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The Chief Economist of the Reserve Bank hit the headlines this week for saying that "the worst situation we could face right now would be to see house prices fall". However, it's not part of the Reserve Bank's legal mandate to make such sweeping statements about what it considers to be good or bad for the overall prosperity of the nation. The RBNZ consists of bureaucrats who have not been elected by the public. They are charged with achieving price stability, defined in terms of the consumer price index, high rates of sustainable employment and a stable financial system.

Last September, Newshub reported that stress testing of banks' balance sheets carried out by the Reserve Bank showed that in "a one-in-50-year event where unemployment hits 13.4 per cent and house prices fall by 37 per cent, bank's capital levels would remain above the requirement and they could keep lending money". In other words, the Reserve Bank's own estimates have shown that our private banks would be able to survive a large drop in house prices without the financial stability of the banking system being threatened.

DownToEarth.Kiwi says the Reserve Bank should stick to its knitting - the Bank's statements about the housing market should be confined to its impact on the objectives that the Bank is charged with achieving. And the Bank has already produced evidence that the financial system COULD happily deal with a big drop in house prices.

For sources, see:


  • rmacculloch

The line, "Read my lips: No new taxes" made by George H. W. Bush before he was elected President in 1989 could not have been any clearer. However, just one year later Bush agreed to increase several taxes as part of a 1990 budget agreement. Those famous words have become enshrined as one of the most famous broken promises by a politician.

Today, the NZ Justice Minister, Andrew Little, stated "In Labour we’ve been very clear ... No new taxes ... We will not introduce a capital gains tax". It's remarkable our Justice Minister has chosen the exact same words that President George H. W. Bush chose all those years ago.

The circumstances are not altogether different, either. Bush had to govern with the cooperation of the Democrats and his "no new taxes" broken promise came about from a compromise he made with the Democrat controlled Congress and Senate. Similarly, should Labour not gain a majority this Saturday, then they would be forced into a compromise agreement with the Green Party should they wish to form a government.

On that note, as this issue has just blown up the past few days, with the Leader of the Greens insisting he'd expect to have negotiations about a wealth tax, why have so many people voted early? A huge chunk of finance is about the option value of waiting. Why not wait to the last possible date to vote when the most information is available?

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Robert MacCulloch

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