13 March 2014

Higher mortgage payments, fewer jobs as Nats let rates rise

The current government’s failure to stabilise house prices and lower power costs is now going to hit families in the form of higher mortgage payments and cost the economy up to 30,000 jobs, Green Party Co-leader Dr Russel Norman said today.

The Reserve Bank has today increased the Official Cash Rate (OCR) by 0.25% and is expected to lift it by 1% over the coming year. The Greens have released Reserve Bank papers that show an increase in the OCR of 1 percent will lead to 12,500-30,000 fewer jobs in the economy. Employers and Manufacturers’ Association head Kim Campbell warned this morning that there would be ‘mass closures’ of manufacturing firms as OCR rises pushes up firms’ borrowing costs and the exchange rate. Housing and electricity accounted for a third of inflation in the past year.

“If National had tackled house price inflation and brought power prices down, we wouldn’t be facing higher mortgage rates and job losses today,” said Dr Norman.

“John Key sat on his hands as house and power prices skyrocketed. National left it to the Reserve Bank to clobber the economy with the blunt tool of interest rate increases, when it should have used smart tools to target price rises in housing and electricity.

“National’s failure hurts families in three ways: We’re paying too much for housing and power, we’re seeing our mortgage payments go up, and there will be fewer jobs to go around.

“The Reserve Bank says that there’ll be up to 30,000 fewer jobs in the economy as a result of a 1% OCR increase over the course of a year. There are 50,000 more Kiwis unemployed than when National came to office. The last thing we need is more businesses closing down or putting off hiring new workers.

“The Green Party would increase the supply of affordable housing, give families an affordable pathway to homeownership, and stop speculators forcing up house prices with a tax on capital gains (excluding the family home). We would use NZ Power to bring down power prices and introduce real competition to generation and electricity retailing.

“The Green plan would lower inflationary pressure, keep interest rates lower for longer, and create more jobs for New Zealanders,” said Dr Norman.

Additional information:
An estimated small open economy model with frictional unemployment pages 20-21
Shocked by the world! Introducing the three block open economy FAVAR pages 22, 26

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