Fuel taxes could be gone by 2027, tolls coming for new roads

Transport Minister Simeon Brown. Photo / Laura Smith

The days of paying more than 75 cents in tax for every litre of fuel might be coming to an end sooner than you think, with Transport Minister Simeon Brown announcing today the Government could move all light vehicles off fuel taxes “as soon as” 2027.

Drivers shouldn’t expect a tax cut, however. Fuel taxes will be replaced with Road User Charges, or RUCs, meaning most drivers will still pay tax at much the same rate - which is currently expected to increase 12c a litre in 2027. Some light vehicles, like EVs, plug-in hybrids, and diesel vehicles, already pay RUCs.

Brown also announced that consultation would begin on proposals to toll three roads, the Takitimu North Link, the Manawatū Gorge, and Ōtaki to north of Levin.

“These corridors offer significant benefits for Kiwis and freight, and it makes sense for those who benefit to contribute towards these projects,” he said.

Brown made the announcement at the Building Nations conference in Auckland today, where he announced the Government’s transport revenue strategy.

Since the Main Highways Act of 1922, central government has funded its share of road construction by taxing fuel. The system is meant to operate on a “user pays” basis - the more you drive, the more you pay.

But the system is breaking down. Varying fuel standards mean that the user pays concept is less true now than it once was. Fuel efficient vehicles can drive more and pay less, while inefficient vehicles drive less and pay more.

The Government is also having to come to the party more, topping up the transport budget with taxpayer money because fuel taxes were not raising enough revenue on their own.

Brown said the National Land Transport Fund - the pool of transport funding drawn mainly from fuel taxes and RUCs was “under increasing pressure and is not sustainable”.

“Taxpayers have had to top up the fund and take on more debt just to pay for the infrastructure they need. It’s clear that New Zealand’s current funding model isn’t fit for purpose.

“Transitioning to RUC will ensure that all road users are contributing fairly to the upkeep of our roads, regardless of the vehicle they drive.”

The Key-English Government began work on replacing fuel taxes. This was accelerated by the Ardern-Hipkins Government and picked up by the Luxon Government, whose coalition agreement between National and Act included a promise to shift the fleet to RUCs.

The agreement did not include a date, however.

Brown said his revenue plan would help pay for the “Roads of National Significance (RoNS) programme and major public transport projects to address the infrastructure deficit”.

“The Revenue Action Plan delivers on that promise with a roadmap that will unlock new infrastructure.”

The plan included a promise to make better use of existing transport funding tools, to reform tolling legislation to make it easier to toll roads to allow more infrastructure investment, and to unlock new tools like value capture, which levies a tax on the area surrounding an infrastructure development to recapture some of the value uplift that occurs through new infrastructure.

Brown said the plan would have a greater focus on user-pays.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.