NZ First leader Winston Peters favours return of employment objective, alongside inflation targeting, to RBNZ's monetary policy remit

Conversations about reintroducing maximum sustainable employment to the Reserve Bank's monetary policy mandate, alongside inflation targeting, could be back on the political table.

On Tuesday, The Post reported that NZ First leader Winston Peters said he believed in 'full employment' as a policy.

"This country was number one in the world when we had massively full employment. I've been to, for example, Iceland. They've got massively full employment," Peters said.

"Successful countries have massively full employment. That's what this election is all about."

“All the Reserve Bank Governor has to do … is to keep [inflation] under a certain percentage. Otherwise she loses her job. Doesn’t matter if 100,000 people lose their job, she won’t lose hers. That’s not a smart economic management model, in my view,” Peters said.

The Post reported that Peters suggested he would look to bring up the issue in potential future coalition talks, saying: "I certainly would next time around."

The Reserve Bank (RBNZ) is currently tasked with maintaining inflation between 1% and 3% and it specifically targets 2%. The latest annual inflation rate, as measured by Statistics NZ's consumers price index (CPI), hit 4.1% in the June quarter.

As for the unemployment rate, this was at 5.3% as of the March quarter. Stats NZ will release the labour market statistics for the June quarter next Wednesday.

The Labour-NZ First government implemented the dual mandate in 2018, when then-Finance Minister Grant Robertson added supporting maximum sustainable employment. The current Coalition Government removed the employment mandate in 2023.

'One of those dead rats you've got to swallow'

Peters said removing the employment mandate was a “dead rat” he had to swallow.

“Regrettably, we had two parties of Government that didn’t want it … It’s one of those dead rats you’ve got to swallow.”

Following the release of the latest CPI figures last week, Labour finance spokesperson Barbara Edmonds told reporters her party was “seriously considering” bringing the dual mandate back.

This stance isn’t new from Labour, with Edmonds saying back in March that there were strong reasons to bring it back.

At the time, Finance Minister Nicola Willis said the Government stood by its position. 

“We must control the cost of living with a clear inflation busting target and that stable inflation supports job creation and employment growth," Willis said.

Meanwhile ACT leader David Seymour said Edmonds' “déjà vu economics are a recipe for rent hikes and a debt crisis”.

Last week, Edmonds said: “Every time I raise the fact that there was a dual mandate like other countries that we compare ourselves to such as Australia and the US, I’m then accused of saying that I want high inflation. However, you can flip that back on those other parties and say, ‘well do you want more people unemployed?’”

Role of government to look after people, Greens say

Green Party co-leader Chlöe Swarbrick told reporters last week that she had asked the former RBNZ governor about this, the interim RBNZ governor about this and the current RBNZ governor about this.

“All of which said going from the dual mandate to the single mandate hasn’t changed anything about how they would have made decisions. And [the] same goes in the opposite direction," Swarbrick said.

"The Reserve Bank has always had an eye on employment, but let's go back to the bigger picture, which is the reality that monetary policy is a blunt instrument," Swarbrick said.

"Actually, it is the role of responsible, sensible government to look after people because monetary policy can just basically decide how much money is flowing into and around the economy, whereas government gets to decide how that is distributed, what kinds of industries we're backing, and whether that money is flowing offshore or not."

'Is it really necessary to change it every time there’s a change of Minister of Finance?'

Speaking at a BusinessNZ event recently, RBNZ chief economist Paul Conway said while the RBNZ had its inflation mandate, one of their secondary considerations was to avoid unnecessary volatility in output, pointing to things like the labour market and the exchange rate.

So maximum sustainable employment was still there, he said.

Conway noted that the recent economic survey of New Zealand from the Organisation for Economic Co-operation and Development (OECD) suggested that stability in the central bank’s remit would be quite good.

“Is it really necessary to change it every time there’s a change of Minister of Finance?”

“As a Monetary Policy Committee, the job is very clear. Get inflation down to 2% in a sustainable way over the medium term. But then we do have all those secondary considerations as well," he said.

“I think a different remit would mean a different path for interest rates but I can’t be too specific on that because we haven’t done the whole process with the dual mandate front of mind,” he said.

Conway said they had a review period every five years and that was when they reviewed their remit.

Asked if Edmonds would consult with the RBNZ on the dual mandate if elected into Government, she said: “It’s not unusual for ministers to have that consultation with the Reserve Bank and to understand their particular views but ultimately the decision does lie with the minister.”