An economist from the ANZ Bank has reinforced what we all know: “Inflation isn’t just a global problem that New Zealand is importing, it’s a domestic issue too.” This is a fact that’s also shared by Treasury. So, with Labour’s budget just released I want to highlight how the government is intending to address those domestic inflationary pressures.
On top of a record $6 billion per year in spending, Labour is tapping into future budgets with $2 billion from the 2023 Budget and $0.4 billion from the 2024 Budget. And that lavish spending doesn’t even include the money set aside to tackle climate change or the Cost of Living Payment – we’re now looking at the government spending more than $9 billion per year!
Why is this happening when unemployment is so low? Why isn’t this government doing all it can to reduce the huge deficit left over from the pandemic? Grant Robertson’s Budget just doesn’t make fiscal common sense.
Going by Labour’s past and current record on fiscal management, National’s Finance Spokesperson, Nicola Willis, is right to question whether we can really believe that Robertson will keep to his promised spending increases over the next two years.
Labour’s plan to spend its way out of economic mismanagement will inevitably take New Zealand backwards, and what will this spending spree really do to help Kiwis facing inflation at a 30-year high? The Budget’s Cost of Living Payment amounts to a three-month sugar hit of just $27 per week. Senior economist Benje Patterson’s withering assessment of the Cost of Living Payment is worth noting here. He says: “It's just chump change compared with the real cost of living that's affecting households.” Patterson rightly points out that $27 a week is dwarfed by increasing costs for mortgage holders. Homebuyers on a $500,000 mortgage who refixed at a rate 3% higher will now be paying $15,000 more a year. That’s $300 more a week!
We also need to factor in that inflation isn’t expected to get back below 3 per cent again until 2025. Which means the economic pain that ordinary New Zealanders are facing isn’t going away anytime soon. Food prices jumped 7.6 per cent last month compared to March 2021 and petrol prices climbed to a record high for Auckland motorists. Labour’s attempt to keep fuel costs down by slashing fuel taxes hasn’t worked because global factors are driving price increases. In this environment we need smarter solutions than this government is capable of. Extending the half-price public transport scheme for another two months isn’t a strategy, it’s a short-term fix.
During the pandemic, I was saying this country needed a vision for how we were going to exit Covid and launch a more prosperous economy. All we’ve got from Labour is quick, ill-considered fixes and more spending. They are just not up to the challenge.
