Roll up, roll up. The looming stoush between Prime Minister John Key and Reserve Bank governor Graeme Wheeler is shaping up as a classic clash of politics and ideology.
OPINION: On one side of The Terrace in our capital city stands Key, increasingly concerned that the central bank governor is about to throw a large incendiary device into his prospects of re-election next year.
On the other side of that cold, windy corner in central Wellington stands Wheeler, a mild-mannered bureaucrat who is equally worried about the impact of skyrocketing house prices on economic stability, and who doesn't give a fig about Key's re-election chances.
The Reserve Bank is poised to wield the axe (ironically) handed to it by the Government earlier this year when it signed over new "macro-prudential" powers to Wheeler, giving him a new set of tools to keep inflation under control.
Specifically, the central bank wants to introduce "speed limits" on the loan-to-value (LVR) ratios banks use when deciding how much money to lend on residential property.
In layman's terms, this means limiting the amount of lending banks can do below the magic 10 per cent deposit threshold, forcing them to demand much higher deposits from their customers.
Given that one in three low-LVR loans are written for first-home buyers, this group of predominantly young and cash-strapped Kiwis may overnight find their deposit requirement has doubled.
In the case of Auckland buyers, where average house prices are above $600,000, that could mean a $60,000 minimum deposit suddenly jumps to $120,000 - effectively ruling them out of the market unless they can find the extra from family or a dodgy loan shark.
Wheeler doesn't care whether first home buyers get their first foot on the slippery property ladder, and neither is he required to. The Reserve Bank Act charges him with one main task - maintaining "price stability" - effectively taming inflation.
And the Reserve Bank is convinced it is first home buyers who are driving up property prices and overheating the housing market. It is also worried that if (or when) the correction comes, red ink will start to spill and the banking system it presides over could be threatened.
Once upon a time the governor would have simply hiked interest rates, but this bluntest of monetary policy instruments has a lot of unpleasant side effects, including raising the value of the currency and dampening already sluggish economic growth. So Wheeler is itching to use his new toy.
But oh, how Key must be rueing handing the governor a "loaded gun", as Labour has described it. Because first home buyers - and their parents - are middle New Zealand, classic swinging voters. And in case you'd forgotten, there's an election next year.
House prices, or more accurately the severe unaffordability of property, is shaping up as a huge election issue for the Government - potentially the No 1 issue. So far nothing National has attempted has made a blind bit of difference and its plans to build more houses in Auckland won't have any impact on the property market for years, if ever.
Wheeler's impending intervention may have a much more dramatic effect on the market, but at the expense of the very people currently struggling to get into their own home.
By all accounts, Key's overtures to Wheeler to provide an exemption for first home buyers have fallen on deaf ears. And so Cabinet is now considering other ways to bolster the pockets of the 10 per centers, including lifting the subsidy for first home buyers under KiwiSaver and loosening the rules around when it can be used.
But by moving to blunt the Reserve Bank's new axe, the Government could be seen to be intervening in monetary policy, and thwarting the governor's attempts to cool the market.
We've been down this road before. Former National prime minister Sir Robert Muldoon had trouble understanding the difference between monetary and economic policy. This led to a constitutional standoff with then governor Sir Spencer Russell when Sir Robert refused to devalue the currency.
In 1989, Labour finance minister Sir Roger Douglas "Muldoon-proofed" the Reserve Bank, enshrining its independence from the executive in law. Sir Roger said he wanted to "make certain that no future politician can interfere with the bank's primary objective of ensuring price stability, or manipulate its operations for their own purposes".
Yet the noises emanating from the Beehive look suspiciously close to interfering. And not just from National - Labour and the Greens have also stated that, if elected, they will enact first home buyer exemptions from any LVR limits. Such a move would be a direct challenge to the authority and independence of Wheeler.
Whether or not the Reserve Bank is correct in its belief first home buyers are the problem is another matter. It could also be argued that the banks, conservative creatures by nature and not in the habit of taking risks, are perhaps better placed to make decisions on lending limits than the governor.
But it's a moot point. You can't trample on constitutional convention simply because of a pressing political problem. And unlike Key, Wheeler doesn't have to face the voters at the polling booth next year.
Colin Espiner is a Sunday Star-Times columnist and writes a blog for Stuff, Bulldust
- Sunday Star Times