Monetary choke on inflation over-used

Press, 3 December 1987, Page 2

Monetary choke on inflation over-used

BRENDON BURNS,

By

political reporter

The Minister of Finance, Mr Douglas, yesterday defended his earlier comments that the Government had relied more heavily than was desirable on monetary policy to achieve lower inflation.

His comments, in a speech on Tuesday, had been seized on by the Opposition as an admission that the Government had the wrong mix of policies. However, Mr Douglas said the Government had not been given any room to move because of the debt problem it inherited from the Muldoon Administration. In his speech, he had said there had been insufficient action to underpin monetary policy with other structural reforms. He said what was needed was better control

of Government spending and income, further comprehensive tax reform, more deregulation and reduced tariffs. Also mentioned were better incentives for workers and investors and less State involvement in capital markets by further reducing public debt. The Leader of the Opposition, Mr Bolger, said Mr Douglas’s admission of relying too heavily on monetary policy was a “death-bed" confession. “The confession may be good for the Minister’s soul, but more important would be a statement that

he had changed his policy and would no longer instruct the Reserve Bank to hold up interest rates.” Mr Bolger said the Reserve Bank had done this in accordance with Government policy, resulting in an overvalued New Zealand dollar. The combination of policies had stopped investment in the export sector. Now that the illusion of the finance sector replacing traditional exporters had been shattered by the stockmarket crash, the Government might start to

rebuild the New Zealand economy, said Mr Bolger. But Mr Douglas said the Opposition leader liked to forget that Labour took office in an economic crisis created by National. “When you’re in crisis, you deal with the flames as they arise.” He said it was not new for him to have stated the Government had relied more than was desirable on monetary policy to achieve low inflation. Mr Douglas said the message now was that more structural reforms were planned.