THE PRESS WEDNESDAY, FEBRUARY 29, 1984. Coming in from the cold

Press, 29 February 1984, Page 16

THE PRESS WEDNESDAY, FEBRUARY 29, 1984. Coming in from the cold

Midnight tonight marks the start of the thaw that will ease New Zealand’s economy out of the freeze on incomes and prices that has lasted for 20 months. The Government will maintain a degree of regulation over the economy, but the first steps will be taken to a gradual loosening of the economic straitjacket. The freeze has been, far more successful than many people thought possible. Previous experience of such a blunt economic device, in New Zealand and overseas, gave critics of the freeze some justification for their opposition or reservations. Assertions that the freeze would self-destruct in a bureaucratic morass, or that its uneven application would create a serious imbalance between wages and prices, have become muted with the passage of time. Although many people suspected the price freeze and some deplored it, and many more condemned the incomes freeze and some felt hard done by it, demands for an immediate end to both parts of the freeze were not commonly heard. The question most anxiously asked has been: what happens next? That is still the question. No freeze such as that which ends tonight can be imposed without anomalies and some degree of hardship. The test finally will be whether the freeze has worked to the benefit of the community as a whole. A good deal of its success or failure will depend on the manner in which sections of the community at least try to retain the gains that have been made during the term of the freeze. Whether the lid that was put on inflation by the freeze will stay on the economic pot is as much a responsibility of the community at large as it is a responsibility of the Government.

The freeze has not won the battle against inflation, but it has provided a sound bridgehead from which to proceed. The reduction in the rate of inflation since the freeze was imposed has been marked, from more than 15 per cent a year to about 3.5 per cent. The freeze has probably done more to diminish the crippling effects of high inflation than the Government dared hope. This respitefrom the spiral of wage and price increases, so handsomely achieved, will be only a hiccup in

proceedings if sectional greed succeeds in reintroducing the leap-frogging cycle of wages chasing prices chasing wages. The freeze has shown that high inflation is not inevitable. Even the effect of imported inflation can be reduced, as has been shown by the restriction of price increases for imports that could be passed on through the domestic market to the money amounts only. During the freeze, percentage increases have not been allowed to multiply the effects of import prices. Expectations within some sections of the community may still be too high. Many company reports have echoed the recurrent theme of blaming reduced profitability, or an unexpectedly small increase in profitability, on the freeze on prices. Such comments suggest that the immediate consequence of relaxing the freeze will be demands for sharp price rises. As well as reducing inflation, the freeze has demonstrated again the linkage between rising wages and rising inflation. Wage increases, without increased productivity, are only one spur among several that produce inflation, but they are an important one. If the expectation of inflation can be removed, much of the impetus for unreasonable demands for wage or price rises is removed with it. Stable expectations will allow all sections of the community to plan ahead with some assurance, and this will have benefits in productivity and employment, as well as to the country’s economy. The freeze suggests that if we live within our means, as individuals and as a country, we can remove most of the local causes of extra inflation. Imported inflation is unavoidable in a country as dependent on trade as New Zealand; but, because it reflects the rate of inflation common to our trading partners, we can live with it. Provided that the lessons of the freeze have been learned, the hard-won gains that it has provided need not be lost. Unless sectional greed is tempered with a measure of regard for others and for the future, unless a serious attempt is made to live voluntarily within our means and our productivity, a return to strict management of the economy would seem inevitable.