New Zealand is one of the most car-reliant and petroleum-reliant countries on earth. So how we are taxed to travel on land has huge equity implications.
Minister of Transport Simeon Brown has stated multiple times that we will in time shift to a totally Road USer Charge system for all vehicles, rather than fuel tax. That needs to be tested.
Road User Charges are paid for every 1,000kms travelled. Fuel Excise Tax is paid by the litre of petrol used.
We should outline some basic principles about what “fair” means in tax. Let’s get to some principles.
Both the 2009 and 2018 Tax Working Groups included the following principles in assessing the design of the tax system:
Efficiency: The principle of efficiency seeks to raise tax at the least cost to domestic residents.
Fairness/Equity: The principle of equity is typically divided into its horizontal and vertical components.
Revenue integrity: The Revenue system should be sustainable over time and minimise opportunities for tax avoidance.
Compliance and administration cost: The tax system should be as simple and low cost as possible for taxpayers to comply with, and for Inland Revenue to administer.
So to deal with each in turn briefly, comparing Road User Charges and Fuel Excise Tax
Efficiency
| Road User Charges | Fuel Excise Tax |
| Ordinary citizens pay Road User Charges by going into a Post Shop, figuring out what you can afford, and what class your vehicle is, and paying over the counter. |
The tax is paid automatically in the over-counter payment at a petrol station |
Fairness and Equity
Vertical equity is the principle that those with a higher income or higher ability to pay, should pay a greater amount of tax
Horizontal equity is that people in the same position should pay the same amount of tax
| Road User Charges | Fuel Excise Tax |
| Road User Charges are precisely based on the amount you use the road, not upon your ability to pay.Users are paying the same amount per kilometre.
Owners of light EVs will pay $76 per 1000 kilometres, to match equivalent diesel-powered vehicles. Meanwhile, plug-in hybrid owners will pay a reduced rate of $53 per 1000km, recognising that they also pay excise duty on their petrol. |
Fuel Excise Tax favours those with the most efficient vehicles which are usually newer.New Zealand has one of the oldest car fleets in the developed world. Arguably there is less vertical equity in this tax. |
Revenue Integrity
| Road User Charges | Fuel Excise Tax |
| With all vehicles paying through the same system (while still differentiating for weight classes), the ability to forecast future income will be easier. | Fuel Excise Tax currently captures 81% of New Zealand’s vehicle fleet. About 2% of the full fleet are electric or electric-variant.The National Land Transport Fund has required greater subsidy from other government income over time. |
Owners of light EVs will pay $76 per 1000 kilometres, to match equivalent diesel-powered vehicles. Meanwhile, plug-in hybrid owners will pay a reduced rate of $53 per 1000km, recognising that they also pay excise duty on their petrol.
Fuel Use Disproportionality
We need a note on where this government income goes. With all petrol taxes now going into the National Land Transport Fund (NLTF), the amount paid into the fund by petrol users has doubled, while the amount paid by diesel users has remained the same. This means there is a further inequality in the system – users of petrol vehicles pay a disproportionately high amount of tax compared to Road User Charges paid by diesel vehicles.
Income Inequalities
Low income people with multiple jobs across town, or requiring lots of travel and using their own vehicles, pay more in a Road User Charges system. There’s no more hunting out the fuel price specials across town. AA has just stopped its fuel points system. Wealthier people can work from home on Teams, or they get their cleaners and carers to do the menial trips for them.
Surveillance
As most large fleet operators do already, there will be a strong drive for all companies to attach speed-and-location devices to vehicles.There will be a strong drive to attach it to all vehicles in a family – something akin to tracking the daughters’ cellphone location. It is very easy to give away privacy and impossible to get it back.
Also, NZTA is preparing to take over all cameras in all cities, from public transport to Police enforcement. If you have not paid your RUC you may be able to be pulled over by the cops simply through number plate recognition. That’s a lot of aggregated state surveillance and enforcement power bearing down on you and your car.
Lower Incomes and the Force of the State
For many taxes and charges including water rates, council rates, public transport and many other fees and charges in society, poorer and very old people get discounts and flat fees for a first level of usage. This is more possible with RUC than with fuel taxes. Do we want a Gold Card and Community Card option for RUC?
On the other hand, RUC is a more penetrating and more accurate system of user pays than fuel taxes. Like rates, the rich will be able to pay a year in advance and everyone else won’t be able to.
Will NZTA or the Police be impounding your car if you don’t pay RUC? Will they make payment of RUC a condition of getting a Warrant?
Will failure to pay affect your Driver License points?
Will the Police or NZTA be able to make you forfeit ownership of your car like Councils do to houses for failure to pay rates? Forfeiture might be bearable for those with multiple vehicles, but not for those who can only afford one car and like the rest of us totally rely on it for most of our lives.
More on Fairness
Even if we go to a full Road User Charges system, and it’s efficient to collect, and it takes into account the most vulnerable, does RUC make heavy trucks really pay their way? Two tonne car does about 10,000 less damage than a 20-tonne truck.
And Road User Charges for vehicles under 3 tonnes make no distinction between a wee Nissan feather and a three tonne Range Rover steel brick. There need to be a whole lot more staggered levels of the tax level you pay based on the road impact you make.
And since it’s all about user-pays for the amount of damage you cause, maybe it’s time to strip out anything to do with funding cycling. That’s where this logic of user-pays takes us.
We need an actual debate on this, not just an untested assumption from central government that because NLTF is running out, we need to switch to a fully user-pays system with no thought for accuracy in attribution or fairness in the system for all.
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