Libs, Nats Still Running On Empty

Brendan Nelson scored some "PR-points" from the public with his proposed 5c cut in fuel excise. Prime Minister Kevin Rudd certainly felt some heat, in and out of Parliament.

Ultimately, though, such a cut is bad policy. Brendan Nelson was told as much by members of his own party. A 5c/litre cut in the excise on petrol was estimated to cost the Federal Government's budget $1.8 Billion. Today, the National Party says it wants a 20c/litre cut. On a 50 Litre fill, that's just $10/week - close enough to 2 cups of coffee from Gloria Jean's, or similar coffee shops.

In terms of the family budget, it's not much, but its effects could be significant - not just on the budget, but on inflation.

Economically, at lower prices, petrol is reasonably inelastic. When prices rise significantly in a short time, as they have, then it becomes more elastic. To howls of protest from the public and businesses!

Australia, and Australians are being price-forced to evaluate how much they drive, the type of vehicle they drive, and maybe, just maybe, they way they drive.

Just driving more smoothly could save you up to 10% of your fuel bill, and only 5-10 minutes of travel time. On that 50 Litre fill, at $1.70/L, that is $8.50. Almost as much as the National Party's 20c/Litre cut, and with much less risk of higher inflation.

Want to cut your petrol bill? - drive better!

John

Petrol Pricing Expediency

Over the last two weeks or so, much has been made of the politics of petrol prices in Australia. The Federal (Coalition) Opposition announced it would reduce the fuel excise by 5c/Litre to "help the battlers in Western Sydney". In Parliament he referred to families in Taragos (people-mover vans) with mum, dad, 4 kids and wheelchair in the back! (not exactly the typical Australian family; perhaps it was just artistic licence)

Petrol pricing is a sensitive issue in Australia - witness former PM John Howard's political angst following complaints when petrol hit AU$1/litre. He was at further pains to make the same point the current Labor government does - international petrol prices are beyond its control. The policy has been that Australian prices are tied to the Singapore price of TAPIS crude.

Australia's petrol taxes, and pump prices, are by no means the highest, or lowest, in the world.

In February 2008, the average price across Europe was AU$2.04/litre; NZ was AU$2.28; and Britain AU$2.25/litre. The Australian weighted average was $1.44. In the USA it was about AU$0.85-0.90 (Compiled from information gathered from: RBA; AARoadwatch, Ireland; Australian Institute of Petroleum; Backpack New Zealand. Image from www.coolmob.org)

Petrol is reasonably inelastic - when the price jumps quickly, as it has, people react strongly, but in the longer term will try to reduce consumption either by changing their travel habits an/or by buying more economical vehicles. Many metropolitan and regional areas also suffer from poor public transport planning by our politicians.

Nevertheless in a world where global warming is an issue we cannot ignore, a petrol price that encourages less use is a good thing, despite the pain in the wallet. People need to adjust their expectations of cheap petrol all the time - it is just not going to happen. Politicians should look for other ways to help people, including 5, 10, and 15-20 year plans to help public transport recover from their ravages of the last 15-20 years. The trouble is, that would require them to have some vision beyond the next press conference or election.

John