OPINION: The latest inflation figure of 3.3 percent for the year to 30 June 2021 is the highest it has been in nearly a decade. This is cause for concern for all Kiwis, who are seeing more and more of their pay packets eaten up by basic day to day living costs.
The figure will only confirm what many people already know – they have less money in their wallet after paying for their weekly groceries, fuel and rent. Since coming to power, the Labour Government has managed to make the average Kiwi family about $9,000 worse off, or over $170 a week.
Whilst the Minister of Finance has claimed this high inflation figure is an inevitable result from the pressures of a growing economy, this is far from the real reason. A lot of the increase can be attributed directly and indirectly to taxes and costs the Government has imposed on businesses, farmers, and consumers. The Government cannot load costs on to businesses and not expect them to adjust their pricing accordingly, passing increases on to consumers as a result.
In fact, Statistics NZ specifically state that petrol and house prices have been a major influence in the spike, meaning that the Government has to take some of the blame.
Renters are only too aware of the increase in rents – on average $100 or more a week since four years ago. This is in large part due to the Government’s inability to build affordable homes. Unfortunately, both Treasury and IRD are warning that Labour’s new proposed tax on property owners is likely to see rents rise further still. By pushing mum and dad investors out of the housing market, with no supply-side measures coming any time soon, it is apparent that renters will continue to suffer.
Fuel taxes under Labour have gone up 28c per litre in Auckland, costing a typical family an extra $650 every year. We can expect this to get even worse, as the car tax – sometimes known as the ‘ute tax’ - comes into force, forcing families who can’t afford a Tesla to hold on to their older, less fuel efficient cars for longer.
The cost of doing business has also soared under Labour, who have been heaping costs onto business owners apparently without realising this will eventually flow through to consumer prices.
When businesses can’t get the skilled workers they need from overseas and the Government keeps pushing up their costs with unsustainable minimum wage hikes at a pace employers cannot afford, in addition to introducing unworkable regulations, they have little choice but to put their prices up.
The oil and gas ban has also been a major contributor to a rapid escalation in wholesale energy prices going through the roof. It is a case of the Government making snap decisions that look good in headlines, but have knock on effects they have opted to ignore. The Government is importing an estimated two million of tonnes of coal from Indonesia rather than using New Zealand’s own natural resources.
Things are only going to get worse, with a raft of policies coming down the pipeline to raise costs further including the so-called fair-pay agreements which essentially bring back compulsory unionism.
There are also major price pressures that are not so obvious to the average consumer. However, manufacturers, importers, and other business have felt it all too well. There are major supply constraints and bottlenecks which are not expected to iron themselves out for at least another twelve months. The cost of transporting a 40 foot shipping container has increased from about US$1,200 to in excess of US$10,000. This not only changes how businesses have to operate, it also creates a significant increase in business costs that has to be made up, and naturally the consumer foots the bill.
All of this has meant businesses are faced with two options, either increase prices, lose money or close down.
The other main implication of rapidly increasing inflation is the likelihood of interest rate hikes in the near future. When the Reserve Bank is forced to increase the Overnight Cash Rate (OCR) this will lead to an increase in interest rates for all borrowers. Already banks have moved to increase rates and this will be worrying for first homeowners who have been forced to take out big mortgages just to get onto the property ladder.
All of this points to a need for this Government to focus on removing unnecessary business costs and barriers to growth.
It isn’t good enough to increase the minimum wage and benefits, note the post-Covid-19 consumer-led economic rebound, congratulate oneself with ‘haven’t we done well’, and then leave it at that.
A consumer-led recovery is not sustainable in the long term. We need to take a serious look at what can be done to alleviate some of the skills shortages and regulatory constraints and costs that are holding our businesses back from making their own contribution to getting New Zealand moving again. We need a coherent energy strategy and urgent reform of the Resource Management Act to open up land supply.
The Government has been happy to fund a consumption-led recovery over the past 16 months since Covid-19 first reared its ugly head. But there are going to be consequences when our Government is borrowing $110 million a day – every day – as we currently are.
Ultimately consumption-led recoveries leave low income families and beneficiaries significantly worse off as a result.
Andrew Bayly is National’s Shadow Treasurer and spokesperson for Revenue, Infrastructure and Statistics. Before entering Parliament, Andrew initially trained as an accountant before working with merchant banks in New Zealand and London for a period of 10 years. After returning to New Zealand, he co-founded a merchant bank, offering corporate advisory and capital markets advice to a range of government entities, local authorities and corporate clients. Andrew is a former Officer in the New Zealand Territorial Army and British Parachute Regiment. He has had a long career in adventure racing and has climbed four mountains in Antarctica and dragged sledges with his son to both the North and South poles. With his other son, Andrew undertook a 500km camel ride through Jordan retracing the route of Colonel T.E. Lawrence and regional tribes.