The Reserve Bank under Governor Adrian Orr has been trying to get more Government funding to increase its spending. Photo / Mark Mitchell
The Reserve Bank under Governor Adrian Orr has been trying to get more Government funding to increase its spending. Photo / Mark Mitchell
The Reserve Bank of New Zealand (RBNZ) has been trying to get more government funding to increase its spending, as it’s been telling the public to “cool their jets” to help curb inflation.
Documents proactively released by the Treasury show the RBNZ wanted its $640 million operational expenditure allowance for2020 to 2025 topped up by $139m.
The RBNZ made the request ahead of Budget 2023, at a time it acknowledged more government spending risked exacerbating three-decade high levels of inflation.
Secretary to the Treasury Caralee McLiesh wrote to the RBNZ in January to say the Treasury would review the request.
She also provided the central bank with some “context”.
“As you are aware, inflation is currently well above the Reserve Bank’s targets. To control inflation, tighter fiscal policy is needed to support monetary policy, including restraints on government expenditure,” McLiesh said.
She pointed out the RBNZ’s allowance for 2020-25 was already 97 per cent larger than its allowance for 2015-20, and said the 2023 Budget process was more restricted than in previous years given the “challenging economic and fiscal environment”.
She said the threshold for Finance Minister Grant Robertson to agree to boost the RBNZ’s funding was high.
By June, the Treasury had looked into the matter, and recommended Robertson only top up the RBNZ’s allowance by $58m.
It believed this would be enough to cover costs associated with significant work programmes, like the creation of a deposit insurance scheme, which hadn’t been factored in when the allowance was set.
The Treasury was opposed to the Government giving the RBNZ more money to cover cost pressures it was meant to meet within its existing allowance.
The Treasury told Finance Minister Grant Robertson the RBNZ had more work to do on its priorities. Photo / Michael Craig
It said the RBNZ’s allowance had already almost doubled, and the $139m increase the RBNZ sought was equivalent to 52 per cent of what was left in its five-year allowance.
The Treasury characterised the “out-of-cycle” funding request as unusual, fearing that varying a funding agreement for operational expenses already funded would set a precedent.
The Treasury also told Robertson the RBNZ hadn’t provided sufficient evidence it had “undertaken adequate reprioritisation”.
Nonetheless, the Government, in August, decided to top up the RBNZ’s allowance by $79m. This was deemed enough for it to push on with work that had and hadn’t been factored into the initial funding agreement.
The Treasury, in its advice, said this level of funding would largely address the RBNZ’s concern about “high-risk areas” that needed additional investment, and it couldn’t simply reprioritise its spending to meet cost pressures.
The RBNZ, in its annual report released on Thursday, noted the magnitude of the job ahead, setting up a deposit insurance scheme by late 2024, which would compensate depositors up to $100,000 in the event of their deposit-taker collapsing.
It discussed work it still had to do, setting up new prudential standards for deposit-taking institutions under the Deposit Takers Act 2023, and noted the resilience of the cash system remained a “key concern” and area of focus for the bank.
The Treasury was comfortable topping up the RBNZ’s coffers for these projects, to the tune of $58m, but unhappy with the extra $21m Robertson allocated to the RBNZ for “various key infrastructure projects and under-resourced key areas”.
The Treasury slammed the assumptions and costings the RBNZ used to make its initial pitch for funding.
The Treasury told Robertson it was unlikely the RBNZ would be able to find staff to deliver on the funding boost, given the tight labour market and huge jumps in staffing levels at the RBNZ in recent years.
It noted the largest annual increase in staff at the Bank (74 fulltime equivalents) occurred in 2019-20.
“Yet, the Reserve Bank were expecting to double this in the current labour market,” the Treasury said.
The RBNZ, in its 2022-23 annual report said the number of FTEs it employed rose by another 56 over the year to 510.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
