What Are NZ Policymakers Doing To Curb High Inflation?

Thursday, 28 April 2022, 6:36 pm
Press Release: Kalkine

Summary

• The Russia-Ukraine war has escalated the ongoing inflation problem by disrupting the global supply-chain ecosystem.
• The latest cash rate hike by the New Zealand central bank was the steepest among all, with a jump of 50 basis points.
• The government has recently introduced tax cuts and other policies to help households amid soaring inflation. 

Consumer prices have risen sharply in countries across the globe as supply-side constraints emerge in the backdrop. The ongoing Russia-Ukraine war has further escalated the problem by damaging the global supply-chain ecosystem. New Zealand is no different in experiencing elevated inflation, with its CPI hitting a 30-year high in the March quarter.

In fact, the country’s inflation expectations advanced from 5.51% in March to 5.97% in April, as per ANZ Bank New Zealand’s monthly Business outlook. The credit goes to growing price pressures in the economy, which have prompted New Zealanders to seek help from policymakers.

The Reserve Bank of New Zealand (RBNZ) is one such crucial policymaker that the nation counts upon. The central bank’s current policy is already weighted toward containing inflation expectations to bring them within its target range.

The New Zealand government has also introduced measures to help residents with the ongoing surge in prices. More measures are expected to be announced in the upcoming Budget, though Finance Minister Grant Robertson has ruled out tax cuts in the Budget. 

Let us discuss the key measures planned or introduced by the policymakers to bring inflation under control:

Interest rate hikes

The RBNZ recently raised the official cash rate for the fourth consecutive time, unveiling its biggest rate hike in nearly 20 years. The latest cash rate hike was the steepest among all, with a jump of 50 basis points. Currently, the cash rate stands at 1.50%, with more rates expected to arise in the following months. 

The aggressive monetary policy tightening by the RBNZ has been aimed at curbing inflationary pressures. The measure is also expected to play a crucial role in easing the red-hot property market. As per the central bank, aggressive monetary tightening in the current period would be more beneficial now rather than later. 

Later, as house prices start experiencing a decline and business and consumer confidence fall, the RBNZ might be forced to devise a new strategy. Currently, inflation shows no signs of a slowdown, and the employment rate continues to remain low. 

ALSO READ: No silver bullets to tackle inflation, says FM Grant Robertson

Half-priced public transport fares

The public transport fares have been temporarily halved between April 1 and June 30. The scheme has been introduced at the cost of about NZ$40 million so that Kiwis can travel at cheaper rates. The move is primarily targeted at protecting people under the most financial tension and easing inflationary pressures in New Zealand.

However, the government seems to be shying away from extending the slashed transport fares. This has ignited speculations that the temporary policy is a gimmick to influence the domestic population. While inflation is here to stay, the reduced travel fare would only benefit commuters for a short period of three months. 

Proposed GST cut on food

Among the string of proposed measures is removing the existing GST (goods and services tax) rate on food to reduce costs for low-income households. While the tax removal might benefit those struggling to sustain a living, it might also promote food wastage in the New Zealand economy. 

Certain experts believe that this measure, if implemented, could be highly detrimental to the environment. This is because the GST in New Zealand does not discriminate between good 
and bad foods in terms of their effects on consumers’ health or the environment. Looking back to the World Wars, it is evident that food is valued at its highest only in times of shortages. Thus, there is largely a view that the GST cut would be less beneficial in promoting equality. 

Value capture tax on property

Last month, Deputy Prime Minister Grant Robertson stated that officials are exploring the possibility of a value capture tax on property. The tax aims to take a cut from property owners looking to make a windfall from land along the planned Auckland Light Rail corridor. 

According to experts, the scheme could raise anything between NZ$2-3 billion, which would be beneficial in funding Auckland’s light rail. The tax cut could also help ease the soaring property prices in New Zealand by targeting those who are making windfall gains on property. 

Potential change in immigration settings

The Auckland Business Chamber has recently called the government to move on the stifling immigration settings to help employees amidst high inflation. Allowing a more flexible inflow of skilled workforce into the country could help mitigate labour shortage and supply-side challenges. 

This, in turn, might ease the inflationary pressures that can be seen building up because of low supply. Additionally, the measure is expected to bring the required skills into the country to meet demand and build productivity and competitiveness. The Chamber further urged businesses to re-evaluate their cost settings and mitigate the impact of inflation. 

GOOD READ: Inflation is on the rise in NZ, hits 6.9%

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