NZ to Replace Petrol Tax with Digital Road Charges in Transport Reform

Under the new system, all vehicles will be charged based on the distance they travel and the weight they carry, irrespective of fuel type.

New Zealand’s road funding system is set for a major overhaul, as the Government embarks on the most significant shift in five decades: replacing the traditional petrol tax with a universal, distance-based electronic Road User Charges (RUC) model. The plan, announced by Transport Minister Chris Bishop, will eventually see all light vehicles—including petrol, diesel, electric, and hybrids—pay for road usage based on how far and how heavily they travel, rather than what type of fuel they consume.

Ending the Petrol Tax Era

Currently, owners of petrol-powered vehicles pay around 70 cents per litre in Fuel Excise Duty (FED), collected automatically at the fuel pump. This revenue, along with RUC payments from diesel, electric, and heavy vehicles, is directed into the National Land Transport Fund, which supports the maintenance and construction of roads across the country.

However, the traditional link between fuel consumption and road usage is weakening. “Fuel efficiency advancements and the rise of hybrid and electric vehicles mean that some drivers are contributing less to road maintenance despite using the roads more,” said Minister Bishop.

To illustrate the scale of the transformation, Bishop pointed out that while there were only 12,000 hybrid vehicles in 2015, today that number exceeds 350,000. As the composition of New Zealand’s 3.5 million light vehicles evolves, the Government believes that a fairer, technology-driven model is necessary to ensure every road user contributes equitably to infrastructure funding.

The New Vision: Distance and Weight-Based Charges

Under the new system, all vehicles will be charged based on the distance they travel and the weight they carry, irrespective of fuel type. This model is already familiar to operators of diesel and heavy vehicles, who currently purchase RUC in 1,000 km increments and display paper permits.

However, that system is clunky, outdated, and overly reliant on manual odometer tracking, Bishop acknowledged. As part of the legislative reform, the Government aims to modernise and digitise the entire framework.

Key reforms include:

• Eliminating physical RUC licenses in favour of digital records.

• Expanding use of electronic RUC devices, including those already built into modern vehicles.

• Introducing flexible payment options like monthly billing or post-pay models.

• Separating NZTA’s regulatory and retail functions, encouraging private sector innovation and fair competition.

• Bundling tolls and time-of-use charges into unified billing systems for ease of payment.

“This is about making road charging as seamless and user-friendly as paying for your electricity or a Netflix subscription,” Bishop explained.

Open Market Model and Digital Innovation

The Government has ruled out expanding the current paper-based RUC system to cover millions of additional light vehicles. Instead, it is looking to the private sector to provide easy-to-use digital platforms.

Some electronic RUC (E-RUC) providers already serve about half of the heavy vehicle fleet. With several domestic and international tech companies expressing interest, the Government will support an open-market approach where motorists can choose from multiple digital service providers.

By 2026, legislation will be passed and a new Code of Practice for RUC providers will be established. Engagement with technology providers will also begin to determine delivery timelines. Simultaneously, NZTA and the Police will upgrade their enforcement systems to align with digital compliance.

The system is expected to be fully operational for third-party providers by 2027. However, no date has been set for the full transition of light vehicles, with Bishop emphasising that implementation will only proceed once the digital ecosystem is ready.

Fairness, Flexibility, and Future-Proofing

The new model seeks to address long-standing issues of fairness in road funding. Currently, those with older, less efficient petrol vehicles often pay more per kilometre than wealthier individuals driving newer, fuel-efficient or hybrid cars. By linking charges directly to actual road use, the Government hopes to create a more equitable and sustainable funding mechanism.

“This is a once-in-a-generation change,” Bishop said. “It’s the right thing to do, it’s the fair thing to do, and it will future-proof how we fund our roads for decades to come.”

The reform is expected to support long-term investment in infrastructure, better reflect environmental impacts, and harness technological innovation to create a modern, efficient and responsive system.