Anyone driving around New Zealand will notice a lot of transport construction going on at the moment.
If it seems there is more work happening than usual, that’s because there is. It’s the most, ever. This year, for every dollar that changes hands in the country, two cents of it will be spent on transport.
You may not realise that more than half of what you pay for petrol is for tax. A recent AA survey of Members showed most people did not know they pay nearly one dollar in tax on each litre of petrol.
The good news is that it goes back into transport. New Zealand is the only country in the world where all the tax collected on petrol, except GST, is spent on transport – not just on roads but on public transport and on cycling infrastructure as well. Other sources of transport funding are road user charges (RUC) collected from owners of diesel vehicles, vehicle registration charges, and rates.
Also included in petrol and registration taxes is the money the Accident Compensation Corporation (ACC) uses to treat and support road crash victims.
Tax from fuel also covers climate change charges under the emissions trading scheme; the system tries to ensure motor vehicle users cover their costs.
The numbers are enormous. The new National Land Transport Plan (covering June 2015 to June 2018) has had $10 billion allocated from vehicle taxes, while local governments will spend $3.9 billion from rates revenue.
Some $2 billion will be spent on public transport, up to $400 million on cycling facilities and $5.5 billion on improving local roads and state highways. In total, it’s 15% more than the 2012-2015 transport plan.
We’re spending a lot because we use it a lot. The Ministry of Transport carries out a survey of all travel which shows that 79% of trip choices and travelling time is either driving or riding in a motor vehicle.
The second most popular method is walking (17% of trips) followed by public transport (2.8%) and cycling (1.2%). Some trips are purely for fun but most result in spending, which keeps the economy turning over.
If New Zealanders stopped moving, our economy would grind to a halt. Whether it’s an office coffee run or a load of sheep, moving things is at the core of trade.
Is this spend-up extravagant? Not by international standards. Of the 48 nations in the International Transport Forum, New Zealand’s spend as a proportion of our economy is 46th.
We are a long way behind, and compared to developing nations we are very modest.
That’s also because, compared to other nations, our petrol tax is modest; we have the fifth lowest petrol tax rate in the OECD.
Some see spending on transport as an economic stimulus. That may be true, but a word of caution: the Irish tried spending first, accepting the theory, “if we build it they will come”.
After the global financial crisis the Irish Transport Minister said: “well, we built it, but they didn’t come”. The debts pushed Ireland, like Portugal, Spain and Greece, into serious trouble.
The conclusion was that not having infrastructure holds an economy back, but premature investment can be an expensive waste.
Of course there’s always someone who wants more of the transport pie for less of the cost: truck drivers, cyclists, public transport operators, farmers, cities, regions, contractors, even motorists.
This happens everywhere in the world. New Zealand’s Ministry of Transport’s cost allocation model is meant to divide these things evenly – although road user charges ought to be a higher proportion of income than they currently are.
But this huge money-go-round is going to have to change. While governments increase petrol taxes steadily to account for growing fuel efficiency, vehicle manufacturers know the future is electric.
While it may take another decade to really get started, there will come a time when the person in the petrol-electric hybrid is being subsidised by the old-school petrol car user, just as so many other transport modes are today.
Exactly what will replace the petrol tax noone knows, although inspiration may come from smartphone navigation apps which track distances travelled.
The one thing that is clear is that any solution will require robust discussion about who pays for what, and who gets subsidised by whom.
How it’s funded
Mark Stockdale explains who pays for our transport system and where the money goes
Much of New Zealand’s transport system is user pays. Motorists mainly pay through petrol tax or diesel road user charges, followed by nearly a third coming from local government and smaller portions from general tax and public transport fares.
A typical car travels just under 12,000km per year. Assuming fuel consumption of about nine litres per 100km, means motorists pay just over $1000 per annum in petrol tax. Of this, $643 goes towards road building and maintenance, public transport and other land transport funding, $75 is for ACC levies, and the remainder is GST.
Diesel users pay no transport tax or ACC levies at the pump so contribute through road user charges (RUC) instead. A diesel car travelling the same mileage per year (12,000km) would contribute $647 in RUC (excluding GST). By comparison, a 44-tonne truck and trailer travelling 100,000km a year pays about $57,600 a year in RUC.
Since 2008, petrol tax has risen over 16 cents per litre, or an additional $179 a year for a typical car. RUC has also increased – up 50% in the case of cars and other light vehicles.
Prior to 2008, 18.7 cents in petrol tax was diverted to general government funds, but now all of the tax and RUC is earmarked for the National Land Transport Fund (NLTF).
This funds all the costs of the state highway network: building new highways, maintenance and repairs, safety upgrades, and police enforcement. The NLTF also covers half the cost of local roads, with the other half coming from local government contributions.
The NLTF also funds a quarter of public transport operating costs, with another quarter coming from ratepayers and the balance from fares. The cost of introducing new public transport projects (for example, park-and-ride facilities) is split 50:50 between road users and ratepayers.
Rail infrastructure is typically funded from general taxation, although Auckland’s City Rail Link is expected to be joint-funded by taxpayers and ratepayers.
Who pays what
Family in Auckland
Total transport contribution: $2,621.51
David and Ann live in Auckland with three children. They both drive every day (David a late-model diesel SUV and Ann a 10-year-old compact petrol hatchback), and travel about the average NZ mileage each year (11,000km for a petrol car, 15,000km for a diesel car). Their home has a rateable value (2014) of $740,000. David and Ann’s annual transport contribution is made up of (excl. GST):
•Petrol excise tax of $541.42
•Diesel road user charges of $808.65
•Vehicle licences of $361.59 (ACC bands 2 and 4)
•Property rates contribution: $796.00
•Interim Transport Levy: $113.85
University student in Wellington
Total transport contribution $290.77
Adam is a university student in Wellington, sharing a rented flat in the city with three others, valued at $527,000. He doesn’t own a car but has a scooter for travelling around the wider CBD (about 2,000km each year), but mostly walks or uses buses or trains. Adam’s annual transport contribution is made up of (excl. GST):
•Petrol excise tax of $26.56
•Vehicle licence of $172.83
•Property rates contribution (quarter share): $91.38
Retired couple in Nelson
Total transport contribution $873.98
Gordon and Wira are retired and living in Nelson. They use their older-model, medium-sized sedan several times a week (roughly 6,000km per year – just over half the NZ average) and occasionally use their SuperGold Card to take a free bus during the day. They own their own home valued at $460,000, slightly higher than the average Nelson house price. Gordon and Wira’s annual transport contribution is made up of (excl. GST):
•Petrol excise tax of $341.94
•Vehicle licence of $201.96 (ACC band 1)
•Property rates contribution: $330.08
Sources: ACC, Auckland Council,Greater Wellington Regional Council, Ministry of Transport, Nelson City Council, Quotable Value, Wellington City Council.
Reported by Peter King for our AA Directions Autumn 2017 issue