‘Dumb’ but ‘popular’ policy: Economist

Higher-earning households benefit the most from the Government’s decision to extend the fuel tax cut, an economist says.

Prime Minister Chris Hipkins confirmed on Wednesday the Government would extend its 25 centper-litre petrol tax cut and halfprice public transport until June 30, when the next Budget kicks in. It had previously been announced that the policy would come to an end on March 31.

A reduction in road user charges (RUC) will also be reintroduced, despite lapsing at the end of January.

It is expected that the extension of the policy will cost another $718 million, taking the total cost to just over $2.1 billion.

Brad Olsen, principal economist at Infometrics, said the country’s highest-earning 10% of households would save about $42 a month from the petrol tax cut, while the lowest-earners would only save about $14 a month.

‘‘Further extending the reduction in [petrol tax] is extremely dumb economic policy . . . However, it’s a politically popular move, given inflation remains high, at 7.2% per annum, and 91-octane petrol prices would be about $2.75 a litre with the full excise duty reinstated.’’

He said it was hard to understand the reversal given the Government said in December that the policy was not sustainable indefinitely.

Olsen said the Government looked likely to find money in the Budget to fund the extension after the end of June.

‘‘Extending [the petrol tax cut] and public transport fares will remove about 0.1 percentage points of inflation from the March quarter result and about 0.8 percentage points from the June quarter result.

‘‘If the subsidies are not extended beyond June, then the September quarter inflation result will be commensurately higher.’’