Labour cuts a tax!

Two weeks ago Jacinda Ardern was saying there is no cost of living crisis. Today she announced a 25c per litre cut in petrol tax, because we do have one.

This is good, and significant. Labour hate hate hate cutting taxes. They only do it, when they have no choice. Every reduction in tax means they have a bit less to spend.

So it is significant that they have done this. The combination of high inflation (of which petrol prices are just a component) and a bad poll, plus National and ACT both proposing tax cuts as a way to help families out sure Labour forced to act.

Their actual policy decision isn’t the best, from an economist point of view. As petrol tax is hypothecated, it means either less money available for transport or more debt. The ideal is to cut both tax and spending so debt doesn’t increase.

A better policy would have been to do income tax cuts or as ACT propose a climate dividend from ETS revenues.

But a three months cut in petrol tax by 25c a litre is better than nothing. The challenge is to turn their backdown on this one issue, into a wider backdown so they do actually cut income tax, rather than drag in more money every year through inflation.

Also worth remembering that the 25c a litre cut is less than half the extra revenue (55c) that has been imposed since 2017.

The Taxpayers Union have been campaigning on the level of fuel tax for some time – long before the Ukraine war. Their supporters have been sticking Jacinda “I did this” stickers on petrol pumps, and a recent promotion where they refunded motorists their petrol tax made both TV stations. This backdown shows that a strong lobby group plus the right political conditions can get a policy win – as also happened with Capital Gains Tax.

So now the challenge is not to make this a once off, but to keep the pressure on the Government to lower taxes elsewhere – and not just for three months, but permanently.