Cross-Examination: Exploring the Regional Fuel Tax

By Nithya Narayanan

The Land Transport Management (Regional Fuel Tax) Amendment Bill passed its third reading in late June 2018, and came into force in the beginning of July.[1] The legislation allows Auckland Council to levy an 11.5c per litre tax on fuel sold within Auckland.[2] The bill was passed by a 63-57 majority: Labour, New Zealand First and the Green Party voted in favour of it, while National and Act opposed it.[3] The tax will pertain only to Auckland.[4] While other councils have shown interest in adopting the tax, the government has ruled out taxing any other city at this stage.[5]

Why the tax?

Section 5(3) of the Land Transport Management Order 2018, which lays out the basic premise of the tax, specifically mentions that the Order was created in response to a  proposal by Auckland Council. This document – titled Proposal for a Regional Fuel Tax for Auckland – has been made available to the public. In the proposal, the Council sets out the primary reasons why a fuel tax would be appropriate. The proposal recognises that the Council’s usual approach to fund investment would be borrowing, but notes that the capacity to borrow sustainably is limited.[6] The proposal proceeds to state that the revenue from the fuel tax would enable the Council to invest in a number of high-priority transport projects.[7]

The proposal is also quite thorough in its explanation of why a fuel tax was chosen over other options. The Council could have chosen to continue the Interim Transport Levy (ITL), but felt that it was inherently unfair.[8] Under the ITL, costs fall equally on all ratepayers regardless of how much they use the transport system. The Council could also have decided to recommend an increase in general rates. However, the proposal notes that the amount paid by ratepayers is based on their property value. This means that there is essentially no relationship between the amount a person pays in rates, and the amount that they use the transport system. The Council felt that this, too, could be viewed as unfair.[9]

What will the tax revenue go towards?

The projects that the tax will likely fund are set out in Schedule 2 of the Land Transport Management Order, but are explained in greater depth in Proposal for a Fuel Tax for Auckland. Some of the key projects are bus priority improvements, better city centre bus infrastructure, improving airport access, Park and Ride, electric trains, and ferry services.

Bus priority improvements

According to the proposal, it seems likely that a proportion of the tax revenue will go towards the implementation of “bus priority improvements”.[10] This includes creating more bus lanes and T2/T3 transit lanes. These changes are likely to improve bus network reliability, improve bus travel times, and reduce bus operating costs.[11] The revenue may also go towards the operation of more double decker buses, which provide increased passenger capacity.[12] The proposal also indicates that the tax could help fund a new bus station and route at Sylvia Park. A new route to the station may be provided, which could help buses avoid the severely congested Mt Wellington Highway intersections.[13]

Introducing better city centre bus infrastructure

The report identifies better infrastructure around the city centre as one of the key targets that the tax could help achieve.[14] The city centre is currently the destination for approximately 80,000 commuters each morning, and this figure is expected to reach 130,000 by 2046.[15] This growth could place significant pressure on buses. The proposal identifies the need for a bus interchange in Lower Albert Street (for the North Shore busway), and a similar bus interchange in Quay St East (for Isthmus and Eastern Services).[16]

The tax may also go towards funding more efficient university travel. It is likely to help fund a new initiative which will improve bus operations and customer facilities along Wellesley Street, between Victoria Park and Grafton Gully.[17] There will also be more efficient measures put in place for those who walk or cycle along Wellesley Street.[18]

Improving airport access

The tax revenue could also contribute to creating more efficient access to Auckland Airport and surrounding areas. The proposal notes that journeys to the airport are “unreliable, and getting worse for all transport modes”.[19] To address this problem, a long-term plan is being developed. The Council is interested in creating more efficient transport between East/South Auckland and the airport.[20] The aim is to support the provision of enhanced bus services from New Lynn, Mt Roskill, Onehunga and Botany to the airport precinct – and these improvements are expected to be in place by 2022. The Council also plans to provide a new interchange at Puhinui Station.[21]

Park and Rides

Auckland currently has around 5,500 Park and Ride car park spaces to provide for the large number of peak commuters on the Rapid Transit and Frequent Transit networks.[22] These are swiftly occupied in the mornings, with approximately 85% of available Park and Ride car parks being occupied by 7:30am, and almost all of the spaces occupied by 8:30am.[23] A lot of cars are left without spaces, resulting in significant overflow onto surrounding streets.[24] The ‘Park and Ride project’ seeks to add nearly 2000 new parking spaces, and is yet another initiative which the fuel tax is expected to fund.[25]

Electric trains and ferry services

The fuel tax could also lead to a rise in the number of electric trains.[26] Auckland Council is aiming to get a further 15 electric trains operating before the opening of the City Rail Link.[27] Development and redevelopment of ferry services are also in the pipeline, with the proposal stating that increased terminal capacity, more efficient berthing infrastructure and placement of more HOP ticketing controls could all be positive outcomes achieved by the tax.[28]

What are the possible downsides of the tax?  

While the tax does have a variety of supporters, many are concerned about the negative impacts that it might have. An Auckland Council poll conducted by Colmar Brunton found that while 52% of Aucklanders supported the tax, 43% opposed it.[29]

According to the AA, the fuel tax could cost Aucklanders an extra $250 a year[30], and a number of groups have expressed concern that the tax could have a significant impact on low-income households.[31] The Salvation Army is one such group. Ian Huston – the head of the charity’s social policy and parliamentary unit – says he is concerned that families struggling to meet costs might cut food spending and power to offset the increased costs of travelling to work. “To people on low wages or a benefit,” Huston says, “[the tax] accumulates and will have an impact”.[32]

A Regulatory Impact Statement published on the Treasury website has outlined similar concerns.[33] The report identifies three factors which mean that low-income households could be disproportionately affected by the tax. Firstly, transport consumes a larger proportion of the incomes of poorer households.[34] In addition, lower income households tend to live further from their place of employment.[35] Finally, lower income households are less likely to own newer and more fuel-efficient vehicles.[36] In his submission to the Finance and Expenditure Select Committee on the Land Transport Amendment Bill, Sam Warburton noted that “drivers of vehicles that are among the 10% least fuel-efficient pay more than double the tax per kilometre of drivers of vehicles that are among the 10% most fuel efficient”.[37]

The Regulatory Impact Statement also discusses other possible downsides of the tax. According to the report, a regional fuel tax scheme was in fact legislated in 2008, but never fully put into effect. It was repealed in 2013 due to concerns about price spreading, as well as ‘refund costs’ imposed on non-transport users of fuels.[38]

Ken Shirley from the Road Transport Users Forum has also spoken about the potential problem of price spreading.[39] According to Shirley, the idea that the tax is confined to Auckland is “a myth”. He predicts that oil companies will simply spread the tax, meaning the rest of the country will be affected by it as well.[40] Shirley claims the tax has been marketed as an Auckland policy for “political reasons”, to “make the rest of the country think it’s being paid by Aucklanders”.[41] However, the Regulatory Impact Statement notes that the legislation itself actually creates a requirement to report on fuel prices in Auckland, compared with fuel prices in the rest of the country.[42] The purpose of this is to monitor and detect any price spreading which may be occurring.[43]

What else can we expect?

There has also been a government proposal to raise the fuel tax excise. Transport Minister Phil Twyford has confirmed that the government is proposing “a 3-4 cent per litre fuel excise duty increase” which would come into effect on September 1, 2018.[44] This would be followed by similar increases in September 2019 and September 2020. The government is currently inviting public feedback on this proposal.[45]

Conclusion

The imposition of the regional fuel tax is certainly ambitious. The plans that have been put in place by Auckland Council are clear and detailed, and there are obviously a range of worthy projects which would benefit from the revenue. However, the widespread concern about price spreading is not to be disregarded. The government claims that this tax is for Auckland – but, in all likelihood, its impacts could be sustained by the entire country. So is this a regional tax, or a national one?

The views expressed in the posts and comments of this blog do not necessarily reflect those of the Equal Justice Project. They should be understood as the personal opinions of the author. No information on this blog will be understood as official. The Equal Justice Project makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Equal Justice Project will not be liable for any errors or omissions in this information nor for the availability of this information.

[1] Henry Cooke “Regional Fuel Tax bill finally passes” (26 June 2018) Stuff <www.stuff.co.nz>.

[2] Land Transport Management Order 2018, s 6.

[3] Above n 1.

[4] Above n 1.

[5] Above n 1.

[6] Proposal for a Regional Fuel tax for Auckland (Auckland Council) at 6.

[7] At 6.

[8] At 6.

[9] At 6.

[10] At 7.

[11] At 7.

[12] At 7.

[13] At 8.

[14] At 8.

[15] At 8.

[16] At 8.

[17] At 9.

[18] At 9.

[19] At 10.

[20] At 10.

[21] At 10.

[22] At 11.

[23] At 11.

[24] At 12.

[25] At 11.

[26] At 13.

[27] At 13.

[28] At 14.

[29] “Explainer: How the fuel tax will affect Aucklanders” (30 June 2018) Radio New Zealand <www.radionz.co.nz>.

[30] Simon Maude “Auckland’s double-whammy fuel tax will cost average driver $250 more per year” (4 April 2018) Stuff <www.stuff.co.nz>.

[31] Above n 31.

[32] Above n 31.

[33] Auckland RFT OIC (Ministry of Transport) at 38.

[34] At 38.

[35] At 38.

[36] At 38.

[37] At 38.

[38] At 39.

[39] Dan Satherley “All of NZ will pay for Auckland’s fuel tax – vehicle lobby” (1 June 2018) Newshub <www.newshub.co.nz>.

[40] Above n 40.

[41] Above n 14.

[42] Above n 34, at 42.

[43] Above n 34, at 42.

[44] Bernard Orsman “New Government fuel tax will be higher when GST is added at the pump” NZ Herald (online ed, Auckland, 5 April 2018).

[45] Above n 45.