Chris Hipkins has fallen into the classic trap of treating the government budget like a household budget, writes Bernard Hickey. 

This is an edited version of a post first published on Bernard Hickey’s newsletter, The Kākā.

As Chris Hipkins announced a further $1 billion of spending cuts on emissions reduction last night, he argued the government needed to “cut its cloth to fit” to show households it understood their pain about higher living costs.

But in choosing to spend less on efforts to address climate change in the midst of an actual climate emergency event, Labour has fallen into the classic mistake of seeing a government’s finances as just like a household’s, as well as overturning two decades of arguments used to justify tight budgets and low public debt.

Both Labour and National have argued since the early 2000s they needed to run budget surpluses and keep debt low to “save for the rainy day”. They have also both argued that spending money on emissions reductions could reduce the pain of future rainy days by making them less rainy.

Yet now the classic rainy day has arrived, Hipkins and his cabinet have decided to reduce spending on emissions reductions designed to stop future days from being even rainier. In making this choice, he has exposed the real priorities of both National and Labour over the last 20 years of fiscally tight policies. It was not for saving for rainy days. Instead, it prioritised low public debt, low taxes, no taxes on capital gains and low interest rates over everything else.

That makes perfect sense when you realise the most important variables for swinging median voters who own their own homes and have mortgages are:

• Keeping mortgage rates as low as possible and income taxes as low as possible to maximise disposable income
• Keeping interest rates as low as possible by minimising public investment in infrastructure to support new land supply for housing because that maximises rises in land prices
• Maximising capital gains on leveraged rises in residential land prices and keeping them tax-free because that is the main way these median voters become wealthier, can save for their retirement and become able to help their own children into their own homes.

So where does that leave young renters?

Young renters are toast in this scenario. They can vote Labour or Green as often as they like, but will end up having to pay the price of more and bigger climate emergencies, while also paying most of their after-tax income on rent and being unable to hope of owning their own homes with secure futures for their families unless they can be gifted deposits by relatives or marry into wealth.

Those who vote Green are in a particularly difficult situation. They vote for policies that can never be enacted while the Green Party is the minor party in any coalition. That’s because the Green Party has no leverage in any government-forming negotiations when it is in the minority because it can never credibly threaten to put National in government. A Green vote is consciously or unconsciously wasted while the Green Party will never suggest enabling a National-led government, unless there is a real prospect of it having a larger vote share than Labour.

The most realistic prospect for these voters now is to vote for Te Pāti Māori or TOP, who have kept their options open to ensure they have leverage, and have pro-climate policies that either Labour or National might adopt to win power. A Green vote now is purely performative. It allows voters to feel better about not voting for Labour and appearing to vote for climate action and poverty reduction policies, but actually enabling a Green-washing of Labour that achieves none of those policies.

Yesterday’s announcement and the defeated-sounding statement in response from the Green Party’s co-leaders James Shaw and Marama Davidson has reinforced that, yet again, Ford Ranger Man’s love of a suburban lifestyle and land plot that makes them richer always has priority for a Labour Party in a neck-and-neck race for power.

That leaves Te Pāti Māori and TOP as the only smaller party options with the negotiating leverage to extract real measures on climate change, housing or poverty improvements. Last night’s 1News/Kantar poll showed Labour would need Te Pāti Māori (up 2% to 3%) to govern. The Green element of any coalition can be assumed and then ignored.

Hipkins’ “reprioritisations” were mostly about stopping or delaying spending that would have reduced climate emissions, and in one case was to restrict the use of a road safety move that was unpopular with fast car drivers.

The changes included:

• stopping the clean car upgrade scheme, which would have seen $568 million spent on a “cash-for-clunkers” scheme that swapped polluting old cars for cleaner cars and public transport, and which would have benefited the poorer drivers the most;
• stopping the social car leasing scheme, which would have allowed poorer drivers to lease a low emissions car at an annual cost of $19 million;
• limiting the Auckland Light Rail project to just one section that does not reach to the airport to save “billions” and a suggestion completion could take the same 40 years that the recent Waikato Expressway took;
• narrowing Waka Kotahi’s speed reduction programme to just 1% of the most dangerous roads, which will reduce the emissions benefits of lower speeds;
• removing cities smaller than Auckland, Hamilton, Tauranga, Wellington and Christchurch from a requirement to prioritise public transport over driving; and,
• deferring work on the refund for container scheme to avoid cost increases for consumers.

The $1 billion saved is on top of $700 million being used from the Climate Emergency Response Fund to extend fuel tax and road user charge cuts. Essentially, the government has chosen to use $1.7 billion initially allocated to the Climate Emergency Response Fund (CERF) to cut fuel prices and reduce borrowing and public debt. This was money raised from the Emissions Trading Scheme and is being used to keep interest rates and mortgage rates lower than they otherwise be the case, and to actively encourage drivers to burn more petrol and diesel. ETS prices have fallen in recent months as the government rejected Climate Commission advice to strengthen the scheme.

It is a classically short-term approach to winning an election that sacrifices longer-term climate action and more infrastructure investment for extra land for housing supply and public transport to ensure that fuel prices are kept low for now and that mortgage rates stay lower than would otherwise be the case, which also stops suburban land prices from falling too much.

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