Taxes key to petrol prices

The ACCC's new Petrol Commissioner cannot do anything to reduce the price of petrol.  Creating a Petrol Commissioner is also a distraction from how government can actually reduce the price of petrol:  reduce Government taxes.

Petrol is priced by the simple forces of the market -- supply and demand.  Despite the fact that Australia sources most of its petrol locally, prices cannot help but be set at the world price.  This is because if it were priced lower, Australian petrol would simply attract a higher price internationally and be sold there.  The net result for Australians world be petrol shortages.

Specifically, the Australian world price marker is the Singapore market price.  Singapore is the major oil trading hub in our region.  Despite its petrol price hysteria, the ACCC has found that Australian bowser prices closely correlate with the Singapore price.  The ACCC's own evidence defuses suggestions that petrol companies are deliberately gouging consumers.

The Petrol Commissioner cannot reduce the price of petrol without effectively getting petrol retailers to sell below market price.

One of the supposed benefits of the new Petrol Commissioner's office is that it has increased pricing transparency.  But prices do not go down just because someone watches them.  When the Petrol Commissioner Pat Walker named-and-shamed Coles Express for a recent increase in petrol prices, he argued that his action proved the need for his role.

But the facts don't support Walker.  Coles Express was merely the first of the petrol stations to so increase their prices -- they were shortly followed by other stations on the same day.  The Petrol Commissioner did nothing to stop price rises;  only managing to condemn one company as a scapegoat.

LOSE LOSE

The irony is that if one company increases its prices first and others follow, they are attacked by the ACCC for increasing prices.  If all the companies do it in unison they are attacked by the ACCC for collusion.  Either way petrol companies cannot win.

The reason petrol prices are consistent is not because of a lack of transparency.  Quite the opposite -- it is because they are transparent that they seem uniform.  Standard Unleaded Petrol is an interchangeable product and can be bought from any service station regardless of the car you drive.  Petrol prices are advertised on giant billboards alongside roads, so if consumers are not happy with the price they can drive to another station for a better price.

Blaming petrol companies for the high cost of petrol also ignores one of the major reasons that petrol is expensive:  government taxes.  Petrol companies make only a few cents profit per litre of petrol.  In comparison, 41 per cent of the price of petrol is state and federal taxes.

If the Federal Government really wants to reduce prices they can reduce fuel excise.  In his budget reply speech Federal Opposition Leader, Brendan Nelson, proposed a fuel excise cut.  The Government has attacked the proposal for being economically irresponsible.  It is not.

Fuel excise is added onto the price of petrol before the GST.  The GST is a percentage tax that is added after excise and increases as the final price.  As the market price of petrol continues to rise, so does the Government's GST take.  Any cut in excise will be sufficiently compensated in the increased take from the GST.

SHORT REPRIEVE

Even if the Government cuts fuel excise it will be a short reprieve for consumers.  The Government has proposed a new scheme to stop retailers from changing petrol prices throughout the day.  In Western Australia a similar program already exists and retailers have been fined for reducing prices.

Further, the Government has already proposed a new tax on petrol through the carbon trading scheme.  Along with electricity, transport is one of the primary emitters of carbon dioxide.  And under a carbon trading scheme the Rudd Government will impose additional costs at the bowser.  Modelled projections show that the cost of the carbon trading scheme on petrol prices could effectively double the GST component.

Consumers should be wary of hollow promises to reduce petrol prices by Government.  The real obstacle to keeping petrol prices low is government taxes.  And if you think they are bad now, just wait until the cost of a carbon trading scheme hits you when you fill up.