Cost of living: Chris Hipkins confirms extension to fuel tax cut, half-price public transport, reintroducing RUC discount

Prime Minister Chris Hipkins has announced an extension to the fuel tax cut and half-price public transport fares.

Speaking from Auckland on Wednesday, Hipkins said the fuel excise duty (FED) reduction will continue through until June 30, while half-price public transport fares will also last until the end of June.

The cut to FED is estimated to reduce the cost of filling up a 40 litre tank of petrol by around $11.50, and for a 60 litre tank, around $17.25.

Half-price public transport will save an average person who pays two $5 fares a day $25 a week. From July, anyone with a Community Service Card will still have access to half-price fares.

The Road User Charge (RUC) discount, which ended on Tuesday night, will also eventually be reintroduced and also last until June 30. Legislation is required for this extension.

Hipkins said this will be the "first step" in a series of measures to help Kiwis with ongoing cost of living challenges. Transport is the third biggest expense for families after housing and food, he said.

"I've said bread and butter issues like the cost of living would be my top priority. This is our first step in dealing with some of the persistent cost pressures on businesses and families," Hipkins said.

"Reducing the cost of fuel excise and public transport is a good candidate for early action - it's a major cost for nearly everyone, we know how to do it, and can roll it out quickly."

With significant flooding in Auckland and Northland, the Prime Minister said Kiwis were experiencing added stress and financial pressure.

"Cutting fuel excise and keeping half price public transport gives some extra relief as Auckland goes through a difficult period," Hipkins said.

“New Zealanders understand we’re facing international pressures that are driving up inflation and prices. This policy won’t solve the crisis, but it will make a difference. I know that every bit helps."

Hipkins announced the decision to continue subsidising a fossil fuel product while standing in a city just devastated by a climate change-driven weather event. He defended that by saying the Government had an extensive programme of work underway to address climate change.

"We are absolutely focused on reducing emissions. The public transport reductions that we have put in place today are a positive step in terms of getting more people to use public transport. We have got extensive work around the electrification of the vehicle fleet."

But he said, "right here and right now", fuel price hikes are putting pressure on families who "have no choice but to continue to fill up the car".

The announcement was made in Auckland.
The announcement was made in Auckland. Photo credit: Newshub.

The Government announced a reduction in fuel excise duty (FED) in March last year as fuel prices jumped significantly. The tax was cut by 25 cents. Road user charges (RUC) were also discounted, while public transport fares were slashed in half.

The package was only initially scheduled to last three months but it received several extensions. In December, the Government announced the end dates for the subsidies, with the RUC discount ending on January 31 and FED planned to increase 12.5 cents per litre on February 28 and another 12.5 cents by the end of March.

At the time, Finance Minister Grant Robertson said while the policy had directly helped Kiwis and nudged inflation down by about half a percent, it is expensive. The Ministry of Transport estimates the cost until January 31 to be $1.3 billion.

So why reverse that decision and extend the subsidies? 

"We've got a new Prime Minister. He asked all ministers to go away and look at what we could do to get our focus on cost of living issues," Robertson said at a press conference. "I took that responsibility seriously, went away with the Minister of Transport and others, and came back to the Prime Minister with this proposal."

But Robertson also noted in a statement that with economists predicting inflation to remain at elevated levels for longer than what's been seen in the past, it was right that the Government revisited the decision to end the subsidies.

"The extension of all measures is estimated to cost about $718 million. I believe this is the right thing to do for New Zealand families. We can strike a balance between targeted ongoing support and careful management of the Government accounts. We are paying for the extension from savings identified in the most recent baseline update.

"This extension takes us to the end of the financial year. We have already indicated that the Budget will have a cost of living focus, and this extension covers the time until that comes into force."

He said it's also a good policy for business.

"The cost of freight and running car fleets is a big cost for many businesses, so this extension helps relieve a bit of pressure on those doing it tough right now.

"This policy is also a practical way to help take the edge off inflation. The Treasury estimated the combined impacts of this policy reduced headline inflation by 0.5 percentage points in the June 2022 quarter. So it is a good policy to fight inflation while also helping the hip pocket now."

Transport Minister Michael Wood said motorists who use RUC will have pre-purchased stock "to cover them for [the] coming month". 

"This provides time for us to introduce legislation to reintroduce the discount, which will be in place until 30 June.

"These measures will make a real difference for people feeling cost of living pressures. Extending the reductions to fuel excise duty and road user charges will also help to reduce the road transport sector’s fuel costs, and in doing so keeping the cost of food and essential goods lower."