The Reserve Bank of New Zealand (RBNZ) has recently negotiated its five-yearly funding agreement with the Minister of Finance.
Peter Nicholl
The first of these agreements was signed between Roger Douglas and the RBNZ in 1990 so this latest agreement is the eighth such agreement. They usually don’t gain much media or public attention.
Adrian Orr
But this one has been more dramatic as in the midst of the negotiations the governor Adrian Orr suddenly resigned.
The opening paragraph in one of our newspapers said ‘the RBNZ will have its funding dramatically reduced from its current levels over the next five years’.
But the level of RBNZ spending for the next five years that has been approved is $775.6 million – which is 21% higher than the level of spending in the previous agreement from 2020-2025 and a whopping 139% higher than the level of spending in the five years before that.
How can something that is 21% higher be described as a reduction? It is because RBNZ in the opening salvo of the negotiations requested approval for spending of $1.03 billion for the next five years – which would have been a mammoth increase of around 60% over the previous five years.
How RBNZ thought they could justify that in a policy climate where the government was aiming to reduce government spending and had significantly reduced the staff levels and spending of many government agencies is a mystery to me.
What happened? Orr resigned suddenly and nine days later RBNZ went back to the Government with a revised request for $776 million.
In nine days RBNZ was able to find savings of $ 254 million, or almost 25%. There are two possible explanations for this budgeting miracle. One is that in nine days, RBNZ was able to develop and implement an extraordinary process of finding savings. The other is that the original request of $1.03 billion was outrageous and had lots of things in it that could be cut quickly and without pain to RBNZ.
You take your pick of which explanation is more likely.
It is staggering to look back at the enormous increase in staff levels that have occurred in RBNZ over the last seven years. In 2018, RBNZ had 255 staff.
In 2025 they have around 660 – an increase of 160%. I had a look at what has happened in the Reserve Bank of Australia over the same period. The functions of the two central banks aren’t identical but they are similar. Staff levels at RBNZ grew 31% over the same period.
RBNZ often asks the citizens and companies of New Zealand to exercise restraint in their wage requests and pricing decisions in order to ease pressure on inflation.
But it has in recent years shown no willingness or capacity to exercise restraint over its own spending. It has become part of the policy-school that says ‘do as I say’ rather than ‘do as I do’. The latter is a much more powerful statement from a policy-making institution, but the institution has to earn the right to be able to say it.
RBNZ has been doing the opposite. This has severely damaged its credibility.
