Government budges on cost of living, as Jacinda Ardern slashes fuel tax, National and Act urge her to go further

The Government finally budged on the cost of living crisis, on Monday announcing a dramatic 25 cents a litre cut to the cost of petrol taxes and road user charges and a halving of public transport fares.

The about-face came as Prime Minister Jacinda Ardern admitted there was a cost of living crisis in New Zealand – something she had been reluctant to do last week, although she maintained the drivers of rising costs were from offshore, and not the fault of her Government.

The changes are for just three months at this stage, although Ardern and Finance Minister Grant Robertson suggesting the Budget, due in May, could make lower public transport fares permanent.

The fuel excise changes took effect as of midnight last night (the public transport changes will come on April 1), but at least one fuel retailer, Mobil, took the opportunity to drop its prices almost immediately. When GST is included, the cut totals 28 cents a litre.

Ardern said the changes would mean savings of “$11 a tank to $17 a tank.”

She added she hoped the public transport fare cut would give people the opportunity to leave the car at home.

“We are also making it cheaper for those who catch a bus or a train. In the long term we need to build greater resilience into our transport system so we are less vulnerable to spikes in the price of petrol, but for now halving the cost of public transport will provide some families with an alternative to filling up the tank,” Ardern said.

She said the crisis in Ukraine had brought about a “global energy crisis”.

Ardern said that while the crisis was not the responsibility of the Government, it would try to alleviate some of its most immediate costs.

“We cannot control the war in Ukraine nor the continued volatility of fuel prices, but we can take steps to reduce the impact on New Zealand families,” Ardern said.

Ardern’s announcement capped off one of the most difficult weeks in this Government’s history, which began with leader Christopher Luxon promising a $1.7 billion tax cut package, progressed to National pulling ahead in a poll for the first time in two years, and ended in the unedifying spectacle of Ardern denying there was a cost-of-living crisis.

On Monday, Ardern was even forced to answer, whether, on the back of that poll, she planned to stick around for the next election – a question usually directed at struggling National leaders (she said she would contest the election, shrugging of the poll result).

National had been calling on the Government to permanently axe Auckland’s regional fuel tax of 10 cents a litre plus GST – although last week National deputy leader Nicola Willis refused to go as far as calling for fuel exise, which applies nationally, to go as well.

National stuck to its guns on Monday, with leader Christopher Luxon saying the “petrol tax tweaks will provide some relief but don’t address the wider cost-of-living crisis that Kiwis across the country are facing”.

He reiterated his call for the Auckland regional fuel tax to go, as well as a raft of other Labour taxes.

“It’s good that the Government has finally accepted there is a cost-of-living crisis in New Zealand. But now they need to address it,” Luxon said.

Auckland Mayor Phil Goff said he still backed the tax.

“Suspending the regional fuel tax in current circumstances would worsen the crisis Auckland Transport faces with the loss of hundreds of millions of dollars in public transport fares because of Covid, while construction costs for new infrastructure and operating costs are rising rapidly,” Goff said.

“Any reduction in revenue in these circumstances would result in suspension of projects like the Eastern Busway and would not only delay their delivery, but also result in ultimately much higher costs,” he said.

He also warned the loss of revenue would mean “less ability to borrow within debt to revenue constraints”.

But one of the candidates vying to replace him, Viv Beck said she would get rid of the tax within 12 months of becoming mayor, saying the tax was “hurting Aucklanders at a time when families across the city are already feeling the pinch.”

Act Leader David Seymour called for the Government to go even further, saying the $4.5b expected to be raised in Emissions Trading Scheme receipts over the years to 2025/26 should be recycled back to consumers as a climate dividend.

“The Carbon Tax Refund would take each year’s revenue from ETS auctions and divide it by the population. Every adult would receive a reduction in their tax bill by that amount, plus their dependent children’s share,” Seymour said.

Not every party backed the cuts.

The Greens cautioned against cutting the fuel taxes, with co-leader James Shaw saying he would have preferred “direct payments to people through the welfare system or via a tax credit”.

Energy Minister Megan Woods said she’d be keeping an eye on fuel retailers to make sure they pass the cut on to consumers.

She said she is now “seeking daily information disclosure from fuel companies of their rolling seven-day average fuel margins, to monitor industry profits”.

Woods said she would like the fuel companies to give up that information voluntarily, but she suggested that if they did not, she might use new fuel pricing legislation to force it from them.

The move would reduce fuel excise duty, the main tax on petrol to lower than when the Government took office. The current Government raised it by 10.5c.

Fuel taxes and road user charges are paid directly to Waka Kotahi – NZ Transport Agency, which spends the money on maintaining the road network, building new roads, and subsidising public transport.

The Government would make up for the revenue lost as a result of the cuts to fuel taxes and road user charges by giving Waka Kotahi a grant from the Covid fund of about $350m.

Robertson said this cost would be met through “savings and reprioritisation”.

“This means we can continue the Government’s record investment into transport infrastructure without having to cut projects,” he said.

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