Three statements yesterday; two from the Prime Minister himself and one from his Foreign Minister, suggest the Prime Minister has decided to go it alone and lead from the front, even if that means ignoring convention and the views of his Ministers.
By law, the Reserve Bank is independent, but yesterday, in an extraordinary admission, Luxon not only agreed with an attack on the acting Governor but revealed that he gave him advice before each Official Cash Rate announcement.
He was then reported to say that he wanted to see house prices go up when his Housing Minister had repeatedly said he wanted them to go down.
And in a statement given to POLITIK, the Foreign Minister has once again criticised Luxon’s rhetoric on a major foreign policy issue; this time, Palestine.
All of this, added together, suggests that the Prime Minister has decided he can ignore convention and the views of his Ministers as he appears to be trying to revive his Government’s flagging political fortunes, not to mention his own unimpressive personal poll ratings.
The big headlines yesterday were about his views on the Reserve Bank.
Newstalk ZB host Mike Hosking told Luxon that the Reserve Bank Governor, Christian Hawkesby, was not doing his job because he should have lowered the official Cash Rate by 50 basis points last week rather than 25.
“You must be tempted to say what he really should have done is 50 when he didn’t do a damn thing, when he missed the whole economy going backwards, and that was his job then, and he’s not doing his job properly,” said Hosking.
Luxon’s reply was surprising.
“Yeah, well, I meet with him once before any of those sort of announcements happen, and I can often give my views in that case, but that’s me giving my reckons and my perspective,” he said.
There is nothing to stop the Prime Minister giving his “reckons” in a public forum on what the Bank should do, but to do so in a private meeting with the Bank’s acting Governor is another matter altogether.
The Bank is supposed to be independent and immune to day-to-day political interference in its monetary policy role, which is to set the Official Cash Rate to control inflation.
However, Luxon not only revealed that he habitually informs the Governor of his own views on where the Official Cash rate should go, but also agreed with a critique of the acting Governor by Hosking.
Hosking: “Your problem is that the economy’s stalled because he’s not doing his part or they’re not doing their ….
Luxon: “Yeah, well, I mean, yeah, well, I hear that frustration and I get that, but he’s also got two more shots before Christmas and …
Hosking:“Too late! Too late”
Luxon” No, no, I get it.”
Hosking: “Should have been in May. Do you agree with me?
Luxon: “Well, I personally, yeah, I do.”
The unstated point in this interview is that it is not the Reserve Bank’s role to stimulate growth in the economy.
As its Chief Economist, Paul Conway, pointed out at last week’s OCR press conference, growth going forward in the long run will come from improving productivity.
“And monetary policy is not the instrument for that,” he said.
We’re about controlling demand to keep inflation low and stable. There’s only so much we can do.”
The point about the Prime Minister’s meetings with the Governor is the perception they allow and the awkward position the Prime Minister has placed the Governor in.
The New Zealand Initiative Chief Economist, Eric Crampton, said the Reserve Bank was independent in the operation of monetary policy.
“It has had to work to rebuild credibility after monetary policy mistakes and high inflation,” he said.
“Even where the Bank has no intention of heeding the informal ‘reckons’ of the Prime Minister, and even where the Prime Minister has no intention of providing direction in those informal conversations, conversations including the Prime Minister’s views on the OCR risk undermining Bank independence and credibility, particularly where the interim Governor is seeking appointment to a full term.”
By yesterday afternoon, the Prime Minister was being more cautious in his answers to questions about his relationship with the Bank.
“I want to be really clear, the Reserve Bank acts independently of our government and my government,” he said.
“We have regular meetings, the Minister of Finance, myself, with the Reserve Bank, at those we will share our respective observations of what’s going on in the economy, and we actually will air those views with each other.
“That’s important that we can do, you would expect us to do that, it’s really important that we do do that.
“They are always very constructive, very productive conversations.
“They’ll be robust as we have those conversations, but that is not directing the Reserve Bank.
“They will act independently, and that’s what we expect them to do”
The Prime Minister didn’t confine his unconventional approach to governance to NewstalkZB.
He also told RNZ’s “Morning Report” that he wanted house prices to rise modestly despite Housing Minister Chris Bishop last year saying house prices needed to come down.
“Housing is too expensive in New Zealand,” Bishop said.
“We want housing to be more affordable for New Zealanders.
“That is a major workstream of this Government.
“Average house prices in New Zealand are too expensive.”
Luxon took a different view yesterday.
“We want to be able to make sure that going forward, we have modest, consistent house price increases, and you’re seeing economic forecasts suggesting that” he told RNZ.
But Bishop wasn’t the only Minister he appeared to contradict.
On Sunday, he was answering a media question about the famine in Gaza.
His reply: “We are calling out military action into Gaza City and the extremist settlements in the West Bank, with an explicit aim of removing the two-state solution.”
The “extremist settlements” in the West Bank were the subject of a statement from Australia, Britain, Canada and a number of European countries’ Foreign Ministers, which New Zealand Foreign Minister Winston Peters did not sign.
The statement referenced a Security Council resolution about the West Bank from 2016, which New Zealand had cosponsored and which Peters opposed, and it highlighted the move to increase settlements, which it said would make a two-state solution impossible.
On Friday, in an initial reaction, Luxon said he fully supported the statement.
” Irrespective of that, we are very, very concerned about what is happening in the West Bank, particularly the E1 settlement programme.
“We have believed for a long time that those settlements are illegal.”
So why didn’t Peters sign the statement that the Prime Minister said he agreed with?
A spokesperson for Peters replied: “Two weeks ago, Mr Peters announced that the Government would be carefully considering over the coming month its position on whether to recognise a Palestinian state at this juncture.
In that statement, he said:
“Some of New Zealand’s close partners have opted to recognise a Palestinian state, and some have not. Ultimately, New Zealand has an independent foreign policy, and on this issue, we intend to weigh up the issue carefully and then act according to New Zealand’s principles, values and national interest.
“Cabinet will take a formal decision in September over whether New Zealand should recognise a state of Palestine at this juncture – and if so, when and how. This is not a straightforward, clear-cut issue.”
He then hinted at differences within the Cabinet on recognition. One of those differences, ACT, is already out in the open.
“There is a broad range of strongly held views within our Government, Parliament and indeed New Zealand society over the question of recognition of a Palestinian state.
“It is only right that this complicated issue be approached calmly, cautiously and judiciously. Over the next month, we look forward to canvassing this broad range of views before taking a proposal to Cabinet.”
But New Zealand’s stated position is that recognition is only a matter of “When”, not “if”, which would seem on the face of it not to be an obstacle to signing the joint statement.
But Peters, in his spokesperson’s response to POLITIK, appeared to be having a go at the Prime Minister.
“Mr Peters holds the view that providing a running commentary on the situation on the ground in the Middle East while the Government is considering this matter is unhelpful and counterproductive,” the spokesperson said.
“Indeed, parts of the New Zealand media have been quick to interpret comments by other members of the Government as indicating a preference for one position or another on recognition.
“Mr Peters, who is responsible for taking a policy paper to Cabinet on this matter, prefers to be circumspect and careful at this time – and respect the process he has set up to listen carefully to the views of New Zealanders, his coalition partners and different members of the international community.”
What these various incidents may point to is a breakdown in Cabinet Government and the principle of Cabinet Collective Responsibility.
The Cabinet does not vote.
The Prime Minister is supposed to sum up the consensus of any discussion and then announce the decision, and that is that. All Ministers are required to support it.
Has there been a Cabinet discussion on whether house prices should go up or down?
We know that the Cabinet has discussed Palestine, but what was the outcome?
The question of the Reserve Bank is more complex and is a matter of perception and convention rather than any hard and fast rule.
But the overall impression is that the Prime Minister is going it alone. That is always dangerous politically.
