Budget 2022: National launches assault on Govt's $350 payments as advice reveals Treasury warned against policy

The Opposition has launched a full assault on the Government's $350 cost of living package, spotlighting Treasury advice that warned against a one-off payment described as a "poor mechanism for supporting households with a longer-term problem". 

National says this proves the Government has simply produced "band-aid economics made up on the fly", while the advice also reveals Inland Revenue didn't want to be responsible for the payments, warning they could "compromise" an "already-stretched" public service workforce.

The advice, published by Inland Revenue and dated May 4, relates to the $814 million initiative to pay Kiwis who make under $70,000 and aren't eligible for the Winter Energy Payment $350 (or $27 per week) over three months from August. The policy is part of the Government's $1 billion response to skyrocketing inflation in the Budget.

It says Treasury "recommended against progressing a broad-based payment, instead recommending investigating a more targeted form of support to lower-income households". 

"Inflation has risen over the past year and is expected to be widespread and to persist in the future. This makes a one-off payment a poor mechanism for supporting households with a longer-term problem," the advice says.

"A broad-based one-off payment of this magnitude would add to inflationary pressures in the short-term, although the risk to longer-term inflationary pressures is relatively small assuming any interventions of this nature were temporary.

"There are other Government priorities that could be pursued using the funding for this payment, for example, initiatives that more directly impact on interim child poverty targets."

Inflation hit 6.9 percent in the year to March, which the Budget Economic and Fiscal Update (BEFU) on Thursday said is the result of strong domestic demand, as well as global factors like supply chain issues and the war in Ukraine. BEFU showed inflation would remain outside of the Reserve Bank's targeted range until 2025. 

The $350 payment isn't the Government's only attempt to help Kiwis in the face of growing cost of living. It's also extended cuts to the fuel excise duty, road user charges and public transport fares. On Thursday night, it introduced legislation responding to recommendations by the Commece Commission to create more competition in the grocery sector.

National says this proves the Government has simply produced "band-aid economics made up on the fly".
National says this proves the Government has simply produced "band-aid economics made up on the fly". Photo credit: Getty Images.

In the advice, it's said that Treasury recommended Inland Revenue be the delivery agency if the Government moved forward with the policy. But Inland Revenue recommended against that as it would have "critical operational impacts" and "compromise" it's "already stretched workforce". Up to 750 full-time staff may be required to assist over the three months. 

Ultimately, the Government chose to give the payments the greenlight and is making Inland Revenue do the delivery. To allow Inland Revenue time to set up its systems, the payments won't be delivered until August.

The advice says Finance Minister Grant Robertson initially sought "urgent advice" on other options, like extending the Winter Energy Payment to others making under $70,000.

Because of the speed in which advice was produced and other constraints "it is also possible that the problem definition has not been fully analysed by officials". 

"Owing to the very compressed timeframes and budget sensitivities, no consultation outside of government agencies has taken place. There is a risk that significant issues with the resulting proposal have not been identified."

National finance spokesperson Nicola Willis said on Friday that "it's clear it was a panic measure". 

"What Treasury said was, we don't support this. It is a temporary solution to a long-running problem. That's the reality," she said. 

"In November, when that payment stops going into bank accounts, the cost of living crisis will still be going and inflation will still be high next year and the year after that. So to put in place a band-aid and try and hoodwink New Zealanders into thinking that you're doing something, that's not good enough."

The Budget was revealed on Thursday.
The Budget was revealed on Thursday. Photo credit: Getty Images.

The Finance Minister, appearing on AM on Friday, said the Government had recognised that assistance was needed for a large number of Kiwis who may not be able to access initiatives like the Winter Energy Payment or who weren't affected by the increases to the minimum wage and benefits. 

"I'm never going to pretend that it's going to meet all the costs that are out there. But clearly with the Russian invasion of Ukraine, the extension of the supply chain constraints from COVID-19, we are seeing inflation higher than was originally predicted late last year," Robertson said.

"We think this is an important contribution we can make for a wider group of New Zealanders to have some cost of living support."

He said the payment compares well to National's proposal to adjust tax thresholds to inflation. According to the centre-right party, that would result in someone on $55,000 getting about $800 more in their pocket over the year

"$27 a week for three months for these people is more than they would get under Christopher Luxon's package, which would have a worse effect on inflation. That's the point," Robertson said.

"We've come up with a really good balance here, a targeted piece of support that won't unnecessarily exacerbate the very problem we're trying to solve with inflation. 

"Untargeted tax cuts that give people who earn more than $180,000 is going to make inflation worse. So I think we've got the balance right here."

ACT is also up in arms over the Government response, saying middle-income Kiwis will feel shafted.

"ACT has prioritised middle income workers, those who work hard and are swimming against the tide of rising inflation that has been caused by out of control Government spending," leader David Seymour said.

"Our Real Change Budget would let someone on the the average income of $73,000 keep an extra $2185 of their own money. That sort of relief would give real change to someone’s life."

The party advocates for the tax system being simplified to just two tax rates.