Government must do their Bit to Reduce Inflation

26 April 2007

Central and Local Government must do their Bit to Reduce Inflation

Today’s interest rate rise again highlights the urgent need for the Government to take more responsibility for reducing inflationary pressures in the economy according to the Wellington Regional Chamber of Commerce.

“The government must assist the Bank in addressing inflationary pressures by curtailing the growth in government expenditure and improving the quality of expenditure,” Chamber CEO Charles Finny said today.

“Without urgent action from government we are concerned that recent interest rate increases alone are not going to prove effective in curbing inflationary pressures. This would mean that further increases will be inevitable. This applies to local government as well as central,

“Increases in Government expenditure have had a big role in inflating prices and this was again specified as a concern in Alan Bollard’s statement accompanying the increase.

“Rising government charges are also a factor. For example the central and local government charges component of the consumers price index increased 3.3% in the March year 2007 compared with 2.5% overall. The local authority rates component increased an excessive 7.4%.

“Of particular concern is the local government sector which is making a significant contribution to inflation through increased expenditure and rates. Local government spending is already equivalent to over 3% of GDP. Local authorities around the country are currently releasing their Annual Plans so now is the time for people to express concerns about the inflationary impact of this sector.

“Interest rate increases are impacting on the business sector, directly through the increased cost of borrowing, and indirectly through the impact on the New Zealand dollar.

“The business and export sectors should not be bearing the overwhelming share of the cost of containing inflation as they currently are.

“The current account balance and other factors suggest that the New Zealand dollar is overvalued. We look forward to an eventual adjustment as this is given more scrutiny,” Mr Finny concluded.

ENDS

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