High inflation raises concerns

The Government is under fire for high inflation but Prime Minister John Key says it can't control petrol and other internationally set prices.

Statistics New Zealand this morning published the consumer price index for the first three months of the year.

It showed prices rose 4.5 percent in the year to March 31.

The annual movements for the years to the March 2011 and December 2010 quarters included a 2.3 percent increase in the December 2010 quarter when GST rose from 12.5 to 15 percent. The latest annual increase is the highest since a 5.1 percent increase in the year to the September 2008 quarter (when petrol prices peaked). In the September 2008 quarter, petrol prices were 29.3 percent higher than a year earlier.

Labour leader Phil Goff said those on high incomes would weather the increases but low and middle income earners would be hard hit. Basic necessities were increasingly hard to buy.

"That's really going to stretch so many people who are low and middle income earners."

He criticised the Government for giving tax cuts that benefitted wealthy earners more, and for increasing GST.

"Labour will try to ease some of that pressure by eliminating GST on fruit and vegetables. We will also give some financial relief through a tax-free zone and are committed to growing the economy to create better jobs with higher incomes."

A high dollar hurt exporters and more alternatives such as biofuels needed to be considered to reduce reliance on imports, he said.

Challenged by reporters Mr Goff said Labour would not take GST off petrol or reduce GST overall.

The party was working on its taxation and savings policy.

"I think, given the pressures that are coming on, particularly in regard to the Christchurch earthquake, if there is going to be any funding raised to offset that cost then it has to come for the windfall gains of the people at the very top, not from the middle and low income people who are already stretched."

Green Party co-leader Metiria Turei said the Government argued its tax cuts made up for the GST increase but that was not true.

A table prepared for the Green Party by the Parliamentary library showed the increase in the cost of living outstripped any tax cut gains for those earning less than $80,000 and spending all of their income.

"For those forced to spend their whole income on necessities, there is no escape. What little they save from tax cuts is eaten up immediately by GST and price rises," she said.

She called for the Government to extend working for families support to the children of beneficiaries and to raise the minimum wage to $15 an hour.

Council of Trade Unions president Helen Kelly said workers were already suffering from stagnating wages, high unemployment and employment law changes.

"These hard times are made worse by Government failure to take the right actions to pull New Zealand out of recession."

This morning Mr Key said inflation problems were largely beyond control of the Government.

"We always worry about inflation... It is concerning there's no question about that," he told Newstalk ZB this morning.

Mr Key said the Government could not control the price of petrol or the international food market but was trying to limit its own spending, which had meant the Reserve Bank was able to lower interest rates.

Mr Key told Breakfast on TV One he was happy for the Commerce Commission to look into milk prices but said while they were high for consumers, the benefit of payouts to farmers was good for the economy.

He disagreed that tax cuts had not benefitted all workers and said Working For Families meant a couple on $50,000 or less with two children aged under 18 paid no tax. Also, three quarters of workers paid 17.5 percent or less as tax.

He defended Government borrowing, saying without it the recession would have been longer and unemployment higher.