Muhammad Ali famously said: “I am the greatest!” And he was the greatest. And we loved him for it.
But when Reserve Bank governor Adrian Orr says in RBNZ's annual report: “Great team, best central bank,” my reaction, at least, is one of repugnance.
The idea of a central bank governor, who has presided over 10 successive quarters of inflation being well outside the RBNZ's target range, indulging himself with such chest-beating self-congratulation in public is grotesquely inappropriate.
RBNZ's primary job, after all, is to keep inflation at about 2%, the halfway point of its 1% to 3% target range.
The fact that we celebrated earlier this week when the Consumers Price Index (CPI) came in at “just” 5.6% for the year ended September, still 3.6 percentage points above target, illuminates how bad things have been.
The CPI peaked at 7.3% in the year ended June 2022 and RBNZ had forecast the latest reading would come in at 6%.
Despite Orr admitting that RBNZ was inflicting pain on New Zealanders by hiking its official cash rate (OCR) at unprecedented speed between October 2021 and May this year, and his exhorting of New Zealanders to spend less, he clearly didn't apply the same advice to his own organisation.
Please, sir, can I have some more?
Treasury papers have revealed that, in the lead-up to this year's budget, RBNZ had asked for its five-year operating spending allocation of $640 million for 2020 to 2025 to be increased by $139 million, even as it was warning that government spending risked making inflation even worse.
The latest allocation had been a 97% increase on the 2015 to 2020 allowance, as Treasury secretary Caralee McLiesh said in a letter to RBNZ.
Treasury had recommended RBNZ's allowance be increased by $58 million to cover work, such as developing the deposit guarantee scheme, which hadn't been factored in when the five-year spending allowance was set.
But the government had decided to increase the allowance by $79 million, $21 million more than Treasury had recommended.
The RBNZ annual report provides an inkling of where this money will be spent.
It shows that RBNZ's full-time equivalent staff numbers have risen from 275 in 2019 to 510.2 in 2023 – Orr became governor at the end of March 2018.
Staff turnover had risen from 16.5% in 2019 to a peak of 21.7% in 2022 before dropping back to 16.5% in 2023.
The report shows the numbers earning more than $100,000 a year rose by 76 to 352 people in the latest year and from 158 in 2019.
The last time I asked, RBNZ's communications staff had ballooned to 13; when Don Brash was governor, he made do with two.
A batch of 20% pay rises
Moreover, the amount paid the the 10-person executive leadership team jumped 20.3% to nearly $5.2 million in the latest year.
Orr himself received only a 2.4% increase, but that was $19,810 more a year, taking his pay for the year to $853,810.
Auckland University professor Robert MacCulloch noted in his Down to Earth Kiwi that only two of the 10 actually have economics qualifications – three of them have law degrees.
It's a matter of public record that both the National and Act Parties, who will likely form the next government, possibly with NZ First's support, opposed Orr being reappointed for a second term last year.
Peters said then that Orr was being blamed for the government’s shortcomings.
Orr has said he doesn't intend to leave and RBNZ is supposed to be independent of the government and above politics.
Whether Orr maintained that level of keeping RBNZ at arm's length from the ruling Labour Party through its now ended two terms is a matter for debate.
But his open hostility to the likely next finance minister, Nicola Willis, has been evident at parliament's finance and expenditure committee (FEC) meetings since she took on the role of National's finance spokeswoman in March last year.
As I've previously reported, Orr appeared to have realised that Labour might lose the election and had toned down his hostility to Willis at his last outing before the FEC in August.
As contemptuous as ever
However, as former RBNZ official Michael Reddell noted, “the substance was just as contemptuous as ever – and not just of Willis, but of Parliament itself.”
Because Orr has been caught often making stuff up, making assertions that simply weren't true, like blaming inflation getting out of control because of Russia's invasion of Ukraine, even though inflation had exceeded the RBNZ’s target from the June quarter of 2021 and the invasion didn't occur until February 2022.
A more serious misleading of parliament was in December 2021 when Orr and assistant governor Juliet Tainui-Hernandez told the FEC that it wasn't true that RBNZ had lost 10 out of 25 senior staff in less than six months.
Late that same day, RBNZ confirmed it had indeed lost 10 tier 2 and tier 3 staff, the two levels below the governor, but that there had been 26 of them, not 25.
I'd expect Orr to take a more conciliatory approach now, but I'd still love to be a fly on the wall at his first post-election meeting with Willis.
However, I doubt the National-led government will try to remove him, at least directly.
But what they should do is take a hard look at RBNZ's board – I'd suggest replacing the chair as fast as possible, with somebody willing and able to stand up to Orr, would be a good place to start.
Ineffectual chair
Professor Neil Quigley was also chair of the previous board and a holdover from before the Reserve Bank of New Zealand Act 2021 changed the board's function from a monitoring role into being a proper overseer of RBNZ's operations.
He's given every appearance of being ineffectual and, as Reddell points out, is known to have misled the Treasury about the existence of a ban on anybody with monetary policy or macroeconomics expertise being appointed as any of the three external members of the monetary policy committee (MPC).
Quigley had told Treasury there never was such a ban, despite people such as Reddell, NZ Initiative chief economist Eric Crampton and NZ Herald journalist Jenee Tibshraeny having written extensively about how unwise this policy was.
But a paper by a Treasury manager responsible for governance and appointments had been released to Reddell in 2019.
It said that it had been agreed between Finance Minister Grant Robertson and RBNZ's board that the board would take “a strict approach” to conflicts of interest.
“This has included excluding from consideration any individuals who are engaged in, or likely to engage in future, in active research on monetary policy or macroeconomics,” that paper said.
Remove the gags
Reddell is proposing that not only should experts in their field be appointed to the MPC, but that the current gag orders be lifted on how they vote (although there's only been a single formal MPC vote so far) and also on their ability to speak publicly, as members of the Federal Reserve in the US do all the time to useful effect.
Another RBNZ board member, Susan Paterson, who chairs RBNZ's audit committee, has just presided over possibly the worst ever capital raising I've ever seen, Eroad's $50 million placement and accelerated rights issue.
So, there are definite grounds to question her judgement, starting with what was the hurry to raise the money just five weeks after she'd assured the annual meeting that Eroad would be able to reach breakeven with its existing financial resources.
And why did Eroad offer shares at 70 cents each seven weeks after it had told a potential suitor that a $1.30 per share takeover offer so materially undervalued Eroad that the board wouldn't even allow due diligence.
Another board member who definitely should go is Adrian Orr himself – as good governance principles would dictate, the chief executive should not also sit on the board.
Hacks and token appointees
But none of the current board members stand out as appointees of excellence with strong credentials – Reddell calls them “hacks and token appointees” and argues they were appointed “more with diversity considerations in mind than with a focus on central banking excellence.”
Rodger Finlay, of course, was appointed to RBNZ's board at the same time as he chaired NZ Post, then Kiwibank's major shareholder.
Kiwibank is subject to RBNZ's prudential regulation, making it a clear conflict of interest. He has since stepped down from NZ Post's board.
Reddell also recommends that the new government should take another look at separating RBNZ's monetary policy functions from its prudential regulatory role, as Australia has done.
“They are two very different roles, requiring different sets of skills from key senior managers and governance and decision-making bodies,” Reddell says in his Croaking Cassandra blog.
“Accountability would also be a little clearer if each institution was responsible for exercising discretion in a narrower range of area.”
I would heartily endorse that. I thought the outgoing government missed an opportunity to do just that when it embarked on its review of the 1989 legislation which established the RBNZ as an inflation fighter.
Reddell slyly notes that “reform in this area might also have the incidental advantage of disestablishing the current governor's job.”
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excellent article Jenny.
Great article, you won't see this in the mainstream media.
Orr's great Waka is slowly taking on water...