Tova O’Brien: The new Government and cost of living

Tuesday, 12 March 2024

Tova O’Brien is Stuff’s Chief Political Correspondent and host of the political podcast, Tova.

ANALYSIS: On January, 30 Stuff asked the new Finance Minister Nicola Willis if she could point to any one thing the government had done that had made Kiwis better off to date.

“Yes, absolutely,” Willis replied, “the actions that we've already taken to find $7.5 billion worth of savings, and our mini-budget, means that we are going to be able to offer tax reduction this year.”

What the Finance Minister could point to were her upcoming tax cuts. But nothing to date that has tangibly eased the cost of living for Kiwi households or put a buck back in their pockets.

To be fair to Willis, the government had only been elected 108 days earlier and thanks to those protracted, unprecedented and - at times - bonkers coalition negotiations, they’d only actually been governing for 67 days of that. Changes to economic policy levers take time to bear fruit.

Stuff asked the Prime Minister Christopher Luxon the same question again on Monday (149 days after he was elected) and he also pointed to tax cuts alongside scrapping the Auckland Regional Fuel tax and changing the Reserve Bank mandate.

But neither the tax cuts nor the regional fuel tax cut have happened yet and it’s too soon to say if the Reserve Bank changes have - or even if they ever will - make a difference.

So are you, or is anyone, better off yet or feeling the cost of living crisis ease thanks to this government which was elected in a cost of living election?

If inflation goes down all of us benefit. That’s why the change to the Reserve Bank was the first piece of legislation the new government passed.

The bill reverted the bank to a single mandate, keeping inflation low, back from its dual mandate under Labour of inflation and supporting employment.

The bill was passed on 13 December. In January Stats NZ recorded the smallest annual rise in inflation in over two years, it increased 4.7% in the 12 months to December 2023, but still well above the 1-3% target range.

No one, not even National, would claim this was as a result of the mandate changing a month earlier. So it’s unlikely any of us have benefited from it yet.

Sentiment counts for something, and business confidence leapt in the final few months of last year thanks in part to the election and change of government. Business owners feeling more confident can mean more investment, more jobs, better wages and a generally less sluggish economy.

The housing market and real estate industry is also buoyed on the promise of government policy changes like ACT’s now-watered down interest deductibility rules. From April 1 landlords will be able to claim 80% of their interest expenses back.

So property owners, particularly investors, are also feeling better off - even if they haven’t yet banked any gains, they will soon.

National argues that will trickle down to renters, putting downward pressure on the country’s already astronomical rents and that alongside its drive to build more homes Labour says that’s rubbish, it’s a “wolf in sheep’s clothing” with no evidence savings will be passed on.

But regardless, no relief to-date for renters.

Stats NZ says beneficiaries spend almost a third of their income on rent on average so rising rents have a much bigger impact on them.

The government is planning to index benefits to inflation rather than wages from April 1.

Given wage growth typically increases faster than inflation it will mean smaller increases to benefits than would otherwise have been the case. So under this government beneficiaries will be worse off than they would have been without the changes.

If you’re an Aucklander and you drive you’ll benefit from the government scrapping the Auckland Regional Fuel tax. It does mean all work has been stopped on the transport projects funded by the tax but drivers will be banking an extra 11.5 cents per litre at the pump which definitely counts for something.

That change doesn’t kick in until 30 June though so Auckland motorists aren’t yet better off.

The boon was also somewhat offset when the government snuck in a surprise rego hike to pay for its transport policy plans.

All motorists will be paying an extra $50 a year to register their vehicles but, again, not just yet. It’s phased in in two $25 increments starting in January next year.

The government didn’t campaign on that rego hike, it did campaign on freezing fuel excise taxes this term though but not the significant hikes its planning from 2026, they were also revealed as part of the transport plan last week.

The only thing really in the government’s 100 day plan which has happened already and that could have kind of made some Kiwis better off to-date is the reversal of Labour’s so-called ‘ute tax’. New ute owners or wannabe new ute owners or those buying any high-emission vehicles won’t be paying the fee of up to $5175.

It doesn’t really make them better off though, just less worse off and conversely, getting rid of the fee also meant getting rid of the clean car discount so new EV owners or wannabes don’t get a subsidy making them the ‘same off’ or less better off.

Ultimately, to date, no one (or very few) appears to actually be better off under this government. Some may be worse off.

Where this could change is May’s budget when we learn the details of the tax cuts.

Though expectations have already been significantly managed down from when National first announced the policy and Luxon said the tax cuts would “ give an average income household family with young kids $250 extra a fortnight'

When in reality it was revealed that only 3000 families would receive that much.

He’s since revised his language, “up to $250 a week.”