It has taken just six months for the electorate to realise the Rudd Government is tricky. Kevin Rudd never promised to lower petrol prices. At the ALP campaign launch, he promised to appoint a petrol commissioner -- a promise kept with the appointment of Pat Walker.
Rudd even said this was not a silver bullet but a practical measure to help working families under financial pressure.
This week somebody thought to ask what that "promise" meant. Rudd now says Walker will have only a marginal impact on petrol prices. Competition and Consumer Affairs Minister Chris Bowden suggests that "marginal impact" might be as little as $0.02 a litre.
The Government is relying on an analysis by the Australian Competition and Consumer Commission, published last December, to justify that $0.02-a-litre saving. That apparently is the saving associated with the West Australian FuelWatch scheme -- closely associated with Walker. Petrol stations will be have to notify the ACCC in advance and fix their prices for 24 hours.
By any understanding of economic theory, this constitutes a reduction in retail competition. If the ACCC is to be believed, a decrease in competition will lead to a fall in prices. This must be embarrassing; the ACCC was established to promote competition.
Unfortunately for working families -- and everyone else -- the $0.02-a-litre claim is nonsense. The small print and caveats contained in the ACCC report indicate that the regulator itself doesn't quite believe it.
But even beyond the ACCC's doubts, there are good reasons to be suspicious. The ACCC did not actually compare retail prices in WA and eastern states before and after the introduction of the FuelWatch scheme. Instead, it compared a relative profitability measure of selling petrol in WA relative to eastern capitals.
The $0.02-a-litre claim is not based on prices consumers actually pay and so it is fundamentally misleading. When I replicate the ACCC analysis using consumer prices -- surely the measure in question -- I find FuelWatch had no impact on relative prices in WA.
That is not to suggest that WA motorists have not benefited from somewhat lower prices in recent years. An analysis undertaken by Informed Sources -- a Queensland-based information management firm -- has shown that the introduction of supermarket competition into the petrol market in 2004 lowered average consumer prices by about $0.025 a litre in Perth.
The effects are much smaller in other states. Greater competition, not government regulation, has delivered some price relief to Perth. Mind you, that hasn't stopped the new petrol commissioner from criticising those schemes.
The ACCC does not even consider the possibility of fuel dockets lowering prices. All it can say after giving a whole range of reasons why its analysis may be wrong is: "Of potentially greater concern is the possibility that something else entirely has driven the improvement in the relative price margin". The ACCC does not really know what has happened, or why. Its whole argument is flawed and should be discounted.
The Government is now promising to look at unwinding the GST-excise tax interaction, a saving of about $0.04 a litre. The Howard government had always argued that this tax on a tax was too hard to untangle, and for a saving of $0.04 not economically viable. Yet Rudd's petrol commissioner would, at best, save $0.02 a litre.
Consumers were being told just 10 days ago that the Coalition plan to cut excise by $0.05 a litre was irresponsible and blew a hole in the budget. Of course, good tax cuts always reduce the budget. While the Government is planning to salt away $40 billion into slush funds to subsidise future spending, we can afford tax cuts.
Unravelling the tax on a tax is itself good tax policy, while reducing excise would be a practical measure that worked. There is no reason to wait for the next election to reduce excise -- Rudd could do so now.
This is a Government long on form and short on substance. The electorate has good reason to be aggrieved on this issue. The general perception is that Rudd promised action, yet has failed to deliver. All the Government has done is to roll out a poorly tested policy proposal with a marginal impact.
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