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Groan

May 26th, 2008

It’s taken six months, and there have been some near-misses along the way, but for me, the weekend announcement that the government will be reviewing the collection of GST on the full (excise-inclusive) price of petrol is the Rudd government’s inevitable first big policy failure. I don’t know where to start on this. First, the objection that it’s “a tax on a tax” is just silly. The effective burden of the GST falls, inevitably on inputs of primary factors (labour and natural resources including land). Since both are taxed, the entire GST is “a tax on a tax”. Politically, the government abandons the high ground it occupied on the issue, while not providing serious competition for the Libs on the low ground. It also undercuts Rudd’s correct statement only a few days ago that the government had done all it could on petrol prices. And environmentally, it’s a sign of impending disaster.

About the only consolation is that, like Nelson’s five cent excise cut, it will never happen. The idea is bound to be shot down in the review for the reasons I’ve mentioned. But there are plenty of other opportunities to cave in, and it looks as if this government is going to take them. The only remaining faint hope is that Rudd will pull those who’ve floated this stupid idea into line, at the cost of throwing away the advantages they held over a divided and confused opposition.

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  1. May 29th, 2008 at 14:18 | #1

    Clive Hamilton, quoted in today’s Crikey, tells it how it is…

    “I’ve watched this debate with total despair…â€? Clive Hamilton, author of Scorcher and former executive director of The Australia Institute told Crikey. “This tells us that large increases in energy prices are off the political agenda for at least a decade. And so we’re stuffed. Because we have to act within a decade.”

    No politician of any flavour is going to raise energy prices. Its as simple as that. So as Clive says, “we’re stuffed”.

  2. chrisl
    May 29th, 2008 at 15:36 | #2

    Carbonsink:If you think large increases in energy prices will reduce emmissions then think again. As petrol has increased by 60 cents per litre, consumption has reduced by 1.5%.For most people, there is no alternative to petrol/deisel

  3. Ian Gould
    May 29th, 2008 at 15:41 | #3

    “Moscow under the ancien regime was a glimpse of what the future may be like in terms of transport. Very few private cars, lots of taxis, and fabulous public transport. The metro stations were works of public art in themselves, albeit socialist realist art. At the end of every platform was a large digital clock showing not the time, but the number of minutes and seconds since the last train left.’

    Hal

    Tokyo and the other major Japanese cities are much the same.

    Of course, it helps that post-war urban planning was heavily centred on rail stations.

    Whay Brisbane and every other Australian metropolis needs is multi-purpose high-rise developments smack on top of most or all suburban railway stations.

    Toowong Village is actually a pretty decent example of this – a major shopping centre and multi-storey office block, plus a council customer service centre bang on top of the railway line with multiple bus routes stopping virtually at the door.

    all they need not is a second tower with a couple of hundred home units.

  4. Socrates
    May 29th, 2008 at 15:44 | #4

    chrisl

    You are right the price elasticity of petrol in the short term is very low – typically -0.1. But in the long term it is higher (-0.3) and can be increased further if there are alternatives provided. Policy wise, the last point is the key.

  5. Socrates
    May 29th, 2008 at 15:50 | #5

    Francis Xavier Holden
    You make some good points but in other ways illustrate how all-pervasive the oil dependancy problem has become. Many government departments including health services are to blame, centralising services in locations not on public transport, forcing clients to drive. They might save 5% on delivery cost through centralisation, but put up community transport costs by twice as much. Everyone must change their thinking, because the oil is running out whether the politicians will admit it or not.

  6. May 29th, 2008 at 16:03 | #6

    chrisl: As Socrates points out the price elasticity of petrol increases over time, and we are at last seeing some some evidence of demand tailing off in the US. But getting back to my point (and Clive Hamiltion’s point) government needs to artificially impose very large price increases to have any effect on energy demand, and clearly there is no chance of that happening. Today’s political environment wouldn’t tolerate a 1c/L carbon tax, let alone the $1/L that’s probably required.

    Re: provision of alternatives: Given that we can’t build the public transport infrastructure overnight, and technologies such as EVs and PHEVs aren’t ready, demand for liquid fuels is likely to remain stubbornly high.

    A good medium term option for Australia is CNG (because its relatively clean and we have a lot of gas) but we can’t convert our vehicle fleet or build the refuelling infrastructure overnight.

  7. chrisl
    May 29th, 2008 at 16:09 | #7

    It is interesting that water consumption has been reduced on a voluntary basis, very successfully, but people seem to think that a very very large tax is required for petrol.

  8. May 29th, 2008 at 16:22 | #8

    It is interesting that water consumption has been reduced on a voluntary basis, very successfully, but people seem to think that a very very large tax is required for petrol.

    Yes I’ve often wondered why the water message conservation message cut through to the public but not the energy conservation message. Perhaps because there was a perceived (and real) shortage of water, whereas until recently the only reason to conserve energy was to do the right thing by the environment.

    Either way, I don’t think you’ll find many people who think we can voluntarily conserve our way to solving climate change, nor will you find much support for regulating a reduction in energy use as we’ve done with water restructions.

  9. wizofaus
    May 29th, 2008 at 16:37 | #9

    carbonsink, demand will remain high yes, but there’s still a lot of scope for the average driver to reduce their petrol usage. It’s been estimated most people could do it by 30% without any significant lifestyle changes or buying a new car.

  10. wizofaus
    May 29th, 2008 at 16:41 | #10

    Oh, and of course demand can only remain as high as supply. If net exports really do start to follow the trajectory some are projecting for the next 10 years, we will have no choice but to reduce demand.

    As for the comparison with water, I wonder if any government is going to consider outright bans on particular forms of wasteful petrol usage – e.g. racing sports?

  11. May 29th, 2008 at 17:03 | #11

    we will have no choice but to reduce demand

    Demand will be reduced but most of that demand destruction will happen in poorer countries first. Australia with its super strong currency and booming resource-based economy will be able to pay high fuel prices for a lot longer than most.

    Most Australians could easily afford European petrol prices ($2.40/L) tomorrow.

  12. chrisl
    May 29th, 2008 at 19:20 | #12

    The point is that if demand for petrol(and co2 emissions) are to be decreased then a carbon tax, even a large one, is not going to be enough. We have had a real-time experiment in raising the price of petrol and demand has hardly slowed. I completely agree that most Australians could easily afford European petrol prices ($2.40/L) tomorrow.
    We need more creative solutions than just a great big stick.
    Summit anyone?

  13. May 29th, 2008 at 21:00 | #13

    We have had a real-time experiment in raising the price of petrol and demand has hardly slowed.

    Well its not an ‘experiment’ its almost certainly the beginnings of a problem every bit as daunting and terrifying as climate change: peak oil.

    We need more creative solutions than just a great big stick

    Well if you’re looking for ‘carrots’, how about free public transport within cities, free rail between cities, and feebates that lower the cost of economical cars and energy efficient appliances.

    The very least we could do is use some of coal money flooding into the government’s coffers to redress the balance a little.

  14. observa
    May 29th, 2008 at 22:01 | #14

    ‘Observa: I‘ve never understood why people buy new cars.’
    It’s like this Francis. When it came to replacing my old workhorse Holden ute, a very tidy 4 yr old, ex NSW Transgrid, 2002 Commodore ute, with 65000k on the clock, complete with typical Quango must have but never use, fibreglass canopy, towbar, Rhino racks, roller drawers, window weather-shields, etc,(around $6K in extras)fully serviced with new tyres and secondhand dealer warranty, 3 months reg and stamp duty thrown in for $20K, cost me a real total of $17500 with the GST input tax credit. Chuck on $2000 net cost of gas conversion and I’ll run that into the ground to 300,000km for the fuel cost nudging Mrs O’s Mitsubishi Colt. No way I’d pay the depreciation price that Quango (really NSW electricity consumers) did for that first 65000kms.

  15. observa
    May 29th, 2008 at 22:36 | #15

    Francis-contd..
    Now take the missus last new car. A Toyota E_cho cost $16K, driven 4 years with 80000kms on the clock and traded in seamlessly on a new Mitsubishi Colt for $8500, the E_cho with a couple of small dents, scratches and chip in windscreen. Previous year’s runout bought in March with 5 yrs or 100000km warranty so it has 1 yr factory warranty for the dealer/new owner. Service intervals of 20000km so only 20,40 and 60K km services, same battery, brake pads, not even a light globe changed and due for its 80K service. New tyres fitted around 60-65K for around $300. Now that’s $37.50 depreciation a week in my book or $41.80 a week including 3 services at $300. Brand new factory warranted car with 24 hr roadside assist and her choice of colours(most important), running around at 6.5L/100km. Show me the secondhand car that can equate to that cost and peace of mind for the ladies late at night? That’s the secret of small cars nowadays.

  16. observa
    May 29th, 2008 at 22:41 | #16

    Well whaddya know? John’s spam filter apparently doesn’t like Toyota’s old model name for its new Yaris. Hence the split comment and E_cho.

  17. Socrates
    May 29th, 2008 at 23:14 | #17

    Carbonsink

    I share your concerns on both climate change and peak oil and sadly I must agree with your views on our greatly reducing demand from prices alone. When you consider what people really pay for motoring with the combination of registration, insurance, depreciation and in capitals $15+/day for parking, travel demand being inelastic shouldn’t come as a shock.

    The really effective policies to reduce urban commuting are usually things like capping parking supply in CBDs and increasing public transport. There is no one policy that will get us close to reduction targets on transport.

  18. El Mono
    May 30th, 2008 at 00:01 | #18

    wizofaus- Are you refering to the taxing of cars based of fuel efficiency or removing tariffs on cars which austrlai currently does not produce (hybrids)

  19. observa
    May 30th, 2008 at 09:44 | #19

    Alright Francis. Just this once for all you slowpokes in the public circus and seeing how you all want to save the planet, I’ll get you up to pace on buying new shopping trolleys and give you a modest chance with all those slick, aspiring, young Observas.
    Stick to the Jap offerings, preferably 4 door autos, because although you pay considerably more than 2 door manuals, that’s what the ladies like and that’s your secondhand market too. Then you need that 5yr/100K factory warranty to chop it in after 4 years max (or 80K max), offering the dealer and his buyer that comfy safety net. Although you pay top dollar for dealer servicing, do it religiously because then there’s no argument with warranty, second owners like Francis love those dealer service stamps and you get a warm fuzzy out of paying their ‘environmental fee’ to boot. Then do some homework on Redbook as to trade-in price range and what’s around new and then it’s off to the showrooms with the missus to play good cop bad cop. Let her have her head and don’t fuss about giving your contact number to your new friends for life. This is always Feb/March remember when they’re trying to runout last years compliance plates, loading on the extras and extended factory warranty from 3 up to 5yrs. Demos are OK. The bad cop is not sentimental remember? Don’t wear anything but factory warranty here and Mitsubishi always offer 5 yr/100K. Remind Toyota people, etc of that. Also you’re not going to be swayed into all that extra shine car care, window tint, Scotchguard upholstery, etc by the mandatory cutie, as she won’t be oozing around to get you any firmer err…trade-in in 4 years time. Confirm that fact with a glance at the good cop turned bad cop suddenly on your elbow, although this scene is always at actual deal time. Good cop always picks the car and colour (providing you fit in it), while the bad cop does the homework and sums. Emphatically tell each apprentice Observa you’re definitely buying in the next week or so (if not you shouldn’t be there dummy) but naturally your ultimate choice of car and dealer depends on the good cop and drive away changeover price. Now you’ve really pushed the big go button he’s going to lay it on you as to what you want for your trade-in…hmmm? NEVER, EVER give a figure or you’re cooked sonny. Mr deadpan, mature Observa look, straight between pale imitation’s eyes and something like- ‘Well naturally I wouldn’t mind a straight swap but I suppose you might have something a little less in mind…hmmm?’ raising eyebrow quizzically without batting an eyelid. This is always High Noon stuff for Wyatt Earp and will occur over and over until you settle on the car and likely dealer. Now no matter how much good cop is interested in a particular car along the way, she’s drilled to want to look at that other make before making up her mind. If she forgets in the heat of battle you step in emphatically with that drill, no ifs, buts or maybes. First you agree on the particular car at home together and only then is it deal time. By this time you have a good idea of maxish trade-in value and should have at least 2 dealers (3s a crowd really) chasing you for your ultimate choice. Politely tell other makers ringing (those contact details recall) good cop has made another choice of makes, end of story. Buy day and then back to those 2 short-listed dealers. (usually you’ve discounted a third because they were lowish on the trade-in). Into dealer 1 and tell them you want to sign up with their brand that morning and can they give you their best C/O price there and then verbally and you are checking prices with 1 other competitor and best tender wins. No ifs, buts or maybes and you categorically guarantee you will not shop their confidential best price to you. By this time you’re dealing with senior sales sharpening the pencil. Do the same with dealer 2 and then keep your word, even for $50 difference. You’re not talking telephone numbers with these low margin showroom fillers anyway. Sign with the best tender and courtesy call to the unsuccessful tender afterwards. Groundhog day in 4 years time

  20. wizofaus
    May 30th, 2008 at 09:52 | #20

    El Mono – both. And note I don’t particularly think killing the Australian car manufacturing industry is a bad thing, but ideally we should allow it to die out slowly, giving workers the time to retrain or retire out the business.

    Realistically however, governments (especially the ALP) are going to try to keep it alive no matter what.

  21. Ian Gould
    May 30th, 2008 at 10:45 | #21

    “It is interesting that water consumption has been reduced on a voluntary basis, very successfully, but people seem to think that a very very large tax is required for petrol.”

    I’ve yet to see any evidence that there’s been any public campaign urging people to cut their car use on the scale of the water-saving campaign here in Brisbane.

    Every night, dam levels were reported on the news. Every time you walked through the Queen Street mall there were massive billboards urging people to cut their usage with scary graphics of how low the dams were.

    We’re STILL getting major news coverage each month when the usage figures come out or the dam levels are updated.

    When we get daily reports on fuel sales and the government offering subsidies for engine tune-ups and bicycle purchases we might see movement on fuel use.

    Let’s face it, assume there was a war tomorrow and Australia’s petrol imports were severely disrupted, does anyone doubt we could cut fuel use drastically?

  22. El Mono
    May 30th, 2008 at 12:39 | #22

    I can see how a tax on a cars on fuel efficiency woud damage our car makes I am not sure that reoving the tariff on hybreds would be so sccessful in moving people to hybred cars that it would destroy australias petrol only cars. I am hwoever now thinking that remving the tariff on hybreds and highly effcient cars may discourage Austrlaian makers from making there own hybred/highky efficient models.

  23. May 30th, 2008 at 19:15 | #23

    observa – spot(ish) on. I see your schtick isn’t far from mine on buying in general.

    My newest car is a nice black 110,00k Mitsubishi Verada 2001 with the lot, leather, towbar etc. for $8,000. Suits me.

    Ms Fx is sticking with her old Volvo. Local ofspring with his 96 Commodore Acclaim.

    We don’t buy new cars.

  24. May 30th, 2008 at 19:19 | #24

    observa – your are right about not worrying about $100 or so- chicken feed. I drop a few hundred not to deal with some pricks at all.

    I paya premium to have servicing close by – easiest to drop in a say – fix this – rather than ring up and book in. No point saving $400 if you have to drive across town in traffic to get stuff worked out.

  25. May 30th, 2008 at 19:32 | #25

    obs – you forgot – initially indicate you might want “finance” then when all prices confirmed say – any discount for cash buddy? [a nice old fashioned vic market approach is very satisfying - pull roll of readies out of pocket]

    Always sets them on back foot as they will give better deals if they think they will be gouging you on finance.

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