An end to fuel taxes? What we learned from the Government’s crazy, messy wonderful transport plan


They say in Wellington that all ministers must now be climate change ministers.

Whether you’re David Parker – responsible for rising sea levels on land use, or Megan Woods – responsible for decarbonising electricity generation, or even James Shaw, the literal Climate Change Minister, slowing and adapting to climate change cuts across all portfolios

But there are few ministers in charge of climate change quite as much as Transport Minister Michael Wood.

Transport accounts for about a fifth of New Zealand’s’ greenhouse gas emissions, and seeing as Wellington has all but given up on getting the agriculture sector to reduce its emissions, the Government knows transport will have to do the heavy lifting when it comes to meeting climate change goals.

Wood helped unveil Waka Kotahi’s National Land Transport Plan on Tuesday morning.

The NLTP, as its better known, is worth about 8 per cent of annual GDP. It’s put together every three years, when the Transport Minister tells Waka Kotahi where they would like money collected from fuel taxes and road excise duties to be spent, suggesting funding for roads, rail and other transport amenities.

Waka Kotahi takes that suggestion and talks to councils about where they would like to spend their rates money to co-fund things like new local roads and public transport.

It then produces a three-year NLTP, outlining which lucky projects will be built.

Each NLTP is a relic of the Government that designed it, reflecting that Government’s priorities and anxieties.

This plan is no different.

Wood – and this Government at large – are keen to burnish their climate-change credentials.

Funding for walking and cycling, and public transport has been increased by nearly 40 per cent to $6 billion – roughly a quarter of the $24.3b package.

There has always been a bit of a tension with the way this money gets spent. Waka Kotahi – when it was established as the NZ Transport Agency in 2008 by then-Transport Minister Annette King – was meant to deliver on a promise to fully hypothecate revenue collected from motorists through fuel taxes and road user charges.

What this means in plain English is that money collected from road users would then be spent on projects that made the roads those people used better – new highways and fixing potholes.

There had long been an anxiety that previous governments raided the kitty, pinching transport money for their own purposes – a bit like present governments do with taxes raised from cigarettes, only a fraction of which goes to programmes that help people quit smoking.

But full hypothecation did not mean that money collected from motorists wouldn’t be spent on things like public transport or cycling.

The argument has always been that public transport benefits private motorists by decongesting roads (this is the reason the AA – lobbying on behalf of motorists – is one of the strongest backers of Auckland’s often unloved light rail project).

The more people who catch a bus to work, the less congestion there will be for tradies who need to carry their tools between a job. Money spent subsidising buses, makes driving private vehicles easier – or so the argument goes.

While the principle of cross-subsidisation has always existed, this Government has pushed it further, by upping fuel taxes, while transferring more revenue from those fuel taxes to public transport and cycling – potentially testing the patience of motorists.

This partly reflects a change in the underlying justification for the subsidy.

Subsidies for walking and cycling are no longer just about decongesting roads on the cheap – they’re about removing emissions from the transport sector. Motorists still pay for the system, but it’s public transport users who get to see the shiny new infrastructure.

Motorists pay fuel taxes and road user charges to contribute to the upkeep of roads. Now, however, a decent whack of that money is being used to fight climate change – no doubt an important goal (the important goal, you might say), but motorists might fairly question why they’re the ones picking up the tab.

What was once a fee for using roads is starting to look like a penalty – you pay to use roads if you drive a fossil-fuel-powered vehicle, but not if you drive an electric vehicle, for example.

Motorists took umbrage at this shortly after the Labour-NZ First-Green government announced its transport priorities in 2018. The frustration is manifest in the current transport package, which, while pivoting funding towards climate change investment, has kept ploughing large sums of cash into state highways and roads.

Putting money into climate change while not annoying motorists (and losing elections) is a bit like choosing between one’s favourite children – something ministers would rather not have to do.

This Government has found a convenient workaround. It’s pivoted money from fuel taxes and road user charges towards climate-friendly infrastructure, while topping Waka Kotahi’s funding with money from general taxes so that it can continue to build roads: everyone’s a winner.

This transport plan includes $2b of funding from the NZ Upgrade Programme, $2b of debt funding, and hundreds of millions of dollars in funding from things like the Provincial Growth Fund ($100m) and the Housing Infrastructure Fund ($300m).

Most of this will be spent on road projects.

The addition of debt funding will be welcome – it was an idea that National proposed at the last election (the Government was lukewarm on the idea, raising concerns that Waka Kotahi needed to be able to meet its repayments while keeping up investment). The fact this debt is coming from the Crown is unusual – interest rates are low, and Waka Kotahi would be able to secure a competitive rate if it went out to the private market.

Like all the packages that have come before it – this plan reveals a lot about the Government that put it together. It shows an earnest attempt to pivot towards more climate-friendly infrastructure – but it also shows the Government isn’t quite ready to give up on the political popularity of road projects.

The most interesting part of the plan was hardly even mentioned in the printed document.

This is that within a year Waka Kotahi, Treasury and the Ministry of Transport will report to ministers on how the Government’s transport revenue system might be replaced.

Fuel taxes to the heavy lifting in the revenue system, but with the pivot to electric vehicles accelerating over the next decade, Waka Kotahi knows that this hitherto reliable revenue source will still run dry.

But the debate over a new source of revenue – likely to be some sort of road user charge – will not be an easy one. Not least because talking about revenue necessitates talking about expenditure.

As electric vehicles, currently exempt from road user charges, are brought back into the transport revenue system, the Government will once again have to debate the extent to which private motor vehicles subsidise public transport. The answer to this question differs depending on the way it is asked.

If the purpose of public transport funding is to take people out of cars, freeing up the roads for people who still drive, then the answer is probably “yes”, but if the question is whether motorists should pay to continue to decarbonise public transport, when more and more cars are electric, the answer is probably a cautious “no”.

This would mean changing the public transport system in future to something less reliant on fuel taxes and more reliant on general taxation. It wouldn’t be the worst thing in the world – the Government has big plans in this area. Not just in Auckland but in Wellington and Christchurch too, which are eager to get their mass rapid transit systems running.

The shift is inevitable. Gearing the transport system to a climate-friendly future will be very, very expensive – and if it works, the Government can expect to receive less and less money from fuel taxes. Something would have to give -the question is when.

It would also be more fair. If transport is going to do the heavy lifting for New Zealand’s climate-change goals, the cost of that should probably be borne by the country at large, rather than by just motorists.

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