V8 fans won’t welcome higher fuel pricesOf all the unpopular measures in Joe Hockey’s unpopular budget, reportedly the most unpopular was reinstating indexation of fuel excise.
Yet a much better – but even more unpopular – idea would be to seize the opportunity of crashing oil prices now to recoup all the indexation that has been forgone.
Yep, I’m saying increase the price of petrol by about 12 cents a litre.
When you’re stuck this deep in the policy and opinion poll mud and show no sign of climbing out, you may as well lather on some of the medicinal variety for its complexion-enhancing properties.
Hey presto, around $5 billion a year would disappear from Joe’s troublesome deficit.
And he could claim all of that as a “direct action”, carbon-reducing measure, allowing him to scrap the silly $2.5 billion allocated for burying charcoal and such.
But before the V8 drivers arrive at my garage door with tar and feathers, let me point out that there would be reasonable benefits for our economic health in such a move.
John Howard’s excuse for scrapping indexation back in 2001 (and actually cutting it by 1.5 cents a litre as well) was to alleviate the impact of higher petrol prices.
The real reason of course was to get himself get re-elected, but let’s stick with the theoretical one for now.
With oil prices nearly halving in six months, there are no higher petrol prices needing alleviation.
Indeed, the punters would barely miss what they haven’t quite got yet.
Maintaining petrol prices close to $1.40 a litre would hardly cause great strain. Remember that inflation is quite low and it actually wouldn’t be a good thing for us for it to go much lower.
And it’s not as if petrol in Australia is expensive by international standards, as the attached graph shows.
Yes, there’s the odd silly oil state and the USA that nearly gives the stuff away, but most of the world pays considerably more, which encourages them to use it more efficiently, taking with all the inherit benefits that efficiency delivers.
Petrol becoming cheap again would send a different message.
Many of us have actually been considering fuel efficiency as factor in deciding what vehicle to buy.
Drop prices to $1.20 a litre or less – a level that would feel cheap now – and, gee, that V8 does have an engine note the fuel-sipping little turbo-diesel lacks.
The downside is mainly political. Labor and the Greens were shamelessly populist and short-sighted in whipping up opposition to the reintroduction of indexation alone, so they would have even more principle-free fun over recouping the foregone indexation.
The move therefore would need to be carefully packaged: the OECD has told us we need more consumption tax revenue of one sort or another, so wouldn’t restoring indexation be more palatable than a 15 per cent GST?
And you could always pretend a share of the extra revenue was going to public transport or something similar.
After scaring the electorate so hard for so long about the evil deficit, maybe being seen to make a little progress on that front would count for something. Or maybe not.
Economically, we would miss out on the stimulus that cheaper fuel gives consumers, an effect similar to a small tax cut when the economy wouldn’t mind some stimulus.
While it would be nice, it’s of passing interest.Punters adapt to prices very quickly. And, as you’ve noted, the poor don’t drive cars – or maybe you’ve un-noted that.
A bigger problem with this initiative is that, while it’s been slowly forming, the key driver (so to speak) for it has been shot down in flames on these pages by two colleagues.
On Monday, overshadowed by tragedy, Peter Martin very nicely made the case for solving all the budget’s problems simply by taxing superannuation contributions as part of normal income
The case for it is overwhelmingly convincing, despite the predictable howls of self-interest from those who would lose a massive and unnecessary perk. (It was one of the many fine ideas in the Henry tax review that are being steadily exhumed.)
And today, Ross Gittins slaps all of the budget-fixation brigade around the head with a heavily-framed edition of the missing Big Picture.
There are more important things we should be concentrating on while doing the necessary housekeeping.
But, personally, I’d be happy for the greater good to see petrol prices not fall sharply – it would make me feel a little better about buying that efficient turbo-diesel.