Petrol, power set to climb

A 10C-a-litre rise in the price of petrol this year, plus an estimated 2% rise in electricity prices and an increase in interest rates, could leave some taxpayers struggling to find any benefit from the tax cuts announced in Thursday's Budget.

A litre of 91 octane petrol now costs $1.76 in most centres, with diesel about $1.19 a litre.

AA Petrolwatch warns that taxes on petrol and diesel will be increasing this year.

The emissions trading scheme (ETS) will add about 3c a litre to the cost of both fuels from July 1, with another 3c a litre being applied to petrol excise in October.

Coupled with the coming increase in GST to 15%, petrol could end up costing another 10c a litre by the end of the year, with diesel rising about 6c.

A complicating factor will be the price of oil, which is traded in US dollars, and the value of the New Zealand currency against the greenback. Yesterday, oil fell in price but so did the kiwi dollar. If oil goes up and the dollar goes down, the price increase could be more than 10c a litre by December.

BNZ senior economist Craig Ebert said the latest figures showed that electricity prices were set to rise by 2% on July 1 because of the ETS, and there would be some "pass-through" costs from increased transport costs and things like rising taxi fares.

Anyone who used fuel or electricity would be hit with the extra costs but the extent of the pass-through costs was uncertain, he said.

The ETS was set to add 0.4% to inflation in the third quarter of this year.

With Treasury forecasting inflation will hit 6% next year, before falling to 2.4% in 2012, householders will be facing extra costs well after the introduction of the higher GST rate.

The average increase in household energy expenditure (electricity, coal, gas and transport) is set to rise anywhere between $165 and $330 depending on the price of carbon. On April 16, Climate Change Minister Nick Smith said the carbon price was $20.29 a tonne, in the middle range of the $15 to $25 a tonne forecasts.

The Reserve Bank seems likely to lift its official cash rate (OCR) from 2.5% in June, possibly only to 2.75%.

While the OCR does not have as much influence over mortgage rates as it once did, the requirement for retail banks to source a relatively high percentage of their lending from New Zealanders will create competition in the marketplace for long-term funds.

As borrowing costs rise, so, too, will longer-term mortgage rates.

People living in rented properties are likely to face higher rents, according to the New Zealand Property Investors Federation.

Federation vice-president Andrew King said yesterday withdrawing the ability of the owners of rental properties to depreciate their properties was disappointing, although chattels could still be depreciated, which would limit the adverse affect.

However, depreciation of the building was the largest component.

"Our calculations estimate a cost of around $24 per week for the average New Zealand rental property. While this will not all be applied to higher rental prices, it is estimated that rents will rise by 4.5% to 6.5% nationally, rather than 1.4% expected by Treasury estimates," he said.

Mr Ebert said all of those increases would make the Reserve Bank nervous about inflation because it appeared it would all happen about the same time and possibly when the economy was looking more robust.

Higher inflation and costs could make people think they needed a wage rise, but most employers were in no position to pay for wage increases.

"Employers will be putting up their prices, but only to pay more in GST. They won't be able to afford a 5% wage increase. Businesses will go under if they sign up to that.

"We don't believe the recovery is that far down the track. There is still some slack in the labour market," he said.

A Watercooler survey conducted yesterday by seek.co.nz, a job search website, found 78% of New Zealanders believed the reduced personal income tax rates announced by the Government would be the closest thing they got to a pay rise this year.

"Employees have told us that over the last two years they have been more worried about having and keeping a job than pushing for pay rises. But as the economy improves, this attitude will change," Seek general manager Annemarie Duff said.

About 70% of employees were looking for other employment opportunities and a record number of people were visiting the Seek website.

Reward and recognition had never been more important to keep good staff and the cost of a pay rise needed to be weighed up against the cost of recruiting and training a new employee, she said.

 

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