New Zealand's long-standing fuel excise tax on petrol could eventually disappear, with the Government planing to move all 3.5 million light vehicles in the country onto a distance-based road user charges (RUC) system.

New documents, released under the Official Information Act to Newstalk ZB, reveal officials expect petrol prices to fall as fuel excise duty is progressively removed and replaced by electronic RUCs, though motorists would instead pay for road use based on the kilometres they travel.

The proposal forms part of the Government's wider overhaul of road funding, which aims to replace the current system where petrol vehicles contribute through fuel excise while diesel, electric, and plug-in hybrid vehicles pay RUCs.

An April briefing prepared for Transport Minister Chris Bishop by the former Ministry of Transport – now part of the Ministry for Cities, Environment, Regions and Transport (MCERT) – says the change would eliminate disparities between motorists based on vehicle efficiency.

Currently, petrol vehicles pay a fuel excise duty of 70.024 cents per litre, with additional levies bringing total national taxes and levies on petrol to 77.254c/L before GST.

By comparison, light diesel vehicles and battery-electric vehicles currently pay RUCs of $76 per 1000km, while plug-in hybrids pay $38 per 1000km.

Officials told the minister the average petrol vehicle consumes 8.1L/100km, while the 'break-even' point between fuel excise and today's RUC rate is around 9.4L/100km.

That means the average petrol-powered car currently contributes less towards the National Land Transport Fund than an equivalent vehicle paying RUCs.

"Moving everyone to RUC would address the disparity between fuel excise duty and RUC," the briefing states.

The Government had previously considered increasing fuel excise by 26 per cent to around 91c/L to align with RUC revenue, but officials confirmed that option is no longer being pursued.

Instead, fuel excise would gradually be phased out as motorists transition to the new electronic RUC system, reducing the tax component included in petrol prices.

The Government argues a universal RUC system would be fairer because drivers would pay according to how far they travel, rather than how much fuel their vehicle consumes.

Under the current system, owners of more fuel-efficient petrol cars pay less tax per kilometre than those driving larger SUVs or utes, despite placing similar demands on the road network.

The proposal comes as the National Land Transport Fund faces increasing pressure.

Speaking in Parliament last month, Mr Bishop said it was "unlikely" fuel taxes would increase in January, despite fuel excise having fallen by around 20 per cent in real terms since 2020. He also described the transport fund as "massively oversubscribed".

Before any changes take effect, MCERT says it will undertake a review of road pricing to determine how future funding will work under the new system.

The transition depends on legislation currently before Parliament, with the Land Transport (Time of Use Charging) Amendment Bill paving the way for a fully digital RUC platform.

That bill has already passed its second reading, with the modernised electronic RUC system expected to be operational during 2027.

For motorists, the changes could eventually mean lower prices at the pump, but not necessarily lower overall motoring costs, as fuel taxes are replaced by kilometre-based charges instead of being removed altogether.

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Petrol tax to go as Government plans RUCs for all cars in 2027 - report

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