By Gareth Vaughan
To boost New Zealand's ability to fight inflation Auckland University's Tim Hazledine suggests broadening the Commerce Commission's powers, looking at extending the Pharmac concept, and cutting Goods & Services Tax (GST) to 10%.
Hazledine, Emeritus Professor of Economics at the University of Auckland, discusses this and more in the latest episode of interest.co.nz's Of Interest podcast.
Following Thursday's Consumers Price Index (CPI) release from Statistics NZ, Hazledine's assessment is the inflation tide is going out.
"It's receding, which is good. The question is whether it would've gone out anyway or whether King Canute in the Reserve Bank had anything to do with it," says Hazledine.
His key evidence for improvement is the 1.2% March quarter CPI figure, down from 1.8% in the March quarter last year.
"That's the indicator that you really should be interested in and that's encouraging."
Nonetheless Hazledine says there are signs a recession is going to happen, and suggests we ought to be looking at policy instruments to support the Reserve Bank, which has "a monopoly on inflation fighting almost by statute."
This includes expanding the Commerce Commission's mandate so it becomes a price watch commission, potentially even with a mandate to roll back price increases if they think they're not justified.
"They really have to be finding out about prices everywhere and investigating costs, investigating pricing practices," says Hazledine.
He also promotes the concept of tripartite pay talks, seen in parts of Europe, between the Government, unions and employer groups, exploring an extension of the Pharmac model to source other products and services at lower prices from international suppliers, and reducing GST to 10% from 15%.
"That [a GST cut] would immediately cut consumer prices...The biggest single beneficiary from inflation in New Zealand is the Government."
You can find all episodes of the Of Interest podcast here.
42 Comments
Good point. Economics is a social 'science'. Its practitioners tend to subscribe to a particular 'sect', whether it be Keynesian, Austrian, orthodox, neoclassical etc. etc. - in that regard yes, they do have 'bias' towards particular theories they believe are true. Of course being a social science, it is all based on observation, and as we all know people are not the 'rational actors' many economic theories base themselves on.
"a price watch commission, potentially even with a mandate to roll back price increases if they think they're not justified."
The objective of any goods or services provider is to charge the absolute maximum that the user will pay. It doesn't matter whether that's for a carrot, petrol or for rent. The only thing that puts a lid on the price is the capacity of the user to pay, and when they can't, they don't, so prices stop rising - and in fact can fall to recapture lost business as users redeploy whatever disposable income they have elsewhere.
What ultimately drives all of this? The amount of Private Debt in the System. Shrink that, and prices fall.
And fiscal policy can be a diverse as:
"Today I'm announcing that the NZTA will be opening a series of petrol stations across the country to provide an alternative outlet of fuel for New Zealand drivers to choose from". That's how you dismantle a monopoly - add competition. (NB: We should have never privatised the electricity suppliers, for that very reason. Time to get Government to provide an alternative in that space as well. Victoria, across the Ditch, is doing just that. Re-establishing the Sate Electricity Commission as competition to the privatised suppliers)
I always thought the same. The problem is that NZ is such a small and corrupt market (means there will always be a small number of players taking advantage of a lack of lobbying rules and potential for working together).
Overseas the scale of the markets encourages true competition and a lot of lobbying is smashed by the media and industry itelf
Thank you Gareth and Tim on the podcast, I was very interested. I like the idea of the Commerce Commission becoming involved, however I feel the suggestion of a Price Commission was an area that the bureaucracy would love as it can expend their empire, which would annoy many people who read these notes, and we do not need more government employees. The main issue is the RBNZ has a tool that we call a crude club because of the delay in delivering any meaningful changes to fighting inflation, would not a Price Commission have a 6 - 12 month delay in making any significant changes to pricing or profits, therefore we have two tools now with the same problem, as we all know that any government depart does not move or make decisions fast unless there is a disaster.
I feel a much faster responsive tool is required, so as to protect jobs and control inflation. This is what Tim was indicating he desired, and so do we all. The Commerce Commission would be an ideal vehicle to be in control of the idea of kiwisaver scheme I have been promulgating on this site for some weeks now. Would require less staffing, and has a greater impact with a catchement of approximately 3 million taxpayers, rather than 765,000 odd mortgage holders (approximately 1.5 million taxpayers), and as the impact would be felt within a few months, the control of inflation would be much tighter. The money extracted from the economy via this methodology would stay in NZ hands (kiwisaver accounts), rather than in foreign controlled banks, and could be released into the NZ economy from these same kiwisaver accounts when inflation is back under control.
So instead of taking 2 - 3 years to control inflation, we could get this down to less than 12 months.
Is it not worth having this conversation. I would love to hear from Gareth and Tim on this.
It would be great if the Commerce Commission and Government did their basic jobs.
In the media we recently heard from the food supply sector that the margin between the food suppliers and supermarket customers is about 100%. I confirmed this with a supplier to the supermarkets and was told that in cases it is even higher. My next question was how quickly is the stock was turned over. The response was that we are restocking them every day. So to sum up they are are making in the order of 100 % margin on stock that is turning over in a matter of days. To make matters worse some suppliers are required to actually place the stock of the shelves. So the only active work contributed by the supermarket is to scan the goods and collect the money as they pass through the checkout. If that is not the most blatant extortion and abuse of market monopoly power then I do not know what is. And yet the Commerce Commission and government sit by doing next to nothing meaningful or effective with this blatant market abuse going on right beneath their noses. It is well beyond hard to believe that our representatives and servants are this incompetent, which leaves the only rational conclusion that they are corruptly complicit.
It is not just food. We see it in just about everything else.
Neither Labour nor National ( and probably include NZ First and ACT) want this to cease as they receive too much support ($ and freebies) from big business at the expense of the small and medium business entities, so no change until NZ public funds political parties and thus controls lobbyists, this would also stop political corruption.
Bit of dreaming there Chris. Governments of many diverse backgrounds have for many decades have promoted schemes to fix all manner of problems from housing shortages, poverty, transport glitches, etc., etc.. I think all the formation of commissions of this and that, action plans, new expenditures, and so on just proves the old joke that ....the most frightening words in the English language are, ..."hi, I'm from the government & I'm here to help you". ie government actions are a blunt instrument, often out of date before they are finally instituted, and are accompanied by many unforeseen bad effects.
Supermarkets and our major banks and energy suppliers are monopolies only to the extent that we allow by giving them unquestioning patronage. We can for example, shop at country markets, greengrocers, butchers, perhaps to get cheaper prices, but also to cut down on travel, and generally encourage local producers and more competition.
But if our vast and grossly expensive organs of government could manage one thing, it would be to promote much greater consumer information, comparative testing of products, identification of rip offs & scams, etc..
But at the end of the day it probably comes down mostly to the intelligent choices of the mass of ordinary consumers. And state television does its bit in the opposite direction by eagerly accepting the advertising dollar to promote rubbish.😆
We can bust up the cartels. eg New World has about 250 outlets. So legislate that each group can have only a maximum of 50.
We have a lot of cartels and monopolies. Banks, local government, central government services. Bust those up. Big is not efficient, it function because consumers have no alternative but to pay pay.
I strongly believe in free market competition. But our monopolies don't want free markets. So you have to be tough, use a baseball bat approach to bust them up.
...looking at extending the Pharmac concept...
It's difficult for New Zealand because many of our businesses are already so consolidated there is little meaningful competition. If we go to market it will probably be the international market but, as you saw when that Irish company offered New Zealand 100,000 affordable, pre-fabricated houses, local industry had a fit about not being "kiwi" and being locked out.
Jason Furman @jasonfurman My talk at @nberpubs
Macro. Starts w/ the failure to forecast inflation--more odds of deflation than 4%+ inflation. A more embarrassing (if less consequential) error than missing the financial crisis. Can watch at 3hr 17min. https://dropbox.com/s/ue9chvzayixn3o7/20230420%20NBER%20Macro.pdf?dl=0
Not much of a "range of suggestions", good to have nonetheless
Neither the gst cut nor the tripartite pay talks would fly though. Can you imagine it involving the govt who cannot even resolve their own pay disputes and not independent regardless of colour, esp red team.
"2% inflation should be seen as high. The Fed should be leaning into inflation (tightening monetary policy) at 2% inflation and only ease policy when inflation is at 1% or lower. Period. It goes without saying that we need better inflation tracking tools, too."
Spot on!!! And....it's coming.
https://images.mauldineconomics.com/uploads/pdf/TFTF__Apr_22_2023.pdf
Cannot see cutting GST achieving much at all my guess is manufacturers and or suppliers etc etc would just bump the difference . Triparty wage talks reeks of over regulation as does the commerce inspectorate evaluating pricing. Reality is the consumer/buyer has or has not the power to play in the sandpit. Likely things will get tougher and inflation is not as contained as many would like to think. Fuel tax coming back soon and wage expectations will remain in a market where food prices outpace the declared inflation rate. Mortgage holders will be praying for a miracle before they have to refix...the sharemarket will tread on with regular Kiwisaver and retirement funds backing which in itself could be a form of inflation that all have little or no regard of. The good news is the OCR rate is boosting the funds of those with little or no debt , it is not keeping them high and dry but it is subsidizing what is ahead. Hard to see an economic miracle going into Winter..... could be a viability adjustment coming for some with the fuel tax return further adding to wage pressures via increased transportation prices flowing into the market place.
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