The fuel excise hike planned for next year has been cancelled to help Kiwis with the cost of living and deliver lower taxes for New Zealanders.
Fuel excise was scheduled to resume annual increases starting with a 12c per litre increase from January 2027, with equivalent increases to road user charges. That has now been scrapped, with the next increase of 5c a litre now taking effect from January 2028.
According to Finance Minister Nicola Willis, cancelling next year’s fuel excise increase and spreading the change over time from 2028 will give Kiwis more time to recover from the period of post-COVID economic pain and recent uncertainty in the Middle East.
She said this followed the decision to cancel the last Government’s proposed fuel excise hikes, which were due to kick in this term, along with the Auckland Regional Fuel Tax.
“The short-term sugar-hit approach to economic management we saw post-Covid drove a period of record-high inflation and soaring interest rates that hit New Zealanders hard,” said Willis.
“That’s why, since the start of the fuel crisis, we have sought to get the balance right between supporting New Zealanders with the cost of living and being responsible managers of the economy.”
Careful economic management means inflation has fallen significantly from its peak of 7.3 per cent, wages are expected to grow faster than prices each year, and around 220,000 new jobs are expected to be created by 2030.
Willisa added that times are still tough, and there remains uncertainty in the Middle East, so the government will keep a watchful eye on international events and ensure Kiwis are supported if the crisis leads to higher fuel prices in 2028.
Transport Minister Chris Bishop added that since 2020, the average cost of transport projects has increased by as much as 45 percent, while fuel excise has remained frozen, falling in real terms by around 20 percent.
“While pausing fuel excise increases was the right choice as New Zealanders weathered an economic storm, unless they begin again soon, the financial foundations of our land transport system will be undermined,” said Bishop.
“For New Zealanders, that would mean roads littered with potholes, cancelled projects, and an inability to respond when communities are cut off following severe weather events.”
To prevent this, the Government has agreed on a new, more sustainable path for fuel tax increases. There will be no increase to fuel tax in 2027, with the next increase taking effect in January 2028.
Instead of a one-off 12-cent increase, Bishop said that these changes have been spread over time to make the transition fairer and more manageable for New Zealanders, as the economy continues to pick up and wages grow.
He added that it would be irresponsible to reduce funding for the land transport system to pay for this change. Doing so would require significant reductions in road maintenance, public transport services and infrastructure investment. Officials have advised that a reduction of this scale would not be credible without serious reductions in funded services.
On that basis, Bishop mentioned that the government has agreed to top up the National Land Transport Fund to account for the reduction in fuel excise revenue. This is expected to cost NZD 1.476 billion over the forecast period.
Willis added that the cost will be partly offset by the NZD 450 million fuel response contingency established through Budget 2026. The remaining cost will be managed through and reflected in the PREFU.
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