ACT Leader David Seymour thinks it is time to move on past Roger Douglas’s original vision for the Reserve Bank.
Douglas was one of the founders of ACT, and his economic philosophies have formed the basis of ACT’s policies since the party was founded in 1994.
Seymour wants to have a look at the Reserve Bank Act to see how it could be changed to incorporate inflation in the prices of assets, including houses.
The work that led to the current Reserve Bank legislation was initiated by Douglas when he was Finance Minister in 1986.
However, the legislation was not passed until 1989 after he had been fired by Prime Minister, David Lange.
Seymour said the act was world-leading.
“It was an innovation led by ACT’s co-founder, which was subsequently copied around the world.
“Equally, it’s now over 30 years old.
“So I think that we should continue to be world-leading not that we should be wedded to any particular model, because Roger certainly didn’t seek to maintain Walter Nash’s economic model and we don’t necessarily seek to maintain his.”
Seymour wants the Bank to somehow include asset price inflation, particularly house price inflation, in the measure it uses to set the Official Cash Rate (OCR) which influences the rates banks charge for loans, particularly mortgages.
The classic Reserve Bank response when inflation rises is to increase the OCR.
The point is to slow the economy down.
A former Chairman of the US Federal Reserve Bank once likened the job of a central bank as being similar to taking away the punch bowl just when the party got going.
However, Seymour concedes that it might not be an easy thing to do.
“It’s a deeply technical area, and I’ve been getting some advice, which just shows just how challenging it is.
“Even academics disagree about whether or not asset prices should be part of the basket for setting that OCR.”
Seymour has been warning audiences during the election campaign that rising house prices will have political consequences.
“We have a serious political problem where there’s a whole generation of people who say there’s not much inflation in the goods and service market, but assets are getting further and further away from us,” he said.
“Historically, that has led to political unrest.”
Seymour believes monetary policy will become an issue again.
“You’re not going to see major moves immediately because it is complex, it is technical, but it’s something that we’ve flagged as needing to be addressed.”
But the main reason it won’t be addressed is because ACT is a 10-person party in Opposition.
Seymour introduced his nine new MPs to the Press Gallery yesterday and said the party’s approach in Parliament would be both Opposition and proposition.
“Our job is to hold whoever ends up being the ministers accountable and then also propose better ideas,” he said.
His first obstacle might not be Labour but National. ACT will need their support in Parliament to be truly effective.
But National’s Finance spokesperson, Paul Goldsmith, last night offered only a lukewarm welcome to Seymour’s Reserve Bank proposal.
He said rising asset and house prices were a global issue; “asset price inflation driven by ultra-low interest rates. “
“There are no easy answers, but we do need to keep discussing the consequences of monetary policy,” he said.
“National is up for that discussion.
“The government should meantime focus on policies that increase the supply of houses and reducing the cost of producing new ones.”
Seymour has been having a go at National during the campaign, but now he is back at Parliament with a vastly increased caucus, he is ready to work with them again.
“I imagine we’ll continue to have a very collegial relationship with the National Party,” he said.
“There are areas where we agree, but there are also very good reasons why we have different parties.”
On the Government side of the House, the relationship between Labour and its two former support parties is undergoing substantial change.
Obviously NZ First is out of Parliament now and therefore has no power. That is already apparent as Labour prepares to revisit some proposals from the last Government that were vetoed by NZ First.
However, a proposal that NZ First Leader, Winston Peters, might be able to make some sort of valedictory speech in Parliament is unlikely to happen because it would require only one member to object for it not to happen.
Objections would be expected from National, ACT and possibly the Greens.
Their talks with Labour about them joining the Government do not seem to be making much progress.
Their co-leaders, James Shaw and Marama Davidson, emerged after an hour-long session yesterday saying there was nothing they could say.
The brutal reality is that Labour doesn’t need them and doesn’t really want them all that much either.
Last week Shaw was saying the party had six policy priorities that it would want to negotiate with Labour about.
Asked about these a week ago, Marama Davidson said it was a good thing that the Greens wealth tax proposal had been debated during the campaign “alongside the visions we have for cleaner farming; cleaner transport; protecting our oceans; homes for everyone and addressing inequality.”
Davidson made it clear that such an ambitious set of policy proposals could be funded by the wealth tax.
“It is the way that we get there,” she said.
“We’ve got enough for people to achieve those things; those with a little bit more can afford to pay a little bit extra.”
But yesterday that list had been trimmed back to just three items.
“We can’t talk about the content of the discussions,” Shaw said.
“The only thing that we can say is that we ran on a campaign on climate action, on protecting nature and on ending inequality.
“We’ve had a series of quite well thought through policy priorities in relation to those.”
If that is all the Greens have left to negotiate with Labour about then the irony of this election is that although they have increased their vote, their power has shrunk.
The ultimate irony is that they may end up with not much more potential impact than David Seymour and ACT.