The Post: How this Government is adding fuel to the inflationary fire

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Every time we buy a $10 block of butter or a $20 slab of cheese, we’re reminded of the cost-of-living crisis. Less obvious is the extent to which our bills are being inflated by this Government.

Just paid an extra $25 to get your car registration? That’s this Government. When a further $25 is piled on next year? That’s this Government. When you have to pay an extra $30 to renew your passport, or another $50 to file an appeal in court? This Government again.

The sharp increase in the state’s fees and charges, known technically as administered inflation, has so far caused little fuss. But it’s an embarrassment for National because it so directly undermines the party’s already-dubious claim to have conquered inflation.

Labour’s spending was never the main driver of rising costs, that being global supply-chain shocks and increased corporate margins. Inflation’s decline had little to do with National’s cost-cutting and everything to do with the Reserve Bank’s hiking of borrowing costs.

Indeed, far from taming inflation, the Government is making it worse. Although overall inflation is 2.7%, roughly where policy-makers want it to be, it is rising once more.

That is in part because administered inflation last month hit a startling 10.8%. This, the Reserve Bank believes, is the highest increase in public service fees and charges for at least 35 years. The Government is administering a significant price shock.

The extra vehicle registration fees will increase Kiwis’ costs by $530m. Cutting free and discounted public transport for young people raises household costs by $327m. Restoring the $5 prescription fee is a $620m hit to family budgets, while importers are being stung by $70m annually in extra Customs fees.

Council rates are also rising sharply, at an average of 12.2% this year, partly because National promised to “co-invest” in water infrastructure pre-election and then promptly broke that promise.

The Government has conspicuously abandoned its claim that its policy will be cheaper than Three Waters, an implicit admission that it is hiking water bills higher than they need to be. Its cuts to transport infrastructure and the like also force councils to raise rates.

More administered inflation is on the way. Having promised no fuel tax hikes this term, National has merely saved them up for later: a 22c rise, slated for 2027-29, will cost households over $1.4b.

A huge hole in the roading budget could well be filled with billions of dollars’ worth of road tolls. And some speculate that next year’s Budget, if it needs to find space for election-year tax-cut giveaways, could contain even more fee hikes.

Why does any of this matter? First of all, it reveals yet another incoherence at the heart of this Government’s economic policies.

Journalist Bernard Hickey, whose The Kākā newsletter has most tellingly highlighted this issue, says any reduction in inflation from state spending cuts has been “swamped” by the fee hikes.

Those hikes also feed through into other forms of inflation. In January, the Civil Aviation Authority more than doubled domestic passenger landing fees and increased other charges. Air New Zealand, accordingly, claims its airport charges have risen 6% this year, a cost it will pass onto consumers.

This upwards pressure on inflation forces the Reserve Bank to keep interest rates higher than it would like; meanwhile, ministers are breaking the decades-old convention around the bank’s independence and putting pressure on it to cut those rates more quickly. All this is quite contradictory.

The Government can of course claim that, if it hadn’t hiked fees and charges so sharply, it would have had to find those funds somewhere else. But that’s exactly what it should have done.

For the capital investment component, borrowing the money would have ensured future generations paid their fair share. And the day-to-day spending could have been managed without extra user-pays if the Government had not, for instance, restored $2.9b in tax breaks for landlords.

Hence the significance of the administered inflation shock. It is yet another choice by this government to give the well-off an easy ride while burdening hard-up households with cost after cost.

User-pays, which typically involves flat-rate fees, takes the biggest chunk out of the smallest budgets. Often, it also mis-characterises common-good services – such as access to justice – as private benefits.

One might have expected Labour to have made more of this debacle – although given the state of the public finances, the party may fear it will be unable to reverse the fee hikes, and thus cannot oppose them too loudly.

But it’s benefiting regardless: the latest polls show National has comprehensively lost its status as the party most trusted on the cost of living. Voters may not understand the finer points of inflation policy, but they know a mess when they see one.