19 Jul 2022

Record inflation: Govt 'needs to front up and do its bit' - Willis

8:08 am on 19 July 2022

As New Zealand once again faces record high inflation, opposition parties are keen to make it an issue that decides the election next year.

ACT Party leader David Seymour and National Party finance spokesperson Nicola Willis.

ACT Party leader David Seymour and National Party finance spokesperson Nicola Willis. File photo. Photo: RNZ / Samuel Rillstone

Annual inflation has increased 7.3 percent since the June 2021 quarter, the largest year-on-year increase for 32 years.

The two people wanting to be the next Finance Minister know this is the kind of issue swing voters will latch onto.

"It's no longer credible to say this cost of living crisis is transitory," ACT leader David Seymour said.

"If the government doesn't front up and listen to the alarm bells that are ringing, then yes, I am confident that people will want to change the government," National's finance spokesperson Nicola Willis said.

The government's defence is New Zealand is not alone in experiencing high inflation, saying the figures reflect the volatile and uncertain global environment.

"Global factors such as the ongoing impacts of the pandemic on supply chains and the war in Ukraine are affecting prices, particularly those for fuel and building materials, and this means demand is not being met, and having a sizeable effect on New Zealand households and businesses," Finance Minister Grant Robertson said in a statement.

Non-tradable inflation, which measures domestic inflation (including things like construction and rental housing), rose by 6.3 percent, but tradable inflation, a measure of imported inflation (goods like petrol, like, and cheese), shot up by 8.7 percent.

"Short of Vladimir Putin having a bit of a rethink and rolling his troops out of Ukraine, and the Chinese government deciding not to shut entire cities down because of one Covid case in that location, both of which are driving shortages and supply chain issues around the world, there's very little you can do," Council of Trade Unions economist Craig Renney said.

But National and ACT both say the government needs to take some responsibility, by cutting spending, cutting regulatory bottlenecks, and cutting taxes.

These are all things they said when the CPI figures were released last quarter, in their minds proving the government hasn't done enough.

"It can't simply blame these issues on overseas factors. It needs to front up and do its bit," said Nicola Willis.

"The government has tried every avoidance measure in the book. They said 'there's no crisis,' 'there is a crisis but it's happening to other countries too,' 'it's happening to other countries and it's transient.' We clearly have a permanent and to some extent domestic inflationary problem," said David Seymour.

Whether they can take that message all the way to next year's election remains to be seen.

Victoria University of Wellington comparative politics Professor Jack Vowles said there was conflicting literature on how the economy affected voting behaviour.

But right now, there is high correlation between rising inflation, and declining support for the government in the polls.

"There's the old adage that oppositions don't win elections, governments lose them. So an opposition party, if an incumbent government is facing enough difficult problems, has got a pretty easy row to hoe if a lot of things are going wrong."

It's basically a bad time to be in power, anywhere.

Germany's inflation is 7.6 percent, the US and UK are both experiencing 40-year highs at 9.1 percent (with the candidates vying to become the new Conservative leader clashing over how they'll tackle it).

The cost of living was cited as a reason Emmanuel Macron lost his majority in France.

And despite a change in government, Australia's new inflation figures released next week are set to be worse than the 5.1 percent which landed during the election campaign.

"It will be interesting to see in Australia how long it is before Labor starts being blamed for the the problems that Australians are facing," Vowles said.

Here, the government may not have known the exact CPI percentage before it was released on Monday, but it knew it wasn't going to be pretty.

On Sunday, it announced an extension of half-price public transport and fuel tax cuts until January, which it was then able to point to on Monday as an example of how it's helping New Zealanders.

"Being seen to be doing something is really, really important. This is why the government held that press conference and continued those two policies, which are really a gesture towards the problem. They take the edge off, I suppose, for some people, although they're not necessarily as well targeted as they might be," said Professor Vowles.

Craig Renney said inflation wasn't felt equally. He called for a minimum wage increase, and keeping benefits in line with inflation.

"For many workers in New Zealand, and for many households in New Zealand, they're seeing the prices go up as a consequence of global factors. But they're not seeing wages rise to make up for those price rises."

He said now was the time to put into place long-term investments, to cushion the blow if this happened again.

"If we were able to take all the petrol and diesel cars off the roads, and replace them with electric vehicles, actually New Zealand's economy would be far less affected by oil price changes. And so one of the things you actually ironically need to do in an inflation spike like this is make the kinds of investments that will make you more resilient in the future."

Finance Minister Grant Robertson says hardline austerity measures in government spending would reduce health and education spending.

He told Morning Report the government had been spending more in recent times in response to Covid-19.

"We wanted to make sure that in this particular Budget that we got underway the much needed reform of our health system, that lead to some one-off spending, the allowance underneath that was similar to what we've done in previous years.

"We obviously listened carefully to the Treasury's advice but it is important that we get a balance of investing in the future and also looking after New Zealanders in the here and now."

Looking ahead across the government's forecast, spending was seen as returning to around 30 percent of GDP, he said.

Robertson called the current opposition backlash "politics of hindsight", saying other parties supported the Wage Subsidy Scheme, Resurgence Support Payment and Small Business Loan Scheme.

Some of the causes of inflation could be targetted through fiscal policy, he said.

The government was doing this with petrol tax cuts, reforming supermarkets and aiming to be less dependent on commodities like oil, he said.

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