National’s Finance Spokesman Paul Goldsmith is opposed to central government getting a “fire hose” out and splashing lots of cash around in a bid to stimulate the economy, despite Reserve Bank Governor Adrian Orr’s wish for it to “go and spend”.
Speaking to interest.co.nz’s Jenée Tibshraeny at the Financial Services Council’s annual conference on Thursday, Goldsmith said: “We’re getting good income from what we sell in the world at the moment. We should be doing well.
“This is not a time where we should be sort of having the fire hoses out, trying to necessarily stimulate the world.”
Goldsmith a few weeks ago conceded the current level of net Crown debt, at 20% of gross domestic product (GDP), was “about right”.
The comment was interpreted as a change of tune by National, as ahead of the 2017 election it campaigned on cutting debt to 20% of GDP by 2020, and then further to between 10% and 15% of GDP by 2025.
Yet Goldsmith refuted the claim National was on the same page as the Government on debt, as he disagreed with it broadening its debt target to a range of between 15% and 25% by 2025, saying it was inevitable it would work to this upper limit.
The Government is taking on more debt. But because the economy has grown, net debt as a portion of GDP has fallen.
Goldsmith believed restoring business confidence was the key to spurring investment and stimulating the economy.
“The real issue with the interest rate cuts is that… it reduces demand from savers,” Goldsmith said.
“We all know people who have been relying on their savings and are getting incredibly low returns.”
He said that if the Government capitalised on the low interest rate environment and ramped up spending, it would be doing so with the expectation that this stimulus would offset the contractionary effect of savers tightening their belts.
“But the real danger is that because confidence is so low, you don’t get that investment and you don’t get the spending. The overall effect could be negative.”
Foreign capital restrictions ‘counterproductive’
Goldsmith was also supportive of New Zealand keeping the door wide open to foreign capital.
“New Zealand has been built on foreign capital right from the very start,” he said.
“We’ve got another wave of that coming with Chinese immigration - people coming here, moving here, bringing their capital, trading back with the country they’ve come from.
“Obviously we need to be mindful of New Zealanders’ concerns around land and sensitive areas, but I think ultimately the restrictions that we’ve put on in some areas have been counterproductive and ultimately make it harder for us to grow.”
The Government has banned foreigners from buying residential property. As a part of a review of the Overseas Investment Act, it is also considering requiring overseas investors that apply to buy sensitive assets to meet a 'national interest' test that Ministers can call the shots on.
“If we rely purely and solely on our domestic savings, then that’s fine - we’ll grow slowly because there’s not much of them. If we want to grow faster, we need to import capital as well,” Goldsmith said.
Like the Government, he didn’t want to put a figure on the level of net inward migration he wanted to see.
Yet he said the Government needed to keep the gate open enough to attract the necessary skills, while being mindful of pressures on infrastructure.
“There’s no question, it [immigration] was going a bit faster than we could handle for a couple of years there,” he admitted.
Case for bank/insurer conduct regulation yet to be made
On the issue of banking and insurance regulation, Goldsmith was yet to be convinced the Financial Markets Authority (FMA) should have the power, through the law, to regulate conduct and culture.
“I think they’ve got to make their case; they’ve still got to make that case,” Goldsmith said.
Following the reviews the FMA and the Reserve Bank did into banks’ and life insurers’ conduct and culture, the Government has committed to this year introducing legislation to Parliament to regulate the conduct of financial institutions and protect consumers.
Goldsmith said the question was, “How far you put into legislation expectations around things that are hard to define?
“The more detail you get into, the more people find their way around it. When I was a minister, I worked on the assumption that half of the regulations that are put before me are likely to achieve the exact opposite of what they set out to achieve.”
Having been Commerce and Consumer Affairs Minister between 2014 and 2016, he didn’t take responsibility for New Zealand, according to FMA CEO Rob Everett, now being behind the ball when it came to regulating bank/insurer conduct.
Referencing work done on the Financial Markets Conduct Act and review of the Financial Advisers Act, Goldsmith told the financial services sector audience: “It was a big call for us, because our basic instinct is one of regulatory restraint. We’re pretty cautious about adding high levels of regulation, but there were areas where it needed to be done…
“We’ve added an enormous amount of regulation and complexity to this sector already. If you keep on piling it on, we’ve to assure ourselves at every stage that we’re really genuinely adding value.”