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New petrol tax will be 'really tough on those people at the bottom' – economist

The new fuel tax should be delayed as the country continues to live through the economic turmoil of the Covid-19 pandemic, economist Shamubeel Eaqub says. 

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Shamubeel Eaqub added, however, that it will be "manageable in the grand scheme of things". Source: Breakfast

From today, motorists will be charged an extra 4 cents per litre to fill up their tanks.

It comes as the Government's annual fuel excise tax takes effect, which started as a three-year programme announced in July 2018.

Economist Shamubeel Eaqub told TVNZ1's Breakfast while he did not necessarily oppose the tax, he did take issue with its timing.

"We know that it's going to affect the types of industries that are being quite hard hit by the recession," Mr Eaqub said, "so the younger folk, the poorer folk, people who have to travel large distances to go to work, industries like logistics and all those bits and pieces.

"In the middle of a big recession, this could have quite a big impact."

The Ministry of Transport yesterday said the increase could cost the average one-vehicle family an extra $35 to $40 per year, or 67 to 76 cents per week.

However, Mr Eaqub noted that poorer households in particular who are living further away from their place of work may be spending "quite a lot more than the average to get to work."

"Don't forget - a lot of the averages are over-weighed by people like us who live fairly close to work and get to drive nice, new cars to work."

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Road user charges for light vehicles are also going up an extra five per cent. Source: Breakfast

He added while the "distributional impact of tax is always the problem", the tax increase is "manageable in the grand scheme of things" due to the large decrease in petrol prices amid the Covid-19 pandemic.

He added that while there are concerns the extra money earned from the tax increase will not go towards transport projects, transport "is a system."

"I think most of the argument is if it's used on public transport or around increasing bicycle paths and those kinds of things, that somehow, it's a bad thing, but I think that misunderstands that transport is a system," he said.

"We want to push more people into public transport and active modes of transport like walking and cycling ... so I think that's a slightly wrong-headed way of looking at it and, quite frankly, pisses me off."

He said one way to obtain money for infrastructure without the tax or affecting poorer, more vulnerable communities is to delay the tax increase or to borrow money.

"We're borrowing billions of dollars anyway, in the context of this, it wouldn't have been a huge burden." 

However, he added that the New Zealand Transport Agency must have a budget before projects can be approved.

While there are no "easy answers" here, he said his main concern was the poorer families who are required to travel long distances to get to work.

"We know that our welfare system is not sufficient, we know that the wages of our low-paid workers are not going to increase in this current environment.

"Unless we're trying to fix those things, this is just one more tax that might not mean much to the average, but for those people at the bottom, that's really tough."