The bill would expand the circumstances where an existing road may be tolled if its users benefit from the construction of a new road in the same corridor. It would also expand the allowed uses of toll revenue by allowing revenue to be used on existing roads and alternative routes in some circumstances.

The bill would maintain the requirement that toll roads must have a feasible untolled alternative route available. However, it would allow the Minister to restrict certain classes of heavy vehicle from alternative routes and would create an infringement offence to allow this to be enforced.

The bill would require the Minister of Transport, when setting the base rates of a road toll scheme, to consider the maximum potential revenue, the benefits users may receive, and the effect on the wider network. Toll rates would be adjusted annually based on the CPI (Consumers Price Index). The bill would shift liability for paying a toll from a vehicle’s driver to the person it is registered to.

The bill would update the road user charges system to enable the future transition of all vehicles to the RUC scheme. It would make the requirements for electronic distance recorders less prescriptive, allowing the framework to keep up with technological innovation. Limitations on alternative payment options would be removed. The role of the New Zealand Transport Agency (NZTA) as the RUC regulator would be separated from its function as a RUC retailer to enable a more competitive market.

The Act currently only allows existing roads to be tolled in limited circumstances. The bill as introduced would insert new section 48(2) into the Act, allowing existing roads to be tolled if the Minister is satisfied that two conditions are met. The existing and new roads would need to be part of the same “corridor” within a region or between regions. Additionally, users of the existing road would need to receive benefits from the new road.

The bill as introduced does not define either “corridor” or “benefit”. “Corridor” is discussed in the section below. We consider that specifying key benefits would reinforce the user-pays principle of tolling and provide greater certainty. We recommend inserting section 48(2)(a)(ii)(B) to specify that, in order to toll an existing road, users of the road must receive at least one of the following benefits from the new road to be funded by the toll:

• travel-time savings

• safety

• travel-time reliability

• resilience.

The Minister could also take account of any other benefits that road users may expect in making their decision, but at least one of the listed benefits must apply for an existing road to be tolled.

We recommend removing references to efficiency being enhanced as a benefit under section 48(2)(b). We consider that enhanced efficiency should be demonstrated through the benefits to users, and the test should solely focus on those user benefits.

We propose that the bill should provide a clearer definition of its use of “corridor,” as this term is used to describe different concepts elsewhere in a transport context. We were advised that too strict a definition would risk excluding unique road configurations from consideration for tolling. However, we think this consideration should be balanced with having a specific enough definition that unrelated roads could not be tolled as part of a corridor.

We recommend inserting section 48(8) to provide that two roads are in the same corridor if they have a clear functional and operational relationship.

A functional relationship would be where the roads are commonly used together by motorists as part of a single journey. That is, it would be possible and practical to move between the new and existing roads as part of a single journey from point A to point B.

If two roads both ran from point A to point B but the road chosen at point A effectively locked a driver out of moving to the other road until point B, the roads would be considered unrelated and not part of the same corridor. An example of roads that are not in a corridor would be travelling from Wellington to Kāpiti. A driver must make a choice to travel via State Highway 59 along the coastal route (Centennial Highway) or via State Highway 1 through Transmission Gully. A driver that has started driving on the Transmission Gully route wouldn’t be able to move onto the coastal route as part of the same journey (ie without first reaching Kapiti or returning to their start point in Wellington). Therefore, the coastal route and Transmission Gully would not be considered a corridor.

Map showing State Highway 1 (Transmission Gully) and State Highway 59 (coastal route) as separate routes not part of the same corridor

An operational relationship would be where traffic and traffic management on one road could support or otherwise influence the operation of the other road.

There would still need to be a feasible alternative route in addition to the roads considered part of the tolling corridor. Whether an alternative route is feasible would also be based on the Minister’s judgement. This aligns with the current tolling framework under the LTMA which relies on ministerial judgement, supported by advice from the Ministry of Transport and NZTA.

Traffic that diverts to an alternative route to avoid a road toll may increase wear and tear on the alternative route, shifting additional costs onto the local council. The bill may also give rise to situations where the addition of a toll route, such as a bypass, could cause an existing state highway to be reclassified as a local road. This road could then come under the control of the local road controlling authority, resulting in increased maintenance costs and possibly establishment or transitional costs for the local council. The Land Transport Management Act currently allows revenue from toll roads to be used only for the new toll road itself. Clause 6 of the bill would insert new section 46(2)(c), allowing toll revenue to be used for the relevant maintenance or operation costs of specified alternative routes.

Under the bill as introduced, the Minister could only recommend that an order enable toll revenue to be used this way if they were satisfied that the relevant road controlling authority was otherwise unable to fund costs itself. Some council submitters considered that “unable to fund” would be too high a bar, and difficult to demonstrate. Other submitters were worried that a lack of clarity in the test could have the opposite effect and allow road controlling authorities to “game the system” by overstating costs.

We recommend inserting section 46(4) to define the specific circumstances where toll revenue could be used towards the relevant maintenance and operation costs of an alternative route:

• An alternative route has increased maintenance costs that are directly attributable to the tolling scheme.

• A council incurs operational costs during the transition of an existing road to an alternative route.

Any use of tolling revenue to fund maintenance and operational costs of an alternative route would require a toll order to enable it. As set out in section 48(5) of the Act inserted by clause 6 of the bill, the Minister would also only be able to recommend an order do this if they were satisfied that the local roading authority would be unable to fund the costs incurred specifically by the conditions above. To assess a local road controlling authority’s ability to pay, NZTA would leverage similar approaches that it currently uses to assess requests for increased funding support (for example, considering and setting Targeted Enhanced Funding Assistance Rates). Following any modelling that indicates a local road controlling authority is expected to have increased maintenance or operation costs due to a new toll road, NZTA would request relevant information from the road controlling authority in order to make an assessment and provide advice to the Minister.

We note that “increased maintenance costs” would encompass the net impact of direct financial costs to a local authority from any road designated as an alternative route. It would not take into account potential benefits a council could experience from obtaining new control of a road. Reclassifying a state highway as a local road may enable rezoning and development to occur, potentially increasing council revenues over time, especially where changes have made the road better suited to local needs (for example, traffic calming or lower speed limits).

The Act currently requires feasible, untolled alternative routes for all vehicles. The bill would grant a regulation-making power to the Minister enabling them to make a notice restricting specified classes of heavy vehicle from alternative routes. We listened to a range of submissions about this amendment and recognise that submitters were concerned both about practical matters and that restrictions would essentially make the toll a non-optional fee for heavy vehicles.

The Regulations Review Committee also wrote to us about this regulation-making power. It said it considered the provision to be unusually broadly drafted, with no indication in the legislation of circumstances where it would be appropriate to use the power or grant exceptions. This would risk the power being used to create unjustified restrictions on freedom of movement. The committee’s comments aligned with our own concerns.

We recommend inserting new section 48AA via clause 8 of the bill to set clearer conditions on the circumstances where the Minister would be able to restrict heavy vehicles from an alternative route.

The power should be available where:

• heavy vehicles are unsuitable for an alternative route

• heavy vehicles would impose significant maintenance costs on an alternative route

• removing heavy vehicles from alternative routes was a specific objective of the toll road (such as in the case of bypasses).

The Minister would receive advice from NZTA and the Ministry to support their decision. Under our proposed section 48AA(2)(b), the Minister must be satisfied that adequate consultation has occurred before issuing a restriction notice. In considering the nature of “adequate consultation”, we note the Court of Appeal decision in Wellington International Airport Ltd v Air New Zealand, which establishes common law standards for consultation.¹

We are also concerned about the risk of monopoly pricing if heavy vehicles are required to use the toll road. We recommend inserting section 46B(1)(c). This would require that if a toll order authorises the Minister to restrict use of an alternative route, the order must also set a maximum toll limit (or method of calculating a maximum limit). This maximum would only apply if the Minister exercised the power to make a notice, and only to the same class of heavy vehicles as the notice applies.

We consider that operating heavy vehicle restrictions could impose an additional cost on road controlling authorities. We recommend inserting section 46(2)(d) and 46D(3) to allow toll revenue to be used to enforce a heavy vehicle restriction on a specified alternative route.

As introduced, proposed section 46D(1)(a)(ii) provides for situations where a heavy vehicle would be excepted from restrictions on using an alternative route. However, as introduced the bill does not include a specific exception for emergency vehicles. We recommend providing for this in new section 46D(4).

As introduced, proposed section 46B(3) would require toll operators to set tolls annually at no less than the base toll amount adjusted by the Consumers Price Index (CPI). This aims to address the fact that previous tolls in New Zealand have generally not been set at optimal levels for recovering costs and generating revenue.

A road controlling authority may delegate the construction and operation of a toll road to a private sector person, as defined under section 61(5) of the Land Transport Management Act. We consider that, in such cases, the private sector operator would have a different set of commercial considerations. Although toll price increases would likely be covered by their contractual framework, we do not consider that tying minimum increases to the CPI would be the most appropriate approach. We recommend amending section 46B to require only public road controlling authorities to follow the provisions tying minimum increases to CPI.

The bill (clause 34, new section 43) provides for the RUC collector to approve an individual or incorporated body to act on its behalf as a “RUC provider”, issuing licences or collecting charges. This would separate NZTA’s regulatory role as the “RUC collector” from its retail role as one of the approved RUC providers in the market. To further separate these two roles, we recommend amending clause 41, section 88(2)(c), and inserting clause 42A, new section 90C, to explicitly separate fees into administration and service fees. Administration fees would be regulatory fees set by regulation and paid to NZTA in its role as RUC collector. Service fees would be retail fees chargeable by the NZTA in its retail RUC provider role.

We recommend amending clause 24, section 5 (the Act’s interpretation section) to define NZTA as a RUC provider within the legislation itself. Without this provision, NZTA as the regulator would be responsible for approving NZTA as a RUC provider. We consider that this would be less transparent and create an appearance of a conflict of interest. We note that, in its capacity as a RUC provider, NZTA will be held to the same standards as all other RUC providers.

Enabling broader use of alternative payment schemes is one of the ways the bill intends to make it easier for users to comply with the RUC system. The current RUC system requires pre-purchasing fixed distance blocks. Options to use alternative payment schemes are limited to vehicles with electronic distance recorders, which limits potential use by private light vehicles. Clause 34 of the bill would replace subpart 6 of Part 2 of the Act with a new regime for RUC providers. Clause 25 would remove the requirement to have an electronic distance recorder and allow use of an alternative payment option such as monthly billing or paying by subscription.

As introduced, the bill would require RUC providers to be approved, including a fit and proper person check, but operators of alternative payment schemes would not need to be RUC providers or go through a separate approval process. We consider that any alternative payment scheme operator should meet the same minimum standards as RUC providers. We therefore recommend amending clause 34, new sections 43 and 47C, to specify that any alternative payment scheme operator must also be approved as a RUC provider.

If a vehicle is using an alternative payment scheme, the Act currently places liability for administration fees on the registered person of the vehicle. This reflects the existing model where NZTA as the RUC collector tends to have a more direct relationship with users. The bill intends to enable a market-led system where third-party operators would manage the relationship with users. Having a vehicle owner be separately liable to NZTA for administration fees would create administrative complexity and higher transaction costs. We therefore recommend amending clause 41, section 88 of the Act, to make alternative payment scheme operators liable for paying administration fees to the RUC collector.

Given that road user charges are intended to become a regular payment by many New Zealand households and businesses, we consider it important to keep the associated fees affordable. Service fees charged by RUC providers will be subject to market competition, while administrative fees collected by NZTA as the RUC collector will be set by regulation.

The Ministry is working to determine the level of administration fees as part of changes to secondary legislation supporting the bill. We understand that removing the requirement to print and post paper licences will reduce costs, and a further review focusing on fee reduction will take place before the proposed new RUC scheme is implemented in full. The Ministry told us it expects the combined administration and service fees to be lower than the administrative charge users currently pay through the NZTA, although this decision would ultimately be made by cabinet.

The current RUC system requires users to buy distance licences in 1,000-kilometre blocks, and the administrative charge is based on purchases fixed at this amount. We recognise that users may wish to pay for RUC in smaller or more flexible amounts depending on their vehicle use and budget, and alternative payment schemes are intended to facilitate this. The Ministry told us reducing the minimum purchase increment for distance licences would also require a review of fees so that the administrative charge is not disproportionate to the distance bought.

Clause 50 would amend regulation 16 of the Road User Charges Regulations 2012, setting out requirements for electronic distance recorders and their fitting and repair. As introduced, the bill would require an electronic distance recorder to have display panels showing the amount of distance travelled by a vehicle. We consider that a requirement for a fixed display panel would add unnecessary cost. We recommend amending clause 50(3)(b) to require only that the distance reading must be viewable on demand.

We were interested to hear submitters’ thoughts on potential obstacles for RUC providers. As introduced, the bill defines a “RUC provider” specifically as the entity responsible for issuing licences and collecting revenue. RUC providers need to be approved by the regulator but may have contractors or agents, such as supermarkets and dairies, that sell services on their behalf.

Some industry submitters were concerned about this definition of RUC provider and how it would fit within the broader RUC environment. They queried whether additional specified roles would need to be defined for customer-facing retailers acting as agents for RUC providers, or for providers of software used by RUC providers.

We propose several changes to regulate RUC providers that use subcontractors and agents, such as dairies or supermarkets. The agents would not need to be approved separately, as the RUC providers would be. We consider that this would allow more flexibility and keep the barrier to market entry lower.

We recommend:

• amending clause 34, new sections 43–47, to permit the RUC collector to monitor agents and contractors of RUC providers

• empowering the RUC collector to obtain information from third parties related to RUC provider applicants as part of a fit and proper person assessment (new section 46)

• amending clause 42(4), section 89(1)(m)(ii), to enable the making of regulations for requirements that must be met by any person a RUC provider engages to provide services, in addition to RUC providers.