In today's email we examined the dilemma facing new Finance Minister Grant Robertson.
1. Robertson's RBNZ dilemma
Finance Minister Grant Robertson faces a crucial decision for the new Government within the coming weeks. Who will be the next Reserve Bank Governor and will that person be focused enough on reforming the bank and achieving full employment?
It is one of the most important decisions for the Labour-New Zealand First-Green coalition because monetary policy reform and the Government's wider aims of boosting exports and productive investment require the Reserve Bank to be completely on board.
The problem for Robertson is that he is about to presented with a candidate chosen by the existing Reserve Bank board, which was appointed and re-appointed by the previous Government under the current Act.
The new Government wants to change the Act to include full employment alongside low inflation as the bank's core target. It also wants to change the powers of the Governor from being a single decision-maker under the Act to a more Australian, British and American style committee system with external voting members and minutes.
It essentially will have to employ a jockey to hold the reins of a horse undergoing major surgery that may well end up as a two-humped camel.
Applications for a new Governor closed on July 8 and at a time when few applicants could be sure who their boss would be or what the job description would be. July 8 seems an age ago in political terms. It was before the resignations of Metiria Turei, Andrew Little and Peter Dunne. At that time, most thought a change of Government or Act to be very unlikely. The shortlist was prepared before the make-up of the Government was known.
It is understood the Reserve Bank has decided not to re-open applications. It would need to re-open applications within days to have any chance of finding a new shortlist and picking a candidate in time to replace current acting Governor Grant Spencer when he retires on March 26.
The current Act is set up in a way that the Finance Minister has to either accept or reject a recommendation for Governor from the board. There would need to be a change in the Act for the Finance Minister to be able to appoint a new Governor directly.
Robertson and the new Government faces a risk that the current Reserve Bank board, which has expressed its comfort and confidence in the existing Act and management of the bank, will present a business-as-usual candidate who is unable or unwilling to get behind the Government's reforms.
Robertson will then face a difficult choice. Does he accept the status quo candidate and live with the consequences for the full five year term? Or does he quietly (or loudly) reject the candidate proposed by the board and ask for another shortlist to be prepared and another candidate selected?
The stakes are high and the Government is about to have the first real test of its mettle on its plans for economic reform. The appointment of a status quo candidate from within the bank (current Deputy Governor Geoff Bascand is seen as the leading internal candidate) would show the Government is not determined to reform monetary policy quickly. That would put Labour's relations with New Zealand First under pressure, given monetary policy reform was at the top of its list of demands and has been a constant theme of Winston Peters'.
A rejection of a status quo candidate would show the Government is serious, and would create the first clash between the Government and its most influential and independent agency.
Robertson has yet to endorse the current Policy Targets Agreement that Robertson is operating under, although this is expected shortly and before the Government outlines its process for reform.
The review of the bank undertaken by former State Services Commissioner Iain Rennie is also yet to be released. It was requested by the outgoing Finance Minister Steven Joyce and was completed in April, but has yet to be released.
2. Paid Parental Leave signed off
Prime Minister Jacinda Ardern is also moving quickly to enact the rest of her 100 day plan.
Last week's urgent action was the planned introduction of a foreign buyers' ban before the TPP came into place. Yesterday, she announced at her post-cabinet news conference that Labour's plan to extend Paid Parental Leave from 18 weeks to 26 weeks would start from July 1.
The bill will be introduced on Wednesday.
Ardern said it would cost $325 million over four years, which was within the parameters of the fiscal plan Labour put forward before the election.
See more in Shane Cowlishaw's piece on the planned change first published on Newsroom Pro.
3. A select committee battle is brewing
A parliamentary battle is brewing over the Government’s plans to shrink the size of select committees, with National suggesting the move is undemocratic and Prime Minister Jacinda Ardern, in return, accusing the National party of hypocrisy.
It may seem like Parliamentary minutiae, but Newsroom's Sam Sachdeva has done the work to explain what is going on. The new Parliament will start this week with some bad feeling in the big room, which may frustrate the new Government's hopes of achieving its 100 day plan -- some of which will require legislation to be passed under urgency.
With National leader Bill English warning last week it was not the Opposition’s job “to make this place run”, the party may be looking to employ stalling tactics in protest over the Labour-led Government’s approach.
The issue relates to a proposal to shrink the number of places on select committees (which review legislation and hear public submissions) from 120 MPs to 96.
National MP and shadow leader of the House Simon Bridges labelled the move as “undemocratic”, saying it would limit the ability of the committees to hold the Government to account while depriving 11 of National’s 56 MPs of the “full opportunity” to hold a position.
“Reducing the level of oversight is not increasing accountability. It does the opposite.”
However, Ardern has been quick to fight back, pointing out National joined other parties in backing the changes to Parliament’s standing orders earlier this year.
4. Getting ready for a big trip
Ardern also discussed yesterday her preparations for the Apec summit in Vietnam and East Asia Summit in the Philippines, which she will head to on Thursday morning.
The new Prime Minister is in demand, with a large number of bilateral meetings planned for her time in Asia, and she said she wanted to take the chance to meet with nearby leaders.
"It’s it’s an opportunity that I want to make the most of, it’s not often that you bring together your neighbours within a region…[and] you can’t beat those face-to-face meetings,” she told her post-cabinet news conference.
Ardern said her priority for bilateral talks included leaders from countries with impending action on New Zealand’s trade or economic agenda, while the TPP-11 was also “top of mind”.
“Speaking to those nations who have an interest in some of the clauses we have interest in [like ISDS], those are guiding some of my decisions.”
She would “proactively” talk to Singapore about the impact of the Government’s foreign buyers ban on the two countries’ FTA (it was the only deal identified as being affected by the Overseas Investment Act workaround).
“I’d like to traverse some of our rationale for why we’re pursuing that domestically and obviously talk about the likelihood of that coming up when we come to renegotiation.”
Sam Sachdeva reported Ardern said she was looking forward to discussing key issues like the impact of technological advances on the environment, and acknowledged the growing tide of protectionism was likely to come up.
“We’re all pursuing an agenda that both traverses the need to meet the needs of our domestic constituencies, look after New Zealand's interests whilst acknowledging that part of New Zealand’s interests is to be outward facing.”
Elsewhere, Ardern downplayed reports that European diplomats were unhappy with the prospect of New Zealand restarting free trade negotiations with Russia. She said New Zealand's free trade talks with Europe had a higher priority than a deal with Russia, which was agreed as a condition of Labour's coalition deal with New Zealand First.
5. More Labour Inspectors coming
Newsroom's Teuila Fuatai has taken a closer look at Labour's plans to spend $9 million to increase the number of Labour Inspectors from 60 to 110.
She reports Darryn Aitchison of the Auckland Community Law centre saying an increased number of employment-related cases has coincided with a depletion in the role of labour inspectors, particularly in the last five years.
6. Briefly in the political economy...
In another sign of subdued inflation expectations that suggest flat interest rates for the foreseeable future, the Reserve Bank reported that two-year-ahead inflation expectations fell to 2.02 percent in the December quarter from 2.09 percent the previous quarter. (RBNZ)
The New Zealand Debt Management Office postponed the launch of a 2029 bond to 2018, saying the government was flush with cash and it wanted to give the market a chance to evaluate any new information that may be in the half-year fiscal update in mid-December. (BusinessDesk)
Saudi Arabia's midnight blitz of arrests on Sunday appears to be the most sweeping transformation of the Kingdom's governance in more than 80 years, the New York Times reported.
The Paradise Papers leak continues to roil the corporate and political worlds. The papers leaked from Bermuda's biggest trust law firm Appleby show Apple set up a new tax haven in Jersey that allows left billions of dollars untouched by American tax authorities. (NYT)
Donald Trump told Japan's leaders overnight that Japan could protect itself from North Korea by buying billions of dollars worth of US anti-missile arms. (NYT)
Rupert Murdoch's 20th Century Fox has held talks to sell most of the company to Walt Disney Co, CNBC reported this morning. (Reuters).
7. Coming up...
The new Members of Parliament will be formally sworn in and the new speaker (expected to be Trevor Mallard) elected later today.
The Parliament for the new three year term will formally be opened on Wednesday when Governor General Dame Patsy Reddy reads the speech from the throne outlining the Government's plans.
Ardern, Trade Minister David Parker and Foreign Minister Winston Peters are expected to travel on Thursday to the Apec and East Asia Summits in Vietnam and the Philippines respectively from November 11 to 14. Newsroom's Sam Sachdeva is travelling as media with the New Zealand group.
The Reserve Bank is scheduled to release its next Official Cash Rate decision and publish its next quarterly Monetary Policy Statement at 9am on Thursday. Economists expect it to leave the OCR on hold at 1.75 percent and make few changes to its outlook for interest rates remaining unchanged until late 2019.
8. One fun thing
More an "interesting thing" than a fun thing: London's Mayor Sadiq Khan is pushing for Oxford St, one of the busiest shopping streets in Europe, to be pedestrianised, reports the BBC. Khan wants a half mile stretch of the street, which is visited by more than four million people each week, to be turned into a "pedestrian boulevard" incorporating works of art, hopefully by the end of next year.