The Treasury warned the Government before this year’s Budget that spending more money than planned would increase interest rates, but they did it anyway, new documents obtained by the National Party show.
Today, ahead of the Reserve Bank’s expected increase in the Official Cash Rate, National Finance spokesperson Nicola Willis released a “Budget Sensitive” Treasury report that contained the warning.
Ms Willis says Treasury’s advice contradicts assertions by Finance Minister Grant Robertson and Prime Minister Jacinda Ardern that the pressures causing a cost of living crisis in New Zealand are coming from overseas.
“Treasury explicitly says in the report to Grant Robertson that, ‘a large portion of New Zealand’s inflation at present is being driven by strong domestic demand’,” Ms Willis says.
“Treasury couldn’t have been plainer in warning the Government back in March that if it over-spent, that would be paid for by every New Zealander in rising interest rates and the increasing cost of living.
“But in the Budget just two months later, the Government overspent the cap it had previously set itself in December last year.
“The revelation of this advice will be a huge concern to every New Zealand household with a mortgage and faces another jump in interest costs next time they renegotiate. Some will be choosing between a roof over their head, or food on their table, because of the Government’s inability to control its own spending.
“Releasing the report to me, The Treasury confirms that it recommended the Government keep within the operating allowance it had signalled for Budget 2022. It advised the Minister that limiting spending growth would “mitigate delivery risks”, “promote fiscal sustainability” and “avoid the need for monetary policy to over-compensate to achieve its inflation objective”.
“This advice was completely ignored by the Minister of Finance who went on to spend considerably more in the May 2022 Budget than he had previously indicated he would.
“New Zealanders are now the ones paying the price – literally.
“National has been saying for months that ill-disciplined Government spending is worsening the cost of living crisis, with denials by the Government. Now we know the truth: Labour was warned Kiwis would pay the price for the Government’s addiction to spending.
“A National Government would restore discipline to Government spending and focus on removing bottlenecks in our economy – improving immigration pathways, eliminating deadweight regulations, and lowering the tax burden on Kiwis.”