A few weeks ago I wrote a post about an article the Herald’s Jenee Tibshraeny had written based on an interview she’d done with the Minister of Finance. Willis was reported as toying with a number of fairly questionable ideas around the Reserve Bank (none involving actually replacing the Board chair). One of those involved the interest rate paid on banks’ settlement account balances at the Reserve Bank. Those balances are currently high (something that is entirely determined by the Reserve Bank; banks themselves can influence only the distribution of the aggregate balances among them).
I wrote then
It would be an arbitrary bank tax, even if Willis amended the Reserve Bank Act to mandate such an approach
I ended the post noting that I had lodged an Official Information Act request with the Minister for all the advice etc she had received on the matter. You will note (above) that Grant Robertson had been pretty responsive to OIA requests on this issue a couple of years ago (and appropriately so, given the OIA’s presumption in favour of disclosure.
The current Minister of Finance’s response came back this morning (and yes, I just noticed that her office dated it 9 August rather than 9 September)
It is pretty remarkable that she is withholding absolutely everything (down to and including titles of papers etc, or initial briefings from many months ago). Not the approach of a Minister with any sort of interest in or commitment to open and transparent government, let alone either the letter of spirit of the OIA (perhaps this is why the annual pro-active disclosure of official papers relating to the Budget has still not happened, more than three months on).
Some weeks ago, after I wrote my post, Jenee Tibshraeny kindly offered me the opportunity to listen to the full interview she’d done with Willis. There were a number of interesting aspects that hadn’t really come out in the article (space constraints and all that), but what really caught my attention was that she mentioned almost in passing that she’d be keen to see the advice on this issue, to which the Minister’s response was that she couldn’t do that as the matter was “under active consideration”.
Section 9(2)(f)(iv) – the clause the Minister cited – is generally interpreted as providing some protection when matters are under active consideration (Ombudsman’s guidance note), in which case we are left to conclude that not only was the matter still being considered when Tibshraeny did the initial interview more than a month ago, but that it is still under active consideration now. She seems to be seriously toying with a law change to allow an arbitrary distortionary and inefficient tax on banks. It is quite extraordinary (or perhaps would be if this were not the Minister of Finance who has already increased taxes on business – removing depreciation provisions on buildings – and whose government last week imposed an arbitrary export tax (on overseas tourism), in what seems to be a pure revenue grab so flagrant that even Steven Joyce – no free market purist – was prompted to attack the move in his Herald column).
One can only hope that there is a less-bad interpretation, but the Minister herself has chosen to go public with the comment to Tibshraeny that she could consider legislative intervention, and the Minister herself is now refusing to release any material on the issue.
Any such “tax” would be a seriously retrograde step and would be a signal that the government was much more interested in populist bank-bashing (Green Party style, worse than Grant Robertson) than in serious policymaking. It would be a pure revenue grab, that might even garner a few cheers from the cheap seats, but would command not a shred of respect (for her or for New Zealand policymaking more generally) from serious observers, here or abroad.
If, for example, the high level of settlement cash balances troubles her – and it should, as a reflection of past mistakes – perhaps she should have done something about (eg) replacing the Board chair and filling the Board vacancies, with people who are serious about holding Orr to account, and getting a more rigorous approach to policymaking at the Bank. There has been quite enough bad policymaking in recent years without Willis and Luxon adding to it.
croaking cassandra 
Yes, don’t like it one little bit either. And neither do I like the overseas tourist tax. This certainly is the most unconventional, supposedly conservative government. They violate those principles (conventional wisdom) quite a lot. Seems to me, the arbitrary decision-making is a desperate attempt to find new ways to tax as a means to ‘put right’ the unaffordable, ill-budgeted tax cuts that could easily be likened to that John Key (I think) coined: ‘block of cheese’ tax cuts for a large swathe of NZers.
And what are they doing to grow the economy and improve productivity. What’s the advice and the plan on that? Have I missed it – or is it just being left to Shane Jones’ slush fund and David Seymour’s new Ministry of Regulation?
I’m of the opinion, it doesn’t matter what the political colour(s), a lack of previous Cabinet Minister’s in your ranks never makes for good governance.
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A tourist tax does make sense It is collected at the time the tickets are booked upfront, the travel agent usually takes care of it. It is not seen and you would have already budgetted for it. I have travelled through Europe and a bed or a room tax charged by the hotels is far messier and a lot more annoying as it hits you whilst you are trying to enjoy and budget your spend. Lets get real. Infrastructure costs need to be incurred and it is unfair to just leave it to local council ratepayers to deal with the costs incurred in tourists entering their communities. Unfortunately beautiful scenery and fresh air, clean beaches do not generate a revenue by itself. Willis is doing the right thing. It is practical solutions being offered that makes more sense than making promises that cannot be kept that the previous Labour government has been known to make alot of.
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To be fair to the RBNZ, the QE model is very much a similar QE model picked up from the US or Japan or the EU or more likely Australia. Willis can’t very well say it was a mistake when every other Central banker with a string of economic and banking qualifications has adopted a very similar model. Most economists around the world especially NZ economists have struggled with the QE model as a lot of the model is accounting and Balance Sheet based.
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Given this is a very business focused government it’s possible the documents you requested contain advise, discussions or the names of persons etc. that may be commercially sensitive or politically awkward for the government – especially when it’s still in the setup phase.
Labor governments tend to lean on academics and the public service for advice which has less of the appearance of cronyism and ‘mates rates’ access to government policy.
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If it was just a matter of names or commercially sensitive details specific redactions would have been enough.
But I hope some journalists does push Willis on just what is (or isn’t) going on.
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I have previously commented that I don’t see removing IOR on settlement balances other than amounts necessary for settlement as a tax on banks, but the issue is clearly one for the RBNZ in how it manages its QE – not the MOF. RBNZ created the issue and can choose to deal with it. I fully agree that if Govt seriously wants to have the RBNZ better managed, change the Board and/or the Governor – don’t interfere in their independence.
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And that final sentence is a reason why what seems to be going on here is quite troubling. It is clearly more than MoF simply asking for a simple and informative briefing.
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The MOF has the responsibility for cashflow planning of also the RBNZ unfortunately. If the RBNZ has a massive interest bill to pay then the MOF has to take cash from somewhere else in the various departmental spending to bail out the RBNZ.
Don’t forget that the activities of the RBNZ has to be consolidated onto the Crown’s total financial position. Unfortunately the RBNZ are not independent of the governments financial position. Costs and liabilities incurred on the Crown’s books have to be explained to the public.
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Up until 2020, this would obviously have been something of a non-issue given settlement cash balances were so small. I don’t much care for the veiled way the issue is being progressed – where’s the consultation paper? There are several important questions to be addressed:
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Interesting that in the recent UK election, Nigel Farage’s Reform party proposed telling the BoE to finish paying interest on bank reserve accounts with the freed up funds being used to fund Reform’s economic program. Presumably underlying this proposal is that the BoE is being compensated by the Treasury for the losses recorded on reserve payments (because, as in NZ, the BoE is paying more interest on reserves than it is receiving on the bonds it owns from the QE program).
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