National campaigned on scrapping the tax - of 11.5 cents per litre of fuel including GST - within its first 100 days.
Speaking alongside the transport minister at a carpark in Parnell, Auckland, Luxon confirmed the scrapping of the tax, saying it would lower the cost of filling a Toyota Hilux's tank by $9.20, or by $5.75 for a Toyota Corolla.
"We are determined to reduce the cost of living for hardworking New Zealanders, and this will go some way to easing the pressure on them," he said.
"Fuel tax costs on lower-income people with less fuel efficient vehicles is a regressive tax, and this will make quite a big difference, getting rid of this."
Auckland's mayor Wayne Brown has previously said while the tax should be scrapped, that should only be as part of a plan to replace the revenue with other fund-raising measures like congestion charging.
Photo: RNZ / Finn Blackwell
"It will mean more delays to sensible projects to optimise our road network and more potholes," he said at the time.
The mayor on Thursday said the government had just made it a lot harder to fix Auckland's transport system.
The scrapping of the tax would mean Aucklanders would have to pay higher rates or miss out on major road and public transport improvements, Wayne Brown said.
He said the decision would have unintended consequences unless the government was prepared to foot the bill for upcoming transport projects, and the cancellation would leave a shortfall in transport funding for Auckland of $1.2 billion over the next four years.
Luxon said he acknowledged Auckland was facing huge infrastructure challenges, "but this fuel tax has actually not been used to deliver them, instead it's been delivered more cycle lanes, red light cameras, and speed humps".
"We are also very committed to working collaboratively with Mayor Brown, and Auckland Council, to make sure we unlock the funding and the financing tools needed to fund Auckland's share of of future transport projects."
However, the government gave no timeframe for when congestion charging might be brought in.
"For the period between the RFT ending on 30 June 2024, and time of use charging becoming available, we'll be focused on ensuring priority projects continue to be funded and delivered from remaining RFT revenue," the minister said in a statement.
The tax was introduced by the Labour government in 2018, to be paid by fuel distributors for fuel stations and commercial users in the Auckland region, with the aim of funding transport projects that otherwise would take longer or not take place.
Christopher Luxon and Simeon Brown. Photo: RNZ / Marika Khabazi
The funding is collected by Waka Kotahi, the Transport Agency, then is sent on to Auckland Council minus a service cost.
National had argued the funds from the tax were largely not being used, with more than $327 million of the $700m taken remaining unused by May last year.
A statement from the government on Wednesday clarified about $780m had been collected through the regional fuel tax as of September last year, with about $341m - the equivalent of two years of revenue - remaining unspent.
Luxon said they had discussed the matter with the mayor and signalled the $341m remaining from the tax would be ringfenced for spending on the Eastern Busway, the CRL electric trains, and road corridor improvements.
Transport Minister Simeon Brown said there were about 20 or 30 projects - including a range of cycleways, bus lanes, and speed bumps - that would no longer be funded through the tax, but could still be delivered by the council through other funding.
"If the council wants to continue to fund those, they can continue to do so - that's a decision for them but they won't have regional fuel tax funding to deliver that.
"Also, I'm sure the mayor will be happy there will be slightly less speedbumps being delivered as well.
He said it was about improving the cost of living for Aucklanders.
"This means people are not having to fork out as much every time they fill their car up," he said.
"We just don't think it's fair to be charging Aucklanders another 11 and a half cents a litre to build speed bumps."
The minister said a new Government Policy Statement on transport would be released "shortly", and would tackle the matter of other revenue sources such as congestion charging and other local roading improvements.
He said this would include support for "more dynamic lanes".
"It's not just about revenue, it's also about reliable journey times for people trying to get around our city," he said.
"Value capture, PPPs, using toll roads for new infrastructure, those are the types of tools we'll be utilising to make sure people see the benefit of what they're paying for."
He said they were also working with the Ministry of Transport on a policy for extending road user charges to petrol vehicles, rather than taxing fuel.
"It is a priority for this year, alongside other transport policy work, around moving all vehicles away from fuel excise to a road user charge which is actually a much fairer way to charge for road use."
The GPS on Land Transport would be released in the coming weeks, the statement said.
The tax applies to petrol, diesel, a biofuel variants and had been due to expire on 30 June 2028.
Some uses of fuel - for commercial, charity and government organisations using machinery and search and rescue vehicles, or international vessels including superyachts, for example - were eligible for rebates.
The government's statement also confirmed its legislation would fully remove the framework for such fuel taxes, meaning they could not be brought in for other regions.