A key deadline for making a decision on delaying next year’s 12c hike to fuel taxes and an equivalent hike to road-user charges will pass today.
Earlier this month, Transport Minister Chris Bishop told Labour’s transport spokesman Tangi Utikere in a written parliamentary question that a decision on whether to proceed with the hike “is needed by 31 August” in order for the decision to be incorporated by Treasury in its forecasts for the Pre-Election Economic and Fiscal Update (Prefu).
The Prefu will be published on September 29, but decisions must be made prior to that date to be reflected in the forecasts.
Finance Minister Nicola Willis said last week the Government will not be raising fuel tax in January but noted a formal decision had yet to be made.
“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.
With just nine sitting days left before Parliament is dissolved for the election and a busy legislative timetable, there’s little parliamentary time for legislation to give effect to the hikes.
Government sources confirmed to the Herald over the weekend that the topic was on the agenda for Monday’s Cabinet meeting.
Labour last week committed to no fuel tax hikes for the entire next term of Parliament, at a cost of several billion dollars in lost revenue.
Currently, fuel taxes are set to go up by 12c a litre in January 2027, followed by 6c in January 2028, and 4c in January 2029. Road-user charges would go up by equivalent amounts.
Utikere and his Labour leader Chris Hipkins called on the Government to scrap the hike.
“Kiwis should not be hit with higher fuel costs because this Government refuses to rule out a tax grab,” Utikere said.
Willis responded to that decision by noting that “thousands” of construction jobs depended on the pipeline of transport infrastructure funded by fuel taxes.
She called on Hipkins to front up with what would be cut to pay for the promise.
“If he’s saying to every community in the country there will be less funding for your council to repair the roads, he needs to be straight with them about how many jobs will be lost, how many businesses will be destroyed, what a shudder that will put through our construction industry,” Willis said.
In 2023, the then Labour Government proposed hiking fuel taxes. The incoming National-led coalition axed those hikes, topping up transport funding with loans and Crown grants.
Ministers have been tight-lipped on precisely when Cabinet would make a decision, perhaps reflecting sensitivities after National broke from its coalition partners to process its social media ban plans, forcing Act and New Zealand First to trigger “agree-to-disagree” provisions.
What remains a mystery is how long the coalition plans to defer the hike. Willis and Bishop’s criticism of Labour’s policy of deferring hikes for three years suggest that while the coalition plans to defer the hike scheduled in January, it will not be deferred for the entire term.
Fuel taxes have not risen since 2020. As the tax is levied at a certain amount of cents per litre of fuel, its value erodes with inflation if not increased. Bishop has previously said the fuel tax has lost 20% of its real value since it was last hiked, putting immense pressure on transport funding.
The Government has not announced how it would fund any deferral of the tax.
It could borrow Labour’s idea of “scaling” investment to meet the level of tax – or it could top up the National Land Transport Fund with a grant from the Crown, a strategy adopted by the last Labour Government when it cut fuel taxes in 2022.
The most recent Budget established a $450 million fund for fuel crisis support which could also be tapped.
