Why are petrol prices so high?

Petrol prices have risen by around 25 per cent from $2 to $2.50 since the change of Government. But why are petrol prices so high? Since the current Government was formed last October the price of crude oil has risen 49 per cent $51 per barrel to a peak of $76 last week. Crude is sold in USD, and we’ve gone from $1.40 to $1.55 NZD per U.S. dollar for a total kiwi dollar increase of 66 per cent in the price of oil.

What About the Taxes and Profits?

National, who increased fuel excise tax by 17c/litre in government, are crowing about tax increases. Since the change of Government, petrol taxes have gone up 4c in New Zealand and 14c in Auckland. The ‘importer margin,’ the price less crude costs and taxes, has bounced around between 45c and 55c per litre for the past year but there is no trend.

The Real Tax on Petrol

Nearly half of earners are now paying the top tax rate of 33c. To by a dollar of petrol, they need to earn $1.50 before tax. If Petrol is $2.50 and you are on the top tax rate, you need to earn $3.75 to pay for a litre of petrol. So the real tax on $3.75/litre is $1.25 income tax, 80c of excise and regional fuel tax, and 33c GST for a total of $2.38 worth of tax and $1.37 for the actual product. This is also why cutting petrol taxes and funding roads out of general taxation is short sighted.

What to Do?

National want to cut taxes, but not expenditure. Labour want to corrupt the Commerce Commission by urgently passing a law and expecting them to carry out a ‘market study’ on petrol retailers. The last Government study found no evidence the market is not competitive. Now the Government is legislating urgently so that the Commerce Commission can demand more data for a market study. What will the Government do if the Commerce Commission finds the market is competitive after the Prime Minister has said morotists are being fleeced? How will we trust the Commerce Commission if it arrives at a different outcome in these politicised circumstances?

While We Think of It

This is why electric cars do not require subsidies. While they may be more expensive to purchase, electric cars are spared this $2.38/litre tax. Electric cars are subsidized at about 20c per kilometre because they use the roads but are exempt from petrol tax. If it doesn’t make sense to buy a car that you are effectively paid 20c a kilometre to drive, then maybe you aren’t saving resources after all?

The Real Solution

The real solution is to implement ACT’s transport policy,using the miracle of GPS tracking to charge people for road use. Not only would it be much more transparent, it could be used to manage congestion with variable pricing. New Zealand could be leading the world in transport technology but sadly we are having a debate where the Prime Minister is jaw-boning the ComCom and the Nats are pretending they’ve never raised petrol taxes.

True Colours

Green co-leader Marama Davidson is a ticking time bomb. She makes her predecessor, Metiria Turei, look like Margaret Thatcher in terms of fiscal awareness. Her latest gaffe, an interview where she said benefits should increase 20 per cent and come without obligations, has been roundly panned even by her own party. The main problem was that she had no idea what the cost of the policy to taxpayers would be. People think it is because she is incompetent.

Not Incompetent

Davidson is a very effective political operator, but she represents a constituency who don’t pay tax. Davidson and her supporters have never received a dollar outside the public sector and truly believe all money comes from the Government. Most on the left pay lip service to fiscal restraint. The real story is not Davidson’s competence, but the fact she can be a party leader without any care for taxpayers at all.

A More Sensible Proposal

Back on the more practical side of politics, David Seymour has suggested cancelling the fees free deal and using the money to pay good teachers more. There are so many reasons. Fees free tertiary education hasn’t even increased participation (if there is a barrier, it is day-to day costs, not fees that can be borrowed interest free anyway). Fees free is inequitable (you are twice as likely to get NCEA level 3 if you’re in the top 20 per cent of wealthy households). The teacher shortage is a crisis. Teacher salaries have fallen from 80 per cent over the average wage to 40 per cent over in the past 30 years. So much for the power of union bargaining.