Tiny tax rise at pump on cards for motorists

Parliament passed legislation on Tuesday night to create a new levy. Photo / Brett Phibbs

Oil companies may pass on a new tax at the petrol pump even though it is likely to be a barely perceptible fraction of a cent.

Parliament passed legislation on Tuesday night to create a new levy to cover the cost of the stockpiled oil New Zealand is required to have in case of a spike in global oil prices.

The levy has not been set but Energy Minister Simon Bridges' office said if it was introduced this year it would be roughly 0.1 cent per litre, or about 4c for someone filling up a 40 litre tank.

Jonathan Hill, spokesman for Z Energy, said the new oil tax would "definitely" be passed on to motorists.

"This is effectively another tax to fund something, and it would just be an additional cost that went on at the pump."

He said the local industry made 4.2c per litre in net profit last year: "It's a low-margin business and every bit counts".

Chevron New Zealand, which supplies Caltex petrol stations, said it would wait until the levy was set to decide whether to absorb the cost.

Automobile Association spokesman Mark Stockdale said the tax was so tiny that oil companies should be able to easily absorb it within their margins.

Mr Stockdale argued the companies' profit margins were "healthy" and petrol prices had been increased by 20c per litre in the last month despite costs to those companies of 17c per litre.

As part of its international obligations, New Zealand is required to hold the equivalent of 90 days' worth of oil imports to protect against a sudden increase in oil prices.

Most of New Zealand's stockpile is held in overseas reserves, and this week's law change determined those reserves would be paid for by oil consumers, such as motorists, and not by the general public.

Mr Bridges said it was a fairer and more sustainable way to fund New Zealand's stock-holding obligations.

He said those obligations would be reduced if a major oil discovery was made in New Zealand.

The legislation was supported by all parties except New Zealand First, which felt it was unfair to put another tax on New Zealand motorists.

The Green Party supported it on the grounds that people who were using oil were paying their fair share.

Adding it up

Why is there is a new tax?
New Zealand must keep stockpiles of oil in case of a spike in international oil prices. Parliament voted on Tuesday for these stocks to be paid for by an oil levy, instead of a general tax.

How much will it cost?
It will depend on the cost of oil when the legislation comes into force, but at current rates it will be 0.1c per litre, or 3-4c for a tank.

Will the levy be passed on at the pump?
Oil companies are waiting until the regulation is set before deciding whether to absorb the cost, but some have indicated they will pass it on to consumers.