Business leaders happy with inflation policy

By JIM EAGLES business editor

Most of the country's top business people see no need to alter the way the Reserve Bank administers monetary policy.

The latest Business Herald business leaders survey - involving the bosses of big companies - has found little support for changing the Policy Targets Agreement with the new Governor of the Reserve Bank.

The issue came to the fore during the election campaign when Finance Minister Michael Cullen indicated that the Government might amend the Reserve Bank's riding instructions to make it clear monetary policy should be more tolerant of the 3 per cent inflation limit.

Business New Zealand subsequently issued a paper opposing such changes but advocating a more flexible medium-term approach to price stability.

Now two-thirds of the senior business leaders surveyed have come out against any changes at all.

A similar proportion also reject the suggestion that the inflation band be changed from the present 0-3 per cent to Australia's 2-3 per cent.

In fact the business leaders are happier with the performance of the Reserve Bank than with the performance of the Government.

The Government's impact on business rated (on a scale of 0-10, with 5 being neutral) a mildly negative 4.2 (slightly worse than in the previous survey).

By contrast, the impact of the Reserve Bank was rated a mildly positive 5.3 (the same as the previous month).

The business leaders also indicated that the fact that inflation has averaged 2.9 per cent over the past two years was seen as little cause for concern.

There was slightly more worry about whether the bank at times restricted growth unnecessarily but it was still not very strong.

Overall, most respondents indicated they saw little need for the policy targets agreement needed to be reviewed in any way.

That was not a unanimous view.

One respondent commented that the Reserve Bank had "tightened too aggressively".

Others pointed to interest rates, exchange rate movements "due to the Reserve Bank" and monetary policy as the biggest constraints to expanding businesses at the present time.

But such views were clearly in the minority.

One respondent called for the Reserve Bank Governor to have greater influence, taking a role similar to US Federal Reserve chairman Alan Greenspan, "so he cannot be ignored by politicians".

"Neither Cullen nor [National finance spokesman David] Carter seem to me to know much about economic issues. They should embrace the US model of taking advice from experts rather than career bureaucrats."

Another, while bemoaning the fact that the bank had caused the kiwi dollar to move too far, still thought the bank's role was "generally constructive" and opposed any change.

The biggest constraint to expansion identified by the survey - referred to by nearly half the respondents - was "excessive regulation".

The Resource Management Act and labour market regulation were particular sources of frustration.

The biggest constraint to economic growth generally, as far as about a third of business leaders are concerned, is taxes.

But other areas mentioned frequently included excessive regulation, fiscal policies, welfare dependency and "the complete lack of a growth agenda".

The survey points to a sharp decline in economic confidence on the part of the people running big businesses.

The business environment generally rated 5.6, down from 6.2 last month and 6.4 in May.

The business environment 12 months out goes into negative territory for the first time, at 4.7, down from 5.7 last month.

A majority of businesses still expect to expand over the next 12 months.

But the business expansion rating has slipped a little from 7.6 last month to 7.3.

* In Forum tomorrow, Business New Zealand chief executive Simon Carlaw and Telecom chairman Roderick Dean give their views on the Reserve Bank's policy targets agreement.