Voyage to surplus anything but smooth

00:00, Dec 19 2012

The Government has taken a calculated risk in raising petrol taxes.

A staged nine cents-a-litre increase in petrol excise duty over the next three years is conveniently enough to tip the accounts into a projected small $66 million surplus in 2014-15, meeting one of the Government's key priorities this term.

A failure to get back into the black is likely to have a hefty political cost in the 2014 election year, probably more so than the fallout from rising fuel taxes.

The official line is that the increases are needed to deliver promised major roading projects, including highways in Waikato, Wellington and Christchurch, particularly after a hike was deferred last year.

At that time, challenging economic circumstances were cited as the reason for the deferral. Eighteen months on, little has changed, but the tax rise is going ahead in leaps.

Finance Minister Bill English acknowledges that the extra revenue will help the Government's books, but denies that the petrol hikes have been designed with a surplus in mind.


But the timing of yesterday's announcement, only hours before the Government's half-year economic update, suggests otherwise.

Faced with a politically unacceptable deficit forecast at the end of an already challenging year for John Key's Government, the petrol tax rise fills a convenient hole.

Implemented in three annual 3c-a-litre jumps from July next year, it will bring in significant revenue from a relatively soft target. Motorists are used to fluctuating prices at the pumps, and the political backlash over the rising government take may be diluted as pressure on international oil production almost inevitably leads to petrol costing more.

(As an aside, there is an argument that rising petrol prices will deter motorists, bringing into question the projected traffic volumes that back the case for spending big on roading projects.)

Even with a fuel-injected tax boost, however, questions remain over whether it will be enough to pull the accounts around in time.

Among the factors underpinning the projected return to surplus are assumptions on higher immigration levels, falling unemployment, and the long-awaited but frustratingly slow Canterbury rebuild.

Critics are labelling these optimistic, particularly as Treasury has trimmed its economic growth projections for the next two years, amid continuing risks in major global economies.

Mr English flagged these risks as he emphasised that spending restraint will continue in next year's Budget and beyond.

He says the Government is not willing to get to surplus at any cost, and if growth continues to fall short, the target date may change.

That is a prudent acknowledgement in difficult times. Perhaps it also recognises that a small surplus is neither here nor there in economic terms, as long as the country is heading in the right direction.

In political terms, however, that will be a much harder sell. National nailed its economic colours to the mast of the good ship surplus, and risks sinking if it hits a deficit.

The Nelson Mail