Despite the headwinds, Finance Minister Grant Robertson said the Government doesn't intend to extend the temporary removal of fuel taxes, provide another iteration of the Cost of Living Payment, or make income tax changes to support low-income earners.
He instead stressed his commitment to ensuring government spending is targeted.
Robertson's comments followed criticism from the Opposition that his spending has exacerbated inflation.
His comments also followed financial markets putting governments on notice; their meltdown in response to the United Kingdom's now-reversed package of tax cuts showing they have no tolerance for governments injecting massive amounts of borrowed money into economies grappling with inflation.
More aggressive interest rate hikes on the horizon
New data released yesterday showed New Zealand's annual inflation rate remained elevated in the September quarter.
Domestic and imported inflation was more entrenched than expected, meaning the Reserve Bank will likely lift interest rates by more than previously planned to cool the economy.
This is good news for savers, but bad news for borrowers – highly indebted recent first-home buyers in particular.
Shortly after the inflation figures were published, economists started lifting their OCR outlooks.
Economists had expected the OCR, currently 3.5 per cent, to peak at between 4 and 4.75 per cent.
But ASB economists now see it peaking at 5.25 per cent by April. ANZ, Kiwibank and Westpac economists are picking a peak of 5 per cent, while BNZ economists believe the Reserve Bank should take a breather at 4.5 per cent.
There is now a real likelihood of the Reserve Bank lifting the OCR by 75 points at its next review on November 23. This would mark an exceptionally fast tightening of conditions.
OCR changes take a year or two to fully bed in, as people only feel the effects of higher interest rates when they come to refix their debt or reinvest their cash.
For example, the average rate paid on the country's stock of fixed mortgage lending was only 3.68 per cent in August. This was well below what new mortgages were being sold at at the time, indicating the tightening is yet to be widely felt.
Luxon wants Orr's term extended by a year
Reserve Bank governor Adrian Orr recently admitted the central bank overcooked its response to the pandemic.
The Reserve Bank is, in coming months, due to release a peer-reviewed assessment of the way it set monetary policy over the past five years.
National Party leader Christopher Luxon said yesterday he believed Orr's term as governor should be extended for a year beyond February when it's due to expire.
This way, if National got into government at the next election, it could decide who to appoint governor.
Luxon said he would want an independent review of the Reserve Bank before reappointing Orr – should he wish to put his hand up for the job again.
Act leader David Seymour wants Orr gone.
"The Reserve Bank distorted government policymaking by giving it cheap credit, now we are all paying the cost, literally in the rising price of everything," Seymour said.
"The Government has to take responsibility for its policies, namely its spending, its Reserve Bank legislation and appointment of Adrian Orr, its long closure of the border and its expensive ideological experiment called the 'immigration reset'."
Robertson positioning himself as prudent
Coming back to what, if anything, the Government should do to ease the pain of inflation, Robertson noted welfare payments would be adjusted in line with wage growth.
He said the Government had already committed to extending its temporary removal of fuel taxes and halving public transport fares until January 31. The public transport discount is available for Community Services cardholders indefinitely.
Asked whether he would realistically put tax back on fuel before an election, Robertson said: "That's a good example of the tough choices and trade-offs that need to be made."
He noted that if the Government kept those discounts in place, it would have to find money elsewhere to pay for the country's roads.
As for the Cost of Living Payment, most recipients would now have received their third and final $116.67 cash payment.
Robertson said he had "no immediate plans" to issue further cash payments to help those struggling to make ends meet.
"That's not something that we have on the cards at this stage," he said.
"Obviously we're still developing Budget 2023, and there's a lot of water to go under the bridge between now and then."
As for tax relief, perhaps targeted at low-income earners, Robertson said: "We haven't set our tax policy for the next election yet and we haven't finalised the Budget yet, but I've been clear there won't be major tax reform in this term of government."
Inflation opens tax debate
Persistently high inflation isn't putting National off its policy to cut taxes for high and low-income earners and property investors.
It is continuing to campaign on lifting income tax brackets, removing the top income tax bracket, bringing the bright-line test back to two years, and allowing property investors to deduct mortgage interest as an expense when paying tax.
National's finance spokeswoman Nicola Willis has previously stressed the party's priority would be adjusting income tax thresholds. But it would consider the state of the government's books and the economy more generally before deciding when to implement its various tax policies.
Luxon wouldn't say whether the latest inflation figures would prompt him to push out the implementation of his proposed tax cuts to avoid them exacerbating inflation.
With core Crown tax revenue worth 30.2 per cent of gross domestic product (GDP) – the highest amount proportionately since 2007 – Luxon believed there was capacity for the Government to cut taxes while maintaining public services.
Green Party finance spokeswoman Julie Anne Genter feared National's proposed "tax cuts for the wealthiest" would exacerbate inflation.
Genter said the Government needed to tax wealth "properly" and use the additional revenue to support people on the lowest incomes.
The Opportunities Party leader Raf Manji said it was time for central bankers to pause interest rate hikes.
“Their over-reactive responses over the last two years have caused serious damage.”
