Switching from gas to renewable electricity sources to power cars could have one major unintended side effect, by way of reducing the NZ Government’s revenues from excise tax.
Find out how much tax per litre of petrol
According to the AA website, the amount of tax collected by the New Zealand Government on each litre of petrol in 66.484c. This amount excludes the GST on the fuel including the excise, which amounts to a tax on a tax, and would be a separate calculation in and of itself.
How many kilometres per year do Kiwi drivers drive?
This useful document from the Ministry of Transport spells out the average kilometres that Kiwi household drivers travel per year. Interestingly, the results are segregated into male and female drivers, with male drivers travelling on average 12,381 kilometres per year, and female drivers travelling on average 8227 kilometres per year.
To find the number of kilometres driven by Kiwi drivers per year, we multiply the number of drivers of each gender recorded in the document by the average number of kilometres they travelled:
Male:
(1,447,000 x 12,381)
+
Female:
(1,412,000 x 8,227)
= 29,531,831,000
Keep in mind that the study excludes professional driver trips, which are trips undertaken to transport goods or people as a profession – so the above number represents the number of kilometres driven by Kiwi drivers each year, excluding those with a professional transportation purpose such as couriers, truck drivers and bus drivers.
The gender imbalance is remarkable. It would be interesting to undertake a qualitative survey on why female drivers in NZ are driving one third less than men. Anyway, I feel like I’m getting sidetracked.
How many litres of fuel do NZ drivers consume per year
The fuel consumption per 100 km varies so greatly from vehicle to vehicle that one can only estimate, or in my case, pluck a number out of a hat. For the sake of simplicity I am going to assume that every driver in NZ drives a new Honda Jazz, although this may not in fact be accurate. The fuel economy for a Honda Jazz is roughly 5.4 litres per 100 km.
Thus, to find the number of litres of fuel consumed annually by NZ household drivers, we divide the number of kilometres above by the fuel efficiency.
- 29,531,831,000
÷
(100/5.4)
= 1,594,720,469 litres
Figuring out the Impact on Excise Tax Take
Finally, we multiply this number by the amount that the NZ Government collects on each litre of fuel, being 66.484c.
1,594,720,469 litres x $0.66484 per litre
= $1,060,233,956 in missed tax revenue.
Therefore, by switching all of the cars in NZ to the electric fleet, the NZ Government would stand to miss out on over $1 billion of annual tax revenue purely from excise tax on petrol consumption.
There are some flaws with the above analysis – for instance, the Honda Jazz thing, and also the fact that some household (ie non-professional) drivers will be driving diesel vehicles, to which the excise tax does not apply, being replaced with Road User Charges. But the above numbers should be reasonably indicative of the amount of tax revenue the Government will miss out on when the electric fleet finally arrives.
Missed Excise Tax Revenue Per Driver
We can even go a step further, calculating the amount of average missing excise tax revenue that the NZ Government will lose out on per driver, by dividing the revenue figure above by the number of drivers.
Amount of missed revenue divided by the total number of male and female household drivers:
- $1,060,233,956
÷
(1,447,000 + 1,412,000)
= $370.84
So for each new household driver driving an electric vehicle, the NZ Government misses out on $370.84 of annual excise tax revenue.
Since the electric fleet won’t all arrive at once, and will likely be phased in household by household and business by business, this to me is a more useful tool to forecast future outcomes.
A Few Questions
So my questions would be:
Has the Government factored into its forecasts the impact that the arrival of the electric fleet will have on NZ Government annual tax revenue over the next 10 to 20 years?
Since the majority of these excise taxes are applied directly to the National Land Transport Fund, where will funding come from for this fund if this source of tax revenue dries up?
If investment in this fund dries up, what will that mean for the maintenance and continued investment in NZ’s roads?
Have any alternative taxes or road user charges been proposed that would provide a substitute for this lost revenue? If so, what are the specifics?
The Political Implications
The bottom line is that the arrival of the electric fleet could have major implications not just on our environmental efficiency, but on our entire capital structure as a country.
While the arrival of the electric fleet could be very good for the consumer, and great for our carbon emissions, it could be very bad for the Government and in particular the National Land Transport Fund.
One unforeseen negative consequence of having collected excise tax on petrol for so many years is that it is now simply not in the Government’s short term financial interest to usher in the electric fleet. This means that the private sector needs to be more proactive in doing so.
The dilemma we face on this front is probably one faced by governments worldwide, and perhaps explains why there have been delays in ushering in renewable vehicle technology.
Poor buggers. Oh well, at least they’ll still be able to collect the GST on electricity revenues.
Unless we all start going solar…
The problem with following the money is that it sometimes leads you to realisations that you would have been better off not knowing.
