NZ Cancels 2027 Fuel Excise Hike to Ease Cost of Living Pressure

The fuel excise hike planned for next year has been cancelled to help Kiwis with the cost of living and deliver lower taxes for New Zealanders, Finance Minister Nicola Willis and Transport Minister Chris Bishop have announced.

Fuel excise was scheduled to resume annual increases starting with a 12c per litre increase from 1 January 2027, with equivalent increases to road user charges. That has now been scrapped, with the next increase of 5c a litre now taking effect from 1 January 2028, Ms Willis says.

Cancelling next year’s fuel excise increase and spreading the change over time from 2028 will give Kiwis more time to recover from the period of post-Covid economic pain and recent uncertainty in the Middle East.

It follows our decision to cancel the last Government’s proposed fuel excise hikes, which were due to kick in this term, along with the Auckland Regional Fuel Tax.

The short-term sugar-hit approach to economic management we saw post-Covid drove a period of record-high inflation and soaring interest rates that hit New Zealanders hard.

That’s why, since the start of the fuel crisis, we have sought to get the balance right between supporting New Zealanders with the cost of living and being responsible managers of the economy.

Our careful economic management means inflation has fallen significantly from its peak of 7.3 per cent, wages are expected to grow faster than prices each year, and around 220,000 new jobs are expected to be created by 2030.But times are still tough and there remains uncertainty in the Middle East. As we have demonstrated this year, we will keep a watchful eye on international events and ensure Kiwis are supported if the crisis leads to higher fuel prices in 2028.

Mr Bishop says that since 2020, the average cost of transport projects has increased by as much as 45 per cent, while fuel excise has remained frozen – falling in real terms by around 20 percent.

While pausing fuel excise increases was the right choice as New Zealanders weathered an economic storm, unless they begin again soon, the financial foundations of our land transport system will be undermined, Mr Bishop says.

For New Zealanders, that would mean roads littered with potholes, cancelled projects, and an inability to respond when communities are cut off following severe weather events.

To prevent this, the Government has agreed on a new, more sustainable path for fuel tax increases. There will be no increase to fuel tax in 2027, with the next increase taking effect on 1 January 2028.

Instead of a one-off 12-cent increase, we have spread these changes over time to make the transition fairer and more manageable for New Zealanders, as the economy continues to pick up and wages grow.

Fuel tax will rise by 5 cents on 1 January 2028, followed by three further 5-cent increases at six-month intervals. Annual increases will then resume from 1 January 2030, of 5 cents per year. Road user charges will be subject to equivalent increases at the same intervals.

It would be irresponsible to reduce funding for the land transport system to pay for this change. Doing so would require significant reductions in road maintenance, public transport services and infrastructure investment. Officials have advised that a reduction of this scale would not be credible without serious reductions in funded services.

On that basis, Ministers have agreed to top up the National Land Transport Fund to account for the reduction in fuel excise revenue. This is expected to cost $1.476 billion over the forecast period, Mr Bishop says.

Nicola Willis says the cost will be partly offset by the $450 million fuel response contingency established through Budget 2026. The remaining cost will be managed through and reflected in the PREFU.

Cancelling next year’s planned fuel tax increases is the responsible choice. New Zealand can only afford to do this because of our Government’s careful management of the finances, which has ensured the country is on track to return to surplus in 2028/29, earlier than forecast last year, Ms Willis says.

We are getting on with the job of fixing the basics and building the future.Note to editors: The Government is also delaying the increase to road user charges scheduled for 1 January 2027. Instead, road user charges will be increased from 1 January 2028 at rates equivalent to the increase in fuel tax.

The 45 per cent increase in transport project costs is a weighted average based on costs that are captured in the Producers Price Index (PPI) which tracks the costs of steel, concrete, aggregate, and fuel, among other construction costs, but also factors in NZTA's higher exposure to increases in the price of bitumen (which has increased 220%).