Power Play - These are worrying times for the Government and the country.
While this week's announcement by the Reserve Bank governor, Graeme Wheeler, that the Official Cash Rate was being cut from 3.25 to 3 percent appears to be good news, it reflects the bank's deepening concern about the state of the economy.
Oddly interest rates tend to be cut when the economy is faltering, not when it is growing strongly. On those occasions central banks tend to raise rates to dampen the inflation they believe economic growth engenders.
Photo: 123RF
So while the Government had and will continue to talk about low interest rates as one of its great economic successes it masks the difficulties the economy is now encountering.
Since the Global Financial Crisis the economy has recovered, principally through high dairy prices and the rebuild of Christchurch.
But dairy prices have now been in a slump for nearly a year, and continue to get worse, and the rebuild is peaking.
While growth remains solid most forecasters, the Reserve Bank included, are now predicting tougher times ahead.
That is why it is now cutting interest rates after having raised them last year.
Lower rates will likely help fuel housing demand in Auckland, pushing prices there up even further. Photo: RNZ / Kim Baker Wilson
On the surface lower interest rates look attractive but there is a sting. Lower rates will likely help fuel housing demand in Auckland, pushing prices there up even further.
As well, those on low and middle incomes, who are not home owners, will get little benefit from low interest rates.
Indeed, if as expected house prices go up, their chances of home ownership become even more unlikely.
Those that will be helped are recent home buyers with big mortgages. Lower rates at least will make the burden of paying the mortgage a little easier. Dairy farmers, too, might get some relief from paying lower interest rates on their debt.
The Government now faces twin problems.
The economy is undoubtedly slowing and at the same time inequality is getting worse.
The slowdown will be further exacerbated as reconstruction work in Canterbury begins to ease. Photo: RNZ / Alexander Robertson
As the slump in dairy prices flows through to the towns and cities many more people, apart from dairy farmers, will begin to feel its effect. That slowdown will be further exacerbated as reconstruction work in Canterbury begins to ease too. There is still plenty of construction work to go in the region but most likely at a slower pace.
At the same time as the Government grapples with the slowdown in growth it needs to worry about growing inequality.
As more and more people get shut out of the property market their wealth declines compared with those who own homes.
Photo: RNZ / Alexander Robertson
Finance Minister Bill English agrees it is a problem but he blamed council planning laws for making it too difficult for new homes to be built, particularly in Auckland.
Mr English said that had restricted supply, pushing up the price of houses beyond the reach of low income families.
He also worried that many families were paying too much of their household income on rent or mortgage repayments and had little left over to spend on anything else.
That means there is less disposable spending on the goods and services which help the economy grow.
And while the rich get richer, at least in terms of their assets, the poor, particularly those unable to own their own home, get poorer.
And while the Labour, Green and New Zealand First parties all raise worries about rising inequality so too do organisations like the International Monetary Fund and the Paris-based club of rich countries, the OECD.
But the question then is what to do about it?
Nobel prize winning economist Joseph Stiglitz argues that in the end rising inequality holds back economic growth.
He has recommended governments adopt more progressive tax rates, including taxing the rich more, and impose greater regulation, particularly of the banking system.
While Mr English and the Prime Minister, John Key, concede inequality is a worry that the course of action prescribed by Joseph Stiglitz is not one the National-led Government is likely to follow.
Ideologically it is committed to less government, not more and to more deregulation, not less.
That in part is driven by its political support. While many people are doing badly many are also doing well.
Take Auckland as an example. Rising house prices there are shutting many people out of the market.
But for those who already own a home, particularly if they also have investment properties, all they see is the value of their assets going up ever faster.
Would they vote for a party serious about bringing that to an end?
As the Government grapples with a myriad of economic problems that is the conundrum it faces.