While Australia cuts fuel tax, NZ holds the fiscal line in oil shock
Wednesday, 1 April 2026
OPINION: As the New Zealand Government clamps down on expectations of new spending in response to the oil crisis, the Australians have taken the opposite approach.
Despite inflation running at 3.7% and interest rate hikes still coming down the pike, the Albanese Government has moved to slash fuel excise by half — about A26.3c per litre.
The move will last a month and is timed ahead of Easter driving. There is clear political logic behind it, but it will also blow out the Australian budget by another A$2 billion.
Australia also appears to have adopted a phase system strikingly similar to New Zealand’s fuel plan. In politics, as in life, imitation is often the sincerest form of flattery.
In the end, the fuel plan largely puts process and structure around what might happen in a worst-case scenario — a physical shortage of fuel at almost any price. The parts of the plan the Government has not yet released — namely how fuel would actually be distributed in such a situation — are the most important.
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We don’t know that yet, though the Government is taking steps to ensure it never becomes necessary. To that end, it has announced plans to increase fuel storage at Marsden Point. That would require regulatory changes but could add around 80 million litres of stored fuel (likely diesel), or roughly eight days’ supply.
In addition, the Government is looking to effectively swap its fuel stockholding obligations under the International Energy Agency system into physical fuel suitable for use in New Zealand.
In other words, New Zealand is trying to build as many options as possible — over and above what fuel importers already hold — in case supply tightens.
Fortunately, as a relatively wealthy country, New Zealand is highly unlikely to suffer the same level of fuel deprivation as poorer nations, many of which rely on fuel not just for transport but also for electricity generation — a situation New Zealand largely avoids.
This is a sensible approach. The real risk is not just high prices, but the possibility of not being able to source fuel at all.
Data from the Australian Institute of Petroleum’s market watch shows diesel prices landed in Australia have surged from under A$170 per barrel prior to the conflict to more than A$370. Petrol has also risen, from about A$130 to A$210 — a significant increase, but nothing like diesel.
But back to Australia. It will be interesting to see how the Government reconciles its fiscal and inflationary impulses. Higher fuel prices send a signal to consumers to use less. Cutting excise does the opposite — it encourages consumption.
That, in turn, risks adding to inflation. And once the excise is cut, putting it back will be politically difficult. Since the GFC, successive Australian governments have been able to put off tough decisions thanks to resources price rises. That world looks to be nearly at an end.
In New Zealand, inflation is also expected to rise. The Government’s targeted petrol support for lower-income working families — covering about 7% of households — was relatively modest and funded within existing spending limits, so is unlikely to be more inflationary than other forms of spending.
But the broader message from Nicola Willis is both realistic and correct. New Zealand cannot afford to subsidise large parts of the economy given an already strained fiscal position. The Government is expecting to run a significant deficit without adding further inflationary pressure.
Higher oil prices will already feed through the economy, both directly and indirectly, as a cost input into most goods and services.
More Government spending would simply make that worse. There is already a big enough deficit as it is. Growth is likely to take a big hit from this shock and inflation will almost certainly rise - possibly sharply.
In the meantime, the key questions are how long the Iran conflict lasts, what any eventual settlement looks like, and how much confidence shipping firms and insurers have in both.
That is what will ultimately stabilise the situation. But the full economic damage from the conflict has yet to be realised.