Thomas Coughlan: Jacinda Ardern admits there’s a cost-of-living crisis, but won’t pivot away from climate agenda

ANALYSIS:

Pity the poor fuel excise duty – it should be celebrating.

The first legislation to give us national fuel taxes turns 100 this year (the taxes themselves came in a bit later). Fuel Excise should be putting its feet up, pouring a cuppa and reading its centenarian telegram from the Queen.

Instead, fuel taxes are copping the blame for plunging low-income households into transport poverty – so much so that Prime Minister Jacinda Ardern announced the Government had decided to temporarily cut them by 25 cents a litre for the next three months.

It was the right thing to do, easing short-term pain on struggling households. Like many of its ideological allies, New Zealand is waging an economic war against Russia. For us, this means a cost not of lives, but in higher energy prices, and it makes sense for the Government to smooth the impact of those price rises by lowering fuel costs.

It’s not difficult to do either.

The Government is already shifting away from using fuel tax to fund transport projects. The current land transport programme supplements $12.7 billion in revenue from fuel taxes and road user charges with a $2b loan from the Crown, $2b from the NZ Upgrade Programme, $100 million from the PGF and $300m from a fund intended to help build new housing.

Indeed, that programme could be the last funded significantly with fuel taxes; the Government is considering their future use, and is likely to signal a switch to a more EV-friendly model towards the end of this year or early next year. Bringing this forward a bit with a Covid grant is really repeating a tactic the Government pulled in 2020 to bail out the transport fund after a shortfall in revenue caused by lockdowns.

This doesn’t make it perfect.

The genius of the 1922 legislation is that people pay to use roads through fuel taxes: the more you use the road, the more fuel you consume, the more tax you pay. When looked at through that lens it’s incredibly fair.

It’s also incredibly regressive, and when looked at that way, incredibly unfair.

A household earning $80,000 will pay roughly the same to fill up a car as a household earning $1m. Indeed, with the advent of electric cars, which are currently exempt from paying any kind of fee to use the roads, petrol car users subsidise the road use of EV drivers.

The Government is quite rightly hesitant about changing the way the transport system operates. New Zealand’s state highways alone are worth about $58.4b – it’s right the people and companies using those highways pay to maintain them. If you’re a trucking business, those roads are a significant part of what you do, and it’s only fair you pay for their use

Prime Minister Jacinda Ardern made the interesting decision on Monday, not to parrot National’s “cost-of-living crisis” line, nor to call this a fuel or petrol crisis – she called it an “energy crisis”.

That was very deliberate. It will have escaped the attention of no one that the crisis in Ukraine is not the only energy crisis facing New Zealanders. Climate Change is, above all else, an energy crisis, caused by the fact the energy that makes our lives liveable is overwhelmingly sourced from fuels that are unsustainable and dangerous.

Ardern cleverly linked the two crises in her Monday announcement, repeatedly connecting the three-month duration of fuel tax relief to the Budget delivered in May, which will take effect in July.

There’s two ways of looking at climate-change policy. One is that it increases costs, like the cost of private transportation, fuel, and electricity. Another, is that it can reduce the cost of substitutes, like public transportation, and other forms of energy.

Facing relentless pressure from National on the cost-of-living crisis, Labour will want to de-emphasise the former in favour of the latter.

To that end, the part of Monday’s announcement that was most politically significant was Ardern announcing a policy the Government did need to make: cutting the cost of public transport by half over the next three months. Public transport fares are not rising thanks to the war in Ukraine – in most parts of the country, councils are doing their best to keep fares relatively steady.

That detail was a signal to households to consider public transport use to cut energy bills (public transport will now be far, far cheaper in many places than driving), and it was a clear signal that the Government was wedded to its “mode-shift” approach to transport, which seeks to economise road use by shifting people from private vehicles on to bikes and public transport.

The reason for this is clear.

Lurking in the background of Ardern’s announcement were fears about “energy security”, a topic that hasn’t had much of an airing in the Beehive Theatrette since Muldoon’s time.

Energy security is part of the Government’s climate agenda, which will shift people from private cars powered by foreign fuels to renewable electricity generated at home. To that end, reducing the cost of public transport is important as it economises energy use.

We’ll hear more about this in the coming Budget, which will use about $4.5 billion of revenue from the Emissions Trading Scheme to help people reduce their emissions.

The Government’s draft Emissions Reduction Plan (the blueprint for cutting emissions it’s required to produce thanks to the Zero Carbon Act) suggests a host of policies, which will likely be announced in a final plan due later this year, and funded in the budget.

Those policies include money for local governments to reallocate roads to public transport,funding to reduce public transport fares, investigating rural public transport, and subsidies to help pay low-income families to scrap gas guzzlers in favour of going car free, or buying an EV.

Signals from the Government on Monday suggest those policies are highly likely to make an appearance in this years’ Budget. Indeed, the emissions reduction plan suggests the public transport fare reduction could be made permanent (the fuel excise duty cut almost certainly won’t be).

One of the policy areas where the Green Party has been proved right in recent years is in thinking about climate change as a social crisis as much as an economic one.

Inflation data from Stats NZ shows transport cost increases as one of the key inflationary drivers last year. While overall CPI inflation in the year to December was a whopping 5.9 per cent, transport costs increased nearly three times as much, up 15 per cent in the year. Those costs weigh on beneficiary and low-income decile households who have experienced higher than average increases to household living costs for as long as they’ve been measured.

The energy shock brought about by the war, really just gives us a glimpse of what to expect later in the decade as fossil fuel energy becomes more scarce.

The problem for the Government is that the cheap energy past is vanishing quickly, while the lean energy future isn’t coming fast enough.

Massive rapid transit investments in Auckland and Wellington won’t be built in time to protect households from skyrocketing petrol bills in the short term, nor will the proposed Lake Onslow pumped hydro scheme come soon enough to wean New Zealand off fossil fuel energy imports.

And before New Zealanders can enjoy cheap transport and electricity, our politicians have to weather the fact that all of these investments cost money in the short term (and it’s by no means clear that every climate change solving boondoggle is the right one).

Labour and National are essentially neck and neck in the polls. The 2022 Budget is essentially locked down and ready to deliver, Ardern’s future for the next few months depends on her ability to make the case for a relatively costly programme to secure New Zealand’s energy independence. Christopher Luxon, by contrast, will argue that this is overly costly and the Government should shrink its revenue and boost incomes to better support households to ride out the energy storm.

The transition was a messy and uncomfortable one, but it was noteworthy on Monday to see Ardern not shy away from it like she could have done. The announcement was a clear signal that temporary pain will be alleviated, but the direction of travel remains the same.

Ardern backed down on the battle over whether there’s a cost-of-living crisis or not, but held firm to the guts of this year’s Budget and overall climate agenda.

As for poor centenarian fuel taxes. They’ve had a good century, and we built $58b of roads with them – a good innings and a decent partnership by any stretch.

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