Gordon Campbell on extending the fuel/public transport subsidies

Trains AucklandAs PM Chris Hipkins says, it’s a “no brainer” to extend the fuel tax cut, half price public subsidy and the cut to the road user levy until mid-year. A no braoner if the prime purpose is to ease the burden on people struggling to cope with the cost of living, and – perhaps – reduce the impact of the floods on their ability to earn an income.

Anecdotally, the decision has been popular with the general public:

The savings are estimated to be $17.25 for a 60-litre petrol tank , $11.50 for a 40-litre tank and bus users paying two $5 fares a day, $25 a week.

A $25 a week reduction in the cost of public transport sounds quite substantial. However, the decision to extend relief on the cost of fuel and travel has run into a storm of criticism from some quarters. In fact, it has been something of a Rorschach test for critics ranging from the Greens to the policy wonks at economic research firm Infometrics.

To Greens co-leader James Shaw it is ”bonkers” to extend the fuel tax cut when climate change was a root cause of the recent floods. Hmm. Really? Given that social equity is supposedly part of the Greens founding principles, it is surprising that Shaw didn’t weigh the immediate relief to household budgets by keeping fuel costs low for people facing hardship in the wake of the floods against the infinitesimal climate change effect of New Zealand extending its fuel tax cut from April 1st until June 30 . By all means, mention that there’s a downside. But “ bonkers?” It is only a bonkers move for people who can afford to treat largely symbolic gestures as being more important than household budgeting. It would also seem more in line with Greens policy that the deal breaker on public transport is the unreliability of the bus and train services, not their price.

In similar vein, Infometrics economist Brad Olsen, who slammed as “dumb” the extension of untargeted subsidies that disproportionately benefit people who don’t need the extra money. Really? And just what would the bureaucratic cost be of means testing people down at the petrol pump ? If only Olsen and his ilk would regularly come out swinging against tax cuts as being “ dumb,” on the same social equity basis. That seems very unlikely though. It’s a mindset thing.

In fact, the business commentariat – in the shape of BNZ economist Stephen Toplis – was moved this morning to claim that unemployment “needs” to rise to 4.5%. to help combat inflation. Presumably, Toplis is not asking bank economists to selflessly volunteer to join the unemployment lines in order to meet this noble target.

Hipkins Big Fortnight

So far, so good. According to the polls, Chris Hipkins has reached base camp in the foothills of Labours long and difficult ascent to re-election. For now at least, his elevation to the top job has halted Labour’s slide, which means that changing leaders has achieved stage one of Labour’s damage limitation process. The real test will come when Hipkins has to do something that’s widely unpopular.

Talking of which…whatever shape the Three Waters scheme finally takes, it will still play a central role in the fortunes of this administration. Freeing Nanaia Mahuta of the Three Waters burden and draping it around the shoulders of Kieran MacAnulty looks like a signal that a less ambitious, less centralised version of Three Waters could be in the offing. Something smaller, something that happens more slowly, and something more open to local inputs and assurances about ownership.

On the other hand though.. it could hardly be more obvious that a major revamp of water management in this country is needed. The floods in Auckland and elsewhere have just demonstrated that our ageing and inadequate water infrastructure is not up to the current challenges, let alone the more frequent, more serious storms that climate change will be sending out way. Plainly, he status quo is not an option. So if not Three Waters, then what? Any ideas, Christopher Luxon?

BTW, the Hipkins transition to power has been so smooth – and so necessary – that we may have to rethink how it came about. The shock of Jacinda Ardern’s departure meant that the benefits of her leaving were initially eclipsed. With hindsight, it seems painfully obvious that if Labour was ever going to regroup and rebrand, it could only do so under fresh management. Basically, we should have seen Ardern’s exit coming.

In all likelihood, her departure was a mutually-arrived-at decision taken within Labour’s kitchen Cabinet, rather than a resignation that suddenly came out of Mt Albert like a bolt from the blue. (Probably, her exit was a meeting of minds.) To know for sure, we’ll have to wait until the Ardern memoir reveals the full details. Surely, such a book must already be in the works, given the size of the possible international audience.

Shuffling the Deck

The Cabinet reshuffle was most notable for the elevation of Michael Wood. Wood now fills the role that Hipkins used to play, as the Labour team’s reliable and ever willing Mr Fixit. Combining Auckland’s business needs with the Immigration portfolio (also held by Wood) seems a good idea, too.

Should Luxon be worried? Evidence would suggest he was feeling perturbed, even before Ardern departed the scene. How else to explain his sudden elevation of has-beens like Judith Collins and Todd Muller, other than for them to serve as his loyal dependents should push ever come to shove? Such precautions may be wise. National’s top tier have every reason to feel concerned about Luxon’s patent inability to think on his feet and ad lib safely, once he has used up his list of soundbites.

Footnote One : For proof and for old times’ sake, here’s a clip from Question Time, mid-December 2022,. This was the last time that Christopher Luxon tried to take on

Jacinda Ardern in the debating chamber. It was a massacre:


Footnote Two: Teachers will be likely to appreciate the extension of the fuel tax cut subsidy. As a former Education Minister, Hipkins will be well aware of how regularly many teachers use their cars – like, daily – to get to and from school. So the continued savings will be being welcomed by a bloc of traditional Labour voters who aren’t paid high salaries for the essential work they do.

The Incredible Shrinking Recession

While alleviating the pressure on peoples’ wallets, the package of fuel tax/public transport extensions will also buy the government more time to figure out where the global economy is headed. Some current signals are almost too good to be true. Globally, inflation has been easing for months. Remarkably, this seems to be happening without large numbers of people losing their jobs, and while wages are still rising. Take that, Stephen Toplis.

Mind you, it is too soon to assume the global economy is about to achieve the fabled “soft landing,” post-inflation. But put it this way: the pessimists should be finding it harder to make their gloomy case that a recession is inevitable, and that the relentless hiking up of interest rates and the loss of circa 50,000 to 70,000 jobs are the only ways New Zealand can break the inflationary cycle.

As mentioned, It is hard to tell whether the current easing in inflationary pressures across the developed world is merely a blip, or evidence of a positive trend. To be sure, some of our own key inflationary pressures are domestic, rather than global. The floods will create shortages that cause vegetables to become even more scarce, further pushing up prices. Hey, here’s a novel idea : why not provide relief to household budgets by taking GST off fruit and vegetables? Due to the advances in supermarket coding, the implementation costs would be minimal. Australia manages the few anomalies etc etc.

All that aside…if a soft landing does eventuate this would open up room for political messaging that says (a) inflation has peaked (b) as with Covid, this government has steered New Zealand safely though the worst of the cost of living crisis so (c) why turn to Christopher Luxon to fix a problem already in decline? Especially when there is polling evidence that a majority of the public currently trust Hipkins, but more people are saying they don’t trust Luxon, than do:

The results show 52.9 percent – a majority – said they trust Hipkins, while 26.9 percent didn’t trust him. For Luxon, only 36.9 percent said they trust him, while 43.8 percent said, no they don’t.

Footnote One : Here’s some of the good news on inflation. The IMF is saying that inflation is easing and the global economy is poised for a rebound. Here’s the most recent US personal income data, also with spending and employment holding up, while inflation eases down.

Footnote Two: And here’s some potential bad news. Since China has just ended its Covid Zero lockkdown and is roaring back to a fullblown pursuit of growth – will China’s demands for fuel, goods and services push up prices ( for fuel etc) and undo some of the good news we’re currently seeing on the inflation front? Possibly. Demand driven by China may help our exporters though, much as it did after the GFC.

Footnote Three : Having allegedly overshot on the Covid stimulus package, the Reserve Bank is at risk of now overshooting on the other side of the equation by continuing to hike up interest rates – by 50 points next time, forecasters are predicting – even after the rationale for doing so seems to be in retreat, globally at least. Plus, there’s this:

The US economy beat expectations in the last quarter of 2022, posting the kind of mild slowdown that the Federal Reserve wants to see as it attempts to tame inflation without choking off growth…. A separate report on labor markets published Thursday also pointed to a resilient economy, rather than one on the verge of a slump, with weekly jobless claims unexpectedly falling. For the Fed, which has hiked interest rates at the steepest pace in a generation over the past year, the data suggest that there’s still a path to a “soft landing,” where tighter monetary policy cools spending and lowers inflation while avoiding a recession.

Here, the Reserve Bank seems to be assuming that inflationary expectations are so embedded in the business mindset that further interest rate hikes are necessary…presumably until such time as significant job losses eventuate. Meaning : hiking up unemployment is at serious risk of becoming an end in itself, as the only acceptable sign that the medicine to cure the cost of living crisis is working. Some cure. Frankly, losing one’s job seems worse than struggling to pay the supermarket bill.

Back to School

As the floods recede and the kids head back at school, here’s a happy video from Fiji, in praise of Suva Grammar School. All credit to Natalie Raikadroka and Patco Muzik :