Inflation figures will turn more focus on expansionist councils
Tomorrow’s price inflation figures will throw further light on the ever-expanding local government sector.
Consumer price index figures are due out tomorrow morning and economists forecast, on average, a 0.5% increase for the most recent quarter.
The high exchange rate will have kept the price of imports low but some domestic costs will push it upwards, and the largest item is expected to be local government rates.
The sector has kept itself largely immune from any downturn related to the ongoing global economic crisis: the most recent annual figures, for the year to June, show the amount of rates collected still running well above economic growth at a little more than 5% up on the previous year.
That increase – from $$4.356 billion to $4.586 billion – pales when compared to the nearly 20% rise in funds extracted by local councils from regulatory activity and petrol taxes.
In the year to June, council income from this activity, which falls mostly on businesses, rose from $428.6 million to $512.9 million.
Over the past five years local government spending has risen, on average, 8.58% a year in real terms. Nominal GDP has, over that time, increased by about half that amount.
The most recent year saw a 9.8% increase, for the year to June, which followed an 11.6% rise the previous 12 months.
The lowest increase since 2007 was a 4% rise in the year to June 2010.
Tomorrow’s CPI figure will include the annual increase in rates, which comes in the September quarter. It, along with the always-fluctuating fruit and vegetable prices, will be the main upwards pressure.
“We expect further downward pressure on retail prices – clothing and household appliances – due to the competitive retail environment and an elevated New Zealand dollar,” ASB Bank chief economist Nick Tuffley says.
Rents and insurance premiums are likely to show the other cost increases, he says.