Michael Reddell: Reading Reserve Bank plans and budgets

It isn’t something I’d usually recommend (or even do myself) but the useful new Twitter account @Charteddaily (basically one interesting New Zealand chart a day) posted a couple of charts drawn from the suite of Reserve Bank documents that were released last Thursday, and they piqued my interest (and, for reasons you will see below, concern).

But first, also on Thursday there was some attempt by the government to defend the extraordinary reappointment (yet again) of Neil Quigley as chair of the Reserve Bank’s board (which I’d written about, and lamented, here). The Herald’s Jenée Tibshraeny had got in touch with both the Minister of Finance and with David Seymour (both an Associate Minister of Finance, and leader of a party that had also firmly opposed Orr’s reappointment – something recommended by Quigley’s Board – and whose Finance spokesperson had only a few weeks earlier suggested that Orr (still supported by Quigley and his Board) was unfit for office). The article is headed “Nicola Willis and David Seymour confident in call to appoint…”. If you read the article carefully, Willis never actually explains why she did what she did. She says she stands by her previous criticisms of the Bank and of Orr’s reappointment – thus putting her clearly at odds with Quigley’s views – and the only new observation she makes (that Quigley played a “key role” in establishing the new RB Board) seems irrelevant (not only was that transition presumably why Grant Robertson gave him another two years in 2022, but the Reserve Bank itself shows no sign of any better performance now, whether Governor, MPC or more broadly).

I guess one should give credit to David Seymour for engaging more substantively (since he isn’t the responsible minister he could have just hidden behind Cabinet collective responsibility), but his more extended arguments simply don’t wash either. This was the bulk of his comments

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None of this washes. I’m sure many people have heard the story of Orr once being pulled out of a Board meeting by Quigley to get him to calm down. That’s good, but what about the repeated active misrepresentations to FEC, or the dismissive approach Orr – Quigley’s man – routinely takes to any criticism or disagreement. And quite how losing 10 of your top 26 people in short order, several of whom had only recently been promoted by Orr, speaks to Quigley’s value I don’t know. And “chopping and changing”? Quigley has been on the Board since 2010, chair since 2016. Actually, turnover and fresh faces have value (as is widely recognised in other government appointments), especially when the institution has not itself done a good job (massive financial losses, serious inflation outbreak etc). When you can’t change the chief executive (and the government can’t until 2028) getting rid of the chair, at the end of his term, when the chair has backed the Governor all the way, was the way to signal a seriousness about wanting something different. On the evidence of the Willis/Seymour words and actions, this government – once in office – doesn’t.

And it isn’t as if the Bank – Orr or Quigley – is changing of its own accord. This was the first of the snippets that @Charteddaily had highlighted (drawn from RB Annual Reports and from the last two Statements of Performance Expectations).

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That is a further 21 per cent planned increase in staff expenses in the year that began on Monday, on top of really large cumulative increases over the Orr era to date. It is just staggering, in a year when almost every other government agency is being expected to cut back, often quite materially. The Reserve Bank is funded through a five-yearly Funding Agreement, and the current one doesn’t expire until 30 June 2025, so the government couldn’t compel them to cut back immediately, but (a) there isn’t anything in the Minister’s letter of expectation (sent back in early April, only finally released last week) urging them to do so, and (b) it is in stark contrast to the voluntary savings in place by ACC, also not funded by direct parliamentary appropriations. The Orr/Quigley approach seems to be “hey, we are the Reserve Bank, we’ll just go our own way”. And there is not the slightest evidence that the Minister of Finance cares.

Then again, her government is throwing out new subsidies to fund Shortland Street.

And it is not as if they are throwing lots more money at improving their monetary policy and inflation research or analysis. Actually, comparing this year’s Statement of Performance Expectations to last year’s, in 2024/25 they plan to spend $46 million on monetary policy up just slightly from a planned $45 million in 2023/24.

So what are they spending their (well, our) money on. This was where I was really gobsmacked by a @Charteddaily tweet, trusting that the person behind that account read documents accurately but still not quite believing it.

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Yes, you are reading that correctly: $35 million in 2024/25 on “engaging with the public and other stakeholders”. Since issuing physical cash (zero interest liabilities) is a highly profitable business (forecast net operating profit $483 million), this weird category of “engagement with the public and other stakeholders” is really their biggest item of spending.

I’ve been reading around their documents over the last day or so and I still find it incomprehensible, on numerous counts. First, one would normally have assumed that any costs – including communications costs – associated with the Bank’s various statutory functions (monetary policy, financial system regulation and oversight, foreign reserves etc) would have been allocated to those functions themselves. And you can see that when it comes to monetary policy there is a specific item for “Communication and implementation”. Promoting the institution itself, distinct from its specific statutory responsibilities and powers, is simply not a legitimate use of (very large amounts of) public money.

Here is a high level summary that I found on their website about this activity

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But it doesn’t really help. The Reserve Bank, for example, doesn’t fund Parliament. Rather, like any public agency, it is required to front up when called, and the costs of providing information to FEC would, one would have thought, been (modest and) allocated to the respective functions (directly in the case of MPSs and FSRs, perhaps indirectly in respect of the overarching corporate documents).

Much the same goes for 6.1, with the added point that granting media interviews tends not to cost taxpayers anything. The Governor in particular seems to use his rare interviews to hand wave and distract rather than to engage with alternative perspectives or criticisms. As for speaking engagements, there is a bit of cost to them (getting out and around the country) but what has been noticeable for years is how few such engagements – at least on the record ones – they do; hardly any at all in the case of MPC members. And shouldn’t such costs be allocated to (in this case) the monetary policy function?

And so we are left with 6.2. What is proposed? Some massive advertising campaign, indirectly subsidising NZ media? Surely not, but then if not then what? A fair question for Treasury to be asking the Reserve Bank is something along the lines of what outcomes would be worse for New Zealanders if this line item was to be cut by 80 per cent?

The performance measures in the Statement of Performance Expectations are not really any more helpful


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None of it tells us what they are actually spending so much money on (or why most of the costs are not allocated back to respective core functions).

There was some verbiage and effort at distraction in the Statement of Intent itself

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Quite what any changes in the “media landscape” might have to do with the extent of trust people might repose in New Zealand’s central bank isn’t clear, but I guess playing distraction is better than identifying factors like:

• presiding over the worst inflation outbreak in decades, and then trying to openly blame it on everyone than the central bank itself, 
• losing taxpayers $11.5 billion in a huge bond market punt, and then refusing to seriously engage on the extent of the loss and associated misjudgement,
• everyone involved in these decisions (Governor, MPC members, Board chair) getting reappointed, only confirming that “accountability” has been emptied of all content, 
• the appointment of a DCE responsible for macro and monetary policy with not the slightest background in that area, 
• blackballing people with research expertise from the new Monetary Policy Committee, and then years later assserting openly that there never was such a ban,
• a Governor who is universally known to be intolerant of debate or challenge/disagreement, 
• barely any (and then of no depth) serious speeches from key monetary policy figures through the worst inflation outbreak and period of greatest policy uncertainty in decades,
• a central bank that shows little sign of being exclusively focused on the limited range of things Parliament instructs it to do, instead pursuing management/Board ideological causes.
• and so on

But sure, try blaming the “media landscape”. Seems a bit more like an effort – at taxpayers’ expense, from public officials – at active disinformation.

And if you are inclined to doubt the point about loss of focus, I can only suggest reading the Statement of Intent itself. “Climate” gets more mentions than either “inflation” or “price stability”, and if that particular ratio is (much) less bad than it was in their previous Statement of Intent, what hasn’t changed is that while “inflation” gets five mentions, and “price stability” six, “Maori” features 52 times (pretty similar to the previous Statement of Intent). And, yes, I did check and it is not that they are publishing lists of all different ethnicities: neither Asian, Pacific, nor European get even a mention (and nor would you expect any of them to do so in a central bank actually focused on its mandate, which by its nature operates pretty pervasively across the entire economy, regardless of religion, ethnicity, sexuality or whatever).

But Orr and Quigley have a crusade.

I checked again the Reserve Bank Act. There is but one substantive reference to “Maori” in that legislation (in a “good employer” section) and none at all – again unsurprisingly – to the treaty of Waitangi.

But you wouldn’t guess it from reading the Statement of Intent. It starts – first substantive page – with the tree god nonsense Orr used to spout on about a few years ago (complete with dodgy economic history about the founding of the Reserve Bank). Their so-called Te Ao Maori strategy gets two whole pages, complete with links to their treaty of Waitangi statement, well before any serious discussion about monetary policy, the cash system, or the soundness of the financial system, none of it grounded in statute. It pervades the document.

Now, in fairness to Nicola Willis, her letter of expectations to the Bank’s Board is different than those from Robertson. There is nothing at all of the dubious ideological stuff that Robertson used to throw in. But what difference has it made? None, apparently, given that her letter is dated 3 April, all these corporate documents came out only last Thursday, and none will have been a surprise to the Minister, since she had to be consulted. And yet she and the Cabinet reappointed Quigley.

Just breathtaking.

I’m still at a loss to understand what they have included in that $35 million. Perhaps they will now stop stonewalling on OIAs, and stop trying to charge me for information they should have released 5 years ago (but then OIAs weren’t even mentioned in that “engagement” description). Pro-active openness also tends to be even cheaper than handling OIAs, but that is something the Bank seems totally averse to. Perhaps they could spend a bit on a better proofreader (the table that showed that $35m had a typo in its title).

But more seriously, we deserve to know what this total includes, and why they are spending so much of our money to try to make us like/respect them (when just doing their job well – and only their job – would do more of that, and have substantive benefits to us). I suspect – but can’t confirm – the $35 million includes a lot of spending on things that really can’t be tied at all to statutory functions: their climate advisers, their Maori advisers, their diversity and equity (so-called) people, their multi-national central bank indigenous network costs etc, although it is still really hard to see how it gets to $35m per annum (hard to tell how much of an increase it is for this year, as they have changed their presentation, athough a number from last year that looks to be similar is about $29m).

While pouring out lengthy bureaucratic documents they avoid real scrutiny, they don’t do their day jobs at all well (we are living with the aftermath of really bad misjudgements in 2020/21), never show the slightest contrition, and feel free to use large amounts of public money to pursue personal ideological agendas not even slightly grounded in their statutory responsibilities, they rarely engage substantively, publish next to no research, and so on.

And yet Nicola Willis (and her leader and Cabinet) seem quite unbothered and just went ahead and reappointed the chair yet again.

Then again, this is the government – that campaigned up hill and down dale on fiscal excess and waste – which yesterday announced big new subsidies for……keeping an old local soap opera going.

Michael Reddell spent most of his career at the Reserve Bank of New Zealand, where he was heavily involved with monetary policy formulation, and in financial markets and financial regulatory policy, serving for a time as Head of Financial Markets. Michael blogs at Croaking Cassandra - where this article was sourced.