What happens when government controls prices?

Tweet of the day:

I don’t think any government here has ever had that much control on prices.

But it’s not that long ago that tariffs and subsidies meant the government here did influence how much we paid for a lot of basic necessities.

31 Responses to What happens when government controls prices?

  1. Alwyn says:

    It got very close to that in the last days of the Muldoon administration.


  2. Andrei says:

    I suspect it was a lot worse in those days Alwyn – Everything had a MRP (ie maximum retail price) and it was a bureaucratic nightmare to get the MRP of your product raised. Everything had a sticker on it advising the maximum price allowed for that particular product

    Wages too could not rise nor could rents,

    People found work arounds of course


  3. Armchair Critic says:

    It hasn’t been that long since a NZ government proposed a subsidy, in fact it was just a month or two back. $600 million, for Chorus. National loves subsidies.


  4. TraceyS says:

    One-off vs systemic.


  5. Dave Kennedy says:

    The accommodation supplement is a subsidy for landlords, Working for Families subsidizes wages, Media Works got a subsidy for unused licenses, Rio Tinto got a subsidy to keep operating in Southland, Warner Bros had their advertising subsidized, Sky City will be subsidized if there is a future law change that limits gambling…I would say systematic subsidies, hardly one-off.


  6. Mr E says:

    You’re using the word subsidy incorrectly Dave.

    Wikipedia definition.




    noun: subsidy; plural noun: subsidies


    a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.


  7. robertguyton says:



  8. TraceyS says:

    Working for Families is systemic. The accommodation supplement, maybe.

    Rio Tinto, for example, is clearly one-off.

    One can be turned off and the other can’t.


  9. jabba says:

    are you saying the accommodation supplement should be stopped?


  10. Dave Kennedy says:

    The Government is spending around $5 billion on Working for Families and the Accommodation Supplement, both are needed as a safety net, but we wouldn’t have to spend so much on them if people could earn a living wage. The working poor is a growing demographic. The accommodation supplement also pushes up the value of rents above what the market can actually afford.


  11. TraceyS says:

    No. I don’t know enough about it to say that.


  12. TraceyS says:

    The Afforestation Grants (AFG) Scheme was a “subsidy” introduced by Labour to encourage tree planting. National stopped it.

    Other ones like WFF and probably the accommodation supplement can’t just be switched off like that. They’re systemic because the way the system works comes to depend on them.

    If the government keeps giving money to Rio Tinto that might then become systemic, but I think it was made fairly clear that it is a one-off and that the reason was to save jobs in the short-term.


  13. inventory2 says:

    The MRP scheme was the brainchild of Helen Clark’s predecessor in Mt Albert, the late Warren “MRP” Freer. I have vivid memories of those ugly MRP price shields on every item on supermarket shelves 😀


  14. Armchair Critic says:

    So what? It’s still a subsidy.
    What’s worse is that it establishes a precedent and you have no good grounds to believe it won’t happen again, and again.
    National loves subsidies, for their mates.


  15. jabba says:

    I will take that as a no then


  16. TraceyS says:

    Dave, do your moaning to your coalition partner. WFF was never needed back when my sister-in-law had her first two children, and that was in the days before 20hrs free daycare too.

    Labour laid it on, but really all they did was kick the can down the road. It created a safety net into which people willingly fell. More like a bouncy castle at the cliff bottom rather than an ambulance.


  17. TraceyS says:

    National stick with what they say the are going to do. The partial asset sales being a fine example of this.

    If these payments for the sake of jobs are one-off then I believe they will be. Precedent doesn’t matter here. There is no legal obligation being created.

    Do you give your child a small gift as a reward occasionally? Are you setting a precedent? No, you are within your rights as a parent not to keep doing it. Sure there might be tantrums, so what??


  18. jabba says:

    AC .. correct me if I’m wrong BUT I understand that the last Labour Govt introduced the LAQC scheme .. I think they wanted to get out of or at least reduce the rental market cost to the Govt. They ENCOURAGED Nationals “mates” to buy rentals. About 2-3 years ago, this National Govt closed off the depreciation portion leaving the scheme less profitable to their “mates”. So it now seems that the LEFT hate landlords who just a few years ago they encouraged to buy rental homes??
    Maybe the next Left Govt can buy all rental properties from those nasty mates of national and rent out at reduced rates.


  19. Dave Kennedy says:

    I don’t disagree with you, Tracey, the real issue is that people no longer earn enough to survive. Years ago one average income could support a family, now it takes two good incomes. There is no dignity now in working on a minimum wage like around 25% of workers do. The average weekly rent in Auckland is similar to the weekly in hand earnings of the minimum wage.


  20. TraceyS says:

    And that’s what subsidies are designed to do – distort reality.

    So I would make the case, if there is a case, that care should be taken to ensure they are as limited as possible, both in term and extent. Incidences such as Rio Tinto may distort reality but the distortion is both limited and isolated and carries a warning that the distortion will not be permanent.

    This may give the outward appearance of a favoured few. But anyone requiring propping up – whether a company or an individual – is hardly to be envied.


  21. Paranormal says:

    Exactly. Welfare for families and the accommodation supplement are subsidies to maintain low wages. The left instituted them in a cynical move to entrench their supporters in poverty.


  22. Dave Kennedy says:

    We should also consider what caused many to be brought in in the first place, inadequate wages!


  23. Paranormal says:

    Nope not at all Dave – it was purely Liarbour buying themselves an election with OPM (Other Peoples Money). From the inception of Welfare for families wages have become distorted.


  24. Dave Kennedy says:

    So people shouldn’t get paid more, we should just cut benefits further?


  25. TraceyS says:

    True in the case of WFF. Maintaining low wages is exactly what it does. A good sort of bribe – it gave a pay increase to the masses whilst getting employers off the hook for pay increases – all very popular in the short-term, but with awful long-term consequences.

    Accommodation supplement was National’s. But at least it was designed to replace something being taken away. It doesn’t fit the Wikipedia definition of a subsidy because it, unintentionally, actually works to keep market rents higher. But I suppose it does keep rent expenses lower for those who really need it. If it is only those people getting it then I’ve got no issue with it.


  26. Paranormal says:

    good on you Dave @ 5.21- showing unusual economic intelligence for a Green. Welfare for families distorts the wage market and subsidises (incentivises) low wages.


  27. Dave Kennedy says:

    @paranormal, it certainly does if people can’t access a living wage when they are fully employed.


  28. Armchair Critic says:

    National do what they say, like not raising GST?
    What you believe is interesting, but not really relevant. I believe this is a subsidy, and since a premise of the post is “subsidies are bad”, yet the subsidy is from the government and Ele is a supporter of the government, there’s a pretty big inconsistency there.
    On my approach to raising children, I’m not tempted to stray that far off topic.


  29. Armchair Critic says:

    Possibly jabba. I’m not really in a position to confirm about the introduction of LAQCs, it was a while ago and I’m travelling.
    I do recall that the so-called abolition was much more of a sleight of hand than real action, and a very similar outcome to an LAQC can be achieved by any half decent accountant. I’d prefer to not say more in public, email me if you want to, and genuinely don’t, know


  30. Paranormal says:

    Excellent we’re agreed then. WFF is a bad thing and needs to be scrapped so New Zealand can transform into a higher wage economy.


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