Ministry of Transport forecast Waka Kotahi-NZ Transport Agency's transport fund to lose $926m over the next three years

High fuel prices have led the Government to downgrade its forecasts for the amount of driving it thinks people will do over the next decade - a change that has big implications for the fund we use to pay for new roads and public transport subsidies.

In April, ahead of the Budget, the Ministry of Transport forecast Waka Kotahi-NZ Transport Agency's transport fund to lose $926m over the next three years from a range of factors - but almost exclusively from the Government's decision to cut fuel taxes and road user charges and people driving less because of the Omicron outbreak.

The money would have gone into the National Land Transport Fund, the pot of money used to build our roads and fund public transport. The fund will not be significantly out of pocket, as the Government has committed to topping up the fund for money lost because of the cuts with its own money, raised from normal taxation.

Those forecasts have been released to the NZ Herald under the Official Information Act. Fuel prices have fallen considerably since the forecasts were completed.

The real figure is set to be slightly higher because the forecast was based on the temporary cuts to fuel taxes and RUCs to expire in August and November respectively, rather than at the end of January, in line with the current policy.

The document shows that even in April, just one month after the cuts were announced, the Ministry of Transport believed they would be extended at the Budget and potentially beyond.

Perhaps more interesting is the fact the forecasts show transport revenue falling by 3 per cent over the next year compared with HYEFU forecasts from just six months earlier.

A briefing from the Ministry warned fuel revenue was "significantly" lower than the December forecasts because of Covid-19 travel restrictions. Nevertheless, since restrictions were lifted they were "still observing a reduction in travel".

Importantly, across a 10-year period, the Ministry "forecast a net reduction in revenue of 3 per cent" compared with forecasts from six months previous. This is a normal variance between forecasts.

The real shortfall is likely to be larger because those forecasts do not take into account any of the Government's decarbonisation policies, which include a shift of the car fleet to electric vehicles, which do not pay road user charges and an overall reduction of vehicle kilometres travelled by 20 per cent by 2035.

Transport warned that over the next three years there would be a revenue shortfall of $842m between the lowest amount needed to maintain spending on the current land transport programme. However, officials noted that those forecasts did not take into account the Crown money used to compensate Waka Kotahi for lost revenue from the cuts.

People are driving less as fuel costs rise, creating a headache for transport planners. Photo / Michael Craig

The differing forecasts are mainly due to people driving less because oil prices are now forecast to stay higher for longer, and economic growth, a key indicator of how much people will drive, is expected to be lower.

The Government is currently reviewing how it funds the transport system which will likely see it pivot away from fuel taxes and road user charges. This will result in short-term recommendations, designed to protect the Government's revenue in the short-term, and long-term changes, designed for a more wholesale change of the funding system.

A briefing on that review notes the problem with the current revenue system is that it is based on "people increasing their vehicle kilometres travelled" - in other words, it is designed to encourage everyone to drive more, precisely what the Government is trying to reduce.

Transport Minister Michael Wood said people needed to drive less for the country to meet its emissions goals.

"It does pose challenges in terms of how we fund the system," he said.

When asked if the briefing showed fuel prices needed to rise to increase driving, Wood said there was "mixed evidence" as to how much people would reduce driving in response to price rises.

"We do have signals that are coming through the ETS [Emissions Trading Scheme] is now around 18 to 20 cents per litre of fuel," he said.

National's transport spokesman Simeon Brown said the land transport fund was "coming under increasing pressure not only because of the Government's priority of shifting transport funding away from maintaining and managing our roading network but because of less revenue because of people driving less".

Brown said National was working on its own "policy approach" to transport funding, and would announce it "closer to the election".

"There's certainly a need to make sure the transport funding model is fit for purpose going forward," he said.

Green Party transport spokeswoman Julie Anne Genter said high petrol prices were reducing demand for driving.

She said declining revenue would be less of a problem if the way the transport fund was spent was also changing.

"This would not be such a problem if the transport fund was being used to cater to changing demand for travel. However, the bulk of funding is still on a few outrageously expensive highway projects with benefits well lower than their costs.

"The walking and cycling budget is only 3 per cent of the transport budget, when international best practice says it needs to dramatically increase to at least 20 per cent of the budget in urban areas.

"Public transport fares have been lowered which has increased demand, but the budget for services is really not increasing to enable the step change in service needed," she said.

Genter said she wanted to see the future revenue system "both manage demand for high pollution and congestion-causing choices, while enabling revenue to be raised for high-quality public transport and a safe network of pathways that make using a bike or other small, clean-powered vehicles enjoyable and attractive ways to get around".