Well, at least they didn’t outright promise to do it…
THE Federal Government has confirmed it will consider cutting the GST on fuel excise as part of a larger review of petrol taxation, as motoring bodies demanded an overhaul of the entire petrol-pricing system.
Treasurer Wayne Swan revealed at the weekend that he is considering scrapping the GST that applies to the petrol excise as part of a review of the tax system — a move that would save drivers about 3½ cents at the pump.
Taking tax off petrol is a dumb idea, one that Nelson got a well-deserved bollocking for, and one that Labor shouldn’t be thinking about. But this may have a silver lining, if we’re lucky.
Why is taking tax off petrol a dumb idea? The obvious problem with it is of course that the foregone revenue either comes out of the budget bottom line, or needs to be made up with tax increases or spending cuts elsewhere. But the other problem with cutting tax on fuel is that it only works if only Australia does it. Think of the world oil market as an auction run by the big petroleum exporters, and at the moment it’s a sellers market. It’s like the Australian property market of a couple of years ago – everything they can find is selling for premium prices. You’re there bidding away, and suddenly the Australian government comes along and shoves an extra $10 in your pocket. So whatever you were going to pay, your net cost is diminished by $10. But then the other bidders notice what’s happened. And they turn around and ask their friendly government for a tenner. And then a very strange thing happens. The price people are prepared to bid on the oil magically goes up by – you guessed it – $10. So, rather than ending up in your pocket, a tax-cutting race amongst oil importers will just transfer money from the treasuries of oil importing countries, like Australia, to the world’s oil exporters. Do you think further enriching the Saudi royal family is a good use of your money?
Incidentally, the first home-buyers scheme had a similar effect on outer-suburban property developers, but that’s another story…
Anyway, there is indeeed a silver lining to this cloud, and it comes back to Malcolm Turnbull’s own piece of petrol-price populism mentioned earlier on LP. The emissions trading scheme is coming in 2010, and as noted there, the only sensible way to do it is ensure that applies to as many emissions sources as possible. And, unlike Malcolm’s suggestions, that means petrol, too. If you believe Westpac and Origin Energy’s recent deal, a likely initial permit price is around $20 per tonne, which, funnily enough, works out to – you guessed it – almost exactly the same impost on petrol as would be removed by the change to fuel excise!
But it gets better. If the emissions trading scheme has any teeth at all, the price of emissions permits is going to rise – and probably quite sharply, if the targets in the Bali roadmap turn out to have any resemblance to the final deal. So, with any luck, we’ll end up swapping 3.5 cents of GST on fuel excise, for 3.5 cents of emissions permits, which will then increase over time.
I do wish that the government would use their ridiculously high popularity to actually tell the punters the inconvenient truth about petrol prices. But if a little sleight of hand is required to get petrol in the emissions trading scheme, it’s a much better outcome in the long run than the terrible excuses for policy coming out of the Libs right now.
Oh, c’mon we don’t have an oil problem, let the party continue!
http://www.news.com.au/dailytelegraph/story/0,22049,23755270-5001030,00.html
The only chance of petrol being included in the ETS is if there is a significant (and lengthy) downturn in the price of oil. I can only see that happening in the context of a big fall in global demand, which means global recession. The supply side will not improve.
In other words, Buckley’s.
They could take the GST off books as well.
Paul: well, then, how about taking it off internet access…and safety equipment, and sports equipment to encourage exericse, and pet food – because pets improve people’s well-being – and so on and so forth…
I thought the Rodent had removed GST from the fuel excise, when it looked like it could turn into an election loser for him in 2001 or 2004, I forget which.
If petrol is such a worry why do so many people continue to drive in a way that increases their fuel consumption? By changing the way they drive (less aggressive acceleration in particular) they could save the equivalent of at least 10c/L.
Even better, they could buy fuel efficient cars. Want a 34c/L fuel voucher ALL THE TIME? Swap a Holden Commodore for a 4 cylinder Honda Accord (60c/L voucher if they swapped it for a Honda Civic).
Don’t think so Jane, they just stopped raising excise every few months to follow CPI.
Jane: the rodent stopped the half-yearly indexation of the fuel excise in 2001.
That was step 1 on the road to re-election. Step 2 we all recall…
Yes, funny how one of the worst decisions of the Howard government, made when they were politically desperate, is now being trumpeted as a great success by the Libs, including Turnbull.
Imagine how many 4WDs would not have been bought if indexation hadn’t ended? 4WDs that will become increasingly difficult to sell.
If people think petrol prices are high now, look at what will happen if/when the australian dollar drops to around US 70-80c again. We’ve been protected by much of the rise in oil prices by the appreciation of our dollar, but that is unlikely to last.
And exactly the same thing is going to happen once Rudd’s house saving scheme starts to kick in….
I disagree, I think the AUD is going higher, perhaps not as fast as the price of crude but the strength of the AUD will continue to cushion us.
Why? First, the RBA seems determined drive the non-resources sectors of the economy into recession by hitting us with more interest rate rises. Second, the price of coal and iron ore will continue to rise.
The only primary source I can find for today’s MSM beat-up du jour is an innocuous ‘the inquiry will look at it along with everything else’ answer that Jenny Macklin (not the responsible minister) gave to a question on a Sunday morning television show.
Have I missed something, or is this another instance like the carers’ bonus where everybody is supposed to dance excitedly to the tune of reporters who believe their primary task in life is to drive the political agenda?
Unfortunately, I don’t share your optimism Robert. I think Rudd’s priorities lie with establishing the ALP’s hegemony in federal politics for a decade. His modus operandi is this:
1) Co-opt the libs’ one selling point, namely “economic conservatism”.
2) Take a populist stance on “hot button” issues to give the libs no room to move
3) Considered policy if it does not threaten points 1 and 2.
Given this, I think the current petrol issue, which pre-budget fell into category 1, now falls into category 2 since Nelson’s budget reply.
Fmark: possibly.
I’d argue that the government has shown, on occasion, that it is prepared to implement good policy by underhanded means.
Cases in point:
1) getting rid of temporary protection visas with barely an announcement.
2) killing off the solar PV rort by means-testing.
I’m hoping that this might be another one of those, and I’d even be happy to wear a short-term net decrease in petrol tax if it ensured that in the long-term the tax take on it goes up.
Robert – I don’t agree with the characterisation of the solar PV subsidy as a rort. Perhaps not the optimal way of encouraging CO2 reductions, but it did rank above doing nothing and pumping more money into clean coal technology which is the current strategy until the various committees report back.
For example, the impact of the solar PV rebate removal would have been much less if it was delayed until the introduction of carbon pricing to force up coal generated power prices and feed in tarrifs were given time to be implemented which increases the return to people who install them.
Instead we’re going to see a bunch of solar PV installation small businesses go bankrupt and its going to be very hard to encourage them back later, meaning solar PV systems are going to remain more expensive for much longer.
You didn’t miss anything, as far as I can tell, Ken.
It seems that conservative commentators in Australia now have the power to affect Federal Government policy directions…
Chris: there’s been very extensive discussion of that policy at earlier threads, and you’re by no means the only one who disagrees with me!
I would just point out that, whatever your position on supporting solar PV, the rebate scheme did it in such a way that it was at the expense of wind, biomass, geothermal, and other renewables, not fossil fuels. If we’re going to support solar panels, surely it should be done in a way that actually reduces greenhouse emissions?
On Ken Lovell’s point at 12, it’s likely that ALP spindoctors have been feeding the line, and there’s more to it than just Macklin’s on the record comments. It might be a short term political tactic to neutralise the opposition’s petrol stuff until it fades away, or Fmark at 13 might be right.
A reduction in the GST on fuel (if it happens) could potentially be thought of as part of the balancing act required for the introduction of the Emissions Trading System. It’s easier to sell the idea of a carbon price if some other taxes and charges are reduced in a compensatory manner.
I don’t want to derail the thread, but although the subsidy rather innefficiently reduced greenhouse emissions it did actually did some good. Would not have complained if the subsidy was replaced by something else (say which covered all renewables on an equal footing) rather than just removed. Populist and profitable!
btw one aspect of what Labor is considering versus what the Liberals are proposing that you didn’t mention is that removing the GST wouldn’t actually affect the federal government budget as the GST revenues go to the states. By then swapping it in for a carbon tax they would effectively be shifting revenue to the states to the federal government.
So far out from an election and with such a big lead I’m kind of surprised they feel the need to be so concerned about an issue like this.
Thanks for that. I remember the big stink about GST being levied on the excise, but mistakenly thought it had been removed. There’s a lot of fuel whinging going on in the letters in the Australian and Advertiser today also pensioner whinging, but no mention of the fact that they are getting an extra $900 this year.
John Cox has written a piece on fuel tax and pricing which is interesting.
However, as that nice Mr Hockey pointed out, petrol prices will _always_ be lower under a Coalition government – without a trace of irony, as far as I could see.
This could well be true, if we accept that:
a. It’s never going to be cheaper than it is today; and
b. We’ll never have another Coalition government.
I think they only got $400 extra this year – the other $500 was the one off payments that the previous government gave for the last few years – do that too many times and people believe the on-off is happening every year. Even with the extra money though it’d be pretty hard to live on the pension.
On the question of this one-upmanship on petrol prices, Ross Gittins today nails the constant lowering of the bar in economic policy debates by cynical journalists who these days see their role as feeding fear and ignorance for the sake of a story.
Rudd merely needs to tell people the truth. “Ok, I’ll cut the GST on petrol. You just tell me how many schools and hospitals to close down to pay for it.”
http://business.smh.com.au/rudd-needs-to-start-leading-20080525-2i1p.html
John Quiggin thinks even entertaining this idea is the Labor government’s first big policy fuck up:
http://johnquiggin.com/index.php/archives/2008/05/26/groan/
I often can’t believe the comments in the Courier-Mail’s coverage of petrol prices. Queenslanders get their petrol subsidised by the state government yet there are people who continue to whinge about how the federal goverment should be cutting excise despite it being fixed at a fixed cents/L value thanks to Howard’s stopping the indexation.
The Qld Govt needs to redirect the subsidy towards public transport funding and the Rudd government needs to reindex the fuel excise. Australia needs to accept that driving a car is going to become very expensive very quickly and we need the revenue to build the public transport infrastructure which people will be demanding when they realise that they just can’t afford to drive to work in the mornings.
Its the curse of the government income being so high. If they were running deficit budgets then the general public would probably accept that argument. But its a lot more complex when there are such large surpluses.
Hear, hear. Well said.
However, Nelson’s populist nonsense about 5c litre cuts (will be swallowed by price rises the next month) is now being “reacted to” by Rudd and co.
I really don’t think they get it. Playing politics seems to be the only game in town.
We are running out of oil and petrol, then we will run out of gas. Nelson’s and Rudds response: “well, lets cut the prices”. Back to economics 101 for the lot of them (reduced supply and increased demand means the price rises), or has this been replace by politics 101?
Rudd was right, there is not much he can do long term about petrol prices – but there is heaps they can do to develop and promote alternatives.
I would whack on another 20c a litre and use it fund R&D on sustainable transport alternatives, rather than just tipping the excise into consolidated revenue as they have been doing for years.
Sam Clifford makes a good point – petrol is substantially cheaper in Qld then in northern NSW. As much as 20 c per litre less and this appears to be due to government action.It may be considered a subsidy but what it represents is the government foregoing income for a perception they are helping motorists.
On a different point I would like to get some clarification of some pricing matters Robert mentions.
As I understand it the bowser price of petrol in Australia is arrived at by the consumer having to match the price for the nearest possible substitute.What does this mean ?
The nearest refinery to Australia is in Singapore. If we bought our refined petrol there, shipped it to Australia and sold it after transporting it to petrol stations ( plus 51 cents of excise and GST- NSW price today 150c /l)we would be charging about $1.50 per litre.
So the oil majors ( and remember there are only 2 refineries in Australia- there might be many brands sold but it is the same 2 basic products )price the petrol as as we weren’t producing any local oil .
The arguments about the level of tax applied to fuel are more focused on stimulating the search for alternatives , warning consumers we will run out of local oil quite soon ( projected to decline to less than 25% of local needs by 2020) and so we will HAVE to pay ex-Singapore refinery prices and whether heavy road users should pay more than light users.
As such the government could lower the price of petrol very sunstantially if it chose to .
Contra this the fuel excise is a major source of federal government revenue, it would not encourage users to be frugal in the face of impending shortage and the substitution of the excise charges with a road user charge seems too hard for the pollies and the consumers to accept.
Lots of good points here but are we overlooking a few simple facts?
Power hungry countries, like China, will continue to force the price of petrol skyward no matter what the Australian Government does. It’s a basic principle of supply and demand. Demand will continue to increase therefore costs will continue to rise. Government tax or not motorists are over a (oil) barrel, after all we are talking about a limited resource.
So what about alternative fuels like ethanol? Fine….but it’s not currently viable to ween ourselves of fossil fuels just yet. Wealthy governments are already copping a bit of flack for using food as fuel considering the rising starvation in the world.
Forget the excise tax cuts. Invest money into renewable energy programs. Look at better solar powered batteries, electric cars, alternative fuels……we’re never going to get anywhere while we’re still suckling on the oil teat. I don’t profess to know the answers but I do know we need to do something !!!
I’m no greenie but what ever happened to the electric car dream? I’ve heard they have made some wonderful advancements in recent years but are they being adequately promoted? Someone’s making a lot of money by keeping this technology on the back burner!