20 Nov 2009

Look to Australia for monetary policy system - Goff

12:50 pm on 20 November 2009

Labour Party leader Phil Goff has singled out Australia when pressed for examples of how monetary policy might be changed.

On Thursday, Mr Goff said monetary policy should be altered to take pressure off the New Zealand dollar - signalling the end of a 20 year consensus between the two major parties.

That consensus had been built around support for an independent Reserve Bank keeping inflation under control by raising interest rates.

But Mr Goff says Australia does not use inflation as its only target and also considers employment, economic prosperity and currency stability.

"Maybe we've got to look at the policy targets, maybe we've got to think about whether the reserve bank should explicity look at the effect of its actions on the exporting sector if we're finally to pay our way in the world."

National rejects monetary policy change

Prime Minister John Key has dismissed Mr Goff's announcement, saying there is no real alternative to using interest rates to keep inflation under control.

Mr Key says monetary policy is complex and it's laughable for Mr Goff to suggest there is a solution that has been missed for the last 20 years.

He says the country's monetary policy is at an international best-practice standard. Mr Key says the previous Labour-led Government conducted a number of reviews of monetary policy which led to no change.

He says National won't have a bar of mortgage levies or giving the Reserve Bank Governor the ability to raise fuel levies, which were ideas suggested in one of those reviews.

Ends to consensus

Labour says it will consult widely before finalising its new policy ahead of the 2011 election.

Speaking to a meeting of Federated Farmers in Wellington on Thursday, Mr Goff said a new approach needs to focus on keeping interest rates and the New Zealand dollar stable, rather than having an overriding emphasis on inflation.

Mr Goff said more needs to be done to ensure exporters can do well overseas, rather than being disadvantaged by an overvalued dollar.

He told the meeting the Reserve Bank's overriding focus on inflation needs to change to help rein in the New Zealand dollar.

He said while the policy needs to focus on keeping interest rates and the exchange rate stable so exporters don't suffer from a volatile dollar, that does not mean Labour would go soft on inflation.

Business sceptical

The business community is sceptical that the Labour Party can overhaul monetary policy to help help exporters.

Northern Employers and Manufacturers Association chief executive Alasdair Thompson says Mr Goff's reasoning is baffling as he has listed conflicting outcomes and seems to have no prescription for achieving them.

The Council of Trade Unions supported Mr Goff's willingness to look at alternatives, saying New Zealand urgently needs to change the way it operates its monetary policy and exchange rate.