Brash could keep Cullen honest

Friday 3rd May 2002

Don Brash's decision to resign from the Reserve Bank and stand for National in upcoming parliamentary elections is surely a triumph for economic rationalism and eventual increased foreign and domestic investment in New Zealand.

One can only hope the good doctor gets in. He joins a worthy trend represented also by Act New Zealand's Stephen Franks in being an outstandingly expert professional who has jettisoned a highly remunerated job for a pay cut in Parliament.

We need more public service ethos MPs like them.

It looks as if Dr Brash is set to be an opposition backbencher for at least a three year stint, so he has entered politics for the long haul.

He was patient about getting inflation under control and will need the same virtue in abundance to put up with the nonsense of Parliament and the frustration of opposition.

At long last, however, should he be returned as finance minister, Michael Cullen will have a tough opponent to cut him down to size. Dr Cullen has had it too good for too long.

The nickname Dr Bash may come back into vogue if the former Reserve Bank governor does his job up to standard as putative shadow finance spokesman while he awaits his turn in government.

The question arises as to what lies ahead for our investment markets in light of Dr Brash's decision.

A number of people have wondered how monetary policy will operate without the oversight of the former governor.

Some have speculated it might be run more loosely to suit a left-wing government in which the finance minister, for one, has ventured public criticism of a previous lift in the official cash rate.

Odds are, however, that policy will remain the same or get tighter. Dr Brash will be a hard act to follow and whoever takes on the job has a formidably high standard of credibility to match.

Any successor who played Santa Claus in contrast to the former supposed Grinch who stole Christmas would be laughed out of the job.

Dr Brash was sufficiently respected to get away with jawboning the market on occasion rather than having to change interest rates to impose his will.

A soft replacement for him would be wiped out professionally within the first 12 months. In all likelihood a tough stance on inflation will be maintained and interest rate settings generally err on the side of caution under any successor who wants to have at least a five- year term.

The sharemarket might turn into a different beast if Dr Brash winds up as finance minister.

Both Labour and National seem agreed that New Zealand's economy needs to grow by at least an average 4% per annum if we are to claw our way back to the top ranks of first world living standards within a decade.

The 2.5% average of the past decade is not enough to do the trick.

Despite low inflation and associated price stability from Dr Brash, and notwithstanding fitful bouts of economic reform since the Rogernomics revolution, New Zealand has failed to fire up enough productivity to reach sufficient attained average growth.

Bearing in mind that ours is a cyclical economy driven by international commodity price trends over which we have no control, it will probably take about as long to confirm that 4% is our normal economic growth rate as it did to confirm 2% as our normal inflation rate. In other words, there will be no quick fix whichever sort of government - left or right - commits to 4%-plus growth.

However, if we ask which finance minister is more likely to draw the rabbit out of the hat - Dr Brash or Dr Cullen - the winner of the prestidigitation contest must surely be the economist rather than the historian.

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