RBNZ's Spencer toughens call for review of migration settings; English says RBNZ doesn't have detailed understanding of tax and migration policy, and may have missed recent moves

By Bernard Hickey

The Reserve Bank and the Government are increasingly at loggerheads over both migration policy and the bank’s moves to introduce a third round of LVR controls by the end of the year, rather than urgently.

Deputy Governor Grant Spencer upped the ante in his speech on Thursday that firstly denied Prime Minister John Key’s call to ‘get on with it’ on tighter LVRs and then suggested a migration review and repeated calls to remove tax incentives for property investment.

Spencer then further strengthened his call for a migration review on Friday morning as Finance Minister Bill English outright rejected the Reserve Bank’s call for a migration review and told the bank to watch what the Government was doing.

The public disagreements are the strongest seen in public during this Government.

Spencer gave interviews on Friday with RNZ and NBR Radio that reinforced that the Reserve Bank would follow its own timetable for a third round of Loan to Value Ratio (LVR) restrictions. He also significantly extended the speech’s two-sentence suggestion for a review of migration settings into a full call for a review.

“Given it’s an important driver, we should be taking a look at that policy — making sure we’re getting the numbers and skills that Government’s really targeting,” Spencer told Guyon Espiner when asked about migration on Friday.

“I think it needs to be reviewed. We’re running at a rate of 60,000 (per year) at present. But how many years can we continue running at a rate of 60,000 and continue to absorb that rate? It gets more and more difficult when the country doesn’t have that absorbtive capacity,” he said.

Spencer also pushed back on the timetable for the LVRs, where the Government clearly wants more urgent action and is worried about a big rush of investors into the market before the Reserve Bank tightens the rules.

“We do have a process to go through and, unavoidably that does take some time. Some people would like to see the wheels turning a bit faster, but they are moving, nevertheless,” Spencer said.

He said there were other ways the Reserve Bank could influence the banks in a ‘softer’ way than hard restrictions, at least in the interim.

“We do need to talk to the banks. We want them to enter into the spirit of these things and take a responsible approach ahead of any policy move, and last year when we introduced the Auckland investor LVRs the banks did take a responsible approach,” he said.

“The banks are getting more and more concerned about the risk inherent in this market so I don’t think they’re going to get carried away.”

Later on in the day Spencer repeated the call for a migration review in even stronger terms when talking to NBR Radio.

“We think at the end of the day the physical imbalance needs to be addressed, and that’s about building more houses and potentially looking at migration, in the sense that I don’t think the country can sustain the rate of immigration – 60,000 plus per annum for a large number of years — so that’s the essence of it,” Spencer said in the NBR Radio interview.

‘Just listen to what we’ve said’

Key doubled down on last Tuesday’s ‘get on with it’ said in an interview for Stuff on Friday. See more in our Friday article here.

Bill English then said in interview with Lisa Owen for The Nation (see video above) that was broadcast on Saturday morning that it was the Reserve Bank’s job to focus on monetary policy and macro-prudential tools.

“We’re always looking at the tax system and immigration, and there’s been a number of changes in those areas. The Reserve Bank may not be familiar with those,” English said.

He would not agree to a migration review.

“No, we’re not committing to doing that, and the Reserve Bank does not have a detailed understanding of how the tax system or the migration system works,” he said.

Asked, therefore, if the Reserve Bank was wrong, English said: “They’re putting a view of theirs out, but they’re not in the policy-making process, and so there’s adjustment going on in those areas continuously.”