Gravy trains

Insights Newsletter
29 March, 2018

If you are as lucky as me and found yourself watching Parliament at 9pm on Tuesday night, you would have seen the debate on the Government’s proposed regional fuel tax legislation.

The legislation will allow Auckland initially, and other regions later, to tax petrol and diesel up to 10 cents per litre for transport projects. Auckland will use it to accelerate roads, trains, and walking and cycling infrastructure.

I am moderately in favour of regional fuel taxes. They are an improvement on property rates which are paid by many people who do not drive at all. But potentially significant risks and costs mean regional fuel taxes should only be a short-term measure before moving to road and congestion pricing.

In speaking against, National MP Matt King thought Auckland Council should live within its means rather than raising taxes. Of course, the last National-led Government put up transport taxes by 40% between 2009 and 2015, and directed a disproportionate share of revenue to Auckland at the expense of most other regions, including Canterbury which barely got back half of their tax in spending.

Speaking in favour of a regional fuel tax, Associate Minister of Transport Julie Anne Genter said the tax would not negatively affect low-income people. This is mistaken. Low-income people who can only afford an old, fuel-inefficient vehicle pay up to three times the tax of someone who can afford a new, fuel-efficient car. Analysis in my upcoming report shows that petrol tax hits Māori, the unemployed, and other disadvantaged people hardest.

Opposition spokesperson Jami-Lee Ross drew Parliament’s attention to Ministry of Transport concerns about price-spreading. Price-spreading involves fuel retailers increasing petrol prices by less than the 10 cents in Auckland and recouping the remaining tax from other regions.

This can only happen if petrol markets are uncompetitive – that is, if one company puts up taxes in, say, Waitomo rather than Auckland, and other companies fail to undercut them.

In its regulatory impact statement, the Ministry of Transport describes the risk of price-spreading as ‘a significant concern’.

My question to the Ministry is, if they think the fuel market is uncompetitive, what have they done to address it all these years? This issue extends beyond impacts on the effectiveness of petrol taxes. A lack of competition will mean drivers pay more for petrol itself.

In considering the question of regional fuel taxes at Select Committee, MPs and any Insights reader considering making a submission, should consider whether and how to address wider competition issues.

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