National Party Finance spokesperson Simon Bridges wants the Government to dampen inflation by axing its health reforms and the proposed Auckland light rail.
National has relentlessly attacked the Government in recent weeks over the fact the cost of living is rising faster than wages.
The Consumers Price Index rose 5.9% between the December 2020 and 2021 quarter, meanwhile wages rose by only 2.6%.
Bridges has attributed part of the rise to higher demand, caused by the large amount of government spending that’s occurred since the start of the pandemic.
Finance Minister Grant Robertson has tried to deflect, noting inflation is a global phenomenon and the New Zealand Government can’t do much to ease geopolitical issues affecting the price of oil or Covid-related supply chain holdups.
When interest.co.nz asked Robertson to “clear the air” and admit government spending has played a part (not the only part) in putting upward pressure on prices, he acknowledged his contribution to boosting demand, but wouldn’t actually say his policies had contributed towards higher prices.
“Fiscal policy has supported New Zealanders though Covid-19, and in some cases, yes, that has supported an increase in demand,” Robertson said.
“But the main components of the inflationary increase that we’ve seen in recent times are related to global factors.”
Robertson has repeatedly challenged Bridges to identify what spending he would cut to cool inflation. So interest.co.nz put the question to the man gunning to be finance minister.
Bridges pointed to the health reforms and light rail.
“It’s as much or more a question of reining in what is to come as it is about the past,” he said
Bridges clarified he wouldn’t try to recoup any of the $22 billion of wage subsidy and resurgence support payments made to businesses since the start of the pandemic, for example. These payments account for around a third of the Government’s Covid-19 spending.
Rather, Bridges pointed to the record $6 billion of new operational expenditure pencilled in for the year to June 2023.
While this sum will only be confirmed at the May 19 Budget, Robertson in December said it would be a “one-off” largely to support health sector reforms. Some of this will likely go towards writing off debt held by district health boards.
Bridges said this money would simply line the pockets of Wellington consultants, boost inflation and keep interest rates higher for longer.
On the capital expenditure side of things, interest.co.nz asked Bridges whether he would withdraw any spending commitments made to fund projects that aren’t off the ground yet.
The only initiative he pointed to was the Auckland light rail.
“We will make our infrastructure plans clear in the future,” he said.
Bridges also denied his policy to provide income tax cuts would be inflationary.
National would like the Government to increase income tax thresholds to avoid “bracket creep”, or low to medium-income earners finding themselves in high tax brackets.
Asked whether this would be inflationary, Bridges said, “No, not if Grant Robertson reins in his new spending.”
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89 Comments
“Fiscal policy has supported New Zealanders though Covid-19, and in some cases, yes, that has supported an increase in demand,” Robertson said.
- Trim the current beneficiary payouts;
- Suspend the minimum wage raise;
- Remove GST from staple food and fuel;
- Lower taxes on fuel;
- Cancel the interest non-deductibility on rental income;
And you're you'll see inflation drop like a rock.
RBNZ's monetary policies can't do any of these for you; on the contrary, raising the cash rates may crash the economy leading to more fiscal spending- ie. backfire.
Removing interest deductibility on rental properties is not supported by the majority of tax experts, economists, Treasury & the Reserve Bank.
This law has created several classes of property owner, depending on when the the property was bought & for what purpose.
A benefit/cost analysis was never done to show the benefits but it is pretty easy to see that the policy would lead to reduced rental supply, increased rents & more emergency housing, The benefit/cost ratio for this policy is negative & increases dependency on the state for increased emergency housing & other hardship benefits with no solution in sight.
1) Tax equity release as income for any property purchase. This includes parents releasing equity fom their home as a deposit for the kids home.
2) Review all property sales for the last 10 years and for any investment properties sold leverage a 10%.. tax on capital gains. (You benefitted from a perverse tax regime, time to pay the piper)
3) Bring in comprehensive CGT immediately. Currently the capitalled class pay no tax.
4) Raise the OCR to 3% immediately and then to 6% in 3 months later. Still historically low, but then at least the property market will think twice about stoking inflation with free money.
5) Sack Orr and GR immediately as a demonstration that the power that be are not immune from the wrongs they create through incompetence.
Inflation gone,, along with the parasitic element of NZ society.. property investors.
And why do you think taxing every new zealander at least 6% through inflation is better than targeting a few hundred people who have paid no tax on the capital gains ever. I pay more tax than a person making 10 million bucks out of a property sale. A property purchased with a loan including my savings which they got for free... Perverse.
An intellectual desert, so blinded by their own greed that objectivity is impossible. Heading slowly towards a society with no working class and no middle class because policy set by the elites for the elites, will destroy them... Do you youreally want to teach your own kids, put out your own fires... and crawl to the hospital after a car accident. How this ends is bad for all, even the most elite... just think beyond your next rental. Hardly pragmatic.
Lol, I've never owned a rental and never want to. Retrospective taxes would be a sign of a govt corrupt to the core. Let's introduce a retrospective tax for having children, or a retrospective income tax, you now owe the IRD $250k because, well whatever excuse of the day will do.
There's a desert alright, and you've got sand coming out your ears.
I’d like retrospective legislation. For example, past and present pedophiles get guillotined. Where the f&ck do you make this shit up? Random guess, got a reasonable education but not financially successful. Feel the country owes you more?
Disclaimer-I am the privileged boomer white bald head.
Actually successful enough to live out my days in comfort, and not expecting anyone to provide me with anything. However I know a fair bit about inflation, and it has played a huge part in nearly every revolution societies across the world have known. Contrary to your opinion retrospective legislation is incredibly common, often righting wrongs hundreds of years old. Land redistribution, jn Mozambique Zimbabwe, Zambia. All after huge inflationary spirals. The more extreme case in the Belgian Congo, where plantation owners fell foul of their own sawmills. GERMANY prior to the second world War. Just because people are on the right side of the law at the time they act rarely protects them if the law itself is unjust. Now you can dress it up anyway you want, and be as subjective as a bear on the rights of the bee when eating honey. But the printing of billions of money to largely bail out property investors at the expense of the NZ Tax payers, and the failure to act in any meaningful way on the inflation that is now rampant, is unjust and there will be a price to pay. I think some retrospective tax legislation should be the least of your worries.
Jim, your comment was interesting until 4, which shows you don't have any grasp on the cause of inflation. The cost of housing included in inflation takes no account of land value. It's purely the cost of building. So "stoking inflation with free money" is drivel. The inflation we are seeing now is entirely due to the policies of the current Labour Government, no matter how much they try and deflect. They printed literally billions of dollars and didn't expect inflation? Even after the incompetent Orr warned Robertson that inflation would follow? Bad money chasing few goods is inflation.
Finally, "parasitic element.... property investors". Generally, I find that people that haven't made great decisions during their lives, and don't have much, are those that are the parasites. Via Government handouts, bleeding those that DO make good decisions. So look around yourself, face the brutal reality of your situation, and do something about it.
Hey Vino.. I was gonna let it pass but what the hell. Debate is the basis of all things good. Firstly I am not a socialist. Capitalist through and through, and a believer that the basis of capitalism is the value of money and if you debase it through excessive money printing, price discovery is shot to hell and once that goes it is hard to get back. So we are in agreement about one thing. The money printing was a disaster. Did they really do it to bail out the bludgers, or did they do it to bail out the top end of town, I think in a debt based economy, it can only be the latter. The combination of the printing and money at low rates was the killer. NZ couldn't print without low rates because it would have killed them. You can print if there are interest rates, and you should keep inflation at bay. We are now in the silly position of having a housing market instead of an economy, and all the profit from housing debt goes off shore. Not only that, we give these banks funding at .75% while the government pays 2.8% to borrow money for 10 years. We lend money to the off shore banks at.75 and they lend it back to us to buy houses at 4%.
If interest rates were at 3% it would hurt a lot of people, housing would crash, and farmers would get paid less,, but the last time I checked we run a current account deficit, while running interest rate policy that weakens the currency... This is just dumb...
It is this way because government policy sees housing as the only game in town.. Debt based economies are weak.. especially to geopolitical wrangling... People in New zealand think they are wealthy because of house values, and some are, but the vast majority are sitting on a fused powder keg and inflation is the match.Make money worth something,, before it becomes worth nothing at all.
Now for drivel. The labour government printed about 60 billion. Now if that had all gone to the bludgers it would have been 60 billion. I don't believe too many of them received pay increases although a few were being paid for being at home. During the same period property lending broke all records month after month. The value of housing in NZ in the 2021 year went from 1.35Trillion to 1.72 trillion. Never mind what it did in 2020. That is a 380 billion wealth effect available to be spent at near zero interest rates for free... not worked for, just generated out uncontrolled lending in the property sector because money was too cheap. That is where inflation came from and still comes from. An argument needs to at some stage be based in fact and not just opinion and insult. There is a capitalist way that is wiser and more dynamic than the base need of shelter.
Maybe the Government should legislate a rent cap to 25% of the tenants income, effective from any new tenancies 1/1/2023.
Then they can wind back the minimum wage increases and remove WFF because of extra disposable income. Imagine the burden that's lifted on businesses and tax payers?!?!
And then rents in dollar terms drop again because 25% of a falling minimum wage. It will be a cruel spiral, not dissimilar to the rental increases that are coincidentally tied in with minimum wage/student allowance increases each year.
How come you weren’t screaming from
the sidelines when the OCR was being dropped to zero? But now you don’t want rates to go up even just on little bit?
I think we should allow central banks, governments and debt speculators reap what they have sown…based upon our greed and lack of wisdom, we deserve the pain that comes the seeds that we have sown.
Those who have made a fortune at the expense of others in a central bank and government backed housing debt ponzi should be named and shamed and released to the angry crowds of people who cannot afford their bills and have lost hope of a meaningful/prosperous future in this country.
Lower interest rates 'oil' the economy through debt creation. Fine, if the investment is going towards productive assets that will ultimately pay for themselves.
But here, the debt is going into housing which does *not* become more productive. It's just ever-larger amounts of debt changing hands.
If you love automotive metaphors - private debt has flooded the engine of the economy. That which is usually fuel, is now an obstruction.
Incinerate the lower and middle class with inflation to protect debt bloated assets, or, choose to protect Labour's core voting constituents by squashing inflation with a very aggressive lift in interest rates. This would knock the shine of the housing bubble somewhat.
Do the obvious, or sell out core values. What to do indeed....
True. Blaming external factors for inflation can't hide the truth that our pre-Covid economy was growing largely off asset speculation, population growth and low-productive sectors. Unsurprisingly, gross capital formation in assets other than buildings has reduced as a proportion of our GDP since 2008.
The government and RBNZ knowingly added fuel to fire on asset speculation to make up for a drop in migration and low-value sectors, creating an overheated economy without any real economic growth.
Bridges pointed to the health reforms and light rail. he wouldn’t try to recoup any of the $22 billion of wage subsidy and resurgence support payments made to businesses
Bridges also denied his policy to provide income tax cuts would be inflationary
This is why despite the Labour party's horrible performance in government, people are slow to shift their support to NZ National.
I agree. A bit of self-awareness would be good for him before he opens his mouth.
While leading the National party, he would often criticise Labour-Green MPs for not knowing anything about running a business. Ironical coming from someone who spent 8 out of 9 years of his non-political career on public dime as a Crown prosecutor.
I couldn’t agree more.
National Party Finance spokesperson Simon Bridges wants the Government to dampen inflation by axing its health reforms and the proposed Auckland light rail
This is such warped, brainless thinking; it is staggering. These areas of the economy are not what’s driving inflation - they are rather crying out for investment, so spending mobilises more unused/ underused resource - particularly in infrastructure. Whereas tax takes money out of the economy, so tax cuts by definition are inflationary. Stick with prosecuting the crims...
Finance Minister Grant Robertson has tried to deflect, noting inflation is a global phenomenon and the New Zealand Government can’t do much to ease geopolitical issues affecting the price of oil or Covid-related supply chain holdups.
Chinese inflation is retreating as their economy slows. Their CPI was up just +0.9% in the year to January, and well below the December rate of +1.5%. Perhaps deflation threatens them? Link
Also, EY estimates that downsizing the corporate structure from 20 DHBs to 6 national and regional bodies should result in reprioritised spending on core capabilities (more medical staff, capacity expansion).
Even 2% saved of the $17 billion directed towards pharma spending boosts Pharmac's budget by a-third.
Inflation is always, and everywhere, a monetary phenomenon--and for the past year-plus the bond market has been convinced that what is driving consumer prices higher IS NOT money (i.e. continuous government stimmy, central bank quantitative easing. https://youtube.com/watch?v=wT8RJ4
Accommodation supplement should be shifted into new affordable social housing killing two birds with one stone , done gradually but with urgency. This would reduce rents provide a lowering of house prices and inflation. Proposed racial splitting of health services should be canned and the money go into health generally for all races ie nzers.
'Market rents' and disinvestment in state housing is the single biggest policy mistake of the last 30 years IMHO.
The knock-on effects on poverty, education, health, and the general housing market have been horrific. The few millions in savings gained at the time are just pathetic compared to the long-term damage.
Pain at pump + Pain in property (rates) + Pain in pantry (food prices) = Pain in purse
It wont take long for this pain to reach property (prices)
As for the inflation it is quite visible that the housing and household utilities has increased maximum and that is due to the fiscal policy. I genuinely believe that fiscal policy (subsidy) has helped business and sustained employment but I also believe (could be wrong) that a good percentage of that money has found its way directly into housing. The money needs to be reclaimed from those who at the end of year have made huge profits.
Struggling to identify where cuts should have been made?
Record amounts of mortgage debt been created over the past couple of years.
All this additional cash in the hands of people stuck in country.
Add to that a very strong (overly strong) stimulus response.
Everything else is BAU, rail, hospitals, general govt spending. Its just Labour spending money like Labour's will do.
We've (Robinson) has chosen to print our way through a Recession rather than just take a hit. It's not rocket science. We are now paying the price of having all this easy money injected into the country.
Emergency ocr and reverse of the LVRs was a massive mistake.
And the Covid response (social and stimulus) from the govt has been too strong.
Advisor, your comments have absolutely zero credibility if you argue that what was or wasn't done six years ago is the cause of things like run-away inflation now. When will people like you get your heads out of the sand and acknowledge that after four and a half years of being in government, Ardern's administration has to front-up to what is happening to our country now.
Just a reminder that increases in domestic inflation is driven almost entirely by the cost of building houses, rents that are moving off trend into the 4%+ yoy range, local Govt rates, and the higher costs of restaurant and takeaway foods (unsurprising given covid restrictions, extra staffing, and a bit of hiking prices to protect margins etc).
Govt need to have a hard word with Fletchers and Carters who are clearly price gouging, and recognise that they are paying some or all of the rent on 350,000+ rental properties through Kainga Ora and accommodation supplement, and that puts them in a hugely powerful position. Govt have all the market power of a dominant buyer and they exercise none of it.
Still amazes me that, when asked, 100% of economists will say that rising input costs drive inflation. Makes sense doesn't it - if the costs of staff wages or supplies go up, you have to increase prices. Inflation!
Now, ask an economist what happens to inflation when the cost of borrowing (interest rates) go up. Inflation comes down they will answer in unison. But.. hold on a minute, is the cost of borrowing not an input cost for many businesses? Are we sure therefore, that in all cases, increasing interest rates will reduce inflation?
Well Turkey is currently conducting a nice experiment for you.
Turkey’s inflation hits nearly 50%, highest in two decades
Turkey’s central bank has cut interest rates by 500 basis points since September to 14%.
https://www.cnbc.com/2022/02/03/turkeys-inflation-hits-nearly-50percent…
Hmm. You might want to learn a bit more about what is going on in Turkey as Erdogan tries to (a) escape the trappings of a dollarised economy, and (b) stop the country being drained of wealth by international investors making easy cash out of the interest and currency exchange rates. Or maybe look at Hungary where they are scratching their heads as inflation climbs ever higher as they pump up their interest rates?
My point is that it is really stupid to expect an increase or decrease in interest rates to have a completely predictable impact on the overall price level or the price of the things we chuck into our CPI basket. For example, rent is a major driver of NZ CPI increases - do you think that higher interest rates will have a positive or negative impact on rent prices (clue: ask a landlord)?
Imagine running an economic system where the recommended response to price gouging and increased costs of production / supply is to increase interest rates to make everyone poorer, put more people out of work, and crash demand so much that suppliers have to reduce their prices to sell their stuff. Complete madness.
Interest rates that are too low for too long cause unemployment and reduced activity. Return on capital is too low in productive/risky activities, so runs into rentier assets instead where there are lower risks.
Current low rates are both in anticipation of, and a cause of, low future growth.
As Rohan Grey points out, “One way to deal with weeds in your garden is to bomb your house. That'll get rid of the weeds for sure. But only a maniac would point to gardening-by-mortar as a good idea. But that's the logic of people who use Volcker to justify interest rate supremacy.”
If you have too much money chasing not enough goods, you have inflation.
So to reduce inflation, you need more goods production or to destroy demand.
*What* demand to destroy is a political question. If you don't act, then demand is destroyed primarily among those with the least money, because they can't afford to participate in the market. This is why inflation is bad for the poor.
Better to destroy demand via the reverse wealth effect. If we could slam property cap gains and share portfolios by 30%, inflation would slow down because luxury yacht production wouldn't be competing with tractor production for materials.
Exactly. I cant recall where, but I'm sure I've seen research / articles on how rising interest rates have a partly inflationary impact.
However, I think the dominant view amongst economists - or at least those who have actually tried to think - is that these inflationary impacts are overridden by the anti-inflationary impacts.
Yes, there are plenty of dissenting voices. The key thing is that with a complex system, the net impact of changes in interest rates will vary depending on the scenario and structure of the economy. For example, if a country had $1.2 trillion of debts in index-linked bonds and the central bank pushed the interest rate up by 10 percentage points, the Govt would be injecting $10 billion per month of new fiscal stimulus (interest payments) into the economy. Similarly, if inflation in a country was being driven hard by rent inflation, and the Government in that country stepped in to pay peoples' rents if they became unemployed, then what good does pumping interest rates do? This will increase borrowing costs for landlords (putting upwards pressure on rents) and even if you made renters unemployed, Govt will still pay their rent anyway.
Interest rates rise, credit growth stalls. Debt repayments exceed credit growth. 15% of NZ's GDP (housing) goes backwards. Deflation?
Interest rates rise, Australian bank profits continue to rise as they raise mortgage rates faster than TD rates, dividends are repatriated offshore. Deflation?
The second point seems a credible player on 'team deflation'. No doubt that less disposable income for mortgagees will also reduce demand at restaurants, which might lead to some price reductions in a sector that is running hot price-wise.
The question is when you line up all the 'team deflation' players against all of the 'team inflation' players - who wins? My personal view is that we will be back to below 2% by the end of 2022 as things return to normal because team deflation includes Jonah Lomu in peak form - i.e. 'unlimited access to exploitable cheap labour and materials overseas'.
Food, Housing, Transport, and nobody has a clue how to get those key requirements of life into a more stable price range. They are not discretionary spending, raising interest rates to decrease demand is essentially trying to make people so broke that they eat less, have worse living conditions and less transport.
Just to add some spice to the debate we've put a couple of clowns on the stand, one thinks the inflation is coming from overseas and the other wants to fix it by getting rid of projects that haven't even started yet!
The 'wealth effect' is an economic toxin. You get a little juice in the growth figures, in exchange for spiking inequality and baking in long-term inflation. Can't wait for it to get tossed in the dustbin of horrible economic ideas (along with 'forward guidance' from central banks).
“National struggles to identify meaningful spending cuts to reduce inflation, while Labour refuses to admit the part its policies have played in lifting prices.”
Too late. The damage is done. Housing affordability is out of control due to excessive house price inflation caused partly by excessive spending by the government (2nd highest in OECD per capita), low interest rates & very poor housing policies that put too much cost on landlords & this will result in reduced rental supply, rents increasing at a much faster rate than most other countries in the OECD, & ballooning emergency accommodation costs as more renters are forced out of their rentals due to high rent costs & job losses.
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