Labour: fuel tax cut 'cynical and desperate'

National Party leader Dr Don Brash, at a hot house on the campaign trail yesterday, has come under fire for a u-turn on petrol tax. Picture / Getty Images

National's pledge yesterday to offer short-term tax relief for motorists has been labelled 'cynical and desperate' by Prime Minister Helen Clark.

She said the only rationale appeared to be its timing in election week, and warned of deeper cuts in public spending than previously feared to pay for National's tax policy.

"It does cut into the ability to fund the huge roading and public transport arrangements," she said.

"If you are going to decide, just because it is election week, to cut right into that revenue, you can't look the public straight in the eye and say, 'We are on the route to improving your roads and improving your public transport'.

"It is cynical and it is desperate."

The pledge by National party leader Don Brash to reduce petrol tax by 5c a litre from October 1 to April 1 - when National's income tax reductions will kick in if it wins the election - was partly undercut by the first easing of fuel prices in more than three months.

Shell Oil moved first about 10am to shave 2c off a litre of diesel and 91-octane petrol, and 3c off costlier 96-octane.

Helen Clark denied National's claim that the Government was reaping a windfall from extra goods and services tax on petrol, which amounts to just over 17c from total tax revenue of 64.8c on 91-octane.

Finance Minister Michael Cullen said the petrol move was consistent with a strategy recommended in a leaked email from Dr Brash's special adviser, Bryan Sinclair, for National to "slosh those funds around and buy your way to the Treasury benches".

But Dr Cullen said it was "also precipitate, ill-considered, poll-driven decision-making" which raised further questions about National's credentials to govern.

"Until the weekend and a couple of bad polls, National was resolute that it would not reduce petrol tax because the revenue was needed for their roading programme."

He pointed to research from the Parliamentary Library suggesting that, although it was possible Government revenue may rise by $14 million this year from extra GST on higher petrol prices, lower excise from lower volumes sold may cut the net yield by as much as $42 million.

The Automobile Association, which has been calling for a temporary removal of the 5c-a-litre petrol excise rise imposed in April, welcomed National's pledge but said it hoped the oil companies could do better with more price cuts.

Dr Brash's offer was a step-down from his position a fortnight ago, when he ruled out ditching the 5c excise rise, saying there was a pressing need to invest that money and other fuel tax into more roads.

It followed a suggestion to the Weekend Herald by National finance spokesman John Key on Friday that he would consider tax relief for motorists if petrol prices stayed high for too long after Hurricane Katrina's disruption to oil production a fortnight ago.

National is trying to tap into a deep vein of popular discontent highlighted by a Herald-DigiPoll survey of 801 people, 77.1 per cent of whom said they wanted lower petrol tax.

They have given the party leverage to build what Mr Key said yesterday was a "bridge" into its wider programme of income tax cuts from April 1, letting the party push that to the top of the agenda in the closing days of electioneering.

National said this would have motorists paying $100 million less for petrol in a six-month lead-up to that programme, but Labour described this as "dangerously light", citing advice from officials that it would mean lost revenue closer to $130 million.

National's changing story

We have got absolutely no plans to change it.
- National leader Don Brash, on August 25, on the petrol excise.

At this stage we are not planning a change, but if there were long-term sustained high oil prices and it was demonstrated the Government is making extra revenue, then we'd take a look at it.
- National finance spokesman John Key, on Friday.

We see the modest, temporary reduction of excise I have announced today as the fair and sensible short-term path to take.
- Dr Brash, yesterday.

- additional reporting Kevin Taylor