Government proposes yearly fuel tax increases as it lays out future transport investment, projects

The Government proposes to increase fuel taxes by four cents per litre every year for the coming three years to help pay for improvements to New Zealand's transport network. 

Asked by Newshub what his response would be to people miffed by having to pay more at the petrol station, Transport Minister David Parker replied: "I think everyone understands that you have to pay for roads". 

"I think most New Zealanders have seen the enormous costs that have been paid on their behalf by Government at the moment and know that road users have to contribute to that," he said.

"I think the increases are affordable, four cents [per litre] per year, relative to the up and down of petrol prices, it's minor and it's necessary."

The proposed increase to the fuel excise duty in the first year - from July 2024 - would be split into an initial two-cent increase and a second two-cent increase six months later. This would be followed by a four-cent increase in 2025 and again in 2026. 

Each four-cent per litre increase is equivalent to an additional cost per week of 88 cents for the average motorist, according to the Government. By July 2026, when the full 12-cent increase has come in, the additional cost will be $2.64 per week.

Increases to these charges were normal annually prior to a temporary change in 2020. The Government decided then not to increase them for three years due to COVID-19 impacts.

The 12-cent increase over three years - money which would be dedicated to improving the transport network - is far less than the 38-cent increase officials said was necessary.

"Given the significant impact that this would have on the cost of living for many households, the government does not consider that an increase of this kind would be acceptable," the new Draft Government Policy Statement (GPS) on land transport released on Thursday said.

Other forms of direct Crown funding, including a new loan, are proposed to bridge the gap. 

Government's key priorities

The point of the GPS is to set out the Government's transport priorities over the coming decade and show where the Government believes funding should be targeted. It's out for public consultation until September 15.

Six strategic priorities are given -  maintaining and operating the system, reducing emissions, increasing resilience, safety, sustainable urban and regional development and an integrated freight system. The minister expects "value for money", an "efficient use" of the National Land Transport Fund (NLTF) and a focus on building back better.

The GPS also lays out 14 key strategic projects the Government views as priorities for New Zealand over the next 10 years. 

They are: 

  • Warkworth to Whangārei – State Highway 1; Te Hana to Brynderwyns, Warkworth to Wellsford and Whangārei to Brynderwyns
  • Auckland Northwest Rapid Transit
  • Auckland third and fourth rail line expansion
  • Avondale to Onehunga rail link
  • Level crossing upgrade and removal – Auckland and Wellington  
  • Cambridge to Piarere – State Highway 1
  • Tauranga to Tauriko – State Highway 29
  • Wellington CBD to Airport – second Mount Victoria Tunnel and upgrades to Basin Reserve/Arras Tunnel
  • Wellington CBD to Island Bay – Mass Rapid Transit
  • Napier to Hastings – four-laning State Highway 2
  • Nelson (Rocks Road) shared path – State Highway 6
  • Richmond – Hope Bypass – State Highway 6
  • Christchurch Northern Link – State Highway 1
  • Ashburton Bridge – State Highway 1

"These routes include a balanced mix of public transport and roads, which require work as a priority to reduce congestion, manage emissions, improve safety, grow the economy and open up areas for housing," Prime Minister Chris Hipkins said. 

Parker said these projects were also aimed at improving the resilience of the transport network.

"The Brynderwyns have been out of action for a lot of this year. We've decided we're going to have to go round them. That windy road that goes up is not able to be converted to an adequate standard."

He said this would be the main focus over the next year for the Auckland to Whangārei section.

Transport Minister David Parker.
Transport Minister David Parker. Photo credit: Newshub.

"The Ashburton bridge is another thing obviously, floods there in the last little while knocked out bridge connectivity around Ashburton. So there's a second bridge just downstream of the existing bridge which is funded."

Parker said the Auckland Northwest busway was necessary as even with eight lanes, the north-western motorway was becoming congested.

He said this should "you cannot build your way out of traffic congestion with motorway improvements alone". 

"There are already some relatively minor improvements being made to that at the moment, but we're going to over time upgrade that to like the Northern Busway so as to take pressure off State Highway 16 and give people affordable transport choices. It's one of the reasons some people ultimately got two or three cars and a family is they can't get a bus to work."

Stations on the planned busway could have rails embedded in case light rail is proposed in the future. That would mean the whole corridor doesn't need to be ripped up. 

Parker said local authorities in Wellington agreed the Government should take the lead on state highway and city-shaping projects.

"We’re committed to kick-starting work on long-delayed transport solutions for the city including a second Mt. Victoria tunnel, upgrades to the Basin Reserve and Arras Tunnel, and mass rapid public transport," said Parker.

The GPS includes how much money should go to certain activities, like state highway maintenance. 

This will likely be a big focus of the public's given the constant flow of stories about potholes causing New Zealanders' nuisance on the roads. 

Parker said: “The draft GPS 2024 increases the investment range available to essential maintenance of state highways and local roads, including pothole repairs, by 41 percent to between $5.4 and $8.1 billion over 2024-27. This additional investment will greatly strengthen the resilience of our roading network."

He said a flat-lining of money spent on maintenance under National meant New Zealand's road are "much more vulnerable to damage from the recent severe weather events. 

"We have shown a commitment to maintaining the level of service on our roading network, increasing the funding going towards road maintenance by 20 per cent in GPS 2018, and 15 per cent in GPS 2021. This year we have committed more than $1 billion into road repairs in cyclone-affected areas of the North Island."

The GPS said there a focus on "achieving value for money through all maintenance and renewal programmes". This means not necessarily replacing parts of the network "like-for-like" but considering other changes that could be made at the time of maintenance, like further resilience, safety improvements or creating space fo a bus lane or active transport. 

The GPS also plans a minimum of $3.8 billion on road improvements, $3.6 billion on public transport, $1.5 billion on safety programmes like road policing and safety advertising, $1.2 billion on upgrading and maintaining the rail network and $500 million on walking and cycling improvements. 

Government proposes yearly fuel tax increases as it lays out future transport investment, projects
Photo credit: Draft GPS.

How to pay for it?

The amount of money in the NLTF is planned to increase $15.5 billion over the 2021/22-2023/24 period to $20.8 billion in 2024/25-2026/27, which is a jump of 34 percent.

Hipkins said this is the highest amount of funding proposed by any Government. 

"Funding under the new draft Government Policy Statement on land transport 2024 will enable a major boost to road maintenance, along with key critical new roading and public transport projects that New Zealanders want and deserve," he said. 

"This funding targets spending where it’s needed most: reducing congestion and emissions, boosting productivity and improving the resilience of our transport network."

Forecast revenue for the next three years is $13.1 billion, with the GPS proposing the additional $7.7 billion coming from new Crown funding and financing - including a $3.1 billion Crown load to Waka Kotahi - $1.4 billion from the increases to fuel taxes over three years.

There were annual increases in duties increases prior to 2020 when the Government ruled out increases for the following three years due to the impacts of COVID-19. In early 2022, the Government cut fuel excise duty (FED) and road user charges (RUC) to help with the cost of living. These discounts lasted until the end of June this year. 

But that, along with no increases since 2020, has had an impact on the NLTF. In the Budget, Treasury said there was a risk the duty and road users charges would need to increase to "manage pressures" on the NLTF.

Other sources of revenue include re-directing money received from traffic offence fines that normally goes into the overall Crown account straight into the NLTF and about $500 million from the Government's Climate Emergency Response Fund.