The Green Party leader, James Shaw, has just put out a press release highlighting the Reserve Bank’s persistent forecasting errors, which have had the effect of keeping the number of people unemployed higher than it would otherwise have been in recent years. James Shaw uses that record to reinforce the argument that too much power is vested in a single unelected individual, the Governor, and that the governance model of the Reserve Bank should be reformed, as (for example) The Treasury has previously argued.
As I have noted previously, the Bank’s serious forecasting errors are not primarily the fault of the single decision-maker model. There was, unfortunately, widespread support at the Bank last year for the OCR increases, and it would have been hard even for a more independent committee to have resisted the push for the early increases. But the succession of policy mistakes (eg having twice had to reverse OCR increases in the last five years) does reinforce the more fundamental arguments for a better, and more conventional, governance structure for the Reserve Bank. It is not governed the way most central banks are, or the way most New Zealand government agencies are. Even among central banks, only the Bank of Canada puts the legal authority to set the policy rate with the Governor alone, and the Bank of Canada Governor has a much less extensive range of powers than Graeme Wheeler (and his predecessors) have had.
I outlined my own case for governance reform here.
The Reserve Bank itself has been working on the issue. I lodged an OIA request some time ago for
copies of any papers done by the Reserve Bank on statutory governance issues in the last two years (i.e. since 1 July 2013). To be specific, I am requesting:
- any papers (draft or otherwise) provided to Treasury or the Minister of Finance on these issues
- any papers provided to the Governor or the Governing Committee on these issues
- any internal working or discussion papers on governance issues
- any file notes or other records of discussions on these issues between the Governor, and the Secretary to the Treasury and/or the Minister of Finance.
The Bank has just extended my request for another month, telling me that they have found 9786 records or documents they need to check. I suspect that means the initial search wasn’t very well-targeted, but there should be a few interesting documents to emerge in a month or so. It will be interesting to see what model of change the Bank would prefer, if and when change comes, and their assessment of the pros and cons of the various approaches to dealing with the governance of the wide range of issues the Bank is given responsibility for.
It is a shame that the current government appears unwilling to address the issue. It is one of those areas where change will almost certainly come, to bring Reserve Bank governance into line with modern public sector practice and the current responsibilities of the Bank. It won’t surprise readers that I’m not a natural supporter of many Green Party issues, but I give them considerable credit for continuing to chip away at this issue.