Government delays fuel excise increases by one year, draws on rainy day fund to backfill transport budget
The government has delayed scheduled fuel excise increases by one year and will draw on a $450 million contingency fund to help cover the shortfall in the National Land Transport Fund.
Transport Minister Chris Bishop announced the decision on 31 August 2026, confirming that the planned increases, originally set to begin on 1 January 2027, will instead start in 2028. RNZ
Under the original plan, fuel excise was due to rise by 12 cents per litre from 1 January 2027, then by 6 cents and 4 cents in subsequent years, totalling a 22-cent increase by 2029. The revised schedule will see fuel tax increase by 5 cents every six months from 2028 through the end of 2029, totalling a 20-cent increase. Fuel excise has not been increased since 2020. RNZ
Bishop said the government will top up the National Land Transport Fund to maintain road maintenance, public transport and infrastructure investment. Without the top-up, he said, there would be significant cuts across those areas. The top-up is expected to cost $1.476 billion over the forecast period. RNZ
Cabinet agreed to use the $450 million rainy day fund created in the current year's Budget to help cover the National Land Transport Fund top-up. The remainder will have to be found elsewhere. Bishop said the additional roughly $1 billion needed to make up the projected cost of delaying the increase will be shown in the upcoming pre-election fiscal update (PREFU). RNZ
Prime Minister Christopher Luxon denied that the upcoming election was a factor in the decision, citing changing circumstances and geopolitics around the Iranian fuel crisis. RNZ
The announcement formalises a position the government has been signalling for months. In late March 2026, Luxon said the scheduled 12-cent-per-litre petrol tax hike was unlikely to go ahead. 1News A speech to the Automobile Association Annual Conference, published on the Beehive website on 27 March 2026, outlined the original schedule: a 12-cent increase in 2027, 6 cents on 1 January 2028, and 4 cents in each year after that. Beehive
On 26 August 2026, National Party finance spokesperson Nicola Willis clarified that halting the planned fuel tax was a National Party position, not yet official government policy. Stuff The formal Cabinet decision and Bishop's announcement on 31 August have now moved it from party position to government policy.
The Labour Party, for its part, announced on 27 August 2026 that it would scrap the National government's planned fuel excise increase entirely if it wins the next election, targeting the 12-cent-per-litre rise scheduled for January 2027. CarExpert With the government having now pushed that increase to 2028 and restructured the schedule, the political contest is over a moving target.
The broader context here is that both major parties are now competing to keep fuel excise flat or near-flat through the election period, despite the National Land Transport Fund facing a documented shortfall. The government's approach preserves the principle of eventual increases and backfills the fund through the contingency and other sources to be identified. Labour's commitment goes further, proposing to cancel the increases outright. The $1.476 billion top-up cost, and the question of how the balance beyond the $450 million contingency is sourced, will be scrutinised in the PREFU when those figures are published.
For transport infrastructure planning, the one-year delay compresses the timeline for revenue increases into a shorter window. The revised schedule reaches a cumulative 20 cents by the end of 2029, 2 cents less than the original 22-cent total, through six-monthly 5-cent increments rather than annual stepped increases. The revenue implications of that 2-cent difference over the forecast period are not separately quantified in the announcement.
