Unsurprising OCR hold but political leaders need to lead

This morning’s unsurprising hold of the Official Cash Rate (OCR) at three percent reflects general economic fundamentals.

“The agricultural sector remains the one bright spot of the New Zealand economy. That certainly came through in the latest overseas trade statistics for last November, which had exports up 19 percent,” says Philip York, Federated Farmers economics spokesperson.

“While we’re slogging our guts on-farm and in tough conditions too, we’re seeing an increasing percentage of our incomes soaked up by rising inputs costs and compliance. This is in the gift of Government to influence.

“There’s an insidious interrelationship between the size of Government and its spending on the economy. This in turn impacts the exchange rate we’re seeing right now and the cost of farm inputs.

“International commodity prices are only part of the equation because ultimately, someone has to pay for imposed costs.

“Take the Emissions Trading Scheme, which has added over half a billion dollars in new costs to the economy, as well as ACC levies, GST increases and the like. In response, the trade unions rashly and irresponsibly call for higher wages to compensate for added costs.

“It wouldn’t be an added cost if successive governments hadn’t heaped more costs on.

“It’s why we were happy and relieved to see the Prime Minister talk about the high level of spending in his State of the Nation speech. Finally, we heard the Government’s $300 million weekly borrowing described as unsustainable.

“This mirrors Federated Farmers concern that we’re on a track trodden by Ireland, Iceland and Greece. We have a sense Government is sharing the business sector’s nervousness.

“Government is simply too big for our economy and needs to dramatically trimmed in size. The productive export sector, highlighted by both the Prime Minister and the Leader of the Opposition, are in competition with the Government for capital.

“Also on the very day of the Prime Minister’s speech, President Obama took a scythe to the Federal deficit in the United States. This mirrors the United Kingdom’s plan to cut government spending there by 16 percent over the next few years.

”We’ll only make headway on economic growth once we get a plan for reducing Government spending but then again, our MMP electoral system has the Government in handcuffs.

“What the export economy needs is for the Government and Opposition to show bi-partisanship about the size of government in the economy. That would certainly make the job of the Reserve Bank and exporters a much easier one,” Mr York concluded.

Current weekly Government borrowing: