Government delays fuel tax increases by one year, draws on $450m contingency fund
The government has pushed back planned fuel excise increases by a year and will use a $450 million contingency fund to help plug the gap in the National Land Transport Fund.
Transport Minister Chris Bishop announced the decision on 31 August 2026. The increases, originally set to begin on 1 January 2027, will now start in 2028. RNZ
Fuel excise is the tax added to every litre of petrol and diesel. That revenue goes into the National Land Transport Fund, which pays for road maintenance, public transport and new infrastructure. The fund is running short of what it needs.
Under the original plan, excise was due to rise by 12 cents per litre from 1 January 2027, then by 6 cents and 4 cents in the following years, reaching a total increase of 22 cents by 2029. The revised schedule will see fuel tax go up by 5 cents every six months from 2028 through to 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 keep road maintenance, public transport and infrastructure investment running. 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 top-up. The remainder will have to be found elsewhere. Bishop said the additional roughly $1 billion needed will be shown in the upcoming pre-election fiscal update, or PREFU, which sets out the government's financial position ahead of an election. RNZ
Prime Minister Christopher Luxon denied that the upcoming election was a factor, pointing to changing circumstances 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 announced on 27 August 2026 that it would scrap the 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 yet 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.
