The Reserve Bank Governor says a tax is a better way to pay for the cyclone than borrowing in the midst of an inflation crisis.
Governor Adrian Orr again ratcheted the Official Cash Rate (OCR) up 50 basis points to 4.75 percent on Wednesday in an effort to dampen inflation, but the bank’s warning things are going to get worse.
The way into Mathieu Wilson’s house in Massey, Auckland is across a stream after the driveway collapsed. He’s taken his whole family to his dad’s place, but there’s still the mortgage payments for a house he can’t even live in.
The Reserve Bank Governor has whacked another 50 basis points on the OCR.
“It’s doubling the payment on that and then I’m facing hundreds of thousands of dollars of damage that I need to somehow pay for because insurance is telling me they won’t be covering the replacement for that,” Wilson said. “I don’t know how I’m going to deal with it, to be honest “
But Orr said his rate increase is already been priced into mortgage rates by the banks. Laying the smackdown, he said banks aren’t playing ball on savings.
“What we are calling out across the banks is they have been very quick to increase their mortgage lending rates but deposit rates have lagged behind and bank margins are holding up.”
The increase to combat the cost of living crisis, the cyclone compounding it.
Food prices are predicted to keep rising along with any goods that need replacing because of flood damage.
“Used cars would be an obvious example, appliances that have been in water and subsequently destroyed. Furniture, furnishings, carpet, that sort of stuff. We are expecting to see price hikes in that over the coming weeks and months,” said Reserve Bank chief economist Paul Conway.
The RBNZ is warning companies that now is not the time to try to make a quick buck.
“Do not use near-term price spikes as an excuse to start putting up the prices of everything everywhere. That would be called profiteering,” said Orr.
It’s all a bit grim. Everyone is looking to the Government for help. In particular, they’re looking to the Budget. The date was set on Wednesday: May 18.
In our latest Newshub-Reid Research poll, we asked whether the Government should offer financial support to help homeowners pay their mortgage.
Kiwis were split – 47.8 percent said no, while 38.8 percent said yes. The rest weren’t sure.
“We will continue to support New Zealanders with the pressure that is on the cost of living,” said Finance Minister Grant Robertson.
“One of those pressures is what they pay for their housing, be that as renters or be that as homeowners. We are acutely aware of that. We have said it will be a priority in the Budget and it will be.”
The other major priority is the cyclone cleanup and how to pay for it.
National’s Christopher Luxon believes the Government should be borrowing money.
But Orr says that’s inflationary. He’d prefer the “reprioritisation of current spending and revenue raising through other alternatives”.
A flood tax is not off the table.
“We haven’t ruled things out because we are still assessing the full extent of what we are doing,” said Robertson
The Opposition is allergic to it.
“Why won’t he rule out introducing a new tax?” National finance spokesperson Nicola Willis asked in the House.
“There are people whose homes and businesses have been completely devastated,” said Robertson. “We owe it to them to consider carefully both how much this is going to cost and how we pay for it.”
It’s a huge question to answer before his May Budget.