Fuel taxes could be gone in three years as Waka Kotahi urgently looks to replace funding system

Fuel taxes could become a thing of the past in just three years. Photo / Dean Purcell

Fuel taxes could be redundant by the middle of the decade, according to board papers from Waka Kotahi - NZ Transport Agency, which had pled for more certain funding from the government.

Fuel taxes are the main funding source for Waka Kotahi, which uses them to pay for the upkeep of the country's road network and to subsidise things like public transport.

Usually, Waka Kotahi makes sound $2 billion in fuel taxes each year - about half its total revenue. The Ministry of Transport has, since the last National Government, been working out what to do when that revenue dries up as more and more motorists switch to electric vehicles and public transport.

Officials at the Ministry of Transport thought the Government had about a decade to prepare for fuel taxes drying up, but after running the numbers itself, Waka Kotahi has discovered "the issue is more imminent".

Agency board papers said that if Waka Kotahi were unable to fund alternative funding sources in the "near term, decision-makers need to be informed of the consequences and trade-offs".

That could mean less money spent on new roads, road maintenance and safety, and public transport.

Waka Kotahi chair Sir Brian Roche said the issue was not just about a lack of revenue, but also the spending pressures put on the agency.

"It's not just the revenue sources, it's the level of expectation from the public and local government about the level of infrastructure they want," Roche said.

If funding is not resolved in the near term, decision-makers need to be informed of the consequences and trade-offs.

The papers painted a stark picture, warning of the transport network "deteriorating due to the lack of available funding for maintenance" - the papers also warned "Waka Kotahi may need to start making decisions to stop work given funding constraints".

Roche said Waka Kotahi had sent a "clear and unequivocal message that something had to change".

The most recent three-year transport plan, unveiled earlier this month included loans from the Crown to help Waka Kotahi bridge its funding gaps.

Roche said these loans, and things like multi-billion cash injection from the NZ Upgrade, which pumped billions of dollars of Crown money into Waka Kotahi projects.

He said that pressure on the network became obvious when putting together the latest three-year spending programme.

"It was clear that the emerging trend was actually going to give rise to a significant shortfall," Roche said.

Waka Kotahi then approached the Government, asking for it to rethink the agency's funding arrangements. The Government agreed to that request. The new funding model will likely signal the end of fuel taxes, although its possible they may be slowly phased out.

The ball is now in the court of transport minister Michael Wood, who must decide whether to give Waka Kotahi a new funding source.

One idea previously floated by officials was to extend the Road User Charge system, currently used for diesel vehicles. The system could see GPS-style technology tracking cars and charging them for how much they use the roads.

Fuel taxes are an extremely old source of revenue for the Government, having been introduced in the 1927 Motor Spirits Taxation Act.

Charged by the litre, they attempt to charge people based on how much they use the road.

But the Government's desire to switch people to EVs has undermined the road funding system. EVs currently pay nothing to use the roads, and the more people that drive EVs, the fewer there will be to pay fuel taxes.

Recently, the Government has moved to fund more public transport and cycling projects using revenue from road users. The current three-year plan has $4.9b of public transport investment. That figure is double the amount spent under the previous three-year plan, which was itself a 50 per cent increase on the three year plan before that.

Despite increasing amounts spent on public transport, most fuel tax money is still spent on roads.

Roche did not dispute that Waka Kotahi should but funding things like public transport as part of the transport portfolio because "transport emissions as such as part of our national burden".

But he warned that the agency could not fund those services if it did not itself have the revenue to pay for it.

He said the increasing amount of things Waka Kotahi funded had seen the organisation evolve, "but the funding hasn't evolved with it".

"So if you look at what's going to happen to adequately address climate change, it's going to require funding - at the moment we don't have that funding," he said.

The board papers warned Waka Kotahi would need to respond to climate change, "however responding to climate change and emissions targets will require additional funding".

Over the course of the next year, Treasury, Waka Kotahi and the Ministry of Transport would be providing advice to ministers about where that new could come from. The Government would then chose whether to Act on that advice.

The board papers reveal Transport Minister Michael Wood "does not intend" to amend the current three-year transport programme to take revenue changes into account.

However, the papers say Wood would "signal early the likely changes for the next period".

That means motorists could be using a different revenue system once the current three-year spending programme expires in 2024.