KEY POINTS:
The Labour-led administration faces the political equivalent of the perfect storm as it prepares to unveil a Budget that it hopes will restore its flagging fortunes. The phrase's meaning has extended beyond its meteorological origins to refer to a simultaneous - usually catastrophic - occurrence of events which, taken individually, would be far less powerful than the result of their combination. It is at the eye of just such a storm that Prime Minister Helen Clark now finds herself.
The Budget, barely a fortnight away from being delivered, is already written, and it is unimaginable that it can be subject to anything more than the most modest amendment. It will assuredly - and not a moment too soon - contain something in the way of tax cuts that Finance Minister Michael Cullen has, at huge expense to the Government's popularity, so strenuously resisted.
But last week, a small organisation called the Residents Action Group upped the ante: it began gathering signatures on a petition urging the removal of GST on basic foodstuffs.
The support it received was predictable. It would take a special shopper indeed to emerge from a wallet-bruising experience at the checkout and not sign something that called for the grocery bill to go down.
But, as is always the case with simple solutions to complex problems, getting rid of GST on food is not the answer.
If GST were a retail sales tax, it would be a simpler - but not simple - matter to amend retail prices. But it is charged all the way along the supply chain - and claimed back by those whose expenditure on GST is incurred in the course of earning an income. It does not take an economics degree to see that the process of charging and claiming back would turn into a logistical and compliance nightmare for small and large businesses, and an enforcement and audit nightmare for authorities. The revenue lost - $2.5 billion a year if GST were not charged on any food; $300 million if it were removed from fruit and vegetables - would balloon when the cost of extra administration was added. That money would have to be found somewhere (anyone for more income tax or less health spending?). Meanwhile, determining eligibility would be an endless wrangle: if a Pukekohe cabbage, why not a Persian date? If milk, why not a milkshake? And if food, why not medical care? Kids' clothing. School fees?
That said, rocketing prices are creating hardship that demands decisive political action. And it is here that the third element of the perfect storm buffeting the Government starts to gather force. In a report last week, the Child Poverty Action Group, comprising doctors and social scientists among others, calls for wide-ranging moves to assist the estimated one-in-four families living on less than 60 per cent of median household income. Their proposals include resurrecting the family benefit, as well as extending tax credit schemes and free primary health care coverage, but they also call for substantial tax cuts for those on the lowest incomes.
For Labour the irony is exquisite. While it remains conceivable that it could politically outmanoeuvre National, the Budget tax cuts represent its last significant opportunity to reclaim lost support by fiscal policy.
The voters of middle New Zealand, who have long waited for relief, will not stand for being denied it now. Yet answering the well-reasoned call of the child poverty lobbyists would demand every bit of the revenue that will be forgone in giving tax cuts. A party founded on the principles of social justice has no electoral alternative than to turn a blind eye and a deaf ear to those identified by independent research as beneath the poverty line.
In the end, whatever tax cuts Cullen announces on May 22 may be too late to save Labour's bacon since they would not come into force until after the election - although that increases the likelihood of a vote-buying instant-relief gesture on Budget night.
But whatever administration is installed in the Beehive by Christmas will face an enormous challenge: how to simultaneously satisfy the needs of the struggling middle New Zealanders who voted them in and look after the hundreds of thousands at the very bottom of the economic ladder.
