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BRYCE WILKINSON: The mess the government has made of monetary policy, and the task ahead

Inflation is a problem for the first time in 30 years. Property prices have whiplashed. The Reserve Bank of New Zealand (RBNZ) has cost taxpayers $9 billion, for no clear net benefit.


What underlies this mess? This week the New Zealand Initiative published my report addressing that question.


At the start, I thought that responsibility for these developments lay mainly with the Governor. Along the way, I found that the Minister of Finance had played a more directive role than I had thought.


Concerning the Governor, the smoking gun behind the current breakout in inflation is the failure of the Bank’s experts and models to forecast the rise in inflation. Inflation was unintentional.


A serious effort to improve the Bank’s forecasting models should be a priority, but I have not seen evidence of that.


Indeed, the Bank’s employment priorities have been elsewhere. Whereas staff numbers in the Reserve Bank of Australia (RBA) rose a mere four percent between 2017 and 2022, the rise in the RBNZ was 80 percent. Yet, the number of the RBNZ’s “economics” staff in 2022 was less than in 2013.


The report documents the Governor’s advocacy position on controversial and distracting political issues such as climate change and ethnicity.


Another concern is how underpowered the RBNZ is at the top levels and on the critical Monetary Policy Committee, compared, for example, to the RBA.


However, documents released under the OIA show that the Minister of Finance had instructed the Bank to hire based on gender, with no mention of merit. He has also reaffirmed the bizarre policy of not appointing external monetary policy researchers to the key Monetary Policy Committee. And he had taxpayers underwrite the gamble that lost $9 billion.


The government further undermined the focus of monetary policy by introducing contending considerations—maximum sustainable employment and “more sustainable” house prices.


The Minister has also blithely required the RBNZ to use monetary policy to “promote the prosperity and wellbeing of New Zealanders … “. Such open-ended instructions invite presumption and distraction.


The only thing monetary policy can reliably control is medium-term inflation. That needs a tight focus.


The bottom line is that the next Minister of Finance faces a big task to turn things around.


Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative. His report, “Made by Government: New Zealand’s Monetary Mess”, can be accessed here

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46 Comments


Andy Espersen writes :

Prophetic words from Bryce Wilkinson when considering the wave of big banks going bankrupt just now - all over the world. And all because insane investments in NetZero, "climate change", Green pipedreams.

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basilwnz
basilwnz
Mar 19, 2023
Replying to

Control, in a word.

BTW, how's this recent quote from Marama Davidson? After commenting that many people are struggling to put food on the table and pay the bills (no argument there), she added "We can address climate change and inequality at the same time".

A miracle worker?

As for James Shaw "I am proud of what we have achieved with the governments we have been given. I am proud that over the last five years we have taken more action on climate change than the past 30 years of govts combined".

Eh? Like what? Name anything at all that has made a measurable difference to the world's climate.


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“…the next Minister of Finance faces a big task to turn things around.”


A long, difficult and thankless task, since so many New Zealanders have become over-reliant on a government that’s increased debt and so will beggar future generations.

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lynnsam112
lynnsam112
Mar 18, 2023
Replying to

yes there will be years of debt to repay.....the younger generation will pay for this administrations disastrous mistakes.....

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Although the those with the capability and expertise are lying outside the RBNZ at present, it gives me some comfort that they still exist within our shores.


I read your report carefully to try and absorb the incredibly disturbing situation at the RBNZ. I imagine this reflects what has permeated the rest of our government/ public service for the past 5+ years.


It seems to me that the lies, deception and outright fantasy that this government has engaged in is pervasive and will not stop until sensible people take the helm of our sinking ship of state.


The waste of our money is exhausting.


Thanks for speaking out so concisely Bryce :)

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26azula
26azula
Mar 18, 2023

A monetary mess isn't the word for it Its an out right shambles Why are NZers keeping Australia prosperous and all our money going to OZ we need it more than they do.

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Octavian Augustus
Octavian Augustus
Mar 17, 2023

"However, documents released under the OIA show that the Minister of Finance had instructed the Bank to hire based on gender, with no mention of merit."


If gender diversity (i.e. no men) and ethnic diversity (i,e. no White people) were good in themselves, they wouldn't need to be the objects and aims of specific policies. They'd just happen as a matter of course, and would have been happening for years, because they would be the best principles on which to compose a workforce. Businesses want what's best for the bottom line, and if hiring women and brown people were the best ways to achieve it, they wouldn't need to be pressured to do it – they'd have been doing it…


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Replying to

Your comment is the one that is 'much too sweeping'.


Every key piece of infrastructure, even the bits you don't ever think about because they are hidden, designed and built by men. The basic laws and all of the rights you enjoy today, set up for the benefit of all, codified and enforced by men throughout most of history. The protection of the people living in any particular area has always fallen on the men.


Every thing that has enabled you to put forth your opinion out in to the world from the comfort of your toilet is because of men.


The tolerance of 'these killers and breakers' has produced the stability that you have lived in for the majority…


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