Key: $1b to go on highways - regional fuel taxes axed

Government funding of transport is to be overhauled with the biggest effect an extra $1 billion spent on state highways over the next three years, Prime Minister John Key announced today.

Mr Key confirmed regional fuel taxes would be scrapped and replaced by smaller increases nationwide in fuel excise and road user charges.

The Government would also fund Auckland rail electrification and commit an additional $258 million to land transport over the next two years.

Transport Minister Steven Joyce said the additional funding would come from three sources:

* $420 million reallocation from non-state highway classes (including savings on administration costs);

* $258 million in new investment (to pay for New Zealand Transport Agency's share of Wellington passenger rail infrastructure; and

* $238 million increases in fuel taxes.

Mr Joyce said the tax increases to replace the regional taxes would take effect from October 1.

From then motorists will pay an increase of 3 cents per litre in fuel duty and diesel vehicles will pay the equivalent in road user charges.

A second 3c increase will take place in October 2010 as well.

Mr Joyce said these increases would include the annual increase of 1.5 cents scheduled by the previous government.

They would replace a regional fuel tax proposed in Auckland rising from 2 cents in July to 9.5 cents per litre in two years.

Other regions considering local fuel taxes would not be allowed to proceed.

Mr Joyce also confirmed that the Government would purchase electric trains for Auckland and these would be operated by KiwiRail.

It would also run the passenger rolling stock in Wellington and talks would be held with the two regional authorities to manage the process.

Other projects penned in to be funded by regional fuel taxes would be subject to the normal funding processes.

- NZPA