Poll-jumpy ministers are stung by Luxon’s tax-cut speech but can’t cover up the pressures of rising costs

National Party leader Christopher Luxon  came under  attack  from  his political opponents this  week   — and  from some elements in the mainstream media — for  proposing  tax  cuts  to ease  the  pressure of  what he  dubbed  a  “cost-of-living-crisis”.

Luxon outlined his  plan  in  his  state-of-the-nation address  on  Sunday.

The speech might not have made an  impact with the public as sharp as he  would have liked,  but it  clearly hit a  tender spot  in the  government. Both PM Jacinda Ardern and her deputy,  Grant Robertson, came armed to  Parliament on Tuesday to demolish the Luxon case.

They or their staff  had  also  been  busy briefing journalists who  had  been suggesting Luxon  was  off target,  and  his  proposed tax  cuts  would  be (a) inflationary  and  (b) ineffective.

The government’s sensitivity  might have  been  made  more  acute  by a political poll  (the  Roy  Morgan sampling)  which  showed  Labour  at  32% trailing National  on 38%.  This was  the third  successive poll from the  Roy Morgan  outfit  indicating a  change of  government if  that  mood  was carried  through to  the  election.

The difficulty for  the  government  even  as  it  argues that  inflation may  ease – next month, or in the  next  quarter, or in  the  next year – is  that  the fall in  the  standard of  living  is being felt  across the  board this  very  day.  What’s more, the  extra $6bn  the  government is  committed  to  spend in the budget  will  only add to  inflation.

The increases  to  benefit  rates already  made  by the Ardern  government are  being  gobbled  up  by rises  in the  cost  of  the  staples of everyday living.

Almost certainly Labour’s  polling is  delivering  the  same message to  the Ardern team as the respondents to the  Roy Morgan poll.

ANZ Research has pointed to inflation hitting 7.4% in the second quarter.  Grant Robertson contends  that’s  largely  because   of  global factors, but  even  if  they  are,  they  are  not  going  away  any time   soon.

While ministers insist inflationary pressures come from abroad, the   government runs  the  risk of  adding  to them with  measures  such  as  the  increase in the  minimum wage  and its  climate change imposts, as  well  as  some of  its  tax  increases  (on petrol, for  example).

For a  flavour  of  how  exchanges on  the  cost of  living went  in Parliament, Point of  Order  went  to Hansard  for  this  one:

Christopher Luxon: Why won’t   she  (the  Prime Minister) admit that New Zealand has a cost of living crisis when rent is up $140 a week and food prices are up more than 13 per cent under Labour?

Rt Hon JACINDA ARDERN: This side of the House absolutely acknowledges the increases that families across New Zealand are currently experiencing—as many other countries are—as we see the COVID recovery mean that demand is often outstripping supply. We also have the issue, of course, of the pressure on fuel prices, which have gone up over 500 per cent since April 2020 in terms of a barrel of crude oil. That is having an impact. But what I would contend is that the National Party’s proposal, for instance, to take away essentially $26 per week from someone earning under $40,000—because they voted against our increases to the family tax credit—and instead replace it with $2.15 is simply not the way to support families who need it most.

Christopher Luxon: Does she accept that with petrol now above $3 a litre in some places, Kiwis are having to pay as much as $60 more to fill up than when she took office, and if so, why won’t she admit we have a cost of living crisis?

Rt Hon JACINDA ARDERN: I again will bring the member back to where we are having the debate currently, which is that the member is proposing to, for instance, cut policies that will make it easier for first-home buyers to get into the market, and to get rid of the top tax bracket, instead of focusing on support for low and middle income New Zealanders. Now, again, I would also point out that the member, at the same time as he is raising what is essentially the impacts of international fuel prices and the fact that we have now a conflict in energy-rich countries with Russia invading Ukraine—yes, it’s having an impact at the pump. But the member is well short on his proposals, because he essentially is not answering the question of how he would pay for some of the things that  he is proposing. There are two options: he’s cutting health, he’s cutting education, or he’s increasing debt.

And then there was this exchange later in Question Time:

 Hon SIMON BRIDGES (National—Tauranga) (remote) to the Minister of Finance: Does he agree that New Zealand has a cost of living crisis; if not, why?

Hon GRANT ROBERTSON (Minister of Finance): I acknowledge that there is considerable pressure on household budgets at the moment from inflation caused largely by global factors. I don’t agree with the member’s characterisation. What the world is experiencing, what forecasters are telling us, is a spike in headline inflation primarily driven by global issues like supply chain disruptions as ports are closed due to COVID-19 and from global oil prices, which has now been exacerbated by the Russian invasion of Ukraine. It’s worth noting that quarterly inflation was lower in the December quarter compared to September at 1.4 percent compared to 2.2 percent and is projected by the Reserve Bank to continue trending downwards. This sees annual Consumers Price Index (CPI) inflation peaking in the March quarter and then falling across 2022 and 2023.

Hon Simon Bridges: Does he agree with the Prime Minister, as reported by Newshub, on the cost of living that “While things are bad now, they are expected to improve soon.”?

Hon GRANT ROBERTSON: As I just said to the member, the forecasts from the Reserve Bank and others are that inflation will peak in the March quarter and then fall across 2022 and 2023. That does not in any way undermine the fact that for many households, it is tough when there are rising prices. That’s why this side of the House has supported those on low and middle incomes, with things such as increases to benefits and the minimum wage—opposed by the National Party.

Hon Simon Bridges: On what basis does he expect New Zealand’s cost of living crisis to improve soon?

Hon GRANT ROBERTSON: On the basis of a number of forecasts that indicate that while inflation will spike up and is spiking up, there will be a reduction in that over the course of 2022 and 2023.

Hon Simon Bridges: With banks predicting inflation may go to 7 percent or higher and the Reserve Bank signalling consistent interest rate hikes over the next couple of years, isn’t the chance of New Zealand’s cost of living crisis improving soon very low?

Hon GRANT ROBERTSON: As I’ve said now three times in my answers, the forecasts that we have from the Reserve Bank and the Treasury are to see that the CPI inflation will begin falling across 2022 and 2023. No one is underestimating that this is a challenging period for many households and indeed for New Zealand when we are faced with the global supply chain constraints that we are and the rising cost of oil. What a Government can do in the face of this is look after the most vulnerable, our low and middle-income earners. That is what the Government is doing. Also, a Government that has overseen wage increases outstripping inflation in the period leading up to this time. This Government stands by our record in that regard.

Hon Simon Bridges: Given rents are up $140, food prices more than 13 percent, petrol is hitting $3 a litre, the real wages are now going backwards under his Government’s watch, don’t New Zealand need meaningful tax relief at Budget 2022?

Hon GRANT ROBERTSON: What New Zealanders need is a Government that has the consistency to look after them, to make sure that we invest in supporting those on low and middle incomes, to make sure we see jobs created so that the way that people have money in their pockets is through wages and higher wages. The kind of proposals that the member is supporting not only will be inflationary right now but they also will mean that we underinvest again in health and education, as he did the last time he was in office.

Hon Simon Bridges: In light of the upcoming Budget’s historic $6 billion in new spending, why can’t a portion of it go on tax relief to hurting New Zealanders as the cost of living crisis continues to worsen?

Hon GRANT ROBERTSON: The problem that the member has is that his proposal’s not just about this Budget, because his leader said on the weekend that this approach that they want to take to taxation will now continue into future Budgets, which means it has to be priced in there, which means there will be further cuts in public services or higher debt. The member is falling into the same trap of his predecessors. He can’t have all three things happening at once—taxes going down, debt going down, and spending staying the same or going up. And I would note, the member has spent several weeks telling me that I shouldn’t have a $6 billion one-off operating allowance in Budget 2022. And now he wants to spend all of it. He should try to be a bit more consistent.

As the debate intensifies,  as  surely  it  will, so  too  may  the  pain  in the  wallet  being felt  by  New Zealanders  temper the  political mood.

While the  government has  been careful to  do  what it can  to  ease  the  pressure on   lower  income people,  that  pain  has  now  spread  to the middle  income groups, where   general  elections  these  days  are mainly  fought and  won.