There was plenty of talk about the introduction of a regional fuel tax yesterday following an announcement by new Transport Minister Phil Twyford that one would be introduced in a matter of months. I thought I’d pull together a couple of my thoughts about aspects related to a potential regional fuel tax.
Prices already vary wildly across Auckland
Petrol prices within Auckland already vary by more than 10c per litre and that doesn’t seem to have any impact on where people purchase their fuel. As an example, yesterday I rode home from Takapuna to West Auckland. Along the route I take I pass 4 petrol stations. So, I made an effort to look at the prices. In order, for 91 petrol per litre, they were:
The first two were within 1km of each other and all but the second one were the same company. Followers on twitter highlighted locations in Auckland with prices ranging from $1.66 to $2.04 per litre, a range of 38c. Given these stations all had customers filling up, it’s clear that price isn’t the only thing that determines where people get their fuel. I’d think many people might not even notice a 10c per litre fuel tax.
Our fuel taxes over time
A 10c per litre increase in fuel tax, at least for Auckland, is no small increase but just how much impact it has could be tied to how long it takes to introduce, i.e. it may be introduced over a few years which would also lessen the direct impact of doing so.
The table below shows total amount of petrol tax over time (not adjusted for inflation). The colours show who was in government at the time and you can see that both of the last two governments have increased fuel taxes fairly regularly.
Just how much would 10c per litre regional fuel tax raise?
One of the beauties of fuel taxes is they have really low overheads to administer. I believe that essentially, fuel companies just report how much fuel they’ve sold and pay the government the relevant amount of tax they’ve collected on their behalf.
In previous times this debate has arisen, I’ve heard sometimes heard commentary that we don’t know how much fuel is sold in Auckland to properly allocate the funding collected back to the region. The good news is that’s not correct and the amount of fuel sold is even reported regularly by Auckland Transport. This is shown below.
As you can see, in the 12-months to July, it appears that about 1.1 billion litres of petrol was sold and close to 650 million litres of diesel. At 10c per litre, that equates to about $110 million of fuel tax. Diesel is a bit harder given it’s used for non-transport purposes. For this analysis I’m going to assume about half of the diesel sold would be eligible to pay the tax. However, it may be administered some other way.
Some quick calculations suggest it could add possibly another $30 million to the total, bringing it up to just over $140 million annually. That might not be enough to fund big projects like the CRL or Light Rail but it could certainly help towards that goal.
It’s also interesting to note that petrol sales in Auckland have been relatively flat since July-08 while diesel sales have been increasing. That is a similar trend we’ve seen in other metrics.
Our Fuel Taxes compared to other countries
The Ministry of Business, Innovation & Employment (MBIE) publish this graph showing the price of petrol and the component of taxes from OECD countries. You can see that New Zealand is in the middle of the pack for overall price but that’s primarily because of higher base costs. If we were to look only at fuel tax we’d be near the bottom of the list.
Auckland won’t the only one who will want Regional Fuel Taxes
Mayor Phil Goff has been loudest about wanting regional fuel taxes and so all the talk has focused on Auckland. However, once they’re allowed you can be sure that other regions will want their own versions. For example, I can see Wellington wanting it, perhaps to implement light rail, maybe Christchurch too. I bet there are probably a myriad of local projects that councils may want to push ahead with the help of extra fuel taxes.
Speaking of Goff, as you can imagine he’s happy with the outcome.