Claire Trevett: Grant Robertson and the clashing crises of the cyclone and the cost of living - can only one win and will it take a flood tax?

OPINION:

Pick your favourite crisis, Grant Robertson.

Reserve Bank Governor Adrian Orr’s boost of the official cash rate on Wednesday was a thudding reminder to the Finance Minister and the rest of us of that other cloud looming over us: the cost of living crisis, which got shunted into the background for a bit as Cyclone Gabrielle entered the scene.

Poor old Robertson is now confronted with a Gordian Knot of crises.

His problem in untangling it is that the most obvious remedy for each crisis will make the other crisis worse.

The easiest remedy for the cyclone crisis is to throw money at it in vast quantities – for the infrastructure, the clean-up and support for the people and businesses hit by it.

The remedy for the cost of living crisis (or at least one of them) is to try to cut spending to help dampen inflation – but Robertson had hoped to spend some of those savings on helping ease the pain for households struggling with their bills.

Then there are the mortgages. As Orr put it, if the Government cuts its spending and raises taxes, Orr might not have to raise interest rates so much.

So Robertson faces a choice of political poisons: people can either pay more in tax or pay even more in mortgages than they already are. Lucky old us.

Add in the political palatability test to the various remedies and sub-remedies and things get even more complicated for Robertson.

Does he bring in a flood tax to help cover the cost of cyclone damage – and therefore take money out of people’s pockets during the cost of living crisis? Does he resort to doing it all on tick, making the books look worse? Does he rein back what he had hoped to do on the cost of living front?

All of this has added a pickle into PM Chris Hipkins’ “bread and butter” sandwich.

That bread and butter offering is looking increasingly like the home-brand white bread with a smear of margarine.

And that meagre fare may well prove to be the most politically palatable thing to do. There will be little appetite or expectation of election lollies now.

So Robertson’s Budget, due to be unveiled on May 18, is back in the panel beaters for another solid pounding with the hammers having just come out of the panel beaters following Hipkins’ policies bonfire – the axing of the RNZ/TVNZ merger, the deferral of income insurance etc.

The original plan was for a cost of living Budget.

Any money freed up by Hipkins’ policies bonfire was intended either to not be spent at all, or to be spent on the cost of living.

Then along came Gabrielle to deliver an enormous unexpected bill – a bill he cannot avoid.

Robertson will also be keenly aware the international credit ratings agencies and Reserve Bank will be watching to see how closely he can stick to his earlier promised spending and debt tracks – which was a downward trajectory after the gorging on Covid-19.

The amnesty that applied on criticism of the initial emergency response to the cyclone has ended now that political decisions have to be made and people are waiting to see what the Government will offer and how it will pay for it.

So far Robertson has done little to hose down the possibility of a flood tax.

Whether or not Robertson opts for it will depend on just how much the cyclone is expected to cost – and where that cost falls.

It will also depend on whether Robertson can get a gauge on how the public will receive it. In doing that, he has to assess how people might feel about it not just in the here and now, but also in May when the Budget is delivered and again in October when the election lands.

It is potentially saleable. There are international examples - just across in Australia after floods in Queensland.

The flooding disasters are vast in area - from urban Auckland to rural East Coast and Hawke’s Bay.

It has had ramifications on people’s way of living and of making a living. It will hurt the economy and impact the export industry. As quick a rebuild as possible is needed.

And a tax targeted at top earners would possibly leave room to do more on the cost of living front for those on lower incomes.

That won’t stop National from pointing to any such levy as a breach of Robertson’s 2020 campaign promise not to introduce any new taxes this term beyond the new top tax rate of 39 per cent.

A muddy path: Finance Minister Grant Robertson has to re-write the Budget. Photo / Mark Mitchell

Its finance spokeswoman Nicola Willis is already shouting from the rooftops as if the new flood tax is a done deal.

The question is whether that objection will get much political traction. National too will have to set out how it will pay for the cyclone damage.

Thus far, leader Christopher Luxon has said it thinks the Government should pay for it by taking more debt, rather than through a tax. Debt used to be a dirty word for National (although so is tax).

And that could well play into Robertson’s hands: because borrowing for it is another one of those options on the table. And if he does it, National can now hardly cry foul about it.

It will, however, impact on the books in a more negative way. Orr’s recipe for inflation happiness was cuts and taxes – not borrowing.

Asked this week if he stood by his pledge on the campaign in 2020 (re-stated since), he did not answer. Instead, he pointed out a “responsible” government had to look at all options.

And many voters looking at the carnage from the cyclone, the people without homes, decimated orchards, and the roads now going nowhere will accept that.

Such an event can void an earlier promise.

In very changed circumstances, a government cannot be hamstrung by all old promises – although it depends on the circumstances in which they were made.

In Robertson’s case, the 2020 promise was in the heat of the election campaign, and aimed at quelling National’s claims that it would impose the Green Party’s wealth tax.

Previous National governments too have had to backtrack on old promises because of events. The most obvious one was John Key’s 2008 promise not to raise GST. Willis worked for Key at the time and was still working for him when he subsequently broke it.

The reality of the global financial crisis hit and, lo, National increased GST to pay for its tax cuts. It did not hurt National at all.

In the end, what matters is not necessarily whether or not you’ve broken a promise, but whether the voters think it was justified. Sometimes a u-turn on a problematic promise is actually rewarded.

In light of the increasing tendency for the unpredictable to happen, perhaps the lesson there is not to make such promises in the first place rather than whether to stick to them.

That, however, is easier said than done in the heat of an election campaign.