Watch: Government scraps 2027 fuel tax hike, citing cost-of-living pressure

The Government has confirmed the planned increase to fuel tax and road user charges next year will not go ahead.

The 12c per litre increase from January 1, 2027, with equivalent increases to road user charges has been scrapped with the next expected increase of five cents per litre taking effect from January 1, 2028.

Prime Minister Christopher Luxon and Transport Minister Chris Bishop revealed the decision during the post-Cabinet press conference at 2.30pm.

A livestream will be played at the top of this article.

“Cancelling next year’s fuel excise increase and spreading the change over time from 2028 will give Kiwis more time to recover from the period of post-Covid economic pain and recent uncertainty in the Middle East,” Finance Minister Nicola Willis said in a statement.

It comes alongside a new fuel tax increase scheme which brings with it smaller but more frequent hikes.

Transport Minister Chris Bishop said in a statement the January, 2028 hike would be followed by three further five cent increases at six-month intervals.

Annual increases would then resume from January 1, 2030 of five cents per year. Road user charges would be subject to equivalent increases at the same intervals.

“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.”

Earlier, Bishop told Labour’s transport spokesman Tangi Utikere in a written parliamentary question this month that a decision on whether to proceed with the hike “is needed by 31 August” in order for it to be incorporated by Treasury in its forecasts for the Pre-Election Economic and Fiscal Update (Prefu).

The Prefu will be published on September 29, but decisions must be made before that date to be reflected in the forecasts.

Finance Minister Nicola Willis said last week the Government will not be raising fuel tax in January but noted a formal decision had yet to be made.

“We will not be increasing fuel tax on the first of January next year. We just need to formalise that decision and reflect it in the government accounts,” she said.

With nine sitting days left before Parliament is dissolved for the election and a busy legislative timetable, there’s little parliamentary time for legislation to give effect to the hikes.

Labour last week committed to no fuel tax hikes for the entire next term of Parliament, at a cost of several billion dollars in lost revenue.

Currently, fuel taxes are set to go up by 12c a litre in January 2027, followed by 6c in January 2028, and 4c in January 2029. Road-user charges would go up by equivalent amounts.

Prime Minister Christopher Luxon is being joined by Transport Minister Chris Bishop. Photo / Mark Mitchell

Utikere and Labour leader Chris Hipkins called on the Government to scrap the hike.

“Kiwis should not be hit with higher fuel costs because this Government refuses to rule out a tax grab,” Utikere said.

Willis responded to Labour’s decision by noting that “thousands” of construction jobs depended on the pipeline of transport infrastructure funded by fuel taxes.

She called on Hipkins to front up with what would be cut to pay for the promise.

“If he’s saying to every community in the country there will be less funding for your council to repair the roads, he needs to be straight with them about how many jobs will be lost, how many businesses will be destroyed, what a shudder that will put through our construction industry,” Willis said.

In 2023, the then Labour Government proposed hiking fuel taxes. The incoming National-led coalition axed those hikes, topping up transport funding with loans and Crown grants.

Ministers have been tight-lipped on precisely when Cabinet would make a decision, perhaps reflecting sensitivities after National broke from its coalition partners to process its social media ban plans, forcing Act and New Zealand First to trigger “agree-to-disagree” provisions.

What remains a mystery is how long the coalition plans to defer the hike. Willis and Bishop’s criticism of Labour’s policy of deferring hikes for three years suggest that while the coalition plans to defer the increase scheduled in January, it will not be deferred for the entire term.

Fuel taxes have not risen since 2020. As the tax is levied at a certain amount of cents per litre of fuel, its value erodes with inflation if not increased. Bishop has previously said the fuel tax has lost 20% of its real value since it was last hiked, putting pressure on transport funding.

The Government has not announced how it would fund any deferral of the tax.

It could borrow Labour’s idea of “scaling” investment to meet the level of tax – or it could top up the National Land Transport Fund with a grant from the Crown, a strategy adopted by the last Labour Government when it cut fuel taxes in 2022.

The most recent Budget established a $450 million fund for fuel crisis support which could also be tapped.

Adam Pearse is the Deputy Political Editor and part of the NZ Herald’s Press Gallery team based at Parliament in Wellington. He has worked for NZME since 2018, reporting for the Northern Advocate in Whangārei and the Herald in Auckland.