Foolish Power Policy

The Labour Government’s announced intention to regulate price control on electricity fixed charges is both foolish and perverse – it may appear superficially seductive but, in reality, it represents another dangerous step of Government intervention in the market place. 

This type of intervention inevitably results in distortion and inefficiencies, and is a clear indication of Labour’s propensity to interfere that will discourage desperately needed potential investors in the energy sector.  Investors hate uncertainty, and once a government signals regulated prices then all bets are off.   The clammy hand of Government regulating price control also dramatically discourages innovative solutions.

The intention is to have regulated lower fixed charges for all consumers who use less than 8,000 kilowatts per year.  This policy is intended to provide assistance to low-income people.  The reality, of course, is that millionaires with palatial holiday homes in Taupo, Wanaka or Mt Maunganui – who may live there for a few weeks of the year – will reap the fruits of this regulated intervention.  These people will now receive a subsidy from ordinary high-use families, who must now pay extra for their daily laundry, showers and to keep warm.

Why single out electricity as a product for regulated price control?  If we follow the logic of this policy, then we would regulate so that people buying less foodstuffs get them cheaper than those who buy more.  So much for bulk discounts.

Greypower has heralded this move by Government and, in doing so, is calling on Labour to regulate the prices on all electricity supply.  The Greypower position is a natural extension of the Government’s announced policy, but how stupid is that?

Why not move to a full command economy, where Government regulates the price of everything?  The Soviets did that, destroying incentives and creating mass distortion between supply and demand.  The result was long queues of starving people and empty supermarket shelves, coupled with massive over-production of some items and appalling wastage.

Electricity is no different from any other commodity.  Assured supply at optimum price is best achieved in the long term through competitive, open markets.  Every government intervention introduces more costs and greater inefficiencies.

Governments do engage in income redistribution through taxation policies and targeted assistance.  Ten percent of taxpayers earning over $60,000 now pay 46 percent of all income tax.  Conversely, 55 percent of the nation pays 14 percent of the income tax.  And the higher earner will spend more, thereby paying more GST to the Government.

When governments step outside their normal redistribution policies and try to deliver social outcomes by interfering with markets and prices, we’re on a slippery slope.  Regrettably, this Government seems unaware of the risks associated with its foolish policies that are doomed to fail.