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Image: Tina Tiller
Image: Tina Tiller

OPINIONPoliticsMay 17, 2022

A tame, tentative and too thin Emissions Reduction Plan

Image: Tina Tiller
Image: Tina Tiller

No decision on congestion charging, no cash for clunkers scheme for two years, no political risks taken. Bernard Hickey on the government’s wasted opportunity on climate change.

This article was first published on Bernard Hickey’s newsletter The Kākā.

So much for a climate emergency. The Labour/Green government has unveiled a politically and financially tame Emissions Reduction Plan that offshores a large proportion of our climate spending and backloads most of the costs here to 2024 and beyond.

It has kicked into touch the politically difficult decisions around congestion charges, agricultural emissions and the electricity market. It also chose not to ban the importation of petrol and diesel cars and utes from 2035 nor to shut down connections to the domestic gas network from 2025.

Its flagship “cash for clunkers” scheme isn’t scheduled to start in earnest for at least another two years, with the key decisions on how it will operate, who will be eligible, what types of cars to be exchanged and how much per car it will cost yet to be decided.

What’s in the plan

The ERP includes $2.9b of new spending over four years from a $4.5b Climate Emergency Response Fund (CERF), which is itself funded by revenues from the Emissions Trading Scheme.

However, only $1.17b of that is in the first two years, with most of that used to:

  • Subsidise the conversion of industrial coal boilers, mostly in dairy factories ($230m);
  • Vaguely fund Waka Kotahi’s efforts to encourage cycling ($373m);
  • Subsidise moves to reduce emissions from waste ($100m);
  • Pay for research and development to find technologies to reduce agricultural emissions ($92m); and,
  • Fill up a past Waka Kotahi funding shortfall caused by low public transport usage during Covid ($47m).

Almost a third of the spending in the first two years is going to help the agriculture sector adjust, even though agriculture has contributed nothing to the current Emissions Trading Scheme (ETS) that the spending is coming from, and is not due to be part of the scheme at all until 2025 (the decisions on what form that will take have still not been made.)

Finance minister Grant Robertson said Treasury had advised of an extra $800m in ETS revenues because of higher carbon prices, which offset $840m allocated in December for “international climate finance”, or buying international carbon credits for a market that does not exist yet. Robertson said just $2.9b of the $4.5b fund available had been allocated.

The ‘cash for clunkers’ scheme will allow low-income households to trade in their gas guzzler for an electric vehicle. Photo: Miles Willis/Getty

The flagship “cash for clunkers” scheme unveiled in the plan actually only commits $32m to a trial in the first two years for 2,500 vehicles at a cost of $12,800 per vehicle, with decisions yet to made on the remaining $537m to be spent over the following two years. Even so, it would only allow 42,000 clunkers to be traded in for low-emissions vehicles, and only to those households earning less than the median wage.

The measures would see just 30% of the light vehicle fleet being electric or hybrid by 2035, with only a 35% reduction in vehicle kilometres travelled. The overall effect of the plan would be to reduce the number of cars on the road by 181,800 by 2035, from a current light vehicle fleet of 4.4m.

The measures to encourage the adoption of electric vehicles and the specific adoption of public transport amount to just $52m of the $2.9b trumpeted. Just $12m is allocated for electric bus purchases, with diesel buses being bought for another three years and still being used until 2037.

What’s not in the plan

The plan was as notable for what was not in it as what was, including:

  • No plan to ban imports of petrol and diesel-powered cars by any date, which was recommended by the Climate Commission and widely done overseas;
  • A decision not to stop new connections to the domestic gas network from 2025;
  • No decisions on congestion charges for Auckland or anywhere else, other than a vague suggestion of more consultation and no action for at least two and a half years;
  • No announcement of an extension of the half-price bus, train and ferry fares beyond the current three months;
  • No funding for future larger subsidies of public transport to ensure some sort of just transition;
  • No significant measures to encourage investment in renewable electricity generation or remove the current one million tonnes of coal currently being fed into Huntly by Genesis Energy to power Auckland; and,
  • The assumption about closing the Tiwai Point smelter has been removed from the plan, adding to the burden of moving to 100% renewable electricity and meaning the 30% fall in wholesale electricity prices cannot be relied upon to enable the transition.

My view

The key things to know here are:

  • The government had already decided to make its climate spending fiscally neutral, meaning it will only spend the revenues from the ETS;
  • It has ruled out borrowing to fund new climate infrastructure or measures to reduce emissions;
  • It has also decided to underspend from that fund, effectively tightening fiscal policy by taking in more from the ETS than it is spending;
  • Despite being painted as equitable, a full third of the plan’s spending in the first two years goes to the farming sector, who contributed nothing to the ETS, and there is nothing in the first two years to help those on low incomes;
  • The government has made no politically painful decisions, kicking the can down the road on congestion charges, road conversions to cycleways, subsidies for electric cars, climate friendly infrastructure and bans on internal combustion engine imports.

The government has done the least it possibly can to meet its limited emissions targets under the Zero Carbon Act, and has done nothing either truly transformational or politically difficult. Its main priority in this plan appears to have been to:

  • Reduce government debt now, rather than use the balance sheet to invest for future generations;
  • Avoid giving the impression of being “addicted to spending”, as the Opposition has accused Labour of; and,
  • Avoid any decision that might alienate or lose the vote of median voters, who mostly live in suburban homes they own and have at least two cars in the driveway – including, possibly, a double cab ute – and who rarely if ever use public transport.

Follow When the Facts Change, Bernard Hickey’s essential weekly guide to the intersection of economics, politics and business on Apple Podcasts, Spotify or your favourite podcast provider.


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Image: Tina Tiller
Image: Tina Tiller

PoliticsMay 17, 2022

The cost-of-living crisis means we need bolder budget calls on child poverty

Image: Tina Tiller
Image: Tina Tiller

Budget 2022: Those families doing it tough now will likely keep doing it tough after the release of this year’s budget – but it doesn’t have to be that way, argues Kate C Prickett.

Urgent and bold – transformative even – budget decisions are needed if we are to get serious about the cost-of-living crisis and what it means for families and children living in or on the edge of poverty.

Our supposedly resilient economy, with its low unemployment, has clearly missed the memo on high inflation, housing costs and plummeting real wages.

Goods that all people typically need – such as food, housing and petrol – have seen New Zealanders spending an extra NZ$4,000 to $5,000 a year on the basics. In short, people are feeling the pinch.

And while it has been higher-spending households that have experienced the largest increase in the cost of living (6.9% in the past year), lower-spending households and beneficiaries – families least able to fund the rising costs – were not far behind (6.0%).

Failing to keep up

Understandably, then, the cost-of-living crisis has been dominating media headlines and political talking points. And while much of it appears aimed at the middle class, the crisis is surely having an impact on those with the least resources.

Indeed, although we do not have child poverty figures for the past year, there was an indication this crisis and the pandemic years have started to take their toll: declines in child poverty have slowed in the past year on multiple indicators.

In fact, one of the primary poverty measures we examine has risen: the proportion of children living in households with less than 50% of the median disposable household income (before housing costs are considered). This highlights again the disproportionate burden of the housing crisis on low-income families.

Even recent increases in welfare payments have not been enough to stem these trends. Recent modelling suggests a majority of families receiving benefits will still not meet their household costs.

Furthermore, benefits have just switched from being pegged to inflation to being indexed to wage growth. Wage growth typically outpaces inflation, but not this year. What was meant to be (and should be in future) a good thing for family budgets is having an unintended negative effect.

Image: Tina Tiller

Modest poverty targets

Of course, it’s not all about the pandemic or the economy. The government has the tools to change the child poverty calculus. Indeed, the 2017 Labour-led government came to power on a bipartisan mandate to reduce, if not eliminate, child poverty.

The landmark Child Poverty Reduction Act 2018, brought in shortly after Labour came to power and supported almost unanimously across political party lines, mandated the government set both intermediate (three-year) and long-term (10-year) child poverty targets.

One telling sign of the government’s appetite for eliminating child poverty with this week’s budget can be seen in its second intermediate poverty target (covering the 2021-2024 period). Released in June last year, it was set amid uncertainty about the extent of the economic impact of the pandemic, and in the middle of a housing affordability crisis.

In fact, the policy brief recommending the new targets acknowledged the pandemic might unravel some of that earlier progress.

Even with this uncertainty, however, the new targets Labour set rested on an assumption of a consistent and modest downward trend towards the long-term poverty target.

This suggests we’ll see a correspondingly modest approach to poverty reduction in the budget, in line with the past three years, which child poverty experts have decried as being not enough.

That uncertainty, coupled with high inflation and slipping real wages (fuelled by stressed supply chains and the war in Ukraine), means those families doing it tough now will likely keep doing it tough.

Inflation
Image: Getty/Archi Banal

Bold policy moves needed

Big and brave policy moves are needed – and fast. Policies that redistribute support to those who need it most during these uncertain times are not unprecedented.

The US — the perennial social policy punching bag — set an example of what a sweeping attempt to alleviate poverty might look like during this pandemic with a series of stimulus payments and child tax credits in 2021. The child poverty rate halved from 10.5% in 2019 to 4.9% in 2021.

The US example, however, also sent a warning: when those tax credits expired in January 2022, the child poverty rate jumped back up to 12.1%.

Working For Families (WFF) tax credits are one existing avenue for delivering income support for families. But a comprehensive review of the programme now under way will be too late to significantly influence this budget.

Watch those projected trends

Furthermore, the limited scope of that review, and already proposed changes to WFF, suggest a modest redistribution of tax credits from higher-earning families to the lowest. And this will be mostly for families already in work rather than those without employed adults.

Various options for investing more in WFF, and redistributing tax credits more progressively, were presented to key ministers ahead of this year’s budget. The most generous option showed changes to WFF would lift 17,000 children out of poverty – a mere 1% drop on the poverty rate (before housing costs) from 2020-21.

It’s not to say this change to WFF wouldn’t help families — it would. But it falls short of what’s needed to meet the modest child poverty targets that were set, even before the full impact of the current economic climate is reflected in current and future poverty rates.

When the budget is released on Thursday, keep an eye on the child poverty projections. Anything short of a serious correction of current trends will signal the need for big, bold and urgent policy change in next year’s budget


Follow When the Facts Change, Bernard Hickey’s essential weekly guide to the intersection of economics, politics and business on Apple Podcasts, Spotify or your favourite podcast provider.


Kate C Prickett is director of the Roy McKenzie Centre for the Study of Families and Children at Te Herenga Waka — Victoria University of Wellington

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

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