ONE NEWS: Winston Peters this week declared on NZI Business that monetary policy had become the most pressing issue facing New Zealand after climate change and one that would be a key election issue for New Zealand First.
It's hard not to understand where he is coming from.
The Reserve Bank's narrow mandate of fighting inflation has for the last few years kept interest rates and the currency at elevated levels. This has disadvantaged the export sector the very life blood of the country.
Reinforcing the importance of monetary policy right now is the likely recession brought on by high oil and food prices.
Businesses, home owners and investors are now crying out for an interest rate cut, which along with the tax cuts is about the only bright spot on the economic horizon. The problem though is that rising international oil and food prices mean that inflation is very strong and could hit 5%.
That's way outside the Reserve Bank's target band of 1% to 3% over the medium term.
The Bank does have some latitude to look through short term shocks to inflation and will inevitably do this, but it can't look through the second round impacts of imported inflation. So it is clearly caught in a tough bind.
Enter Winston Peters with his renewed calls for changes to the Reserve Bank Act.
He's demanding that the Bank's legislated mandate of price stability be adjusted so more consideration is given in future to things like economic growth and unemployment levels. This would mean the country would have to tolerate higher inflation. How much is a moot point.
Peter's argument is that without a change away from inflation targeting, the economy could lose about 95,000 jobs over the coming couple of years. This is because higher interest rates will restrict economic growth and prevent new jobs being created.
The argument is backed up by the economic forecasters Business and Economic Research Limited.
BERL's Senior Economist Dr Ganesh Nana mounts a strong argument that the world's obsession with inflation targeting is out of data. Dr Nana says New Zealand can now tolerate a little more (not a lot) inflation and we should instead concentrate on growth, helping the export sector and allowing our economy to be more than just one giant dairy farm.
Others such as Dr Don Brash, Brendan O'Donovan at Westpac or Brent Layton from the NZIER, mount equally compelling arguments about the need to keep inflation in check and are quick to remind people of the damage that inflation did to this country when it got away in the 1970s.
They point out that inflation targeting has worked well and that over the last few years we have had strong employment growth, low inflation, and a growing economy.
Never-the-less pressure is mounting on Reserve Bank Governor Allan Bollard to somehow look through high inflation and start cutting rates, possibly as soon as this month. The big drop off in consumer spending, a falling housing market and the weakening job market, will give him some confidence that domestic inflation is going to eventually start to ease.
Firms simply won't be able to pass on rising costs to consumers, because consumers are putting their wallets away.
That should give Bollard some room to move.
However, should the interest rate cuts spark a dramatic fall in the currency (which is entirely possible) then New Zealand could also start importing a lot more inflation through the higher cost of imports goods, in particular petrol.
While the cost of borrowing is dear to the hearts of many Kiwis' I think it's a bit much to expect pointy headed arguments about monetary policy targets to really be a major election campaign issue.
But after the election, should Winston Peters be in a position of power, it could be a different story. He's hinting loud and clear that reform of monetary policy will be a major coalition bargaining tool.
Funnily enough Labour has just started hinting of late that it might now be prepared to consider changes along the lines of Winston Peter's proposals.
National's Finance spokesman Bill English though is firmly against changes to the Monetary Policy Targets Agreement. This could lead to some real fireworks, should National need to do a deal with Winston Peters.
Of course let's not forget the Finance and Expenditure Committee has been quietly considering the monetary policy framework and whether some additional tools are needed to help monetary policy deal with inflation. It's due to report shortly.
There aren't many proven and viable options available to the Committee and it's probably unlikely to come up with anything drastic i.e. a Mortgage Levy, this close to an election.
The elephant in the room here of course is a Capital Gains Tax on housing investments.
It's the view of many economists, export groups, even the OECD that what will really help the Reserve Bank apply monetary policy is some sort of curb on property investments. The recent house price bubble, that saw Kiwis flock offshore for cheap fixed term loans, forced the Reserve Bank to keep interest rates higher for longer than it otherwise might have. The tax advantages real or perceived for housing have also meant less money has been invested in the productive side of the economy.
While housing appears to be self correcting, some argue it would still make sense to prevent a housing bubble from happening again in the future.
But while Winston Peters may be happy to bang on about monetary policy reform, he like other politicians isn't going to go near the scared cow of housing.
Capital gains taxes are an obvious vote loser and it's going to take a brave politician to tackle that issue.
Plus given it's the baby boomers generation that still has the most political clout and most of the investment property, it'll also probably need to be a politician of a different generation.
Watch Winston Peters discusses monetary policy on NZI Business
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