Clause by clause analysis
Clause 1 is the Title clause.
Clause 2 provides that the Bill is to come into force on the day after the date on which it receives the Royal assent.
Clause 3 states that the Bill amends the Road User Charges Act 1977 (the principal Act).
Clause 4 inserts a definition of light electric motor vehicle into section 2(1), which is the main interpretation provision.
Clause 5 amends section 20, which sets out the power to alter rates of road user charges by Order in Council. The amendment inserts new subsection (1A), which provides that an Order in Council increasing rates of road user charges comes into force 42 days after the date of its notification in the Gazette, or on any later date specified in the order.
Clause 6 inserts a new section 21. New section 21 provides that if a road user charges rate specified in Schedule 3 is increased under section 20 or by any other Act, a distance licence or supplementary licence issued in relation to a motor vehicle whose gross laden weight is more than 3.5 tonnes before the increase comes into force is no longer valid after the expiry of 1 month from the date of the increase.
Clause 7 makes 2 amendments to section 24, which provides for regulations to be made under the principal Act. The first amendment inserts new subsection (1)(ga), which provides that regulations may be made for the purposes of section 4(c) exempting light electric motor vehicles from Part 1 of the principal Act. The second amendment inserts new subsection (1A), which provides that regulations exempting light electric motor vehicles must specify a date on which the exemption expires.
Regulatory impact statement
Executive summary
This Bill proposes to amend the Road User Charges Act 1977 (the principal Act) to achieve 2 distinct outcomes. The first is to enable the exemption of light electric motor vehicles from the requirement to pay road user charges (RUC). The second is to provide notice of increases to RUC to all diesel motor vehicle owners. The Ministry of Transport (the Ministry) does not anticipate that either outcome is likely to have a significant effect on economic growth.
Adequacy statement
The Treasury’s Regulatory Impact Analysis Team has reviewed this statement and has deemed it to be adequate.
Status quo and problem
Exemption for light electric motor vehicles
Electric motor vehicle technology can make a significant contribution to improving the efficiency of the motor vehicle fleet. Increasing the proportion of light electric motor vehicles in the fleet decreases reliance on imported fossil fuels and improves energy security. Combining highly efficient electric motors with New Zealand's competitive advantage in renewable electricity generation will reduce the greenhouse gases produced by the transport sector, as well as the harmful emissions affecting air quality. Light electric motor vehicles are also much cheaper to operate per kilometre than conventional motor vehicles. The global market for electric motor vehicles is already severely constrained and is expected to remain this way over the next decade due to low production volumes of first generation electric motor vehicles. Until economies of scale start to reduce prohibitive battery costs, early electric motor vehicles will also have a price premium of roughly double to quadruple that of a conventional motor vehicle (for example, a $20,000 conventional motor vehicle becomes a $40,000–$80,000 electric motor vehicle). New Zealand is not initially viewed as a priority market with manufacturers focusing on large subsidised markets that can absorb the technology premium, so hastening the transition to larger-scale production and a more accessible product. Although New Zealand is not a light electric motor vehicle manufacturer, the government plays an important role in the uptake of electric motor vehicle technology. Part of this role is to remove barriers that could prevent or delay the uptake of a market for light electric motor vehicles in New Zealand. One barrier is the requirement to pay RUC. This view was reinforced by Energy Efficiency and Conservation Authority market research in 2008 where 52% of 524 respondents stated that having to pay RUC would affect their decision to purchase a light electric motor vehicle. RUC fund road use and are required for all motor vehicles not eligible for an exemption under section 4 of the principal Act. As light electric motor vehicles are not exempted under section 4, they are required to pay RUC. The current RUC rate for a light electric motor vehicle (weighing 3.5 tonnes or less) is $36.07 per 1 000 km. This costs the owner of a light electric motor vehicle approximately $432 per annum, based on an average travelling distance of 12 000 km per year. In comparison to the up-front capital cost of early electric motor vehicle technology, RUC would appear to have a very minor influence on the purchasing decision of an individual or a business. However, general negative perception about RUC, particularly from owners of petrol motor vehicles that have not previously paid the charges, makes it a barrier to the uptake of electric motor vehicle technology. The National Party promised in the lead-up to the 2008 general election that light electric motor vehicles would be exempt from paying RUC. The proposed exemption is transitional and limited in scope and is not intended to set a precedent for RUC exemptions.
Notification of RUC increases
In 2008, RUC rates were increased without notice to operators at a time that coincided with high fuel prices. Operators were unable to pass the increases on to customers straight away and publicly demonstrated against the increases. For heavy motor vehicle operators, RUC represent a major cost of doing business. Changes in RUC rates that cannot be passed on to consumers in a timely manner will significantly decrease marginal profitability. Notification will improve businesses' ability to operate by providing them with time to pass on the costs of any RUC increases. However, notification carries the risk of revenue leakage through large-scale pre-purchasing of RUC. Officials estimate that notification of the RUC adjustment in 2008 would have amounted to a revenue reduction of approximately $14 million. However, quantifying pre-purchase risk varies from year to year in relation to the size of the increase, the amount of credit available for pre-purchase, and the cost of that credit. On the other hand, RUC is a pre-purchase system and there is a benefit associated with paying the government money ahead of time. Revenue leakages from notification are further offset by improved equity and stability in the market for heavy road freight. RUC increases per 1 000 km for light motor vehicle owners are proportionately small, representing less than half the $9.50 transaction fee and provide less incentive to take advantage. The level of anticipated revenue leakage from notifying the next RUC increases for light motor vehicles scheduled for 1 October 2009 is not known. However, light motor vehicle owners have also historically not pre-purchased significant quantities of RUC. Although notification of RUC increases will also be given to light motor vehicle owners, pre-purchasing is expected to have little impact on revenue.
Objectives
Light electric motor vehicle exemption
The objective of the amendments proposed in the Bill is to mitigate a perceived barrier to light electric motor vehicle uptake imposed by the requirement to pay RUC. Non-payment of RUC will provide light electric motor vehicles with a comparative advantage in operating costs and also signals the Government’s broad support of electric motor vehicle technology to the emerging market. However, RUC are a primary method of funding land transport infrastructure and any exemption must not undermine the long-term sustainability of the National Land Transport Fund. RUC are the Government’s key mechanism for recovering the costs that road users impose on the roading network regardless of how their motor vehicles are powered. The exemption of light electric motor vehicles is therefore not to be seen as setting a precedent for RUC exemptions. The proposed incentive for light electric motor vehicles is intended to be transitional and limited in scope.
Notification of RUC increases
The objective of the amendments proposed in the Bill is also to improve equity and stability in the heavy road freight market by notifying operators of proposed RUC increases in advance. However, these amendments also aim to balance increased transparency against security of National Land Transport Fund revenue streams.
Alternative options
Light electric motor vehicle exemption
To ensure the long-term sustainability of the National Land Transport Fund, any RUC exemption for light electric motor vehicles is designed to be temporary. It was considered that eligible light electric motor vehicles be motor vehicles whose motive power is wholly or partly derived from an external source of electricity and whose gross laden weight is 3.5 tonnes or less. Changing the length of time or number of motor vehicles eligible for an exemption has direct implication for lost revenue. It was first proposed to look at an exemption lasting 5 years from 1 July 2009 to 1 July 2014. After 5 years, about 500 light electric motor vehicles would be in the fleet, causing lost revenue of $190,000 (net present value). Consideration was also given to an exemption lasting 4 years from 1 October 2009 to 1 July 2013, by when about 300 light electric motor vehicles would be in the fleet, and an expected revenue loss of $88,000 (net present value) would be incurred. Another cut-off option is when 1% of the fleet is electric (approximately 30 000 motor vehicles). Based on short-term industry indications and long-term policy estimations, the Ministry has modelled this point being reached at 2020. The net present value of this exemption is $14 million. There are also 2 separate methods of implementing an exemption, through regulation and prepayment. The NZ Transport Agency has indicated that prepaying RUC would be relatively simple for small numbers of eligible light electric motor vehicles. However, administration costs will increase proportionately as the number of light electric motor vehicles in the fleet increases. Although prepayment may be appropriate in the short term, a more transparent and useful option is to amend the principal Act to enable regulations exempting light electric motor vehicles from paying RUC for a specified amount of time. The last option for minimising the barrier imposed by RUC is not to exempt the financial cost, but to address the issue of negative consumer perception by methods such as promotional campaigns. However, RUC has been applicable to heavy motor vehicles and motor vehicles not powered by petrol (as defined by the principal Act) for over 30 years. The perceptions about RUC may be ill-founded, but are ingrained. It is unlikely that a campaign to portray RUC in a different light would have any tangible effect on prospective light electric motor vehicle purchasers.
Notification of RUC increases
Notification of RUC increases will improve equity and stability for the road freight industry. However, as RUC represents a substantial operating cost for the heavy motor vehicle industry, notification will increase prepayment of licences at the cheaper rate. Notice provisions must be balanced against potential to leak revenue. Notification will affect heavy and light motor vehicle owners differently and alternative options can be designed to reflect this. To minimise revenue leakage, an additional provision could be made to cancel heavy motor vehicle licences purchased before an increase. Such a provision would substantially increase administration costs associated with reimbursing and reissuing licences. However, light motor vehicles constitute roughly 90% of the RUC-paying fleet and light motor vehicle owners have also historically been much less inclined to pre-purchase RUC. Only cancelling the pre-purchased licences of the heavy fleet would substantially reduce administration costs and potential revenue leakage.
Preferred option
Light electric motor vehicle exemption
The preferred option is to exempt light electric motor vehicles from paying RUC until 2013. It is recommended that the exemption be made by Order in Council, following amendment to the principal Act. The exemption would apply to light electric motor vehicles whose motive power is derived wholly or partly from an external source of electricity and whose gross laden weight is 3.5 tonnes or less. Eligible light electric motor vehicles should comply with fleet entry requirements and be registered for use on New Zealand roads. The exemption would apply to light electric motor vehicles already in the fleet, as well as those entering the fleet.
Notification of RUC increases
The preferred method of implementing compulsory notification of RUC increases is to notify all motor vehicle owners who pay RUC. This includes both heavy and light motor vehicles. It is recommended that notification occurs at least 42 days before any intended RUC increase. To minimise revenue loss, it is recommended that there is an additional provision that heavy motor vehicle licences purchased prior to the date of a RUC increase would expire within 1 month of the increase and licence holders would be able to seek refunds. However, this provision would only apply to heavy motor vehicle owners. Light motor vehicle owners would still be able to pre-purchase RUC, although it is anticipated that this would create less revenue loss than administration costs associated with cancelling, refunding, and reissuing approximately 400 000 light vehicle RUC licences.
Implementation and review
Light electric motor vehicle exemption
It is anticipated that the Bill will be enacted around mid-August 2009. This will enable regulations to be made under the principal Act for the purposes of temporarily exempting light electric motor vehicles from paying RUC. Regulations are expected to be enacted by 1 October 2009 with an expiry of 1 July 2013. The proportion of light electric motor vehicles in the New Zealand fleet can then be reassessed at this time and the exemption further extended if necessary.
Notification of RUC increases
It is anticipated that the Bill will be enacted around mid-August 2009. This allows sufficient time for the minimum 42 days notice period in proposed new section 20(1A) to come into force before the next RUC increase scheduled for 1 October 2009. The addition of the requirement to reissue heavy motor vehicle licences within 1 month after the increase will prevent revenue leakage from large-scale pre-purchasing before the increase. Notification will be done by Gazette notice.
Consultation
The Treasury, the Ministry of Foreign Affairs and Trade, the Ministry of Social Development, the Ministry of Economic Development, the Ministry for the Environment, the Energy Efficiency and Conservation Authority, and the NZ Transport Agency were consulted in the development of this Bill.