Treasury recommended the government delay fuel relief measures and avoid cutting excise duty or road user charges in the early days of the fuel crisis, according to documents released on Wednesday.
Officials told ministers there was merit in postponing the planned boost to the in-work tax credit, saying "there would be value in waiting to see how the situation develops". They warned that acting immediately would commit the government to substantial spending at a time of heightened uncertainty over the Middle East conflict and its economic effects.
The government ultimately chose not to delay, announcing in March that approximately 143,000 people would receive an additional $50 weekly through an expanded in-work tax credit. The $373 million measure is scheduled to run for 12 months or until 91 octane petrol drops below $3 per litre for four consecutive weeks.
Treasury opposed reducing fuel excise duty or road user charges, arguing such cuts would deliver limited and poorly-targeted assistance. Officials said supply chain constraints meant reductions might not flow through to consumers, and warned a blanket cut "will benefit consumers and businesses that consume the most fuel, rather than targeting those who have the greatest cost-of-living pressures".
The advice also cautioned that lowering fuel prices could undermine rationing efforts by weakening price signals that help consumers manage fuel use during scarcity. Prime Minister Christopher Luxon echoed this reasoning on 30 March, telling reporters the government's advice was "pretty clear" that excise cuts were "poorly targeted" and would "encourage fuel use when it's constrained".
The released papers cover advice through to 21 April, with later documents to follow. Treasury modelled three economic scenarios for potential diesel disruption, including a worst case in which New Zealand would receive only 50% of pre-conflict diesel shipments for three months. Under that scenario, diesel would spike to $8 per litre and real GDP would fall approximately 5% below baseline.
Officials also urged the government to avoid Phase 3 of its fuel plan—which involves fuel rationing—warning it "would have significant economic costs through inefficiencies in the allocation of resources across the economy". The government has not needed to move beyond Phase 1.
On a separate measure, Finance Minister Nicola Willis sought advice on reviving a Covid-era scheme that paid airlines to maintain international air links. Treasury told her a similar programme for the fuel crisis would be less effective because the core problem was potential rationing rather than high prices. The earlier air connectivity scheme, which ended in 2023, paid out $890 million to 10 airlines.
The government later partnered with Z Energy to secure additional diesel stocks at Marsden Point, with Z Energy procuring and managing the fuel while the Crown controls its release. Treasury estimated the arrangement's average fiscal cost at $45.4 million as of 21 April, with a maximum modelled cost of $167 million.