Brad Olsen: Economist on how life will change following fuel price rise and end of half-price public transport for most

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.

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 h