Gordon Campbell: Bogus victory on price increases

Out in the real world, it is hard to see why anyone would want to take credit for the current state of the economy. Economic growth is barely registering a pulse, and unemployment is forecast to stay above 5% for the foreseeable. Government policy is failing young people in particular – with 45% of those out of work being aged between 15 and 24 and unemployment among the young is around 18% overall. Faced with his dismal situation, most politicians would be hiding their head in their hands. Not Finance Minister Bill English, though. There was English yesterday, pointing to an inflation rate of 1.1% – the lowest annual rate since 2004 – as a sign of the good times under a National government.

In fact, English looked more like Wile E Coyote pedaling out into mid-air, and saying ‘So far, so good’ just before he plummets to the canyon floor. Not only did that 1.4 % omit the full impact of the GST rise – while reflecting how retailers deferred price rises until they could be passed under cover of the GST hike – the average CPI figure was an illusion that obscured far more than it revealed. Yes, the prices of non-essentials (eg major electronic appliances) have been slashed to lure in consumers, but meanwhile, the price of essentials rose at a rate well above the average. Here for instance, is the actual release http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_inflation/ConsumersPriceIndex_MRSep10qtr.aspxfrom the Statistics Department on the CPI, and it showed vegetable prices – for instance – rising by nearly 20%, and power prices rising at more than double the inflation rate.

The food group rose 2.4 percent in the September 2010 quarter, with higher prices for vegetables (up 19.7 percent) and milk, cheese, and eggs (up 5.2 percent).

The housing and household utilities group rose 1.4 percent, with local authority rates rising 4.4 percent and electricity prices rising 2.8 percent.

In other words, the good news that English is spinning is bogus. By the middle of next year inflation is forecast to blow out to 5% or more. There is nothing in the policy settings likely to arrest the downward spiral. Since the government’s favored policy instrument of tax cuts delivers more money to those already better off, there will be a rise in income inequality, with all the added social costs in health and law and order that follow in its wake.

Unfortunately, English and most of his advisers live in the virtual world, and not in the one that most New Zealanders inhabit. That’s how come Treasury – in its recent paper submitted to the Welfare Reform Working Group – could call for a policy change aimed at tipping more sickness and invalids beneficiaries out into the jobs market, and onto the dole. It is as if Treasury has not noticed the recession, or that the jobs market is stagnant. Or that people are on sickness and invalids benefits for a reason. Or that the problem is a lack of job creation, and not the lack of motivation to work.

The real problem therefore is not to “incentivise” beneficiaries to work but to incentivise the state and the private sector to invest in jobs that pay more than the minimum wage. Devising that kind of policy though, is hard – far too hard evidently for the usual crop of Treasury advisers. Moreover, whenever Treasury do see other countries succeeding at state interventions that create genuine jobs and growth, they tend to object on moral grounds to such heresies. As a result, the only policy carrot perennially on offer is a tax cut for business – commonly frittered away as profit, and/or paid out to shareholders – which chronically, leaves the real economy spinning its wheels until business can get its next tax handout. So it has always been, since the tax cuts of 1988. They didn’t work and others since haven’t, either. Trouble is, Treasury has always wanted to be Gordon Gecko, but it has really been Jay Gatsby all along – and we know how The Great Gatsby ended up:

I thought of Gatsby’s wonder when he first picked out the green light at the end of Daisy’s dock. He had come a long way to this blue lawn, and his dream must have felt so close that he could hardly fail to grasp it. He did not know it was already behind him, somewhere back in the vast obscurity behind the city, where the dark fields of the republic rolled on under the night.

Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that's no matter -- tomorrow we will run faster, stretch out our arms farther. .And one fine morning….So we beat on, boats against the current, borne back ceaselessly into the past.

It will do no better on welfare reform. All the Treasury paper will do is stigmatise (as bludgers) a lot of people who are genuinely sick and/or disabled – while reducing the income of many by taking them off their current benefit and putting them on the dole. Since being out of work is stressful and makes people sick, their health will deteriorate, and many will then go back onto the sickness benefit. Come next year, you can bet Social Welfare Minister Paula Bennett will be out there trying to peddle this dismal and vindictive charade, as a government success story.

ENDS

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