Source: The Conversation (Au and NZ)
It may be taking a back seat to cost-of-living pressures, unemployment and the state of the economy, but tax was always going to be a hot issue in this year’s election.
Labour is proposing a capital gains tax on investment property, while the Greens and Te Pāti Māori have each put forward wealth taxes. To fund its version of a universal basic income, Opportunity is advocating a bold land value tax – something both major parties have ruled out supporting.
National has promised no new taxes, while also campaigning on a claim a Labour-led coalition could introduce nine. That figure dubiously combines proposals from several potential support parties, many of which Labour has ruled out adopting. ACT is meanwhile emphasising lower taxes and policies to encourage investment.
Whatever the election outcome, the next government will face the same tough fiscal choices. It will inherit pressing spending needs across health, education and infrastructure, alongside the growing costs of an ageing population.
Meeting these demands will require difficult decisions about spending, taxation and borrowing, while also managing debt and responding to years of weak productivity growth.
But there are longer-term challenges for the tax system itself.
The face of business – with multinationals, digital commerce and new forms of working – is quickly changing. That makes it harder for a system focused on taxing income and consumption to capture where economic value is created and ensure it is taxed fairly.
New Zealand relies heavily – arguably too heavily – on taxing personal and business income and consumption, while other forms of economic gain receive lighter or no taxation.
GST is efficient to collect but falls proportionately more heavily on lower-income households, which tend to spend a greater share of their earnings on goods and services. Meanwhile, those with assets generally have more scope to minimise their tax burden than those earning a wage or salary.
The changing cost of using our roads
One example of the challenges facing New Zealand’s tax system has received relatively little attention during the election campaign: how we pay for transport.
Since the 2023 election, policy has started to shift away from a system that relies heavily on taxing petrol consumption – through fuel excise duty – and towards charging motorists directly for their use of the road network.
This is visible in the application of road user charges to light electric vehicles and plug-in hybrids from April 2024, followed by the removal of Auckland’s regional fuel tax. More fundamentally, the government has proposed replacing fuel excise duty with electronic road user charges for all light vehicles.
Fuel excise duty has historically worked as a proxy for road use for light petrol vehicles, with motorists paying the duty when they purchase petrol.
But as vehicles become more efficient, litres consumed – and therefore duty paid – become less reliable measures of kilometres travelled and actual road use.
Electric vehicles have also avoided fuel excise duty completely. This made sense as an incentive to encourage their adoption, but moved away from a user-pays principle. A universal road user charging system would also provide a more stable revenue base for the government.
At present, duties, levies and taxes (excluding GST) total 77.25 cents per litre of petrol. This is primarily made up of fuel excise duty, which goes into the National Land Transport Fund, at 70.024 cents per litre, and the ACC levy of 6 cents per litre, plus smaller levies.
GST of 15% comes on top, meaning the government also collects more GST as petrol prices rise.
To address cost-of-living pressures, in March 2022 the government temporarily cut fuel excise duty by 28.5 cents per litre (including GST) and reduced road user charges paid by diesel vehicles by 36%.
At that time, petrol prices had risen above $3.25 per litre in some main centres. The current government has instead cancelled a planned fuel excise increase for 2027, with the next increase deferred until 2028.
The greater shift towards road user charges illustrates a fundamental challenge: taxes designed around how people once travelled and consumed energy become less effective as technology and behaviour change.
The choices facing the next government
Unless the next government is willing to borrow more, and accept the higher interest costs associated with that, it will need to reduce spending or increase taxes. Without more fundamental reform, however, the options for raising additional revenue are limited.
One option is a comprehensive capital gains tax, which would place more of the burden on those with greater capacity to pay. Whether such a tax is pursued will depend heavily on the political priorities of the next government.
But any tax proposal involves trade-offs, and parties should be clear about who stands to gain and who will pay more.
Voters should be asking how much each proposal will raise or cost, and how it will be funded. They should also know which groups will be affected, whether a new tax can be implemented and enforced without unnecessary complexity, and how it might influence saving, investment and other behaviour.
Just as importantly, parties should explain what they want their tax policies to achieve: raising revenue, changing behaviour, encouraging economic growth or some combination of these.
New Zealand needs a tax system that remains robust as technology, demographics, economic conditions and governments change.
The taxation of transport shows why reform cannot be deferred: as our economy evolves, taxes designed for the past become less effective and, eventually, less fair.
From the cost of living to how best to tackle climate change, the coming election involves some big choices.
This article is part of The Conversation’s Election 2026 series: expert analysis of the major policy debates and the big challenges New Zealand’s next government will face.
Lisa Marriott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
Original source: https://analysis1.mil-osi.com/2026/10/26/parties-may-have-competing-tax-visions-but-paying-for-nzs-future-isnt-getting-cheaper/