How the Government’s transport budget will usher in big changes to your roads

ANALYSIS

There are few public services New Zealanders use like their transport system.

Our most expensive public service, superannuation, which will need about $26.4 billion next year, is only used by people over
65.

The education system, which will cost about $20b next year, is used daily by students and their parents, but once people enter the workforce in their early twenties, it ceases to be a daily presence in their lives until they have children.

Transport is different. The vast majority of people, whatever their age of lifestyle, will leave their homes most days, and almost all of them use the transport system when they do, whether it be a footpath, cycleway, bus, train, local road or State Highway.

It means the $20b Government Policy Statement on Land Transport (GPS) released this week by Simeon Brown is such an intensely political document.

The main job of the GPS, which could be described as a draft transport budget, is to set out how much money the Government will take from road users in the form of taxes and what they want to spend it on.

This plan would see between $4.8b and $6.2b spent each year (local government transport spending will add billions more). It’s not a lot compared to the likes of health and education, which is probably why these spending decisions are so bitterly contested.

A hidden tax hike?

The first question of any budget is how you pay for it.

The philosophy at the heart of the transport budget is that road users pay for roads. Drivers pay fuel excise duty (FED) and road user charges (RUC) as well as registration fees, with the money going to the National Land Transport Fund (NLTF) of NZ Transport Agency Waka Kotahi (NZTA), to pay for road maintenance and existing roads.

Now, a few modes of transport get money out of the NLTF that don’t pay into it: coastal shipping, public transport, rail (which pays a tiny charge), walking and cycling. The idea behind that is that by funding an integrated transport system, all modes will benefit from more efficient road use.

More logs being transported on rail and by sea means less wear on the roads and fewer logging truck accidents, more people on buses means less traffic – or that’s the idea. That thinking has been a part of the system since the Clark Government but was accelerated under the last Government and has been seriously rolled back under Brown.

So what do I pay – and where is the hidden tax?

Unlike income tax, fuel taxes are levied per litre of fuel, which means your fuel taxes do not rise with inflation. Fuel taxes haven’t gone up since 2020, which means that in terms of their real value, the amount you’ve paid in fuel tax has fallen.

It also means that every Government puts them up eventually to keep pace with inflation – the opposite of income tax: thresholds there are usually adjusted every few years to make sure people are not overtaxed, thanks to bracket creep.

Before the election, the former Labour Government promised to gradually hike FED and RUC by 12 cents a litre to raise an additional $1.4b over the next three years.

The National-led Government has delayed that hike until 2027, and replaced it with a $50 hike to registration fees, commencing on January 1 next year, which will raise $530m, a little more than a third of what Labour had been intending to raise.

So dollar for dollar, the Labour plan would still charge people significantly more in fuel taxes and road user charges.

But there are questions of a stealth tax, which were raised by Labour’s climate change spokeswoman Megan Woods in the House on Wednesday – picking up on an attack she had tried to land during the election.

Labour had promised its GPS would form a plank of the Government’s Emissions Reduction Plan, the blueprint to getting the country to meet its carbon budgets on the way to Net Zero 2050. The new Government’s GPS reverses that change and for that reason, it is not aligned – to use the Government language – with the emissions reduction plan. In the House on Wednesday, Climate Change Minister Simon Watts said that the Government’s decision to axe some transport initiatives will “have an inconsequential impact in regards to the impacts around those [emissions] budgets”.

Under the new plan, the Emissions Trading Scheme (ETS) will be the “Government’s key tool to reduce emissions”, the GPS says.

Fewer non-ETS climate policies will mean a higher ETS price, and therefore costlier fuel. ETS already makes up about 18 cents of the cost of a litre of fuel. Labour, using numbers from officials, has said this could rise by 40 to 50 cents a litre for emissions reductions to keep to the track bequeathed by the former Government’s transport policies.

It’s hard to see any Government allowing the ETS price to rise that much, however it will need to rise to drive emissions reduction change.

The GPS also relies on an injection of funding from the core Crown of $3.1b, meaning ordinary taxpayers will also pay for the proposal. This has been fairly normal under both National and Labour, but it is still costly – $3.1b is a little more than a third of the four-year cost of National’s income tax cuts, which cost $9b.

A small change that could see more trucks on the road…

Since the birth of NZTA at the end of the Clark Government, transport funding has been “multi-modal” in practice, if not always in practice.

Cycleways like Auckland’s famous Pink Path were funded with money marked for State Highways, as were the cycling improvements along the Kāpiti Expressway. The last Government ramped this up. It set up new activity classes (pots of money) for coastal shipping and rail.

The idea was to encourage freight to be sent by boat and rail, rather than truck. At the time, there had been a reaction, particularly in rural areas, against the profusion of logging trucks and other heavy vehicles on rural roads.

The allegation was made that those trucks did more damage to the roads than the Government recouped in road user charges, and were unsafe for other road users, given their size.

The new Government has scrapped the coastal shipping class, pocketing up to $20m a year from that change. It has significantly pared back the rail class and has signalled spending in the class could drop to just $20m a year in the out years.

This has some transport watchers concerned. It could force KiwiRail to hike the fees it charges to rail users for track maintenance, making rail less competitive with road. Councils like Auckland and the Greater Wellington Regional Council also pay fees to KiwiRail for track use. These fees may need to be hiked too, to accommodate the shortfall, resulting in higher fares or councils rethinking the number of services they offer.

Funding for public transport has been cut dramatically. Labour planned to spend up to $3.2b on public transport infrastructure over the next three years. This has been slashed by nearly $1b.

The funding pot for council subsidies to public transport services has also been cut, which could mean councils being forced to hike fares. Labour had promised up to $2.8b in subsidies over the next three years. The new Government has cut this to $2.3b.

Brown has heavily intimated this would force councils to hike public transport fares to cover the shortfall. He noted the last Government increased public transport funding by 71 per cent in five years, despite patronage declining by 23 per cent – although he conceded some of this was due to the Covid-19 pandemic.

He said the “private share” of funding for public transport had fallen from 32 per cent to 11 per cent in the same time, meaning public transport users were paying less of a share of the cost of running those services.

If that “private share rises”, it will do so thanks to public transport users paying higher fares.

Double cuts to walking and cycling

Funding for walking and cycling improvements has nearly been halved from up to $1b under Labour to $510m over the three years under this plan.

But the real kicker is that this money has not just been cut, but what is left has been asked to do more.

Brown had been a fierce critic of the Government using money from non-cycling “pots” of money to pay for things like cycleways. Previously, when building a state highway, money from the state highway “pot” could be used to build a cycleway alongside it.

The concern is now that if one were to build a cycleway alongside an expensive state highway project, like the Second Mt Victoria Tunnel, it would eat up the entire annual allowance for cycleways nationally. If this transpires, it would mean NZTA choosing between culling cycleways from many inner-city state highway projects or funding one or two and axing funding for many of the smaller projects it has been co-funding with councils.

In future, the GPS said, “all investment in walking and cycling will come from the Walking and Cycling activity class, including investment in maintaining the existing walking and cycling network”.

Green MP and former Associate Transport Minister Julie Anne Genter attacked this in Question Time on Wednesday. She later told the Herald that “under John Key’s National Government, a number of really excellent urban cycleways and busways were provided as part of the state highways Programme”.

“They benefit State Highway users because they facilitate access without a car. Now it looks like to build walking and cycling in the Mt Victoria Tunnel, for example, that would take the entire budget for walking and cycling for the entire country,” Genter said.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.