pick and choose which international accords you want to commit your country to. You can take on with a level of religious fervour certain environmental accords, but then sniff at things to do with financial security. So I have no compunction whatsoever in supporting this, knowing, yes, you do rely on the Government of the day, just as Winston Peters in his time intervened on our behalf and provided funding at the time of the Asian crisis, back in the mid to late 1990s.
But I want to come back to what underlies this bill. It is a debate about monetarism. A monetarist will insist that we run an austere, hawk-like fiscal policy, and they will insist that nothing must be done to manipulate the supply of money that might lead to a growth in the value of assets or inflation, which is just too much money chasing too few goods. The other, countervailing view is that from time to time, pump priming—using the inflationary target and letting it float a bit—lifts a wrecked ship off a reef. So as we go forward over the next 2 or 3 years there is going to be a genuine debate. How much of the public will actually be interested in it remains to be seen, but it is a legitimate, intellectual, demanding political debate that has gathered momentum, and I salute my colleagues who have managed to get it up as an agenda item. I accept on the day of plausible deniability, etc., for the Prime Minister and the deputy leader of the National Party that they have got other things to worry about, but this debate is not going to go away.
Over the last week, as the IMF prepares for its annual meeting, a debate has broken out between the reserve bank in Germany and the IMF. What is at the centre of that debate? What is at the centre of that debate is that the IMF has consistently said you cannot lift the wreckage of the economy and the stranded ship unless you actually take a Keynesian approach—unless you move away from this hawkish austerity and actually generate cash flow so people have got money to buy goods and services. Firms then have the confidence to invest and start to actually employ people.
It is rather interesting that that debate, at far more elevated levels than what we are talking about, is gathering momentum, because the IMF realises that there are risks as money is extended to countries, etc., that have got in the proverbial. But without that type of intervention you cannot leave a society or an economy to implode on itself and not be surprised that more nefarious forces associated with violence, mayhem, terrorism, drugs, destruction, death—
Hon David Parker: Fascism, communism.
Hon SHANE JONES: —fascism, communism, and totalitarianism occupy that space. So a modern economy—and, when I think about it, how we have approached this bill and how we approach the role of the IMF—actually sees a large role for the private sector in any economy. For some of us it may be larger than for others; for me I see a very large role. But when you are in the midst of a long, protracted period of depression—sort of, basically, trees dying as a consequence of actually not having enough fiscal liquid in them—you have got to intervene, and one way of intervening is actually enabling the whole monetary settings to be recalibrated. And why not? No generation—just as no religion, and just as no institution—can enjoy long-term life if it fossilises or it allows itself to desiccate. So that is why the debate that underlies this relatively straightforward regulatory response is a very good debate.
It will be said from that side of the House that, really, what you are talking about is making New Zealanders poorer. Well, I can tell you that I was chair of New Zealand’s largest fishing export company when the dollar got to US39c and US46c. We know that we probably wanted it at the 10-year average of 55c, and I should imagine it is over 60-odd cents now in terms of a 10-year average, but it is a fiction and it is a self-serving, quite destructive approach—which, unfortunately, still persists in the likes of the person I like to debate with occasionally, Don Brash—that we are destroying the country’s wealth. When you have these debates, some lose, some gain. Inflation actually helps those who want to trade assets. Inflation actually can penalise those people on fixed incomes, etc. But no economy at any given point in time has all winners, so the fact that we are pushing from this side of the House something that is now actually being amplified by the current leader of the IMF speaks to the prescience, etc., of our two senior spokesmen, not the least of whom has had the good sense to wander over and check out the thinking of senior economists and senior policy makers, only to learn that it is time for change in our country.
What can you do in maintaining growth and jobs where you are crippled by an excessively high exchange rate? What solution or what remedy is coming from the other side of the House? I will tell you what it is. It is a hawkish approach, a very mean-spirited approach—I might be charitable and say, for some of them, a flinty approach—to shrink the size of the fiscal contribution from the Government to the economy and to society. But you can do that only so much and then the whole economy starts to wither. You can do that only if you are actually taking out of circulation funds and resources. Where is it going to come from? Because the jobs and the investment, at this stage, are not coming from enough firms.
Go and ask a firm, as I did yesterday—several of them up in Marsden Point—and they will tell you: “Oh, if we only had a quantity of commitment and a quality of leadership from the Government of the day, many of the regions of the country would get up and get going again.” They are being crippled. They are struggling to keep ahead both of creditors and in their banking relationships, at a time when the banks actually have a lot of money, because the dollar is squashing confidence and squashing energy. We are right to say some parts of the country are in a depression, because people are depressed. They are depressed about the absence of any hope, the absence of a tone of positive stewardship from the current Government.
So have no doubt: as we move to the next election, underlying what the IMF represents is a deeper debate on what direction we are going to take our country. We are not going to take our country in the right direction while we watch ongoing unemployment, the destruction of jobs, and the inevitable loss of too much talent to Australia, and are stuck arguing about the shibboleths that are served from the other side of the House. Some may actually understand them. Whether they believe them or not, they are ideas that are no longer relevant. They are ideas that no longer generate the results that will sustain New Zealand families in a quality of life and a volume of income that makes life meaningful in Aotearoa, which is why we are watching so many of them go to Australia.
We will support this bill, but in particular we support more the debate that both is overdue and will be outstanding because it will pinpoint what we as a Government in the future will do to revive the fortunes of our economy by driving the export sector. Thank you very much.
MAGGIE BARRY (National—North Shore) : I rise to speak to the International Finance Agreements Amendment Bill. This is an bill that allows the Government to meet its obligations as a member of various financial institutions, including the IMF. The Finance and Expenditure Committee, which I am a member of, recommended that the bill be passed without change.
We heard earlier from one of the more ambitious and less able members of the Green Party—the Australian one, who has acquired a doctorate, I think, on the history of the Alliance Party, or something relevant and of great moment like that. Anyway, week after week at the Finance and Expenditure Committee we watch him as he struggles with the concept of New Zealand keeping its place in the world. He has proved again his lack of understanding of economics, his watermelon variety of economic philosophy, where he is green on the outside but bright red to the core. He refuses to acknowledge that New Zealand, as a small, open economy, benefits tangibly from a stable and prosperous global economy—none of the isolationist Green stuff.
Our commitments to the IMF are essentially premiums. They are an insurance policy against damage to our economy from an unstable world, and they are also an important part of our international reputation. Again, that is something that the Greens, in particular, have not understood well. We understand it only too well, and I support this bill. Thank you.
Dr DAVID CLARK (Labour—Dunedin North) : I have pleasure in speaking to this bill, the International Finance Agreements Amendment Bill, which the Labour Party will support. I believe this is a split call, so I shall limit my comments to what is necessary. Had I more time, I would stray on to other aspects of international obligations such as the obligation to protect the Māui’s dolphin. I understand New Zealand was the only country recently to oppose greater protections for the Māui’s dolphin, in a gathering that happened here in New Zealand. I fear that if I do not take this opportunity now, I will not have another chance to express my discontent at that decision, because we know that there will be no legislation coming before the House to strengthen protections—
The ASSISTANT SPEAKER (Lindsay Tisch): Order!
Dr DAVID CLARK: I will not speak today about that, Mr Assistant Speaker.
I will instead focus on the purposes of the IMF, which we know is there to provide economic stability. It has 188 member countries, and it is there to protect the stability of the international monetary system, the system of exchange rates, and other international payments that enable countries and their citizens to transact with one another. It also has a mandate for promoting sustainable economic growth and for increasing living standards and reducing poverty. It has total quotas of $360 billion, and it has pledged other commitments of $1 trillion. It is a big organisation. It is important to our world economy, and New Zealand has a place in that world economy, which is important, of course, to us, as it is to others. We take our responsibility in the Labour Party seriously as an internationalist party that believes that New Zealand should honour the international obligations and agreements that we have entered into.
I want to also note for the record my appreciation for the contributions of the Treasury officials who appeared before the select committee during the process of reviewing this bill. I thought they did a sterling job of researching our requests and reporting back. We see the good work of officials on a daily basis in this Parliament, but I thought that the officials who worked on this legislation and sought to answer the questions we had did a job that was worthy of particular mention.
One of the concerns about this bill that we in the Labour Party have is the way in which future changes will be made. The future acceptance of updates to IMF articles will be ratified by regulation rather than by legislation that comes before this Parliament. We believe that it should come by way of a statute that comes before the House and is given due consideration right here by all members of this Parliament, so that we can take those international obligations seriously, debate them, and decide upon the appropriate way to take them forward. When we get into a position where that transparency is removed, there are always risks involved, and we do not have to look too far. We look at the lack of transparency around the extensions proposed to Skycity and see what kind of furore that creates in the wider public and concern about the way in which the Government transacts its business. If we also look at the asset sales agenda of the Government and its claim that it has a mandate to sell off our State assets, we again see the protests and the upset that it has caused amongst members of the public who voted in support of this Government but now find that it is doing things with which they do not agree.
The importance of transparency remains. We are not comfortable with the fact that these decisions will be made by the executive rather than coming before the Parliament, although we do agree that we need to meet our international obligations and the agreements we have made in terms of our commitment to a trading environment that is stable, and in the interests of sustainable growth in the wider world economy. Thank you.
Dr KENNEDY GRAHAM (Green) : I also will not address the issue of Māui’s dolphins tonight in this speech; nor will I talk about New Zealand’s nuclear-free policy, which may be under siege, the Government’s education policy, or the Government’s position at the moment on the Government Communications Security Bureau. None of those issues will I address tonight, but rather the issue that is before us, which is the International Finance Agreements Amendment Bill, which is seeking to amend the articles of the IMF. I would recall the stated reason by my colleague Dr Russel Norman for the opposition of the Green Party to the bill, and that is, among other reasons, that it creates a regulation-making power so that future updates to the articles can be made by regulation. Let me also address the other reasons why the Green Party will be opposing the bill.
I must say that it is always interesting to come late into the debate and listen to what members have said to date. For example, I think we in the Green Party agree with John Hayes—[Interruption]—yes. When he said that “we need to be internationally engaged”, we agree. And we would even go as far as to agree with Maggie Barry, who said that we must not be isolationist. We agree, too. Nobody should be isolationist in the 21st century. The point is what the nature of the engagement is, and that is what the nub of this debate is about.
We agree with Shane Jones. We are agreeing with everybody, you will understand. Shane Jones said that the debate is over Thatcherism and Reaganomics, which has come to influence the IMF, and the debate is essentially revolving around monetarism. That is the nub of it and that is the issue of engagement—the debate over the nature of the IMF. Where we diverge from the Labour Party is that having agreed that the debate is about monetarism, we would seek to engage with the world in reforming the IMF from that in various ways, whereas Labour is disposed to support it none the less.
We have for some time now called for the fundamental democratic reform of the IMF, and this bill essentially invites us to comment on the requirements for the reform of the IMF. Let me give three examples. The first is that the stated intent of the reforms is to move towards a more democratic and equal representation model. There is some critique of the reforms that they are not fulfilling that goal. The reforms, for example, remove the ability of the US, Japan, Germany, UK, and Italy to appoint directors—one-quarter of the total positions—putting them on the same playing field as other nations in voting for directors. But their voting share remains large none the less. There will, in fact, be little change. The US, for example, will hold 16.5 percent of total votes, and the Group of 77, between them, will account for 41.2 percent. How do we reconcile that: one nation gets 16 percent and the better part of 120 nations gets 41 percent?
Secondly, the agreement also would change the voting allocation. There is a 6 percent shift increase in vote of the dynamic countries like Brazil, Russia, India, and China, but approximately 2.4 percent of this shift comes from other developing nations losing their voting share. What kind of reform is that? Thirdly, the agreement also leaves in place the de facto US unilateral veto over some IMF decisions. Some large developing countries opposed the European proposals to lower the special majority voting threshold to eliminate the US veto, because they feared they would lose their ability to block things as a group.
When there is inadequate reform of an organisation, a political party has a choice. You support the bill while criticising the bill because the bill does not go far enough, and then you support it, or you say that the bill does not go far enough in reforming it, and, because of that, you will oppose the bill. We are taking the latter approach to this and we will continue to oppose the bill, notwithstanding the report back from the Finance and Expenditure Committee.
MICHAEL WOODHOUSE (National) : In the spirit of the agreement that Dr Kennedy Graham has articulated, and because I was very strongly in support of the comments made by Mr Jones, this is a necessary discourse. It may well be overdue, as he said, but I think he credited his colleague David Parker with having a reasonably intelligent discussion about monetary policy and where it might go. I do note, however, that it has been a couple of years now since the Labour Party signalled its intention to unhook itself from the monetary policy accord, but we are none the wiser about what the alternative monetary policy framework might be, so I look forward with interest to that.
It was a little unfortunate that the discourse between Dr Norman and some backbenchers was a little bit acrimonious. I want to pick up on one point he made in respect of National backbenchers not reading IMF reports. Well, I have read the IMF report that he quoted and sent a press release out, in fact, in early July around the IMF stating that the New Zealand dollar was overvalued by 15 percent. In fact it did not say that. I cannot find anywhere where it said that. What it did say was that the dollar was 13 percent higher than its 1998-2011 average, and it is quite another thing altogether to draw an inference that that means that the dollar is overstated. It may well be uncomfortably high, as the Prime Minister has described it, but I also want to quote that report in respect of monetary policy—and Mr Parker probably knows this but has not said it. The IMF said: “The current accommodative monetary stance is appropriate. If the recovery remains on track and downside risks dissipate, monetary policy will need to tighten gradually to contain inflationary pressures.” So at a time when Mr Parker advocates a loosening of monetary policy and a widening of the parameters for inflation, which would be very hard on our lower-income New Zealanders, particularly if that results in a lower exchange rate and then higher import prices like in respect of fuel, in fact, the IMF was advocating quite the opposite. So I think this is a case often of picking a statistic to suit a point of view rather than taking a neutral stance and looking through the numbers. But in supporting this bill I certainly support the continuation of that discourse.
- Bill read a second time.