The Green Party’s call for an inquiry into the government’s economic response to Covid is welcome, but needs to go a step further, says Positive Money national spokesperson Don Richards.
“Rather than a select committee inquiry, the public deserves an independent inquiry,” says Richards.
“In particular, it must look at the role of the Reserve Bank which has stood separate from Government with its legislated independence but has squandered the monumental sum of $53 billion on its response. This is probably the largest single public spending programme in New Zealand’s history, yet it has been left largely unaccountable,” says Richards.
In July of last year, Positive Money New Zealand presented a petition to the Chair of Parliament’s Finance and Expenditure Select Committee, Duncan Webb. The petition asked Parliament to have the Reserve Bank directly fund our Covid recovery as well as essential infrastructure, rather than providing stimulus to the financial sector via the Large-Scale Asset Programme (LSAP).
The petition and its accompanying submission made clear that house prices would rise along with inequality if the Reserve Bank used its ‘unconventional monetary policy’ tools instead of directly funding the Government’s fiscal response. “Unfortunately, we’ve been proved right,” Mr Richards says.
The Petitions Committee response to the petition was received in December 2021 and included advice from Treasury which was an embarrassing indictment of Treasury’s tunnelled vision.
Despite the evidence provided in the submission Treasury said that the direct funding proposal “creates some risks with no obvious economic and balance sheet benefits”.
It goes on to say that the proposal would undermine the effectiveness of the LSAP as the aim of the programme was to reduce government bond interest rates.
“The Reserve Bank spent $53 billion to reduce interest rates by less than 1%. That is a monumental waste of money and the Treasury had the temerity to suggest that our proposal to spend the money on our Covid 19 response and infrastructure ‘had no obvious economic benefit’,” says Mr Richards.
Treasury went on to say that direct financing may undermine the objectives of having a deep and active market for Government debt and of lowering Crown financing costs by reducing price transparency, market efficiency, and the incentive on dealers to support the secondary market.
Mr Richards says New Zealand did not have to spend $53 billion to have a deep and active market for Government debt – it already existed and, in any case, it should not be needed if we use the alternative approach of direct financing. Richards also considers that Kiwis do not want private dealers benefiting from the debt market at the taxpayer’s expense.
“We believe an independent commission should investigate the LSAP programme as it requires proper public and parliamentary scrutiny which cannot be done by either the Reserve Bank or Treasury,” says Mr Richards.