Our 2011 election manifesto - Labour Party

Labour believes we must have monetary policy that supports the long and medium term
ambitions of New Zealand, not just the short term advantage of the currency traders.
The limits of the Reserve Bank Act
At the time the Reserve Bank Act was enacted New Zealand had been suffering from high
and erratic inflation averaging between 10 and 15 per cent for close to two decades. By the
early 1990s low inflation had been achieved and, as the Reserve Bank observes, “has since
become a well-entrenched feature of the economic landscape”. 44
While double-digit inflation has been curbed, the side effects have included a large and
persistent current account deficit and rising overseas debt. Other nations, which have curbed
inflation without the same side effects, have broader objective and tools. New Zealand
needs settings that maintain control of inflation whilst helping our export economy to grow.
While the success of the Reserve Bank Act is clear we need to recognise its limits and
ensure it is equipped to deal with the economic challenges of the day. This was the
approach endorsed by the IMF in 2010 when it observed the limits of the current policy. 45
Labour will ensure monetary policy does not undermine our exporters
Labour will reform monetary policy to ensure our exporters are not undermined by
extreme exchange fluctuations, including by:
Introducing a 15 per cent capital gains tax;
Broadening the objectives of the Reserve Bank Act;
Ensure the interests of exporters are represented on the Reserve Bank
Board;
Taking pressure off the official cash rate through complementary monetary
and prudential policy tools; and
Encouraging more aggressive Reserve Bank interventions to impose costs on
currency speculation.
Introducing a Capital Gains Tax
Labour will introduce a 15 per cent capital gains tax. The Reserve Bank favours the
introduction of a capital gains tax as an aid to monetary policy because it reduces the bank‟s
reliance on higher interest rates to control asset bubbles and the related consumption driven
inflationary pressures. A capital gains tax will moderate interest rates and this in turn will
44 RBNZ, The Reserve Bank and New Zealand’s Economic History, 2007, p 23
45 Blanchard O, Dell’Ariccia G, Mauro P, IMF Staff Position Note: Rethinking Macroeconomic Policy,
International Monetary Fund, 12 February 2010
344