The statutory Monetary Policy Committee is now responsible for monetary policy and we’ll see the first fruits of their deliberations in a couple of weeks. It won’t just be the outsiders who are new, with two of the four internals having also taken up their jobs (in one case, joined the Bank) since the last Monetary Policy Statement.
In addition to the questions about how the Committee is going to work, what approach to policy they will take, whether the Governor remains as dominant as I fear, and whether a new era of greater policy transparency is really being ushered in, there are some other outstanding questions about the Committee.
One of them is how much the external members are getting paid. The government simply refuses to tell us. The same government that once promised to be the most open and transparent ever.
There was an article about this in the Herald ten days or so ago. The government’s standard schedule of fees for appointments to public board and committees allows a maximum fee of $800 a day. Perhaps $800 a day might, just, be reasonable for a role that involved only, say, 10 days work a year. But the MPC jobs were advertised as involving about 50 days a year – a fair chunk of anyone’s earnings potential – and there are some material constraints on what other activities people on the MPC can do. $800 a day is probably equivalent in annualised terms to around $175000 per annum.
And so, reasonably enough, the Minister of Finance sought approval to offer a higher rate to those appointed to the MPC, arguing that if more money was not on offer they might struggle to get the “right” sort of applicants. These sorts of exceptions are made from time to time,
A spokesman for [State Services Minister] Hipkins said in 2017/18, the Government approved 43 “exceptional fee” proposals.
That number was 90 in 2016/17 and 42 in 2016/15.
The suggestion in the article is that the government may be paying up to $1500 a day to the MPC appointees
The letter also said the most comparable role within the state sector would be a member of the Commerce Commission, who earns a salary equivalent to a daily fee of $1565.
$1500 a day might be equivalent to an annualised rate of around $330000 per annum.
I don’t too much problem with that level of fee, provided the MPC members are going to do the job well, and not just become free-riders largely deferring to management.
After all, consider what the internals on the committee are getting paid. Going by the remuneration tables in the Bank’s Annual Report, they probably get something like this:
- Governor $700000
- Deputy Governor and Head of Financial Stability, $500000
- Assistant Governor (Econ and Financial Markets) $425000
- Chief Economist $325000
The Deputy and Assistant Governor roles are both second-tier appointments, while the Chief Economist is a third-tier role.
Of course, academics get paid less well than this (and two of the three external MPC appointees have academic backgrounds) but the private financial sector pays able economists well.
Another possible benchmark is the $447000 per annum paid to High Court judges. We need skilled and capable people performing those roles, but there are potentially two layers of appeal above a High Court judge, and none at all above the (collective) decision of the MPC.
But if I don’t have a problem paying a reasonable price for the job, I do have a problem in not disclosing what these decisionmakers are getting paid. You can readily see from the Annual Report what each member of the Reserve Bank Board gets paid (not that much, but then they don’t do much), and the mandatory disclosure (without names) of all salaries in excess of $100000 gives one a reasonable sense of what the senior managers involved are being paid. But the government insists that the external members’ fees should remain confidential. Their argument?
“This is on the basis that it could weaken the Government’s ability to negotiate fee levels by creating an environment where the exceptional fee becomes the norm.”
I don’t find that persuasive, and the secrecy is inconsistent with the sort of openness and transparency we should expect around public appointments. Frankly, it suggests the government has its fee schedules in the wrong place, at least for substantive roles.
Perhaps the closest parallel to the external MPC members are the comparable positions in the UK. In fact, the Minister of Finance cites them in his bid to get higher fees for the New Zealand appointees. But the terms of conditions of UK MPC members are available for all to see. As the Minister noted
It also noted MPC members at the Bank of England receive around $1900 in New Zealand dollars.
“Reserve Bank of New Zealand external MPC members will require similar economic and analytical skills, although their role is likely to be less public facing,” Robertson said in the letter.
If it is good enough for the UK, not always known for its public sector transparency, it should be the standard of openness we expect here.
There are also some questions around the transparency of the MPC appointment process itself.
As I noted when the appointments were made
But then I’m a bit troubled by the way in which the Board – all but one appointed by the previous government – ended up delivering to the Minister for his rubber stamp a person who was formally a political adviser in Michael Cullen’s office when Cullen was Minister of Finance (Peter Harris) and another who appears to be right on with the government’s “wellbeing” programme. They look a lot like the sort of people that a left-wing Minister of Finance – one close to Michael Cullen – might have ended up appointing directly……
I’m left wondering what sort of behind-the-scenes dealings went on to secure these appointments. I hope the answer is none. I’d have no particular problem if, while the applications were open, the Minister had encouraged friends or allies to consider applying. I’d be much less comfortable if he had involvement beyond that, prior to actually receiving recommendations from the Board. It isn’t that I disapprove of politicians making appointments, but by law these particular appointment are not ones the Minister is supposed to be able to influence. So any backroom dealing is something it is then hard to hold him to account for. Perhaps nothing went on, but I have lodged a series of Official Information Act requests with the Minister, Treasury, and the Board of the Bank about any contacts (written or oral) between them on this issue.
Since the Act is written in a way that encourages the public to believe that the first time the Minister would even hear of any potential MPC members would be when the nominations landed on his desk from the Board (which he could accept or reject, but not impose his own candidate), the response from the Minister of Finance to my OIA request should have been quick and simple.
Here was my request to the Minister.
I am writing to request copies of all material (written and oral) held by you or your office relating to the appointment of members of the Reserve Bank Monetary Policy Committee. Without limiting that request, it includes a request for any information relating to any approaches made by you or on your behalf (a) encouraging specific individuals to apply, (b) encouraging the Bank’s Board to nominate or select any particular individual(s), or (c) discouraging the Bank’s Board from nominating any particular person or type of person.
In subsequent contact, it was agreed I wasn’t looking for purely adminstrative stuff (emails like “does anyone know if Bob Buckle has signed hs contract yet?”).
The request was lodged on 29 March. I had a letter from the Minister last week extending my request to 11 June (so not just 20 working days, or even a 20 working day extension, but a bit beyond even that). And the justification? The claimed need to “search through a large quantity of information”.
That certainly does not suggest a Minister of Finance who had taken the sorts of hands-off approach his own brand-new legislation appeared to envisage. In that case, there would have been nothing to find, nothing to search. The Minister would have known there was nothing.
In principle, I’m not averse to the Minister of Finance having an active role in such appointments. In my submission to FEC last year on the amendment bill, I argued that the Minister should have the power to appoint directly (as is typical with most other public appointments, and most other central banks roles in other countries). The MPC is a major element in short-term economic management, and we expect to be able to hold the minister to account (we can vote against his party, but have no clout over central bankers). Try to appoint a party hack and expect blowback in public or Parliament. But the Minister and the Select Committee chose to reject that proposal, and to use the model – in place for the appointment of the Governor – in which, on paper, the Minister has no role other than to accept or reject a final recommendation.
It looks as though what we are left with is the worst of both worlds. The Minister of Finance isn’t keeping out of the process, until the end when he says yea/nay to formal recommedations, but whatever his active involvement it is behind the scenes in ways which make it hard to hold him to account (if second XI type people, or people with strong ideological affinities to the government end up appointed, he can simply say “it was the Board that handed me these nominations”). It seems to be neither open nor transparent.
I hope that when the Minister finally gets round to responding to the OIA request, the evidence will suggest these concerns are overstated. But, on what we have to date, the indications aren’t promising.
Transparency was to have been a key aspect of the Reserve Bank reforms. To date, that is looking patchy at best, around such basics as remuneration and appointment processes. We can only hope – against hope – for better on policy and policy communications.