Government Very Unlikely to Proceed With 12-Cent Fuel Tax Rise Says Willis

Finance Minister Nicola Willis has signalled that the government’s planned 12 cent per litre increase to fuel excise tax is almost certainly not going ahead, saying it would be “very unlikely” to proceed given the pressure New Zealanders are already under from soaring fuel prices.

The increase had been scheduled for January 2027 as part of the government’s plan to fund road maintenance and construction through the National Land Transport Fund. It was to be the first in a series of annual increases, with a further 6 cents per litre planned for 2028 and 4 cents per litre in subsequent years. The revenue was earmarked for pothole repairs, state highway renewals, and the government’s Roads of National Significance programme.

But with petrol already sitting above $3.40 a litre and diesel prices up more than 87 percent since the disruption caused by the war in Iran, adding another 12 cents on top would be politically and practically untenable. Willis told RNZ that while no formal decision had been made, the government was conscious that New Zealanders could not afford an increase at this time.

Cancelling the increase would require legislation, and Willis acknowledged that it would mean less revenue for road maintenance and construction. That creates a difficult trade-off. New Zealand’s road network is already in poor condition in many areas, with potholes and deferred maintenance a growing problem across both state highways and local roads. The government had planned to spend up to $2.3 billion on state highway renewals and $2.5 billion on local road repairs, funded in part by the excise increase.

The fuel tax question sits within a broader debate about how the government should respond to the crisis. Labour has called for GST to be removed from fuel entirely, a proposal that Prime Minister Christopher Luxon dismissed, saying the maths did not work out. The Greens have criticised the government for failing to provide meaningful relief, while the government itself unveiled a $50-a-week cost-of-living package in late March that included a boost to in-work tax credits.

Willis has also warned that inflation could rise to 3.2 percent by June as fuel prices feed through into the cost of everything from groceries to freight. Treasury modelling suggests the economic impact of the crisis will be significant, particularly if the conflict in the Middle East drags on and the Strait of Hormuz remains disrupted.

The government is also looking longer term at replacing fuel excise duty with electronic road user charges, a move that would shift the funding model away from petrol taxes as electric vehicle uptake grows. But that transition is years away and does nothing to address the immediate problem of funding roads while fuel prices are at record levels.

For now, the message from Willis is clear. The planned tax increase is all but dead, even if the paperwork has not yet caught up. Whether the roads budget can survive without it is a question the government will have to answer later.

Should the government be doing more to bring down fuel costs? Or is scrapping the tax rise enough? Let us know in the comments below.