By Peter Dunne (abridged)
An elaborate but ultimately irrelevant game of pass the parcel is being played out about who is responsible for inflation rocketing to a 30-year high.
According to the Minister of Finance Grant Robertson, it is all Vladimir Putin’s fault for invading Ukraine and disrupting world supply chains, causing shortages and pushing up costs. Coming on top of the wider disruption caused by Covid19 over the previous two years it is all just too much to bear for even well-managed economies like ours, he says.
The Opposition will have none of this, blaming it all on the government’s mismanagement, by using the arrival of the pandemic as an excuse for a massive borrowing programme to enable it to spend indiscriminately on pet projects.
Meanwhile, the Governor of the Reserve Bank (Adrian Orr) whose autonomy wings have already been clipped by this government laments to an offshore audience he may no longer have the tools to get on top of this bout of inflation as quickly as he would like.
Ominously, the only thing they all seem to agree on so far is that the rise in inflation this year will continue for some time, possibly well above the 7% level already forecast.
Meanwhile, homeowners and taxpayers look on slightly dazed and bemused, while bracing themselves for whatever shocks may lie ahead. Already there are mounting reports from foodbanks and other social service agencies of unprecedented demand on their services, and the general expectation that the worst is yet to come.
So far, the government’s response has been mixed. A 50% subsidy on public transport costs and a 25 cent per litre reduction in fuel excise tax have been introduced – but for a period of three months only, with no indication of what is to follow. The Minister of Finance has also pointed to the April 1 benefit adjustments and the Winter Energy Subsidy for beneficiaries and superannuitants.
Beyond that, he appears to have little else to offer, unless he is holding something back for the Budget due in just over a month. But he has already ruled out income tax cuts, changes to the Goods and Services Tax, and paring back any of the spending commitments the government has made since the advent of the pandemic.
The government’s policy is looking increasingly like a modern-day version of borrow and hope which was an ultimately unsuccessful mainstay of governments in the 1970s and 1980s.
The Opposition’s response is no less unspectacular. There is the almost obligatory commitment to tax cuts as the universal panacea, and the predictable references to cutting back on wasteful spending. However, when asked to identify examples of where that might be, a sudden shyness comes to the fore.
Prime Minister Ardern, on her current trip overseas, can be expected to make much of how inflation is rising to new highs in both Singapore and Japan. But the comparisons may not be to her advantage.
While inflation in Singapore is forecast to hit an eight-year high this year, at 3.4% it will be at least half the rate forecast for New Zealand. Japan’s inflation rate is expected to hit a two-year high, it was 0.6% in the year to February.
Labour could yet find itself in the same position the 1972-75 Labour Government of high inflation, and rising domestic shortages, leading to increasing unemployment. Back then it was the fault of the First Oil Shock in 1974, just as it is argued to be the fault of Covid19 and Vladimir Putin today. But it was ultimately the government that paid the price at the next election.