Labour's fuel excise freeze draws freight sector fire over $1.8 billion transport funding gap

Labour leader Chris Hipkins has committed to freezing fuel excise duty for a full three-year term if Labour wins November's election, a pledge that has drawn sharp criticism from the road freight sector over the cost to transport infrastructure funding.

Hipkins said on Thursday that fuel excise taxes would not be increased at all next term. The commitment would scrap a legislated 12 cents per litre rise due from January, along with a further 6 cents per litre in 2028 and 4 cents per litre in subsequent years. The current rate sits at around 70 cents per litre, set as a flat charge that does not adjust with inflation or petrol prices (RNZ).

Treasury's Budget Economic and Fiscal Update advice put the cost of each six-month deferral of the planned January 2027 increase at around $300 million. Labour's three-year deferral would therefore cost around $1.8 billion. That figure, however, only accounts for deferring the 12-cent January increase. It does not capture the lost revenue from the 6-cent rise in 2028 or the 4-cent increases in subsequent years, all of which Labour would also cancel (RNZ).

On top of the excise freeze, Labour wants to take $65 million a year out of the National Land Transport Fund to pay for its promised public transport fare cap (RNZ).

Fuel excise revenue flows into the National Land Transport Fund, which pays for building, maintaining and upgrading the roading network. In real terms, the excise has fallen by 21 percent since its last increase in 2020, while construction costs have risen over the same period (RNZ).

The freight sector's response was blunt. Ia Ara Aotearoa Transporting New Zealand, the national association for road freight operators, said roading repair and maintenance could only keep pace with a growing economy if it was invested in. More costly or difficult freight movement, the association said, would show up in the cost of living. Transporting NZ has previously noted that cost-of-living pressures were already hitting bottom lines, margins and profitability across the sector (Transporting New Zealand newsletter, September 2023).

Chief executive Dom Kalasih said he was "flabbergasted" by the proposition of further deferring fuel excise increases, calling continued deferral a "threat" to economic development. He said the country would be "digging itself a deeper hole" if governments continued to put off or cancel excise increases, citing a significant gap between revenue collected from petrol excise duty and road user charges and what needs to be spent on infrastructure (RNZ).

The Government's own position is that a January increase is "unlikely," with a decision set to be announced soon. The National Party also wants the excise increase delayed, meaning both major parties are now aligned against the legislated rise taking effect on schedule. The political contest is over duration and rationale, not whether the increase proceeds.

Hipkins has signalled a "scaling" of transport infrastructure spending to deal with the reduced revenue, but would not give a view on which projects could be scaled. He noted the Government Policy Statement on land transport for the next three years had not been set. The GPS has been delayed until after the election, with Hipkins saying there was "no fixed plan" for the next three years (RNZ).

The combination of a delayed GPS, an excise freeze, and the diversion of NLTF money to public transport fares leaves a substantial revenue gap without a corresponding public plan for how transport spending priorities would be reweighted. Treasury's $1.8 billion cost estimate is, by its own scope, a floor rather than a ceiling, since it excludes the later indexed increases Labour would also forgo. For the freight sector, the concern is not just the headline number but the compounding effect: a 21 percent real-terms decline in excise value since 2020, rising construction costs, and now at least three more years of no adjustment. Kalasih's framing of a structural gap between what is collected and what needs to be spent is the core contention, and it is one that neither major party has directly addressed in policy terms. National's call for delay answers the political question of timing but leaves the same fiscal and infrastructure question Labour's pledge does.

What remains unspecified is how a scaled transport programme would be sequenced, which projects would be affected, and whether the NLTF can absorb both the excise freeze and the $65 million annual public transport diversion without material cuts to maintenance or new builds. Hipkins has effectively deferred that question to post-election GPS work.