Do we really need another fuel tax?

04 May 2018


Reducing congestion on our main roads and making roads safer is something we all want. How we make that happen is the hard question. A simple solution would be less cars on the road, but that isn’t going to happen anytime soon.

The Government has proposed an additional fuel tax for Auckland, and perhaps the rest of the country, to fund roads. But fuel is already taxed by the Government. We also have Sir Michael Cullen, chair of the Tax Working Group, leading a comprehensive tax review that has as one of its cardinal principles, simplicity. My first point is, we should wait for the Tax Working Group to report before an additional tax is introduced.

Is an additional fuel tax is an effective way to pay for roads? A fuel tax is not equitable, as everyone in Auckland and, anywhere else there is a fuel tax, will pay for a road they may never drive on. If funds have to be collected for a road, tolling is the smartest option. Then those people and organisations that use the road, pay for it.

If this tax is just imposed on Auckland, there will likely be some perverse behaviours. People could drive out of Auckland to fill their tank up, avoiding the tax and at the same time, creating more congestion. A road toll will not lead to such perverse behaviour. Consideration must also be given to trucking companies, whose trucks drive up and down New Zealand. They will doubtless refuel before getting into the Auckland fuel tax zone and therefore, not contribute to the cost of Auckland’s roads. This would leave one of the major contributors to congestion getting off scot-free. That’s not fair.

There is also off-road use to consider – boats, tractors, farm machinery, pumps etc. If you’re not driving on the roads, you shouldn’t have to pay fuel tax to pay for roads. The Land Transport Management (Regional Fuel Tax) Amendment Bill, before Parliament, to introduce regional fuel tax does provide for an exemption and rebate regime, but it has the appearance of being something that will become very complex. For any tax system to be successful, it must be readily understood and simple to use. What Horticulture New Zealand, along with other submitters, has asked for is for the Bill to expressly provide for off-road use, and for the system to be straight forward and not costly to run.

In addition, those businesses, farms, commercial vegetable and fruit growing operations within the Auckland regional fuel tax area are at a competitive disadvantage compared to those operations outside of the fuel tax area. It will be more expensive for them to grow their vegetables and fruit. And that is an expense that will either in full, or in part, be  passed onto the consumer. So the prices of vegetables and fruit will increase. For the consumer this is like double taxation – they will pay the fuel tax and then, for everything they buy and every service they get, they will feel the effects of a second fuel tax.

When you sit back and think about it, tolling makes the best sense if the problem is raising funds to make better roads. Then the road user pays. There are no perverse incentives, no inequities, and no complicated systems for off road use. It is fair and simple. 

- Mike Chapman, CEO