Ministers selected the most generous subsidies for petrol and diesel users but turned down the chance to make public transport free, Marc Daalder reports
Cabinet considered but ultimately decided against making public transport free as part of its response to cost of living pressures, documents released to Newsroom under the Official Information Act reveal.
Transport Minister Michael Wood took four options each for petrol tax reductions and public transport fare cuts to his fellow ministers on March 14. Ultimately, they decided on the most generous option for petrol and diesel users (a 25 cent cut to fuel excise tax and a roughly equivalent cut to road user charges) but the least generous option for public transport users.
Newsroom sought access to briefings and Cabinet papers relating to the cost of living package in May, but was refused by the Ministry of Transport. It took four more months and a complaint to the Ombudsman until the documents were finally released.
One of those documents, a briefing from March 11, shows Wood was initially looking only to reverse increases to fuel excise and road user charges that occurred since Labour came to office in 2017. This would reduce petrol prices by 10.5 cents per litre at the pump, though he anticipated it lasting six months rather than the initial three months that would eventually be announced.
In the Cabinet paper from March 14, Wood offered this 10.5 cent cut as a lower bound option and 25 cents as the highest option, but recommended a middle ground approach of either 15 or 20 cents.
“The higher the reduction, the greater the cost to the National Land Transport Fund (and likely subsequently the Crown). But, the higher the reduction, the more relief to households and businesses,” he wrote.
“Should Cabinet elect for an option at the higher end (for example, 20 or 25 cents) it will mean a more significant increase at the end of the three-month period (to reinstate current rates). This could be difficult, especially if fuel prices continue to increase or be high. Fuel prices are volatile and difficult to predict. It is not known whether prices would have decreased or increased in three months.”
The cuts have since been extended twice and are now set to expire at the end of January.
On public transport, Wood asked Cabinet to choose between half-price fares for three or six months or free fares for three or six months. He recommended a six month halving of fares, saying this was less costly than scrapping fares entirely but offered people more time to shift to riding buses and trains.
“Compared to three months, six months provides more time for mode-shift habits to be formed. Mode-shift is a critical component of achieving our emissions reduction goals,” he wrote.
Wood told Newsroom on Wednesday that the options Cabinet ended up choosing offered roughly similar subsidies to commuters over the course of a week.
“Broadly speaking, someone who is commuting to and from work each day, five days a week, will save around about $25 a week under the public transport half-price policy. That is roughly comparable with what you might expect from a person filling up their tank once a week [with the 25 cent cut to fuel tax]. We’ve tried to have a broad level of equity between modes in terms of the cost of living support,” he said.
Green Party transport spokesperson Julie Anne Genter said she was disappointed the Government didn’t do more to subsidise public transport when it had the chance.
“For a whole year, we could have free public transport and it would cost the Government less than the petrol tax cuts they chose for three months,” she said.
“The petrol tax cut is untargeted but it does subsidise fossil fuel use. Ironically, the Prime Minister said last week in response to the UN Secretary-General’s call to tax fossil fuel companies, she said that doesn’t really apply in New Zealand because we’re advocating to end fossil fuel subsidies. Well, at the same time, you’re spending over a billion dollars subsidising petrol and diesel use.”
Now that the scheme will last at least 10 months, would Wood have chosen a slimmer subsidy?
“That’s a big sort of hindsight and hypothetical question that I just couldn’t answer, really,” he said. “In my view, it was the right decision. Fuel prices have been incredibly volatile.”
Wood added that subsequent analysis has shown the fuel tax cuts will lead to “a small increase in overall emissions” but he thinks increased public transport patronage “will somewhat balance that out”.
There is limited evidence about the impact of the fare reductions on public transport usage. Partly, this is because the start of the subsidies in April coincided with coming down from the first Omicron peak and the move out of Red.
Compared to pre-Covid-19 levels, ridership in both Wellington and Auckland rose from March to April and then rose more sharply in May.
A survey of public transport users in Wellington found 4 percent of riders had started using public transport for the first time because of the fare reduction. Another 13 percent said they restarted because of the subsidy, while 39 percent said they were using it more often than beforehand. The remainder either hadn’t changed behaviour (40 percent) or hadn’t heard of the half-price fares scheme (4 percent).
While polling has consistently found lower prices are unlikely to motivate most people to switch to public transport, the Wellington survey found “cheaper fares” were tied for the most suggested improvement to services. Just 8 percent of riders in November 2020 and July 2021 said cheaper fares, but that nearly doubled to 14 percent in the June 2022 survey.
In Auckland, a survey of public transport users and non-users found 42 percent thought Auckland Transport services were affordable, compared to 28 percent who disagreed. Among riders, 43 percent said half-price fares increased their usage but just 5 percent of non-users said it made them consider switching modes.
Wood said the limited evidence indicated reduced fares could help operators rebuild patronage to pre-Covid levels but wouldn’t necessarily shift people who had never taken the bus.
Instead of price, he said the greatest obstacle to further expanding ridership was the reliability and frequency of services. Budget 2022 included $61 million to boost pay for drivers, making the job more attractive and helping to address workforce shortages.
The documents released to Newsroom also showed Cabinet rejected the Ministry of Transport’s preferred method for subsidising road user charges. A flat $27 reduction per 1000 kilometres purchased would have given the greatest benefits to households, while making sure the heavy freight sector continued to pay for their wear and tear on roads.
Instead, ministers went for a 36 percent reduction per 1000 kilometres purchased, which gave households the same benefit as in the ministry’s preferred option but subsidised trucking companies by as much as $150 per thousand kilometres.