Reserve Bank Governor Alan Bollard. Photo / Mark Mitchell
John Key says there's nothing he can do about the high currency.
He means there's nothing he wants to do about the high currency.
There's plenty he (and others) could do in the short and long terms to help our productive sector.
How on earth is he going to get the transformation he has talked about for the last two years with a currency at almost 90 cents?
Here's 10 suggestions:
1. The government could stop sucking in foreign capital to fund its budget deficits. That means cutting spending on the likes of Working For Families, Interest Free Student Loans and 20 hours of free early childcare. It means raising taxes, either income taxes or by imposing a land tax.
2. The government could run budget surpluses and use that to build some sort of stabilisation fund to reduce the pressure of capital inflows on the currency. That is obviously after it had repaid the government's foreign debts.
3. Or the government could use those surpluses to buy back assets sold to foreign interests, which mean those dividend payments stop acting as a drain on the national accounts.
4. The government could impose a tax on foreign borrowing by New Zealand companies, not least of which by those state owned enterprises such as Kiwibank, Transpower and the power companies. This, again, sucks in foreign capital and pushes up the currency.
5. The government could ban the sales of large assets, in particular land. The Chinese do it.
6. The government could encourage the Reserve Bank to use its macro-prudential tool kit to take the pressure off the currency.
7. These include the Core Funding Ratio, which discourages the use of 'hot' foreign money to fund lending in New Zealand. The RBNZ could increase it beyond the current target of 75 per cent by July 2012. It increases term deposit rates here and encourages local saving.
8. The Reserve Bank could introduce a maximum loan to value ratio for property and land lending. The banks have again begun lending up to 95 per cent in recent months in an attempt to restart lending growth. They are also offering interest only and 30 year loans.
9. The Reserve Bank could force the banks to match their local New Zealand dollar lending with New Zealand dollar funding. This would have to be done over a long period of time, given the scale of the foreign debts held on our behalf by the banks.
10. The government could encourage local procurement by its own departments and SOEs to reduce the scale of the current account deficit which is driving our currency higher.
Nearly 90% of new mortgage lending in October was floating or fixed for a year or less.