In a couple of weeks Auckland Council will make probably its biggest decision since adopting the Unitary Plan, by either voting for or against adopting the Regional Fuel Tax that was recently consulted on (twice).
In some respects the choice is simple. If the Council approves the fuel tax, then the list of projects below happen. If not, they don’t:
But there are, of course, a bunch of more complex questions. Things like:
- How did we get to a point where, without a major new fuel tax, our largest city that’s growing at over 40,000 people per year, won’t be able to afford a bunch of pretty basic transport improvements?
- Compared to other funding options how fair is a regional fuel tax?
- What can we do to ease the impact of the regional fuel tax on those it will hit the hardest?
- Do we need a regional fuel tax to be in place for ten years, or do we expect the funding situation to be quite different in a decade’s time?
In this post I’m largely going to focus on the first three questions as they are fairly big in and of themselves.
As the table above highlights, the regional fuel tax is expected to raise around $1.5 billion over the next decade, which will be matched by NZTA funding and also enable some projects that may be partly funded by development contributions. All up, this means that nearly $4.3 billion of projects make up the “regional fuel tax proposal”. Looking through Auckland Transport’s capital programme, once you take out committed projects and renewals, it seems like most of the transport projects for the next ten years depend on the regional fuel tax.
We should question how this could happen. In a large and fast-growing city where the biggest chunk of rates goes to transport, why is it not possible to do much at all without a big new revenue source? It seems as though there are two main reasons:
- The Council is funding 50% of the City Rail Link, which is a really big “once in a century” project that would typically be fully funded by the government.
- The Council is proposing a really low rates increase of 2.5%, continuing a trend for the past few years of rates increases around this level.
Presumably it’s too late now for the City Rail Link’s funding arrangements to be reconsidered, which leaves us with the second question of the rates level. Let’s take a look at the rates increases across other major New Zealand cities:
None of these cities are growing anywhere near as fast as Auckland, but all of them are proposing much higher rates increases. Furthermore, as rates increases are cumulative on the previous year, the fact that Auckland has now spent a few years down around 2.5% has led to a compounding lower level of money available from this “normal source” to be spent on transport. Let’s compare this against what was proposed in Auckland Council’s first ever long-term plan from 2012:
To provide a degree of certainty to ratepayers, the council has decided to limit the average general rate increases to 3.6 per cent in the first year of the plan and 4.9 per cent for the remaining years. Forecast rates increases in the plan are within this throughout the period of the plan, and there is increased capacity towards the end of the plan to absorb shocks, increase expenditure or reduce borrowings if deemed prudent.
Because actual rates rises have ended up being much lower than this, the Council more quickly used up its debt headroom (less revenue means a lower debt threshold before a credit rating downgrade) and now needs a different funding source like the Regional Fuel Tax.
So why is it that the Council has been making such low rates increases even though the city’s population is growing extremely fast and the need for investment is plainly obvious? I’m going to suggest a few points:
- During the transition from previous Councils to a single Auckland Council, there were huge variations in rates people paid as the different systems were brought into alignment. This means that while the “average” increase was 3-4%, many people faced much higher increases than this.
- This messy transition led to a lot of hysteria over large rates increases, especially from some vocal groups, that continues to this day. Slowly but surely the “acceptable” level of rates increase has dropped from 5% to 3.5% to 2.5%, while the previous Mayoral election was bizarrely fought over the difference between 2% and 2.5%. To understand how strange this is, if your annual rates are around $2000, the difference between a 2% increase and a 2.5% increase is around 19 cents a week.
- Auckland’s property values have obviously increased massively over the past eight years, and often not in a uniform way. Because rates are set on capital values, this can lead to really big increases or decreases in your rates (meaning that not too many people actually see their rates change by the “average”). Of course those who get rates decreases stay pretty quiet about it while those whose rates go up get very noisy about it.
Ultimately, this has all now caught up with the Council and there’s now a choice between the Regional Fuel Tax or a pretty big (the Mayor has mentioned 13%) rates increase to deliver the ATAP programme. Which of these is “fairer” kind of depends on your definition of “fair” – as nicely summarised by Sam Warburton in his submission on the fuel tax legislation:
It’s possible to argue that a regional fuel tax is fairer than rates if people who drive more pay more for the maintenance and improvement of roads. It’s possible to argue that rates are fairer than regional fuel taxes if rates raise more revenue from richer households than poorer households.
Fuel taxes, like GST and other excise duties (e.g. alcohol and tobacco) are by their nature regressive: poorer people spend a greater proportion of their income on these taxes than richer people. Furthermore, poorer households have been pushed to the outer suburbs over the years, are less likely to work in places with good PT options like the city centre, and are therefore more reliant on their cars. These are real problems that need to be addressed and I can understand why councillors representing poorer parts of the city feel really torn over this issue.
On the other hand, burning fuel creates a whole pile of major impacts, on local air quality (which has major health impacts) and on the global climate. Creating an incentive to use less fuel is almost certainly a good thing, if you can find ways of reducing effects on lower income households.
This could include things like:
- Ensuring a big chunk of Auckland’s transport investment goes into improving travel options and reducing car dependency for poorer parts of the city. One example of this is ensuring the cycling investment programme is large enough to provide safe routes in west and south Auckland, as well as the inner areas.
- Ongoing monitoring of the impact of travel costs on lower income households. At the moment this information only appears to exist at a very high level, making a proper assessment of important decisions like implementing the regional fuel tax difficult.
- Making other changes to tax or welfare systems to ease pressure on low income households and compensate for increased fuel costs. This would particularly benefit low income households who don’t drive (who probably make up the poorest households of all).
So, in the next couple of weeks the Council will ultimately need to make a decision on where it sits on the various definitions of “fair”. Because of the way consultation documents for the Council’s budget were worded, I think it might be difficult for them at this stage to throw out the Regional Fuel Tax and instead vote for a 13% rates increase, or to go for a lower fuel tax (say 5c a litre) and a higher rates increase (say 7.5%). Of course if the Council feels like it “got it wrong”, it is easy to make a change. The Regional Fuel Tax legislation outlines the process for varying the fuel tax (say from 10c a litre to 5c a litre), while the Council reviews its budgets every year.
If any Councillors feel like they’re “sitting on the fence” then maybe the best idea for them is to insist on a proper assessment of the impacts of the fuel tax (particularly on low income households) “one year in”, which could inform a potential review of the balance of funding between rates and the fuel tax in future budgeting processes. Just shooting it down would simply mean voting against all the projects listed in the tables at the start of this post and I doubt they will want that on their record.