THE PRESS THURSDAY, APRIL 24, 1980. Growth, inflation, and change

Press, 24 April 1980, Page 16

THE PRESS THURSDAY, APRIL 24, 1980. Growth, inflation, and change

Who could have imagined 10 years ago —evesi five years ago—that responsible Government advisers would be urging a “target” for inflation of 13 or 14 per cent a year? The Economic Monitoring Group within the Planning Council, successor to the Monetary and Economic Council, is making just such a recommendation in its latest report. It is a sorry reflection on policymakers. and on the pressure groups in New Zealand, and on other countries still experiencing double-digit inflation, that sich advice is necessary. It is only slight l consolation that many other “respectable” countries are in the same “inflation league” as New Zealand; but this country’s inflation rate is still — for the sixth consecutive year—running above the average for the 25 countries which are members of the Organisation for Economic Co-operation and Development. .

The E.M.G. report, the group’s third, draws attention to the decline in New Zealand’s terms of trade since the Organisation of Petroleum Exporting Countries began to reduce supplies and force up the price of oil. The resulting balance>-of-payments deficits have checked economic growth. The report summarises the cold realities of New Zealand’s current economic difficulties. In the 19605, when the external deficit averaged less than 2 per cent of Gross National Product, economic growth averaged 4 per cent a year; in the latter part of the 1970 s the deficit averaged 5 per cent of G.N.P. and economic growth averaged 1 per cent a year. More recent, though, unofficial, estimates show no reversal of this trend. In short, New Zealanders have been living beyond their incomes for at least seven years.

Acknowledging that, “ ... in the short run at least, the Government faces a situation of quite extraordinary difficulty,” the group asks the Government do reduce its deficit this year and next. It is critical (as it was in its first two reports) of the Government’s contribution to inflation in the form of

Budget deficits and spurts of expansionary monetary policies. Government policy must, without doubt, be held to be largely responsible for the inflation of the last year or two although the report allows that “a central element of the inflation process is the wage-price spiral.” Statistics produced since the group’s latest report was prepared suggest that wage increases were responsible for an increase of about 6 per cent in prices in the year ended March. In that period the Consumers Price Index rose 18 per cent. Wage increases effective from the December quarter of 1979 will add at least 9 per cent to prices by June this year, compared with June last year. Import prices can be blamed for no more than 2 or 3 per cent of recent annual increases in the index. The group’s latest report, it is to be hoped, will be read and studied much more widely than in the New Zealand Planning Council, to whose chairman, Sir Frank Holmes, a former chairman of the Monetary and Economic Council, the report is formally addressed. The diagnosis of the country’s economic ills deserves to be widely discussed, not only in Parliamentary caucuses and in the councils of the Employers’ Federation and the Federation of Labour. Until there is widespread acceptance of the country’s serious plight — and of the selfdefeating nature of minorities’ attempts to evade their share of the burden — no government will have the political will to take the steps which most members of Parliament must know are necessary. The group’s report is not all gloom. It acknowledges the significant part

which a well-directed energy programme can play in economic recovery. It rightly says, however, that no energy programme can substitute for sensible economic policies, and that such policies are, indeed, a prerequisite for a successful development of the country’s energy resources.