Huge shake-up at the pump
Nearly a century after fuel taxes were introduced, the Government has started work to phase them out
Fuel taxes and road user charges could be abolished as part of a Government review into the way it collects about $4 billion a year from road users to build and maintain roads and other transport projects.
The Ministry of Transport quietly conducted a ‘‘future of the revenue system’’ work programme, for most of the Government’s last term. Essentially, it’s a high-level review of whether it is appropriate for the Government to rely on fuel taxes in an era when it is also trying to get people to use less fuel, and what to do when revenue from fuel taxes runs out.
The gradual phase-out of taxes on fuel would be the biggest shake-up of funding for transport in nearly a century – the first taxes on fuel were introduced in 1927’s Motor Spirits Taxation Act.
One option considered is to replace the taxes with a GPS tracking system on cars, which could effectively toll drivers for how often they use the road. The National Party pledged to support a similar idea at the 2020 election.
Ministers haven’t drawn much attention to the review. Former transport minister Phil Twyford talked about work on reviewing transport funding in 2019 and an introductory briefing to the incoming minister Michael Wood said that officials were looking at new ways of funding the transport system.
But papers revealed under the Official Information Act show just how radical that shake-up could be, with the Government considering a full overhaul of the transport revenue system.
Although with fuel tax revenues projected to continue increasing over this decade, there’s no indication fuel taxes will go completely in the immediate future, with Wood saying forecasts show fuel taxes can provide steady income for a decade.
‘‘As we create more transport choices and Kiwis switch to electric and low-emission vehicles, I know we have to start thinking about the future of the land transport revenue system. I don’t intend to make any decisions in the short-term as officials’ advice is that the current revenue system to fund the NLTF is largely fit for purpose until at least the end of this decade based on forecasts.
‘‘It’s important transport services and infrastructure are funded sustainably and can be forecasted accurately to give Waka Kotahi and local government certainty.
‘‘It’s also important issues around equity are considered.’’
Radical GPS-based measures of charging road users as well as new revenue tools for local councils to use to be able to pay for their share of big transport projects such as Let’s Get Wellington Moving, which officials say are ‘‘putting pressure on the ‘pay as you go’ principle of the revenue system’’.
Transport officials say the current system of funding roads by effectively taxing drivers is world-leading and very effective at making sure that the people who use the roads, pay for their maintenance. However it’s creaking at the seams.
About 95 per cent of transport revenue is collected from people who drive vehicles of some kind.
That money is put into fund at Waka Kotahi-NZTA which pays out about $4b a year to maintain existing transport infrastructure, while some is also used to build new infrastructure like roads or public transport.
With transport being responsible for about 47 per cent of total domestic CO2, transport officials are keen to move at least some of those drivers into loweremitting vehicles, public transport or electric vehicles, which are exempt from road user charges.
The problem is that if they’re successful in doing so, they’ll blow a hole in their key source of revenue.
This was illustrated during the Covid-19 pandemic, which put pressure on Waka Kotahi which was no longer collecting much revenue from taxes, but had to fork out more money to keep public transport running for essential workers, necessitating a bail-out of $1b.
The other big problem is that New Zealand faces a huge infrastructure deficit, particularly in the area of transport.
While giving Waka Kotahi the ability to make $4b a year by taxing cars in one way or another is good at maintaining roads, it’s a very ineffective way of making large, multi-generational investments in the transport system.