The Government has confirmed it will phase out fuel tax in favour of electronic road user charges (RUC) for the country’s 3.5 million light vehicles — a move Transport Minister Chris Bishop describes as the ” biggest overhaul of roading funding in 50 years.”
Under the proposed changes, all vehicles — petrol, diesel, electric, or hybrid — will eventually pay based on distance travelled and vehicle weight, aligning more closely with actual road use. The current system relies on Fuel Excise Duty (FED), a flat tax of about 70 cents per litre on petrol, which Bishop says no longer fairly reflects how roads are used or funded.
With more than 350,000 hybrid vehicles now on New Zealand roads — up from just 12,000 in 2015 — the link between fuel use and road use is rapidly breaking down. Bishop said it is unfair that people with older, less efficient vehicles pay more per kilometre than those with fuel-efficient cars who may use the roads more.
“For decades, petrol tax has acted as a rough proxy for road use, but the relationship between petrol consumption and road usage is fast breaking down. For example, petrol vehicles with better fuel economy contribute less FED per kilometre towards road maintenance, operations, and improvements, “Bishop said.
“We are also seeing a fast uptake of fuel-efficient petrol hybrid vehicles. In 2015, there were 12,000 on our roads, while today there are over 350,000, ” he added.
The Government intends to modernise the RUC system by enabling digital, user-friendly options — with private sector providers expected to play a central role in delivering new services.
Bishop added that eventually paying for road use should be as simple as paying a Netflix subscription or a power bill online.
Key legislative reforms, expected to be introduced in 2026, include:
- Removing the requirement to carry or display physical RUC licences
- Expanding the range of approved electronic RUC devices, including those built into many modern vehicles
- Enabling flexible payment options, such as post-pay and monthly billing
- Separating NZTA’s role as both RUC regulator and retailer to foster competition
- Allowing bundling of charges like tolls and congestion fees into one simple payment
New Zealand’s direction mirrors changes already made in other countries:
Germany introduced a distance-based tolling system for trucks in 2005, using satellite tracking technology. In the United States, the state of Oregon piloted a similar model for light vehicles, where users pay per mile instead of per gallon of fuel. Singapore is also widely regarded as a global leader in using GPS-based congestion pricing to manage traffic and fund road maintenance.
The reform is expected to open the door to domestic and international providers offering digital RUC platforms. About half of New Zealand’s heavy vehicle fleet already uses electronic RUC services — a model the Government now aims to extend to light vehicles.
By 2027, the updated system will be fully open to third-party providers, supported by a consistent approval process and upgraded enforcement tools for NZTA and Police.
No date has been set for when light vehicles will be fully transitioned to the new system. Bishop said the Government is prioritising getting the framework right before setting a firm timeline.
This initiative forms part of the National-ACT coalition agreement to replace fuel excise taxes with electronic road charging and aims to create a fairer, more sustainable model to fund New Zealand’s roads for decades to come.
