Late yesterday afternoon someone sent me the link to this
Almost two months into the Reserve Bank’s financial year it authorises a 41.7 per cent increase in spending for the current financial year and a 26.3 per cent increase the following year, both relative to the amounts approved in the current five-year Funding Agreement signed in June 2020.
The variation had, apparently, been slipped onto the Reserve Bank’s website the previous day (22nd).
I’m signed up to the Bank’s email notifications. These were the ones from the last week
There was no press release from the Bank, and none from the Minister of Finance either. For huge increases in the spending of an institution whose performance has been under a great deal of scrutiny in the last year or two, the institution actually charged with keeping domestic demand in check to keep inflation at/near target.
The Funding Agreement model, which governs how much of its income the Bank can spend, itself is very unusual. I wrote about it, and the background to it, in a post a few years ago, before Orr took office, when the Reserve Bank Act review was being kicked off. The Funding Agreement model was better than what had gone before – not hard, since previously there were no formal constraints at all on Reserve Bank spending – but not very good at all. The model was set up when the Bank was (overwhelmingly) conceived of as a monetary policy agency, with a few other peripheral functions. The five-year horizon, with nominal allocations fixed in advance, was seen as having the (modest) advantage of providing a bit of financial incentive for the Bank to meet its inflation target: if it didn’t its real spending constraint would be tighter than otherwise. These days, the bulk of the Bank’s staff are devoted to policy and regulatory functions. Most such government agencies are funded by annual appropriations, approved (and scrutinised) by Parliament through the annual Budget process. In that earlier post, I’d come round to thinking that model should be applied to the Reserve Bank too.
The variation slipped onto the website a couple of days ago exemplifies what is wrong with the current system (perhaps especially under the current players – Orr/Quigley and Robertson – but they are only egregious abusers of a poor system).
This is public spending on public functions. We have a Budget for that. There is no obvious reason why, if there really was a compelling case for more money for the Reserve Bank, it could not have been announced at the same time as the Budget. After all, governments have to prioritise, and voters have to make judgements about what they do and don’t choose to spend money on. Taxpayers are the poorer whether or not the spending is through some agency subject to parliamentary appropriation or the Reserve Bank. As it is, the Bank’s financial year began on 1 July, so why the delay in agreeing/announcing this big increase in approved spending?
But then note the specific timing. The Minister of Finance signed the variation on 31 July. Orr and Quigley only signed it, and then had it slipped onto the website, on 22 August. It doesn’t take more than five minutes to get a document across the road to the Reserve Bank, and even if they wanted Quigley’s signature on it (it just needs any two Board members), and they wanted a physical rather than electronic signature, a return courier to Hamilton could no doubt have been done in 24 hours. Most probably, they didn’t want the variation to be known any earlier because……last week was the Monetary Policy Statement, when the Bank was having to acknowledge it hadn’t yet made much progress in getting core inflation down and that interest rates might be higher for longer, when the Bank would face a press conference and an FEC hearing, and when they’d do the quarterly round of making some internal MPC members available for interviews. It came on the back of those stories a couple of weeks ago [UPDATE: the week MoF signed the variation] about the Minister and the Public Service Commissioner having meetings with government department chief executives urging upon them fiscal restraint. The last of those Bank media interviews appeared a couple of days ago. It was bureaucratic gamesmanship, presumably abetted/approved by the Minister, to minimise budgetary scrutiny and accountability on what is a huge increase in allowed spending.
By law, they had to publish the Funding Agreement variation on the Bank website as soon as possible after it was signed. They did that, even if you had to be eagle-eyed or lucky to spot it. The Minister must present a copy to Parliament within 12 sitting days. Had the agreement been signed on 31 July (when Robertson signed it, but not the others) that would have been this month. As it is, perhaps he’ll do it in the next few days, but it could be November/December, after the election.
Under the old Reserve Bank Act, Funding Agreements were subject to parliamentary ratification. In a way, it was a bit of a charade, as there were no consequences if it was voted down (it isn’t mandatory for there even to be a Funding Agreement) but it did establish a principle, and did allow a parliamentary debate and a spotlight on proposed Bank spending). In one of the very worst parts of the Reserve Bank Act reforms – that genuinely took things backwards, rather than just made botched or inadequate improvements – the government removed the provision from the Act requiring parliamentary ratification, and thus the platform for parliamentary debate (about a level of spending which in absolute terms is no longer small).
We also, at this point, have no real idea what the Minister has approved this spending increase, in straitened times, for, or why he approved it. There is, of course, no ministerial press statement, and there is no hint of a huge spending increase in the Minister’s latest letter of expectation (although this must have been underway for months, and I had a clearly well-informed email months ago encouraging me to ask questions and lodge OIAs then, which I didn’t get round to doing).
All we have at present is this
which is clearly designed to emphasise the new functions, but there is just no way they can be costing any significant part of the extra $48m. And in any case, we simply can’t take as trustworthy anything Orr and Quigley say any longer, abetted by Robertson, without explicit verification.
(One problem with the Funding Agreement model is that it includes capex so we don’t even know yet the split between ongoing operational spending and capex items).
There should, eventually, be some transparency. One positive aspects of the recent legislative reforms was a requirement that the Bank must publish a budget (previously I had pointed out the Bank’s funding was an untransparent as that of the SIS)
By law, the variation to the Funding Agreement slipped onto the website on Tuesday had to accompanied by an updated budget. But, so far, there is no sign of one. There are budget numbers in the 2023/24 Statement of Performance Expectations released a while ago, but they bear no relationship to the numbers in this variation (and there is no substantive mention of the Funding Agreement, or any variations to it, in that document). I’ve searched their website and can find nothing else.
We have no details, Parliament has no say, and the Minister and Governor and Board chair arranged to ensure the really big increase in funding was (a) kept just as low profile as possible, and (b) wasn’t disclosed at all until the quarterly round of scrutiny for the Bank had conveniently passed.
It is a travesty on multiple counts. The system is bad enough – spending should be occurring only with parliamentary approval, but the law doesn’t require that – and the application seems, if anything, to have been worse.
Since I assume that they will, after their fashion, eventually obey the law no doubt a “budget” will eventually appear. Even then it is unlikely to be very revealing, although might give a hint of a sense of the breakdown between bloat and actual increased statutory responsibilities. I’ve lodged Official Information Act requests with the Bank, The Treasury, and the Minister of Finance to understand better just what is going on, including how much (if any) pressure there was on the Bank to cut back on non-priority spending. One day, in a month or two, we should have some answers to that.
UPDATE (Friday)
This appeared in the comments last night
If I’m looking at the right page this detail now appears to have been removed. It was interesting that Quigley’s signature was affixed electronically, so that (of course) the long delay was not a matter of waiting for him to come to Wellington. Re the final point, there may well have been a Board meeting recently, but since the variation document itself reflected an agreement between the Bank and the Minister it would be (very) surprising indeed if the Board had not already approved the variation before MoF signed it on 31 July.
