OCR cut action called for

8th August 2019

Chris Leitch, Leader

Now that the shock horror merchants and doom and gloom predictors have had their say on the Reserve Bank's cut in the OCR to 1%, it's time for action.

The Bank itself could start the process by offering to fund government infrastructure projects and investments that would boost the productivity of New Zealand businesses.

After all, if it was good enough for it to provide money to the country's overseas owned private banks during the global financial crisis to ensure they could continue to deliver massive profits to their shareholders, then surely it's good enough for it to generate funding for the government to invest in the productive base of our economy.

The government signaled an $8 billion dollar increase in borrowing in the 2019 budget update, so the Reserve Bank could fund that for a start.

Why borrow that $8 billion from overseas lenders, with the added interest burden on taxpayers, when your own bank could provide the funds?

The Bank could also replace the government’s current private sector borrowing with Reserve Bank funding, and save taxpayers $6 billion each year in wasted interest payments. That $6 billion could be left in the hands of taxpayers through a tax cut, particularly for those on the lowest incomes.

But more is needed to get our economy rolling. Quantitative easing – lending money to the banks – is not one of them.

There are three direct investment options the government could pursue, and the Bank could fund.

  1. Investment in productivity-generating infrastructure such as roads and rail.

  2. Investment in companies needing capital to introduce new technology or develop and market new innovations.

  3. A direct payment to New Zealand citizens as a dividend from New Zealand Inc, based on the value of the economy and the country's publicly owned assets.

Infrastructure investment takes significant time to roll out. Planning, consents, letting of contracts, etc all extend the time frame before real spending takes place, although there are some projects well down that track that simply require a sensible and immediate funding capability. The Reserve Bank could provide that rather than the taxpayer-expensive options the government is currently exploring.

The Provincial Growth Fund has made a start in investment directly into the productive economy but it's only tinkering around the edges. Its offer of $10 million for Westland Milk to develop new processing capacity (since withdrawn) was an indicator of what could be done. But it's nowhere near enough.

The government should set up a Development Bank, perhaps as an arm of the Reserve Bank, so that businesses needing additional capital for innovation and new technology could source it from within New Zealand instead of looking to overseas investors. That capital could be provided at 0% interest so that those new projects did not have a front-end additional cost on their development.

This would retain our most productive businesses in New Zealand ownership instead of them falling into overseas hands, as has been the case with so many of New Zealand's best businesses.

But this approach also has a significant lead in time.

The third option could be implemented within a few short months. A dividend paid to New Zealand citizens would not be a handout. It would be their return on the investment in time, innovation, and hard work that they, their parents, grandparents, and great grandparents have made in creating the assets and economic base the country now enjoys.

It could be paid in 3 monthly installments, initially to those on the lowest incomes, and progressively to all New Zealand citizens.

The consumer spending that would result would go a long way to providing the boost to the economy that the Reserve Bank itself is now calling for.

It would result in more business for retailers and manufacturers, as well as significant additional tax income, repaying some of the distributed dividend.

The irony is that the Bank itself has in its hands the power to solve the problem.

Authorised by Anne Leitch, Secretary, 42 Reyburn House Lane, Whangarei

secretary@socialcredit.nz

Copyright Social Credit Party 2019