U-turn on fuel taxes could pump up poll support for Hipkins and Co but the poor – perhaps – won’t notice who benefits most

Buzz from the Beehive

Cost-of-living pressures loomed large in Beehive announcements over the past 24 hours.

The PM was obviously keen to announce further measures to keep those costs in check and demonstrate he means business when he talks of focusing his government on bread-and-butter issues.

His statement was headed –

Cost of living support extended for families and businesses

The Government is providing extra cost of living support to families and businesses, delivering on new Prime Minister Chris Hipkins’ promise of a greater focus on the issues facing New Zealanders right now.

The timing was exquisite.

Stats NZ today published data that show increasing prices continued to affect all household groups in the 12 months to December 2022.

The cost of living for the average household (as measured by the household living-costs price indexes) increased by 8.2 per cent in the 12 months to December 2022.
Inflation experienced from the December 2021 quarter to the December 2022 quarter:

• all households was 8.2 per cent
• beneficiary was 6.9 per cent
• Māori was 8.1 per cent
• superannuitant was 7.4 per cent
• highest-spending households was 9.4 per cent
• lowest-spending households was 7.1 per cent

The PM’s deputy and Finance Minister got in on the act with a joint statement to draw media attention (lest they not get this stuff directly from Stats NZ) to the employment statistics published yesterday.

The statement mentioned cost-of-living pressures but focused on –

More Kiwis in work as rising wages match inflation

The strong economy has attracted more people into the workforce, with a record number of New Zealanders in paid work and wages rising to help with cost-of-living pressures.

Hmm.  To what extent do rising wages fuel inflation and raise the country’s cost-of-living pressures?

Another statement yesterday came from Agriculture Minister Damien O’Connor and Associate Minister Meka Whaitiri.

It set a target that featured in the headline –

Government and horticulture sector target $12b in exports by 2035

A new Government and industry strategy launched today has its sights on growing the value of New Zealand’s horticultural production to $12 billion by 2035

Actually, the strategy sets a revised target and extends the $12 billion target from 2030 by five years.

In May last year, Horticulture New Zealand said:

Work has picked up again on the horticulture industry-led, government enabled action plan that is being developed to support our industry to reach the Fit for a Better World target. That is, to improve grower margins and double the farm gate value of production – from $6 billion to $12 billion by 2030.

Damien O’Connor, along with Carmel Sepuloni and Kieran McAnulty, popped up today to announce –

Further support for upper North Island regions hit by significant weather

The Government is unlocking an additional $700,000 in support for regions that have been badly hit by the recent flooding and storm damage in the upper North Island.

And the PM alerted us to news that –

The Princess Royal to visit New Zealand

Prime Minister Chris Hipkins has welcomed the announcement that Her Royal Highness The Princess Royal, Princess Anne, will visit New Zealand this month.

One way or another, the Beehive has given us plenty to digest, but at Point of Order we have focused on the joint statement from the PM and two of his senior colleagues, Grant Robertson (Finance) and Michael Wood (Transport).

The measures they announced are:

• The 25 cents per litre petrol excise duty cut will be extended to 30 June 2023 – reducing an average 60 litre tank of petrol by $17.25
• The Road User Charge discount will be re-introduced and continue through until 30 June
• Half-price public transport fares will be extended to the end of June 2023, saving an average person who pays two $5 fares a day $25 a week
• Half-price public transport will be made permanent to around one million Community Service Card holders, including tertiary students, from 1 July 2023

“I’ve said bread and butter issues like the cost of living would be my top priority. This is our first step in dealing with some of the persistent cost pressures on businesses and families,” Chris Hipkins said.

“Reducing the cost of fuel excise and public transport is a good candidate for early action – it’s a major cost for nearly everyone, we know how to do it, and can roll it out quickly.”

Hipkins said this was “a small and meaningful first step in an ongoing series of measures” to help with some of the persistent cost pressures on businesses and families.

And he brought the disastrous consequences of the Auckland floods into his considerations:

“We can deliver to under pressure businesses and families fast. Transport is the third biggest expense on households after housing and food, so this is a policy that makes a real difference right now.

“The floods in Auckland and Northland are putting extra stress and financial pressure on families. Cutting fuel excise and keeping half price public transport gives some extra relief as Auckland goes through a difficult period.”

He also brought overseas forces beyond his control into the reckoning:

“New Zealanders understand we’re facing international pressures that are driving up inflation and prices. This policy won’t solve the crisis, but it will make a difference. I know that every bit helps,” Chris Hipkins said.

Finance Minister Grant Robertson said  economists’ forecasts of New Zealand’s inflation remaining “at elevated levels for longer than we’ve seen in the past” had prompted the government’s decision to revisit its decision on the transport support package.

“We know that increases in the price of food is hitting families hard. A significant component of those costs come from fuel. Extending the cut to fuel excise and Road User Charges will have a meaningful impact through reducing these costs.

“It is also a good policy for business. The cost of freight and running car fleets is a big cost for many businesses, so this extension helps relieve a bit of pressure on those doing it tough right now.

“This policy is also a practical way to help take the edge off inflation. The Treasury estimated the combined impacts of this policy reduced headline inflation by 0.5 percentage points in the June 2022 quarter. So it is a good policy to fight inflation while also helping the hip pocket now.”

The cut to fuel excise reduces the cost of filling up a 40 litre tank of petrol by around $11.50, and for a 60 litre tank, around $17.25

Half-price public transport will save an average person who pays two $5 fares a day $25 a week.

The extension of all measures is estimated to cost about $718 million.

Robertson insisted:

“I believe this is the right thing to do for New Zealand families. We can strike a balance between targeted ongoing support and careful management of the Government accounts. We are paying for the extension from savings identified in the most recent baseline update.”

And the prospects of a further extension?

Well, Robertson said:

“This extension takes us to the end of the financial year. We have already indicated that the Budget will have a cost-of-living focus, and this extension covers the time until that comes into force,” Grant Robertson said.

The petrol excise duty cut will be 25 cents per litre until the end of June.

Half price fares for public transport will be extended until the end of June, after which they will be made permanently half price for people with Community Service Cards as previously announced.

This may well be helpful for Labour’s political poll percentages in the runup to the general election in November.

But RNZ reported:

Fuel tax subsidy extension ‘bonkers’, ‘extremely dumb’ – critics

 “Bonkers” and “extremely dumb” are just some of the words critics are using to describe the Government’s U-turn on transport subsidies. 

The report said critics had been quick to rubbish the U-turn as bad for the economy, environment and equity but noted that the general public was thrilled.

At Kiwiblog, the headline on David Farrar’s report suggests poorer New Zealanders might not be so thrilled when they tumble to what is happening:

Labour’s tax cut for the rich

Kiwiblog highlighted a Newshub report:

The Government is keeping half-price public transport and the 25c a litre petrol tax cut. …

“This is an extremely dumb economic policy,” said Infometrics’ Brad Olsen. 

Infometrics has crunched the numbers on the average fuel use of people in different income bands. As higher-income households use more fuel, they save about $64 a month. Households who earn the least and use the least petrol save just $21.

“We’ve heard time and time again about tax cuts for the rich. This policy is exactly that,” Olsen said.

Farrar agreed tax cuts are good if a government cuts spending also.

But what Labour is doing is keeping the petrol tax down in election year, and borrowing money to make up the difference – which means it get added to our collective debt.

Green Party co-leader James Shaw was concerned about the untargeted approach of the U-turn and was scathing of the environmental impact.

“Given that we’ve just had these colossal floods in Auckland … the idea that we would now subsidise the root cause of those flooding events is kind of bonkers to me.

“I think that there are ways that we could target support to lower income families and people who are struggling without directly subsidising harmful fossil fuels.”

Hipkins said the government still had its emissions reduction programme and argued the fuel tax cut was likely to subsidise only the petrol that people were already using.