Government spending has continued. Our Government is still spending on the Covid make-work scheme, such as the $1.219b Jobs for Nature programme, so adding to the labour shortage.
The extra government spending is funded by borrowing.
New Zealand started from a strong position, thirty years of fiscal prudence. Now we are one of the most improvident. Relative to GDP only the Federal Reserve has printed more money. The economic research firm Berl says there has been "an estimated $142b increase in net core Crown debt. This is the equivalent of 47 per cent of GDP in the beginning (2019) year".
The debt burden is being placed on our grandchildren.
Liz Truss' policies were nuts. At a time when the Bank of England is trying to slow the economy to combat inflation, she proposed to accelerate growth. Swap her unfunded tax cuts for our Government's unfunded cash handouts, a majority of New Zealand adults are now on some form of income support, and we see Truss and Grant Robertson are using the same playbook.
With the Government's foot firmly on the accelerator, there is no way inflation is going to return to 1-3 per cent in the next three years.
Inflationary expectations are baked in. No union can accept a wage rise of less than 7 per cent. Companies cannot absorb 7 per cent plus wages and price increases. Businesses must pass on these costs.
Already there are commentators claiming that the cure for inflation is worse than the disease. They are wrong.
Investment decisions are now driven not by productivity but by inflation. Those on fixed incomes are screwed. The country becomes poorer every year.
The quicker we tackle inflation the less the pain.
To solve a mistake you have to admit you have made one. Recent statements from the Reserve Bank Governor indicate the bank is in denial. Adrian Orr defended money printing in a Herald podcast saying the benefits of providing liquidity when the markets froze are "multiples" of the estimated $9b loss on the bonds. No one has criticised the bank providing liquidity during the first lockdown to unfreeze the market. What we have criticised is the ongoing printing of a billion dollars a week for a year.
Orr's hypothesis can also be used to justify inflation. Inflation increases GST revenue, higher wages generates more income tax by pushing people into a higher tax bracket. Inflation inflates away the government's debt.
The damage done by inflation outweighs any momentary benefit to the public accounts. New Zealand now has one of the most expensive housing to income in the world. The gap between rich and poor has increased. No country has ever become wealthy through inflation. The atlas is full of nations that have been ruined by inflation.
If this does not concern ministers they need to consider this. During high inflation, from 1972 to 1984, no government won the popular vote in the next election. Unstable money leads to unstable government.
The Reserve Bank's year-long interest rate rises have failed to curb inflation because the $55b of printed money is still in the economy. Trading banks' deposits with the Reserve Bank pre-printing were $8b, now they are $55b. The Reserve Bank is still printing money for its Funding for Lending programme, under which the trading banks have borrowed over $12b.
If the Reserve Bank wanted to stamp out inflation the bank would remove the excess cash in the economy by selling its bonds direct to the market.
Let me quote King again because his message to UK politicians applies equally to ours.
"Time to front up, to have a narrative that explains to people the consequence of a), allowing inflation to pick up, b), confronting Russia and supporting Ukraine, which has reduced our national standard of living, and c), the need to help future generations cope with the increased national debt we are leaving to them."
• Richard Prebble is a former leader of the Act Party and a former member of the Labour Party.
