Labour pledges no fuel tax increase for a full term, putting pressure on the coalition

Labour leader Chris Hipkins has promised that a Labour government would not increase fuel excise duty for a full parliamentary term, and has called on the coalition to cancel a planned increase scheduled for January.

The pledge puts fuel tax squarely into the pre-election frame. Under current settings, fuel excise duty is due to rise by 12 cents per litre from January, followed by a further 6 cents per litre in 2028 and 4 cents per litre in subsequent years (RNZ).

A Written Parliamentary Question has revealed that a decision on the planned January increase is needed by 31 August to inform the Pre-election Economic and Fiscal Update — the Treasury's pre-election fiscal snapshot, known as the PREFU. That deadline gives the government days, not weeks, to settle its position.

Finance minister Nicola Willis has already indicated the direction of travel. Willis said the government will not increase fuel tax on 1 January next year, stating 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 on hold its planned fuel excise increases, in a speech to the Automobile Association's annual conference in March.

Hipkins said Labour would scale its investments under the National Land Transport Fund — the pot of money that pays for building, maintaining and upgrading the roading network. He noted that the Government Policy Statement on land transport for the next three years has not yet been set. The GPS, as it is known, sets the strategic direction for transport spending over a three-year period and is a key document for the transport sector and regional councils alike.

The political flashpoint is the interaction between fuel excise revenue and the National Land Transport Fund. Revenue from fuel excise taxes flows into the NLTF, which pays for roading projects. Labour has also committed to using around 1 percent of the NLTF to pay for its public transport fare caps, meaning a full-term freeze on excise would squeeze the funding base for both roading and the party's public transport commitments.

Willis said Hipkins needed to be up-front about which transport projects Labour would scale back if it cancelled fuel tax increases for the entire 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 fallen in real terms by 21 percent since the last increase in 2020. That figure points to the fiscal tension at the heart of this debate: every year the nominal rate stays flat, the real purchasing power of the NLTF erodes further as construction costs rise.

The broader context here is a series of positional shifts on fuel tax by both major parties over 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 excise 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 excise increases that the government now appears inclined to defer. Councils finalising regional land transport plans will be watching closely. For the political class, 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 hands Labour a direct line of attack heading into the election campaign.

Hipkins's pledge is aimed squarely 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 fiscally unsustainable for the NLTF and leaves a hole in the transport programme. Whether that argument lands with voters who have not seen a real-terms excise increase since 2020 is another question entirely.