TLDR: The falling oil price and rising NZ dollar have combined in recent weeks to put the Government in a political and financial pickle in the lead-up to Christmas over the scheduled end to the 25c/litre ‘temporary’ cut in fuel levies.
Cabinet will have to decide within days whether to extend it for a third time beyond the end of January, but this time it won’t be able to argue that its hand was forced by the cost-of-living pressure of very high oil prices and a low New Zealand dollar. This time, the oil price has fallen to below pre-Ukraine war levels and the currency is up 16% from its lows of two months ago.
Any decision to extend the 25c cut will be seen as a more purely political decision, and will fly in the face of the fiscal responsibility rhetoric used heavily in recent months by Finance Minister Grant Robertson. The Government loses $116 million of revenues for each month the cut is extended, on top of the near $1.2 billion already spent over ten months since it was introduced ‘temporarily’.
The Government is now stuck between a political rock of unpopularity and a financial hard place of fiscal responsibility. And it will have to deliver the news on the eve of Christmas, just days after fresh polls showing it is on track to lose heavily to National/ACT in next year’s election.
I detail how the changing prices have created a conundrum for the Government below the paywall fold.
Elsewhere in news about our political economy overnight and this morning:
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