By Sam Warburton*
Last time I assessed a number of statements made by Mayor Phil Goff. This week it’s one big one claim made by a Minister, a journalist, and an enthusiast.
CLAIM: Fuel tax isn’t as regressive as you think
The Minister of Transport Phil Twyford didn’t go as far as saying fuel tax isn’t regressive, but did use some misleading-by-themselves figures to show the rich spend more on fuel than the poor.
Simon Wilson initially called it a complete reversal of the claim that fuel tax is regressive.
A couple of days later, Wilson ‘corrected’ his view, saying ‘fuel taxes are flat taxes: we all pay the same per litre. And all flat taxes are regressive’.
What changed? And what happens when the error correction is wrong?
Fuel tax is regressive as a proportion of income
Well, as many people pointed out, a regressive tax is defined as costing a low-income person more of their income than a high-income person.
With a little arithmetic, the figures released by the Minister actually showed lowest decile income people paying three times the share of their income in fuel tax compared to the next decile who also paid twice as much as the highest decile.
Figure: Share of household expenditure on fuel
But that’s the least remarkable point about fuel taxes.
The more interesting point is that, contrary to Wilson’s assertion, fuel tax is not a flat tax.
Fuel tax costs the poor more per kilometre driven
Speaking to Radio NZ recently, transport enthusiast Patrick Reynolds made the same claim as Simon Wilson. That poor people spend a greater portion of their income on basically everything – rent, food, clothes, electricity – and, like GST, the poor will pay more fuel tax as a proportion of income.
But fuel tax isn’t like GST. Dollar-for-dollar, fuel tax is worse than GST in terms of the burden on the poor.
If a poor person and a rich person buy $11.50 worth of potatoes, $10 of it will be for the potatoes and $1.50 will be GST. The poor and rich person pay the same amount of tax. It’s a flat tax, but regressive as a portion of income.
Fuel tax isn’t a flat tax.
If you’re rich and own a brand new Suzuki Alto and drive 10,000 kms a year, you would have paid $300 a year in fuel taxes last year. If you’re poor and own a 1990s Toyota Hiace and drive 10,000 kms a year, you would have paid $900 last year.
In three years’ time, and after Auckland’s regional fuel tax and the planned national fuel excise duty increases come in, these amounts will increase to $400 and $1,200 per annum.
A flat tax would involve moving petrol vehicles over to road user charges, the same as owners of diesel vehicles pay now. This would immediately mean a tax reduction in that Toyota Hiace-owning poor family’s tax bill of about $450 per annum, and a higher tax on richer families to the point where both are paying the same.
The total cost for poor people is higher than for rich
According to Wilson’s story, the Ministry of Transport provided the data showing higher income deciles spending more on fuel than lower income deciles.
It seems that the Ministry provided the Minister with the data and some commentary suggesting that rich people might spend more on fuel because they might go on more road trips.
What the Ministry and Minister didn’t seem to consider was that many poor people don’t own cars.
Students are low income and generally live close to university and work. It’s misleading to include them in the calculations to suggest that poor households with vehicles will be less affected than rich households.
The Ministry and Minister should have turned to their attention to the Ministry’s own Household Travel Survey which tells us about the kinds of vehicles different households own (and thus the tax they pay per kilometre) and how much they drive.
If they did, as I have been and reported last time, that Auckland’s regional fuel tax will, on average, charge:
- Māori 14% more each km they drive and they drive 7% more than others
- charge the unemployed 6% more each km and they drive 3% more than others
- charge sole parents 5% more each km and they drive 28% more than others.
The patterns are very similar elsewhere in New Zealand.
These findings should perhaps not be surprising. While rich people might, all else constant, drive more and buy more fuel, not everything else is constant.
The richest two regions in New Zealand are Auckland and Wellington. They're also the only two regions with reasonable public transport networks. People living in low-income rural regions like Southland and Hawke's Bay have virtually no public transport, so they drive.
Even within Auckland and Wellington, poorer regions are less well serviced by public transport.
And poorer households have other reasons why they drive more: they have bigger families and live further from work and work hours when public transport isn't operating.
Fuel taxes are not just regressive as a portion of income, but in total and, worst of all, per kilometre.
It’d be unconscionable if we implemented a policy that charges poor people more to visit the doctor than rich people. It should be unconscionable in transport.
VERDICT: False
*Sam Warburton is a research fellow at the New Zealand Initiative, which provides a fortnightly column for interest.co.nz.
69 Comments
And moreover: this tax won't be used to improve the roads the poor drive on. Most of it will go to the rich suburbs and improve the public transport and cycling options there.
On the other hand, it's the same poor who vote in people like Goff, so we'll know in a bit if they did really mind being taxed more.
@Berend ......... money is fungible , and unless the tax collected is placed into a dedicated fund, subjected to audit and public scrutiny , we will never know where it ends up .
The cynic in me says it will all go in salaries and wages on expensive consultants, and then when there is an uproar the rest will go into paying for spin-doctors to lie to us and cover backsides
What seems like ages ago someone suggested that the revenue from the speed cameras could be dedicated to roading . The then minister Hodgson I am pretty sure, made the truly facile and inane remark that that would encourage people to speed. I ask you when a cabinet minister can come out with something like that, there is little hope for any of us. So yes Boatman the money go round goes round and round and the snouts suck up what spins off.
Not sure it is, but our middle class family public transport usage has increased markedly in the last two years, particularly trips to the CBD where the travel time difference is immaterial, the fares are cheap ($6.60 return) and bus frequency is good (every 15 minutes until midnight). It also helps that the 'loser cruiser' moniker can now be countered with virtue signalling.
The whole debate is nonsensical. People make a choice: what kind of car to drive, how far from work to live, etc. Based on those choices they will or will not pay slightly more in fuel tax.
Again, if that doesn't sit well with them they have a further choice: to motor, take public transit, cycle, or walk.
The point is the poor have fewer option because they can't afford better cars and already live far away from the jobs they CAN get due to their financial situation.
I know a couples who drive because public transport would be longer and move expensive due to the location they could afford to buy in. And they purchased BEFORE this was implemented so could not base their decision on this one policy in the future.
Your ideas are ridicules and you should be ashamed.
But if you are stupid, you will be making stupid decisions, which will make you poor, and that isn't fair to tax people for being stupid, except for smoking and drinking where taxing stupidity is ok. If you stupidly decide to have a large family and no job, then government should be taxing DINK's more to pay for your stupid choices.
People often don't have choices they can freely make. Does a disabled person get to choose their mobility, does a nurse get to choose how to visit those same clients when a private vehicle is mandatory. Does a tradie get to choose to not work with their tools and materials that day as they took the bus. No. People often don't get transport choices especially those poorer experiencing job and housing stress. With those disabled f from all angles as the nursing and homecare allowances fail to account for the elevated transport costs they need to pay. Take your ableism with elitist affluent housing transport access and apply it roughly to a dark place.
The X5 takes 85 litres from empty and is only used for road trips. A full tank of 98 RON @ Mobil Clearview @ $2.424 = $206.04 compared to Mobil Mercer @ $2.319 = $197.11. You can guess that Mercer is getting whatever business we have, even though the margin doesn't fully represent the fuel tax. Sorry Phil.
Wonder how many like me are filling up outside of Auckland on the way to the beach house on weekends. Reckon I'm saving $10 a fill.
Typical labour and their unintended consequences. Unfortunately the poor will always vote for them so they can tax them as much as they like and ensure they're forever poor and welfare dependant.
I actually don't think this is a case of unintended consequences. I think they knew full well that they're pandering to inner "leafy suburb" voters with this, and throwing the poorer people further out under the bus to do so. Council rates have already had their home value component set to the absolute minimum (as far as I'm aware from earlier coverage) in order to reduce their value-weighted nature as much as possible, and this has merely been another case of the same.
It's disappointing to see Labour politicians oversee such a policy's implementation. Whether it originated with them or inner-city policy wonks is another matter. But it does highlight how close together Labour and National are now, in many ways.
A fairer approach would be for properties that have received the most betterment from the city's growth and residents to be paying the higher rates, at a stronger weighting than the currently minimised component allows. Receive more - contribute more.
But self-interest rules.
(This policy has very little effect on me.)
No, congestion charges are better. You can do things to avoid paying the tax by also avoiding being a part of the problem, like change your travel times (ie, leave early and go to the gym before work etc) to avoid the charges and also alleviate the problem the charge is being raised to "fix", or you can keep driving at rush hour as usual and pay for the privilege and the solution.
There needs to be a baseline fuel or RUC to cover wear and tear to the roads, but congestion problems should be charged to those that are the cause of the problem, and will benefit from the solution. Not to those that aren't part of the problem.
With a fuel tax there is no way for the night shift worker to avoid paying silly amounts to address a problem that doesn't affect them, and they aren't contributing to.
similar with Puhoi I think. However with latest technology and a central NZ wide software tied to renewing rego it could be done inexpensively. A rare case of new IT solution actually being a good idea. retired IT but I reckon the underlying database and its security could be designed in an afternoon - not sure how long to do the web based front end but Trademe seemed to knock new user interfaces together fast.
How true that is Rick. There is precious little anymore that overtly seperates the centre right from the centre left. It surprises me just how little many of those who supported the ‘left’ in the last election seemed to find this revelation somewhat implausible. I note with interest where the font of much of Labour’s current suite of political inspiration and policy direction, often almost ver batim, issues forth from. The same pierian spring which I’d wager, somewhat cynically, the majority of the coalition voters would regard as the poison chalice. It’s a funny old world. Davos anyone?
I didn't vote for Labour but I DID support holding National accountable for their failure to address issues, for running down infra etc and for campaigning on the housing crisis then pretending it does not exist.
All that said, I don't support this action from Labour either. It's more a right-wing foisting of costs on the poor to pander to the wealthy.
Fossil Fuels are finite. For future generations to have equal resource-chances as us, it has to be near-infinitely-priced.
The joke is that even the NZ ' poor' are infinitely resource-richer than those who will follow us. The problem is orders-of-magnitude bigger than whether someone can't drive as much. And the solution involves addressing population - which we''ll never do. Or discuss.
And the answer is to transport yourself without cost - cycling does it, walking does it, and public transport would nearly do it.
From the only house you and your family can afford in Auckland - in somewhere like Papakura to your 10-6am shift work facilities job in the CBD. 30km cycling is certainly a great answer on a windy wet winter's night.
I'm guessing you live in a nice central upmarket suburb, vote Green and really care about the plight of the poor?
Nope, Foyle. I live in a house I built for 50g, 13 years ago. Off grid, 12 volt, produce half own food. On acreage nobody else wanted....
And I used to cycle from Bondi to Mascot on a daily basis for years, working night-shift in a paper sack factory. Paid for our first house entirely from it.
Funny because you list those options in order of most inaccessible to moderately inaccessible. With all logistics, products and foodchain reliant on transport fueled by the current vehicle market your pipe dream would have 90% starving to death before they can "cycle" to work, and the 25% disabled to mostly die altogether without vehicle accessible medical services. The joke is your ableism never thinks of anyone but those with your own ability.
Unconscionable indeed .
Its time for some fun......... let all those anti-Boatman plebeians on the left and the lunatic fringe in the Greens have a go, bring out their inner -wordsmith and express their frustration with my views
Here's an hypothesis :-
If this tax on the poor was introduced by a National Government , there would have been at least one protest march down Queen Street .
I looked at the increase to building, medical and financial services alone and wished them all a dark path, as wages did not rise to accommodate the costs. They also made those legal rights requests from the disabled families in court illegal,... quite a bugger to many now. Sure I look at the policies but it would be better to look at mathematical probabilities & research motives instead of the advertising dross. Yet if we are to consider future generations, not just the current ones, we do need to be building a lot more retirement housing & low cost FHB housing.
No they don't. In fact most those on sickness, palliative & pension benefits (that are below the cost of living), have to absorb the cost with no money to pay for it. I.E. skipping doctor appointments, losing access to the community etc, more often then they can afford to go currently, (which is practically unaffordable now).
I was really surprising Labour gave the go ahead on this, clearly the lower end would pay a higher % out of their income ? Labour is supposed to be about helping the poor, another policy not thought through just like the oil and gas exploration ban, shame on you Labour.
Hmmm.... I agree with the premise of the article but if the writer is going to complain about misleading statements by others perhaps it best not to compare the fuel economy of a van (Toyota Hiace) and a little run-around car (Suzuki Alto) as if this is some kind of proof that poorer people will be hit harder by this tax. Otherwise totally agree.
Anyone else think that the Suzuki Alto is a middle class car? Don’t rich drive things like the Porshe 918, Landrover or various Humvees. I would imagine that those vehiecals consume somewhat more fuel than the Hiace. Also the Hiace moves twice as many people as an Alto with something like 3 times as much internal space. You need to compare similarly sized vehicles ( maybe the Hiace against any odd Humvee ). To compare smaller cars maybe assume that the poorer person has a 2001 Prius (worth about $3,000) whilst the richer has a Ford Mustang.
Consequent on the 'middle class' having been redefined by the progressive taxation and redistributive policies of previous decades (and the Auckland housing crisis) an Alto is now definitely a middle class vehicle. The 'rich' whom Twyford deceptively asserts will pay more in fuel tax than the 'poor' are a tiny minority so their discretionary travel contributes inconsequential amounts of tax relative to the rest of us. You make that point in prefacing Humvee with 'odd'.
dotn forget that poor people are rarely blessed with commute and company vehicles with free fuel - these are generally with the wealthy and of course business owners
Also - already hearing that tradies in auckland have upped their travel charge by $4-$10 a trip - and with most of our goods and services having some form of fuel cost involved - this will all be passed on - and in reality thats will again hit the poorest hardest -
Whilst not the only solution - surely a progressive tax system - lowering tax on the first 50K to nothing and then increasing tax rates fro 120K upwards would be the simplest way if they want to redistribute taxation more fairly - or is taht just too simplistic as a starting point!
You will always have unfair taxes, because of these two questions?
Why should the "rich" pay more for the same service?
Why should the "poor" pay proportionally more for the same service?
I always question why? when it comes to Govts, it always a case of raising more revenue.
Can we not pare back "services".
http://wheresmytaxes.co.nz/
You know our taxation is wrong when it costs $1,500 per person per year to collect.
Due to this fuel tax the ENTIRE COST OF LIVING INCREASES. All extra cost incurred by this fuel tax will all be passed on to consumers such as food, clothing, taxis, airfares, new house build. WELL DONE LABOUR PARTY. People voted for the party? The poor now become even poorer.
You missed the part where they all make promises, they just tend to focus on the ribbon cutting then the book keeping & engineering once in power. More paid lunches and paid overseas travel from lofty offices than any effective work. Relying on AT for any transport management, a dept where council money was used to bribe other staff to scam more money is a lost cause. You need a massive shake up and reorganisation before that corrupt bunch can be trusted managing just the bus services.
The debate about fuel tax is an interesting one.
1) The fuel tax is user pays (transport funding is reasonably well ring fenced & transport is treated as a good/service). The more you use the road network the more you pay towards funding it.
2) The least regressive means of transport funding would be to have no fuel tax and take it from the consolidated fund through increased other taxes. Overall travel would probably increase (cheaper for the poorer, & the richer would still probably choose travel (inelastic) & decrease consumption(/savings) on other goods.
3) The orthodox approach to social welfare is to increase benefits for the poorer & have a user pays approach. This approach is not completely working for transport. For those that cannot even afford a car or cannot drive the public transport service is an inadequate alternative (not full coverage & not adequate frequencies) & is mainly controlled by regional councils not central government. There would seem to be a case for central government to fully fund an underlying full coverage network at minimum reasonable headways to meet social needs, with regional government then providing level of service increases over & above that.
4) Local government is also a player as it determines the land use zoning rules (making land use inelastic to demand changes) through district plans (we have few national policy statements).
Travel is a demand derived from the land use pattern, & thus local government strongly influences how much we are forced to travel by car & how much fuel tax we pay.
Oh, it was a thing alright.
But those who needed to kick the can further down the road, created much money out of thin air - called quantative easing, which most folk failed to question. That made the valuation of most things, including oil, impossible to judge.
So everyone is more indebted just staying afloat - much the same as if the price of fuel had been raised. And even then, US fracking has yet to break even.
Ever stop and consider that the the congestion in Auckland - arguably due to the lack of foresight in imposing surcharges and funding public transport - is currently knocking business around at a far greater rate?
The ignorance on what is going to hit us in the face shorty with spiraling energy costs is astounding. Stop worrying about a few cents a litre. It's nothing compared to whats on the horizon.
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