Jacinda Ardern says Kiwis are doing it tough, but benefits are rising – and the door is open to tax cuts (eventually)

Prime Minister Jacinda Ardern acknowledged that “it’s hard now”, but believed a swathe of increases to benefits, superannuation and student support kicking in today, which benefit 1.4 million people, will make a difference.

Speaking to the Herald, Ardern acknowledged for many the changes would not go far enough. She also said Labour did not break its election spending promises to pay for the benefit increases and added Labour could, in the future, shift tax brackets like National has proposed – just not now.

Ardern said the changes were part of a policy platform that had made New Zealand a better place than it was when she took office four years ago; fewer children were going hungry at school, thanks to school lunches policies, benefits had been increased and indexed to wages and incomes overall were up.

Ardern was keen to draw attention not just to today’s increases, but to the support that goes all the way back to 2017’s families package.

Asked if she would go to the election next year making the case that her New Zealand was a kinder, better, place than it was four years ago, Ardern said she would.

“I believe that to be true,” Ardern said, adding that she believed a significant legacy was the fact that debate around income support had shifted from whether benefit increases could be justified, to whether the increases were enough.

“When I reflect back on these past five years, the fact is that we have increased those [benefit] rates for some people as much as $175, and New Zealanders are calling for us to do more – that is a significant shift.

“The debate in this space used to be vastly different and I think that is something that I think as New Zealanders we should greet warmly,” Ardern said.

The Fairer Futures group this week said that for most households on a benefit, today’s changes would not be enough. Fairer Futures calculated a typical family budget for 13 types of households receiving a benefit and compared it to their income support.

It found that in 12 out of the 13 model families, the household was unable to cover its costs. Fairer Futures said a couple with three on a Jobseeker benefit would need an extra $165 a week to cover core costs like rent, food and power and $307 a week to cover participating in society through things like sport, or to guard against an unexpected bill.

“We absolutely acknowledge it is not everything, and it will not solve every issue, but it will make a difference,” Ardern said.

Changing the debate

She defended the size of benefit increases under her watch.

“Since 2017, for some families – particularly with children – the increases have been on average $175 a week. And I think if you had even said to someone four years ago that we would reach that level of increase and that people would agree that was what was needed – I mean, that’s significant,” Ardern said.

She agreed with Fairer Futures that people on a benefit should be able to participate fully in society, through things like sport.

“Absolutely – I wouldn’t dispute that for a moment,” Ardern said.

She cautioned that the Government’s benefit increases were perhaps bigger than they looked, given the fact people tend to focus on main benefit increases, at the expense of other forms of support that have also been lifted.

“People are often quite quick to look at core benefit rates without factoring in the extra support around accommodation supplement, the family tax credit, and the best start payment, the winter energy payment. All told, of course, it makes a difference,” she said.

The problem, of course, is spiralling house prices and rents have eroded the increases to living support.

This is something Ardern wants to fix: “the differences that we can make are not just limited to the rates of government support. It’s also about how we deal with the biggest expense households face, and that’s housing.”

She suggested this could be getting better in some parts of the country, particularly Auckland where there had been a huge growth in the number of houses consented.

“You are seeing the impacts of it [the consenting], on some of the rental data,” Ardern said.

However, she acknowledged in other parts of the country where building had not been keeping up, saying a more “national approach” to building public housing was needed.

“Other parts of the country with building programmes or, for instance, planning changes or public housing programmes just haven’t been as significant because previously there hasn’t been that same growth,” Ardern said.

“So we need a national approach to that,” she said.

Broken election promise?

While the debate on benefits might have shifted in favour of considering what level of increase is suitable, Labour has recently had to defend the level of Government spending.

At the election, Labour promised its three Budgets of this parliamentary term would each have $2.625 billion in new operating spending. Instead, the Government has banked a significantly brighter economic outlook to deliver a 2021 Budget with an operating allowance of $3.8b, and a $6b operating allowance in this year’s Budget, which will be delivered next month.

Ardern said she does not consider this to be a broken promise.

Instead, she pointed to the party’s principles of fiscal management – its Budget Responsibility Rules, which committed the party to not tax or spend more than 30 per cent of GDP, unless stimulus was needed during an economic crisis, such as Covid-19.

Ardern said the Government had “absolutely maintained” those principles. She also suggested the Government would not be sticking to arbitrary fiscal principles.

She would not be “applying that principle so firmly that actually you’re just sticking to it for the sake of the principle”.

Ardern said the Government is “thoughtful around inflationary impacts” of spending, but she “would dispute this idea that what we’ve spent to date has had the impact that others may claim”.

The suggestion is that Labour is unlikely to pivot and shrink its 2023 Budget if inflation pressures persist. Ardern continues to believe most of the pressure comes from offshore, and is unlikely to trim back her spending to combat it.

'Squeezed middle'

On the eve of benefit changes coming into force, National accused the Government of neglecting the “squeezed middle”.

Ardern fought back, saying cost of living pressures were coming from fuel prices and a lack of competition in supermarkets, issues the Government is trying to tackle.

Ardern fought back against National’s solution: tax cuts.

“We know that there’s not going to be one single thing that will fix everything,” Ardern said.

“A tax cut that gives the Leader of the Opposition $8000 and it gives them $2 [a week] is not the answer, because that cuts off so many other options for other things they value, like the healthcare and like the education of the kids,” Ardern said.

Ardern took the fight back to the opposition in a way she has not done in some months. It came as her 2020 campaign chairwoman and minister Megan Woods posted a tax cut attack ad targeted at National’s Chris Bishop – the first posted by Labour for some time.

Ardern’s comments were slightly misleading, if looked at in a certain way.

Luxon’s tax package, so far, would give him a tax cut of about $1043 a year. The difference in figures is because National’s tax policy as it stands is to fund its bracket change policy first, in the coming budget.

The tax cut that would deliver the biggest income change for Luxon will be the repealingthe 39 per cent top tax bracket – something National has promised to do, but it is not is included in the current tax package.

Ardern is not keen on cutting taxes now, saying there was a “long” list of demands from the public.

“It [tax cuts] is not without cost, because you don’t get to do that and then still do all of the other things that they want us to do as well.

“People want us to fix the health system. They want us to make sure that the schools have what they need. They want nurses and teachers and police officers to be paid well,” Ardern said.

She said she doesn’t want the income debate to just be about cutting taxes, saying it was shortsighted.

“We need to lift New Zealand as incomes across the board.

“We have had wages outstripping the cost of living, but we have to keep driving there. We don’t want to be a low wage economy.”

The issue is a difficult one however. Ardern is right that incomes have risen faster than living costs since she got into office, but those rising incomes have forced people into higher tax brackets.

That is perhaps why Ardern left the door open to adjusting tax brackets in the future.

“Labour parties have moved tax brackets before as well,” Ardern said.

“It’s not that there is general opposition to that idea as a principle. It’s all about the timing,” she said.

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