Jacinda Ardern mocks National's proposed $2 extra a week for $40k earners but pressure mounts to admit 'cost of living crisis'

Prime Minister Jacinda Ardern has rubbished National's tax cut proposal that would see $40,000 earners get an extra $2.15 a week. 

But the Prime Minister is coming under increasing pressure to acknowledge that Kiwis are facing a "cost of living crisis" as rent, petrol and supermarket prices soar. 

Inflation is at 6 percent. Fruit and vegetable prices were 15 percent higher in January this year compared to 2021. The national median rent climbed 6 percent in 12 months to reach a record $570 and unleaded petrol has topped $3 per litre.

National leader Christopher Luxon in Parliament on Tuesday asked Ardern if she would consider adjusting income tax brackets to help with rising prices given the struggles canvassed by Kiwis on AM. 

Mum of five Krystine Nation told AM her family's food bill had increased $7000 in the last year, and that despite graduating from university, it was cheaper to stay at home than go to work. 

"This is something that is so embarrassing to say but I cannot afford to go to work and I think that's the case for a lot of women after having babies," Nation told AM. 

"It's cheaper for me to stay at home and not pay the extra petrol, not pay the huge daycare costs, and the extra food for lunches. So I just spent a lot of money on a degree I cannot use."

Nation said Ardern, who on Monday's show stopped short of describing rising prices as a cost of living "crisis", needed to "get on the ground floor" and understand what Kiwis were experiencing. 

Ardern in Parliament said she stood by her comments to AM on Monday, drawing attention to her words: "There is an impact that people are feeling, undeniably."

Ardern said the debate was not about whether inflation had increased and was impacting people but what the solution was. 

"The Opposition has proposed cuts to the top tax rate and getting rid of policies to help first-home buyers. We, on the other hand, have worked consistently to increase focus support for low- and middle-income earners."

Ardern was referring to National's proposal to lift almost all of the income tax brackets by just over 11.5 percent, to match the 11.5 percent increase in the cost of living over the last four years. 

The most typical salary in New Zealand is about $55,000, according to the Average Salary Survey. Those earning $55,000 would save about $800 a year if National's tax changes were applied. But someone earning $45,000 would only get about $112.

National would scrap the new 39 percent top tax rate introduced by Labour after the election. Each dollar earned above $180,000 is taxed at 39 percent. 

National would also reverse Labour's extension of the bright-line test - income tax paid on any gains from residential property - from five years to 10 years. The change was intended to discourage property investment and help first-home buyers.

Ardern said the Government has been focused on helping low and middle-income earners by increasing the minimum wage, creating the Winter Energy Payment which starts again in May, and increasing Family Tax Credits

"This side of the House absolutely acknowledges the increases that families across New Zealand are currently experiencing as are many other countries as we see that the COVID recovery means that demand is outstripping supply," Ardern said.

"We also have the issue of course of the pressure on fuel prices which have gone up over 500 percent since April 2020 in terms of a barrel of crude oil. That is having an impact. 

"But what I would contest is the National Party's proposal 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."

National leader Christopher Luxon appeared in Parliament via Zoom after testing positive for COVID-19.
National leader Christopher Luxon appeared in Parliament via Zoom after testing positive for COVID-19. Photo credit: Parliament TV

Luxon, referring to Finance Minister Grant Robertson giving himself $6 billion in new spending for Budget 2022, said $4.3 billion would still be leftover if the Government provided his proposed tax cuts. 

Ardern described it as a "highly inflationary" idea, because it "wouldn't take much" for the extra $2 a $40,000 earner would get per week "to be absorbed". 

Luxon hit back.

"Is it her view that if the Government spends an extra $6 billion it won't be inflationary but giving Kiwis less than a third of that in tax relief would be?"

Ardern said her Government wanted to "look for ways to support those who feel disproportionately the impact of the cost of living, which is exactly why we've created targeted spending - $270 million worth - into families by increasing the Family Tax Credit."

A new fiscal hole?

The debate came as Robertson questioned the accuracy of National's tax cut policy. He said the proposals were likely to cost at least $3 billion over the forecast period resulting in less money available to invest in key services like health, education and police.

"I'm calling on National to release its costing spreadsheet so it can be independently checked. This includes being able to tell whether National has used at least three-year-old numbers, or what updates it has attempted to make."

It's reminiscent of when Robertson discovered a $4 billion fiscal hole in National's economic plan in the leadup to the 2020 election. 

National Party deputy leader Nicola Willis on Tuesday denied any errors in National's tax cut proposals. 

"I'd say that Grant is probably trying to distract from the fact that the Prime Minister continues to deny the very real cost of living crisis facing New Zealanders," she told reporters. 

"We released on Sunday a fully costed plan to adjust tax thresholds. The costing for that is $1.7 billion. If Grant Robertson were to take up our suggestion in this Budget, he would still have $4.3 billion left in his operating allowance to spend.

"I think that he's jumped the shark a bit. Saying 'fiscal hole' has become a phrase that gets bandied about. There is no hole here. We've costed the policy very clearly."