Speaking in the wake of the Strait of Hormuz disruption that has pushed 91 octane petrol to around $3.30 per litre nationally, with some Auckland forecourts already touching $4.00, Willis offered the following reassurance when questioned about a potential GST windfall for the Crown.
Here's Nicola Willis' 24 March post on Facebook:
New Zealand's petrol excise tax is a fixed number of cents per litre, not a percentage of the pump price, so the tax take does not increase when fuel prices go up.
GST revenue on fuel theoretically rises when pump prices increase, but I'm advised that in the context of current price increases, this is expected to be offset by reduced fuel demand and by lower discretionary retail spending elsewhere as households adjust their budgets. Put another way, as Minister of Finance, I've not been told to expect an increase in the GST-take as a result of the fuel-price spike.
I know this is something many people have asked in good faith, so I'm disappointed to see Chris Hipkins making factually inaccurate claims in response. It's simply misleading for him to allege that the global oil-price shock will somehow benefit the Government at the expense of everyday Kiwis. The simple reality is that petrol price increases will not benefit the Government financially - in fact the opposite is more likely to be the case.
The statement is constructed to suggest that Treasury has assured Willis that higher pump prices will not materially enrich the Crown, because New Zealanders will simply buy less petrol and spend less on everything else. It is, on close examination, a misleading conflation of two quite separate things: the trajectory of GST specifically, and the trajectory of total Crown revenue.
Let us deal with the first claim, that reduced fuel demand will offset the GST gain. This argument rests on the assumption that demand for fuel is highly elastic, that is, when prices rise sharply, people simply stop buying.
The evidence from New Zealand's own context tells a rather different story. Research published by the Motu Institute places the price elasticity of petrol demand in this country somewhere between negative 0.1 and negative 0.66, with short-run estimates at the lower end of that range. At a mid-point estimate of around negative 0.4, a 27 percent price increase would reduce consumption by approximately eleven percent. The GST take on the remaining 89 percent of purchased fuel has still risen by 27 percent. You do not need a Treasury economist to recognise that the arithmetic does not support a cancellation effect.
The second claim, that reduced discretionary spending elsewhere will neutralise the gain, is even weaker. The spending substitution Willis describes is not a disappearance of economic activity; it is a reallocation of it. A household that spends less at a restaurant in order to fill the tank has not removed that money from the GST-liable economy. It has moved it from one GST-bearing transaction to another. Fifteen percent of one hundred dollars spent on petrol raises precisely the same GST as fifteen percent of one hundred dollars spent at a cafe. The total take is, in this respect, broadly unaffected.
What Willis has carefully avoided discussing is perhaps the most consequential dynamic of all: the savings draw-down effect.
New Zealand's household saving rate was already negative as recently as early 2025, and with wages stagnant in real terms, many families will not simply cut discretionary spending to absorb a $25 to $35 weekly increase in fuel costs. They will reach into whatever savings they have.
That money was previously sitting in a bank account, entirely outside the GST system, generating no consumption tax for the Crown whatsoever. Once it is withdrawn and spent on essentials, 13 cents in every dollar flows to Inland Revenue as GST. Far from reducing the Government's GST take, this dynamic actively increases it. The struggling family dipping into its savings to keep the car on the road is, in effect, funding a portion of its own relief package.
Independent analysis from Infometrics suggests the Crown could receive somewhere in the vicinity of $180 million in additional GST revenue from higher fuel prices over a hundred-day crisis period. Factor in savings drawdown, and the realistic upper bound reaches well beyond $300 million for 100 days, a figure not far removed from the estimate put forward by Opposition Leader Chris Hipkins, whom Willis incorrectly dismissed due to her own disinformation.
On Tuesday, The NZ Herald reported:
Fuel crisis: Nicola Willis slams Chris Hipkins’ ‘factually unbased claims’ over Govt’s tax take
“Put it this way, as Minister of Finance, I’ve certainly not been advised that I’ll be getting windfall tax gains out of the current global crisis, in fact, I’ve been told to brace myself for the opposite, which is that this is likely to reduce Government revenue.”
Willis said she had been “disappointed” by Hipkins’ “factually unbased claims”.
“I think it’s really disappointing to see the leader of the Opposition grabbing what is a fair question but then providing Kiwis with misleading information. This is a time for cool, calm heads.”
Treasury's concern about total Crown revenue declining is almost certainly genuine and well-founded. A lack of any government growth strategy and a sustained fuel shock will compress corporate profits, slow economic activity, reduce PAYE receipts, and, if the Reserve Bank is forced to respond to inflation exceeding four percent, tighten financial conditions at exactly the wrong moment. These are serious risks to New Zealands fiscal outlook and Willis should be taking them seriously.
However, what the Finance Minister isn't entitled to do is apply a broad macroeconomic revenue warning specifically to GST in order to deflect from a perfectly reasonable question about whether the Government is quietly pocketing a windfall while ordinary New Zealanders struggle at the pump. Treasury would not have advised her that GST revenue is going to fall, because the evidence strongly suggests the opposite. Any economist who advised this should be sacked!
The Minister would do well to be straight about the distinction, rather than allowing the public to draw an inference that her own officials almost certainly did not intend.
