Kate MacNamara: The caches of unspent Covid money paying for fuel tax reductions

Prime Minister Chris Hipkins with Michael Wood and Grant Robertson in Auckland. Photo / Dean Purcell

OPINION:

Earlier this month new Prime Minister Chris Hipkins announced the extension of an old suite of policies: the cuts to the fuel tax, road (and rail track) user charges and the cost of public transport.

This latest round of cuts will cost $718m and last through the end of June. The Government’s rationale for the measures has morphed over 12 months, from providing relief from extraordinarily high fuel prices to supplying easily accomplished help to ease the upward-spiralling cost of living.

The total cost since the cuts were introduced in March 2022 will hit $2b.

While the bulk of the cost of extending these cuts is simply foregone revenue, that money has a specific purpose: it is hypothecated to the National Land Transport Fund.

And to the degree that the tax reductions are starving the fund, the Government has agreed to make up the difference.

Finance Minister Grant Robertson has said that the $718m was found in the Government’s ordinary course October Baseline Update, an exercise that includes identifying underspends and reallocating the funds (the Government can also cancel the funding and to that degree reduce the country’s projected debt and the extent of deficit spending).

Some of these underspends come from Covid-19 policies, Robertson confirmed, though he declined to indicate the proportion. “The savings identified in the October Baseline Update included expenditure that had been allocated to a variety of Covid-related expenditure …” he said. This week, the Prime Minister announced his first cull of planned Government policies, and it’s also likely there’ll be fresh underspends related to abandoned and deferred work to draw from.

But leftover Covid money, originally allocated through the extraordinary Covid Response and Recovery Fund - created in 2020 to respond to the pandemic, and topped up in 2021 and early 2022 - has paid for all of the $1.3b cost of the fuel tax reduction and associated measures to date.

That giant $61.6b pot of money was officially closed on April 11, 2022, and the decision was taken to manage the cost of Covid through the standard Budget process, but underspends from the fund persist (The Herald covered a further $2.05b repurposed from the CRRF after its closure for general Government priorities here, and Robertson’s rejoinder here).

Though the emergency is over, this leftover funding has a long tail, and, what’s more, it’s beginning to look like the Minister of Finance has one too: a big, bushy one.

Remaining from now-defunct Covid policies, and squirrelled away, are a series of fat underspends: Managed Isolation and Quarantine ($1b), the Small Business Cashflow Scheme expenditure ($425m), and Covid-19 Support Payments expenditure ($227m), as well as a further $23.56m, which The Treasury said last July was the total of combined underspends from across Education, Internal Affairs, Conservation, Agriculture, Biosecurity, Fisheries and Food Safety.

Like so many stashed nuts, these pots of money were all tapped (though in their total not exhausted) to fund the initial $350m for the first round of the fuel tax programme (March to June 2022), the $235m cost of the second round (June to August), and the $658m for the third round (August to January 2023). Incidentally, late last year that January end date was pushed out to March 31st, at which time, it was promised, the cuts would definitely be cancelled.

The total cost since the Petrol tax cuts were introduced in March 2022 will hit $2 billion. Photo / Supplied

But then Prime Minister Jacinda Ardern resigned, Hipkins rode in on the “bread and butter” wagon to ready for an October election, and he told Robertson that more nuts were needed.

Former deputy chief economic adviser to The Treasury, Tony Burton, has called the Government’s ongoing use of the funds set aside as an emergency contingency an “abuse of process” as it is laid out in the Public Finance Act (early last year The Treasury made it clear that the fuel tax reductions did not meet the criteria of the CRRF).

“The flexibility of having a contingency is balanced by being clear about the scope of the emergency the contingency is there to deal with. It is an abuse of process to use the contingency for purposes outside the scope,” Burton said, noting that it made no difference whether the fund was closed or not.

“A household analogy would be if the bank agreed you could have an overdraft to cover the uncertain costs of repairing a roof damaged in a storm. If you found the roof cost less than the overdraft and you told the bank they had to let you use the money to fund a holiday, they would undoubtedly object [that] this was not what was agreed! Of course, [the] Government owns its own bank, so all the rules can do is force the Government to reveal when it has breached trust in this way,” Burton said.

It’s certainly been convenient for the Government to have the spare funds sloshing around. Though the fuel tax reductions policy was instituted in March 2022, before the Budget, none of the roughly $1.3m of spending to date was managed within this year’s Budget allowance.

And it’s worth remembering that if the Government had retired the unspent CRRF funds (returned them “to the centre” as The Treasury puts it) and factored this into the net debt calculation accordingly, then if it wanted to increase new spending by an equivalent amount, Robertson would have had to increase the Budget allowance or find the savings elsewhere.

Increasing the Budget allowance, which was then already set at $6b, would have invited the accusation that the Government couldn’t control spending. Actually making the necessary trade-offs and finding savings elsewhere would have required him to rein in spending.

Such fiscal discipline is now doubly unlikely as the Government looks ahead to a long electoral winter of defensive action. Its best hope is to scamper about raiding every cache of metaphorical nuts it ever hoarded and to shower them on voters.