Labour says no fuel tax increases if it wins — and wants the government to cancel one due in January

Labour leader Chris Hipkins has promised that Labour would not increase the tax on petrol and diesel for a full three-year parliamentary term if it returns to government. He has also called on the coalition to cancel a fuel tax increase scheduled for January.

Under current rules, the fuel tax — known as fuel excise duty — is due to go up by 12 cents per litre from January. Further increases of 6 cents per litre are planned for 2028, and 4 cents per litre in the years after that (RNZ).

A decision on the planned January increase is needed by 31 August. That is because the Treasury needs to include it — or not — in its pre-election fiscal snapshot, called the PREFU. The PREFU is a report the Treasury puts out before an election to show the state of the government's books. The deadline gives the government only days, not weeks, to settle its position.

Finance minister Nicola Willis has already signalled where the government is heading. Willis said the government will not increase fuel tax on 1 January next year, and that the decision "just needs to be formalised and reflected in the government accounts" (RNZ). Transport minister Chris Bishop had earlier hinted the government may put its planned fuel tax increases on hold, in a speech to the Automobile Association's annual conference in March.

Hipkins said Labour would scale back its spending under the National Land Transport Fund. That fund is the pool of money that pays for building, maintaining and upgrading New Zealand's roads. He noted that the Government Policy Statement on land transport for the next three years has not yet been set. That document, known as the GPS, sets out what transport spending will focus on over a three-year period. It is important for the transport sector and for regional councils.

The political flashpoint is how fuel tax revenue and the transport fund connect. Money from fuel taxes goes into the National Land Transport Fund, which pays for roads. Labour has also committed to using about 1 percent of that fund to pay for its promise of capped public transport fares. So if fuel tax stays flat for a full term, there is less money for both roads and the public transport commitment.

Willis said Hipkins needed to be up-front about which transport projects Labour would cut if it cancelled fuel tax increases for the whole term. Transport minister Chris Bishop went further, calling Labour's position "irresponsible" and questioning whether it was in the spirit of bipartisanship (RNZ).

Fuel excise duty has effectively fallen by 21 percent since the last increase in 2020, once inflation is taken into account. That points to the financial tension at the centre of this debate: every year the rate stays the same, the fund's buying power drops further as construction costs rise.

The broader context here is that both major parties have shifted their positions on fuel tax across recent election cycles. During the 2023 election campaign, National said it could contemplate putting fuel taxes up the following year, prompting Labour to demand National clarify its position (NZ Herald). By July 2026, when the full 12-cent increase was projected to have come in, the additional cost to New Zealand motorists was estimated at $2.64 per week (Stuff). The previous Labour government itself moved from cutting fuel tax to help households during the cost-of-living squeeze, to proposing increases to fund major roading programmes (The Post). And the coalition government faced accusations of breaking a campaign promise after New Zealanders were told they would face a 22-cent fuel tax hike (NZ Herald).

For the transport sector, the immediate question is what the Government Policy Statement will say, and whether it will assume fuel tax increases that the government now appears inclined to defer. Councils finalising their regional transport plans will be watching closely. For politicians, the 31 August PREFU deadline is the next concrete milestone: either the government formalises Willis's indicated position in the fiscal books, or it leaves the planned increase in place and gives Labour a direct line of attack heading into the election campaign.

Hipkins's pledge is aimed at motorists and household budgets. Bishop's charge of irresponsibility, and Willis's demand for detail on which projects Labour would cut, signal the coalition's likely line of counter-attack: that a full-term freeze is financially unsustainable for the transport fund and leaves a hole in the transport programme. Whether that argument lands with voters who have not seen a real fuel tax increase since 2020 is another question entirely.