Fuel prices

For many of us, the cost of fuel is one of our biggest regular expenses, and it's no surprise New Zealanders like to keep a close watch on the price.

The reasons for rising fuel prices

There are two main reasons for rising fuel prices. The first is that world demand for fuel is exceeding exploration and refinery capacity. This is what has traditionally caused prices to rise. When supply is tight, disruptions or the mere threat of disruption to oil well or refinery capacity – such as war or a natural disaster – can cause prices to spike.

Did you know?

It's now government policy for all petrol tax to be directed back into New Zealand's road and transport system. The AA lobbied hard on behalf of motorists to achieve this.

Previously, over a third of the tax collected on petrol was diverted by the government to other areas of spending.

The second reason is investment speculation. Money from investment funds is being invested in commodities like food and oil in response to a weaker world economic climate and a weak US dollar. This investment in oil stocks is helping to drive up prices.

Increases in world oil or refined product prices result in fuel price rises at the pump, though if the NZ dollar is strong against the US dollar motorists are buffered to an extent. When the NZ dollar falls, pump prices rise because all fuel is purchased in US dollars.

Generally, any international price changes are almost immediately passed on to the motorist. This works well for consumers when prices are falling and when there are both price rises and falls, but is often seen as unfair when prices are continually rising. Motorists quite rightly feel they are paying today's new price for product that was purchased by the oil companies at yesterday's lower price.

Government fuel taxes

A large amount of the price we pay for petrol is tax collected by the government. This is mainly spent on roads, road safety policing and public transport. However, GST is charged on all fuel purchases and this money goes to the government's general account. It is often argued that the government benefits when prices increase as this means more GST is collected.

The government also introduced carbon charges on fuels through an emissions trading scheme, which increased the price of fuel by up to 3 cents per litre when introduced on 1 July 2010. However, plans to introduce regional fuel taxes (up to 10 cents per litre) have been scrapped, and were instead replaced by smaller annual increases to the national fuel tax on 1 October 2009 and 2010 (3 cents per litre each), 2c in August 2012, and 3c in July 2013 and 2014. A further 3c increase is planned in July 2015.

The increase in GST to 15% on 1 October 2010 also added 4 cents per litre to petrol prices.

AA speaking up for motorists

The AA will always speak out on behalf of Members when motorists are not getting a fair deal from the oil companies or government taxes.

Monitoring petrol prices

The AA monitors petrol prices along with oil and currency markets to determine whether motorists are being charged a fair price.

This work includes keeping the pressure on oil companies through our regular AA PetrolWatch monitoring, and through the media. When the AA believes margins are too high, or if fuel prices increase too quickly or are not being lowered fast enough, we speak out.

Enquiry into fuel prices

In 2008 the AA called for an inquiry into fuel prices after motorists were hit hard by record fuel prices and were increasingly distrustful of oil companies which continued to announce international record profits.

The AA called on the government to establish an independent inquiry into fuel pricing in the New Zealand market to ensure that motorists weren't being overcharged and that price decreases were being passed on at the pump quickly and whenever there was the opportunity.

Ensuring motorists are getting a fair deal also means recognising that New Zealand has little control over fuel prices because of our reliance on overseas oil markets.

The outcome of the inquiry, published in July 2008, determined that:

  • the domestic petrol market is fundamentally competitive
  • retail petrol prices are not fast to rise and slow to fall
  • recent price rises are mainly due to increases in crude oil prices overseas
  • more transparency about the makeup of importer margins and a move to reporting daily margin movements would be useful for consumers

Monitoring fuel taxes

The AA continues to monitor government and opposition policy and legislation in regard to fuel taxes.

It's now government policy for all petrol tax to be directed back into New Zealand's road and transport system. The AA lobbied hard on behalf of motorists for many years to achieve this.

AA calls for the removal of GST on petrol tax

The AA has called for the GST component on the petrol excise tax to be removed - a move that would reduce prices by 8 cents per litre.

The AA thinks charging GST on the petrol excise is a tax on a tax, and the government collects more GST every time there's a price increase. The AA is calling on the government to remove this inequity because, in addition to being the fair thing to do, removing the GST on petrol tax is a way of easing the burden and offering some relief to New Zealanders who are facing steadily rising living costs and the effects of the recession.

According to AA PetrolWatch, the GST on all fuel sales amounted to more than 1 billon dollars in 2007.

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