Proposal 1: Recommended allocation of land transport revenue for regulatory activities

Summary of Proposal 1

What is land transport revenue?

Land transport revenue is collected through road user charges (RUC), fuel excise duty (FED), motor vehicle registration and licensing. It funds a range of things, including the National Land Transport Fund (NLTF). Money from the NLTF is invested into things like state highway maintenance and public transport improvements.

Under section 9(1A) of the Land Transport Management Act (LTMA), the Minister of Finance and Minister of Transport can allocate land transport revenue to fund the regulatory functions of Waka Kotahi. We have to notify the public of any proposals and receive submissions before making recommendations to the Minister of Finance and Minister of Transport, who are the decision-makers.

The feedback we get from consultation will be included with our final recommendation to Ministers.

Why is Waka Kotahi recommending use of land transport revenue?

In New Zealand some things, like law enforcement, defence, infrastructure, public education, and public health services are considered ‘public goods’ because they benefit everyone in society. Public goods are normally provided through government funds.

This proposal recommends the government allocates money from land transport revenue to fund certain costs of regulation, because the regulation provided benefits all road users.

This proposal directly affects all other proposals

All changes in rates of fees and charges outlined in Proposals 2–8 assume we’re able to get additional government funding as outlined in this proposal.

If land transport revenue can’t be accessed, then the costs of some public good activities and services will need to be recovered another way.  We may also need to ask to use the remaining $11 million of the rectification loan facility. This would increase the loan amount needing to be repaid. 

You can see the impact of not getting this additional funding in the tables shown in Proposals 2–8.

What are we proposing?

We’re proposing land transport revenue be allocated for three specific areas:

• Funding oversight of the regulatory function.
• Funding the costs of regulatory services that can’t be efficiently or fairly collected from specific groups
• Funding to pay rectification loans.

We’re asking for your feedback on all three areas of this proposal.

Funding oversight of the regulatory function

Recommending funding for oversight of the regulatory function, through the Director of Land Transport, regulatory strategy and policy, including system reviews and monitoring, and strengthening industry partnership.

* Adjusted yearly for inflation. 

The amount of land transport revenue allocation would vary by year – this is because of inflation, and because we’re proposing to increase our regulatory activities as soon as we can recover their costs.

What would we use the extra funding for?

Additional funding is needed to support:

• Meeting Director of Land Transport legislative functions: resources for system reviews, monitoring and reporting on:
  • safety and security
  • access and mobility
  • environmental sustainability
  • the funding system.
• Regulatory Strategy: implementing the Tū ake, tū māia operating model and strategy projects, like value-for-money and efficiency reviews. 
• Regulatory Policy: growing policy capacity and capability (the right people in the right jobs with the right tools), and modernising the regulatory framework.

Why is land transport revenue appropriate for this?

We’re recommending land transport revenue funding for these activities because they benefit all road users by improving the regulatory system, and are considered ‘public goods’. We want to make sure the land transport system is safe, efficient, effective, and works well for everyone.

Funding efficient and fair collection of the costs of specific activities

Recommended allocation of land transport revenue for costs of regulatory services that benefit users across the whole system, and that can’t be efficiently or fairly collected from specific user groups.

* Adjusted yearly for inflation. 

The land transport revenue allocation would vary by year because of the work we have planned, and because of inflation.

What would additional funding provide?

It would fund the costs of regulatory services that can’t be efficiently or fairly collected from the following user groups: driving course providers, testing officers, driving instructors, driver licence agents and test routes, P endorsement holders, Class 2-5 driver licence holders, medical professionals, translation service providers, content providers, MVR agents.

Additional funding is needed to support:

• monitoring compliance of drivers, including commercial drivers, and taking targeted action as required
• improvements to the operating and compliance models that determine frontline regulatory activities, so they’re focused on where risk lies
• increasing risk and assurance activity, like audits and checks on certifiers and agents
• making sure standards and guidelines are fit for purpose
• ongoing industry engagement, including a focus on approving and monitoring driving course providers and instructors.

Why is land transport revenue appropriate for this?

Using Section 9(1A) ensures these regulatory costs are funded in the most efficient way. It’d cost less to generate the funding needed under this proposal compared to the costs of collecting it through fees. Funding these activities will contribute to increased safety in the land transport system, which would benefit all New Zealanders.

Funding to repay rectification loans

Recommended allocation of land transport revenue to repay $4.6 million rectification loans (the first four years of funding is shown below).

We recommend land transport revenue is provided from 2023, so we can set aside the money to repay the loan when it’s due.

Why is land transport revenue appropriate for this?

While most of the regulatory failure happened in the vehicle certification space, the independent reviews determined that this was a system failure and could have happened in any part of the system. Rectifying this, and dealing with a backlog of unsafe vehicles, has benefitted the whole land transport system.

Also, the certification industry is very different than it was in 2018, with the small number of poor certifiers having been removed from the system. Waka Kotahi has strengthened our systems to make sure those failures don’t happen again. Charging the whole group for the failings of a small number of operators who aren’t in the system any more wouldn’t be fair.

What are the impacts of Proposal 1?

Providing funding for these services and regulatory functions and repaying the rectification loan through land transport revenue minimises the impact on fees and charges.

It doesn’t change the overall amount of land transport revenue generated through RUC, FED and motor vehicle licensing and registration – it’s a redirection of existing money that’s already been paid by land transport users.

There would be an opportunity cost (the cost of spending on one thing when it could have been spent on another) for land transport revenue and the NLTF.  This is considered minor though, as the increase in funding represents less than 0.8% of the NLTF, and we expect to make this money up through being better at finding and charging people who don’t pay their fair share of RUC.

For Waka Kotahi, it would mean an additional $34-35 million per year to pay for core regulatory activities, to repay loans, and to strengthen our ability to become a more efficient and effective regulator.

When would the changes take place?

If a decision is made by the Minister of Finance and Minister of Transport to use section 9(1A) of the LTMA for regulatory system capability and capacity and to help repay government loans, then this proposal would take effect in 2022.