Yesterday, in response to the surging price of petrol the government announced it was immediately cutting fuel excise taxes by 25c per litre as well as discounts for public transport.
The Government will cut 25 cents a litre off fuel for three months as part of a cost of living package aimed at giving Kiwi families immediate relief through the current global energy crisis triggered by the war in Ukraine, Prime Minister Jacinda Ardern announced today.
Fuel excise duties and road user chargers will be reduced by 25 cents each and the price of public transport will be halved as part of a package of measures to reduce transport cost pressures on middle and low income households.
“We cannot control the war in Ukraine nor the continued volatility of fuel prices but we can take steps to reduce the impact on New Zealand families,” Jacinda Ardern said.
“Just as it was our job to get New Zealand through the Covid-19 health crisis it’s also our job to put in place a plan to get us through the global energy crisis too.
“There’s no silver bullet that will fix the cost of living, but we have a plan and are implementing a range of measures that together will help to make a difference.
“The global energy crisis has quickly become acute which is why the Government has stepped in to cut fuel duty. Today’s changes will reduce the cost of filling up a 40 litre tank of petrol by over $11, and for a 60 litre tank, over $17.
“We are also making it cheaper for those who catch a bus or a train. In the long term we need to build greater resilience into our transport system so we are less vulnerable to spikes in the price of petrol, but for now halving the cost public transport will provide some families with an alternative to filling up the tank.
To start with it’s great that the government are providing some relief by reducing public transport fares – and as a percentage fares are dropping by more than the price of petrol. However, the devil in the detail is that this won’t come into force till 1 April to give time for local authorities to change their systems.
Given that public transport usage is way down on what we’ve had in the past and the expected cost of this was only $25-40 million, I do wonder if they shouldn’t have just made the decision to make PT free. Not only would this have made it more attractive, it would have had the added benefit that local authorities could just turn the fare machines off immediately. This combined with other initiatives such as allowing all-door boarding could even help to speed up buses.
The cost of the change also suggests that to make PT free for everyone all year would cost less than the drop in fuel tax for just 3 months
One particular challenge in making the most use of this opportunity is just getting people to use PT again. Many office workers in the city continue to work from home and the government spent much of the time during lockdown last year singling out public transport as something to avoid even when many other activities were allowed or encouraged. Perhaps the government and local authorities should also be running some campaigns to highlight that PT is safe to use.
One thing that did catch my eye about the announcement though was that during the press conference, a number of times Deputy PM and Finance Minister Grant Robertson hinted that this fare drop, or something like it, could be extended or modified in this years budget as part of the government’s response to their Emissions Reduction Plan.
“Further, in the Budget in May, we will progress work to ensure we are not at the whim of international oil prices in future, through greater investment from the Climate Emergency Response Fund. These investments will boost our plans for New Zealand to increase energy security and independence by decarbonising our transport fleet and reducing our reliance on volatile global energy markets.”
As for the fuel tax cuts, to put the scale of them into perspective, the last time the rate was this low was in early 2009.
The government do say this is a temporary cut and that it will eventually be reversed, but likely only gradually. They also say they’re going to top up the National Land Transport Fund (NLTF) which relies on the revenue from the fuel tax to fund transport projects.
“The estimated cost of this cut over three month period is about $350 million for the fuel tax changes. This will mean reduced revenue for the National Land Transport Fund, which funds our investment in roads and other transport infrastructure. We will be meeting the costs of this through savings and reprioritisation from the COVID Response and Recovery Fund. This means we can continue the Government’s record investment into transport infrastructure without having to cut projects.
“We do need to recognise that petrol prices are expected to continue to rise. The Russian invasion of Ukraine is continuing to undermine and de-stabilise global energy markets and, added to the other inflationary pressures the world has due to COVID supply chain disruptions, this is sadly not over yet.
“That is why we will review the situation over the coming months. We will also outline in the coming days the means by which we will reverse the changes being announced today. It is likely that this will be a gradual phase down in line with global oil prices stabilising and reducing, to keep pressure off families while recognising the need to return to more stable funding for our transport infrastructure.
I can certainly understand why the government have decided to drop the fuel taxes for political reasons. However, by doing so and continuing to build a lot of infrastructure that encourages more driving, including projects that are funded outside the NLTF, it sends a message that the government still aren’t serious in their response to dealing with climate change, and perhaps more worryingly still aren’t ready to have a hard conversation with the public about the need for us to drive less – as their Emissions Reduction Plan calls for.