Kate Hawkesby: We need to pump the brakes on spending

I spoke yesterday to a construction consultant about the housing building boom going on right now and how it’s hampered by supply chain interruptions and inflationary pressures.  Basically, the cost of building is doubling. And as inflation creeps, its tentacles are hitting everywhere and everyone. Auckland City Mission says it's seen the highest demand for its services over the past three months, in all of its 100-year history. Tens of thousands of families are needing food, it’s handing out 16,000 food parcels a week, which is double pre-Covid amounts. The trouble is not just Covid and lockdowns creating more need, but the cost of living. Food, power, water, rent. And here’s the rub, we’ve never had more money pumped into the economy, yet thousands upon thousands are struggling. Former Finance Minister Steven Joyce pointed out at the weekend that “pumping more money into a country than it has capacity for,” means “that money ends up chasing too few goods and services and that means inflation.” It’s not just us, but overseas too, and it’s central banks, Joyce claims, which are causing the problems. “They pumped eye watering sums of money into economies in response to the pandemic.. dismissed early signs of inflation as transitory..” and now.. here we all are.  Commentators are starting to point the finger not just at the Government, but also Reserve Bank Governor Adrian Orr, for taking “a revisionist approach to housing, under forecasting increases in inflation and house prices, and over forecasting unemployment.” Steven Joyce says this cocktail of Orr’s actions being “excessively stimulatory” alongside the Government’s “extraordinary amount of borrowing and spending”.. has seen us where we are now. Too much stimulation. “Money has been sprayed all the over the place, “ Joyce points out, “the public service super sized.. further increases in social welfare payments..” and expensive pet projects like light rail.  And here’s where it hurts for those on lower incomes.. “inflation is effectively a tax which hits lower income people hardest and increases poverty” according to Joyce, which ironically is the one thing this Government was going to try to fix. So, we’re in a Catch 22 here, aren’t we?  No point pouring more money into welfare, if the price of every basic need like water, power, and food, is just going up and up.  Joyce says Government needs to pump the brakes, minimize spending, and “try to take inflationary pressure off household budgets”, instead of constantly talking about spending more.  With commentators talking up a big bounce back and surge spending post lockdown, you have to wonder how long that’s sustainable for and at what cost? 'Persistent inflation' is the last thing we need, so we can only hope the Government is listening to advice from a seasoned pro like Steven Joyce, rather than ignoring it.See omnystudio.com/listener for privacy information.