Should we re-write the rules of fiscal policy? Photo / Mark Mitchell
Should we re-write the rules of fiscal policy? Photo / Mark Mitchell
Opinion by Chlöe Swarbrick
The Reserve Bank Governor admitted last week that our central bank was “deliberately engineering” a recession. After two years of fiscal and monetary policy that has, exactly as predicted, worsened inequality, we’re now seeing immense CPI inflation, which is disproportionately hurting the poorest who spend more of their income on essentials.
The Reserve Bank has only blunt, supposedly de-politicised tools to tackle inflation. It is government that deals with the “political”, real-world part: who pays the price of economic upheaval?
The question we have as a country is whether we’re comfortable with the same lower-income, lower-wealth New Zealanders - say, the two-and-a-half million people who own just 2 per cent of this nation’s wealth - shouldering the disproportionate cost of recovery, as they did the cost of getting us through Covid-19.
Announcing the largest Official Cash Rate rise since it was established in 1999, our central bank once again told us the country was above “maximum sustainable employment”. In real terms, they believe tens of thousands of New Zealanders need to lose their jobs for sake of “the economy” as we know it.
The next day, a friend sent me a tweet suggesting replacing the word “economy” with “vibes” whenever you see it. It’s a decent reminder that economic theories and the assumptions underpinning them are man-made, prone to change and have ingrained shortcomings.
Millennials whose lives have been scarred by house price inflation and recession, boom and bust cycles that concentrate then entrench wealth, are prone to laugh (or cry) about the “vibes” we’ve inherited.
But the critique has well-founded academic credibility. Local economists (vibe-inspectors) Bernard Hickey, Shamubeel Eaqub, Max Rashbrooke and others all point out that the economic rules we have in place benefit some to the expense of others. Those vibes aren’t accidental; they’re consequences of deliberate choices. Different choices can be made with different priorities.
Those choices all sit within our fiscal and monetary policy. Fiscal policy is the taxing and spending that governments of all stripes undertake to varying degrees. Monetary policy is the Reserve Bank’s job, managing the money supply and interest rate through a bunch of blunt instruments under their statutory obligation to target inflation between 1-3 per cent and, as of last term, “support” maximum sustainable employment.
By law, it is not currently the Reserve Bank’s job to target or concern themselves with inequality. Even when it comes to their opaque conclusion that a lot of people have got to lose their jobs to smooth out the vibes, as the Governor pointed out at last week’s hearings, they’re not “targeting” it. In fact, they admitted nothing would have changed in their approach to monetary policy these past two years even if the maximum sustainable employment mandate wasn’t there. Fundamental vibe thinking, since the 1980s, has been focused on inflation. Inequality and social cohesion is for the government to think about. This isn’t the natural order; it flows from agreed vibe theory.
Despite record profits, banks are increasing mortgage rates. Photo / Mark Mitchell
As essentials get more expensive, the Government’s financial statements show taxable corporate profits increased this year by $4.1 billion. That’s of course a different measurement than corporate revenue, which could be reinvested into higher wages for workers, or increasing productivity, or decarbonisation; it’s a 26.2 per cent increase in profit, paid out to shareholders, at a moment in time when low and middle income New Zealanders are being told to steel themselves through the apparently necessary pain. This occurs in the context of an estimated one trillion-dollar wealth transfer to the richest over the past two years of vibe policy.
Reporting record-breaking profits in the order of billions year on year, the banks also moved to increase their mortgage rates following the OCR announcement. As the Governor pointed out, that’s despite already increasing rates to account for that exact anticipated OCR increase. Two bites of the very profitable cherry. The house always wins, it seems.
In 2008, off the back of mass discontent about vibe theory and management, a global recession tipped people across the world to unify under the banner of the 99 per cent.
Occupy Wall Street has since been criticised for a lack of clear, unifying demands to transform the vibe system which posits some as too big to fail and the rest of us as expendable. So the same vibes, largely, continued.
Fifteen years later, we are faced with similar circumstances and the opportunity to respond differently. The facts show that inflation is not hitting all of us equally. Some are profiting handsomely, while more and more are pushed below the breadline.
This is not an inevitability, but a political choice. Back in the 1930s and 40s, off the back of World Wars, the Great Depression and Spanish Flu, our Parliament decided to build the welfare state and pay for it with more progressive taxation, including on land. A modern proposal, which the Greens have long fought for, can be found in a Guaranteed Minimum Income and Wealth Tax.
Record inequality and infrastructural deficit aren’t natural laws, but the consequences of commitment to trickle-down vibes. The 1980s kool-aid is congealing - it’s time for a party all New Zealanders are invited to.
• Chlöe Swarbrick, Green Party, is the MP for Auckland Central.
