Media Statement Dec 7
NZ Chamber:
Message to Government – focus quickly on what you can change
(7 December 2005)
Instead of killing business confidence by threatening controls
against the housing market, plus having the prospect of interest
rate hikes, Government should take action to control inflation in
its own sector, Chamber of Commerce said today through Auckland CEO
Michael Barnett.
With Government spending contributing about half of the current
3.4% inflation rate - the highest level since 2000 and breaking the
Reserve Bank’s 3% benchmark – three things it could do immediately
to restrain inflation expectations are:
· Put a freeze on new Government charges and levies and block
increases in existing ones and focus on improved productivity;
· Have local governments agree to not raising rates and charges
beyond the Reserve Bank’s 3% inflation guideline (also focussing on
improved productivity) and,
· Take steps to eliminate Government profiteering from the
increased tax revenue generated from rising petrol prices.
Given that the Reserve Bank has confirmed that the rise in
inflation is being driven by three main drivers - rising petrol
prices, higher house construction costs and increased Government
charges - it is logical to expect Government to take some strong
action in the area it has direct control over, said Mr Barnett.
On two fronts at least, there is some justification for cautious
confidence:
· Petrol prices have eased back a few cents in recent weeks;
and,
· Housing demand will likely be checked by the fact that
immigration in the year to October is some 65% lower than in the
year to October 2004.
Business confidence will also be reassured by Minister of
Finance Michael Cullen’s confirmation this week that the officials’
review of options to help the Reserve Bank fight inflation was not
intended to find ways to clobber the housing market.
“But what is good for business should be good for Government,
which is about 40% of the economy,” he noted.
“I suggest threats against business need to be balanced with
action by Government to put its own house in order. To be
consistent, local authorities, for example, should be threatened
with legislation to stop rate increases above the Reserve Bank’s 3%
guideline.”
Mr Barnett said that despite the drop in business confidence,
the real economy is continuing to perform positively. “Unemployment
is low, GDP growth in the June quarter was 1.1%, export prices
remain respectable, and there is every sign that producers for both
domestic and export markets are taking strong Christmas
orders.”
“It seems that the drop in business confidence is being fuelled
mainly by the policy threats emerging from the Reserve Bank and
Government, and not the actual performance being turned in by most
businesses,” he said.
“The last thing Government and the Reserve Bank should do is to
turn the talk of reducing inflation into a collapse in business
confidence that drives up the very recession they say they are
seeking to prevent.”
The Chamber of Commerce has repeatedly called for a process to
scrutinise Government charges, levies, rates and other regulations
that impact on inflation before they are actioned. “While each
increase may be small, the cumulative impact of Government charges
is a major and ongoing contributor to inflation. What grates with
business is that this is an area impacting on inflation
expectations that Government alone has the power to hit for six –
it is time it did.”
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