SUBSIDY EXTENSIONS: WILL THE PAIN OUTLAST THE BALM?
The fuel excise tax and public transport subsidies extension announced by Prime Minister Chris Hipkins in Auckland on Wednesday is clearly meant to provide a balm to New Zealanders groaning under the weight of high cost of living.
But it is also aimed at dispelling the first impression in the wake of the leadership change in the Labour Party that the government has been coy about revealing the policy changes ahead.
There is no political capital in holding to a position of reticence on policy when inflation is compounded by natural calamity. It is significant that the petrol and transport subsidy extensions were announced in Auckland, which has been battered by rain and flood.
But extending the deadline for the subsidies, which was not meant to go beyond March as per Finance Minister Grant Robertson’s announcement made in December, fuels the Opposition narrative that the Labour government is on a spending spree.
Both National’s Nicola Willis and ACT leader David Seymour have challenged the government to identify the source of funding for the subsidy extensions.
Robertson has picked up the gauntlet and traced the money source for the fresh largesse granted to the public to an October budgetary process called the baseline update, to justify the additional $ 718 million cost burden of extending the subsidies.
In December, Robertson had said continuing the subsidies beyond March wasn’t affordable.
Prime Minister Hipkins has clearly left the number crunching exercise to his finance minister, saying merely that extending the subsidies would soften the cost-of-living crisis.
He has also now shown his hand, which had been held close to his chest, by unveiling measures to ease the pain for families, signalling that his government is acting quickly to keep prices down.
The 25 cent cut to the petrol excise duty, a cut to road user charges for diesel and halving public transport rates will run to June end, when the new budget starts, Robertson reckons. The announcement aims to take the wind out of the opposition’s sails.
Predictably, the Green Party has adopted an ideological position on the petrol tax cut, calling it a “fossil fuel subsidy” the party did not support.
The party is also saying it is the top earners who benefit most from petrol subsidies, a charge that no doubt puts the left-of-centre Labour government on the back foot.
ACT’s Seymour has pointed to the inherent contradiction involved in spending without a plan to limit spending, saying deficit spending in an inflationary environment is “irresponsible.”
The question the Labour government needs to ask itself is whether the band-aid in the form of the fuel excise tax cut and half-price public transport subsidy extensions will come off sooner than expected, that its balming effect would be neutralised by spiralling prices between now and June.