[Weekly wrap] Change needed

The impending departure of Reserve Bank governor Alan Bollard has sparked calls for changes to monetary policy; meanwhile, a Treasury report has been seen as a call for a capital gains tax.

Friday, February 3rd 2012, 9:12AM

by Niko Kloeten

The debate over monetary policy has been going on for years, but has been given fresh impetus by the announcement Dr Bollard will not be seeking another term when his current term ends in September.

Central banks have been under greater scrutiny in recent years, with loose monetary policy, particularly by the US Federal Reserve in the early 2000s, considered by many economists to have played a significant role in the economic bubble that eventually popped in 2008, resulting in the global financial crisis.

In contrast to the US, where there has been huge anger about the Fed and its secret bailouts of banks (including calls to scrap the central bank altogether), in New Zealand there hasn't been a public outcry over the actions of our Reserve Bank.

However, there have been calls for changes to monetary policy; some want the Official Cash Rate to be decided by a committee rather than by one person, and others, including fund manager and business commentator Brian Gaynor, saying the central bank should have a wider mandate than just inflation targeting.

According to Gaynor the central bank should also be tasked with promoting employment and economic growth as well as just reducing inflation. Inflation has already been hovering at the top of the Reserve Bank's 1-3% inflation target for the past few years, with the Official Cash Rate at a record low 2.5% for much of that period.

The low OCR, combined with strong competition between banks, is continuing to benefit mortgage-holders; Kiwibank is the latest bank to cut fixed-term loan rates, leaving only the BNZ the only major bank yet to make a cut.

However, bond and share investors aren't getting such a great deal, according to a Treasury report that has been interpreted as a thinly-veiled call for a capital gains tax.

Treasury's report showed that rental property is tax advantaged compared to shares and debt instruments, while owner-occupied housing isn't taxed at all, due to the lack of a capital gains tax.

The report also showed another imbalance that is often overlooked amid the focus on housing; that bonds are at a tax disadvantage compared to shares.

Meanwhile, fund managers have peered into the mists of time and concluded the future may not be as bleak as we think.

Contrary to popular opinion, the US economy isn't stuffed, the eurozone won't break up (this year at least) and the recent outperformance of shares by bonds will turn out to be just a nightmare suffered by equity managers. Keep an eye out next week for more predictions, this time for the financial advisory sector.

Another prediction for this year is that advisers will grumble about new laws designed to prevent money laundering and the financing of terrorism. The message is: you may not like it but you have no choice.

From a new headache to an old one; advisers have been warned about policy documents that are too difficult for clients to read. Plain English good; complicated jargon bad (and potentially expensive if there is a dispute about what is covered).

A ratings downgrade may be in store for the big banks, after Kiwibank and the Australian big four were all placed on negative outlook.

Dr Bollard isn't the only one on the move; Ginger Group has gone through a restructuring that has seen its chief executive depart, while the NZX has named Mark Weldon's replacement.

Have a good long weekend and drive safely, folks.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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