Transport Minister Joyce says fuel tax hike deferment to cost NZ$72 mln, won't increase govt debt or hurt credit rating

Transport Minister Joyce says fuel tax hike deferment to cost NZ$72 mln, won't increase govt debt or hurt credit rating

By Alex Tarrant

The deferment of a fuel tax hike this year will reduce revenue in the government’s National Land Transport Fund by NZ$72 million, but will not worry ratings agencies as government debt will not be affected, the Transport Minister says.

Stephen Joyce, who is also Associate Finance Minister, last week cancelled the 1.5 cent per litre fuel tax hike due on July 1, saying it was due to tight economic conditions. There would have to be greater increases in the fuel tax and road user costs in coming years to make up for the revenue shortfall, Joyce said.

Revenue raised by fuel taxes and road user charges goes into the National Land Transport Fund, and cannot be siphoned off to other areas of government spending, meaning a cut in the fund’s revenue would be matched by a cut in spending.

“Cancelling the increase will reduce the fund revenue by about NZ$72 million in 2011/12, which will not have a significant impact on individual activity classes in the fund,” Joyce told interest.co.nz in an emailed response to questions.

“The NZ$72 million represents about 2.5% of the fund’s total projected income in the 2011/12 period,” Joyce said, adding the cancellation was unlikely to have a significant impact on the government’s roading programme that year.

There was also no danger ratings agency Standard & Poor’s would look unfavourably on the decision to defer revenue for the fund, Joyce said.

The government is wary of a credit rating downgrade as it would increase the cost of government borrowing in order to fund its budget deficit. The government is on track to borrow NZ$15 billion this current year due to earthquake costs and a slower than expected economic recovery in the second half of 2010.

Finance Minister Bill English is also looking to produce a budget on May 19 with no additional spending from a year ago as pressure mounts to control government spending in the face of a downgrade and record deficit.

The National Land Transport Fund was a hypothecated fund where expenditure was increased and decreased over time to match income, Joyce said.

“With this in mind, I expect the ratings agencies to appreciate that this decision will have no impact on government debt,” he said.

Meanwhile, asked whether there was a danger to households of increasing fuel taxes next year by more than previously expected at the same time the Reserve Bank is expected to raise interest rates, Joyce replied the timing of any Reserve Bank move was pure supposition.

“Certainly the New Zealand economy is expected to grow more strongly next year - this means the economy will be more able to withstand a small increase in fuel taxes,” Joyce said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.