Treasury Advice To Government Lacks Courage

A Treasury paper, released under the Official Information
Act, shows our Finance Minister asked for advice on whether
the Bank should be allowed to buy up billions of dollars of
Government debt on the primary market.

Currently the
Reserve Bank buys up bonds on the secondary market with
Treasury bonds sold first to selected banks, who on-sell to
investors, and the Reserve Bank buys the bonds from the
investors. The investors make a tidy profit, at the
Governments expense.

According to Don Richards,
National Spokesperson for Positive Money NZ, “Buying up
bonds on the primary market would cut out the middlemen. The
Reserve Bank would buy the bonds directly from Treasury with
no mark-up and no debt to burden future
generations.”

“According to the OIA release,” he
states, “Treasury thought this was a bad idea, warning the
move would risk long term damage to the reputation of New
Zealand’s public finances. According to Treasury, this bad
reputation might make it difficult for the Government to
borrow in the future.”

“This is disappointing,”
Richards continues, “because the Japanese Central Bank has
been buying up Japan’s treasury bonds for the last ten years
and they have no trouble borrowing from international banks.
The Chinese Government has been directly funding its economy
for over a decade, and their economy is booming.”

“In
our view,” he says, “the real issue is that international
banks are scared New Zealand will cease to borrow from them
so heavily. Surely we can’t allow Treasury’s fear of
upsetting the banks to consign future generations to
exorbitant debt levels while allowing essential
infrastructure and services to go unfunded.”

“The
first Labour Government,” Richards concludes, “showed
immense courage during the Great Depression by using the
Reserve Bank balance sheet (which Treasury objects to) to
fund infrastructure projects and build tens of thousands of
State Houses. This got us out of the depression sooner than
most other countries and enabled New Zealand to set up a
Welfare State that became the envy of the world.”

Our
Labour government needs to show a similar amount of courage
as the thinking that got us into trouble is not the thinking
that will get us out.

About Positive Money

Positive Money
NZ is an independent, non-profit group advocating for
monetary reform in New Zealand. Our patron is Bryan Gould
and we are part of a global movement of organisations, the
International
Movement for Monetary Reform, campaigning to change the
way money is created so that money serves
society.

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