Jacinda Ardern and Grant Robertson are in denial, writes Richard Prebble. Photo / Mark Mitchell
Jacinda Ardern and Grant Robertson are in denial, writes Richard Prebble. Photo / Mark Mitchell
OPINION:
Economic commentator Bernard Hickey estimates that since the Covid pandemic began, the rich have become about a trillion dollars richer and the poor are a further $400 million in debt.
The wage subsidies went to employers, not to employees.
Houses are the least affordable in the world.
Education, theladder out of poverty, has been kicked away. In the English-speaking world, New Zealand pupils are worst at maths, science and literacy. Last year, 44 per cent of Auckland students did not turn up for NCEA exams.
Inflation hits fixed incomes. My bank is offering 0.1 per cent on a savings account. As the CPI is a trailing Index, inflation is really over 8 per cent. Any saving is losing 8 per cent a year. And then the government taxes the interest earned.
No one gets a wage increase in anticipation of inflation. About 40 per cent of wage earners did not get a rise last year.
Covid is not responsible for the growth in inequality. Covid infects the rich and the poor.
The growing inequality is the result of government policies and galloping inflation.
In the real world we live in, inflation is not just the items included on the consumers price index. It is the price of everything, including housing. House prices have gone up 50 per cent in the past two years.
Sir Roger Douglas warned that big companies did not need wage subsidies. There are companies that met the wage subsidy rules but had their best year ever.
This former Finance Minister warned that quantitative easing was not needed after the first shock of lockdown. Road User Charges showed the economy had rebounded strongly. Labour was warned that printing money will lead to asset price inflation and then consumer inflation.
The wage subsidies and cheap credit were always political and never economic. The policies were designed to win Labour the election.
Labour is now in denial.
Prime Minister Jacinda Ardern "absolutely refutes" that government spending has contributed to inflation.
But the Reserve Bank monetary policy committee says: "An ongoing boost from government spending ... is adding to strong demand".
Last year's domestic inflation - for non-tradables - was 5.3 per cent. All of our trading partners - China, Australia, Japan and South Korea except the US - have lower inflation.
The Government is becoming Muldoonist. Like Muldoon, Labour calculates huge "think big" spending is electorally more popular than the pain of tackling inflation.
Light rail through the Prime Minister's electorate will be hugely expensive. The City Rail Link is a sobering example. The rail link is behind schedule and over budget. It was to cost $3.4 billion. In 2019 officials admitted the cost had reached $4.419b. The link will not be completed in 2024. The final cost will be over $5b.
Studies reveal that urban rail schemes never come in on budget or on time and rarely meet passenger projections. Worldwide, 75 per cent of urban rail projects have cost escalations of at least 33 per cent. A quarter have cost escalations of 60 per cent or more. The cost of light rail will escalate from the estimate of $15b to over $20b.
Here is another way to think about the cost. For less taxpayers' money, every passenger could have a free Uber ride in an electric car to where they actually want to go.
Labour is not going to tackle inflation, so will the Reserve Bank?
The Bank has two remits, "keep future annual inflation between 1 and 3 per cent" and "support maximum sustainable employment". To paraphrase the Bible, no central bank can serve two remits.
Reserve Bank Governor Adrian Orr. Will the Reserve Bank tackle inflation? Photo / Mike Scott
Reading through the minutes of the monetary policy committee, concern about employment motivated the bank's inflation-creation money printing. No committee member questions why the bank's inflation projections are wildly inaccurate. Every quarter the bank projects inflation will be 2 per cent.
February 2021: "inflation ... would likely remain below its remit targets".
May 2021: "medium-term inflation ... would likely remain below its remit targets".
August 2021: "consumer price inflation expectations remain anchored near 2 per cent".
November 2021: "returning towards the 2 per cent midpoint over the next two years".
The Bank's inflation predictions have no credibility.
Business tells surveys that inflation this year will be 7 per cent. Most plan price increases.
Why would workers this year accept less than a 5.9 per cent wage rise?
If we all believe prices will rise, they will increase. I put the word inflation into the Herald's search box and got back 42906 results. Articles like "How to protect your investments against inflation".
The Reserve Bank is seeking a soft option. Returning "inflation to target too quickly would result in unnecessary instability". Now inflation is established, there are no soft options. All that printed money is debt. The bank is yet to tell us how it is going to reduce its bond holdings.
While the Reserve Bank procrastinates, the rich will get richer and the poor will get poorer.
- Richard Prebble is a former leader of the Act Party and former member of the Labour Party.
