Expert presents case for and against Regional Fuel Tax

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Dr Ranjana Gupta

Dr Ranjana Gupta

Auckland, May 9, 2021

Editor’s Note: While the imposition of Regional Fuel Tax (RFT) was a topic of heated debate among Aucklanders, there has been little articulation on the subject- a dispassionate view that would throw light on the advantages and otherwise of such a levy. Amidst ambiguities and rhetoric comes the following article by Dr Ranjana Gupta of AUT as an educator. Hopefully, the article (which is a redacted version of her in-depth study), will help you understand the issues and concerns.
Standfirst: COVID-19 has upended our daily lives, the way we commute is changing, workers commute into the city at varied start and finish times, companies are allowing employees to work from home at other times but we still continue to pay costs associated with the Regional Fuel Tax-RFT (as it is incorporated into the price when fuel is purchased) despite not contributing to Auckland’s congestion at peak times. The design of fuel or other taxes and the negative externality cost considerations in their implementation are crucial determinants of their overall success says Dr Ranjana Gupta, Senior Taxation Lecturer, Auckland University of Technology (AUT) in a detailed study. The following is an extract of her 22-page Paper entitled ‘The Imposition of Regional Fuel Tax in New Zealand and its Advancement’ published recently.

 

Is Fuel Tax a panacea for Auckland’s increasing traffic gridlocks?

My attempts to analyse the reasons for the introduction of RFT within Auckland under the Land Transport Management Amendment Act 2018 and its subsequent distributional impact.

Time and Productivity loss

Examining the traffic congestion costs and environmental and fuel taxation, my research shows that time lost due to congestion has a significant impact on Aucklanders’ productivity and exposure to transport-related air pollution exacerbates social costs.

At the same time, the existing environmental and fuel taxes in New Zealand are not achieving the desired effect on congestion costs due to relatively narrow tax base.

The short-run inelastic fuel demand suggests that environmental policies, such as a carbon tax and fuel tax, to reduce fuel consumption and to control CO2 emissions may not help in achieving sustainable environmental goals and mitigate the traffic congestion problem.

Disproportional impact

My study found that distributional impacts shows that the RFT has negative impact on non-transport fuel users, such as those in the farming, construction, and manufacturing industries and the compliance costs of a rebate system for such businesses are high. It showed that due to the lack of fuel-efficient vehicles driven by lower-income households, the fuel tax is regressive and disproportionately impacts lower-income groups.

The RFT scheme was implemented to generate significant revenue, which has been earmarked for public transport and infrastructure projects within Auckland to reduce congestion and pollution. These projects included a light rail from the Auckland waterfront to Mt Roskill.  However, in the May 2020 budget, the Labour-led government announced that due to the Covid-19 crisis the Auckland light rail project would be postponed.

Collective understanding critical

Taxing fuels to reduce oil use and Greenhouse Gas (GHG) emissions could have important co-benefits of raising revenue for the Auckland transport system, but it is vital to have contentious but crucial conversations about how we collectively understand and use the planned new roads most efficiently for public transport, active transport (higher vehicle occupancy) and the private automobile. 

Given that, it is suggested that consideration should be given to strengthening vehicle standards for fuel economy and GHG emissions. Further it is suggested that for the general public’s tolerance towards RFT, the Labour Party needs to communicate the functioning, and showing the distributional impact, of the RFT to the people of Auckland using evidence such as reduced congestion, air pollution, and health costs, improved atmospheric visibility and quality of life.

Additionally, to correct externalities, the political parties need to consider and inform the public about their policies regarding covering external costs and efficient development of a programme to build Auckland as a ‘sustainable city.’

 

Auckland Mayor Phil Goff: The Council is replacing its fleet with electric vehicles

Switching to electric vehicles

More than three-quarters of New Zealand’s electricity is generated from renewable sources, which provides Auckland with considerable advantages to reduce emissions from transport by switching to electric vehicles, private or public.

Currently, only wealthier people can afford to buy the relatively expensive electric cars, so the number of electric vehicles on Auckland roads is low.

My study suggests that, to mitigate pollution and to encourage the use of public transport, the government should consider imposing congestion charges or punitive tolls for single occupancy vehicles which will ensure that the “polluter” will pay the full marginal cost of their actions that affect the environment.

The study supports that the easiest way to reduce single-person car use is to assign the full costs of its use to the car and driver. Additionally, to manage the existing infrastructure more efficiently and from a policy perspective, the research asserted that designing an RFT based on the social cost of externality (which is the direct impact of rising numbers of cars on the road) would be the right approach and would undoubtedly make a significant difference to our environment.

Dr Ranjana Gupta is Senior Taxation Lecturer, Auckland University of Technology (AUT) based in Auckland. The above is an extract of her 22-page Paper entitled ‘The Imposition of Regional Fuel Tax in New Zealand and its Advancement’ published recently. Email: ranjana.gupta@aut.ac.nz

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