Cost of living: Government takes jabs from Greens, ACT, National over fuel tax cut extension

The Government's decision to extend fuel tax cuts is receiving criticism from both the left and the right, with the Greens urging ministers to stop subsidising fossil fuels during a climate crisis and ACT calling it a "political sugar hit".

National's saying it is a "re-heated" policy showing that while Labour might have a new leader, it has the "same old ideas".

In the first major policy announcement of his premiership, Prime Minister Chris Hipkins on Wednesday announced a U-turn on the decision to end cuts to the fuel excise duty (FED), public transport fares and road user charges (RUC).

In December, the Government - then led by Jacinda Ardern - said the subsidies would end in early 2023 after first being introduced last April. A key factor in that decision was the expense, with the Ministry of Transport estimating the package to cost $1.3 billion by January 31.

But Hipkins, who has pinpointed "bread and butter issues" - the cost of living - as the main focus of his Government, said on Wednesday the subsidies were still needed to support Kiwis. They have now been extended until the end of June. 

It's a decision that isn't going down well with either side of the political spectrum.

James Shaw, speaking as the Green Party co-leader rather than as the Government's Climate Change Minister, said ministers need to stop subsidising fossil fuels during a climate crisis. 

"Auckland has just experienced first-hand the devastating impacts of climate change. It just doesn't make sense to be extending subsidies for fossil fuels," he said.

"The consequences of climate change are here, and the impacts are going to get worse and worse, unless we act. The priority should be action that reduces emissions as quickly, and as fairly as possible. Subsidising petrol for everyone, including the highest income earners, is not the answer."

Shaw said the tax cut isn't targeted and the top earners would benefit from it the most. 

"There are better ways to help families struggling with high inflation than subsidising harmful fossil fuels. It would make far more sense to provide direct payments to low-income households by increasing Working for Families and the Accommodation Supplement," he said.

"The subsidy is also a poor use of the transport budget. Subsidising fuel costs more than $1.3 billion per year. With Auckland's transport infrastructure damaged so badly from climate-fuelled flooding, now is not the time to be short-changing our transport budget."

The Green Party's James Shaw.
The Green Party's James Shaw. Photo credit: Getty Images.

He said the money needed to pay for the tax cut - the extension is estimated to cost $718 million - would be put to better use making half-price public transport fares permanent and through investment in "more reliable and efficient public transport infrastructure". 

Hipkins made the announcement of the extension in Auckland, just hours after visiting a community affected by the recent catastrophic flooding.

At his press conference, he was asked how he could marry up announcing his Government would subsidise a fossil fuel while in a city affected by a climate change-driven weather event.

He replied by saying the Government has an extensive work programme underway aimed at tackling climate change. 

"We are absolutely focused on reducing emissions. The public transport reductions that we have put in place today are a positive step in terms of getting more people to use public transport. We have got extensive work around the electrification of the vehicle fleet."

In the "right here and right now", Hipkins said the Government wanted to help families feeling the pressure of fuel price hikes who "have no choice but to continue to fill up the car".

"That does not mean we are taking our foot off the accelerator - if you will excuse the pun - when it comes to reducing emissions."

National's finance spokesperson Nicola Willis said the announcement showed Hipkins "is bereft of any new ideas for addressing New Zealand's deepening cost of living crisis".

"Today the Prime Minister had an opportunity to present a plan to tackle the long-term drivers of record price increases. Instead, he simply re-heated an old Labour policy with a three-month time horizon," she said 

"New Zealanders confronting the cost-of-living crisis know that Labour's short-term, band-aid approach has failed to make things better. Yet that's what the Prime Minister served up again today."

National's Nicola Willis.
National's Nicola Willis. Photo credit: Getty Images.

The extension is also receiving criticism from the ACT Party which is likening it to the economic decisions made by former British Prime Minister Liz Truss during her short stint in office. 

"Liz Truss got in trouble for promising to cut taxes with no plan to cut spending. Hipkins is a mini-Truss with his plan to keep handing out subsidies on transport, with no plan to make it up elsewhere," said leader David Seymour.

"If Hipkins wants the political sugar hit of giving away money with one hand, where is he going to make savings? Deficit spending in an inflationary environment is irresponsible, hardly the leadership needed in a cost of living crisis."

He also added that the price of oil is well below where it was in March last year when the Government introduced the subsidies. 

"Fuel is no longer driving inflation, the problems are closer to home, but Hipkins is still fighting the last war."

ACT's David Seymour.
ACT's David Seymour. Photo credit: Getty Images.

Finance Minister Grant Robertson explained on Wednesday the Government is trying to "strike a balance between targeted ongoing support and careful management of the Government accounts". 

"We are paying for the extension from savings identified in the most recent baseline update."

He said every six months the Government goes back through the money it has allocated and asks the question, "do we still need this?"

"We did that exercise and we found sufficient funding to be able to fund this extension."

The Finance Minister said the extension goes through to the end of June, when the current Budget period ends.

"We will take a look through the Budget process at what is the best way to be able to support New Zealanders with the cost of living."

Asked why not use that money to borrow less, Robertson repeated it is about striking a balance.

"We want to make sure that we keep the fiscal picture strong, that we support monetary policy with our fiscal policy. We also have to make sure that we support New Zealand families and households to be able to take the hard edges of the cost of living crisis they are living through."

Robertson also noted that the transport subsidy package had already reduced inflation slightly.

Willis said Robertson was "stretching his credibility by claiming he has found $700 million in the past two months".

Further help is also on the way. From April 1, more targeted supports like lifts to benefits, Family Tax Credits, Superannuation, and childcare assistance begin.