Questions remain on RUC reduction

In News6 MinutesBy Nick LeggettMarch 18, 2022

After denying there was a cost of living crisis in New Zealand last week, this week the Government came out with a hiss and a roar to reduce the pain at the pump Kiwis are feeling with rapidly increasing fuel costs.

It is good to see some agility from this Government, we are going to need it in the months ahead.

But an announcement from the Beehive podium and reality are sometimes a few steps apart. As they are in this case when it comes to applying the promised 25 cents a litre to the road user charges (RUC) on diesel – this is not a simple overnight change as it is for the 25 cents a litre cut to fuel excise duty on petrol, which was also part of the announcement. That happens at the pump.

Understandably, everyone is a bit confused about what the RUC “cut” will be, how it will be applied fairly, and how long that will take. There are 85 different RUC rates and of course, RUC is not charged on a per litre basis, rather it’s a distance charge that is pre-purchased.

Transport Minister Michael Wood contacted me just prior to Monday’s announcement and assured me the road transport sector would benefit from the full three months of cost relief, even if it was not implemented as quickly as the petrol price cut. He advised we would be consulted on how the RUC cut might work.

On Wednesday, we met with officials to put our view that the relief needs to be implemented swiftly, be equitable for all users of diesel, and be easy to administer. Our view is that an at-the-pump price reduction on diesel, such as that introduced for petrol, would be the best way to achieve these principles.

While it is positive that we are able to put forward solutions, it is somewhat concerning that an announcement was made with no policy and operational detail behind it. It feels like officials are scratching their heads to work out how this RUC relief can be applied.

We have offered our view on which part of the Road User Charges Act could be applied. We know many parts of the business community are crying out for relief, but they also require clarity as to how that will work. What we don’t want to see is a complex system that costs businesses significant time and effort to access.

We certainly appreciate the intent of what Government is trying to do with its RUC relief for three months, however, there is a significant proportion of diesel use that does not come near a road vehicle. Agricultural and contracting businesses that are a vital part of our economy are big users of diesel for machinery, yet they won’t benefit from the Government’s attempt to ease costs. In terms of our sector, will all parts of the truck combination have RUC relief, or just the power unit? These are the questions we are pushing officials for answers on.

And what happens after three months? What surprises wait for us on Budget day in May?

There is so much economic volatility right now, and there are multiple impacts on freight costs such as supply of ships and containers, availability of labour, the rapidly changing geopolitical environment, minimum wage increases, and general inflation. These are not going to miraculously disappear in three months.

In fact, the shock of moving from some kind of relief back to reality may be very harsh.

The Government needs to react to the broader pressures on the economy – it cannot all be blamed on Covid-19 or the war in the Ukraine. Although the latter is certainly sending economic shock waves around the world.

Anyone watching what is happening in Ukraine, with the murder of civilians including children, will understand the necessity of economic sanctions on Russia. These must continue and they must be harsh.

Potentially, things could get a lot worse for New Zealand if China wades in to support Russia. New Zealand politicians won’t be able to ignore that.

We need the country’s best diplomatic and economic brains working on our options for the months ahead.

There is going to be no easy road out of these economic woes in the immediate future. The viability of our fresh food supply and other things we take for granted could come under serious pressure.

The Government and the public of New Zealand have to appreciate that there will be significant increased costs to businesses and those costs will be passed down the line and felt not only at the petrol pump, but at the supermarket and everywhere else.

By Nick Leggett, CEO, Ia Ara Aotearoa Transporting New Zealand