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Insights 38: 11 October 2024
The Australian: Dr Oliver Hartwich on Luxon's corporate approach to governance
 
The Post: Dr Eric Crampton on the Fair Digital News Bargaining Bill fallout
 
NZ Herald: Nick Clark on the promise and perils of Fast Track Approvals
The Reserve Bank's annual report: A glossy façade hiding serious issues
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
The Reserve Bank of New Zealand (RBNZ) just released its Annual Report for 2024, providing an opportunity to examine how the central bank views its own performance. 

The Governor’s statement is revealing, praising a “Great team, best central bank” while ignoring the serious macroeconomic mismanagement by the current leadership. 

The Governor discusses challenging domestic and international environments, citing geopolitical and climate risks. He notes that central banks globally are maintaining restrictive policies to meet inflation targets. However, there is not even a hint that the RBNZ’s own decisions contributed to these circumstances. 

While the report does not mention the word ‘recession’ at all, it deals extensively with policy areas that are not the RBNZ’s core responsibility. 

The report glosses over the RBNZ’s significant growth since 2017. Staff numbers, which hovered around 200-250 from 2000 to 2017, have since ballooned to 601. In the past year alone, 91 employees were added—an 18% increase. This expansion occurred while other government departments were asked to curb growth. 

The bank’s structure has become top-heavy. In 2000, there were only two Deputy Governors and no Assistant Governors. By 2024, the structure includes one Deputy Governor and eight Assistant Governors. The RBNZ managed the Global Financial Crisis with far fewer senior positions. 

Salary expenditure have also risen dramatically. In 2017, 132 employees earned over $100,000. By 2024, this figure had more than tripled to 436. A significant portion of the increased budget has reportedly gone towards expanding communications operations, now operating on a budget comparable to that of the entire bank in the early 2000s. 

This growth has not translated into improved performance. Between 2021 and 2024, the RBNZ missed its inflation target by a wide margin. So much so that it then had to push the economy into recession to bring inflation under control again.  

Additionally, taxpayers are now bearing the cost of the Large Scale Asset Purchase programme, with losses amounting to about 11 billion dollars—nearly four Dunedin hospitals worth. 

The Government and Finance Minister must tackle these organisational failures and excesses. The RBNZ must be steered back towards its core functions, so it can again be one of the world’s best small central banks. 

New Zealand needs a central bank dedicated to its mandate, accountable, and effective in its operations. The current RBNZ, according to its Annual Report, falls short on all these counts. 
Time for ACC Reform
Nick Clark | Senior Fellow, Economics and Advocacy | nick.clark@nzinitiative.org.nz
As New Zealanders face rising costs of living, ACC's proposed levy hikes threaten to add another financial burden. It is time for a critical look at our accident compensation system. 
 
ACC proposes cumulative levy increases of 14% for work and earners' levies and 24% for motor vehicle levies from 2025 to 2028. These increases will further strain businesses, workers, and vehicle owners during challenging economic times.  
 
While the government seeks to restrain its operating spending and calls on local government to focus on 'doing the basics brilliantly', ACC must do likewise. 
 
Adding to the need for change came yesterday’s release of the government’s financial statements for the year to June. They revealed that ACC contributed to a bigger fiscal deficit by having higher costs to settle claims and by charging levy payers less than the annual cost of claims. 
 
As a monopoly provider, ACC lacks competitive pressure to improve efficiency. Levies should be risk-based and provide accurate price signals, but ACC is often treated more like a welfare agency than an insurance scheme, driving up costs. The Earners' Account is below its funding target and is forecast to deteriorate further. In the Motor Vehicle Account, motorcyclists are heavily subsidised by other vehicle owners.  
 
In ACC's 50-year history, a brief period of competition in 1999-2000 showed promising results: lower premiums, reduced cross-subsidies, and improved accident and rehabilitation rates. Yet, political changes cut this experiment short before its full potential could be realised. 
 
Despite stricter health and safety regulations, New Zealand's injury rates remain concerningly high. We must question whether ACC's current structure truly supports or hinders safety improvements. As the government reviews work health and safety regulations, it needs to consider ACC's role in the system. 
 
ACC levies should send sharp pricing signals on risk and safety experience to encourage safer practices. This could reduce reliance on regulations many consider to be neither clear, sensible, proportionate, or effective. 
 
As ACC marks its 50th year, it is time for a comprehensive review. The government should explore options for increased competition and efficiency to create a more sustainable and effective system; a system that is more fiscally responsible and better serves businesses and individuals while improving health and safety outcomes. 
 
Nick Clark's submission, 2024 ACC Levy Consultation, was lodged on 9 October.​
New Zealand’s creative farming lobby
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
I am kicking myself that we at the Initiative had not read Federated Farmers’ submission to the Banking inquiry before drafting our own. 

Their submission exhibits a creativity that I had thought New Zealand had lost decades ago – sometime around 1987, if we had to pin a date on it. 

Before 1987, the government provided subsidised loans to farmers. That support ended, along with a host of other subsidies.  

Federated Farmers wants to bring subsidised loans back. 

Of course, they don’t quite put it that way. But it is what they are asking for. 

I’d have missed it but for Gareth Vaughan’s story at Interest.co.nz. 

Vaughan reports that Kiwibank is not keen on entering the rural market. Kiwibank’s Chief Executive, who has a rural banking background, noted that the sector is already served by the other banks and a specialist, Rabobank.  

Federated Farmers’ submission urged the government to strengthen Kiwibank’s capitalisation while directing the state-owned bank to “actively enter the agricultural lending market.” 

The case for a state-owned bank was always pretty iffy.  

The case against one, if it has access to subsidised capital from the government to lend out to sectors that the government prefers, seems reasonably strong.  

But the government has already decided to set up a different programme to subsidise borrowing for property development. So, it’s possible that this kind of thinking could sway the Finance and Expenditure Committee.  

If the government’s job is to tell Kiwibank where to direct subsidised loans, I have a few ideas! 

My column in this week’s Post noted the lack of food carts on Wellington’s waterfront. A better-capitalised Kiwibank could be directed to lend to new food carts serving up tasty waterfront morsels.  

In 2009, Prime Minister John Key claimed on David Letterman’s show that Auckland Airport finally had a Cinnabon. It wasn’t true then, but Cinnabon is now coming! Kiwibank could be forced to lend to their franchisees to speed up their expansion – and Costco’s.  

If Kiwibank were directed to lend for carbon forestry conversions, could we plant trees fast enough to make up for never pricing agricultural emissions? 
Really, any nice-sounding thing could be supported in this way. And Members of Parliament are surely far better placed than mere bankers in assessing sector-by-sector credit risk anyway.  

Just be sure never to look up the term malinvestment and it will all be fine. 

At least for a while.  
 
On The Record
Initiative Activities: ​
 
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