20 January 2011

CPI spike poses challenge to economic policy

Federated Farmers believes the largest quarterly increase in the Consumer Price Index (CPI) for 22 years challenges the economic track New Zealand is currently on.

“While this rise is led by the Goods and Services Tax (GST) going to 15 percent, as it was back in 1989, there are a number of non-tradable inflationary pressures led by the Government sector,” says Philip York Federated Farmers economic spokesperson.

“GST is only part of the story because we’ve had an avalanche of compliance costs over the last three quarters that are coming home to roost. It’s of huge concern to us because we’re meant to be getting pro-business, pro-export signals.

“The cost of basic commodities, such as food and fuel, will always go up when added costs are being heaped on industry. If our basic input costs increase then those costs are inevitably passed through to the end consumer.

“People need to understand that it’s not just the international price for commodities driving things, but domestic compliance costs too.

“Federated Farmers estimates that the Emissions Trading Scheme (ETS) is costing the economy over $1.55 billion in just the first year.

“When you add to that ACC levy increases, council rates and charges as well as GST, it has a crucial effect which gets reflected in the CPI. The ETS is all that stands between petrol being over $2 a litre or under it.

“It’s a reason why Federated Farmers was pleased that the Minister of Climate Change, the Hon Nick Smith MP, told our National Council last year biological emissions will be removed from the ETS if our trading partners don’t follow suit.
“The simple fact is that agriculture isn’t exempt from the ETS as some erroneously claim. Right now, ACC levies, council rates, GST and the ETS are on everything from fertiliser to electricity. That ultimately is being reflected in every litre of milk and every kilogram of lamb.
“What’s more, the Government’s new National Animal Identification and Tracing scheme (NAIT) will add yet more costs upon production which will have to be passed through to consumers.
“We’re trying to export our way to prosperity, but we’re being kneecapped by these charges. It’s unfair to blame the producers when we can’t control what Wellington imposes.

“With ‘NZ Inc’ borrowing $413 each second of each minute in every hour of each day, there’s a philosophical issue of prudence and restraint that all political parties need to reflect upon here,” Mr York concluded.

ENDS

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