Our PM Jacinda Ardern (and the government)

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195 posts

Master Geek

#2910800 6-May-2022 11:09

The current inflation issues are actually very complex & unusual due to the war & covid. It almost requires sort of opposite responses to the external vs internal inflation which is hard.
For the external inflation you want to lower prices giving people more money, but for the internal inflation & house price stupidity you need to cause pain by removing spending power.

People also seem to forget that many changes the government could make would reduce the tax take (e.g. reduce fuel tax, low power prices) & cause cuts in other areas.

I've seen many people blaming the government for the RBNZ response to house prices, but I thought the RBNZ is basically independent? The gov just sets a mandate but can't tell them to raise interest rates?

GV27

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#2910801 6-May-2022 11:09

gzt:

Imo the working poor are more in need of things like 100% free dental care common in many countries than a couple of dollars of a BS tax cut.

IMO strip back the things that aren't stuff like free dental and still give people the tax cut anyway.

Taking money from the working poor to give it back to the working poor with a whole heap of government inefficiencies inbetween is dumb.

JPNZ

1542 posts

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#2910804 6-May-2022 11:16

Good article in the Herald (paywalled) from Matthew Hooton this morning talking about the continued slide of Arderns popularity and there is no evidence that either of the continuity candidates, Finance Minister Grant Robertson or Covid-19 Response Minister Chris Hipkins, would do any better.

On the two main economic issues of the day, the cost of living crisis and public demands for tax relief, Labour is already offside with the median voter and a majority of its own supporters.

The Budget, now less than a fortnight away, is unlikely to placate voters on grocery bills or tax, with Robertson indicating most of his $6 billion in extra spending will go on restructuring the health system and — probably futilely — combating climate change and rising sea levels.

The real question is how far down will Labour's polling go, I cannot see the upcoming three waters helping in anyway either.

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#2910809 6-May-2022 11:24

GV27: Taking money from the working poor to give it back to the working poor with a whole heap of government inefficiencies inbetween is dumb.

You've missed out the bit higher earners paying more. Add bills in the thousands, and increased general health costs resulting from underlying dental conditions, and it's nothing like that.

GV27

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#2910855 6-May-2022 11:28

On2or3wheels:

I've seen many people blaming the government for the RBNZ response to house prices, but I thought the RBNZ is basically independent? The gov just sets a mandate but can't tell them to raise interest rates?

This is why the 'independence' of the RBNZ as a political shield for the government is a joke. The Govt has changed the mandate to consider 'full maximum employment' which is a default downwards factor on the OCR. So it controls the mandate, the Finance Minister appoints the Governor and they can be removed by the GG on the advice of the Finance Minister under the RBNZ Act.

But there is no consequence for the RBNZ for missing the PTA target inflation window, or for dropping the LVRs to the floor for investors, or for leaving the OCR on the floor as house prices rose in late 2020.

The fact that the Governor retains the confidence of the Finance Minister at this point is a matter for the Finance Minister. Kiwis may have thoughts about whether the Finance Minister and Governor sitting there and writing letters to each other while house prices exploded is an adequate response if it turns out the financial stability of NZ - the core of the RBNZ mandate - has been jeopardised.

On2or3wheels

195 posts

Master Geek

#2910856 6-May-2022 11:34

GV27:

IMO strip back the things that aren't stuff like free dental and still give people the tax cut anyway.

Taking money from the working poor to give it back to the working poor with a whole heap of government inefficiencies inbetween is dumb.

Except some people will make bad choices with what they spend money on & still go to WINZ to get money for dental.
Sometimes it's better to provide a service than give the money & hope it might be used on it. This is especially true when you give money to help the children HOPING that it will actually be used for that.

gzt

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#2910872 6-May-2022 11:40

On2or3wheels: Except some people will make bad choices with what they spend money on & still go to WINZ to get money for dental.

A bad choice in many cases is food for the kids and a roof over your head.

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JPNZ

1542 posts

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#2910873 6-May-2022 11:41

GV27:

This is why the 'independence' of the RBNZ as a political shield for the government is a joke. The Govt has changed the mandate to consider 'full maximum employment' which is a default downwards factor on the OCR. So it controls the mandate, the Finance Minister appoints the Governor and they can be removed by the GG on the advice of the Finance Minister under the RBNZ Act.

But there is no consequence for the RBNZ for missing the PTA target inflation window, or for dropping the LVRs to the floor for investors, or for leaving the OCR on the floor as house prices rose in late 2020.

The fact that the Governor retains the confidence of the Finance Minister at this point is a matter for the Finance Minister. Kiwis may have thoughts about whether the Finance Minister and Governor sitting there and writing letters to each other while house prices exploded is an adequate response if it turns out the financial stability of NZ - the core of the RBNZ mandate - has been jeopardised.

Spot on...

Professor John Taylor, inventor of the "Taylor Rule". That rule is a simple formula explaining how a Central Bank can quell an inflationary shock. It has proved a robust guideline when setting Official Cash Rates around the world.

The rule states that an increase in the OCR of more than one percentage point is required when inflation increases by one percentage point. The reason is to ensure that real interest rates go up to reduce borrowing.

Without a rise in real rates, debt-financed spending can continue to fuel inflation.

So what's been going on in NZ? Annual inflation, measured at March 2021, was 1.5 per cent. Annual inflation at March 2022 was 6.9 per cent. In other words, inflation has risen by more than five percentage points this past year.

However, the RBNZ has only increased the OCR by a little over one percentage point over the same period, sending short-term real rates deeply negative.

The Taylor Rule is powerful evidence that there has been no intention, whatsoever, of our authorities to meet their obligation of keeping inflation on target.

Robertson and Orr are both to blame for the Recession/Depression we are about to fall into

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gzt

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#2910874 6-May-2022 11:43

I'm not aware of what dental winz does and does not fund. I get the impression there are severe limits. I do know somewhere near 70% is on a loan basis with required repayments.

networkn

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#2910879 6-May-2022 11:45

gzt:
On2or3wheels: Except some people will make bad choices with what they spend money on & still go to WINZ to get money for dental.

A bad choice in many cases is food for the kids and a roof over your head.

I used to have (very wrong) strong views about this, where I felt it was wrong to feed kids as it was the parents job and they should make better choices.

Someone once said something to me, that hit me like a bolt of lightning.

"You can't punish kids, for their parents bad choices"

This entirely changed my perspective as it's totally 100% true. You don't let kids go hungry or without an education or without a dry clean home, because their parents spend money on cigarettes, drugs or other things.

I now support most initiatives that ensure that a kid gets a good education, including food at school taxpayer-funded if required.

GV27

5896 posts

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#2910880 6-May-2022 11:46

On2or3wheels:

Except some people will make bad choices with what they spend money on & still go to WINZ to get money for dental.
Sometimes it's better to provide a service than give the money & hope it might be used on it. This is especially true when you give money to help the children HOPING that it will actually be used for that.

And my point is that if that's of over-riding importance then there must be some other crap we can slash to find the money for it.

I've got no problem with providing free dental, but given declining real incomes against rapid inflation, just reaching further into the pockets of Kiwis can't be the go-to answer for everything.

GV27

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#2910882 6-May-2022 11:48

networkn:

I now support most initiatives that ensure that a kid gets a good education, including food at school taxpayer-funded if required.

For me the thing that got me on this was the suggestion not having to pay for lunches for school was as much as a reward for good parents who would have done that by default as anything to do with crappy parents who aren't going to and never will.

So why shouldn't parents who are actually looking after their kids catch a break? The difference is kids actually get fed.

On2or3wheels

195 posts

Master Geek

#2910883 6-May-2022 11:51

JPNZ:

Robertson and Orr are both to blame for the Recession/Depression we are about to fall into

I thought from memory the government had been making remarks on the side that the RBNZ needed to raise the interest rate & Orr still refused at the time?
I'm sure I remember the gov not being that happy with the RBNZ performance.

GV27

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#2910884 6-May-2022 11:53

JPNZ:

The Taylor Rule is powerful evidence that there has been no intention, whatsoever, of our authorities to meet their obligation of keeping inflation on target.

What's even more concerning is in NZ the swap rates are actually putting more upwards on mortgage interest rates than the OCR is.

The further the swap rates get from the OCR, the more you have to move it for it to have any use as a domestic policy tool.

Otherwise you'll end up with huge swap rate pressure dampening spending and stagflation which you would traditionally combat with... a lower OCR.

I don't think people appreciate just what a pickle NZ is in. This could get really really bad. NZ in the early 1990s was a dreary place after the BNZ crisis and I don't know if modern NZ could handle a prolonged period of stagflation and high unemployment.

On2or3wheels

195 posts

Master Geek

#2910885 6-May-2022 12:06

I would assume one of the issues with raising the interest rate earlier was the exchange rate. We already had an OCR that was higher than many other countries.

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