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Melbourne Transport |
Common Urban Myths About TransportMyth:
The only solution to high petrol prices is to cut fuel tax
Fact:
Cutting fuel tax might postpone higher petrol prices for a few months, but
at the expense of having to find billions of dollars through other taxes
every year thereafter. The solution lies not in cutting fuel tax or
chasing alternative fuels, but in fixing up the alternatives to car use.
In 2005 the pump price of petrol began a long upward climb, from its earlier prevailing level of around $1.10 a litre up to an average $1.30 a litre just one year later. Faced with a backlash from car-dependent voters in the lead-up to the 2007 Federal election, the government was under pressure to 'do something' about petrol prices. The pressure has not abated with the change of government, as petrol prices are set to climb further still. The road lobby's recommended solution, naturally, is to cut petrol tax. Petrol carries excise of 38.1 cents per litre (down from 47 cents in 1999), plus the 10 per cent GST that applies to all goods and services except basic food. Various pressure groups, from the RACV to Family First Senator Steve Fielding - and now the Federal Opposition - have proposed either removing GST from petrol (making it unique among inedible goods) or reducing the excise rate, so that motorists see a lower price at the pump. But far from being the 'only solution' to high petrol prices, reducing fuel tax isn't even a solution. The reason prices are high isn't that governments have hiked up the fuel tax: after allowing for inflation, total fuel tax now (even with GST) is actually lower than it was in 1999 when petrol cost 90¢ a litre. Petrol prices are high because global crude oil prices are high, and crude oil prices are high because demand for oil is outstripping supply. This is due partly to political instability in the Middle East where most of the world's remaining oil is located, and partly because we're fast reaching the point where, although there's a lot of oil left, the rate at which we can pump it out of the ground is barely keeping up with the rate at which we're using it up. To reduce the price of a commodity that's in short supply will only result in it being used up more quickly. Take the other big Australian price-rise story of 2006: bananas. Had the price of bananas remained the same after Cyclone Larry destroyed most of Australia's banana crop, there would have been no bananas left in the country by mid-year. Much as we may have complained about it, the high price at least ensured that bananas remained available (more or less), even if we couldn't afford to eat as many as usual. (At the same time, bananas are different from petrol in that we can grow them back. Sure enough, the crop was eventually restored and in 2007 the price of bananas came back down. We have no such assurance with petrol, because once the easy-to-reach oil is gone it's gone forever.) Similarly, reducing the price of petrol by cutting the tax will do nothing to counter the factors that are causing the oil price to rise, and if anything will make the situation worse. So if fuel tax is cut by 5 cents a litre, as the Federal Opposition now suggests, it's probable that in six months' time the price will have risen by 5 cents a litre and we'll be back where we started. Meanwhile the government, to recover the $1.3 billion a year it's no longer getting from fuel tax, would have to raise income tax instead - which hits everyone no matter how much driving they do, and means that those who drive less would be subsidising those who drive more to an even greater extent than currently.
It is also questionable just how beneficial to consumers a cut in fuel tax would be. Given the very tight margins in the service station industry, and the popularity of discount vouchers that erode margins further, there is no guarantee that the full value of any fuel tax reduction would be passed through to consumers. Even if it is, the people most likely to benefit are not those in greatest need of relief from a higher cost of living. Data from the Australian Household Expenditure Survey shows that from each dollar of fuel tax reduction, just 9 cents would go to the 20% of households with the lowest incomes, and 15 cents to the next 20%; meanwhile, the wealthiest 20% would receive 30 cents.
Source: Australian Bureau of Statistics, Household Expenditure Survey 2003-04 Given we won't be able to keep pumping oil forever, finding an effective solution to high petrol prices means taking steps to reduce the amount of fossil fuel we use in the first place. The former Howard Government's favoured alternative of giving people handouts to convert cars to LPG isn't likely to have much effect, given that LPG is a petroleum byproduct and subject to the same limitations, and many cars just aren't suitable for LPG conversion since they lack space for the gas tank. (LPG isn't even particularly greenhouse friendly: emissions are less than those from petrol for the same energy output, but only by about 10%.) The next most favoured alternative is to blend petrol with ethanol, so that the fossil-fuel component is at least reduced. But as we point out on another page, there are severe limits to this strategy. Producing even a 10% ethanol blend on the scale required by Australia's car fleet would consume over half our entire wheat crop, raising the question of how we are to feed ourselves on an increasingly dry continent. While some ethanol is available as a byproduct of sugar refining, its contribution in Australia can only ever be a small one and it does not come for free. The better solution is to attack the fuel demand problem at its source, by providing travel alternatives to single-occupant cars. Public transport, walking and cycling all use substantially less fuel moving a person from A to B than a car does, and since most of our travel occurs in cities where public transport networks are viable, there seems little reason not to pursue the alternatives. If done properly, the cost to the public purse of shifting journeys from cars to less fuel-intensive modes would be a good deal less than that of cutting fuel tax even by a few cents a litre.
© 2007 Public Transport Users Association Inc. (PTUA), Victoria, Australia. ABN 83 801 487 611. Last modified: 2 June 2008
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