Government spending making inflation worse

The Reserve Bank Governor today confirmed that the “very high” level of Government spending is putting upward pressure on inflation, says National finance spokesperson Nicola Willis.

“Budget 2022, which included a record $9.5 billion in new annual spending – the largest increase in New Zealand’s history by far – looks increasingly reckless in light of the Reserve Bank Governor’s statements.

“Today the Reserve Bank Governor said that the very high level of Government spending “is putting upward pressure on aggregate demand, and hence inflation” and that “higher than otherwise government spending would mean, all other things equal, higher than otherwise inflation pressures”.

“We agree. There can now be no doubt that Labour’s big-spending approach and failure to unblock domestic bottlenecks is making inflation worse.

“In a supply constrained economy, “very high” government spending that adds to demand pressures simply pushes up inflation, with more money chasing fewer goods.

“With families already under extreme pressure from the cost of living crisis, announcing a record level of new Government spending is irresponsible.

“It’s critical that the Reserve Bank can defeat inflation, but huge increases in government spending makes that task harder. It means interest rates will need to rise faster and stay higher for longer. That means life is set to get much harder for every Kiwi family with a mortgage, who are already struggling.”

“Labour need to stop burying their head in the sand and accept that in a cost of living crisis, they should be doing everything they can to reduce inflation, not spending up large and making it worse.”