Regional fuel taxes replaced

  • Steven Joyce

Transport Minister Steven Joyce says the government will not proceed with regional fuel taxes, which are an “expensive and inefficient” means of collecting revenue. Regional Fuel Taxes will be partially replaced by smaller increases in national fuel taxes. 

The previous Labour-led government approved a regional fuel tax for Auckland, rising from 2 cents per litre in July to 9.5 cents per litre in two years' time. Auckland road users would have been taxed at that rate for 30 years. This was in addition to national increases in fuel taxes scheduled by the previous government of 1.5 cents per litre for the next three years.  The total tax increase by 2011 would have been 14 cents per litre for Aucklanders.

A number of other regions (Canterbury, Bay of Plenty, Waikato and Wellington) were also considering, or beginning to consider, the implementation of regional fuel taxes to provide additional funding for local transport projects. Mr Joyce says the government is opposed to regional taxes of almost 10 cents in Auckland or anywhere else. ”Regional taxes impose significant compliance costs to businesses and road users, and would result in much higher fuel prices for motorists in some regions.”

”Our preference is for a simpler system which delivers benefits to road users across the board.” From 1 October this year motorists will pay an increase of 3 cents per litre in fuel excise duty and drivers of diesel vehicles will pay the equivalent in road user charges.  A second 3 cents increase will occur at October 1 next year.  Each 3 cent per litre increase includes an annual increase of 1.5 cents per litre scheduled by the previous government.

Mr Joyce says these smaller adjustments to roading excise and road user charges across New Zealand will make more funding available for roading across the country.

“Projects that were to be funded out of regional fuel taxes will, for the most part, continue as planned – the difference will be in how they will be funded. The electrification of Auckland’s trains will proceed.”


What sorts of costs are involved in regional fuel taxes?

As well as the direct cost of the tax to road users, regional fuel taxes involve setting up new procedures for allocating those new taxes from road users alongside existing national petrol excise taxes and road user charges for diesel vehicles.  It involves set-up costs and operating costs for transport companies, transport agencies, fuel companies, and councils. 

In addition, any difference between tax rates in different regions creates scope for price spreading, avoidance and fuel market distortions.

Price spreading - is where a fuel company spreads the cost of the tax across its national network, eroding the regional nature of the tax. Price spreading happened in the early 1990’s when a regional petrol tax was introduced in the main urban regions to fund urban public transport.

Avoidance - is where road users buy their fuel in a region with a lower regional fuel tax. It is relatively easy for transport businesses that operate in several regions and those living close to the boundary to avoid a regional fuel tax. 

Market distortions - arise where a tax applies to only part of a fuel market. Fuel suppliers close to the boundaries are either significantly advantaged or disadvantaged. If a tax applies to a sufficiently large part of the market it can effectively shift the market price in other parts of he market, creating opportunity for increased mark-ups and associated profits.

What rates of tax applied under the Auckland regional fuel tax scheme?

The Auckland regional fuel tax was set at 2 cents per litre of fuel from 1 July 2009, 5 cents per litre of fuel from 1 July 2010 and 9.5 cents per litre of fuel from 1 July 2011 and would have applied for 30 years to June 2039. This was in addition to scheduled national increases in fuel taxes planned by the previous government of 1.5 cpl each year for the next three years, to meet increased spending planned for the National Land Transport Fund.

What about other projects that were being funded, in large part, by the Regional Fuel Tax – like Penlink? Projects like Ferry Wharf upgrades and Penlink will return to being subject to the usual funding processes through the NZ Transport Agency.  The NZ Transport Agency has been in contact with the Rodney District Council and ARTA, to discuss the necessary process to enable Penlink to be considered as a strategic local road; which is where it was prior to being added to the Regional Fuel Tax at the last minute by the previous government last year.

How do the planned national increases in fuel taxes fit in with the RUC review?

We’ve delayed the increases in Fuel Excise Duty and RUC to October to give time for the RUC review to be considered.  We’re working closely with the Road Transport Forum on this.

Why are Fuel Excise Duties and Road User Charges being proposed to increase?

So the government can continue to fund land transport to the level required to progress towards meeting the country’s economic and productivity requirements. 

How much will it increase and when?

The will be an increase of 3 cents a litre on October 1 this year (and the equivalent in road user charges) – this includes the already-scheduled annual 1.5 cents per litre increase which was signalled by the previous government.  There will be an increase of the same amount the following year.

What Fuel Excise Duty and Road User Charges currently apply?

Fuel Excise Duty applies to all petrol produced or imported and applies at a rate of 42.5 cents per litre.  Diesel vehicle owners pay road user charges which vary according to the size and weight of the vehicle.

How are the revenues from Fuel Excise Duty and Road User Charges allocated?

The revenues go into the National Land Transport Fund and are allocated between activities such as State highway building and maintenance, local road building and maintenance, road policing, safety campaigns, and public transport services by the New Zealand Transport Agency.