Deferring the Government's budgeted fuel tax increases could cost the books up to $1 billion next year, Finance Minister Nicola Willis says, as she edges closer to officially shelving the prospect amid soaring petrol prices.
Willis told media present for the release of Budget 2026 today the 12 cents per litre increase had been agreed to by Cabinet for January next year but she would not be raising fuel taxes while prices remained elevated.
"Look, let's just be realistic, [if] petrol prices are still where they are now, I'm not going to be increasing the petrol tax," she said.
"A fuel tax increase had previously been agreed to by Cabinet to occur in January next year. Multiple ministers, including me, have stated that that looks unlikely to occur given the heightened fuel prices New Zealanders are experiencing."
Budget documents released today listed the potential deferral as a fiscal risk, with Treasury estimating each six-month delay would cost around $300 million.
Willis said the final hit to transport revenue could range from $250 million to $1 billion, depending on how long the increase was pushed back.
Cabinet had not yet decided whether to defer the increase or, if so, for how long, she said.
Willis added that possible deferral options would be brought to the ministers by Transport Minister Chris Bishop ahead of October's pre-election fiscal update.
"We think it's important that New Zealanders see what impact that will have on the books, but I'm confident that we can prudently provide for it," Willis said.
"The cost of it depends on how long it's deferred for, whether it's three months, six months, 12 months, and so the cost could vary anything between $250 million and up to a billion dollars if it was delayed further."
Ongoing unrest in the Middle East was expected to impact our manufacturing industry. (Source: 1News)
Budget 2026 also set aside $450 million in a time-limited contingency in case further fuel-related support was required.
Labour has pledged to scrap any possible fuel excise tax increase if elected, while coalition party ACT has said it would opt to continue the hikes if it were in government.
The increases had been due to add 12 cents per litre to fuel excise from January 2027, with a further 6 cents in January 2028 and 4 cents per year after that.
The revenue funds the national land transport programme, which pays for roads, public transport and other transport infrastructure.
Documents released today stated the Government "plans to return to previous practice of regular fuel excise duty and road user charges increases in 2027".
Willis sought to pin the origins of the increase on the previous government, noting Labour had first proposed the 12 cent hike in August 2023.
Ongoing unrest in the Middle East was expected to impact our manufacturing industry. (Source: 1News)
National had campaigned on not raising fuel taxes during its first term and, once in office, delayed the hikes until 2027, after the coalition's current term ends in November.
Today's comments followed Bishop's speech to the AA in March, where he described raising fuel tax during a fuel crisis as a "non-starter".
"Petrol tax has not risen since 2020 and has not kept up with inflation," Bishop said in the speech. "I have to be honest with you, the idea that we would put up fuel tax during a fuel crisis seems like a non-starter to me."
Funding options range from fuel tax hikes to borrowing as election-year scrutiny hits transport priorities. This story was originally broadcast in February 2026. (Source: 1News)
Prime Minister Christopher Luxon had also signalled the increase was on shaky ground, telling Breakfast in late March that the January hike was "possibly unlikely" as the Middle East crisis squeezed household budgets.
The fuel excise revenue is ring-fenced for transport spending.
In 2026/27, the Crown is forecast to collect $4.9 billion in total land transport tax revenue, with fuel excise duty accounting for about $2.2 billion of that.
Scrapping or delaying the increase would ease pressure on motorists but leave a gap in transport funding that the Government would need to account for.
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