By Alex Tarrant
The government has deferred a 1.5 cent per litre increase in fuel tax this year while economic conditions remained tight, Minister of Transport Stephen Joyce says.
The planned increase was due on July 1, with the deferment meaning the fuel tax may have to increase by two cents per litre in 2012.
The Reserve Bank of New Zealand is expected to begin raising the Official Cash Rate in the first quarter of 2012 as inflationary pressures flow through to the economy from the rebuilding of Christchurch. This would in turn cause banks to increase mortgage rates, meaning households would get hit by higher interest payments and higher fuel tax costs around the same time next year.
The announcement also comes as the government faces a credit rating downgrade from Standard & Poor's. Tax revenue has already been lower than expected over the last year as the economy remained sluggish even before the Christchurch earthquakes were taken into account.
'Makes sense to hold off'
Joyce said the now-deferred increase was part of a package of changes agreed to by the government in March 2009, designed to make the funding of New Zealand’s land transport system simpler and more efficient.
The package included the cancellation of the economically inefficient regional fuel taxes and their replacement with smaller national increases, Joyce said in a media release.
"Given the ongoing economic impact of the global recession and the Christchurch earthquakes, it makes sense to hold off on the increase for another year so as not to add further costs to the economy," Joyce said.
The government’s NZ$11 billion roading programme would not be significantly affected over the ten year plan for the programme.
"In fact, ongoing investment in transport infrastructure and services, which is a key economic driver, has never been higher,” Joyce said.
"Officials are currently working on the next Government Policy Statement for Land Transport Funding (GPS), which sets out the government’s transport priorities and how they will be funded. The 2012/13 – 2021/22 GPS will include support necessary to repair Canterbury’s transport infrastructure," he said.
"It will also provide certainty for the rest of the country on the government’s commitments to supporting transport projects and economic growth.
"In order to deliver this programme of investment, it is likely that the government will need to increase FED and RUC in future years. These could be in the order of 2 cents a litre in 2012 and 1.5 cents a litre in 2013," Joyce said.
"In New Zealand, all revenue from RUC and fuel excise is paid into a dedicated National Land Transport Fund (NLTF) to meet the investment required to support road users."
Electioneering?
Labour leader Phil Goff said the government was under pressure from people being squeezed financially, partly due to government policies.
“The latest CPI figures reveal that more than half of the increase is due to action taken directly by this Government. People are feeling the financial squeeze because of National’s economic mismanagement," Goff said, refering to figures released last week which showed general prices rose 4.5% in the year to March, half of which was due to the GST increase on October 1.
"So it’s no surprise that under pressure, the Government has now decided to postpone the fuel tax increase," Goff said.
"It’s important to note that it is just a deferral so it only provides very small and temporary relief for New Zealanders who are struggling. Come the other side of the election, I’m sure National would bump the fuel tax straight back up again,” he said.
If elected on November 26, Labour would make a judgement call on the fuel tax and other tax decisions "when we examine the state of the books that we inherit from National at the election," Goff said.
(Updates with Goff comments, chart, head, comment on interest rates, inflation)
See fuel taxes in the right-hand tab in the chart below:
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