The Government decision yesterday to cut duty on petrol raises questions about the whole future of the way our roads are funded.

Currently, the petrol tax is “hypothecated”, which means it can be used by Waka Kotahi only for transport purposes.

Roughly half of Waka Kotahi’s annual revenue, which is held in the National Land Transport Fund (NLTF) of just over $4 billion, comes from petrol taxes.

But that is likely to shrink as more electric vehicles take to the roads.

In what has been seen by some as an experiment to find a way to solve that problem, Waka Kotahi has proposed to toll the new Penlink road from the Whangaparoa Peninsula to State Highway One.

In its invitation last year for comment on the proposal, it argued that Government funding provided for the planning and construction of the project, not the ongoing maintenance and operations cost.

“Tolling revenue for Penlink could be used to pay for the ongoing maintenance and operations costs,” it said.

Submissions on the proposal have just closed, and the AA said the funding of ongoing maintenance and operations was precisely what the petrol tax was intended to pay for.

“Tolling primarily for maintenance purposes directly contradicts the purpose of the land transport revenue system,” said Martin Glynn, the AA’s Principal Advisor, Advocacy, in his submission four weeks ago.

“Despite significant changes in recent years, the National Land Transport Fund (NLTF) remains fundamentally a user pays system – road users pay petrol taxes, and road user charges based on their road use.


“Road maintenance (and safety) must be the first calls on these funds.”

The AA accused Waka Kotahi of trying to jump the gun on its own review of long term funding for transport – a review that has been largely necessitated by the likely reduction in the number of petrol-fuelled vehicles.

“This suggests to us now is not the right time for convoluted and inequitable add-ons to the system,” it said.

Auckland business sources believe that the toll proposal and seeking of submission on it was a subtle market-research exercise by Waka Kotahi to see how tolling would go down as a replacement for the petrol tax.

Clearly, the Government hasn’t had time over the past few weeks as the price of petrol has skyrocketed to bring forward that review or to think of any really creative alternatives to the tax.

So instead, Finance Minister Grant Robertson said yesterday the Government would fill the gap with a direct grant to the NLTF.

“Treasury and the Ministry of Transport have estimated the cost of the change to be $350 million for the three month period,” he said.

“We will be meeting the cost of this through savings and reprioritisation from the Covid Response and Recovery Fund, in particular, the reduction in costs related to MIQ.”

Prior to the Government’s move to cut the tax by 25 cents a litre, the tax for unleaded 91 was set at 77cents a litre (That’s about 30% of the retail price of petrol.

Behind Robertson’s move is a spike in international oil prices provoked by increasing embargos on the purchase of Russian oil and gas.

The international oil benchmark Brent crude spiked to almost $US140 at the start of last week, only a few dollars shy of the record set in July 2008. It settled at $US110.16 last night, leaving it up 60 per cent over the past 12 months.

The spike in oil prices not only affects motorists but looks likely to have a devastating impact on the international airline industry as it begins to recover after the Covid lockdowns.

But the impact is likely to spread wider than that.

The FAO, in a note on Friday, forecast substantial rises in petroleum-derived fertilisers such as Urea and Diammonium Phosphate (DAP) — both of which play a significant role in farming here, particularly dairy farming.

However, the Government’s move to cut the petrol tax may help hold or even bring down the inflation rate over the next three months.

ANZ Bank economists Finn Robinson and Sharon Zollner estimate the reduction will also reduce inflation in the June quarter by about 0.5% pts.

“Plugging the change directly into our model implies that headline inflation may now peak at 6.9% in Quarter 2  –a touch lower than our current forecast for 7.4%,” they said.

“The impact is small in the context of the current levels of high inflation we’re experiencing –but every little helps.”

However, they are also forecasting a rebound whenever the tax reduction ends. It has been initially proposed for three months, but how long it stays will depend on the impact of the Ukraine war on oil prices.

“Unwinding of the tax reduction will mechanically add to CPI inflation when added back in,” they said.

The decision to lower the fuel price does raise questions about the Government’s commitment to phasing out our dependence on fossil fuels.

The Government did make a concession in this direction yesterday by cutting public transport fares by half for three months.

And it was a point taken up yesterday by Greens co-leader James Shaw.

“Over the long-term, the most effective way we can ease the pressure people face at the pump is to move away from our heavy fossil fuel dependence,” he said. 

“We will keep working to build a future where vehicles are powered by electricity; towns and cities connected by affordable public transport, and there are safe options to walk and cycle.”

Robertson said there would be more on this in the Budget.

“The situation highlights the importance of two things firstly, our move to energy security and independence by moving away from volatile global all oil markets, by decarbonising our vehicle fleet and supporting public transport, cycling and walking, and we will deal with this more in the budget,” he said.

“The reasons for us need to need to do so as a country have never been more stark. 

“Secondly, this highlights the importance of support for those most affected by the cost of living increases.”

But as even Robertson hinted, yesterday’s announcements may suggest an intensifying of what will eventually turn out to be fundamental transport changes brought about by the need to combat climate change.