A 12 cent a litre increase to fuel excise duty is written into law for 1 January, and as of this week neither of the two largest parties in Parliament wants it to happen. The road freight industry, which pays for the roads it drives on, says both of them are storing up trouble.
The planned increase is the first of three. Fuel excise duty is due to rise 12 cents a litre from January, then 6 cents in 2028, then 4 cents a litre in the years after that. Road user charges, which diesel trucks and utes pay instead of fuel tax, rise by the equivalent amount at the same time.
On Thursday Labour leader Chris Hipkins went further than his party had before. Labour had already called on the Government to cancel the January rise. Now it will not raise the tax at all if it wins on 7 November. Speaking to RNZ, Hipkins said “New Zealanders simply cannot afford an extra 22 cents a litre on their fuel bills every time they fill up the car, and yet as of today, that is still the government’s policy”. He added “We will not be increasing fuel tax in the next term”.
Finance Minister Nicola Willis gave much the same answer about January. “We will not be increasing fuel tax on the first of January next year. We just need to formalise that decision and reflect it in the government accounts,” she said. A spokesperson later walked that back slightly, confirming it was National’s position rather than a Cabinet decision, and that the final call would be made and announced in due course. ACT leader David Seymour said the matter had gone to a Cabinet committee earlier in the week. “Cabinet is yet to make a final decision, and I tend to think government decisions are best announced after Cabinet has made them,” Seymour said.
There is a hard deadline on that. In a written parliamentary question, Transport Minister Chris Bishop confirmed he had received advice on 7 August that a decision was needed by 31 August so it could be built into the Pre-election Economic and Fiscal Update. That answer was published by Labour alongside a statement from transport spokesperson Tangi Utikere, who said “Kiwis should not be hit with higher fuel costs because this Government refuses to rule out a tax grab”. Utikere also said “Roads of National Significance are no longer on the cards because National couldn’t afford them”.
The loudest objection has come from the industry that would pay a large share of the increase. Ia Ara Aotearoa Transporting New Zealand, the national association for road freight, said repair and maintenance can only keep up with a growing economy if someone invests in it, and that if moving freight gets harder or dearer it turns up in the cost of living. Chief executive Dom Kalasih told RNZ he was “flabbergasted” at the idea of the increases being put off again.
“We’ll be digging ourselves a deeper hole. I think it’s already well recognised there is a significant gap between the revenue collected from petrol excise duty and from road user charges, and what needs to be spent on the infrastructure,” Kalasih said. “Unless the government, whatever colour or brand it is, has got some other cunning plan to introduce some revenue, then we are going to get increasing risk of transport problems, and that will likely have an adverse effect on our economic prosperity.”
That is an unusual position for a lobby group. Kalasih is arguing for a charge that lands squarely on his own members. Freight runs on diesel, and diesel pays almost no fuel excise at the pump because trucks pay road user charges by the kilometre instead. The scheduled increases apply to both. Transporting New Zealand is asking politicians to raise its members’ costs because the alternative, in its view, is worse roads.
The reason the gap keeps widening is that fuel excise is a flat rate. It is set in cents a litre, currently around 70 cents according to RNZ, and it does not move when petrol prices or construction costs move. It has not been increased since 2020. In real terms it has fallen 21 percent since then, while the cost of building and fixing roads has gone the other way. The money goes into the National Land Transport Fund, which pays for building, maintaining and upgrading the network.
Treasury put numbers on the delay in the Budget Economic and Fiscal Update. Each six month deferral of the January increase costs the fund around $300 million, which puts Labour’s three year freeze at roughly $1.8 billion. That figure only counts the 12 cent rise. It does not count the 6 cent increase due in 2028 or the 4 cent increases after it, none of which Labour would proceed with. Labour has also committed to taking about $65 million a year out of the same fund to pay for its public transport fare cap.
Hipkins says the answer is to build less. He told RNZ that Labour would “scale” its investment, saying “We have to scale our ambition in terms of what new roads we want to build and so on to fit within the budget that’s available”. He would not name a single project that would be scaled back, pointing out that the Government Policy Statement covering the next three years has been delayed until after the election and that there is “no fixed plan” for that period.
Bishop called the position irresponsible. “There are roading projects underway right now that are needed, that the communities are backing, that are literally in construction right now, and so this is a significant issue for the Labour Party, and it’s irresponsible,” he said. New Zealand First deputy leader Shane Jones was blunter about the whole debate. “They need to accept that there are inexorable pressures. If we are to continue to modernise and meet the expectations of Kiwis in relation to infrastructure development, I think all fair-minded Kiwis realise that we have to contribute from time to time if we’re going to maintain and expand the capacity of our infrastructure,” Jones said.
Motorists will notice that none of this is happening in a quiet year for fuel. In the week to 14 August, the national average board price for regular petrol was 302.6 cents a litre, 17.2 cents higher than a year earlier, according to the Ministry of Business, Innovation and Employment figures behind our fuel price tracker. Diesel was 270.1 cents a litre, and it has risen 43.6 cents in a year. Trucks have already absorbed a much larger increase than cars have, without any help from the tax rate.
It is also a near reversal of the 2023 campaign, when National promised not to lift petrol taxes in its first term and Labour had gradual increases pencilled in through to the middle of this year. Longer term the Government intends to scrap fuel excise entirely and shift every light vehicle onto road user charges. The legislation to allow that is in front of Parliament now, though no start date has been set, with the transport minister previously saying it matters more to get the system right than to rush it out.
Whichever way Cabinet goes before Monday, the fund is short and both major parties have now promised not to top it up. Somebody eventually pays for the roads, and this election neither side is saying who.
Not sure where the parties stand on this and everything else? Try our voting tool to see which policies line up with yours before 7 November.
What do you think? Should the January increase go ahead, or should the roading programme shrink to fit? Leave a comment below and tell us how you see it.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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