Budget documents reveal the pressing need for the transport funding system to be overhauled. 

In a briefing prepared for Finance Minister Grant Robertson before the Budget in May, officials warned of the increased reliance on Budget bids to supplement the failing land transport fund.  

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“There are two notable themes that persist across the package which you may wish to specifically discuss, namely, the flow-on impact that NLTF [National Land Transport Fund] sustainability issues are having on the number and size of initiatives seeking Budget funding; and the trend of funding being sought for local-share costs,” Treasury officials said.  

The fund collects revenue mainly from fuel taxes and road user charges. Vehicle licensing and rail track user charges also go into the pot.  

It pays for state highways and motorways, about a half of local roads, cycling and walking infrastructure, and public transport subsidies. It also funds traffic policing.  

However, it has become increasingly unsustainable with revenue of $635 million forgone during the current land transport programme period (2021-2024) because of the cost of living package in which road user charges and fuel excise duty paid by motorists were reduced.  

The revenue can be backfilled by using a $1.9 billion loan provided by the Government of which at least $1.3b has so far been used. 

Officials told Robertson new medium-term funding options could be set out in the upcoming Government Policy Statement on Land Transport, but this would not address the urgent shortfall the fund was experiencing.  

“The risks associated with not funding those shortfalls will need to be traded-off through this Budget package – likely resulting in reduced headroom for new spending.” 

That “reduced headroom” was apparent with only two of 14 new spending initiatives being funded in the first instance. These were the funding for City Rail Link and one more year of funding for the Rail Network Investment Programme. 

Two more were eventually funded – new rolling stock for the Lower North Island and funding for public transport to avoid service cuts across the country. 

But officials said ideally these initiatives should have been funded through the Land Transport Fund.

‘A possible solution is likely to be a mix of distance-based charges, rated on vehicle type, congestion charging supported by a possible targeted taxation’ – Matthew Noon

The cost to repair roads and rail after the severe weather events earlier this year also cost a significant amount, with almost $500m in unexpected Budget spending.

Funding was sought for 37 initiatives in Budget 2023 at a cost of $3.67b operating expenditure and $2.26b capital expenditure. About a quarter of that was approved – mostly funding to meet cost pressures from existing projects. 

Abley Safe Systems associate director Matthew Noon said demands on the transport system were increasing every day.  

“There has been a 61 percent increase in the total number of vehicles registered in New Zealand between 2012 and 2022 – including a 50 percent increase in registered vehicles in Auckland alone. 

“The increasing number of vehicles is also increasing the total number of kilometres travelled, with its consequential impact on road maintenance requirements.” 

Increased public transport use and options also require more cash, and the move to lower-emissions vehicles means less revenue from fuel tax going into the kitty.

“Due to increasing demands placed on the transport network, the need to plan and respond to climate change impacts, and the declining revenue from fuel excise duty means that the current funding approach is not sustainable,” Noon said.  

The Ministry of Transport recently provided high level advice to Minister of Transport David Parker on what future funding options could be.  

Parker said work on the review “had not moved” since he took over the portfolio in late June but that it was an important issue and something he would turn his attention to.  

Noon said reform could range anywhere from comprehensive road user charging or funding transport through the general tax take.  

He said the approach in Australia was similar to New Zealand but with extra charges including stamp duty, luxury car taxes and road tolls. 

“Singapore has a very complex approach involving a significant sales tax – 100 percent up to 320 percent – on initial purchase value … road tax based on engine size, a 10-year ‘Certificate of Entitlement’ is required to have the vehicle on the road, with the current price over NZ$100,000, congestion charging fees, fuel excise taxes and road tolls.” 

“Most countries derive significant revenue from fuel taxes and are facing the same problem as vehicles get more efficient or electrify. A possible solution is likely to be a mix of distance-based charges, rated on vehicle type, congestion charging supported by a possible targeted taxation.” 

Any changes that come into effect remain some way off. Indicative timings within the ministry’s terms of reference do not anticipate public consultation until at least next year, with implementation not expected until 2027.  

Emma Hatton is a business reporter based in Wellington.

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