Christopher Luxon rethinks top tax cut as situation changes 'big time', Grant Robertson, David Seymour take jabs

The record increase in the official cash rate has prompted National leader Christopher Luxon's biggest backdown yet - he's now signalling he'll revisit his plan to axe the top tax rate.

It's time to jump aboard the backpaddle boat with Luxon.

"It's entirely appropriate that we actually go back and actually think through what can this country afford," he said on Wednesday afternoon after the record OCR jump of 75 basis points. 

He's turning around the good ship 'tax cut'.

"The situation has changed big time."

That means a big-time backdown.

National had promised to scrap the 39 percent tax on earnings over $180,000, but Luxon's giving up the fight. 

"We would like to offer people tax relief... but when we look ahead and if I think about the 39 percent tax rate in particular, that's something that I really want to think about."

It got him smashed about by both sides.

The political left hook came from Labour's Grant Robertson.

"I just don't think you can trust National on tax," he said. 

Then an uppercut from the right.

"You don't beat Labour by becoming Labour," said ACT leader David Seymour. 

His friends and foes are smelling the political rubber burning. 

"There's been so many U-turns over the few weeks on policy, it's hard to keep up," said Robertson.

"He's gone down to the parking lot, put the diesel on the tarmac and done a big doughy, lighting it up in his Nissan," said Seymour. 

But Luxon is serving up some home truths. 

"Let's get really sobering about the reality of this. Interest rates are going to continue to rise because inflation is stubbornly high and we are now heading to recession," he said. 

Robertson said at this time, with what New Zealand is facing, "we don't need people whose first reaction is to panic". 

Tax cuts, the one U-turn to rule them all.

Jenna Lynch Analysis

Politically, this isn't as bad as it sounds for National. 

National needed to drop this policy anyway. Cutting taxes for the top 2 percent of earners is not a middle New Zealand vote winner. 

It was the biggest stick Labour had to hit them with and Reserve Bank Governor Adrian Orr just gave National the excuse they needed to throw that stick in the river.

The biggest risk to Luxon is this constant state of U-turn he's in. It's a trust problem now.

But for Labour, it's even worse.

A world of pain is coming. They were hoping this inflation crisis would be short and sharp, but it turns out election day may well be an economic doomsday with the Reserve Bank forecasting these dark economic clouds rolling into the end of next year.

Newshub understands the government is now running a massive ruler over its spending and looking at cutting loose some of the nice-to-haves rather than necessities.