On Petrol Prices

The recent kerfuffle between the parties over who has the best strategy for cutting petrol prices – the Liberals pushing for “at least” 5 cents a litre cut in the excise, and the government considering lifting the double-tax of the GST on the excise – effectively cutting 3.8c – is astonishing in its short-sightedness.

The Liberals above all are aiming for populism, to say to the people that hey, we’re doing something real about petrol prices. The government appears to be aiming for a pragmatic populism – to say we’re doing something, but we’re not as reckless as the opposition, and we’re doing a “sensible” tax cut. Both appear to fail to acknowledge that the price fluctations could wipe out their cuts in less than a day.

Such crass appeals to populism have also eroded any faith I had in either party’s ability to lead, as it were – it would appear that we are now locked in a permanent state of electioneering, all moves vetted by polling. This permanent state binds the hands of the government to populist moves, and the paranoia of losing even a single percentage point of advantage is clearly so high that policies must be ajudicated on their appeal to the masses.

The current price rise is driven by both demand and speculation, with speculation particularly turning into a nasty feedback loop, but in a market driven economy this something that we must accept. Changing the system to take speculation out of it – effectively killing the futures market – reduces the ability to mitigate risks for many industries, such as the airlines, which would be about as popular as mud pies.

For one, the environment cannot afford petrol prices staying low, and higher petrol prices also encourage innovation for replacements for the primary use as a fuel. Given the number of other petrochemical products we depend on, oil isn’t going to go away as a resource, but taking out use as a fuel would flatline prices, and shift our focus. Innovation is a good thing.

It’s just up to someone with a little power now to show some leadership and accept higher prices cannot be avoided through paltry measures such as a 5 cent reduction in tax.

Ed: here’s some words from someone who actually knows something about all this junk.

7 Replies to “On Petrol Prices”

  1. While it is true that the suggestions are quite useless, the problem lies in the fact that there really ain’t much the government can do.

    They have absolutely no control in the prices of oil, they can’t force it down. The only thing they can do is cut excise, but the problem is that they can’t afford to.

    Sure, they can cut it by 5 cents, but you already mentioned that would get wiped out straight away. So what would be a reasonable cut? 10 cents? 20 cents? 38 cents? All of these options is ridiculously expensive for the govt and would result in a huge movement towards (and beyond) deficit in the budget.

    Given the current situation with inflation, they cannot afford to pump cash into the economy. And of course, while the excise might make petrol 38cent cheaper per litre, that doesn’t mean it won’t reach current prices and beyond – ie. benefits limited. So the net effect could be expensive petrol, huge deficit and more interest rate rises.

    Basically, the govt is powerless to do anything apart from appealing to the votes and pretend they can do something – which is exactly what they are doing now.

    As for innovations, I agree wholeheartedly that is the solution. Except for the fact that it’s far too late now and it won’t arrive in time to be a solution to the current oil price crisis – regardless of how much leadership there is.

  2. I guess my point has been mixed up here – I’m more for some leadership to say that no, there’s nothing the government can do, rather than all this faffing about pretending there’s something to be done.

    It’s like good parenting. People (kids) demand action (sweets), but the government (parents) needs to be able to turn around and say no, it won’t happen, and here’s why (your teeth will rot).

  3. Yeh, but unlike parents, you can decide to kick the govt away.

    It’s not in the govt’s interest to go, “tough it out mate, we can’t do anything… but please vote for us again next election”.

    Farmers and everyone else that relies on petrol for basic needs will not appreciate the “it’s for the best” talk when they can’t afford to drive to get food/groceries or go to work.

    That’s why the govt’s best bet on issues that can do absolutely nothing about is come up with popular policies and debate it endlessly until the underlying crisis actually disappears.

    Unfortunately for them, it does not seem like this is likely to happen, and definitely not anytime soon! Interesting couple of months for the govt I think. Must admit, out of all the recent terms of govt, this one has to be one of the hardest to manage – so a bit of bad luck there for Labour.

  4. Every crisis looks like it’ll never go away when you’re in the middle of it; look at what happened with the water shortages. Now we’ve got a useless $2 billion dollar desal plant which might never need to be turned on.

    What you’re saying there though is exactly my point on permanent electioneering – the government cannot act as though it is liable to get kicked out any minute, if only so it can actually get anything done. It can’t get kicked out for another three years, so if anything, right now is the time when they can actually show some balls.

    Not all people would appreciate the for-the-best sentiment, but when you’ve got sound logic behind it (it’ll cost $x hundred million, taking money away from hospitals/schools/baby pandas) and you appeal to a better sense of people than crass self-interest (the environment needs it), I think there’s a good chance of people listening.

    The collary also is that you offer alternatives – increase finance for public transport, encourage car pooling and penalise high-polluting cars even more, for example.

    The difference is appealing to individuals vs appealing to a community. Clearly though, Howard’s individualist approach is entrenched.

    Everyone was laughing at Nelson’s call to cut 5c, knowing it was stupid and irresponsible, but as soon as Labour dignified it with a we’re-looking-at-it populist answer a “serious” debate was on, with neither side really looking at the long-term economics of the thing.

  5. Permanent electioneering is a complete waste of resources and one of the main weakness of democracy. The govt is basically wasting time and energy to make itself looks good rather than offering a real solution.

    But fact is, there is no solution.

    People will only appreciate for-the-best sentiment, even with very sound logic, if it does not impact them personally too much. Will you be willing to walk 45 minutes to the train station, daily, to and back (so 1.5 hrs a day), rain or shine, so that you can reduce greenhouse? What if that wasn’t actually an option? What if the price of petrol is $10 a litre and even you can’t afford to drive. Would you be happy to hear the govt go : “tough it out mate, this is good for the environment”?

    Personally, I wouldn’t.

    Sure, petrol at $10 a litre is ridiculous, but imagine rather than petrol going up, my income went down by scale of 5. Now suddenly everything is costing far too much. And petrol, well, that’s way beyond what I can afford.

    The govt telling me that they’ve quadrupled the funding for public transport and the new train line will arrive in 1 years time is still not good enough. I’m screwed for the next 365 days.

    No one lives near me at where I work. And no one works near I do at where I live, so carpool’s out of the question. In fact, since I can’t drive, it’s always impossible for me to get to work on time. Chances are I’ll lose the job soon.

    And I already have a low polluting car.

    For these people, what can the govt do?

    This “crisis” does not concern you or me. You can afford the petrol to double again and still drive every day. To us, the govt’s wasting time and energy, but that’s because they ain’t trying to please us in the first place.

    All this discussion’s really gotten me interested in how the govt deals with this. I would be very happy to be proven wrong and that Rudd comes up with something. At the moment tho, I am doubting it.

    Oh, and that 2b desal plan? It might look stupid now, but when the next drought arrives (which no doubt it will), and rain doesn’t actually come back when our dams run dry, suddenly Morris will be hailed as a genius whose planning and vision saved the city. That’s the problem with governing, you can’t always make popular decision and things you do may seem very stupid at the time. I’m not saying the plan is a good idea, I am sure there are better alternatives, but I am applauding the fact he at least did something about it rather than saying “well it’ll rain and our dam will be full again”. We might not be so lucky in the next drought!

  6. Stopping permanent electioneering also takes leadership – the ability for someone to say, hang on, we’ll get this stuff done before focusing on getting re-elected later in the process. Fixed 4 year terms wouldn’t hurt, for one.

    People will only appreciate for-the-best sentiment, even with very sound logic, if it does not impact them personally too much. Will you be willing to walk 45 minutes to the train station, daily, to and back (so 1.5 hrs a day), rain or shine, so that you can reduce greenhouse?

    Again, my point above: this is an appeal to individualism. We need to be able to rise above it.

    What if that wasn’t actually an option? What if the price of petrol is $10 a litre and even you can’t afford to drive. Would you be happy to hear the govt go : “tough it out mate, this is good for the environment”?

    Personally, I wouldn’t.

    I’d be quite happy to hear that, actually. If the environment goes to shit, it doesn’t matter that we can still afford to drive around, there won’t be anywhere worth driving to. I haven’t taken my car to the station since the start of 2007 – it used to take me 20-something min to get to the station, but now it’s only 15, so I’ve gotten fitter/faster: personal benefit.

    The fact is in a market economy these things would shake out. If the price of petrol is $10 a litre, suddenly even a slow little electric car makes sense.

    Sure, petrol at $10 a litre is ridiculous, but imagine rather than petrol going up, my income went down by scale of 5. Now suddenly everything is costing far too much. And petrol, well, that’s way beyond what I can afford.

    It’s a completely ludicrous and irrelevant argument, but let me point out again, the market economy. The government doesn’t determine your salary, and if your salary is reduced to a fifth of what you were previously earning, you’ve either got to find a new job or reskill to something where you can earn what you want. It’s not the government’s job to subsidise your lifestyle

    The govt telling me that they’ve quadrupled the funding for public transport and the new train line will arrive in 1 years time is still not good enough. I’m screwed for the next 365 days.

    Increasing public transport doesn’t need a big-bang approach – increased bus services feeding train stations, for example, would be step 1.

    No one lives near me at where I work. And no one works near I do at where I live, so carpool’s out of the question. In fact, since I can’t drive, it’s always impossible for me to get to work on time. Chances are I’ll lose the job soon.

    Carpooling doesn’t need for the people you’re pooling with to be working in the same office – if someone dropped you off at Wynyard, for example, that’d be good enough.

    The thing that you’ve got to recognise is that lifestyle changes will need to be made. The current style is unsustainable.

    For these people, what can the govt do?

    Why does the government need to do anything? Petrol prices are out of its control, and it shouldn’t perpetuate any illusion to the contrary. Given we’ve widely tipped to have passed “peak oil”, it can only get worse – so either you hold back until it snaps and overwhelms, or you adapt to change as it comes.

    This “crisis” does not concern you or me. You can afford the petrol to double again and still drive every day. To us, the govt’s wasting time and energy, but that’s because they ain’t trying to please us in the first place.

    I can’t afford that. Driving would essentially be a luxury – I’d change my lifestyle to adjust, and I’m suggesting other people need to, too.

    Oh, and that 2b desal plan? It might look stupid now, but when the next drought arrives (which no doubt it will), and rain doesn’t actually come back when our dams run dry, suddenly Morris will be hailed as a genius whose planning and vision saved the city. That’s the problem with governing, you can’t always make popular decision and things you do may seem very stupid at the time. I’m not saying the plan is a good idea, I am sure there are better alternatives, but I am applauding the fact he at least did something about it rather than saying “well it’ll rain and our dam will be full again”. We might not be so lucky in the next drought!

    See, I think the desal plant was a populist decision. People were far more averse to either increased water restrictions or to having recycled water. The desal plant should be a last-resort solution, as it is one of the most expensive, both pollution- and energy-wise. The other point is that the trigger level of 30% was never reached, and in an attempt to look like it was actually “doing something”, the NSW government decided it would just go with it.

    Recycled water, reducing leaks and stormwater harvesting solutions are things which don’t have the headline-grabbing impact of the desal plant, but offer alternative solutions to the problem.

    The other fact is that again, our lifestyle is something that is driving our water usage. Go to some of the poorer places around the world and see how they make do with far less – efficiency driven out of necessity. If we continue to dodge this driving factor through wasteful solutions, we’ll continue to delude ourselves until it all breaks down.

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