David Seymour: Families start to notice hidden costs of Covid

Opinion

OPINION:

Kiwi families are starting to see the delayed and hidden cost of Covid. It comes in the form of rising prices. Over the next year we're going to hear a lot about inflation and the cost of living and we need to understand the cause in order to fix it.

The average thing you buy went up by 4.9 per cent in the past year. Some things less, others more, but people are noticing it across the board. It's like the Government put GST up five per cent. That would be a more honest way of recovering what it's spent on Covid, but politically disastrous for them.

Instead, the Reserve Bank has set interest rates low, and then printed extra money to boot. It's printed an extra $60 billion over the past two years, and it's all now sloshing around the economy, bidding up prices here and there.

The Reserve Bank has set interest rates low, and then printed extra money to boot. Photo / Getty Images

The natural reaction to rising prices will be for the Reserve Bank to then raise interest rates. It's shifted the pain into the future. Every mortgage will cost more in the next few years. If low interest rates made 2020 and 2021 more buoyant than expected, they give 2022 a sinking feeling.

At the same time, the production of goods and services has slowed down. People haven't been able to go to work. Some businesses haven't been able to open. Any sector that relies on the border, like tourism or export education, forget it.

The basic laws of economics haven't changed though. Inflation is "too much money chasing after too few goods". Pump up the money supply, throw a spanner in the rest of the economy, guess what? Prices will rise just as sure as night follows day.

Now, the Government and its sympathisers will say, "oh but prices are rising everywhere". It's true, in this sad world, you can justify anything by finding a country doing even worse.

Practically every country is following the same crazy policy of printing money to avoid hard choices. That doesn't make it right, and it doesn't help when prices are rising where you live.

Every country is dealing with Covid, too. That much is also true. But it doesn't mean we couldn't be doing more to control the cost of Covid. Here's what the Government should be doing.

Number one is from the past. The Government should never have changed the Reserve Bank's rules, making it responsible for employment as well as inflation. Now the bank has an out for ignoring inflation. It kept interest rates low and then printed even more money when it should have been focused on the blowout in prices.

Number two is controlling Government spending. Low-interest rates have aided and abetted the Government's fiscal blowout. In the middle of Covid, it spent $51 million designing the bike bridge that won't be built. That money is now out there chasing after too few goods, raising prices for everyone.

Altogether the Government has borrowed around $50 billion since the start of the Covid period. It has twice raised benefits for people who stay home and don't produce anything. That is adding to inflation. It is outbidding against private developers to buy land, raising the price of that too. It is the most inflationary Government New Zealand has seen in generations.

The Government certainly needs to stop pumping extra money into the economy, but it also needs to stop doing things that make it harder to work and produce.

We have a Government that wants to keep the border closed to international students until May.

Australian and Canadian institutions have their welcome mats out. Surely the Government could figure a way to safely reconnect with the world before the 2022 academic year? Can we afford not to give our tertiary institutions a fighting chance?

The same can be said for tourism, are there no countries in the world that fully vaccinated and negative tested tourists could come from? What about workers in the middle of a chronic labour shortage that's pushing up wage costs? If we don't start taking these things seriously, there is a real danger that airlines won't bother flying here and our problem will become more permanent then we bargained for.

Within our borders we could and should balance Covid with other needs. If the Government sets out criteria for a city being at orange and the criteria are met, that city should be at orange. If we keep talking about an abundance of caution, we won't have much abundance of anything else.

Finally, the Government should hit pause on its campaign bludgeoning anyone vaguely interested in producing stuff. New holidays, labour laws, farm regulations, Emission Reduction Plans, and so it goes on. The Government should apply an abundance of caution to harming an economy that's on life support.

The Government needs to do all of the above if it wants to get the rising cost of living. If it keeps pumping out more money without more goods for them to chase, inflation will be its epitaph.

• David Seymour is the leader of Act.