Groan

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.

75 thoughts on “Groan

  1. I think that calling it a failure isn’t very fair, since they may well reject it, in which case it’s just a stupid idea that someone thought of (I see no reason why all taxes shouldn’t be reviewed from time to time, so on this basis it isn’t even so stupid) and stupid ideas get thought of all the time (just look at the recent 2020 summit). In addition, its hardly going to be an environmental disaster when prices are going through the roof anyway — Australia has lots of environmental problems, and a small difference in the petrol price is hardly going to make much difference (whether up or down).

  2. I’m afraid the Govt never occupied any real high ground on the environment, not that the current Opposition did, although it might have been slightly more honest in its overall approach. Oh there was some motherhood statements by Labor on the environment, but it lacked any real detailed explanation as to how that would be achieved and what would be expected of us all. Instead it was all about working families and playing to the gallery with cheap shots at traditional bogeymen like the oilcos and supermarket chains. That would inevitably lead to an expectation about some ‘implicit core promises’ on petrol and supermarket prices and the Govt’s inevitable pickle it finds itself in now-
    http://www.news.com.au/business/story/0,23636,23760532-31037,00.html
    A quandary similar to Howard on interest rates and one of their own making that Oppositions can exploit at will when the truth of the matter ensues.
    No we have the usual shallow political games being played out by Tweedledum and Tweedledee now. To avoid that would require a serious analysis of our underlying problems, a consequent policy blueprint to overcome them and a concerted effort by the committed to fully explain and bring the electorate along with that plan. Anything less and the shallowness and short term self interest of the players will easily be exposed, as it is now.

  3. Comparing Rudd with Nelson fails in that Rudd is the govt and Nelson is the opposition; Nelson is doing his job whilst Rudd has failed to deliver on his “central narrative” ie working to ease rising costs for working families

  4. ITYS.

    They haven’t done it yet, and if there’s some temporary dip in oil prices they might not have to. When the next run up in oil prices happens they may not have an opposition leader who is quite so opportunistic (read desperate).

    In the long run though, the politicians will cut fuel taxes. Survival is a politician’s #1 priority, sensible policy is a distance 2nd.

    ProfQ, this may be of intetest to you:
    James Hamilton: Understanding Crude Oil Prices.

    Chapters 5.2 – 6 read they could have been lifted from The Oil Drum. Is Professor Hamilton a reputable economist?

  5. Hamilton is certainly reputable, and this paper looks pretty good at a glance. OTOH, I disagree with him (he agrees with you) on the macroeconomic significance of oil shocks, which he blames for most US recessions.

  6. Yeah rog I think you’ve nailed it with ‘central narrative’ = implicit promise. They need to be cautious central narratives are deliverable and not set themselves up to fail. Where Labor can go now on raising carbon prices is beyond me.

  7. I don’t believe oil shocks cause most recessions, I believe they cause some recesssions.

    The stagflation of the 70s was most likely a result of an oil shock or two, but I don’t believe that high oil prices were the primary cause of recessions in the early 80s and early 90s, and certainly not true of the 2001 recession in the U.S.

  8. Petrol is too cheap at the moment because it does not have a carbon price (whether that be from a carbon tax or from a cap and trade system). Unfortunately, this has a somewhat regressive effect. Garnaut has the right idea when he states that some of the money raised from auctioning permits should be returned to households, especially low income households. This makes sense from both an equity perspective and a political perspective.

  9. My above comment is probably confusing. I meant that a carbon price has a regressive effect, rather than the absence of a carbon price (although climate change will be extremely regressive in its impacts but thats another matter).

  10. Not beyond a Machiavellian Opposition wedging Rudd between the short term 5c/L rollback of a GST bucket of money for his State Premiers and the long term cap and trade lifting of fuel prices by the looks of things. Looks like Turnbull has cottoned on to this rock and hard place game rather quickly though.

  11. As an optimist I am hoping that we are seeing some minor missteps, and that with a little more time in government there will be a more confident dealing with issues as they arise, rather than run around like headless chooks whenever the opposition hits the headlines for a moment with some nonsense or another.
    It seems that the Rudd people are still in an opposition mindset and are overreacting to anything that may seem a negative in the public perception.
    I think that the Government is underestimating the Australian public. People are well aware of the international price of fuel and should be hearing from the government more substantive proposals than currently, such as warning on that the necessity of using substantially less fuel is imperative.
    But it is right that this is a groan moment. This is my third groan. No. 1 Iran Bashing. No. 2 Silly art criticism (are young peoples bodies somehow automatically obscene?) No. 3 Not slapping down arrant nonsense from the opposition on fuel prices.
    And another smaller groan, more a sigh really, having a Labor prime Minister who believes in the supernatural world and its entities. But hey.

  12. Yes, Persse, Heraclitus didn’t trust people who “talk to walls”, either.
    No, the problem is with the mortgage belt also, and wedge tabloid politics reopening negotiations with them, to sell the rest of us out.
    Any one who watched Rudd on the ABC will remember him dealing with a young wealthy idiot who genuinely expected the whole country to be turned upside down, just to coincide with his wife’s biological clock.
    Like wise, they expect petrol prices to go down just so they can ego trip around in their v8’s and 4 wheel drives, regardless of any damage done to anyone else. So much the better if there was some was done, some of them secretly feel, if you the mentally and morally bankrupt idiocy of Milne, Shanahan, Bolt, Ackerman and so forth is a barometer
    Best to just remember there is a bi-election coming up and Nelson cannot sustain another defeat; hence all the “noise”, including the naughty photies cacophony.

  13. Given that dropping the GST on fuel excise would require agreement from all states and territories (= impossible) did Rudd set this up knowing it would fail, so he could undercut Nelson and blame the states? A manouevre worthy of the Rat if so.

  14. Sadly I must agree with JQ on every word of his comment. If the government can’t handle the political fallout of higher petrol prices now, what will they do after 2012 when the IEA forecasts that we will shift from a tight oil market to one where there is an actual shortage. (The IEA forecasts that after 2012 supply capacity will begin to fall, even including biofuel, and be exceeded by projected demand by 11%.) People who own gas guzzling 4WDs need to be told to buy a cheaper car, not subsidised.

  15. At the moment, for a small car driver, it’s still cheaper to drive than use public transport.
    Living in St Lucia, in Brisbane, a bus ticket to the city costs me $2.70 one way. For $5, and with a highly economical driving style, I can take my car back and forth about 5 times – seriously. That means I’m saving $2.20 every time i don’t use the bus. Even if you factor in registration and insurance it’s still cheaper to drive for a regular commuter.
    If Labor is committed to reducing the pressure caused by high fuel prices on “working families”, then start by giving them a economically viable alternative to driving for crying out loud!
    Maybe QLD can start by scrapping its ridiculous fuel subsidy and direct some funds to reducing public transport fares. And do away with those useless ticket inspectors, who don’t even have the authority to check your real name on your ID when they write you a ticket… GET REAL!

  16. If Persse and PW don’t want Rudd to listen to Turnbull now, then perhaps Rudd should have listened to Ferguson in the first place-
    http://www.news.com.au/story/0,23599,23765043-29277,00.html
    Don’t blame the media now for pointing out the obvious.
    As for leaders that ‘talk to walls’, where I come from, we much prefer them over ones that like talking about walls adorned with nude pictures of other mens’ 13 year old daughters. We were pretty much of the same view, should our 13 yr old daughters come home from school to proudly announce that their school’s new ‘artist in residence’ had taken some artististic liberties with them that day. It was fairly unanimously agreed we’d all be round at the school pronto getting those liberties back and then letting our creative juices flow, turning our creative friend into our artistic impression of the horrors of war. Our wives could please themselves.

  17. The IEA forecasts that after 2012 supply capacity will begin to fall, even including biofuel, and be exceeded by projected demand by 11%

    I’ve had 2012 pencilled in as the year TSHTF for some time now. If you look at the Wikipedia oil megaprojects database you’ll see there’s a fair bit of new capacity scheduled to come online over the next 3-4 years (which should offset declines from mature fields somewhat) but very little after 2012. Remember, big oil projects have 5-10 year lead times so the earliest a discovery made today would come online is ~2013, and recent discoveries are all in very challenging locations (e.g. Petrobas Brazil discoveries)

    Chris Skrebowski has been banging on about the lack on new capacity coming online for years now. No-one was listening 2 or 3 years ago, now the peak oilers are complaining about too much traffic bringing their web servers down.

  18. Carbonsink

    You are absolutely right about the lead times. Its just as bad for the public transport alternatives. There is already quite a backlog in supply of bus and train orders around Australia, thanks to underinvestment in the late 90s. the waiting list for trains is about 3-4 years, although thankfully Walkers EDI in Maryborough is opening a second production line. Even so, if politicians want more PT rolling stock in service from 2012, they need to order it right now. I can’t emphasise that point too strongly, but am dismayed that action seems missing from this round of budgets. This is a world wide problem too, so don’t expect a quick fix from foreign suppliers either.

  19. Gojod, only because you’re neglecting the cost of depreciation. Once you factor that in, public transport is surely cheaper. Of course, the only way to avoid depreciation is to not buy a car.
    Then you have to work out how practical it would be for you to live without owning a car – e.g. how feasible would it be to rent one when you really needed it?
    Unfortunately car rental is an expensive pain in the ass. There’s no real reason it needs to be that way, and there are some reasons to believe cars may end up becoming things that people occasionally rent, rather than bothering to own outright.
    It’s already starting to happen in big cities like London with good public transport.

  20. Socrates: Yes lead times … although I think you’ll find we’ll have plenty of big road projects finished just in time for $200/bbl oil 🙂

  21. “Living in St Lucia, in Brisbane, a bus ticket to the city costs me $2.70 one way. For $5, and with a highly economical driving style, I can take my car back and forth about 5 times – seriously. That means I’m saving $2.20 every time i don’t use the bus. Even if you factor in registration and insurance it’s still cheaper to drive for a regular commuter.”

    Gojed, that’s assuming you don’t try and park anywhere.

    Alternately you could walk to Toowong station (depending on where in St Lucia you live) and buy a single zone rather than a two zone bus ticket.

    Or you could do what I do and buy a two zone monthly bus ticket – unlimited travel for 30 days over most of Brisbane for under $90.

  22. Depreciation is only a factor in new cars; good second hand vehicles can be bought quite cheaply with 3 year warranty.

  23. Time is a factor with public transport, my experience is that you can allow +2 times that by car.

  24. Joan Kirner here we come again – I just hope at the end of it Kev doesn’t give his rendition of I Love Rock And Roll

  25. rog – we bought our 2nd hand car for about 40K 5 years ago, it’s now worth less than 30K (according to the RACV). That’s a cost of $2500 a year – still more than we spend on petrol.

  26. Oops, make that $2000 a year – which is admittedly slightly less than our typical annual petrol bill, and almost certainly will be this year.

  27. Bleh, ignore that…our petrol bill is about $1000 a year at current usage rates. Helped by the fact that neither I or my wife commute anywhere regularly.
    So depreciation is still by far the biggest cost of our car.

  28. Wizofaus

    Fuel is only the biggest cost for people with very big 4WDs, or who drive very big kms per week. The annual fixed charges on car usage – registration and depreciation – also mean that the marginal cost is far less than the average cost for most people. In effect average car owners all subsidise high-km users, who tend to over-consume this good.

    There are a lot of transport planners quietly hoping fuel prices stay high, as it will force a lot of behavioural changes away from current irrational patterns of transport demand. By irrational in this context, I mean things that greatly increase overall community costs, but persist because the marginal cost to the idnividual is too low.

  29. Socrates, I’ve argued before that if governments should anything, it’s to reduce the cost of buying a vehicle and getting on the road, and to encourage insurers to insure at least partly on a per-km-driven basis (CTP should be done likewise).
    In other words, drive down the average cost of having a vehicle and using when really needed, but drive up the cost of using it excessively.
    But I’m not sure anything can be realistically be done about the fact that depreciation is still the biggest cost for most car-owners.

  30. Well wizofaus, they have to get the message about depreciation on big cars vs small cars in that regard. A comparison on buying a 4dr auto 1.5 litre small car like the missus’ Colt and a similarly equipped 3.6L Commodore Exec should suffice here. In Aug 2004 they cost $18990 and $33160 respectively and the average trade-in price today via Redbook (taking the average km travelled of 80000k between their range of 60000-10000k)is $8700 and $9900 respectively. That’s a depreciation cost of $10290 and $23260 respectively, not to mention the stamp duty differential to start with, or the further interest penalty if you’re buying on credit. It aint rocket science folks!

  31. Not to mention that the Colt runs around at 6.5L/100km while the Commode would consume twice that, both sensibly driven, largely around town.

  32. Any discussion of public transport v’s car when boiled down to economics misses the big picture. People will pay a substantial price for the utility factor of owning a car. Leaving cost aside, public transport is never going to be as attractive as driving in your own. Public transport is inconvenient. People don’t like waiting for trains (especially on a cold wet Melbourne morning). They are invariably overcrowded at the times you want to travel. They take longer to get anywhere than by car when the total travel time is accounted for. They are smelly. You get jostled by rude people.

    In a car you are in your own space, it’s comfortable. Even in peak hour traffic when I’m driving home I feel like I’m back in my own time and space.

    The cost difference would have to be huge to get me to sell my car and take public transport. I don’t think I’m Robinson Crusoe!

  33. Andrew, have you ever lived in a city with good public transpoort?

    And of course you leave out all the downsides to owning a car: getting into accidents, getting stuck in traffic, having to regularly register it, insure it, get it serviced, clean it, put fuel in it etc. etc.

    On balance, I would be perfectly happy not owning a car. But only if I could afford to live in a part of the city well-served by good public transport, and if renting one when public transport wasn’t feasible was straightforward.

  34. Oh, as far as being in your own space goes – how is sitting on a train plugged into your favourite music not having to worry about the traffic not “being in your own time and space”?
    The few times I’ve been able to use public transport to commute to work I’ve thoroughly enjoyed it – it’s far less stressful, and I’ve usually been able to even work while travelling.

  35. Politicians around the world are lining up to cut fuel taxes:
    Sarkozy says EU should cap sales tax on fuel

    Meanwhile Gordon Brown comes out with the hilarious comment that its a scandal that OPEC controls 40% of the world’s oil. Gordon, the oil is where it is, mother nature put it there, there’s nothing anyone can do about it. Perhaps the UK should have considered that before burning through two-thirds of North Sea oil and gas in less than 40 years!

    The only one talking sense is good old George Monbiot

    King Abdaullah of Saudi Arabia

    Your Majesty,

    In common with the leaders of most western nations, our prime minister is urging you to increase your production of oil. I am writing to ask you to ignore him. Like the other leaders he is delusional, and is no longer competent to make his own decisions.

    You and I know that there are several reasons for the high price of oil. Low prices at the beginning of this decade discouraged oil companies from investing in future capacity. There is a global shortage of skilled labour, steel and equipment. The weak dollar means that the price of oil is higher than it would have been if denominated in another currency. While your government says that financial speculation is an important factor, the Bank of England says it is not, so I don’t know what to believe. The major oil producers have also become major consumers; in some cases their exports are falling even as their production has risen, because they are consuming more of their own output.

  36. I would have thought a reasonable political (as oppposed to rational) decision would be for Steele Rudd and cabinet to say something like:

    ” Ok its a pain for us all but what we can do is freeze GST at last years price – say $1.30 a litre – and no GST after $1.30″

    Wouldn’t effect GST income much and looks ok to punters?

    Public transport or walking or cycling is not always a substitute for car driving. [ and I think there are studies showing that bicycle commutes replace public transport commutes not cars]

    Not everyone is a healthy fit person under 60 travelling without any baggage (metophorically as well).

    How does a mum with 2 anklebiters ride a push bike 15ks on a rainy day to see the doctor or how does a son-in-law take his M-I-L to a friends place when shes got a dodgy hip – or just doing the bloody weekly shopping.

    I’m about to go to Melb CBD for some meetings from my suburban bolthole soon – if I was to go at peak hour I would take a total of 25 mins and an all day ticket of $6.50, from my front door, including walking to station, to train it in, walk at the other end, and be in the meeting sipping strong coffee and generously allowing others the benefit of my wisdom.

    If I have a meeting at 2.30pm and return at say around 8 pm then I have to add an extra 30 -45 minutes or more at each end of waiting in the cold due to train schedules.

    If I have to go say across town then the public transport trip would add at least 2 – 3 hours to journey time but to go by car is only 25 mins.

    Observa: I ‘ve never understood why people buy new cars. Depreciation is a killer and what could possibly be the difference between a modern auto with 20,000 or 40,000ks and one with 0 or 50ks?

    I’ve never had a new car purchased with my own money – fleet cars are a somewhat different case.

  37. Francis, why on earth would a mum with 2 anklebiters ride a push bike to the doctor, regardless of the weather?

    The point about cycling is not that everybody should be doing it, just that there is a huge number of fit healthy people making fairly short trips on their own that could just as easily use a bicycle.

    Cycling and public transport are only two of many many ways that people can quite easily cut down their petrol usage. Clearly they’re not suitable for everyone.

    In the case of mum’s with kids, just finding a closer doctor might be a good start. My wife insists on visiting a doctor that’s 10 minutes drive away, even though she doesn’t particularly like him, but just feels it’s “easier” because he knows her history. Once petrol is so expensive that it costs $10 to drive that sort of distance, she’ll find a new doctor pretty quickly.

  38. Oh and of course the point about public transport is that it’s not a good alternative for most people largely because the services that exist in Australian cities are so crappy.
    Again, I suspect you have to spend some time living in a city with good public transport to truly appreciate the benefit of it.

  39. Changing from car to bicycle or public transport doesn’t have to be for every person and every trip, but most people can pretty easily cut back on car driving some of the time. And it seems, according to today’s Age, that’s what they’re doing. Which is why even Melbourne’s admittedly crappy public transport system is full to bursting point.

  40. “I suspect you have to spend some time living in a city with good public transport to truly appreciate the benefit of it”

    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. If the clock ever got to 5 minutes, the Muscovites would start mass whinging – but this was a rare event. It cost 5 kopecks (about 1 cent at the unofficial exchange rate and about 5 cents at the official one) to go as far as you wanted to go – you only needed to insert the coin in the automatic gate on the way in. On the surface ran trams, trolleybuses and, out in the outer burbs, diesel buses. Because diesel buses were regarded as a substandard and uncomfortable form of transport, they only cost 2 kopecks. Fares were collected on an honour system with money and tickets passed up and down the bus (same system on trams and trolleybuses btw). However, as Andrew says, people value their private cars beyond all logic and the Muscovites were no different from Australians (and I presume still are) in longing for their own vehicles.

    Another observation on public transport usage: back in my student days I drove a cab for a bit of income. Contrary to popular belief, the big users of cabs are the least well off – primarily because they can’t afford cars I suppose. The busiest rank in Brisbane was the Inala shopping centre rank – cab drivers loved it because you never had to wait long for a fare and they were all short trips, meaning a high percentage of the takings was in the flag fall. By contrast, the Mt Ommaney shops rank a mere 5 km away was a waste of time for cabs – all the upmarket Mt Ommaney mums drove their own cars.

  41. wizofaus: I am mainly talking about Melbourne which has a pretty good PT structure compared to worldwide – but even in the best of all possible worlds theres no way that public transport can substitute for all car journeys. I’ve spent time also in NYC, SFX, Denver, Aberdeen and touristing in Dublin, Beijing and Taipei. Not all that different except NYC.

    Most PT “activists” assume everyone is like them; young fit tertiary educated single middle class person living in the inner suburbs with a nice comfy job in academia or somewhere. Not what most of us do.

    btw; how come your wife is so outrageous driving her car 10 mins to the doctor? She seems overdue for the re-education camp.

  42. No-one would expect public transport to substitute for all car journeys. And most public transport “advocates” I know are suburban families living in poorly-serviced suburbs like my own.

    I don’t bother trying to convince my wife to change doctor because petrol prices will eventually do it anyway. Or we’ll move.

  43. I remember visiting Vienna in 2005 and missing a train on the metro and having to wait an entire 7 minutes for the next one, usually it would be only 3 or 4…

  44. I was listening to one of the liberals it hink (the memebr for Sterling) talk about how the luxury car tax would make hybrids more expensive. I looked up hybrid prices and they are all around $37 000, (the luxury car tax is on cars worth 57 00 right?). I would be keen to remove the tariff on hybrids and better technolgies when they become available and if any hybrid, electric ect, cars are valued over $57 000 then they should be exempt from the luxury car tax.

    Better yet they should jus tax cars on the basis f fuel efficiency.

  45. El Mono, that would probably very quickly kill what’s left of the Australian motor manufacturing industry, so isn’t going to happen.

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