A raft of cost-of-living subsidies and temporary tax cuts are set to end tomorrow, with economists and budgeting services warning it will hurt those already struggling financially.
Other changes made by the Government will begin tomorrow, including a total ban on plastic straws, parental leave payment increases and new rules on child support benefits.
The biggest hit to New Zealanders’ back pockets is the end of the fuel tax discount, adding 25c a litre and almost 4c extra GST. The subsidy for road user charges for diesel vehicles will also end.
Half-price public transport fares will stop for most, with only children under 13 riding for free, while half-price fares for community services card holders and people under 25 will remain.
“Any additional increase in spending is going to make some people’s lives even worse,” said Mangere Budgeting Services Trust chief executive Lara Dolan.
She told the Herald families who came to her for help, in particular, spend “about 10 to 15 per cent” of their weekly income on petrol and transportation.
“You can’t not buy petrol, you have to go to work. Some people won’t have enough money to meet basic needs,” she said.
“This increase is going to put people further into hardship.”
The Government estimated the reduced fuel tax and road users charges will have cost it $2 billion in revenue. A spokesperson for Transport Minister David Parker’s office said the cost of the half-price fares from April 1, 2022 to May 31 this year is $142 million.
In February, Finance Minister Grant Robertson said extending the subsidies was the right thing to do to help people with the cost-of-living crisis, despite the extension alone costing an estimated $718m in lost Government revenue.
“I believe this is the right thing to do for New Zealand families. We can strike a balance between targeted ongoing support and careful management of the Government accounts. We are paying for the extension from savings identified in the most recent baseline update,” he said.
Prime Minister Chris Hipkins was also clear at the time that the suspension of the fuel excise duty would end tomorrow.
A Government spokesman said the temporary removal of fuel excise was designed to support Kiwis through the global energy crisis last year which saw petrol spike about $3/L.
“Petrol prices are now 70 cents per litre lower than they were in early March last year when fuel excise was removed.
“Other countries that also removed fuel excise at that time like Australia, Ireland, and Germany have already reinstated their fuel taxes as the global price of fuel has eased.”
He said the Government had put in place other measures to ease the cost of living for families like free public transport for those under 13 and half-price fares for people up to 25, increases to superannuation, the minimum wage, childcare assistance, working for families and tomorrow’s removal of $5 prescription charges.
But Infometrics economist Brad Olsen said the fuel tax cuts were not targeted and had been ineffectual.
“The fuel tax subsidies were a dumb economic policy to start with,” he said.
“It doesn’t make their removal, though, any easier for the average New Zealand who’s having to pay more for fuel from tomorrow. It wasn’t a good, targeted policy. We shouldn’t repeat it again, but it certainly is going to be a challenge for households when they have to readjust.”
Olsen also said with only a few months to go before the general election, “this is the sort of thing that people are going to be looking at and wondering [about]”.
He explained the return of the revenue for the Government would give it more options for spending, but money had already been allocated in Budget 2023.
“All of that money [fuel taxes] goes directly into the land transport fund to fund transport projects and roads. While there has been a reduction in that revenue, the government has had to top up the transport fund from general taxes.
“If anything, there might be less borrowing than the Government might have otherwise done if it had continued with the fuel tax cuts.”
Westpac senior economist Satish Ranchhod echoed concerns for hardworking Kiwis, saying while petrol accounted for 4 per cent of the average household’s budget, it was a larger share for those on lower incomes.
“It’s going to suck a lot of cash out of wallets. We are expecting households are going to go backwards in terms of their spending power,” Ranchhod said.
“People are going to find they are not going to be able to purchase as much as they have been, especially since those cost increases are in areas they can’t avoid buying like food and fuel.
“That means they’ll have to cut back in those discretionary areas like entertainment of some of those ‘nice to haves’. There is going to be a decent amount of belt-tightening.”
Here is what you need to know
Petrol: The fuel tax discount is coming to an end meaning motorists will be hit with an extra 25c per litre of fuel tax and almost 4c extra GST. The road user charges subsidy for diesel vehicles will also come to an end.
Public transport: Half-price public transport fares will come to an end for most. Children under 13 will become free and half-price fares for community services card holders and people under 25 will remain.
Plastic: Single-use plastic products including produce bags, plates, bowls and cutlery, straws and produce labels will no longer be able to be sold or manufactured.
Clean car discount: For new vehicles, the maximum rebate will decrease by about $1600 and the maximum fee will increase by about $1700. The threshold at which vehicles will be subject to fees will reduce from 192g of carbon dioxide per kilometre to 150g. A special rebate for new and used low-emission disability vehicles will be introduced.
Parental leave: Parental leave payments will increase 7.7 per cent meaning the maximum weekly rate for eligible parents will rise to $712.17 gross per week.
Child support: Work and Income will automatically treat child support payments as income when working out benefits and other entitlements. For sole parents on a benefit, there is no obligation to apply for child support through Inland Revenue but IRD will pass on the full amount and it will be counted as income. All child support payments public housing tenants get will be counted as income for Income Related Rent assessments. For those on the Young Parent Payment and Youth Payment, if the child support payments through IR go over the income limit, Work and Income will keep paying the benefit but at a reduced rate.
NZ/UK working holiday/youth mobility scheme: The scheme now extends to those aged up to 35. Those taking part in the scheme can now stay for three years and work for the entirety of their stay.
Australian citizenship: New Zealand citizens who have been living in Australia for four years or more will be eligible to apply directly for Australian citizenship. They will no longer need to first apply for and be granted a permanent visa.
Cost of mail: The cost of sending letters and parcels domestically and internationally will increase, as will the cost of NZ Post couriers, PO Boxes and Private Bags.
Alcohol: The alcohol excise rates will increase by 6.6 per cent.
Raphael Franks is an Auckland-based reporter who covers breaking news. He joined the Herald as a Te Rito cadet in 2022.
Amy Wiggins is an Auckland-based reporter who covers education. She joined the Herald in 2017 and has worked as a journalist for 12 years.