Reserve Bank Should Cut Out The Middleman In Covid-19 Stimulus Package

While the Covid-19 stimulus package will provide a welcome boost to the economy, it comes at the cost of even more debt.

Our Reserve Bank is expected to go to the bond market to buy Government bonds from banks and other institutions to finance the package when it can cut out the middle man and buy the bonds directly from the Government.

This is being done in Japan, China and Canada to great effect and means that interest payments are paid to the Government and not to private banks. The money will stay in New Zealand for the benefit of New Zealanders rather than disappearing overseas.

After delivering the stimulus package, Grant Robertson stated, "We also have other examples such as the first Labour Government who responded with investment, pragmatism, optimism and kindness. It is from them that I take my lesson on how we recover and rebuild in a just, fair and far-sighted manner."

Robertson should take his lesson a bit further as the first Labour Government used the Reserve Bank’s balance sheet to inject millions of pounds into the economy. This enabled New Zealand to emerge from the Great Depression sooner and in better shape than most countries. It also set the foundation for our Welfare State that became the envy of the world.

We are aware that the stimulus package is the first step and more funding is required to bail out Air New Zealand and provide support to other sectors of the economy not covered by this package. Rather than consign the country to more debt, the government should use the Reserve Bank’s balance sheet to fund the expenditure. It is being done successfully by other nations currently and we have done it in the past.

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