KEY POINTS:
Business leaders give Reserve Bank governor Alan Bollard a failing grade for his conduct of monetary policy and want the Government to restrain its spending to make his task easier.
By a ratio of four to three, chief executives responding to the Mood of the Boardroom survey disapproved of the bank's management of monetary policy. However, most believed that the bank did not have the right tool kit for its statutory task of curbing inflation.
"I don't know if the Reserve Bank can control inflation through interest rates when unemployment is low," said Sleepyhead's Martin Ellis.
"And people will always prefer to spend than save. KiwiSaver is long overdue."
One in three chief executives was concerned about the level offshore speculation in the New Zealand dollar. But respondents were strongly opposed to the Reserve Bank intervening directly in the currency market to try to get the dollar down. Intervention was added to the bank's armoury in 2004, but it has not used it.
One of the conditions for intervention is that it should be consistent with overall monetary policy, and the bank has been in tightening mode since early 2004.
Selling the kiwi for, say US dollars, to lower the exchange rate would be an easing move.
Chief executives were even more emphatic in rejecting the re-imposition of currency controls, which were scrapped when the dollar floated in 1985.
Exporters were still on balance upbeat, despite the high dollar. By a ratio of about three to one they said they would continue to expand and would not be battening down the hatches.
Several pointed the finger of blame at Government spending as a source of inflationary pressure. "The Reserve Bank has the right toolkit but cannot be successful acting in isolation," said one. "Its strategies need to be underpinned by Government policy and fiscal management."
Another was more blunt: "Government policy is a handbrake."
A third blamed public sector salaries for driving wage inflation.
In all, 94 per cent of respondents agreed that the Government should reduce its spending to take the burden off the Reserve Bank..
When they were asked what spending should be cut, however, it was a rather different story.
Health, education and New Zealand Superannuation were all regarded as sacrosanct. They are the big-ticket items, representing between them half of all Government spending.
There was more support for hacking into welfare payments and family support, but still a majority of respondents did not want to see welfare (55 per cent) or Working for Families (61 per cent) cut.
But the bureaucracy was friendless in these quarters, with 98 per cent calling for a cut in their numbers.
Treasury forecasts released with the Budget estimate that the "fiscal impulse" - a measure of the extent to which fiscal policy becomes more or less stimulatory from one year to another - will be stronger in the year ahead than it has been in this year, 1.6 per cent of GDP compared with 0.7 per cent.
Reserve bank governor Alan Bollard has been citing fiscal policy as a source of inflationary pressure for the past six months.
But he has been clear that it comes well behind the housing market.
One respondent, a manufacturer, concluded that a capital gains tax needed to be considered to curb property speculation.
Others backed measures to boost other forms of saving than housing, either through a tax incentive (which Cullen has introduced) or compulsion (which he opposes).
A "substantial" carbon tax had an unexpected supporter from the automotive industry.
"It would take money out of circulation, discourage bad behaviour (for example the wasteful use of fossil fuels) and give the Government the opportunity to reduce income tax or GST."
By contrast the Reserve Bank's official cash rate increases were the equivalent of putting a tax on borrowing or a on enterprise, he said. "It takes money out of circulation but it discourages good behaviour."
