Labour says no fuel tax rises for three years if it wins — but what's at stake?

Labour leader Chris Hipkins says his party will not increase the tax on petrol and diesel for a full three-year term if it forms the next government. "We will not be increasing fuel tax in the next term," he said on Thursday. RNZ

That tax is called fuel excise duty. Every time you fill up at the pump, a portion of what you pay goes to the government. That money goes into a fund called the National Land Transport Fund, which pays for building and fixing roads. RNZ

Under current law, that tax is set to go up by 12 cents a litre from January. Further rises of 6 cents a litre are planned for 2028, and 4 cents a litre each year after that. Labour is also calling on the current government to cancel the January increase. RNZ

The government has to make a decision soon. By 31 August, Cabinet needs to settle whether the January increase goes ahead or not. That deadline exists because the government has to finalise its financial forecasts before the election, in a document called the Pre-election Economic and Fiscal Update, or PREFU. RNZ

Finance Minister Nicola Willis has already said the government will not raise fuel tax on 1 January next year, but she still needs to make that official in the government's accounts. RNZ Willis had previously ruled out cutting the fuel tax but left the door open to delaying the planned rise, a position she signalled in March. The Spinoff

Delaying the tax rise is not cheap. Willis has previously said it could cost up to $1 billion next year if the planned increases are pushed out. 1News Labour has also said it would use about 1 percent of the road fund to pay for its promised cap on public transport fares. RNZ

One point Labour is making: because of inflation, the fuel tax has effectively lost 21 percent of its value since it was last raised in 2020. Labour is using that to argue its pledge is about holding the line, not cutting revenue. RNZ

This is a political dividing line between the two main parties. Labour first said it would scrap the scheduled increases in May, calling it relief for motorists. Labour Party Thursday's announcement goes further, committing to no increases for a full three-year term. Labour Party

Transport Minister Chris Bishop has pushed back. He called Labour's pledge "irresponsible" and questioned whether it was in the spirit of cooperation between parties. RNZ

The issue goes back to the 2023 election campaign, when Nicola Willis, then National's finance spokesperson, said the party's first transport plan would not include fuel tax increases between 2024 and 2027. NZ Herald The increases now looming were legislated under that framework, with the first 12-cent rise timed for January 2027. NZ Herald

National has promised no new taxes if re-elected in November 2026, but has not ruled out increasing existing taxes such as the fuel tax. RNZ Labour's broader plan, set out in its election policy platform, includes returning the government's books to surplus by 2029/30 and reducing debt while growing the economy. Labour Party

What this all means in practice is that the 31 August deadline puts the coalition in a tight spot. Willis has effectively conceded the January rise will not happen, but making that official before the PREFU requires a Cabinet decision within days. The cost of delaying sits against Labour's own goal of reaching surplus by 2029/30, and against the government's no-new-taxes positioning. For transport, the road fund faces two pressures: less money from the delayed tax rises, and Labour's plan to divert about 1 percent of it to public transport fare caps. Bishop's use of the word "irresponsible" suggests the government will frame Labour's pledge as risky spending that undermines the road fund, while Labour frames the scheduled increases as a tax hike on motorists when the tax has already lost value. The open question for both sides is whether a three-year freeze on fuel tax can hold up once the next government actually sees its books.