3 cents doesn’t get you much these days. But when you’re talking 3 cents a litre, times 2.5 million cars, using 1,000 litres a year, it starts to add up. As of today, folks, the excise duty on petrol has been lifted by 3 cents a litre (from 50.5 cents to 53.5 cents), and that’s how much more you’ll be paying at the pump.

Where does the money go? Straight into the National Land Transport Fund. What’s the main reason for the increase? Current National Party policy: the “Roads of National Significance”. We’ve had plenty to say about those elsewhere on the blog, so I won’t discuss them here. National is planning to increase the excise by another three cents next year, and again the year after that.

I should point out that I’m all in favour of these increases, although I don’t necessarily agree with the way they’re being spent. That’ll have to wait for future posts.

I’ll just note that petrol taxation has had a funny ol’ history. These days it’s a more straightforward system than it used to be, and it’s essentially based on “user pays”, with most of the money going to the National Land Transport Fund – which helps to pay for road maintenance and construction, and of course a token amount for public transport. A bit goes to ACC to help cover the costs of accidents on the road. The graph below uses MED data to show how these taxes have changed over time. Note that GST isn’t included here, but of course we do pay that on petrol as well.

The graph above excludes the effect of inflation, i.e. it’s showing the stats in “nominal” dollars. But of course a dollar went further in 1974 than it does today, so if you allow for inflation – converting everything to today’s dollars, or “real” dollars – you get a different looking graph:

Taxes were highest in the mid-70s and mid-80s, but they’ve been increasing fairly steadily since the early 2000s, faster than general inflation. This seems set to continue, given the increases that have been pencilled in for the next two years.

Just one more reason why you can expect petrol prices to increase faster than other prices!

It’s also worth remembering that New Zealand has lower petrol prices than most of the OECD which is primarily a result of the level of tax charged. The MBIE have done some comparisons on this, with the latest one being up to the December Quarter of 2012:

Petrol Price - Dec 12

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17 comments

  1. Does any income tax go into the NLTF, or into other roading projects, or is the roading system entirely paid for by petrol taxes? I’m interested to know whether our roading system is entirely user paid or not. Local/regional authorities pay for some projects; presumably those are out of rates.

    1. Only petrol taxes and road user charges go into the NLTF, but not all roading expenses are paid for by the NLTF. The big one is rates, as you mentioned, but some projects are partly funded by central government from other areas in the budget. This was routine until the 90s, but still happens sometimes today: http://www.beehive.govt.nz/release/fast-tracked-public-projects-give-500m-boost

      Also, large parts of the roading system are paid for privately, e.g. the vehicles themselves which of course are funded by end users, and parking which is mostly funded by property developments.

    2. The Land Transport Management Amendment Act allows the NLTF to borrow from the Crown, something that is happening already because there isn’t enough money in the NLTF for all the roading projects.

  2. I’d be especially disappointed if they take money from assets they sold which would have returned the govt a direct dividend and put it toward roading.

  3. Oh no. It is going to cost me an extra 3c a litre to fill up my bicycle!

    Seriously though, it needs to go up at least 3c a year for at least 20 years, this would more accuratley reflect the cost of driving, and allow heavy transport investment. Which should only be used for PT.

  4. Look at sensible Norway, although they are still a net oil exporter they know it isn’t wise to promote oil and auto- dependency in their country.

    We of course imported 8bil worth last year, but still we don’t get the price signals right.

    1. Yeah, I thought that was interesting about Norway too!

      Sailor Boy, yes we did, our “net” oil imports are lower than our total imports, I’ll do a post looking at this shortly.

  5. I don’t agree that this is user pays. This is a huge cross subsidy from urban drivers to users of the following:

    Specifically, the increases will allow the NZ Transport Agency to begin work on four projects in the 2013/14 financial year: the Rangiriri and Tamahere-Cambridge sections of the Waikato Expressway, the Mackays to Peka Peka section of the Wellington Northern Corridor and the four-laning of the Groynes to Sawyers Arms (Johns Road) section of the Western Corridor in Christchurch (subject to the granting of regulatory consents).

    http://www.transport.govt.nz/legislation/regulations/Pages/rucandpedincreases.aspx

    1. Fair call Cameron…I was simplifying a bit when I said “user pays”, but you can only fit so much into one post!

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