Will we ever raise petrol taxes again?
Wednesday, 25 March 2026
Henry Cooke is deputy political editor at The Post. He writes a column every Wednesday.
OPINION: Imagine this. You’re a right-wing Government elected after years of Labour rule, dealing with what you see as their fiscal hangover. The US President has attempted to engineer regime change in an autocratic Muslim country via bombing it, and it has caused a petrol price shock all around the world. Many in the press and the public are calling for you to cut fuel taxes.
When British Chancellor George Osborne faced this challenge in 2011 he made what he described as a temporary measure - cutting fuel taxes by 1p a litre and delaying a planned uplift in fuel taxes for six months.
This tax hike was then delayed again by a year. Then another year. Then another half-year. Then that one was cancelled - and the next 10 yearly rises after that were cancelled too, one at a time, with the Government promising at each Budget that next year it really would get round to lifting petrol taxes - just not yet. Then, in 2022 fuel taxes were cut “temporarily” again - and still are yet to be lifted. After 15 years since the first “temporary” cut it has become an impossible political problem to unwind, and cost the UK government an estimated £120 billion.
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This might not sound like a problem. Few like paying taxes and even fewer like tax hikes. But petrol taxes in the UK and New Zealand are not set like income taxes or GST, with a steady proportion of the amount spent going into one’s coffers. Instead they are set at a flat rate per litre. That means that they don’t automatically go up as the price of petrol rises - as your income tax does as you get better pay - but remain frozen.
This would be okay if other things remained frozen too, but unfortunately the cost of building and maintaining a transport network just keeps on going up.
Now, New Zealand has not frozen fuel taxes since 2011.
Bill English allowed petrol excise to go up in several 3c increments over his time on the tiller, as did Finance Minister Grant Robertson - before taking 25c off it for several months in the last fuel crisis, a decision that led to him having to raise fuel taxes just before an election.
Finance Minister Nicola Willis decided not to cut fuel taxes in response to this crisis. She has made the call that in a supply crisis, subsidising the demand of the scarce product will do little to help those who need it most, while doing a lot to help those who need it least.
But her Government has already cancelled three planned fuel tax rises this term, pushing them into the next term, despite simultaneously promising the country tens of billions of dollars of gold-plated “Roads of National Significance”, which the Infrastructure Commission believes are largely not needed.
Transport Minister Chris Bishop has been refreshingly frank on the need for these taxes to go up over time. He notes the cost of building roads has far outpaced inflation elsewhere - meaning the transport sector is getting further and further behind as taxes remain static.
The UK might be able to afford this (its fuel taxes are significantly higher than ours, even frozen), but in New Zealand we are supposed to pay for our nationally-funded roads through user-pays. In recent years as fuel taxes have struggled to keep up, governments have increasingly turned to the general tax take to make up the difference - to the tune of $12.8b in the current transport plan. This led to Bishop saying in early March he was totally committed to a series of increases next term adding up to 22c a litre.
But now he has started to wobble. As the election nears and the prospect of structurally higher fuel prices starts to settle into the political hivemind, the idea of campaigning on a 22c per litre hike will be harder and harder to stomach. Bishop may use this opportunity to massively delay or cancel several Roads of National Significance that were already unaffordable anyway, but that too has electoral consequences, and won’t fix the underlying problem of how much New Zealand needs to spend just to maintain the roads it already has. What if instead it’s just another three years before the fuel taxes rise - but we really promise we will do it this time!?
A potential solution looms on the horizon, but it could also become a huge issue.
The Government is actually getting rid of petrol taxes at some point soon and replacing them with digital Road User Charges - meaning everyone will pay per km, rather than per litre. This will be crucial as the fleet slowly moves to EVs. But we have no idea when it will actually happen - the Government has been intentionally vague - and the politics of it are already hard enough without a whopping big charge being included in the fee. Plenty of people are already worried enough about the Government keeping exact track of how many kilometres they drive and adding tolls and time of use charges on the top of that. Now imagine it included the equivalent of a 22c per litre hike on top?
The politics of this become nasty quickly, which is why the UK’s “temporary” solution to petrol taxes is now old enough to drive. Let’s see if our one makes it to primary school.