Ending the fuel discount will fuel inflation and drive up prices

In News7 MinutesBy Nick LeggettDecember 9, 2022

This week, Transporting New Zealand met with Transport Minister Michael Wood to argue for the continuation of the transport package that comprises a reduction in fuel excise, Road user charges (RUC), and half-price public transport.

While the minister acknowledged our concerns, there has been no announcement from the Government so far. Finance Minister Grant Robertson has said we should expect to hear something by Christmas.

We need that certainty now. If the transport package ends on January 31 – as currently planned – it will have a serious negative impact on both road transport operators and consumers. Most Kiwis probably don’t realise just how significant those costs will be, so it’s worth exploring the scenarios in more detail.

Come 31st January, the cost for consumers to fill their car will go up $10 to $15 overnight, the price of catching a bus or a train will double, and their road user charges will increase by 36%.

This will happen at a time when inflation is projected to rise again. It will be the icing on the cake we don’t need as we head into 2023. Now is not the time to end this support. It eases the burden – either directly or indirectly – on every New Zealand household at a time when New Zealanders are going to need all the help they can get.

The Official Cash Rate is expected to rise to 5.25%, pushing mortgage rates as high as 7.5%. Inflation could rise to 7.5%, and then remain around 7% well into 2023. The Reserve Bank is forecasting a year-long recession in 2023. Unemployment could shoot up as high as 4.5%.

There’s a lot of human pain behind those numbers. The Government has clearly got the message.

When removed, fuel prices will shoot up overnight, along with the cost of everything delivered by a truck. With 93% of our freight delivered on a truck, that’s basically everything we consume and purchase.

The view of the road transport sector is that its petrol and Road User Charge (RUC) price reductions, and the public transport subsidy need to be maintained until inflation is at 6% or lower.

It’s not just Kiwi families who have been saving 25c per litre at the pump, or those using the half-price public transport that will feel the difference overnight. It’s the knock-on effects of higher fuel on the cost of everything we buy. Removing the rebate now will hurt in the pocket, even if all you do is walk to the supermarket to buy groceries.

Just look at the immediate extra impact if the Road User Charge price reduction is lifted on  January 31.

For a 45 plus tonne truck and trailer traveling 100,000 km, the restoration of the full road user charges will add an additional $21,000 cost in 2023. That will go straight onto the cost of whatever is being carried by the truck.

A light diesel vehicle like a ute or an SUV, now paying about $686 Road User Charges (RUC), will pay $1064 in 2023.

For a courier paying about $2940 in RUCs now, the cost will go up to $4560.

If you’re planning to head away in the motor home for the holidays, expect your road user costs to go from $520 to $820 overnight. That’s on top of your increased diesel prices.

Small delivery trucks that deliver to your home from the supermarkets will pay more immediately. From $3210 now, back up to $5010.

Not only would the decision to stop the rebate now load costs onto struggling businesses and households, it would also add to inflation.

Treasury calculations show that when the transport package was introduced in April of this year, it contributed to a reduction to inflation of 0.5%, so that would work in reverse, too. We could end up with even higher inflation – at 8% next year – if the fuel rebate package is removed.

The same reason that led to the introduction of the fuel rebate package, still exists. High prices that hurt New Zealand families and businesses. So why not keep it going at least until inflation is under control?

It’s not fair to load extra costs on families and businesses at a time when everything they need on a daily basis, is going up.

The Government can clear this up today, by letting us know immediately if they plan to extend the package. It undermines confidence to draw this decision out. Forget the political tactics of the situation, this is about easing costs in people’s daily lives at a time when there is real hurt.

Extending the package will cost more money, but the increased GST raised off massive fuel costs over the last year will offset a good proportion of this package. Billions of dollars is being found to restructure health, Three Waters and broadcasting without any real case made that the waka will go faster as a result.

There are many big unknowns in 2023. How quickly inflation will come down. Whether high interest rates will push the country into a recession. And how long Russian’s war on Ukraine continues.

It’s also an election year.

Extending the fuel rebate is a real and direct way in which the Government can ease cost of living pressure for every New Zealander. Otherwise, the impact will be felt at the pump, in the supermarket and on buses and trains.

It’s the Christmas present we all need.

By Nick Leggett, chief executive, Ia Ara Aotearoa Transporting New Zealand