The government is set to break its pre-election promise not to introduce any new taxes till 2020 . It proposes to increase in fuel tax of between 9 to 12 cents per litre over the next three years. This is on top of the 10 cents per litre regional fuel levy that Aucklanders will pay from July 1. Regardless of Labour’s political posturing that higher excise tax isn’t “new”, and that anyway National increased it while they were in power – what the tax rise means is that we will all pay more for our fuel in order to fund investment in light rail, rail infrastructure, and safety improvements for our roads.
This new government's policy on land transport sees spending on rail infrastructure included for the first time as well as abandonment of the new four-lane 'Roads of National Significance' (RONS) near Auckland, Wellington and Christchurch which were promoted by the previous government. Together with the new funding mechanism this amounts to a big change in direction.
As expected, there has been considerable backlash from both the public and the media as people react to the audacity of being asked to fork out for even more tax. The government did leave itself in a precarious position with such a sweeping statement that ruled out any new taxes, especially after emptying the coffers on free uni for our kids, but, putting aside its revenue-gathering methods for a second, the actual announcements from the Land Transport draft appear to tick at least some of the right boxes.
The move to allow all transport options to be evaluated on a level playing field is long overdue. New Zealand needs to urgently tackle the long-term transport issues that we face as a country and ensure we are moving people and freight around in the least costly way possible. And when we say cost, that includes time, accidents, and environmental damage, and knowing where the best return on investment is, right across the portfolio of investments: road, rail, ports and even regional airports.
Labour’s proposal will allow a ‘mode neutral’ approach to allocating transport funding simply on the best return on investment. This may seem obvious, yet both Labour and National have in the past fiddled with this funding for political gain, rather than public benefit. The roads of national significance (RONS) are the perfect example. They are a handful of cherry-picked, flashy and eye-wateringly expensive projects that generate a lot of exciting press yet have benefits that barely exceed the costs (and might not exceed them at all, if the costs blow out). So while National cry foul that cancelling some of these roads is “an extraordinary blow for regional New Zealand”, it’s actually more of a blessing as the public should see money spent based on proper benefit-cost ratios, rather than where it will buy the most votes.
This is where it gets a bit messy. On the one hand, the government has created a mechanism that should allow it to direct infrastructure spending simply to where it has the greatest return on investment, yet at the same time, it has ignored its own advice and thrown money at pet projects. Now that the funding for rail has been released we should see the business cases for these projects. The real test will be if the government is willing to look past its predispositions if the ROI’s come back different to what it expected. We have seen previous business cases that have shown significant benefits for rail over roading, but until we see actual evidence that this particular type of funding (fuel taxes) will provide the most economic benefit, this move simply stinks of hypocrisy, just the same old political compromising of evidence-based policy – albeit toy trains this time rather than big wide expressways.
No matter what option is chosen modernising our transport system will be expensive , so it’s critical to ensure our spending is directed in the most efficient manner. We continually lament the fact that we are just now – after all this delay – acting to modernise our cities. The traffic gridlock in Auckland alone is estimated to cost around $2 billion a year, and because we have waited so long, the price of retrofitting is astronomical. If only we had acted on this decades ago. And as an aside we’re taking exactly this approach to carbon emissions, delaying our mitigating action. So of course we’re facing an exponential rise in those costs building up right now. It is the inter-generational transfer of liability that pervades New Zealand’s policy decisions. This is the legacy of caretaker governments, who refuse to take an evidence-based approach to policy decisions, and come into power with predispositions to solutions that have no defensible evidence base at all. Don’t blame the politicians, blame the voters.
Many opposed to the Government’s financing of the light rail via taxation point out that these taxes will impact most detrimentally on the very people the cost benefit approach to transport seeks to help. They are not wrong. Excises and levies are regressive taxes, generally borne disproportionately by the lower income groups. Perhaps if we could see real evidence of a return on investment it would be an easier pill to swallow for some, but it appears that work has simply not been done. It is shameful.
One estimate has put the cost of the fuel hike for low-income families at $1,100 per year, around double that wealthy families face, due to the difference in fuel efficiency of expensive vehicles. These taxes could also have an impact on prices. Relative to the size of its economy, New Zealand uses a comparatively large amount of fuel for transport. The evidence suggests that the indirect (cost-push) effects of higher fuel prices on consumer prices could be quite large, substantially driven by higher transport services costs. This will be a double whammy for hundreds of thousands of Kiwis already stretched to the limit.
More of the same when it comes to tax.
We agree that an overhaul of our transport funding is well overdue. The fact the system is only now being looked at is further evidence of the failings of the previous government that pursued very expensive, selective and downright questionable gains to our transport woes with its RONS. Unfortunately, the new government is guilty of the same failing, only this time with rail. We only ask that they follow their own advice and direct tax payer money to where it will generate the best return. Labour doesn’t even know where that is.
For all the good this government is seeking by creating an even playing field for land transport, the outcome is tarnished by clumsy tax policy with regressive impacts on lower income families. The uproar here is over a relatively small increase in tax, yet we continue to ignore the billions of dollars of income tax that property owners and owners of other capital assets enjoy exemption from. This shortfall continues to be covered by more and more exorbitant taxes on our workforce – the fuel tax is just the latest in a long line.
As long as the massive loopholes in our tax system remain, our tax regime will become more regressive – the lower income/lower wealth portion of society will bear more of the tax impost. This inefficiency in our tax raising mechanisms pile further hurt on an already burdened underclass and is just another reminder of Labour’s inability to be the truly progressive government that New Zealand needs. After all this is the government that has exempted owner occupied housing from any tax reform but is quite happy for its tax reform to slug tenants. So should we really be surprised its happy to pay for trains by a regressive tax on fuel? Where is the evidence that the substitution effects will outweigh the detrimental income effects on lower incomed folk?