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Labour wants to broaden Reserve Bank targets beyond inflation and introduce "new tools" to get current account deficit under control.
The party's deputy leader and finance spokesman Daivd Parker told The Nation he'll propose "one big new tool" and in addition allow the Bank to apply existing tools differently.
Asked if Labour will ask the Reserve Bank to target employment, Mr Parker said, "it might not be that blunt."
The finance spokesman said the value of New Zealand dollar should drop 5-15%; a 15% drop in the Kiwi would put $9 billion back into our economy, he claimed.
Mr Parker also recommitted Labour to raising superannuation age from 65: "So we're willing to raise it... It's got to move," he said.
Asked if Labour will negotiate super eligibility to get a coalition deal with New Zealand First, Mr Parker said: "I don't compromise my values", but adding"You don't negotiate these things in advance of an election."
A circular exchange with host Lisa Owen failed to clarify if the super age was a bottom line or a negotiating point.
Loan-to-value (LVR) loan limits aren't working and Labour would rather limit them to just Auckland, Mr Parker said.
LVRs "certainly not necessary" in Dunedin, for example, the Labour deputy leader said: "Why should our economy be hobbled? Why should our young people be prevented from buying houses" because of Auckland house prices."
The departure of Shane Jones is "a loss to us" but people vote for the party not individuals, Mr Parker said.
RAW DATA: The Nation transcript: Lisa Owen interviews Labour deputy leader and finance spokesman David Parker.
Lisa Owen: Welcome, first off though I would address the issue of Shane Jones. Now he’s departed in possibly the worst way, as I said, lobbed a grenade into the Labour nest and wandered off. How could it be any worse for you?
David Parker: Well obviously we’d like to have stayed but no, really, people in the end don’t vote for me or for Shane Jones or David Cunliffe, they vote for the Labour Party, because we attach the issues that are important to like the ones we are talking today that affect house prices and the like. So although Shane is a loss to us, National suffered the loss of Simon Power last time. He was number five in their caucus, said to be their next leader. We carry on; other people step up as the likes of Kelvin Davis will.
But if you’re a voter who’s sitting at home in Waitakere, or Gisborne , or anywhere in the country, you don’t look like a government in waiting, do you?
You know the polls at the moment have a less than five percent gap between National and Labour and the Greens. Five percent. Two and a half percent swing towards us and we are ahead. This election is going down to the wire. That’s already clear. National know it, that’s why we have had the royal tour and golfing with Obama. But actually people don’t vote because of golfing with Obama or because of me or Shane Jones. They vote for Labour or National because they think that we are attached to the values that are important to them. And I know the issues that are important to people because they tell me: secure work, decent pay and an affordable house. It’s clear that the Labour Party have the policy that address those issues and that’s why we are within striking distance of National.
Well let’s talk about policy then, monetary policy in particular. On Tuesday you are going to announce what you want to be the changes to the Reserve Bank Act. You want the bank to focus on more than controlling inflation. I just want to refer you to 2011 manifesto where you said “employment, economic prosperity and the health of the export sector are as at least important as inflation rates”. So is that your policy now?
Well you will see the details of that on Tuesday but yes, we are going to broaden the objective of the Reserve Bank. Look at what is happening now, last quarter we had zero general inflation in New Zealand, excluding the increase in tax on cigarettes. And yet we have already got higher interest rates than the rest of the developed world, than our competitors. We have got house prices that have gone up forty percent under National and they’re saying interest rates are going to go up more. What’s the affect of that? As you have already said despite the fact that export prices are going down and we are not covering the cost of our imports and interest, our exchange rate has been jacked up and we are losing jobs in the export sector. We gotta change something.
Well you’re a Labour Party so it’s a no brainer that one of these targets will involve employment, won’t they?
Well you’ll have to wait for Tuesday; it might not be that blunt. We are not going to lose the inflation grounding. Inflation control is important. But it is a means to an end, not an end in itself. The end should be high paid jobs, secure work. Too many of our young people are pulling coffees or cleaning the elderly, these are all good jobs, or tucking in tourists. We haven’t got enough secure work for our young people. Young people can’t afford to buy a house. And I know these issues worry not just young people but their parents.
So if you say it’s not going to be as blunt as just jobs, what are you talking about?
You’ll have to wait till Tuesday. We have said that we’re going to broaden the objectives of the Reserve Bank beyond targeting inflation, with zero general inflation; it’s not the only tiger in town to be tamed. You know good ideas have many parents. Winston Peters asked the Greens, we are all on board with this. In fact changes to monetary policy have been proposed twice in this Parliament and went down by one percent. There is broad agreement across the progressive side of politics in New Zealand that we have to do better if we are going to keep our young people in New Zealand: give them jobs and have affordable houses without ridiculously high interest rates.
So if you’re going to be in announcing new targets will you be announcing a new tool as well? So at the moment you have inflation as the target, interest rates is the tool, can I expect some more tools?
Yes you can. You can. You can expect that the objective of the Reserve Bank will be broadened, that they’ll have new tools to address this challenge of getting New Zealand’s current account deficit under control. It is forty years since we paid our way in the world, forty years since we covered the cost of our imports and interest by the value of our exports. You see all these raw logs going offshore, one of the reasons is our monetary policy. It helps keep our interest rates higher than our competitors so our exporters facing a high dollar and high interest rates aren’t willing to invest in the plant. We need them to.
How many new tools?
One new tool. And in addition to that because the objective of the bank will change the way in which they apply their existing tools, now I’ll give you an example of that. At the moment they change the capital ratios for banks to back their lending based on whether the banking sector is going to fall over, not on whether the housing market’s going crazy. Now they’ll approach their tool differently if their objectives are broader. We can make a difference here. If we change nothing, nothing is going to change.
Well you raise the housing market because you have, as you pointed out, talked about the fact that there is zero general inflation, that the housing market is what is driving inflation. So how are you going to cool that housing market?
Well look you know at the moment the Reserve Bank is in a corner because the Government’s housing policy has just failed in a dramatic way. House prices are up 40 percent under them despite there being close to zero inflation. Well there are a number of things you need. You need to tax the speculators….capital gains tax, you need to build some more affordable houses which the Labour party is going to do. You need to ban foreign purchases and you need to address monetary policy so that you are not jacking up interest rates when they’re already the highest, higher than Australia, the United States, China and Europe. But they’re out of whack.
So where does the LVR fit into all of this, because previously Labour has been against it applying to first home buyers, so are you going to get rid of that? Because actually it appears to be working-
Well actually no, the bank economists say it has had very little effect. Our criticism of loan to valuation ratios has not been so much directed at the Reserve Bank as the Government. Loan to valuation ratios would not be needed if they were taxing speculators and building affordable homes. The reason that the government doesn’t do either of those things if that they back the people that they gave 40 percent of the income tax cuts to. They are playing for the big end of town. This comes back to your earlier questions. Why will people still back Labour the Party despite Shane Jones going? Because we’re actually willing to deal with the issues that affect their lives: jobs, housing. National Party, despite the fact that we had 40 percent house inflation, they’re not doing anything about it. Not taxing speculators, they’re not banning foreign buyers of houses, they’re not building any more houses and they’re not willing to address interest rates and the exchange rate through monetary policy changes.
So what you are saying is when you bring in these new tools you won’t need LVRs?
We’d be less reliant upon them. Whether LVRs or any other tool or interest rate rises or the new tools are applied will always be for an independent Reserve Bank. They will never lose their inflation objective but they will have more flexibility to address these issues in a way that doesn’t require them to put as much reliance on things like loan to valuation ratios or jacking up interest rates.
What about regional loan to valuation ratios because everyone is pointing out its Christchurch and Auckland and not everywhere else, so why not target it regionally?
Well that is one issue that I have been critical of the Reserve Bank on because-
Would you consider that?
We have said we would. Yes, I mean it’s ridiculous that places that have got no or low house price inflation are caught up in the same rules are Auckland and Christchurch.
So where, Auckland and Christchurch, would they be cities that you would target with the loan to valuation ratio?
Probably primarily Auckland actually. One of the reasons house prices are going up in Christchurch is of course they had an earthquake and it costs more to replace a house than…new houses cost more. The big problem is in Auckland and the answers there lie in building affordable houses. Loan to valuation ratios if they are necessary, certainly not necessary for example where I come from in Dunedin. We haven’t got house price inflation there so why should our economy be hobbled? Why should our young people be prevented from buying houses because of the blunt way in which loan to valuation ratios are being applied.
What about the New Zealand dollar? You keep saying it’s overvalued, what 86 US cents at the moment. So what do you reckon is the ideal value?
Well the IMF say it’s overvalued to the tune of about 15 percent. The Treasury and the Reserve Bank they agree that it’s overvalued. Everyone’s saying it’s overvalued, but no one is willing to do anything about it other than us.
So where do you put it?
Well I’m not going to give you an exact figure. I think the IMF has got it about right.
Well they say between 5 and 15 percent, so it’s something that… But let’s say the New Zealand dollar was overvalued by 15 percent that means that our exporters at the moment are losing 9 billion dollars per annum. Imagine how many more people they could employ in well paid jobs if they were earning 9 billion dollars per annum more from our exports. It would change the shape of our economy, our young people would have better job prospects and we wouldn’t need to jack up interest rates to suppress the housing market if we had things going into those sorts of investments instead of too much money into rental housing.
I want to move onto another financial matter that is close to your heart which is superannuation. So is Labour’s position still that you want to raise it to 67? How important is it for you to do that and how important is it for the country?
Look it’s the largest growing area of expenditure after health. Under this Government the cost of superannuation in the last five years has gone up by 3 billion dollars per annum. They pretend they’re only spending 250 million dollars more per annum and yet they have spent 3 billion dollars more per annum on super alone. No one wants to address the age of superannuation because it’s not a popular policy, but a responsible government isn’t just populist. You have to protect the sustainability of things that are important to the people that vote for you. And I know that for Labour voters the sustainability of superannuation is essential. So we are willing to raise it with lots of advance notice. It won’t start going up till 2020 and then by 2 months a year.
But if you are going to raise it, you’re going to need to get Winston Peters on board aren’t you and he’s not going to want a bar of that?
Well you know I’m not responsible for Winston Peters’ policy, I’m responsible for mine. I know that within two years the government spends more on superannuation than they do on education. That is wrong. It already costs more than all benefits combined, plus working for families, plus the accommodation supplement. It’s gotta move.
Haven’t you just ruled yourself out of government with that stance though? Winston doesn’t like it, the Greens are lukewarm on it. You are on your own and you need them.
Well time will tell. Look I don’t compromise my values. I stand for the sustainability of important settings. I want enough money to give people a decent education through the state and decent health service. I want to have settings –
But you have to be in power to do that and you need friends to do that.
We do, we do. But you don’t negotiate these things in advance of an election. I stand for what the Labour Party stands for, which is fairness for New Zealanders.
So it is negotiable then?
No I didn’t say that.
So it’s your bottom line then?
I didn’t say that. Who was elected…
It’s got to be one or the other?
Well actually we don’t even know if Winston Peters is going to get back into Parliament. He probably will, but let’s wait for the voters to make up their mind who they think we should vote for.
I think that’s the perfect place to leave it. Thank you very much for joining us this morning David Parker.