Prime Minister Jacinda Ardern speaks to the media from a lolly factory. Photo / Mark Mitchell
Prime Minister Jacinda Ardern speaks to the media from a lolly factory. Photo / Mark Mitchell
OPINION
If only the Government had gone hard and early on inflation. Labour's cost of living payment saga is symbolic of much bigger challenges with problem-solving in a democracy.
The starting point was that Labour didn't listen. While the cost of living was biting, it refused to acknowledge that. Eventually,it was not people or logic, but media headlines, that changed Labour's mind. Sudden realisation was quickly followed by rushed policy; policy made to sound good instead of actually working.
It now sounds suspiciously like Labour dreamed up a title by replacing cost of living crisis with cost of living payment, and then tried to fill in the details when it was too late.
It all started when the Prime Minister and her Ministers refused to admit there was a cost of living crisis until March. Act called it last December. Our party has since published two papers with nine practical ideas for reducing the cost of living.
Being slow to admit the problem meant Labour didn't have time to understand it first, then solve it. Even the Prime Minister admits her solution to inflation is actually inflationary.
Labour is running a deficit this year, meaning it pumps out more cash than it takes in. The cost of living payment will pump out an extra $814 million of borrowed money, expanding the deficit.
Bigger deficits mean more cash chasing a shortage of goods, and inflation is too much money chasing after too few goods.
When the Government finally admitted there was a cost of living crisis, it panicked and reverted to type. Marketing first, policy later.
The instruction appears to have been "give some cash to everyone who declared under $70,000 to Inland Revenue last year, that we don't already give the winter energy payment to". That is, everyone but superannuitants and beneficiaries.
The result is exactly what you'd expect if a Government decided to turn decades of assistance targeting on its head. Their policy is to give money to exactly the people that Jim Bolger, Helen Clark, John Key and, until now, Jacinda Ardern, all agreed did not need Government assistance.
Those people might be; young adults living at home, the spouse of a high earner who works part-time, someone who recently arrived in or left the country and only earned New Zealand income for a few months last financial year, someone who's been away a long time and is a taxpayer only because of the tax on interest on their dormant savings account. I've heard them all this week.
With all the chaos, the Government may be wishing it had never gone down this route. Perhaps the policy will be short-lived? After all, it's only scheduled for three months.
We doubt that. Act predicts that the cost of living payment will be extended just as the fuel tax discount, Road User Charge discount, and public transport discount have been extended. Revenue Minister David Parker wouldn't rule it out in Parliament.
David Seymour. Photo / Marty Melville
Psychologists call it loss-aversion. People will fight much harder to keep what they have than they will to gain something of the same value.
Loss-aversion tells us that if getting $116 a month made people happy, losing $116 will make people much more unhappy. Did I mention the scheme is supposed to end eight weeks before Christmas?
Altogether, the policy is a last-minute, made-for-public-relations, cluster. It's a rogue lawn sprinkler hosing taxpayer cash at some (but not all) of the people who desperately need it, and plenty who don't. It's an inflationary solution to the problem of inflation. Labour will extend indefinitely because the political cost of stopping it will be too high.
Enough negativity, what should they have done?
The Government should have cut waste to reduce deficit spending; cut taxes to let workers keep some of that reduction for themselves; made councils accept equivalent building materials to reduce building delays and prices; rolled out the red carpet for foreign supermarkets to bring in competition; streamlined immigration so firms can get enough workers to produce more goods and services; and held the Reserve Bank Governor accountable for failing to do his job of controlling inflation. These ideas and more are in Act's documents.
In other words, it should have started early to attack the underlying causes rather than the symptoms of the cost of living crisis.
By going hard and early on inflation, Labour could have helped build faith in something much more important.
By showing politicians can listen, identify problems, weigh up solutions, and apply them in a timely manner, they could have shown that democracy works.
