Unions don’t usually try to be balanced.
They are almost always anti National polices and pro Labour ones. Their silence on Labour’s monetary policy therefore speaks volumes.
Federated Farmers which isn’t politically aligned tries to be more balanced. Take its response to that policy:
It’s headlined Federated Farmers keen on Labour’s monetary policy and starts:
“We may be swimming against the tide but there are elements in Labour’s Monetary Policy which has some merit,” says Bruce Wills, Federated Farmers President.
“Of course we are talking high-level and the devil will be in the detail, but I wish to first caution any party from assuming inflation has gone the way of Rinderpest. The moment you lose focus on inflation it will be back faster than a rat up a drainpipe.
“Giving the Reserve Bank the means to adjust universal KiwiSaver savings rates, as an alternative to raising interest rates, does genuinely strike us as innovative.
“We’re certainly not so quick to rush to judgement on such a policy as if it works, it could potentially boost savings while relieving pressure on both the Official Cash Rate and the Kiwi dollar.
Willis is trying to keep an open mind but he’s not quite as keen as the headline suggests:
“Whatever happens, it will need work to make sure it’s feasible, workable and equitable, given this policy could squeeze low and middle income earners.
Those low and middle income earners are the ones Labour is supposed to champion.
But Wills give Labour some credit:
“Federated Farmers is very happy to see that Labour will maintain the Reserve Bank’s independence and inflation target. We’re also pleased to see inflation in the non-tradable sector being fingered by Labour too.
Being fingered by one hand while promoting policies which would fuel inflation with the other, though.
The rest of the media release looks at other policies on which Feds definitely isn’t keen:
“Even when running a surplus, what remains unanswered in Labour’s ‘monetary policy needs mates’ equation, is the pressing need for fiscal prudence. If imprudent government spending takes off to deliver on political deals then it will kneecap monetary policy.
“We need the next government to truly cut its cloth because it is our money being spent.
“Federated Farmers is sceptical about a Capital Gains Tax. Aside from becoming just another tax, a CGT hasn’t dropped the price of houses in Britain or Australia, which, incidentally, are regularly advertised for sale in Asian newspapers.
“We also detect a hardening of Labour’s position on foreign investment in farmland, despite there being no research on whether it is a problem or not. We are equally concerned with the government’s laissez-faire attitude and wrote last year to Ministers requesting research.
“Before we go soft or hard on foreign investment, should we not first have the data?
“A mistake here will do untold economic damage affecting every kiwi because there are billions of reasons to get foreign investment policies right and each reason is called a dollar. Especially with our exports cracking the $50 billion barrier in the year to March.
“We are further worried that the NZ Power initiative could increase costs on businesses while a stringent Emissions Trading Scheme in tandem with Resource Rentals, will put a Sword of Damocles over the productive sector’s head.
“Aside from the political digs that could easily be returned with interest, there are certainly aspects we’d like to get more detail on from Labour,” Mr Wills concluded.
On balance the conclusion from this is that farmers have a lot more to fear from Labour whether or not the monetary policy would work which many doubt.
Among those is BNZ economist Tony Alexander:
. . . Labour would broaden the target of monetary policy to include trying to get the external accounts in balance over the economic cycle. That is fairly meaningless and can be ignored just as previous additions of words such as “avoiding unnecessary volatility in interest rates, the exchange rate and output…” had basically no impact on policy implementation.
More significantly Labour propose giving the Reserve Bank a new tool, specifically the ability to alter
contributions to Kiwisaver accounts as a means of influencing the pace of household spending growth, therefore economic growth and therefore inflation. They hope that use of this tool would mean less reliance upon interest rates and therefore less upward pressure on the exchange rate and perhaps even a small structural decline on the theory that a higher average level of contributions to Kiwisaver would lead to a reduced average level of interest rates.
There are many implications of Labour’s policy.
- Long tern Kiwisaver returns will be reduced as savers are forced to buy more shares when prices are high and fewer when they are low.
- Volatility in the sharemarket will rise.
- Investors will have extra incentive to purchase residential property, thus pushing house prices higher.
- Overseas debt will tend to be boosted.
- Bank profits will rise. . .
Reduced returns from Kiwisaver, increased share market volatility, more investment in property and higher overseas debt are big negatives and many will see higher bank profits as something which shouldn’t be encouraged either.
He goes on to say the policy could encourage more debt as well and adds:
. . . The policy as proposed by Labour is a valiant attempt to mitigate the impact on exporters of the monetary policy tightening cycle and they should not be criticised for trying to make a positive contribution to our economic growth in this way. But the policy is not backed by any research as to how it would work and how effective it would be, and if Labour were to defy the polls and hold power after September 20’s general election, implementation would likely be a long way off. The bastardisation of the generally popular Kiwisaver scheme also does not seem an optimal route to take. . .
In other words, on balance, the policy is a dog.