Inflation could hit 3.7% under the Treasury’s worst-case inflation scenario.
Petrol prices have risen about 45 to 50 cents a litre, adding about $23 to the price of filling an average car, according to Finance Minister Nicola Willis.
Willis has outlined the Government’s priorities: first, a focus on supply chains; second, potential and anticipated freight disruptions; and, lastly, our economic response.
Ministers are meeting daily, there are written situation updates twice daily, and they’re working closely with importers.
Willis said the Government was watching the fuel price and monitoring whether an intervention was required.
She’s ruling out any blanket measures, saying any support would be temporary, targeted, and timely - and she won’t be splashing the cash. Any “spending bazookas” would add “fuel to the inflation fire”, she told Ryan Bridge TODAY.
The Government has said it’s learned from the Covid era that broad subsidies and pumping money into the economy in an inflationary environment just make it worse later, thanks to the Covid Inquiry’s final report, released last week.
NZ Herald business editor at large Liam Dann told The Front Page that it makes sense to not do anything drastic and reactionary.
“The problem here is that if you have an inflation problem and you push more money supply into the economy, that actually exacerbates inflation.
“Something like cutting the excise tax on fuel would lower the cost of fuel, but would increase demand for petrol at a time when you’re trying to restrict demand. You actually want to use less petrol,” he said.
Willis said that the Treasury scenarios show higher inflation than anticipated, and the worst-case scenario with a prolonged war in Iran shows 3.7%.
She admitted it was “too high for my liking” but pointed out that it was lower than Australia’s current 3.8%.
While we are entering “unavoidable international cost pressures”, she reassured that New Zealand is in a better position than other countries.
“It’s slightly different in that Australia’s economy was growing above capacity. So they were already seeing strong economic growth, which had started to drive inflation.
“You could say we were lucky we had all these recessions because that meant our economy was in such a terrible shape that there was less inflation in the core of the economy. So, economists had been expecting to see inflation come back a bit,” Dann said.
Meanwhile, the cost of food has kept climbing, even before the US and Israel launched war in the Middle East.
Stats NZ data shows prices rose 4.5% in the past 12 months. Steak, blocks of chocolate, and beef mince all went up more than 20%.
Domestic airfares were up almost 11% before spiking more this month. Electricity and gas rose more than 13%.
Willis has mentioned the Government looking into “mechanisms that already exist” as a possible lifeline for those doing it tough. She’s cited that there is a series of tax credits available to target support.
There is a range of credits available under the Working For Families banner. An “in-work tax credit” is there as long as you’re earning an income, and changes depending on how many children are in the home.
There’s the “minimum family tax credit”, which ensures working families get a minimum level of income every week.
If you qualify, your income is topped up so you’ll get $703 a week (after tax). This amount normally changes from year to year to keep up with the cost of living. The credit doesn’t change depending on the number of dependents.
Best Start payments give extra support to your family over the first three years of your child’s life. The full entitlement is $77 a week.
Then there’s the “family tax credit”, which is dependent on family income, the type of income, how many children, and any shared care arrangements.
All these are designed to help primarily low- to middle-income working families (incomes around $24,000 to 100,000) with dependent children under 18.
For those without children, there’s something called the Independent earner tax credit. For those earning between $24,000 and $70,000. The most you can receive at present is $520 per year.
It excludes those on main benefits or family payments, but is ideal for young workers or couples with no children.
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The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5pm. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
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