The move comes in response to soaring fuel costs sparked by the Russian invasion of Ukraine, which has seen a global surge in prices.
Announcing the measure, Labour prime minister Jacinda Ardern described the situation as “a wicked perfect storm”.
“We cannot control the war in Ukraine nor the continued volatility of fuel prices but we can take steps to reduce the impact on New Zealand families,” she said.
“We hope this ensures that where the option of shifting how we travel is available, this makes it more affordable to take that public transport option up.”
The three-month subsidy needed to cut fares will cost between $25m and $40m NZ (£12.9 to £20.7m), according to local media.
The country’s government is also set to cut fuel excise duty by 25 cents (13p) a litre for three months to ease pressure on people who cannot switch to public transport.
The change to transport fares means a one-zone rail fare with a smartcard in Aukland will be cut from £1.14 ($2.20 NZ) to 57p. ($1.10 NZ).
New Zealand’s approach differs from that of the UK, where rail fares were this month hiked by the fastest rate in nine years, 3.8 per cent.
Instead of reducing fares because of rising inflation, the UK government increases fares in line with inflation every year, meaning a rising cost of living leads to steeper fare rises.
Experts have told MPs in the UK that the cost of a litre of petrol could hit £2.50, with diesel topping out at £3.00.