by Richard Prebble
New Government measures won’t be enough to fix inflation problem and regain support before next election.
What a difference a poll makes. A week ago the Prime Minister would not admit there is a cost of living crisis. The Kantar Poll has rocked Labour. It is not just that National/Act are ahead. The poll reveals the electorate would be just as happy to see Christopher Luxon as PM. Jacinda Ardern is no longer a vote winner.
The Kantar poll confirms what other polls say. Labour is in trouble.
The media does not report the Australian pollster Roy Morgan because it is not a party to the “New Zealand Political Code”.
In February, Roy Morgan had National/Act (49.5 per cent) leading Labour/Greens (43 per cent) by a 6.5 per cent margin.
For five months in the Roy Morgan polls Labour has been falling and National rising.
In the Roy Morgan polls the majority of the country believes the country is headed in the wrong direction. The Roy Morgan consumer confidence index is the lowest it has been since Ardern took office.
When the opposition is seen as more economically competent, the government always loses the election.
Labour is in full panic mode. Inflation defeats governments. Inflation is deadly because the solution to inflation is even higher prices, increased interest rates.
No prudent government lets inflation get established.
The Government’s fuel tax reduction gives some temporary relief but it does not tackle the causes of inflation.
Reducing the excise just transfers the revenue raising to a less efficient tax.
There is no Covid fund. It is an accounting fiction. The roads still have to be funded from taxes or borrowing.
More worrying is the subsidy on public transport. The advice of the OECD regarding subsidies is “do not do it”.
Subsidies are poorly targeted. The winter fuel subsidy goes to millionaires. Those who can afford to take a bus are being subsidised by those who cannot.
Subsidies once on are very hard to withdraw. There has never been a social or economic justification for subsidising Gold Card holders’ ferry trips to Waiheke Island.
Ardern in her press announcement repeated Labour’s claim that inflation is temporary. She said “inflation will peak and subside over the coming year”.
The idea inflation is transitory has always been nonsense. Labour as recently as last May was claiming that inflation today would be just 2 per cent. Inflation is well established. Companies are saying they intend to lift their prices. Reducing the fuel tax for three months will not change inflationary expectations. These measures over time will make things worse. Sir Robert Muldoon also introduced a “temporary” price and wage freeze overnight. Once on, the freeze proved impossible to remove. Local body politicians in election year are going to insist the public transport subsidies remain.
Fuel prices were rising before Russia attacked Ukraine. There is no evidence the pain at the pump is going to end in three months.
The war in Ukraine could last for months. We are only seeing the beginning of the impacts. Ukraine is one of the world’s largest wheat exporters. The global rise in the price of bread is going to cause economic and political chaos from Egypt to Indonesia.
We may think we are not connected to events in these countries. The last two recessions in New Zealand started from events that seemed remote, the collapse of the Thai baht and defaults in American sub-prime mortgage bonds.
We will discover we are connected to events such as a probable Russian default in ways we cannot imagine.
The double-digit food inflation is just the beginning.
What could cause the price of petrol to fall is a worldwide recession, which is now a real possibility.
Petrol and food prices are vital. Both have a profound effect on the economy and our standard of living.
Today in fuel and food we have double-digit inflation.
In politics it is always later than you think. Labour has just 18 months of effective government before the next election.
The way to solve inflation was a year ago by starting increasing interest rates; 18 months ago to stop printing money; five years ago not to ban offshore exploring for oil and gas.
Interest rates have to rise but it will not be in time to bring inflation under control before Labour faces the electorate.
The effect of interest rate rises on the mortgage belt electorates will be devastating.
The Auckland median house price is $1.2 million. Last year with a 20 per cent deposit, monthly repayments on the loan at 2.5 per cent would be $3793. By election year at 5.25 per cent the repayment will be $5301.
Three months’ fuel tax relief and public transport subsidies is not going to save Labour.