Time to find an alternative to the OCR says The Productive Economy Council
Dr Bollard’s increase of the Official Cash Rate to 2.75 per cent is a blow to hard working New Zealanders - both home owners and exporters - who thought the worst was over. This latest move will put more money into the hands of foreign-owned banks and at this point in the economic recovery cycle is plain stupid, says Productive Economy Council spokesman Selwyn Pellett.
“New Zealanders need to demand a fairer system for controlling inflation than the OCR. The Chief Economist of the BNZ said today that all the interest payments received were passed on to savers. This is a misrepresentation of the facts, as the banks’ future profits will demonstrate. The banks lift prices (fees and interest rates) quickly, bring them down slowly and pocket the difference as incremental profit. We’re expected to shrug our shoulders accept it as if there is no alternative,” says Pellett.
“There are alternatives to this status quo. What we need is to adopt an option that: spreads the burden of controlling inflation wider than just home owners with mortgages; ensures that savings increase; doesn’t adversely affect exporters and our ability to retire national debt and doesn’t see the profits of the top four banks exceed the combined profits of the top 46 listed companies on the NZX as it did in 2008.”
The PEC believes that with these objectives in mind a reasonable alternative is a variable contribution to a compulsory superannuation scheme. As inflation increases so does the contribution to your super fund. It takes money out of circulation and yet you still own it.
“As long as that money is not re-lent into the domestic economy then we will reduce inflationary pressure,” says Pellett.
“The money can replace government deficit borrowing and be invested in long-term capacity building, private or public, or even invested off-shore without having inflationary effects in the domestic economy. While we all feel the pain of less money to spend in high inflationary times, the comfort will be that the money is there when we need it either personally (borrowing against it as is done in Singapore)or nationally to prevent economic shocks in the future,” says Pellett.
“Ask the average New Zealand home owner, exporter, Generation Y worker or fund manager which of these two options they would prefer, and suddenly Bill English might understand why Labour has already walked away from the accord on Monetary policy. The Government has made decisions in the budget that are inflationary and now the exporters and home owners will once again pay the price via the exchange and interest rates, while the foreign banks take the cream.”
Seems to me that the key to a decent society is about sustainable jobs available to everyone who can or should work. Because a job is the best safeguard against poverty. Allowing NZ’s Dollar to respond to the whims of a massive FX market; and not taxing those transactions, appears plain stupid from a NZ perspective. If we are a “knowledge economy” then surely applying some knowledge to making our business conditions survivable is the first thing to get right. By and large the Banks will play within the rules, so if they are ripping of New Zealand, then the Government and public service need to get their act together and create effective rules. I wouldn’t think its rocket science to tax financial transactions that damage the country; nor to change the rules to shift savings from rental houses to job-creating productive businesses. ( But maybe we need as serious house price crash first, because no politician has the balls, or the sense of public responsibility, to address the problem.)