Labour's incumbent Finance Minister Grant Robertson has been downgraded by big business leaders, while National's finance spokeswoman Nicola Willis has risen in their ranks.
Video / Alyse Wright
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
With the Reserve Bank’s interest rate hiking cycle at or near its peak, and mortgage rates now above 7 per cent, the squeeze is going on homeowners.
Younger Kiwis who have bought homes in the past two years especially face some serious pain when their fixed mortgagesroll off on to much higher rates.
That’s raised questions about whether monetary policy puts too much of a burden on one segment of the population.
Could we have avoided some of the post-pandemic interest rate pain if we had retained a Reserve Bank mandate requiring a singular focus on inflation?
This year the Mood of the Boardroom survey polled corporate leaders on both of these topics. The results were pretty stark.
The decision to add employment to the Reserve Bank’s focus was made by Labour in 2018 — bringing it into line with dual mandate policies in the United States and Australia.
National has campaigned on reversing that decision, which it argues has been one factor behind allowing inflation to rise so far outside the target band of 1-3 per cent.
Asked: Should the Reserve Bank’s monetary policy settings be solely focused on meeting its inflation target? A sizeable majority of respondents — 56.5 per cent — said “yes”.
Just 29.6 per cent per cent said “no” and the rest were “unsure”.
That remains roughly in line with results last year when 59 per cent of the Mood of the Boardroom survey respondents said they supported a return to the single mandate, 30 per cent said “no”, and 11 per cent were “unsure”.
Reserve Bank Governor Adrian Orr has said he doesn’t believe the dual mandate affected his or his Committee’s decisions through the pandemic. But many leaders aren’t convinced.
“The incoming government should amend the Reserve Bank of New Zealand Act 2021 to specify long-term price stability as the single monetary policy objective,” said NZ Initiative chair Roger Partridge.
“Multiple targets confuse the situation and even with multiple targets monetary policy will always have priority,” said one former banker.
While others were reluctant to comment in greater depth, they were broadly supportive of National’s promise to tighten the mandate.
Brash said the Government should consider empowering the Reserve Bank to tackle inflation by lifting fuel taxes.
Acknowledging the fact that interest rate hikes affect people in very different ways, Brash suggested the Reserve Bank be given an additional tool to influence inflation.
The Mood of the Boardroom survey asked the question: “Given the size of mortgage required to buy a house, is our reliance on monetary policy to beat inflation putting too much of the burden on the younger generation?”
This question also delivered a clear majority, with 57.8 per cent agreeing that the burden is too heavy, 34.7 per cent disagreeing, and 7 per cent unsure.
“Inflation is largely a monetary policy issue, so that’s the way to address it,” said one infrastructure boss who didn’t feel the burden was too unfair.
“There are other ways to address inter-generational equity issues (and remember, low-interest rates drove house prices up for a long time).”
One former banker also made a strong case for the status quo: “Moving away from well-managed monetary policy would put New Zealand on an inflationary path trodden by the likes of Zimbabwe, Argentina, Venezuela and Turkey.”
“There is no choice. Unfortunately, higher interest rates are the price everyone must pay for poor policy choices by the Minister of Finance and RBNZ,” said NZ Initiative’s Partridge.
“How else can you beat inflation,” said Simplicity’s Stubbs.
“The cost of housing and associated cost of debt is placing a huge burden on those that can’t benefit from the “family bank”.
“I am not sure this is a problem driven by monetary policy tools able to be used against inflation,” said Deloitte NZ chairman Thomas.
Pippos, who put himself in the “unsure” camp.
But Silvana Schenone from Jarden said yes, she did believe it was an issue.
“Not only because of the size of expected contribution in itself, but also because many of our young people want to move to Australia or the UK, even earlier than before meaning that we won’t have a significant workforce/talent and revenue contribution in NZ for the next generation if we continue down this path.”
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
