The road-funding problem hiding in plain sight

Every efficient new car is good for the climate and for the household budget. However, it's also quietly draining the fund that keeps our roads open.

Here is why the way we pay for roads is being redesigned across New Zealand and Australia - and why getting the design right matters more than simply plugging the gap.

For most of the last century, petrol tax has been a quiet, efficient way to pay for roads. You drove, you burned fuel, you paid - roughly in proportion to how much road you used.

In New Zealand that link funds the National Land Transport Fund through a fuel excise duty of around 70 cents a litre; in Australia a similar excise flows to Canberra. It was never perfect, but it was simple, cheap to collect, and broadly fair. Well as fair as these things can be.

That logic is now coming apart - and not for a bad reason.

Cars have become far more efficient, hybrids are mainstream, and electric vehicles burn no petrol at all (unless they use a diesel generator:) but lets focus on tailpipe emissions here!).

A modern car can travel the same distance as one from fifteen years ago while paying a fraction of the fuel tax, and an EV pays none of it. The roads still have to be built and maintained, but the contribution toward them is shrinking. We are, in effect, watching a user charge slowly stop tracking use.

The numbers are not trivial

Over the 2024–27 period, New Zealand's land transport programme is worth around NZ$33 billion. Road users contribute roughly $14 billion of that through fuel taxes and road user charges, with the Crown topping up the rest. Fuel excise and RUC together were forecast to raise something like $13–14.5 billion across those three years - but that forecast assumes motorists keep buying petrol at expected rates.

As the fleet electrifies, the petrol half of that base erodes structurally, year after year. And as the fuel-price volatility of 2026 reminded us, leaning on petrol revenue also leaves the fund hostage to swings well outside the transport system's control.

This is the part that tends to get lost in the EV debate. The issue is not whether electrification is a good thing - it plainly is - well generally speaking and I am sure there are many that will debate this.

The issue is that we have been funding a shared, long-life asset with a tax on a product people are sensibly using less of. The base was always going to thin out. It is thinning out now.

New Zealand has a head start

Here New Zealand is in an unusually strong position. It has charged diesel and heavy vehicles by distance and weight for fifty years through road user charges, and since 2024 electric vehicles pay too - a light EV now pays much the same RUC as a diesel, around $76 per 1,000 kilometres. The Government's stated intention is to finish the job: move every light vehicle, petrol included, onto electronic RUC, with legislation expected in 2026 and the system "open for business" to third-party providers by 2027. The Transport Minister has called it the biggest change to road funding in fifty years.

That is not hyperbole. It is a shift from taxing a proxy - fuel - to pricing the things we actually care about: distance travelled and the weight that does the damage to the pavement.

The contrast across the Tasman

Australia faces the same erosion but with far less room to move. Fuel excise there has been declining in real terms for two decades, and the CSIRO projects almost the entire light fleet could be electric by 2050 - which takes fuel-excise revenue towards zero. Yet when Victoria tried to charge EVs per kilometre, the High Court in Vanderstock v Victoria (2023) ruled the charge an unconstitutional excise that only the Commonwealth can levy. The states cannot easily price road use; the Commonwealth has not yet stepped in. Government figures point to a combined fuel-excise and heavy-vehicle shortfall of around A$3.8 billion in 2025–26 alone.

The problem is identical on both sides of the Tasman. The constitutional and political room to solve it is not. New Zealand can extend a system it already runs; Australia has to build the agreement before it can build the system.

This is a design problem, not just a revenue hole

It would be easy to frame all of this as plugging a gap - but that undersells both the opportunity and the risk. A distance-and-weight charge is simply a more honest price for road use than a fuel tax ever was. Done well, it can be fairer, because you pay for what you use. It can reflect that a heavy vehicle wears the road far more than a light one. And it opens the door to smarter signals still - including time-of-use pricing to ease congestion, which New Zealand legislated for separately in late 2025.

Done poorly, it can entrench new inequities and erode public trust. The hard questions are not about whether to move, but how:

• Fairness. Rural and outer-suburban drivers travel further with fewer alternatives. A flat per-kilometre charge can quietly shift cost onto the people with the least choice.

• Trust and privacy. Charging by distance means measuring distance. Whether that is done by odometer, GPS or a third-party app will decide whether the public sees a fair user charge or a tracking device.

• Cost to collect. Fuel tax is almost free to administer. RUC is not. The system has to be simple enough that the cost of collection does not eat the revenue it raises.

• Transition. Millions of motorists who have only ever paid at the pump will need to understand - and accept - a new way of paying. That is as much a communications and trust task as a technical one.

The real test

None of this is a reason to delay. The erosion is already underway and compounding, and a base that quietly shrinks every year is the hardest kind of problem to fund around. But it is a reason to treat the change as a design problem rather than an accounting one.

The jurisdictions that handle the next decade well will not be the ones that simply replace the revenue. They will be the ones that use the moment to build a road-pricing system the public understands and believes is fair. New Zealand, with fifty years of road user charges behind it, is unusually well placed to lead. The test is whether we treat this as a tidy fiscal fix, or as a genuine redesign of how a society pays for the network it depends on every day.

I would be interested in how others see the trade-offs - particularly on fairness and public trust, which I suspect will decide this more than the technology will.

Til next time,

Andrew

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Transit Trends · Andrew Collings, KA Advisory. Read and comment on the original on LinkedIn.

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