Spending should be reprioritised, says ACT head
The Labour government could be doing more to reduce inflation, therefore helping to prevent further interest rate rises, says ACT leader David Seymour.
But the Finance Minister Grant Robertson (pictured above left) says the government has taken a range of actions to ease financial pressure on households.
In its first monetary policy statement of 2023, the Reserve Bank lifted the official cash rate by 50 basis points. It marked the 10th rise in 16 months, which has seen the official cash rate rise from a record low 0.25%, to 4.75%.
While there were early signs of price pressure easing, “core consumer price inflation remains too high” the RBNZ said in its February Monetary Policy Statement.
The RBNZ decision followed the Anniversary weekend floods and Cyclone Gabrielle, which prompted the government to declare a national state of emergency. Kiwibank economists said ahead of the decision that the RBNZ should pause its hiking cycle, saying “talk of a 50bp or even a 75bp hike should be sidelined”.
ACT party leader David Seymour (pictured above right) said after the RBNZ announcement that the “double shot jump” meant “more pain on the horizon for mortgagees”.
“The government needs to offer the Reserve Bank a lifeline. The governor has often said ‘monetary policy needs friends’,” Seymour said in a statement. Instead, Seymour said Adrian Orr was left “with an impossible choice”.
“He either hikes the OCR and makes life harder for mortgagees, or he puts the brakes on and inflation hangs around stronger for longer. Either way Kiwis lose until the government can cut wasteful spending,” Seymour said.
Seymour told NZ Adviser that the Reserve Bank was essentially tackling high inflation alone.
“Now the governor is left to fight inflation all by himself, his fiscal friend is on a bender splashing the cash and adding to the inflation he’s legally required to fight,” Seymour said.
In response to whether the government could influence interest rate decisions, Robertson said the RBNZ operated independently.
“Decisions on monetary policy and the level of the official cash rates are made by the Reserve Bank independently from the government,” Robertson said.
Reprioritisation of spending needed, says ACT leader
In a response to how mortgage rate pain and cost of living pressures could be alleviated for households, Seymour referred to a February RBNZ household expectations survey, which showed households on average expect one-year ahead CPI inflation to be 7%.
“These inflation expectation figures are bad news for borrowers because the Reserve Bank will need to keep interest rates higher for longer,” Seymour said. “That includes mortgagees, and the government with its $155bn net debt.”
With Labour leaning towards more tax and National leaning towards more borrowing to pay for the cyclone rebuild, Seymour said he expected inflation to grow and interest rates to rise.
“There needs to be urgent reprioritisation of expenditure instead,” Seymour said.
ACT says there needs to be a moratorium on non-urgent expenditures (e.g. Auckland Light Rail is estimated to cost $14.6bn), he said.
The country needs to pay for a natural disaster: getting Kiwis’ lives back on track is the priority, he said.
“New Zealanders will never have a chance to fight the cost of living crisis and mortgage increases they already face, which will be exacerbated by these floods, if Grant Robertson can’t cut spending,” Seymour said.
“ACT’s fully costed alternative budget reduces overall expenditure by $7.2 billion. Such a reduction would mean New Zealand can recover from Cyclone Gabrielle without heaping more pressure on to Kiwi households.”
Government initiatives to help cash-strapped households
Annual CPI inflation sits at 7.2% (December 2022 quarter), indicating that from a monetary policy perspective, the Reserve Bank’s job is not yet finished.
Robertson said the government was taking a range of actions to help Kiwis doing it tough and ease pressure on families.
“We’ve already extended fuel tax cuts and half price public transport until the end of June,” Robertson said. “We’re also significantly increasing support for seniors, students, beneficiaries and those on Working for Families from April 1, along with making it cheaper for more families with our childcare package.”
As previously indicated, cost of living issues will be a major focus in the May Budget, Robertson said.
National leader Christopher Luxon was also contacted for comment.
