What will happen to fuel prices when the 25 cents-a-litre tax cut ends?

Tuesday, 13 June 2023

What can you expect when the fuel tax cut ends on June 30?

For 15 months, motorists have been paying less tax on fuel.

Since March last year fuel taxes have been cut by 25 cents a litre, while diesel road user charges have had a 36% discount.

When the cut took effect, petrol was near $3 a litre in most places as the Russian invasion of Ukraine and rising inflation combined to put pressure on.

Petrol prices are now down to about $2.20 a litre across most places, according to the Gaspy app.

But what will happen to price when the fuel tax cut ends on June 30?

The fuel excise duty is a tax all fuel retailers collect and pass directly through the government. It collects 77c a litre in direct fuel taxes, as well as GST and the 10c Auckland Regional Fuel Tax.

The 25c cut was worth slightly more than 25c a litre because GST is calculated after other taxes.

A Z energy spokesperson said when the tax was reintroduced in two weeks’ time petrol would increase by 29c a litre, inclusive of GST.

A BP spokesperson said there are a number of factors that influenced prices.

Prime Minister Chris Hipkins has called the extensions a first step in measures to address rising costs.

“We continue to review BP Connect prices every day to ensure competitiveness in the market,” he said.

“There are also a number of independent BP operators all around the country who set their own prices and manage their own operations.”

AA principal policy adviser Terry Collins said the result of the fuel tax ending would not be as bad as first thought. This was probably the best time for it to be put back on, he said.

The average price of diesel and petrol was about $1 less than it was this time last year.

Internationally the price of oil was below US$80 and demand had dropped.

When the tax is reintroduced it will take some days for there to be any effect as duty is paid at the point of importation and the fuel that was already at the stations had been taxed already.

It was unlikely petrol prices will go over $3 a litre, AA says.

He didn’t expect fuel to go back up to $3 unless something happened internationally.

“I think price will probably stabilise for a while.”

Nick Legget, former chief executive of Ia Ara Aotearoa Transporting New Zealand, which supports transport operators, said in January he expected the end of the tax cut to have a flow on effect to the price of everyday products.

Dom Kalasiah, acting chief executive, agreed this was still the case and the return to normal road user charges rates would mean a fairly typical truck-and-trailer combination travelling 100,000km per year would pay an additional $21,000 a year. He said 93% of New Zealand’s freight was transported by trucks.

“The relief has been a good help for transport operators managing cash flow particularly during the turbulent times of Covid, and for that we’re grateful,” he said.

“But the organisation’s ongoing concern is how RUC were being used, and in particular, how increasingly we’re seeing it being diverted to pay for costs that have nothing to do with roading.

“The road network, which is the operating and workplace for our members, continues to lose ground in terms of real investment, and consequently it deteriorates in both quality and resilience.”

As well as the fuel tax cut, half-price public transport will also come to an end for those over 25 on June 30.

Meanwhile, Countdown has told customers it will no longer be offering AA Smart Fuel rewards with its loyalty programme Onecard from next year.

The supermarket has partnered with AA Smart Fuel since 2016.

Countdown’s director of loyalty, Mark Wolfenden, said it would instead be launching its own loyalty programme for Onecard members with more “personalised value and experiences”.