Government to slash 25 cents per litre off fuel tax and halve public transport costs for three months

The Government will slash 25 cents per litre off fuel tax and halve public transport costs for an initial three months to help ease the financial pressure at the petrol pump. 

The tax reduction - expected to cost $350 million - will come into effect on Tuesday and save motorists $11 to $17 per average fill-up, depending on the vehicle. Halving the cost of public transport - expected to come into force from April - comes with a $25m to $40m price tag. 

The Government has come under pressure to help alleviate three-decade high inflation, with the cost of unleaded petrol now more than $3 per litre in parts of New Zealand and there have been warnings it could soon hit $4. 

On top of supply chain issues caused by COVID-19, the United States has banned Russian oil imports in response to the Ukraine invasion, prompting President Joe Biden to warn last week that gas prices would likely keep rising. 

Prime Minister Jacinda Ardern announced on Monday at her post-Cabinet press conference that the Government will cut 25 cents off excise duty, or the tax on petrol, for an initial three months to help struggling Kiwis. 

Ardern said it will be under constant review and the changes will "ease off" rather than be immediately cut to give people time to adjust. 

"It is likely that this will be a gradual phase down in line with global oil prices stabilising and reducing, to keep pressure off families while recognising the need to return to more stable funding for our transport infrastructure."

The tax you pay on each litre of 91 is made up of a mix of taxes and levies, adding up to roughly 48 percent of what you pay at the pump. The largest chunk is excise, which goes towards the National Land Transport Fund (NLTF) that pays for transport projects. Excise tax currently makes up 70 cents of every litre of petrol.

The Government will top up the NLTF with $350 million - the expected cost of dropping the fuel tax by 25 cents for three months - to make sure transport projects go ahead. 

The Government will pay for it by using money from the COVID-19 fund. Managed isolation and quarantine (MIQ), for example, no longer requires the funding it once needed now that international arrivals don't have to isolate. 

"We are in the midst of a global energy crisis," Ardern said on Monday, revealing that the price of 91 rose by 6 percent last week and 13 percent in the past month - the highest increases on record. The price of crude oil has increased 38 percent since the beginning of the year.

Energy Minister Megan Woods said she has written to fuel companies to pass on the Government's expectation that the full amount of tax reduction will be passed on to consumers at the pump.

"We are pleased to be able to offer our customers some immediate relief, in recognition of the relief also being passed on by Government," Mobil's lead country manager Andrew McNaught said in a statement, confirming that the fuel company will reduce its prices across all petrol grades by the same amount, effective immediately.

Local councils will implement the public transport cost reduction and Finance Minister Grant Robertson said they will be compensated for the reduction in revenue. It is expected to come into force from April 1. 

Ardern hopes increases to the benefit, minimum wage and Family Tax Credits in April, and the Winter Energy Payment in May, will also ease cost of living pressures. 

"While forecasters predict inflation will peak and subside over the coming year, there is less certainty around fuel costs due to the volatility of Russia's invasion of Ukraine," Ardern said. 

"One thing we do know is that the extraordinary increases we've seen in recent weeks impact on everything from the ability of people to get to and from work, to the cost of supplying goods and services, and so we must act to support New Zealanders to get through."

National leader Christopher Luxon says the announcement doesn't go far enough to ease the wider financial strain on Kiwis caused by inflation. 

"It's good that the Government has finally accepted that there is a cost of living crisis in New Zealand. But now they need to address it," Luxon said. 

"It's not just petrol prices that are going up. Food prices are up more than 13 percent and weekly rent is up $150."