Excise tax holiday doubly wrong

Roger Partridge
Insights Newsletter
18 March, 2022

Double jeopardy is a defence that prevents a person being tried twice for the same offence. Unfortunately for the Government, the defence is not available for bad public policy decisions.

Prime Minister Jacinda Ardern was right to acknowledge the pain the rising cost of living is inflicting on low-income households. But it is another thing altogether for Ardern to have allowed her Minister of Finance to dip into the Covid-19 fund to provide short-term relief.

Of course, the Covid fund is not a fund at all. It is simply an overdraft limit. And a big, $74 billion one at that. It nevertheless had bipartisan backing. All parties acknowledged that debt-raising for pandemic purposes was necessary.

But now, the Government is spending $350 million of Covid-tagged borrowings to cover a non-Covid related cost. No one is even pretending the three-month petrol excise holiday is a response to the pandemic. Meanwhile, a host of pandemic-related needs go unanswered. Like N95 masks for teachers during an Omicron wave that is forcing schools to close because so many teachers are sick.

It may be expedient for the Government to raid its Covid reserves in response to public pressure. But opposition parties are hardly likely to back future calls for emergency borrowing when the debt risks becoming a political emergency slush fund.

Worse still, a temporary petrol excise waiver was the wrong tool. The surge in petrol prices has nothing to do with excise tax. Petrol excise is a per-litre charge. It does not rise as the price of petrol rises.

Consequently, it made no sense for the Minister of Finance to suspend it.

Cutting excise tax also poorly targets those road users most acutely feeling pain from petrol price hikes. Instead, all road users - rich and poor alike - benefit from the excise tax holiday. (The halving of public transport fares is poorly targeted for the same reason.)

The welfare system is the usual tool for supporting low-income families unable to support themselves. A temporary increase in welfare payments might have made sense.

Or perhaps the Government could have provided road users with relief in some other way that makes economic sense in its own right – like the carbon dividend Eric Crampton discusses in his article this week, A bad portent.

But the temporary excise holiday makes no sense, and it leaves the Government doubly guilty. It has used the wrong tool. And it has funded it the wrong way.

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