Greens' money plan hardly 'silver bullet'
KATE CHAPMAN AND PETER WATSON
Nelson exporters have reacted cautiously to a Green Party proposal to have the Reserve Bank print money to help bring down the dollar.
Co-leader Russel Norman yesterday unveiled his party's plan to see the new money invested in government earthquake bonds to fund the rebuild of Christchurch and refill the Natural Disaster Fund.
As well as the quantitative easing approach, the proposal would:
Give the Reserve Bank a broader mandate for lowering the official cash rate and new tools for managing asset bubbles. Introduce a capital gains tax, although not on family homes.
Mr Norman said quantitative easing had been adopted by many countries, including the United States, and New Zealand was one of the few Western countries holding on to traditional monetary policy.
The Greens' proposal would improve New Zealand's competitiveness, boost jobs and prevent speculators from cashing in on the high New Zealand dollar, he said.
"The global financial crisis has changed all the rules and National's doctrinaire approach is no longer serving our economy well."
Under the proposal, quantitative easing would be done in stages, starting with about $2 billion, then it would be up to the Reserve Bank governor.
Mr Norman said New Zealand's high exchange rate was hurting the manufacturing sector, compelling skilled workers to leave the country and driving down the benefit of international tourism.
Opponents say quantitative easing would drive up the price of imports, making petrol, electronics and other everyday goods more expensive.
But Mr Norman said it was better to manage the dollar down today, rather than wait for the "inevitable sudden correction and the severe shock . . . that will entail".
Nelson exporters and business leaders were reluctant to enter the debate, although Nelson Regional Economic Development Agency chief executive Bill Findlater agreed that it was time for a "fresh look" at the way the Reserve Bank operated.
"It's been obvious for some time that the exchange rate is too high and it's really hurting regions like Nelson which have high dependence on the primary sector and tourism, so anything that could be done by easing that pressure by reducing the exchange rate would be welcome.
"We have to start looking at how we ensure our export sectors survive."
Nelson Pine Industries chief executive Chris Turner said today the strong and volatile dollar was making it tough going, but "if there was a silver bullet, we would have found it by now".
Prime Minister John Key today said the Reserve Bank could have only one primary objective and keeping inflation low was appropriately its focus.
"If you look at the data around manufacturing jobs, they have been going up slightly," he said.
"The latest idea of the Greens to print money - that's a pretty wacky idea. If printing money made you rich, Zimbabwe would be the richest country on the planet and it's not."
Printing money might bring down the exchange rate, but it would increase inflation, Key said.
"So your interest rates would go up, so your mortgage costs and your business costs would go up. It means the cost of everything you buy would go up."
Labour finance spokesman David Parker said the Reserve Bank governor should not be limited to only considering price levels when deciding on the official cash rate.
"I say what we should do is change the Reserve Bank Act, but then it's up to the Reserve Bank of New Zealand, independent of me or Russel Norman, to say what is the best thing to do to pay more attention to the exchange rate."
Combined Trade Unions economist Bill Rosenberg said the Greens' proposals deserved serious consideration, because initiatives were needed to bring down the exchange rate, which was causing exporters to shed jobs.
NZ First leader Winston Peters has drafted a member's bill which would require the Reserve Bank to look at the growth rate, unemployment, exports and the traditional measure of inflation.
- © Fairfax NZ News