The government is cutting the petrol excise duty by 25 cents per litre for three months, in a bid to provide relief from what it describes as a “global energy crisis triggered by the war in Ukraine”.
It's also committing to cutting road user charges and halving public transport fares for three months.
The change to the petrol excise duty will take effect on Tuesday and be reviewed within the next three months. The government is open to extending the relief, but it wouldn’t say for how long.
When it eventually hikes the duty back to where it is now, this will be done progressively.
Prime Minister Jacinda Ardern expected the change to reduce the cost of filling a 40-litre tank of petrol by $11, and a 60-litre tank by $17.
To put 25 cents in context, the average amount motorists pay in levies and taxes (excluding GST) across the country is 81 cents per litre.
Below is a graph showing how the change would’ve affected the petrol price for the week ended March 4 (the date for which the latest Ministry of Business Innovation and Employment data is available). An additional 3-cent GST saving would also be made, as GST is payable on the full price, inclusive of taxes.
Below is a graph illustrating how petrol prices have risen over the past couple of years.
Discount to cost $350m over three months
Finance Minister Grant Robertson said providing the discount for three months will leave a $350 million hole in the National Land Transport Fund, which is a hypothecated fund used to pay for roads and other transport infrastructure. Accordingly, he committed to topping up the fund.
He said the $350 million would be paid for using unspent funding set aside for the Covid-19 response, so it wouldn’t require the government to issue more debt than already planned.
Nonetheless, he couldn’t say what would happen if in three, or even 12 months’ time, the global oil price was still elevated, potentially making it politically difficult for him to remove the discount.
Change expected to dampen inflation by 0.5%
ANZ economists expect the change to slightly reduce the overall rate of inflation. They said it could see the Consumers Price Index rise by 6.9% year-on-year in the June quarter, rather than their currently forecast 7.4%.
This doesn’t change their Official Cash Rate outlook. They still believe the Reserve Bank needs to make two large 50-point increases in April and May.
Public transport fare cut to cost up to $40m over three months
As for cutting road user charges for three months, the transport minister will in coming days provide further details on how and when this will happen. Robertson said this won’t necessarily be a quick and easy change, because there are so many different rates.
Meanwhile he expected public transport fares to be halved by April 1. This will involve central government working with local authorities, which set fares.
He expected this change to cost between $25 million and $40 million over three months.
Prices are expected to keep rising
“We do need to recognise that petrol prices are expected to continue to rise,” Robertson said.
“The Russian invasion of Ukraine is continuing to undermine and de-stabilise global energy markets and, added to the other inflationary pressures the world has due to Covid supply chain disruptions, this is sadly not over yet.
“That is why we will review the situation over the coming months. We will also outline in the coming days the means by which we will reverse the changes being announced today. It is likely that this will be a gradual phase down in line with global oil prices stabilising and reducing, to keep pressure off families while recognising the need to return to more stable funding for our transport infrastructure.
“Further, in the Budget in May, we will progress work to ensure we are not at the whim of international oil prices in future, through greater investment from the Climate Emergency Response Fund. These investments will boost our plans for New Zealand to increase energy security and independence by decarbonising our transport fleet and reducing our reliance on volatile global energy markets.”
Petrol companies need to play ball
Energy and Resources Minister Megan Woods is writing to fuel companies today (Monday), setting out an expectation that the full amount of tax reduction from the government will be passed on to consumers at the pump.
“In addition, I am seeking daily information disclosure from fuel companies of their rolling seven-day average fuel margins, to monitor industry profits,” Woods said.
“Our preference is that fuel companies volunteer this information and I am asking them to do that. But under the Fuel Industry Act we passed in 2020, there are options to pursue more data disclosure, and further measures to ensure the discounted excise duty is not being absorbed into company profits.”
Political response
National said the changes don't fix the wider cost of living crisis.
It has committed to scrapping the Auckland fuel tax, but is in favour of introducing congestion charging.
National is also promising to adjust income tax thresholds for inflation, which it says would save the average earner $870 a year. Higher earners (who also pay more tax) would save much more than lower earners under this proposal.
The Green Party favours helping those feeling the pain from inflation by making direct payments via the welfare system or a tax credit. This way, support would subsidise the cost of living more generally, not just the cost of petrol.
The Green Party also worries fuel companies won't pass on the full 25 cents/litre tax reduction to consumers.
However, it supports halving public transport fares.
ACT proposes putting more money in people's pockets by evenly distributing revenue from the Emissions Trading Scheme across the population, rather than investing it in government initiatives aimed at reducing climate change.
128 Comments
three comments, but nothing so far.
The only message here is that the covid 'funds' were debt. Being used to cover? Debt.
Doesn't matter which Party thought it was a good idea;;;; it wasn't.
We can carry on blaming covid, blaming Putin, blaming the PM, whatever; but the real reason is...........
National always suggests slashing taxes when it's not in power.
Personally I'd like to see GST slashed and replaced with several higher income tax rates for the uber wealthy and lower taxes for the lower paid:
95% tax rate over $50,000k/year,
90% tax rate over $25,000k/year,
80% tax rate over $12,500k/year,
70% tax rate over $6,250k,
60% tax rate over $3,125k,
50% tax rate over $1,562.5k,
45% tax rate over $750k,
40% tax rate over $375k,
35% tax rate over $187.5k,
30% tax rate over $100k,
20% tax rate over $75k,
10% tax rate over 50k,
5% tax rate over $25k, and
0% tax rate for income under $25k.
And as always, there is someone that thinks punitive tax rates on high incomes will work. Here's something for you, "We know that personal income tax contributes the lion's share of all income tax revenues, that a small percentage (12 per cent) of individuals pay just under half of all personal taxation, and the top 3 per cent account for almost a quarter of all personal tax paid".
And further: "when we get to around the top 50 per cent of households is there any net income tax paid. Below that income level no net tax is paid, as those households receive more in transfers than they pay in tax". So people above around $95k, already pay significantly more than half of the net income tax collected.
All courtesy of Stuff 31|7|2019 before they went woke.
Aside from that, the other problem you have with taxing the people who make a bit of coin, is that they are MOBILE. They don't give a shit where they earn money and will move away from high tax regimes. Its happened in Europe repeatedly. So then you are left with LESS income to tax and a bigger proportion of people who pay no net tax. How do you think that is going to work out?
There is consensus among politicians to pile more tax burden on wage earners, so as to fill the huge fiscal hole left behind by tax-free speculative gains.
IRD has complex exemption criteria for those trying to dodge the bright-line test. However, sole earner supporting a family getting taxed at a slightly lower rate than earners without dependents is unthinkable as it conveniently complicates our 'straightforward' tax law.
To me not taxing a person based the number of people they support as opposed just on the total salary seem unfair. The government has no problems in not granting unemployment or community service cards, etc to spouses, of "high" income earners, however can't seem to take that into account when taxing them.
To me its simple if you are legal financially responsible for some then take them into account when calculating tax, or don't take your wages into account when calculating what benefits they should receive.
Council costs must not raise over inflation. This must be enforced by law and if a Council does not respect it then the whole council should be immediately sacked and replaced by a commissioner until the next elections.
Wasteful spending by some council has reached almost comical proportions - anybody who has ever seen, from an insider perspective, how Auckland Council operates, for example, knows the utterly ridiculous, eye-watering levels that this gross waste of financial resources has actually reached.
This Government of course will do nothing of the sort - to them money grows on trees or it can just be printed on request.
Hold up, so we're just printing another 350m?
Instead of extracting it through taxes we're just borrowing it into existence through a journal entry and spending it anyway?...... And this is to relieve inflationary pressures?......
Rightio... Makes perfect sense to me...
I think you will find the money has already been borrowed - it was funded for MIQ, but you are correct it is just a movement from one departments budget - ie MBIE's MIQ to the NZTA.
It will lower inflation - for petrol at least as the price deflates.
As for the tax - lets be honest the government is actually generating an awful lot more tax through GST as a result of inflation. If costs of goods and services rise by 7% then the GST generated also rises by 7%
Because, they made an empty promise? Just the same as all other empty promises this Labour government has made (Kiwi Build, Child Poverty, Housing Crisis etc). If you had a person who lied and cheated the same way Labour has to get into power to get a loaf of bread, we would have put them in jail.
Making empty promises, that future people has to shoulder its weight, is very easy. Doing something clever today that can meaningfully reduce our carbon footprint is hard. Out leaders (whether Labour or National) are very good, excellent even, as doing the easy ones. Absolutely hopeless in anything more demanding than forcing others to do something (e.g. tax them. lock them up in homes, restrict them etc) which may require them to do something.
JJ - assuming you are capable of original thought (not just toeing a Party line):
Without fossil fuel, there is NO agriculture as we know it. 10%? Bollocks. That's like those economists (most of them) who say: "energy is 5% of the economy". Same thing; without energy there is NO economy. Nothing.
Get it?
Money is a red herring - a debt-issued red herring at that. Energy is the only count in town; money is merely the way we've divvied it up (ex wars, coups, etc).
The fossil fuels would last a lot longer if we weren’t wasting them driving to the dairy or driving to Bunnings because it’s 5% cheaper than the local hammer hardware or driving across town for work even though there is a job local. A lot of fuel wastage wouldn’t occur if the price was higher.
I very much doubt fuel contributes more than 100% of the cost of food. so total cost should go up by more. If it does its just people gouging.
Mathematical proof:
let f = fuel costs
let o = other costs
let fi = fuel inflation as an decimal multiplier e.g inflation of 1% = 1.01
old cost = f + o
new cost = (fi) * f + o
new inflation = new cost/old cost
new inflation = (fi * f + o)/(f + o)
= (fi * f + o)/(f + o)
= (fi - 1)*f/(f + o) + (f + o)/(f + o)
= (fi - 1)*f/(f + o) + 1
so in order for the food inflation to be greater than fuel inflation
f/(f +o) > 1 that is not true unless other costs (o) must be less than 0.
The problem probably arises because people don't want to make $x profit, they want to make x% profit so if their costs go up by x they don't just increase their price by x they increase x and a bit more. say every body in a sales chain does nothing but sell on the product and there are 2 people in the chain each make 20%.
Say it something costs $1 the end price is 1 * 1.2 * 1.2 = $1.44, the cost of the product goes up to $2 the cost goes up $2.88 an increase of 1.88 even though the input cost only went up by $1 and nobody did anything more.
I very much doubt fuel contributes more than 100% of the cost of food. so total cost should go up by more. If it does its just people gouging.
Mathematical proof:
let f = fuel costs
let o = other costs
let fi = fuel inflation as an decimal multiplier e.g inflation of 1% = 1.01
old cost = f + o
new cost = (fi) * f + o
new inflation = new cost/old cost
new inflation = (fi * f + o)/(f + o)
= (fi * f + o)/(f + o)
= (fi - 1)*f/(f + o) + (f + o)/(f + o)
= (fi - 1)*f/(f + o) + 1
so in order for the food inflation to be greater than fuel inflation
f/(f +o) > 1 that is not true unless other costs (o) must be less than 0.
The problem probably arises because people don't want to make $x profit, they want to make x% profit so if their costs go up by x they don't just increase their price by x they increase x and a bit more. say every body in a sales chain does nothing but sell on the product and there are 2 people in the chain each make 20%.
Say it something costs $1 the end price is 1 * 1.2 * 1.2 = $1.44, the cost of the product goes up to $2 the cost goes up $2.88 an increase of 1.88 even though the input cost only went up by $1 and nobody did anything more.
It's quite rich isn't it. House price inflation and its effects on the young aspiring first home buyers are seen as a non-issue by many, but even in the past decade whenever the pump price goes up a small amount there's plenty of grumbles and calls for inquiries.
Like this one from Labour in 2015. https://www.rnz.co.nz/news/political/266671/labour-calls-for-petrol-pri…
AA in 2009. https://www.stuff.co.nz/national/399115/AA-calls-for-inquiry-into-fuel-…
Maybe the charitable Landlords could chip in and drop their rents temporarily by $30 per week. This will go a long way toward the extra $50 on average required to fill a car.
Wow the ignorance of reaallly basic matters and logistics is strong in this one. Public transport and bikes also encourage the use of fossil fuels. Any use of roads does. Services and products you depend on to live and luxuries you buy heavily depend on fossil fuels and encourage the use of roads. The things that do not encourage the use of roads is people not buying food or consumables, not using lines electricity, not using sewage networks and water pipes, not living in houses that need maintenance and not living in NZ. You are welcome to try to live without supplies and resources logistically moved around the country but first you would need to leave it as even our basic medical & natural reserve conservation services are also provided through & heavily dependent on roads, petrol, generators and private vehicles. Go be an ignorant person and live with the belief fairies will magically provide you everything including what you use to read the internet and comments because you have demonstrated a deep lack of basic knowledge and critical thinking to even understand the things you are using to type out such ignorance. Protip if you smash what you are using to type on you would benefit us all and may actually learn a bit more about what it is made of.
An wonderful example of clueless thinking. Kneejerk rather than long term solution.
When they can't work out how to solve a problem, the government pays - make a decree. And they believe if the people can't afford something, the taxpayer can.
Yes the price of fuel is too high, they had their chance to do something about that a couple of years ago. Didn't.
I guess once NewZealand is completely screwed, they can just put us all on a benefit. Every one of us.
Why do you think the cost of fuel is too high? It’s just the international price, if you want to use it then that’s how much it is. It’s not like people haven’t been told it’s not renewable, limited in supply etc.
If the government subsidised a necessity like food it would be considered socialism, when they subsidise fuel it’s necessary?
So to is public transport and bikes. All use roads and encourage the use of roads. The things that do not encourage the use of roads is people not buying food or consumables, not using lines electricity, not using sewage networks and water pipes, not living in houses that need maintenance and not living in NZ. You are welcome to try to live without supplies and resources logistically moved around the country but first you would need to leave it as even our basic medical & natural reserve conservation services are also provided through & heavily dependent on roads.
This was an honest question for anyone with economics expertise.
Isn't taxation used to control inflation by removing $$ from circulation - i.e. less money available to buy goods and services.
Removing a levy or tax gives people money back into circulation which means more $$ chasing the same amount of goods and services.
My point was that this could be an own goal for Cindy in a sense that she thinks she is helping but it could actually make the issue worse.
BTW - haven't food banks be saying this is a crisis for a number of years now? (i.e. record numbers of people needing help putting food on the table...so thanks for linking what I stated with a 'crisis' that has been in existence for years and today's change will make little to no difference...as you say).
Apparently taxation provides much needed revenue to Government, because otherwise they'd be financially crippled. The government needs primary industries to dig up $NZD from the ground, or export produce to China so they can pay us in newly minted $NZD.
Anyway, maybe we need a little dose of Austerity. Increase taxes and lower government spending.
Yeah nah.
It's taken a bit of an edge off soaring costs rather than freeing up a whole lot of discretionary income.
And these HAVE been soaring costs for some, no matter what JimboJones and the woke PT set say. Many people can't afford to live in central Auckland. Many people need to drive for employment eg. shiftwork. And many people, like me, need to lug children halfway across Auckland several times a week for various commitments.
it is an honest (and good) question to be fair.
For most people petrol is non-substitutable - so when the price goes up, people spend less money on other things. This reduces demand in the economy because people have less cash to spend (just like increasing the OCR). Many believe that reduced demand leads to lower prices (I think it depends but that's another discussion).
When taxes are cut and petrol becomes cheaper, people start to buy other things again. So reducing the tax to take the price of petrol back down to the level of a few weeks ago just returns us to the previous position demand-wise. No drama.
The public transport price reduction is more interesting - this will give public transport users extra money they didn't have before, and it may persuade people who previously drove to work to take the bus. This is real extra cash in peoples' pockets. This will probably create increased demand in the economy, but whether it increases prices will depend on what they spend the extra money on. If everyone who saves money decides to build an extension on their house, then this could well put pressure on the price of construction (which is running at capacity). If everyone decides to save the cash, or spend it on the current glut of end of season avocados, then there would be zero impact (imho).
Nice. I'd agree with your statement that for most people petrol is non-substitutable. I would point out that that is because it has been actively planned to be that way. It isn't a rule of nature, or the only ways things can ever be, it is due to aggressive social engineering to bake petrol dependency in to our transportation system over successive governments. At some point that need to change for obvious reasons, this is a missed opportunity to start to rebalance. The PT policy is great. Would have been nice to see some subsidies for ebikes.
About 80% of the population want house prices to fall....but I don't see Jacinda doing anything about that.
So is she running a dictatorship where she wants house prices to keep going up (as she has stated), while the vast majority of the country want them to come down?
And sometimes when the average voter has become a self interested baffoon who can't see the forest for the trees...perhaps a wise dictator might actually be the most effective means of leadership? (hypothetically) Who says the people know best? Crowds are fickle and easily manipulated - most of the time people just say and do what they believe will be popular to their social group as opposed to what might be the most principled or intelligent thing to do or say, with the risk of being unpopular.
As Churchill quotes along the lines of 'the best argument against democracy is a 5min conversation with the average voter'.
Yeah looks like a completely desperate knee jerk reaction to a bad political poll to me.
And when we've just spent records amount of debt, the only way out of that is high taxation/inflation (in many respects, a form of financial repression with severely negative interest rates - what we are starting to experience...a 'cost of living crisis'....that happens after governments have paid peoples wages for months while they sit at home in lockdown).
There are no free lunches in economies...although given the nature of monetary and fiscal statements from our recent public servants, you would be led to believe that the opposite is true.
Not sure but if you look in real terms, petrol prices haven't actually deviated that much wrt general inflation.
you havent factored in Foreign Exchange- the $100 was in USD and during that period the Kiwi dollar ranged from 79-84 c - so a barrel was $119-$126 NZD - the dollar is currently .67c so its now $149 NZD a barrel.
You also have on fuel - labour costs to convert the fuel, transport it and also to man petrol stations - assuming everybody in the NZ supply chain are on minimum wage - costs of labour have risen since 2014 from $14.25 -$20.00 - a 40% increase in wages.
That said the tax take has also gone up a lot in that time on fuel.
I note last time there was a cost of living crisis, during the GFC in 2008, National refused to cut petrol taxes. And then a few years later their "tax switch" hiked GST, affecting the poorest in the country the most, those who spend the highest percentage of their income. Petrol taxes are also regressive taxes.
National have no record to speak of. It wouldn't surprise me if Labour made the changes it has made today permanent and hiked the highest income taxes to make up the balance. National will be left with egg on its face.
GST is collected on the overall price of fuel including excise. According to AA, the GST on excise amounts to 14.6 cents per litre "tax on taxes". The Government should have changed the way GST is applied to remove that years ago, as tax on tax cannot be justified (other than pure revenue generating for the Govt). I said as much in my submission to the Tax Working Group (seems like a long time ago now), but that never made it into their report as I recall. Petrol Tax - How Fuel Excise is Made Up | AA New Zealand
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