NZ First leader Winston Peters has taken the unusual step of proposing the flotation of Kiwibank on the stock market and the limitation of share ownership to New Zealand residents. Peters said in a speech yesterday NZ First would also separate Kiwibank from NZ Post and direct the government to put its NZ$55 billion worth of banking business through Kiwibank, rather than through its current bank Westpac. I think there may be some practical and financial problems with separating Kiwibank from NZ Post. Currently Kiwibank uses NZ Post branches and also provides some bill payments services to NZ Post. For that service Kiwibank received NZ$41.39 million from NZ Post last year, which some argue is a subsidy that inflates Kiwibank's profit, which was NZ$36.82 million last year. Kiwibank probably wouldn't be profitable if it was cut loose from NZ Post. Meanwhile Winston Peters has also repeated his call for a rewrite of the Reserve Bank Act to make it target employment and the exchange rate as well as inflation. My view is the Reserve Bank Act works because it targets inflation alone and allows the Governor independence to target inflation. Low inflation for the 1990s and the early 2000s was a hard won benefit that should not be given up easily. But what are your thoughts? Winston Peters' comments are in more detail below.
A third truth is the reality that our banking system is overwhelmingly controlled by Australian owned banks. This has three immediate effects. The first is that over $4 billion of profits disappears from our economy each year. That is money we will never see again. Adding to the profit is the fact that $55 billion worth of government business each year is transacted through an Australian bank. That is nearly one third of our GDP moving through an Australian bank's hands. The final fact is that in troubled economic times, it is Australian shareholders, not New Zealand depositors and borrowers that are the priority for these banks. That means when push comes to shove - we come off second best. New Zealand First has a plan to deal with this. The first step is to separate Kiwibank from New Zealand Post to eventually establish it as a stand alone commercial bank. The second is to float shares in the Bank that can only be bought and owned by New Zealanders - they cannot be on-sold to foreigners. The next step is to put all the government's $55 billion worth of business through Kiwibank - ensuring all the profits stay here in New Zealand and forcing interest rates down. As a matter of urgency, we must then rewrite the Reserve Bank Act. Now this is an obscure piece of legislation that very few New Zealanders understand and even fewer have actually read. The job of the Reserve Bank should be to maintain stability in the economy in terms of employment and growth as well as keeping inflation under control - as it is for example in Australia, the UK and the US. We have to break out of the straightjacket that requires the bank to take a single minded hard line on inflation, irrespective of the performance of the economy, and irrespective of the fact that much of New Zealand's inflation results from rising import costs rather than inflation generated here. Unless we have the courage to rewrite the Reserve Bank Act, high interest rates and a volatile dollar will continue to cripple our economy. High interest rates has destroyed business and consumer confidence. Interest rates, almost the highest in the OECD, have sliced billions from New Zealanders' savings in their homes. And those home value losses are totally artificial. It results from blind ideology and is crippling thousands of small businesses and householders. As we have already noted - the dogma of the Reserve Bank, as set out in its June statement, means that 95,000 people must lose their jobs so the Governor can keep his. The New Zealand based economic think tank BERL, which actually works on New Zealand based solutions, not imported ones, has tackled this matter and written an extremely good paper on it. They have arrived at the same conclusions as New Zealand First - that the Reserve Bank Act needs to be rewritten. In fact Mark Weldon - the head of the New Zealand Stock Exchange - has also expressed this view publicly. So we have been joined by some pretty sound economic minds on this matter. The BERL research offered four steps in rewriting the Reserve Bank Act which we want to raise tonight. 1 - To include the balance of payments and full employment (along with inflation) as equally important objectives for the Reserve Bank, 2 - To formally empower the Reserve Bank to manage the liquidity of the financial system, 3 - To facilitate open market operations involving long term, as well as short term securities, and; 4 - To facilitate a transparent "sterilised float" of the New Zealand Dollar. These are all extremely well thought out and most importantly New Zealand driven ideas. You see if the mandate to save those 95,000 jobs were in place then the Reserve Bank would behave differently. If export growth and addressing our outrageously large balance of payments deficit was a priority then the Reserve Bank would behave differently