Mortgage repayments $15 a week higher under National?

Peter Conway, CTU Economist, said today that the tax cuts proposed by the National Party could add $15 a week to the average mortgage repayment."One way or another they will affect inflation and interest rates," he said.

"Don Brash constantly refers to a number of bank economists who say that the proposed tax cuts will not force up interest rates," Peter Conway said.

"Although economists may disagree on whether the tax cuts will increase interest rates, most would accept that they will cause interest rates to stay up for longer and not to reduce as much as they would otherwise."

"When we last faced a situation of inflation heading to 3% or higher along with rising oil prices, Don Brash was Reserve Bank Governor and he warned against income increases, yet today he is taking a completely different approach (attachment B)."

'You can't pump $2.2 billion into the cash economy from April 2006 without having an inflationary effect," Peter Conway said. "Even if the proposed tax cuts do not force up interest rates, they could still have a damaging effect in two ways."

"One effect is to keep the official cash rate at 6.75% when it would otherwise drop. Another is to raise the 'bottom out' level of the cash rate with the next cycle of lowering interest rates."

"Using reasonable assumptions I have calculated (attachment A) the first effect on mortgage repayments at $8.09 a week for a short but indeterminate period, and the second as $15.28 a week on an ongoing basis."

"It is simply not credible to say that such large tax cuts will have no impact on inflation and interest rates. We know that inflation is likely to rise above 3% over the coming period due to other factors, such as the impact of higher petrol prices. The inflationary effect of National's tax cuts will only add to this."

Contact Jan Farr for attachments.