Free Press 18 July 2022
ACT’s Real Change tour and rallies are drawing huge crowds and being written up everywhere. This week the tour heads south to Blenheim, Nelson, Timaru, Queenstown and Invercargill. The week ends with two big rallies in Christchurch on Saturday and...
ACT’s Real Change tour and rallies are drawing huge crowds and being written up everywhere. This week the tour heads south to Blenheim, Nelson, Timaru, Queenstown and Invercargill. The week ends with two big rallies in Christchurch on Saturday and Auckland on Sunday. The message? New Zealand is in such a state that simply changing who’s in the Beehive won’t cut it. The change must be real. You can still RSVP at the links above.
New Zealand’s cost-of-living crisis (more accurately, the lack of political response to it) is becoming a text book example of why people don’t trust politics. Regular Free Press readers will know we lament the retreat of democracy around the world. People lose faith in big Government, and elect demagogues in their place. The problem is broken political systems, politicians don’t listen, and fail to offer real choice.
ACT first said there is a cost of living crisis in December when we started hearing about it from people up and down the country. We proposed a series of solutions at the time. It took another four months before the rest of politics accepted there was a crisis. First National, then Labour, accepted that there is a cost of living crisis.
In the mean time, we heard every dodge under the sun. We heard that it was not that bad. Then it was bad but only temporary. Then it was not temporary, but imported. Then it was local enough for the Government to do something about it. The solution was to reduce taxes on petrol, Road User Charges, and public transport fares.
Six months after ACT’s original call, the Government went further. It promised a cost of living payment in the spring as part of the May Budget. In effect it gave $350 to anyone earning under $70,000 and not already on a benefit or pension. Infamously, Grant Robertson near-boasted that adding this payment meant 82 per cent of the country would be on some form of government transfer.
These policies won’t work. They do not address root causes. Why are prices rising so rapidly? It’s not because we have a (partial) user pays system for roads and public transport. Those fees are not the problem.
The petrol tax reduction is especially weird. The Government that wants to ween us off petrol, just not so fast, it turns out. Its discount has effectively wiped out the effect of Emissions Trading Scheme charges (about 21c/litre). And yet, the policy is not permanent, although it’s been extended twice.
Reversing the discount will be a logistical and practical catastrophe. Loss aversion means people react more aggressively to losing something than gaining a thing of equal value. If giving a 25 cent discount was popular, taking it away will lead to mass queues, empty fuel stations, and general chaos. That’s why there’s nothing more permanent than a temporary government program.
The cost of living payment is no better. It gives a one time hand out to select people when the problem is long-term and universal. It is gesture politics at its very worst.
The upshot is this. We’ve had a problem for six months, it’s got worse, and the Government has spent more time avoiding responsibility than confronting it. This is a very good example of why we can’t have nice things, such as flourishing democracy.
What they should have done is accepted that inflation is a worldwide phenomenon with a domestic component. Government spending matters. Restrictions at the border, unworkable isolation rules, and Kafkaesque regulations on plasterboard… they all add to costs.
The Government should have adopted ACT’s Alternative Budget, and cut expenditure by $6.8 billion. That would cut back the enormous fiscal impulse that is driving inflation. It would also allow for tax relief, so families can afford the increased costs they already face from the last two years of inflation.
ACT’s tax policy would reduce six income tax rates down to just two, for a simple, fair and competitive tax structure. It would also let, say, a nurse earning $70,000, keep an additional $2,300 per year.
Then there’s something else. The Reserve Bank Act theoretically requires inflation to be between one and three per cent. However the Monetary Policy Remit, Labour’s renaming of the Policy Targets Agreement, does not have a date or a consequence. It simply says inflation must be between one and three per cent in the ‘medium term.’ Inflation is forecast to stay above five per cent next year, and there is no consequence.
The next Government should rip up the Monetary Policy Remit, and issue an old fashioned Policy Targets Agreement with specific targets, timeframes, and consequences for controlling, or not controlling, inflation.
The alternative is that nobody’s accountable. The people are screaming out for a solution but their choices are two parties that want to do basically the same thing while claiming the other is venal or incompetent, depending on the day.
We have to prove that real solutions can work. That a democratic system can generate solutions and solve problems. If a democracy can’t solve such an obvious problem, one that is now voters’ number one issue by an enormous margin, then the system will be further eroded. Taming inflation is no longer about saving money, it is about proving democracy, too.
Do you like this page?