Yesterday Simon Bridges delivered a fairly major speech, outlining the National Party’s intentions ahead of next year’s election. Of particular relevance was him reaffirming that, if elected, National would cancel the Auckland regional fuel tax:
If National is elected in 2020 we will:
☑️ Repeal the Auckland Regional Fuel Tax
☑️ Ensure no increase in petrol taxes during our first term
☑️ Have no new taxes in our first term
☑️ Repeal a Capital Gains Tax
— Simon Bridges (@simonjbridges) January 30, 2019
One term governments are pretty rare in New Zealand, with the last one happening in the early 1970s, but it’s worth having a think about what would happen if an incoming government got rid of the Regional Fuel Tax.
To do this, we need to first start with the difference the Regional Fuel Tax made in the funding information that sits behind the Auckland Transport Alignment Project (ATAP) and then the role the tax plays in supporting Auckland Transport’s Regional Land Transport Plan. By itself, the RFT raises around $150 million a year, or $1.5 billion over the 10 years:
However, the impact of the Regional Fuel Tax is actually quite a lot bigger than this. The way transport funding in New Zealand works is that NZTA co-fund high priority transport projects that a Council has money for. As a general rule of thumb, they will provide 50% of the costs but in some cases they may provide more. If the Council doesn’t have the money, then the NZTA money ends up going to another region or on project that don’t need Council funding (like motorways).
Similarly, the Regional Fuel Tax also makes it possible to do projects that also justify being funded through Development Contributions. Ultimately, this means the $1.5 billion of Regional Fuel Tax actually allows Auckland Transport’s investment programme to be nearly $4.3 billion, muchj bigger than it would otherwise be able to afford.
This is a lot of money and means that basically nearly all of Auckland Transport’s non-committed investment programme over the next decade is dependent on the Regional Fuel Tax.
All of these projects:
Now in reality, if the Regional Fuel Tax was cancelled would all these project just magically stop? I kind of doubt it, as a number would be under contract already and the political ramifications of cancelling essentially the entire transport investment programme in a fast growing city like Auckland are, shall we say, severe.
If an incoming government were to cancel the regional fuel tax one of three things might occur.
- The Council might be forced to replace this lost revenue through other means. As I discussed in the middle of last year, before the Regional Fuel Tax was confirmed, in some respects it would be fairer for the Council to raise the $150 million a year from rates than from a Regional Fuel Tax. Rates are a broadly progressive tax, with higher value properties paying more, whereas fuel taxes are somewhat regressive – especially in Auckland where outer areas (where lower income households are concentrated) are currently more dependent on private cars than inner areas.Based on the information last year, this would mean approximately an immediate 10% rates increase (plus GST), on top of the typical annual 2.5% increase that has occurred in the past few years. Such a large rates increase would usually be political suicide for the Council and National might relish the opportunity to ‘stick it’ to Phil Goff, if he is re-elected, but in this case the council could quite clearly put the blame on the incoming government and say that they’ve been forced into the rates increase .
- The government might look to cover the lost funding themselves. In its most simplest form, they could just cover the $150 million annually from general taxes. This would be relatively easy to do and would ensure the current funding from the NZTA remains unaffected. The downside to this is the optics from the rest of the country which might be perceived as just ploughing more money into Auckland at the expense of the regions.
- They may choose to renegotiate which projects get built under another revision of the Auckland Transport Alignment Project. This could see projects cancelled or reduced in scope in order to fit within a new funding envelope. However, depending on the timing of projects this may be easier said than done. For example it may be difficult to cancel the current governments flagship Light Rail project if contracts have already been signed and works have started. This would also go against the previous National government’s agreement back in 2017 that it was necessary to spend $1.2 billion on Dominion Road rapid transit over the next decade. The government would also need to explain to local communities why they’re cancelling these projects, especially if they campaign on the premise of building more stuff.
None of these options sound all that great and the final outcome could include parts of all three. Given that petrol prices have now dipped well below their highs in the middle of last year and most Aucklanders are probably now used to the new costs, it seems like getting rid of the Regional Fuel Tax would just create a massive political headache for any new incoming government. Therefore it is surprising that Simon Bridges continues to champion this.