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Lower Interest Rates Being Skewered By Govt. Costs

If the Reserve Bank hoists interest rates next week the finger of blame has to be pointed at Government, the Employers & Manufacturers Association (Northern) says.

Government's extra compliance costs, inaction in dealing with the causes of excessive electricity price increases, and new taxes are skewering the chance for lower interest rates, the association says.

"The economy is humming along well within capacity at present, with no demand side pressures that we can see," said Alasdair Thompson, EMA's chief executive.

"There's no case to raise interest rates coming from demand or supply side pressures, but central and local Government costs are inflationary.

"The Reserve Bank should not be goaded by the markets into pushing up interest rates next week, or in May, as this would seriously penalize prospects for growth next year.

"The case against raising interest rates includes the 2.2 per cent down turn in our terms of trade, and that our export growth has declined.

"Solid retail sales figures recently are:
* a breakout from the past two years of low GDP growth which has incurred higher consumer debt levels that cannot support indefinite consumption increases
* from small, though positive net immigration
* a result of steady employment and tourist spending.
"None of these factors came from an improvement in consumers' real disposable incomes.

"The strong rise in imports late last year was mostly because car dealers stocked up ahead of the April 1st prohibition on importing cars unable to meet new frontal impact standards.

"The modest lift in house prices of late in Auckland has come after several years of no increases. It simply does not rate as a boom as some commentators suggest. Given our lower interest rate levels lately and positive net migration, it is hardly startling news.

"Internationally, the US economy is still hovering on whether a recovery is taking place, while the latest figures from Europe show growth there at just 0.6 per cent annually.

"More troubling however, on the home front is the alacrity with which Government is skewering business with new costs; about $26,000 annually over the past two years in new compliance costs for a business employing 20 people.

"In its attempt to legislate for prosperity the Government:
* has made a virtue from doing nothing while costs spiral, for example with the electricity market and the RMA.
* Taken a 'make business pay' campaign of Margaret Wilson's round the country with the fervour of a revivalist preacher promoting world beating ways to add more cost and uncertainty, and
* talked frequently of innovation and economic transformation to get New Zealand back into the top 10 of the OECD but adopted policies that conflict with this, for example the local government legislation and enacting the HSNO Act 1996.

"This amounts to a three pronged attack on business by Government and the added costs of each prong will be a factor when Don Brash makes his decision on when to raise the OCR."

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