Coalition scraps 2027 fuel tax rise, tops NLTF $1.476bn

The Government has cancelled the planned 12 cents per litre fuel excise duty increase scheduled for 1 January 2027. Equivalent road user charges rises are also deferred.

Finance Minister Nicola Willis and Transport Minister Chris Bishop said the next fuel excise step will be 5 cents a litre from 1 January 2028. Three further 5-cent rises follow at six-month intervals. Annual 5-cent increases then resume from 1 January 2030, with matching RUC moves.

Ministers will top up the National Land Transport Fund by an expected $1.476 billion over the forecast period. About $450 million comes from the Budget 2026 fuel-response contingency. The balance will be managed through and reflected in the Pre-election Economic and Fiscal Update.

Willis tied the decision to cost-of-living pressure after post-Covid inflation and Middle East fuel shocks. Bishop warned that cutting land-transport spending to match the revenue loss would not be credible.

Under GPS 2024, fuel excise and RUC were to rise 12 cents per litre in January 2027, 6 cents in January 2028, and 4 cents a year from 2029. That path was projected to raise $11.5 billion by 2034/35. The average petrol driver would have paid about an extra $2.06 a week including GST in 2027.

The new schedule spreads smaller steps later. Petrol motorists avoid a 12 cent statutory rise (plus GST) next January. Diesel and light EV users benefit only through the matching RUC deferral. Light-vehicle RUC remains $76 per 1,000 km including GST; plug-in hybrids pay $38.

Current petrol fuel excise sits at 70.524 cents a litre. Duties and levies total about 84 cents a litre before GST, according to MBIE. Diesel pays no FED at the pump.

Fuel excise was scheduled to resume annual increases starting with a 12c per litre increase from 1 January 2027, with equivalent increases to road user charges. That has now been scrapped, with the next increase of 5c a litre now taking effect from 1 January 2028.

Bishop said average transport project costs have risen by as much as 45 percent since 2020 while fuel excise stayed frozen and fell about 20 percent in real terms. The cost figure is a weighted PPI construction basket plus NZTA exposure to bitumen, up 220 percent.

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.

Willis said inflation has fallen significantly from a 7.3 percent peak. Stats NZ recorded that peak in the June 2022 quarter. She said wages are expected to grow faster than prices each year and around 220,000 new jobs are expected by 2030.

Budget 2026 had already set a $450 million one-off operating contingency for further temporary fuel-crisis measures, expiring 31 March 2027. That package also included a temporary $50-a-week In-Work Tax Credit uplift costing $373 million, $150 million for strategic fuel stocks, and temporary mileage-rate support.

Treasury’s BEFU 2026 assumed 91-octane averaged about $3.40 a litre in April 2026 and diesel about $3.68 — roughly +34 percent and +97 percent versus February. Direct fuel effects were forecast to add 1.0 percentage point to annual CPI by the June quarter, when inflation was expected to peak at 4.0 percent.

Brent crude futures recently traded near US$90, with a 52-week high of US$126.10. The NZ dollar sat near 0.59 against the US dollar, keeping import costs elevated in local-currency terms.

Cancelling next year’s planned fuel tax increases is the responsible choice. New Zealand can only afford to do this because of our Government’s careful management of the finances, which has ensured the country is on track to return to surplus in 2028/29, earlier than forecast last year.

Bishop said it would be irresponsible to cut land-transport funding to pay for the change. Officials advised that a reduction of that scale would not be credible without serious cuts to road maintenance, public transport and infrastructure investment.

Days earlier, Labour leader Chris Hipkins pledged a full-term fuel excise freeze if elected and called for cancellation of the January rise. The Government decision removes that near-term clash. The later 5-cent ladder still restarts revenue from 2028.

Markets and rating watchers will read PREFU for whether the residual top-up after the $450 million contingency softens the surplus track or requires other operating offsets. Pump prices will not fall from this announcement. They simply will not rise by the avoided 12 cents plus GST in January 2027.

The Crown top-up protects NLTF maintenance, public transport and weather response without a spending cut. It also continues a pattern of general taxpayers backfilling a fund built on fuel and distance charges as the fleet electrifies. PREFU will show how large that residual fiscal cost is — and whether the 2028/29 surplus date holds.