The Government has cancelled a 12 cents per litre fuel excise increase due to take effect next January, replacing it with a series of smaller rises phased in from 2028 to ease cost-of-living pressures.
Prime Minister Christopher Luxon told a media conference that fuel excise had been set to resume annual increases with a 12c per litre rise from January 1, 2027, alongside equivalent lifts to road user charges. Instead, he said, the next increase would take effect from January 1, 2028 and would be 5c per litre.
The Prime Minister is speaking from the Beehive as the pre-election announcements continue to ramp up. Source: 1News (Source: Other)
"Cancelling next year's increase and phasing in the change from 2028 gives Kiwis more time to recover from a prolonged period of post-Covid economic pain, and also ongoing global uncertainty around energy prices," Luxon said.
He said the move followed the Government's earlier decision to cancel the previous Labour government's proposed fuel excise hikes and Auckland Regional Fuel Tax.
Transport Minister Chris Bishop said the increases could not be delayed indefinitely without damaging the transport network. He said the average cost of transport projects had risen by as much as 45% since 2020 while fuel excise remained frozen, falling around 20% in real terms.
"While pausing fuel excise increases was the right choice as New Zealanders weathered an economic storm, unless they begin again soon, the financial foundations of our land transport system will be undermined," Bishop said.
Prime Minister Christopher Luxon said a 5c per litre rise would instead begin in 2028, backed by a $1.476b top-up to the National Land Transport Fund. (Source: 1News)
Without them, he warned, the country faced "roads littered with potholes, cancelled projects, and an inability to respond when communities are cut off following severe weather events".
To cover the lost revenue, the Government would top up the National Land Transport Fund at an expected cost of $1.476 billion over the forecast period.
Bishop said significant cuts would be required to road maintenance, public transport, and infrastructure investment without that top-up.
"Officials have advised that reductions of that scale would not be credible without serious cuts to funded services."
Finance Minister Nicola Willis said in a statement part of the top up would be met by the $450 million fuel response contingency set up in Budget 2026, with the rest reflected in the Pre-election Economic and Fiscal Update.
"Cancelling next year's planned fuel tax increases is the responsible choice," she said, adding the country could afford the move because it was on track to return to surplus in 2028/29, earlier than forecast last year.
Election clash
Bishop and Luxon both turned their fire on Labour, which committed last week to freezing fuel excise and road user charges for a full three-year term. Bishop said that pledge would leave a hole of about $4.6 billion in the transport system.
Luxon challenged Labour leader Chris Hipkins to explain the cut to communities.
"He needs to go around to local communities, local councils, and local areas and explain to them what he is removing," Luxon said, warning of fewer bus and train services and "a lot of resilience investments that, frankly, the country needs".
Asked whether the timing was driven by the election, Luxon rejected the suggestion, saying the Government responded "to changing circumstances and changing geopolitics".
Willis had earlier said an increase was unlikely while petrol prices remained high, and Luxon had described it as "possibly unlikely".
Budget documents released in May had listed the potential deferral as a fiscal risk.
Treasury estimated a six-month delay would cost about $300 million in lost transport revenue, while Willis had said the total cost could range from $250 million to $1 billion – depending on how long the increase was postponed.
The election on November 7 is now less than 10 weeks away.
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