Fuel Pricing

IT IS understandable that members of the community are outraged by the petrol price increases incurred over the past few months.

However, it is not fair or correct to blame the Federal Government or changes to the tax system.

The rise in petrol prices, which began in the first half of 1999, is mainly the result of higher international crude oil prices. Early in 1999, the Organisation of Petroleum Exporting Countries (OPEC), whose members produce about 40 per cent of world crude oil, announced that its members would reduce output.

These cutbacks to supply and higher demand resulting from growth of the world economy have boosted crude oil prices.

Increases in the price of crude oil has more than trebled in the past 18 months in Australia to around $54.67 in August

The second determinant of petrol prices in Australia is the exchange rate between the US and Australian dollars. World crude oil prices are denominated in US dollars.

Depreciation of the Australian dollar relative to the US dollar causes Australian dollar prices to rise. The Australian dollar has fallen from around US 63c in March, 1999 to US 57c on August 25, 2000, a depreciation of more than nine per cent.

Despite rising world prices, however, Australia still has the fourth lowest petrol prices among the industrialised countries in the OECD.

On July 1, the Commonwealth Government reduced the excise applicable to petrol and diesel by around 6.7c per litre to offset the effect of the GST.

In effect, this excise reduction was set so that the price of petrol at the pump would remain the same.

In fact, the ACCC petrol price monitoring found that average petrol prices fell immediately after the introduction of the GST.

The GST, being based on value, will generate revenue for the States as petrol prices rise. But in this respect, petrol is no different from any other good whose price has risen.

Bringing down the price of petrol by reducing excise or freezing indexation of the excise is therefore not an alternative. To maintain the integrity of the budget, the Government would have to raise other taxes to offset the revenue loss or reduce outlays.

Since coming into office in 1996, the Coalition has not increased petrol excise in real terms, but has continued the usual indexation in line with the Consumer Price Index which commenced under Labor in 1983.

It is of grave concern that the Coalition’s attempts to introduce more competition into the petrol industry to benefit consumers has been opposed by the ALP and the Democrats in the Senate.

Australian motorists’ only hope for relief, as Prime Minister John Howard announced earlier this week, is for a reduction in world oil prices.

Alan Eggleston, Senator for WA

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