Last week the Prime Minister talked tough about petrol
prices. She quite earnestly said, "I am hugely concerned at the level
of price that consumers are currently paying at the pump for fuel" and
that motorists were being "fleeced" at the pump.
The bottom line is that the
Government intends to rush through changes to the Commerce Act to allow the
competition watchdog to investigate the margins on fuel. The findings will be
reported back to the government next year and the PM has assured motorists that
she will "prioritise a response to it".
I don't disagree that
motorists are being "fleeced", but it’s not by service stations. The
PM's tough talk comes just days after central government imposed a new excise
tax adding another 4 cents onto the price of petrol.
The
Automobile Association estimates that around 50 percent of the pump price is
tax. The other half pays for the product and the retail margin. In other words,
$50 of a $100 fill at the service station goes to central government to pay for
roads, ACC, and the emissions trading scheme to combat global warming. In
addition, Aucklanders have to pay an extra 10 cents a litre as a Regional Fuel
tax.
In
calling for the inquiry, the Government is conveniently turning a blind eye and
deaf ear to the tax of fuel and instead focussing its rhetoric on petrol
retailers - implying they are greedy because they have a profit motive. The
presumption is that retailers are, in the words of the PM, "fleecing"
motorists to make excess profits. The retailer’s margin pays transport, staff
costs, overheads and the retailer's profit which is a reward for their effort
and risk, and a return on their capital.
It's not obvious why a formal
investigation is required and why the PM would have any doubt about the margin
retailers are making. Petrol pricing is very transparent. The Ministry of Business, Innovation and
Employment carries out weekly monitoring of prices and margins, and publishes
the results on its website. That data shows the average retail margin has
increased from 24 cents a litre in 2014 to 30 cents today. That increase is
hardly surprising given costs like wages are on the rise.
It is pretty clear why petrol
prices are at a record high.
- Government taxes on
petrol are at an all-time high, and are increasing.
- The kiwi dollar is
falling, so it costs more to buy crude oil which trades in US dollars. In
the last 12 months the kiwi dollar has fallen from 72 cents to 65 cents
against the US$, and
- Crude oil prices have
been rising. In the last 12 months it has increased from U$54 to US$81 a
barrel. (There are 159 litres in a barrel.)
In
2007 the Australian Competition & Consumer Commission carried out a
detailed inquiry into the petrol market in Australia. They found the Australian
market is fundamentally competitive, although they had concerns about a lack of
competition in some regions. That investigation was reviewed by the NZ Commerce
Commission in 2008. They came to the view that a NZ inquiry would produce the
same conclusions.
It's
stating the obvious to say competition is good for consumers. Gull has had a
major impact in bringing competition into the sector and reducing retail
prices, by about 10 cents a litre in the regions where it operates. Gull
imports refined fuel which it bulk stores in Mount Maunganui. From there it
distributes it to its outlets via road. Distance limits the viability of its
reach, which is why it does not operate in Wellington and the South Island.
If
the government wanted to increase retail competition here are a couple of
things it could do:
- Promote independent ownership of bulk fuel storage facilities,
thereby enabling retailers to source fuel more widely. As a result, Gull
and others would be able to source bulk supply closer to the retail market
and compete in more locations.
- Require service stations to live-stream pricing and allow
comparative pump price sites like Gaspy to tap into the feeds.
In my view, the PM’s inquiry is simply a political tactic to deflect the
blame for high petrol prices from the government to retailers. The 10
cents or so that could be gained from increasing competition will not only be
limited to the regions that are not already highly competitive, but is
insignificant when compared to the existing taxes on fuel - and the new ones
they are proposing.
Proposed new government charges include an increasing the motor
vehicle ACC
levy by 2.2 cents per litre, and two more 4 cents a litre excise tax increases – one in 2019 and
the other in 2020. Further increases in the ETS levy are also likely as part of
the Government’s zero carbon policy.
So, what will the inquiry into petrol prices
achieve? The same as the other enquiries: Nothing. The inquiry is
primarily a political distraction from the finger being pointed at the main
contributor to rising petrol prices - the government itself.
Frank
Newman, an investment analyst and former councillor on the Whangarei
District Council, writes a weekly article for Property Plus.
5 comments:
The "elephant in the room" is that the margins cited as having risen are based on the posted price of petrol - the one in lights at each station. However, at the same time as the alleged 'margin' on posted prices has risen, so has the number of people receiving discounts on that posted price, via supermarket discount coupons and retailer loyalty schemes. I can't recall the last time I actually paid the posted price when filling the tank. It makes no sense to base the assessment of sector profits on such margins - what matters are the actual profits recorded by the firms themselves - when paying taxes and dividends to shareholders. Ironically, at the same time that the alleged 'fleecing' has occurred, one firm - Z Energy - has increased its market share substantially. The high-performing New Zealand Superannuation Fund is a significant shareholder. If there are in fact super-profits being made at the pump, who is the ultimate beneficiary?
A well written article. Thank-you Frank.
The aim of course is to force the public that can be forced, into public transport. Sounds great until you use the other half of your brain that tells you all consumable goods are transported to their destination which means cost inflation will eventually cripple the economy. Never mind, when that happens we can demand another inquiry..
Aunty Podes here ...
I assume you are all noticing, as I am, that prices of every-freeking-thing that is transported (can't find much that isn't either) is leaping up?
And it is all thanks to HRH Taxinda breaking her promise on taxes.
The rich are concerned - but not desperately affected ...
But HRH's electorate is bleeding heavily.
The question is - will the silly beggars realise that HRH needs to tax ALL of us through the nose in order to buy THEIR votes?
I rather doubt it - but - while there's life - there's hope!
Frank you know why the government are charging tax on petrol and anything else they can charge tax on, they have to run a country which is being compromised by the Billions they pay to the tribes every year, which the general public know little about, perhaps the standard of living for everyone might then improve.
Thats where the enquire should be certainly my whanau do not benefit from it.
Well here it is 9 November and the price of petrol has dropped in just over a week by 15 cents per litre in Paraparaumu. Which comes hot on the heels of the Government announcing that they are going to force Oil companies to hand over the data. One can't help but look at this and see the b*stards are starting to run scared.
Post a Comment